REG - Nanoco Group PLC - Interim Results
12/04/2022 07:00
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RNS Number : 0293I Nanoco Group PLC 12 April 2022
12 April 2022
NANOCO GROUP PLC
("Nanoco", the "Company" or the "Group")
Interim Results
Nanoco Group plc (LSE: NANO), a world leader in the development and
manufacture of cadmium-free quantum dots and other specific nanomaterials
emanating from its technology platform, announces unaudited Interim Results
for the half year ended 31 January 2022 ("the Period" or "H1 FY22").
Operational Summary
· Two additional work packages for the delivery of an enhanced and
scaled up version of Nanoco's technology with our significant European
electronics customer (one post Period end)
· Technical and commercial milestones delivered in full on important
sensing project for Asian chemicals customer
· Consolidating activity in Runcorn in anticipation of commercial
production whilst also delivering sustainable cost savings
Samsung Litigation
· Our litigation against Samsung continues in line with expectations and
our confidence in a positive outcome for the company has increased
· Decision from Patent Trial and Appeal Board on validity of five
patents due by May 2022
· Expected trial date in H2 CY22 for the alleged wilful infringement of
the Group's IP by Samsung
Financial Summary
· Revenue and other operating income increased 21% to £1.3m (H1 FY21:
£1.1m)
· Cost savings and additional gross profit improve Adjusted LBITDA to
£1.1m (H1 FY21: loss £1.5m)
· Average net monthly cash burn reduced to £0.3m (H1 FY21: £0.4m)
· Period end net cash of £1.8m, increased to £2.6m at February 2022
month end with receipt of tax credit and major customer payment in February
· Cash runway extended to H1 CY23 as commercial milestones achieved.
Anticipated commercial production and pipeline conversion could extend cash
visibility.
Brian Tenner, Chief Executive Officer of Nanoco Group plc, said:
"Good progress has continued on a number of fronts throughout the Period, with
extremely encouraging progress on manufacturing scale-up which has the
potential to lead to our first commercial production orders. Our operational
efforts therefore now focus primarily on scale up activities and
re-commissioning our Runcorn production facilities. In parallel, we continue
to provide an expanding range of materials to a number of customers for
multiple potential use cases.
"Given the progress towards commercialisation, we have taken the decision to
consolidate all of our activities onto our Runcorn production site. This will
bring our excellent R&D and process scale-up activities alongside
commercial production, reflecting the change in emphasis from research to
commercial production. This also has the benefit of reducing our cost base by
around £0.7m per annum, once the Manchester site is fully vacated.
"The litigation against Samsung for the alleged wilful infringement of
Nanoco's IP and the Inter Partes Reviews (IPRs) of our patents continues to
progress well. We look forward to a confirmation of the validity of our
patents by the PTAB in May 2022 and expect the Texas trial to be re-scheduled
shortly thereafter for a date in the second half of CY22.
"The Board is convinced of the significant value that can be generated in the
short to medium term by our strengthening commercial prospects and further
positive momentum in our IP litigation against Samsung. In co-locating all of
our activities into a re-commissioned Runcorn site we are building the
strongest possible foundation to support a transformation in shareholder value
in the short to medium term."
Analyst meeting and webcast details
A conference call and webcast for analysts will be held at 10:00am (UK time)
this morning (12 April 2022):
Dial in: +44 (0)330 165 4012
Link: https://webcasting.brrmedia.co.uk/broadcast/6246f81be1d0d456b32a17b3
(https://webcasting.brrmedia.co.uk/broadcast/6246f81be1d0d456b32a17b3)
PIN: 5542733
For further details please contact MHP Communications on 0203 128 8990 or at
nanoco@mhpc.com (mailto:nanoco@mhpc.com)
A recording of the webcast will also be made available on Nanoco's website
www.nanocotechnologies.com, later today.
For further information, please contact:
Nanoco Group
PLC:
+44 (0) 161 603
7900
Brian Tenner, CEO
Liam Gray, Company Secretary
Peel Hunt:
+44 (0) 20 7418 8900
Edward Knight
James Smith
MHP
Communications:
+44 (0) 203 128 8990
Reg Hoare
Pete Lambie
Charlie Protheroe
nanoco@mhpc.com
The person responsible for arranging for the release of this announcement is
Liam Gray, Company Secretary.
FORWARD LOOKING STATEMENTS
This announcement (including information incorporated by reference in this
announcement) and other information published by Nanoco may contain statements
about Nanoco that are or may be deemed to be forward looking statements.
Such statements are prospective in nature. All statements other than
historical statements of facts may be forward looking statements. Without
limitation, statements containing the words "targets", "plans", "believes",
"expects", "aims", "intends", "will", "may", "anticipates", "estimates",
"projects" or "considers" or other similar words may be forward looking
statements.
Forward looking statements inherently contain risks and uncertainties as they
relate to events or circumstances in the future. Important factors such as
business or economic cycles, the terms and conditions of Nanoco's financing
arrangements, tax rates, or increased competition may cause Nanoco's actual
financial results, performance or achievements to differ materially from any
forward looking statements. Due to such uncertainties and risks, readers are
cautioned not to place undue reliance on such forward looking statements,
which speak only as of the date hereof. Nanoco disclaims any obligation to
update any forward looking or other statements contained herein, except as
required by applicable law.
Notes for editors:
About Nanoco Group plc
Nanoco (LSE: NANO) harnesses the power of nano-materials. Nano-materials are
materials with dimensions typically in the range 1 - 100 nm. Nano-materials
have a range of useful properties, including optical and electronic. Quantum
dots are a subclass of nano-material that have size-dependent optical and
electronic properties. The Group produces quantum dots and other
nano-materials. Within the sphere of quantum dots, the Group exploits
different characteristics of the quantum dots to target different performance
criteria that are attractive to specific markets or end-user applications such
as the Display, Sensor and Electronics markets. An interesting property of
quantum dots is size-tunable absorption spectrum. Nanoco's HEATWAVE™ quantum
dots can be tuned to absorb light at different wavelengths across the
near-infrared spectrum, rendering them useful for applications including image
sensors. Another interesting property of quantum dots is photoluminescence:
the emission of longer wavelength light upon excitation by light of a shorter
wavelength. The colour of light emitted depends on the particle size. Nanoco's
CFQD® quantum dots are free of cadmium and other toxic heavy metals, and can
be tuned to emit light at different wavelengths across the visible and
infrared spectrum, rendering them useful for a wide range of applications
including displays, lighting and biological imaging.
Nanoco was founded in 2001 and is headquartered in Manchester, UK, with a US
subsidiary, Nanoco Inc., in Concord, MA. Nanoco continues to build out a
world-class, patent-protected IP portfolio generated both by its own
innovation engine, as well as through acquisition.
Nanoco is listed on the Main Market of the London Stock Exchange and trades
under the ticker symbol NANO. For further information, please visit:
www.nanocotechnologies.com (http://www.nanocotechnologies.com) .
Business Review
Overview
Good progress has continued on a number of fronts throughout the Period.
Critically we have met all technical milestones for our important European
electronics customer. These successes led to further extensions of the
development programme into its next stages both during and shortly after the
Period. As a result, we anticipate revenue in H2 being at least in line with
H1, with scope for further upside from existing opportunities that can be
captured during the second half.
We continue to balance the delivery of technical and commercial deliverables
with close oversight of our cost base. Shortly after the Period end, we
concluded our exit from one floor of our Manchester facility and initiated a
project to re-locate our R&D and scale up activities to our Runcorn
facility. Bringing together R&D, scale up and production on one site will
facilitate the transfer of new materials to the production phase as we prepare
Runcorn for potential production order visibility in H2 of calendar year 2022.
Once the Manchester site has been fully exited, annualised savings will amount
to around £0.7m, reducing our recurring cost base to around £4.0m per annum.
Our litigation against Samsung continues in line with expectations and our
confidence has increased further following the oral hearings conducted as part
of the IPR process. The Board looks forward to a successful outcome to the
IPRs in May 2022, and relishes the opportunity to put our case to a Texas jury
later this year. A successful outcome to the litigation process will
significantly enhance shareholder value in the short to medium term.
Sensing materials
We achieved all of the development milestones in the Period relating to our
European customer project for sensing materials. Shortly after the end of the
Period, we agreed a further extension to the collaboration that includes
scaling up the latest version of the technology. This is further welcome
progress towards our medium term strategic goal of re-balancing our revenue
towards recurring commercial production rather than services revenues. We look
forward to potential visibility of commercial production orders in the second
half of calendar year 2022 with a number of different materials being ready
for production at that time.
We have also successfully developed a new material for a very significant
Asian chemical company. We are now working with the customer to evaluate the
material, its performance, and the system necessary to be able to move the
product into the next phase of development. The Asian company participates in
a number of very large global electronics supply chains that have the capacity
to significantly increase our channels to market.
Other smaller relationships also continue to be formed in parallel as interest
grows in the application of value adding nano-materials to sensors, in
response to mega-trends seen in electronics, automotive applications,
automation and the Internet of Things more generally.
Our R&D efforts in sensing materials also continued throughout the Period.
We are now able to offer different material sets and also new materials that
are capable of absorbing much longer wavelengths of infrared light at
specifically targeted bands and have added a new material during the Period.
Display materials (CFQD® Quantum Dots)
The current market for displays using quantum dots remains dominated by
Samsung who have an estimated 90% share. The 10% held by other market
participants which includes cadmium based systems is likely to grow in the
short term and should see a move to cadmium free quantum dots as more
countries limit the use of cadmium. Nanoco believe that anyone wishing to
manufacture cadmium free quantum dots at scale will require a licence to our
IP. The demand for material or licences from Nanoco is therefore closely
linked to the outcome of the litigation against Samsung.
We continue to pursue small scale development projects with a number of
customers in display opportunities and also in adjacent markets such as
horticultural applications where cadmium free quantum dots lack of toxicity
provides a clear commercial advantage.
We retain our core capabilities to deliver R&D services, scale up and
commercial production of cadmium free quantum dots' from our Runcorn facility.
We are therefore well positioned to take advantage of any broadening in the
adoption of non-toxic quantum dots.
Life Sciences
The Life Sciences team secured a grant from Innovate UK, the UK's innovation
agency, for a life sciences project to develop a heavy metal-free quantum dot
testing kit for the accurate and rapid visual detection of SARSCoV-2
("Covid-19"). The project builds on Nanoco's existing capabilities in
utilising quantum dots conjugated with anti-bodies as a diagnostic tool in the
detection of cancer (VIVODOTS® nanoparticles). The project focussed
specifically on anti-bodies for Covid-19.
The project has achieved all of its technical milestones and we have delivered
a working prototype and further demonstrated the applicability of quantum dots
in the diagnostic market. However, given the crowded space in the Covid-19
diagnostics market, and the diminishing demand, we think it is unlikely to
lead to commercial orders. The project is due to be completed by May 2022. If
we are unable to find additional funding for the project, the IP will be
protected and further development activities will be paused while we continue
to seek partners to collaborate with in commercialising the technology.
Operations and staff
We completed the exit from the first floor of our Manchester facility shortly
after the Period end. We have also now started a project to exit the remainder
of the Manchester facility and to co-locate our R&D, scale up and
production capabilities on our Runcorn site. Locating all of our staff and
activities in one site in preparation for potential commercial production in
the short term will also bring a number of operational and organisational
benefits as well as reducing our cost base. The net benefit of exiting both
floors of Manchester will be annualised savings of approximately £0.7m and,
importantly, will be delivered without any loss of capability. We do not
intend any headcount reductions as part of the site consolidation project.
During the Covid-19 crisis, we continued to focus on protecting the health,
safety and wellbeing of our employees while mitigating ongoing economic
challenges. We have put together a series of measures that allow us to
continue to meet customer needs and these will continue as necessary following
the site consolidation project. The Runcorn facility has enough space for all
of our activities and the CFQD side of the plant will be taken out of mothball
to support R&D and scale up of both CFQD® Quantum Dots (display) and IRQD
(sensing) materials.
Defending our Intellectual Property portfolio - Samsung litigation
As a UK-based business specialising in the design, scale up and manufacture of
novel nano-materials, it is critical that we take steps to protect our
platform technology and our IP portfolio that underpins it. Historically, the
Group worked collaboratively with Samsung on developing enhanced quantum dots
based on our unique and patented CFQD® Quantum Dot technology and associated
IP. We were understandably disappointed when Samsung ended the collaboration
and launched its QD-based televisions without entering into either a licensing
or supply agreement with Nanoco.
We initiated an IP infringement lawsuit against Samsung on 14 February 2021.
Subsequently, the Patent Trail and Appeal Board (PTAB) initiated Inter Partes
Review (IPRs) of the validity of the five patents in the lawsuit in May 2021.
The lawsuit and IPR processes are both funded by a third party who will
receive a multiple of their invested capital if the law suit is successful.
We have already had a successful outcome to the claim construction hearing
(also known as a 'Markman' hearing) which was held on 26 March 2021. We won
the argument on four of the five patents in the case and the fifth had each
side win one construction each. A Markman hearing is used to establish the
Judge's interpretation of certain words or phrases pertinent to the patents
and the case. These definitions can be important to either side's arguments
but not necessarily so.
The result of the IPRs is expected in May 2022. The Board is very pleased with
the progress of the IPR process, including the recent oral hearing, and is
confident that the outcome will confirm the validity of Nanoco's patents in
the case. Following a successful outcome to the IPRs, we expect the judge in
Texas to promptly lift the stay on the case and reschedule the trial,
potentially for later in the second half of 2022.
Nanoco will need to win both the trial and relevant IPRs to be successful
overall. A successful outcome to the IPRs will be a significant confirmation
of the validity of Nanoco's patents (even if Samsung lodge an appeal). To win
at trial Nanoco has to overcome three hurdles: firstly to prove the validity
of the patents; secondly, to prove the infringement of the patents by Samsung;
and then thirdly, to prove the most appropriate economic model for any damages
award. Winning the IPRs will effectively overcome the first hurdle (validity)
and allow the trial and jury to focus on infringement and damages.
If Nanoco is successful at trial and in any IPRs, normal judicial appeals
processes are available to the losing party. It could therefore take longer
for any successful verdict and damages award to be enforced while the judicial
and PTAB appeals processes are exhausted. However, a favourable trial verdict
would enhance Nanoco's options to start further litigation in other
territories covered by our IP and potentially in territories where the legal
process is faster, costs would be lower and where injunctions are more
commonly granted in addition to damages (in the USA injunctions are much
harder to win following the Supreme Court ruling in eBay Inc. v. MercExchange,
LLC (https://www.supremecourt.gov/opinions/05pdf/05-130.pdf) , 547 U.S. 388
(2006)).
The Board expects that Nanoco will retain the majority of any award or
settlement arising from the case in most likely outcome scenarios, with the
percentage proportion going to advisers in success fees reducing as the
absolute award grows. While it is not possible at this point to predict the
amount of any award or settlement due to the number of variables in play, the
lawsuit does have the potential to generate substantial upside for
shareholders.
The Board continues to monitor other market participants who may be infringing
our IP and, subject to the outcome of the Samsung litigation, they will be
pursued vigorously.
Outlook
Given the history of the Company and the false dawns we have faced, we are
naturally cautious but increasingly optimistic. We continue to make strong and
steady progress in developing new nanomaterials for use in a wide range of
potential sensing applications. Our major customers have extensive market
reach which creates potentially significant 'pull' on demand for our
materials, once the end users have confirmed adoption of the technology. We
continue to engage with a number of other potential customers for sensing,
display and lighting applications.
The lawsuit against Samsung is progressing well and two key value inflection
points are expected during 2022: the outcome of the IPRs in May 2022 and the
jury trial in Texas in the second half of 2022. The Board is confident both
events will vindicate the defence of our IP. To preserve this value it is
critical that we protect the financial position of the Company and our cash
runway is currently adequate to pass both inflection points, subject to new
customer orders with contingency plans available if needed.
The macro-economic environment and global trends in electronics, automotive
applications, automation and the Internet of Things remains very promising for
our value enhancing nanomaterials. The potential proximity to our first
commercial production orders is extremely encouraging. The Board is confident
that significant shareholder value can be delivered from both the organic
commercial business and a successful outcome to the Samsung litigation.
Dr Christopher Richards
Brian Tenner
Chairman
Chief Executive Officer
12 April
2022
12 April 2022
Financial review
Revenue
Revenue and Other Operating Income in the Period increased 21% to £1.3m (H1
2021: £1.1m). Revenue was £1.1m (H1 2021: £1.0m), the majority of which
relates to the important development work on sensing materials throughout the
Period.
Sources of revenue H1 FY22 H1 FY21 FY21
£m £m £m
Services 0.7 / 63.1% 0.7 / 71.1% 1.3 / 62.3%
Material sales 0.3 / 32.0% 0.3 / 24.1% 0.7 / 32.8%
Licence & royalties 0.1 / 4.9% 0.0 / 4.8% 0.1 / 4.9%
Total revenue 1.1 / 100.0% 1.0 / 100.0% 2.1 / 100%
The table continues to show the importance of services income, generated
primarily from one important electronics customer in the current and prior
year. Material sales represents continued shipments of nano-materials to
supply chain partners in sensing and display markets.
Other operating income was £0.2m (H1 FY21: £0.1m) which, as in the prior
year, was generated from grant income earned by our Life Sciences team.
Operating expenses
Operating expenses comprise R&D and administrative expenses. Gross
investment in R&D to support the ongoing development of our nano-materials
was £1.0m in the Period (H1 FY21: £1.2m) and administrative expenses were
£2.3m (H1 FY21: £2.4m). Our costs reduced through a combination of:
· incremental headcount reductions delivered during the prior year;
· reduction in patent maintenance costs from active management of the
IP portfolio; and
· general cost control across a range of expense types.
With the exit from the first floor of our Manchester facility in April 2022
and the expected exit from the Ground floor during FY23, we estimate that our
annual cost base will fall from its current £4.8m p.a. to just over £4.0m
p.a. with a direct beneficial impact on lowering our breakeven point for
revenue.
Operating loss and Adjusted LBITDA
The combination of higher revenue and the continued focus on cost control led
to a 19% reduction in our operating loss in the Period to £2.1m, an
improvement of £0.5m. Adjusted LBITDA in the Period also improved by £0.4m
(27%).
H1 FY22 H1 FY21 FY21
£m £m £m
Operating loss (2.1) (2.6) (5.0)
Share-based payment charge 0.4 0.3 0.4
Adjusted operating loss (1.7) (2.3) (4.6)
Depreciation 0.3 0.3 0.5
Amortisation 0.2 0.3 0.6
Impairment 0.1 0.2 0.6
Adjusted(*) LBITDA (1.1) (1.5) (2.9)
Management monitor Adjusted(*) LBITDA as it is a close approximation for
operating cash flow which is considered a KPI at a time when the Group is
closely managing its cash resources. The non-cash charges for share based
payments, depreciation and amortisation are added back to the operating result
to arrive at Adjusted LBTIDA. These are therefore excluded to provide users of
the accounts with a clearer understanding of underlying business performance.
We remain mindful of the Group's restricted cash resources and continue to
scrutinise all categories of cost with new savings opportunities being
identified and captured on a regular basis. Current initiatives underway are
aimed at reducing the Group's monthly cash costs to around £0.35m.
Taxation
The Group continues to make R&D tax credit claims on its qualifying
expenditure by surrendering losses for cash credits. The tax credit for the
Period is estimated at £0.3m (H1 2021: £0.4m). The amount receivable at 31
January 2022 was £1.0m (H1 FY21: £0.4m), which is the accrual for the Period
and the prior year tax credit of £0.7m which was received shortly after the
Period end in February 2022.
Net result
The loss after tax for H1 FY22 was £2.1m (H1 FY21: loss of £2.3m).
Earnings per share
The basic loss per share was 0.67 pence per share (H1 FY21: loss of 0.74 pence
per share). As at 31 January 2022 there were 307,161,404 ordinary shares in
issue (31 July 2021: 305,699,102) including shares held in treasury.
Cash position and liquidity
During H1 FY22, the Group generated an improved net cash outflow of £2.0m (H1
FY21: £2.3m) to leave a cash balance of £1.8m. This was despite the slightly
delayed receipt of the Group's R&D tax credit in February 2022 (FY21
received in January 2021) and a similarly short delay in the receipt of a
major customer payment (together just over £1.0m). This is reflected by the
February month end cash balance having risen to £2.6m.
Expenditure on fixed assets represents a normal level of maintenance type
capital expenditure.
Intangibles expenditure was £0.1m (H1 FY21: £0.2m) and related to patent
costs.
Working capital
As previously announced, the lawsuit against Samsung is not having any adverse
impact on the Group's cash flows as the costs of the case are being funded by
a third party funder in return for an upside that is contingent on a
successful outcome to the litigation. The Group's working capital can be
adversely impacted by delays in customer payments as was the case at the
Period end when a relatively large receipt arrived past its due date and after
the Period end (£0.35m). Raw material supply chains are lengthening and the
Group is reviewing options to increase the amount of raw materials on hand to
ensure continuous supply for our customers.
Brexit
The UK's Brexit deal with the European Union removes the threat of tariffs on
chemicals exports (our primary export) and other impacts on additional
administrative tasks have continued to be minimal.
Covid Pandemic
Through proactive and flexible management of our work force the Group
continued to deliver services to our customers with little or no disruption.
Our staff remain committed to these efforts and we were able to maintain
Covid-19 secure customer-focused output in both of our facilities, meeting all
technical milestones and material deliveries on time.
Principal risks
The Directors have considered the principal risks which may have a material
impact on the Group's performance. The risks remain as disclosed in pages 27
to 29 of the 2021 Annual Report and Accounts.
The principal over-arching strategic risk to the Group remains that it
exhausts its financial resources before it can achieve a self-financing level
of commercial production and service revenue.
The Group is actively engaged in negotiating a number of commercial
opportunities with new and existing customers. If contracts are agreed, these
opportunities will allow Nanoco to retain its core operational capabilities
for the remainder of FY22 and into FY23. Since the contracts are not yet
signed, these opportunities are subject to delay or non-completion. In
addition, our current pipeline of existing work and future opportunities is
focused on R&D and scale up activities that need to be completed
successfully and then be followed by customer decisions to adopt the
technology in order for Nanoco to move into the production phase. On entering
any such production phase, Nanoco would become self-financing at relatively
low levels of plant utilisation.
In the event that the Group does not deliver new sources of commercial revenue
in the short term or achieve other sources of funding, a more significant
restructuring will be required that removes the Group's R&D, production
and scale up capabilities with the remaining business focussed on protecting
the IP portfolio and the lawsuit against Samsung. In this scenario, the Group
would also need to find additional sources of funding and the Board is
confident this could be achieved.
Going concern
The interim condensed consolidated financial statements have been prepared on
a going concern basis. In determining the appropriate basis of preparation of
the financial statements, the Directors are required to consider whether the
Group can continue in operational existence for the foreseeable future.
For the purposes of assessing whether 'going concern' is an appropriate basis
for preparing the interim condensed consolidated financial statements, the
Directors have used their detailed forecasts for the period to 31 July 2022
and summary forecasts for the following financial year (the 'forecast
period'). These reflect current and expected business activities, including a
successful outcome to current advanced commercial negotiations, the cash
balance of £1.8m as shown in the Group consolidated balance sheet at 31
January 2022, as well as the matters set out in the section above on Principal
risks.
The key assumptions underpinning the base case assessment during the forecast
period include:
• A successful outcome to commercial negotiations currently underway
at an advanced stage;
• Subsequent phases to the projects described above;
• No other revenue streams have been assumed;
• No settlement or damages award from the Samsung litigation;
• Cost reductions underway reduce the Group's monthly cash overhead
costs from around £400,000 to around £350,000 with full effect from H2 FY23.
This base case scenario should deliver adequate financial resources for the
Group to trade until the second half of calendar year 2023.
Sensitivity analysis has been performed to reflect a possible downside
scenario that only includes already contracted revenues for the forecast
period. In this downside scenario, management would be required to start a
significant restructuring exercise before the end of FY22 to reflect the lower
revenue expectations and also seek alternative sources of funding. In the
downside scenario, the Group effectively becomes an IP Shell with the Samsung
lawsuit continuing. The Board's immediate efforts aim to avoid this scenario
and to protect the operational and R&D capabilities to support the
commercial efforts of the Company.
Going concern conclusion and basis of preparation
On the basis of the information above and having made appropriate enquiries,
at the time of approving the interim condensed consolidated financial
statements, the Directors have a reasonable expectation that the Company has
access to adequate resources to continue in operational existence for the
foreseeable future, that is, at least 12 months from the date of the issue of
these interim condensed consolidated financial statements.
IAS 1 Presentation of Financial Statements requires the Directors to disclose
"material uncertainties related to events or conditions that may cast
significant doubt upon the Group's ability to continue as a going concern".
The Directors consider that the timing of adequate commercial production
orders and the implementation of any necessary restructuring plans if those
revenues are delayed is a material uncertainty which may cast significant
doubt about the Group's and the Parent Company's ability to continue as a
going concern.
Nevertheless, considering the mitigating actions that are within management's
control and can be taken and after making enquiries and considering the
uncertainty described above, the Directors have a reasonable expectation that
the Group has access to adequate resources to continue in operational
existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
interim condensed consolidated financial statements. The financial statements
do not reflect any adjustments that would be required to be made if they were
prepared on a basis other than the going concern basis.
Liam Gray
Chief Financial Officer
12 April 2022
Responsibility statement
The Directors of Nanoco Group plc, as listed on pages 38 and 39 of the 2021
Annual Report and Accounts, confirm to the best of their knowledge:
a) the condensed set of financial statements has been prepared in
accordance with International Accounting Standard 34 Interim Financial
Reporting, as required by paragraph 4.2.4 of the Disclosure and Transparency
Rules ("DTR");
b) the condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.10;
c) the interim management report includes a fair review of the
information required by DTR 4.2.7 - an indication of important events which
have occurred during the first six months of the year and a description of the
principal risks and uncertainties for the remaining six months of the year;
and
d) the interim management report includes a fair review of the
information required by DTR 4.2.8 - the disclosure of related party
transactions occurring during the first six months of the year and any changes
in related party transactions disclosed in the 2018 Annual Report and
Accounts.
By order of the Board
Liam Gray
Chief Financial Officer
12 April 2022
Condensed consolidated statement of comprehensive income
For the six months ended 31 January 2022
H1 FY22 H1 FY21 FY21
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Revenue 3 1,099 1,004 2,091
Cost of sales (109) (104) (209)
Gross profit 990 900 1,882
Other operating income (grants) 179 50 183
Research and development expenses (990) (1,221) (2,150)
Administrative expenses (2,321) (2,369) (4,924)
Operating loss (2,142) (2,640) (5,009)
- Before share-based payments (1,790) (2,351) (4,592)
- Share-based payments (352) (289) (417)
- Operating loss as shown above (2,142) (2,640) (5,009)
Net finance (expense) / income (205) (36) (71)
Loss before taxation (2,347) (2,676) (5,080)
Taxation 286 407 685
Loss after tax (2,061) (2,269) (4,395)
Other comprehensive income
(Loss)/profit on exchange rate translations - - -
Loss after taxation for the year and total comprehensive loss for the year (2,061) (2,269) (4,395)
Loss per share:
Basic and diluted loss for the period 4 (0.67)p (0.74)p (1.44)p
The loss for the current and preceding year arises from the Group's continuing
operations and is attributable to the equity holders of the Parent.
The basic and diluted loss per share are the same as the effect of share
options is anti-dilutive.
Condensed consolidated statement of changes in equity
For the six months ended 31 January 2022
Issued Reverse Share-based
equity Acquisition payment Merger Accumulated
capital Reserve reserve reserve loss Total
Restated(1) Restated(1) Restated(1)
£'000 £'000 £'000 £'000 £'000 £'000
At 31 July 2020 (audited) 147,862 (77,868) 3,901 (1,242) (65,623) 7,030
Loss for the six months to 31 January 2021 - - - - (2,269) (2,269)
Share-based payments - - 289 - - 289
At 31 January 2021 (unaudited) 147,862 (77,868) 4,190 (1,242) (67,892) 5,050
Loss for the six months to 31 July 2021 - - - - (2,126) (2,126)
Share-based payments - - 128 - - 128
At 31 July 2021 (audited) 147,862 (77,868) 4,318 (1,242) (70,018) 3,052
Loss for the six months to 31 January 2022 - - - - (2,061) (2,061)
Share-based payments - - 352 - - 352
New equity shares issued 146 - (146) - - -
At 31 January 2022 (unaudited) 148,008 (77,868) 4,524 (1,242) (72,079) 1,343
(1) Details of the restatement are included in Note 2 to these interim
condensed consolidated financial statements
Condensed consolidated statement of financial position
As at 31 January 2022
31 January 31 January 31 July
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 115 160 199
Right of use assets 136 408 340
Intangible assets 2,610 3,428 2,858
2,861 3,996 3,397
Current assets
Inventories 66 169 110
Trade and other receivables 1,009 572 1,227
Income tax asset 972 409 686
Cash and cash equivalents 1,776 2,906 3,813
3,823 4,056 5,836
Total assets 6,684 8,052 9,233
Liabilities
Current liabilities
Trade and other payables (1,113) (1,144) (1,617)
Lease liabilities 6 (331) (584) (545)
Deferred revenue 5 (103) (103) (253)
(1,547) (1,831) (2,415)
Non-current liabilities
Lease liabilities 6 (19) (282) (133)
Deferred revenue 5 (95) (198) (146)
Financial liabilities (3,680) (477) (3,487)
(3,794) (957) (3,766)
Total liabilities (5,341) (2,788) (6,181)
Net assets 1,343 5,264 3,052
Capital and reserves
Issued equity capital 148,008 147,862 147,862
Reverse Acquisition Reserve (77,868) (77,868) (77,868)
Share-based payment reserve 4,524 4,084 4,318
Merger reserve (1,242) (1,242) (1,242)
Accumulated loss (72,079) (67,572) (70,018)
Total equity 1,343 5,264 3,052
Approved by the Board and authorised for issue on 12 April 2022.
Brian Tenner
Liam
Gray
Chief Executive Officer
Chief Financial Officer
Condensed consolidated cash flow statement
For the six months ended 31 January 2022
Six months to Six months to Year to
31 January 31 January 31 July
2022 2021 2021
Restated(1)
(Unaudited) (Unaudited) Audited
£'000 £'000 £'000
Loss before tax (2,347) (2,676) (5,080)
Adjustments for:
Net finance expense 195 (36) 71
(Profit) / Loss on exchange rate translations 54 17 17
Depreciation of tangible fixed assets 84 111 99
Depreciation of right of use asset 204 205 408
Amortisation of intangible assets 245 312 618
Impairment of intangible assets 71 236 623
Share-based payments 352 289 417
Gain on disposal of tangible fixed assets (26) - (48)
Interest paid (1) - (4)
Changes in working capital:
Decrease/(increase) in inventories 44 (29) 30
Decrease in trade and other receivables 218 398 (209)
(Decrease) in trade and other payables (548) (780) (757)
(Decrease)/increase in provisions - - -
(Decrease)/increase in deferred revenue (201) (551) (453)
Cash outflow from operating activities (1,656) (2,504) (4,268)
Research and development tax credit received - 909 908
Net cash outflow from operating activities (1,656) (1,595) (3,360)
Cash flows from investing activities
Purchases of tangible fixed assets - (8) (35)
Purchases of intangible fixed assets (68) (235) (357)
Proceeds from sale of tangible fixed assets 26 - 48
Net cash outflow from investing activities (42) (243) (344)
Cash flows from financing activities
Proceeds from issue of loan notes - - 3,150
Costs of debt issuance - - (161)
Payment of lease liabilities (capital) (318) (435) (642)
Payment of lease liabilities (interest) (10) (18) (30)
Net cash outflow from investing activities (328) (453) 2,317
Decrease in cash and cash equivalents (2,026) (2,291) (1,387)
Cash and cash equivalents at the start of the period 3,813 5,170 5,170
Effects of exchange rate changes (11) 27 30
Cash and cash equivalents at the end of the period 1,776 2,906 3,813
1 Details of the restatement are included in Note 2 to these interim
condensed consolidated financial statements
Notes to the interim condensed consolidated financial statements
For the six months ended 31 January 2022
1. Corporate information
Nanoco Group plc (the "Company") has a premium listing on the Main Market of
the London Stock Exchange and is incorporated and domiciled in the UK. The
Group Interim Report and Accounts for the six months ended 31 January 2022 was
authorised for issue in accordance with a resolution by the Directors on 12
April 2022.
These interim condensed consolidated financial statements include the
financial statements of Nanoco Group plc and the entities it controls (its
subsidiaries).
These interim condensed consolidated financial statements are unaudited and do
not constitute statutory accounts of the Group as defined in section 434 of
the Companies Act 2006.
2. Accounting policies
a. Basis of preparation
These interim condensed consolidated financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the Financial
Conduct Authority, IAS 34 Interim Financial Reporting as adopted by the
European Union, using the recognition and measurement principles of IFRSs as
adopted by the European Union and have been prepared under the historical cost
convention. As required by the Disclosure Guidance and Transparency Rules of
the Financial Services Authority the accounting policies adopted in these
condensed consolidated financial statements are consistent with those followed
in the preparation of the Group's Annual Report and Accounts for the year to
31 July 2021.
These interim condensed consolidated financial statements include audited
comparatives for the year to 31 July 2021. The 2021 Annual Report and
Accounts, which was prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union, received an
unqualified audit opinion and has been filed with the Registrar of Companies.
The financial statements of the Group for the year ended 31 July 2021 are
available from the Company's registered office, or from the website
www.nanocotechnologies.com.
b. Presentation of figures
Certain figures contained in this announcement, including financial
information, have been subject to rounding adjustments. Accordingly, in some
cases, the sum or percentage change of the numbers contained in this
announcement may not conform exactly to the total figure given.
c. Going concern
The interim condensed consolidated financial statements have been prepared on
a going concern basis. In determining the appropriate basis of preparation of
the financial statements, the Directors are required to consider whether the
Group can continue in operational existence for the foreseeable future.
For the purposes of assessing whether 'going concern' is an appropriate basis
for preparing the interim condensed consolidated financial statements, the
Directors have used their detailed forecasts for the period to 31 July 2022
and summary forecasts for the following financial year (the 'forecast
period'). These reflect current and expected business activities, including a
successful outcome to current advanced commercial negotiations, the cash
balance of £1.8m as shown in the Group consolidated balance sheet at 31
January 2022, as well as the matters set out in the section above on Principal
risks.
The key assumptions underpinning the base case assessment during the forecast
period include:
• A successful outcome to commercial negotiations currently underway
at an advanced stage;
• Subsequent phases to the projects described above;
• No other revenue streams have been assumed;
• No settlement or damages award from the Samsung litigation;
• Cost reductions underway reduce the Group's monthly cash overhead
costs from around £400,000 to around £350,000 with full effect from H2 FY23.
This base case scenario should deliver adequate financial resources for the
Group to trade until the second half of calendar year 2023.
Sensitivity analysis has been performed to reflect a possible downside
scenario that only includes already contracted revenues for the forecast
period. In this downside scenario, management would be required to start a
significant restructuring exercise before the end of FY22 to reflect the lower
revenue expectations and also seek alternative sources of funding. In the
downside scenario, the Group effectively becomes an IP Shell with the Samsung
lawsuit continuing. The Board's immediate efforts aim to avoid this scenario
and to protect the operational and R&D capabilities to support the
commercial efforts of the Company.
On the basis of the information above and having made appropriate enquiries,
at the time of approving the interim condensed consolidated financial
statements, the Directors have a reasonable expectation that the Company has
access to adequate resources to continue in operational existence for the
foreseeable future, that is, at least 12 months from the date of the issue of
these interim condensed consolidated financial statements. Accordingly, they
continue to adopt the going concern basis in preparing the interim condensed
consolidated financial statements.
IAS 1 Presentation of Financial Statements requires the Directors to disclose
"material uncertainties related to events or conditions that may cast
significant doubt upon the Group's ability to continue as a going concern".
The Directors consider that the timing of adequate commercial production
orders and the implementation of any necessary restructuring plans if those
revenues are delayed is a material uncertainty which may cast significant
doubt about the Group's and the Parent Company's ability to continue as a
going concern.
Nevertheless, considering the mitigating actions that are within management's
control and can be taken and after making enquiries and considering the
uncertainty described above, the Directors have a reasonable expectation that
the Group has access to adequate resources to continue in operational
existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
consolidated financial statements. The financial statements do not reflect any
adjustments that would be required to be made if they were prepared on a basis
other than the going concern basis.
d. Use of estimates and judgements
Preparation of the interim condensed consolidated financial statements
requires management to make judgements, estimates and assumptions affecting
the application of accounting policies and the reporting of assets,
liabilities, income and expenses. Actual results may differ from these
estimates. The significant judgements made by management in applying the
Group's accounting policies and key sources of estimated uncertainty were the
same as those applied to the consolidated financial statements for the year
ended 31 July 2021. These are summarised below:
Estimates Judgements
Equity-settled share-based payments Capitalisation (or not) of research and development expenditure
Impairment of intellectual property and tangible fixed assets Revenue recognition
Taxation Going concern
e. Prior year restatement
Please refer to note 30 of the consolidated financial statements for the year
ended 31 July 2021 for further information.
3. Segmental information
Operating segments
At 31 January 2022 and 2021, the Group operated as one segment, being the
research, development and manufacture of products and services based on high
performance nanoparticles. This is the level at which operating results are
reviewed by the chief operating decision maker (i.e. the Board) to make
decisions about resources, and for which financial information is available.
All revenues have been generated from continuing operations and are from
external customers.
Six months to Six months to Year to
31 January 31 January 31 July
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Analysis of revenue - by type
Products sold 352 242 685
Rendering of services 693 714 1,303
Royalties and licences 54 48 103
1,099 1,004 2,091
There was a material customer who generated revenue of £899,000 (2021: one
material customer amounting to £771,000).
The Group operates in four main geographic areas, although all are managed in
the UK. The Group's revenue per geographical segment based on the customer's
location is as follows:
Six months to Six months to Year to
31 January 31 January 31 July
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Analysis of revenue - by geography
UK - - 28
Europe (excluding UK) 910 807 1,618
Asia 180 189 411
USA 9 8 34
1,099 1,004 2,091
All the Group's assets are held in the UK and all of its capital expenditure
arises in the UK. The loss before taxation and attributable to the single
segment was £2,061,000 (2021: £2,269,000).
4. Loss per share
Six months to Six months to Year to
31 January 31 January 31 July
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Loss for the period attributable to equity shareholders (2,061) (2,269) (4,395)
Share-based payments 352 289 417
Adjusted loss for the period (1,709) (1,980) (3,978)
Weighted average number of shares No. No. No.
Ordinary shares in issue 306,167,992 305,699,102 305,699,102
Adjusted loss per share (pence) (0.56) (0.65) (1.30)
Basic loss per share (pence) (0.67) (0.74) (1.44)
Diluted loss per share is not presented as the effect of share options issued
is anti-dilutive. The adjusted loss is presented as the Board measures
underlying business performance which excludes non-cash IFRS2 charges.
5. Deferred revenue
31 January 31 January 31 July
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Current
Upfront licence fees 103 103 103
Milestone payments - - 150
Total current 103 103 253
Non-current
Upfront licence fees 95 198 146
Total non-current 95 198 146
Total deferred revenue 198 301 399
Deferred revenue arises under IFRS where upfront licence fees are accounted
for on a straight-line basis over the initial term of the contract or where
performance criteria have not been satisfied in the accounting period.
6. Lease liabilities
Six months to Six months to Year to
31 January 31 January 31 July
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Current
Property Leases 331 584 545
Non-current
Property Leases 19 282 133
Total lease liabilities 350 866 678
- Ends -
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