REG - Nanoco Group PLC - Posting of Circular and Notice of General Meeting

NanocoAnnouncement

20/06/2023 07:00

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RNS Number : 2257D  Nanoco Group PLC  20 June 2023

20 June 2023

NANOCO GROUP PLC

("Nanoco", the "Company" or the "Group")

 

Posting of Circular in relation to

Proposed Capital Reduction Facilitating Future Returns to Shareholders

 

Notice of General Meeting

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 that it will today post a
Circular setting out details of a Proposed Capital Reduction to create
distributable reserves in order to facilitate future returns to Shareholders.
The Circular will also contain the Notice of General Meeting to be held on 7
July 2023.

Highlights of the Circular:

·    The Company is proposing to undertake a Capital Reduction in order to
facilitate the return of capital to Shareholders. The Company is currently
restricted from returning capital to its Shareholders as it does not have
distributable reserves.

·    The Board intends to initiate a return of between £33 million and
£40 million (or approximately 10 pence to 12 pence per share) using the
second tranche of the proceeds of the Samsung litigation ($75 million) which
is expected to be received during February 2024. No final decision has yet
been taken as to the method of any such return of capital.

·    Nanoco intends to retain approximately £20 million of cash
(following the return to shareholders) to invest in R&D and commercial
activities, a proactive IP licensing programme, payment of debt obligations,
and to provide working capital through to the self-financing position that is
expected to be achieved during 2025.

·    The Board is confident that the near term opportunities for
commercial production of sensing materials, together with the current interest
in the Group's display materials following the successful IP litigation and
the growing display market for CFQD® cadmium free quantum dots, fully merit
the allocation of funds noted above.

Christopher Richards, Non-Executive Chairman of Nanoco, said:

"The Proposals in relation to a Capital Reduction and the proposed return to
Shareholders are consistent with our stated intention to balance the
investment needs of Nanoco's growing organic business whilst delivering a
material return of capital to Shareholders following the Samsung litigation.

"The Board considers the Resolutions to cancel the Company's share premium
account and capital redemption reserve to be in the best interests of the
Company and its Shareholders as a whole and the Board unanimously recommend
that Shareholders vote in favour of the Resolutions to be proposed at the
General Meeting."

- Ends -

A copy of the Circular will be published on the Company's website later today
at www.nanocotechnologies.com (http://www.nanocotechnologies.com) .

This summary should be read in conjunction with the full text of the Circular.
Capitalised terms used but not defined in this announcement will have the same
meaning given to them in the Circular.

The person responsible for arranging for the release of this announcement on
behalf of Nanoco is Liam Gray, Chief Financial Officer.

MAR

The information contained within this announcement is considered by the
Company to contain inside information for the purposes of UK MAR.  Upon the
publication of this announcement via a Regulatory Information Service, this
inside information will be considered to be in the public domain.

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.

EXTRACTS FROM THE CIRCULAR

Expected Timetable of Principal Events

Publication of this document
                                             20 June
2023

Latest time and date for receipt of Forms of Proxy for the

General
Meeting                                                                                                 9:00
a.m. on 5 July 2023

General
Meeting                                                                                                 9:00
a.m. on 7 July 2023

Expected date of initial directions hearing of the
Court                             10 July 2023

Expected date of Court Hearing to confirm the Capital
Reduction         18 July 2023

Expected effective date for the Capital
Reduction
19 July 2023

Background to, and reasons for, the Capital Reduction

Review of addressable markets reaffirms the commercial opportunity

As announced on 3 February 2023, and following the successful conclusion of
the IP litigation, the Company made the following statement: "In deciding the
allocation of the net proceeds, the Board will balance any investment needs of
Nanoco's growing organic business with a firm intention to deliver a material
return of capital to shareholders."

The Board has recently completed a review of the addressable sensing and
display markets for the Group's unique and IP protected nano-materials. The
review assessed multiple compelling opportunities for the use of funds within
the commercial business, including a licensing programme for the Group's now
validated IP.

The Board recognizes that the adoption of nano-material technology has taken
longer than expected for both Nanoco and its competitors and has been
challenging. However, the Board is encouraged by customers' feedback that
Nanoco's materials are superior to others in the market. This position is
strongly reinforced by the recent licensing of Nanoco's technology by Samsung.
Other nano-material companies have failed to generate a net positive lifetime
return on capital, sometimes resulting in the distressed sale of their assets.
By contrast, following the litigation settlement, Nanoco has generated a net
positive cash return compared to the total amount of equity capital raised in
its history.

IP licensing programme opportunity

In addition, the validation of Nanoco's IP provides an opportunity to build a
licensing programme to leverage further value. The Group has identified a
number of potentially infringing third parties and has created a team to
pursue them, where economically viable, and early stage activity is already
underway.

The Board notes that the customary model for third party IP licensing
companies often requires the surrender of full or partial ownership rights of
IP, as well as control of any licensing activity or litigation in return for
an approximate 50% share of any net proceeds. If such a model had been in
place for the recent IP litigation involving Samsung, the Board estimates the
Group's net cash receipt would have been less than $60 million on a pre-tax
basis, compared to the approximately $90 million actually received and to be
received. This economic analysis makes clear the potential additional value
that can be retained by a self-funded licensing programme whilst retaining
ownership and control of the IP assets within the Group.

Use of litigation proceeds for investment

Given the substantial achievements of Nanoco to date, the Board intends to
continue investing in R&D and commercial activities, through to the
self-financing position that is expected to be delivered during 2025. The
Board therefore intends to retain approximately £20 million of cash
(following the return of capital set out below) to invest as follows:

·    Funding the Group's commercial business activities until they become
self-financing (expected in 2025) along with a number of promising investments
in R&D and capital equipment, whilst accelerating the development of new
generation sensing materials, and delivering valuable device capability.

·    Self-financing the IP licensing programme as set out above.

·    Paying off the Group's current debt facilities (approximately £5.0
million) to become debt-free and self-funded.

·    The Group will also maintain a modest cash buffer for working capital
and to mitigate the risk of unforeseen events.

The Board is confident that the near term opportunities for commercial
production of sensing materials, together with the current interest in the
Group's display materials following the IP litigation and the growing display
market for CFQD® cadmium free quantum dots, fully merit the allocation of
funds noted above.

Use of litigation proceeds for return of capital

The second tranche of litigation proceeds is expected to be received during
February 2024. Taking into account the proposed investments noted above, the
Board is proposing to return between 65% and 75% of the second tranche of net
proceeds to Shareholders, subject to no material change in circumstances ahead
of that time and after allowing for Korean withholding tax and the payment of
the Group's current debt obligations. Using the current $USD / £GBP exchange
rate of approximately $1.25 / £1.00, this will equate to a return of capital
of between £33 million and £40 million (or approximately 10 pence to 12
pence per share (including vested options)). The return of capital is expected
to commence shortly after the receipt of the second tranche of litigation
proceeds.

If the Group's prospects improve further or the self-financing point arises
earlier than 2025, the Board will consider further returns of capital in line
with developing an appropriate dividend policy for a profitable and cash
generative business.

The Board is currently examining the most tax efficient method of making the
return of capital and options include, but are not limited to, dividends,
tender offer, or a share buyback programme.

The Capital Reduction proposal

The Company is currently restricted from returning cash to its Shareholders as
it does not have distributable reserves so cannot currently either pay a
dividend or buy-back shares. The Board is therefore proposing to undertake a
Capital Reduction in order to facilitate the return of cash to Shareholders.

Under the Act, a company may, with the sanction of a special resolution passed
by its shareholders and confirmation of the Court, reduce or cancel its share
capital, share premium account, capital redemption reserve and other reserves.
It may then apply the sums resulting from such reduction to its distributable
reserves. These sums may then be treated as distributable for the purposes of
making future returns to Shareholders.

The Company currently has:

•             the Share Premium Account standing to the credit
of £121,145,010.91; and

•             the Capital Redemption Reserve standing to the
credit of £4,402,245.79.

The Act requires that if a company issues shares at a premium to the nominal
value of those shares for cash or otherwise, a sum equal to the aggregate
amount of or value of the premiums must be transferred to the company's share
premium account. A share premium account can only be used in very limited
circumstances. The Company intends to reduce the Share Premium Account in
full.

The Company currently has a Capital Redemption Reserve which arose as a result
of the off-market purchase of deferred shares on 4 May 2004 and their
subsequent cancellation. The Company plans to reduce the Capital Redemption
Reserve in full.

The Share Premium Account and the Capital Redemption Reserve are statutory
reserves in respect of which the Court has the power to sanction their
reduction or cancellation.

The Capital Reduction, if approved by the Court and when it becomes effective,
will have the effect of creating distributable reserves and provide the
Company, subject to the financial performance of the Company and the Act, with
the ability to make distributions of profits by way of share buy-back or
dividend in cash. The Capital Reduction would create additional distributable
reserves to the value of £125,547,256.70.

In the event that any of the return of capital to Shareholders is by means of
a buy-back of Ordinary Shares, the Company will either cancel those shares or
transfer them to the Company's Employee Benefit Trust to meet its obligations
in respect of outstanding vested and not yet vested Deferred Bonus Plan
Options and vested and likely to vest Long Term Incentive Plan Options.

The Capital Reduction

In addition to the approval by Shareholders of the Resolutions, the Capital
Reduction requires the approval of the Court. Accordingly, following the
General Meeting, an application will be made to the Court in order to confirm
and approve the Capital Reduction.

In providing its approval of the Capital Reduction, the Court may require
measures to be put in place for the protection of creditors (including
contingent creditors) of the Company whose debts remain outstanding on the
relevant date, except in the case of creditors who have consented to the
Capital Reduction. Such creditor protection measures may include seeking the
consent of the Company's creditors to the Capital Reduction or the provision
by the Company to the Court of an undertaking to deposit a sum of money into a
blocked account created for the purpose of discharging the non-consenting
creditors of the Company or an undertaking to treat as undistributable for the
time being certain sums representing the realisation of "hidden value" in the
balance sheet as at the Effective Date. It is currently expected that no such
measures will be required in view of the fact that the Company's cash balances
exceed its total creditors.

It is anticipated that the initial directions hearing in relation to the
Capital Reduction will take place on 10 July 2023, with the final Court
Hearing taking place on 18 July 2023 and the Capital Reduction becoming
effective on the following day, following the necessary registration of the
Court Order at Companies House.

There will be no change in the number of Ordinary Shares in issue (or their
nominal value) following the implementation of the Capital Reduction and no
new share certificates will be issued as a result of the Capital Reduction.
The Capital Reduction itself will not involve any distribution or repayment of
capital or share premium by the Company and will not reduce the underlying net
assets of the Company. The distributable reserves arising on the Capital
Reduction will, subject to the discharge of any undertakings required by the
Court as explained above, support the Company's ability to pay dividends or
buy-back shares should circumstances in the future make it desirable to do so.
Shareholders should note that if, for any reason, the Court declines to
approve the Capital Reduction, the Capital Reduction will not take place. The
Board reserves the right to abandon or to discontinue (in whole or in part)
the application to the Court in the event that the Board considers that the
terms on which the Capital Reduction would be (or would be likely to be)
confirmed by the Court would not be in the best interests of the Company
and/or its Shareholders as a whole. The Board has undertaken a thorough and
extensive review of the Company's liabilities (including contingent
liabilities) and considers that the Company will be able to satisfy the Court
that there is no real likelihood that any creditor of the Company would be
prejudiced by the Capital Reduction.

General Meeting and Resolutions

The Notice of General Meeting is set out in the Circular.

The General Meeting will take place at The Conference Centre, The Heath
Business and Technical Park, Runcorn, WA7 4QX at 9:00 a.m. on 7 July 2023. At
the General Meeting, the Resolutions set out in Part III of the Circular will
be proposed to Shareholders.

The Resolutions will be passed if 75% or more of the votes cast (in person or
by proxy) at the General Meeting are in favour of the Resolutions.

The Resolutions, which are special resolutions, are summarised below:

•             Resolution 1 - this is a resolution to approve,
subject to confirmation of the Court, the cancellation of the Share Premium
Account.

•             Resolution 2 - this is a resolution to approve,
subject to confirmation of the Court, the cancellation of the Capital
Redemption Reserve.

Questions

Any questions should be submitted in advance of the Meeting by emailing such
questions to the Company Secretary at LGray@nanocotechnologies.com. Please
include in your email: the shareholder's full name, number of shares held and
telephone contact details.

For further information, please contact:

Nanoco Group
PLC:
+44 (0) 1928 761 404

Brian Tenner, CEO

Liam Gray, CFO & Company Secretary

 

Peel Hunt (Joint Corporate
Broker):
 
 
+44 (0) 20 7418 8900

Paul Gillam

James Smith

 

Turner Pope Investments (Joint Corporate Broker):

Andrew
Thacker
+44 (0) 20 3657 0050

James Pope

 

MHP
Communications:
 
 
+44 (0) 20 3128 8990

Reg Hoare

Matthew Taylor

Christian Harte

nanoco@mhpgroup.com

 

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 their 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 Runcorn, 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.

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