REG - Nanoco Group PLC - Preliminary Results <Origin Href="QuoteRef">NANON.L</Origin> - Part 1
RNS Number : 1851UNanoco Group PLC14 October 2014A meeting for analysts will be held at 10am this morning, 14 October 2014, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For details contact Buchanan on 020 7466 5000.
For immediate release
14 October 2014
NANOCO GROUP PLC
("Nanoco" or "the Company")
Preliminary results for the year ended 31 July 2014
Nanoco Group plc (AIM: NANO), a world leader in the development and manufacture of cadmium-free quantum dots and other nanomaterials, is pleased to announce its preliminary results for the year ended 31 July 2014.
Highlights
Excellent progress in the commercialisation of Nanoco's technology in the display industry in partnership with worldwide licensing partner The Dow Chemical Company ("Dow")
Dow to begin construction of the world's first, large-scale cadmium-free manufacturing plant in South Korea using Nanoco's patented technology and with production to begin in H1 2015
Dow to market Nanoco's technology using the brand TREVISTA Quantum Dots
Considerable technical progress in other applications including solar, where the efficiency of our solar ink is approaching our target for producing a low cost, printable solar panel
Signed further follow-on joint development agreement with Osram in October 2014 to advance CFQD quantum dots in LED general lighting
Strengthened the Nanoco Board with the appointment of Keith Wiggins as Chief Operating Officer and Robin Williams as a Non-executive Director
Continuing to explore the move from AIM to a Premium Listing on the main market
Cash, cash equivalents and deposits of 12.18 million at the year-end (31 January 2014: 14.50 million)
Commenting on the results, Anthony Clinch, Nanoco's Chairman, said:
"Dow's recent announcement that it would begin construction of the world's first large-scale cadmium-free quantum dot manufacturing plant using our technology marked a major milestone in the commercialisation of our quantum dots, which have the compelling competitive advantage of being cadmium-free. Commercialisation of our technology in the display market remains our primary focus but we also continue to make significant progress in all applications.
"We look forward with confidence to the year ahead, during which time we expect to announce further material progress."
For further information please contact:
Nanoco
+ 44 (0) 161 603 7900
Michael Edelman, Chief Executive Officer
Mark Sullivan, Interim Chief Financial Officer
Canaccord Genuity - Nomad and Joint Broker
+44 (0) 20 7523 8000
Simon Bridges
Cameron Duncan
Liberum Capital - Joint Broker
+44 (0) 20 3100 2000
Simon Atkinson
Richard Bootle
Buchanan
+ 44 (0) 20 7466 5000
Mark Court / Fiona Henson / Sophie Cowles
Notes for editors:
About Nanoco Group plc
Nanoco is a world leader in the development and production of cadmium-free quantum dots and other nanomaterials for use in multiple applications including LCD displays, lighting, solar cells and bio-imaging. In the display market, it has an exclusive manufacturing and marketing licensing agreement with The Dow Chemical Company.
Nanoco was founded in 2001 and is headquartered in Manchester, UK. It has production facilities in Runcorn, UK, and a US subsidiary, Nanoco Inc, based in Concord, MA. Nanoco also has business development offices in Japan, Korea and Taiwan. Its technology is protected worldwide by a large and growing patent estate.
Nanoco began trading on the AIM market of the London Stock Exchange in May 2009 under the ticker symbol NANO. For further information please visit: www.nanocogroup.com.
Chairman's and Chief Executive Officer's Joint Review
Overview
The year to 31 July 2014 was another important year in the development of Nanoco. It was a year during which quantum dots became increasingly established as the technology of choice for achieving a step change in the colour performance of LCD displays.
It also marked the first full year of Nanoco's commercial relationship with The Dow Chemical Company ("Dow"), our worldwide licensing partner for the display industry. The transformational progress in the commercialisation of Nanoco's technology which is being made through this relationship was underlined last month when Dow announced that it would begin construction of the world's first large-scale, cadmium-free quantum dot manufacturing plant in South Korea.
The announcement was a landmark in the commercialisation of our technology. Dow stated that the plant, which is being built at one of Dow's existing sites in South Korea, will be capable of supporting the manufacture of "millions of cadmium-free quantum dot televisions and display applications".
Preparatory work for construction of the Dow site in South Korea is well advanced and production is expected to begin in mid-2015. Until this time, Dow and Nanoco intend to meet customer demand with quantum dots from Nanoco's facility in Runcorn.
Nanoco's technology is very clearly differentiated from the small number of other quantum dot manufacturers worldwide because our patent-protected manufacturing process enables us to produce quantum dots free of cadmium in commercial volumes. We remain convinced, as does Dow, that this ability to produce quantum dots without heavy metals means that our proprietary technology will become the industry standard.
European legislation on the Restriction of Hazardous Substances (RoHS), as well as regulatory codes operating in certain US states and in a number of other developed countries, severely restricts the use of cadmium-based quantum dots in electronic devices.
An existing RoHS exemption on the use of cadmium in certain electrical equipment was due to expire in June 2014. The European Commission continues to consider the views of Member States of the European Union on the extension of that exemption reflecting concern about the use of heavy metals.
During the past year, there has continued to be significant advances in LCD displays including the launch of 4K models. A further strength of Nanoco's technology is that it can be incorporated into any type of LCD display, including 4K, as the quantum dots sit in a film between the backlight and the screen. The display industry has invested billions of dollars in existing LCD manufacturing supply chains and is therefore keen to support the further development of LCD technology.
In addition to our work during the year in displays, we continued to make progress in LED general lighting, solar power and in our early stage work in bio-imaging.
In solar, we have steadily increased the efficiency of our nanoparticle based solar ink and have now achieved in excess of 15%. Our goal is to get as close to 20% as possible, approaching which level of efficiency we believe the solar ink could be used to produce low cost, printable solar cells. We are considering a number of options on how best to bring this exciting work to the market.
Nanoco's business is built on robust intellectual property and we continued to reinforce our patent estate during the year. Our patents are in four key areas: our proprietary process for the mass production of cadmium-free quantum dots; cadmium-free quantum dot materials; surface chemistry; and applications/devices incorporating our materials.
Commercial applications - displays
Nanoco is driving the commercialisation of its technology in the LCD display industry through its exclusive worldwide licensing deal with Dow, which was signed in January 2013. We have developed a close working relationship with Dow both on a technical level and in jointly marketing our quantum dot technology.
As mentioned above, on 24 September 2014 Dow announced that it was starting construction of a large-scale plant in Cheonan, South Korea, to produce Nanoco quantum dots. South Korea's position in the heart of the Asian opto-electronics industry makes it an ideal location for the first large-scale plant based on Nanoco's unique manufacturing process. Dow is marketing the quantum dots under the brand name TREVISTA Quantum Dots.
In March this year, at the time of our half year results, we announced that we had signed the third phase of a joint development agreement with a major South Korean electronics company in the display market. This agreement will run until the end of this month and it is anticipated that our work together will continue into the future. We are currently at various stages of the development process with a number of display makers from South Korea, Japan, USA, China and Taiwan in connection with products including TVs, monitors and tablets.
Post the period-end, a milestone payment from Dow has been generated, reflecting customer demand for Nanoco's technology.
Commercial applications - general lighting
LEDs are increasingly available on the high street for general lighting, and consumers are beginning to recognise their advantages over traditional lighting particularly in their long service life and reduced power consumption. The limiting factor to the widespread adoption of LEDs remains colour performance as existing products tend to offer either bright cold light or warm dull light neither of which is attractive in a home or office environment.
Nanoco's quantum dots have been shown to transform LEDs so they produce bright, warm light with a high colour rendering index without the loss of lumens. In addition, as Nanoco quantum dots are tuneable to any specific wavelength, any shade of light can be produced.
Nanoco has been working under joint development agreements with Osram, one of the world's largest lighting companies, since August 2011. We continue to make good progress and recently agreed a further follow-on agreement which continues this work through to September 2015.
The development work with Osram is focused on encapsulating our quantum dots to protect them from the relatively high temperatures they experience from proximity to an LED chip. This encapsulation is working well and we expect to further develop it during the coming year.
Nanoco is also working with a number of other lighting companies in Asia, the USA and Europe.
Commercial applications - solar
Nanoco's solar ink, developed from cadmium-free nanomaterials, has been designed to maximise the absorption of solar energy and to have physical characteristics such that it can be printed by low cost methods and annealed into a photovoltaic film. Our development work has been focused on increasing the efficiency of the conversion of light into electricity and we have now reached 15%. This is, we believe, close to the level that we anticipate will form the basis for low cost, printable solar panels.
We are currently considering how best to advance this application following the decision by our former development partner, Tokyo Electron, to merge with the US business Applied Materials Inc. to form a new company, Eteris, as a consequence of which solar will not be a focus for them.
Nanoco's printable thin-film solar technology is based on copper, indium, gallium, selenium ("CIGS") materials and can be used in building integrated photo-voltaic applications due to its high performance, light weight and its potential ease of integration into different architectural form factors. A significant amount of intellectual property, both in patents and know how, has been built up which gives us a strong platform on which to commercialise this exciting technology in the coming years.
Other commercial applications
We have been careful to focus on our core areas, display, LED lighting and solar, but with the imminent commercialisation of our quantum dots in the display industry we remain alert to new opportunities where our technology could have significant commercial application.
We have been working since 2011 with University College London on the use of cadmium-free quantum dots in the in-vivo imaging of cancer. The fluorescence of Nanoco quantum dots is being used in this work to pinpoint malignant lymph nodes to guide surgeons in the removal of cancerous tissue. Other materials have already been used in this way in clinical practice but Nanoco quantum dots offer the major advantage of fluorescing for a longer period of time, giving surgeons more time to visualise the cancer which we believe will lead to a greater opportunity to remove cancer cells.
Nanoco has won a grant funded award from the UK's innovation agency, the Technology Strategy Board, totalling 308,000, in support of the current phase of this research work. This grant funded project commences in October 2014.
Production at Runcorn
During the first half of the year, we commissioned two new Semi-Tech lines giving us a total of four lines at The Heath Business and Technical Park in Runcorn. We use these production lines to produce large quantities of high quality sample materials for the display industry. We expect that initial commercial orders for Nanoco quantum dots will be manufactured and delivered from our Runcorn facility until Dow's commercial production plant comes on line in the first half of 2015.
Our technical team at Runcorn is focused on the continual improvement of production processes, reactor yields and quantum dot performance. At the year end, we had 15 people working in Runcorn and there is usually a technical team from Dow working alongside them.
Whilst we have planning permission to build Kilo Lab lines, which represent the next stage of production scale-up, our efforts are primarily focused on supporting Dow in building its manufacturing capacity in South Korea based on our Kilo Lab designs. In addition, we are finalising plans to increase capacity of our Semi-Tech lines to meet anticipated near-term demand.
People
We were delighted to welcome Robin Williams as an independent Non-executive Director shortly before the year end. Robin, who has broad corporate experience, is chair of the Company's Audit Committee. Michael Bretherton, who was Chief Financial Officer at the time that Nanoco joined AIM in 2009, stepped down as a Non-executive Director in April 2014 after making a major contribution to the development of the Company.
Recently we announced the appointment of Keith Wiggins as Chief Operating Officer of Nanoco. Keith has a wealth of experience operating at the most senior levels of global corporations, most recently Dow. Keith's appointment highlights how much Nanoco has developed over recent years and how excited we are about our future growth prospects.
The Nanoco team, most of whom are based in Manchester, UK, had grown to 107 people at the year end, compared with 98 people a year earlier, with most of the increase being technical and scientific staff. In addition to staff at our Runcorn production facility we have a US subsidiary, Nanoco Inc., and business development executives in Japan, Korea, China and Taiwan.
We would like to offer our sincere thanks to all at Nanoco for their enthusiasm, commitment and achievement during the year.
Financial results
Our revenues in the year to 31 July 2014 were 1.43 million (2013: 3.93 million). Our loss before tax was 9.06 million (2013: loss of 5.04 million). This increase in the loss before tax primarily reflected the lower joint development revenues and higher payroll and other operational spend associated with commercialising our technology in the display market.
Cash, cash equivalents and deposits at the year-end were 12.18 million (31 July 2013: 9.94 million; 31 January 2014: 14.50 million).
Capital markets strategy
At the time of our half year results we stated that we were considering a transition to the Official List of the London Stock Exchange. Given the momentum in the commercialisation of our technology we are actively exploring a move from AIM to a Premium Listing on the Official List of the London Stock Exchange.
Outlook
Dow's recent announcement that it would begin construction of the world's first large-scale cadmium-free quantum dot manufacturing plant using our technology marked a major milestone in the commercialisation of our quantum dots, which have the compelling competitive advantage of being cadmium-free. Commercialisation of our technology in the display market remains our primary focus but we also continue to make significant progress in all applications.
We look forward with confidence to the year ahead, during which time we expect to announce further material progress.
Anthony Clinch
Michael Edelman
Non-executive Chairman
Chief Executive Officer
13 October 2014
13 October 2014
Financial Review
Results
Revenue for the year decreased by 2,495,000 to 1,433,000 (2013: 3,928,000). Part of this reduction is accounted for by the US$1,000,000 (634,000) received in 2013 from The Dow Chemical Company ("Dow") which was paid following the signing of the licence agreement in January 2013. The majority of the Group's revenue in both the current and prior year is earned through joint development agreements ("JDAs"), with revenue being recognised as agreed performance milestones are achieved. The year on year reduction in JDA revenue is a consequence of the completion of certain JDA contracts in 2013. Almost all JDA revenues in both the current and prior year were denominated in US Dollars and mostly originated from customers in the Far East.
Cost of sales, which includes all the raw material costs, consumable items and sub-contract testing and analysis, associated with developing and testing product formulations for JDA and non-JDA customers, increased by 270,000 to 1,563,000 (2013: 1,293,000). This increase reflected the incremental costs associated with the on-going development of cadmium-free quantum dots ("CFQD quantum dots") to meet specific customer milestones as well as the production of larger quantities of customer samples.
Total payroll costs (before the charge for share-based payments) increased by 1,068,000 to 4,534,000 (2013: 3,466,000) and average staffing numbers increased by 24 heads from an average of 80 heads in 2013 to an average of 104 heads in 2014. The majority of the increases in staffing were technical roles associated with the on-going joint development programmes. Total research and development spend, which primarily includes the employment costs of technical staff, increased by 1,109,000 to 5,177,000 (2013: 4,068,000).
After deducting operating costs the adjusted operating loss* for the year ending 31 July 2014 was 8,676,000 (2013: adjusted operating loss* of 4,452,000).
The Group aims to incentivise and retain key staff through the use of equity-settled share awards. The IFRS2 (share-based payment) charge in respect of share schemes totalled 573,000 (2013: 870,000). This decrease in the charge reflects the reduction in the number of options awarded in the year, which totalled 444,000 (2013: 8,260,000), and some older awards having vested in the prior year. The total number of share options in issue as at 31 July 2014 were 13.4 million (31 July 2013: 13.1 million). Of these, 4.1 million (2013: 0.7 million) have met their performance criteria and are therefore capable of being exercised. During the year no options were exercised (2013: 6.2 million) and 0.1 million (2013: 1.1 million) options lapsed or were forfeited. In addition to the options, a further 0.9 million (31 July 2013: 0.9 million) of shares are jointly owned by the Group's Employee Benefit Trust ("EBT") and certain senior management through a Jointly Owned Agreement ("JOA"). Under the JOA the employee beneficiaries have the option to acquire the trustee's shares at an agreed option price subject to meeting certain performance criteria. At 31 July 2014, all of the JOA shares had met their performance criteria and were capable of being acquired from the trustees. No JOA shares (2013: 3.4 million) were exercised during the year. Details on the various share schemes are provided in note 19 to the accounts.
With interest income (net of interest payments) of 189,000 (2013: 280,000), a decrease of 91,000, the loss before tax was 9,060,000 (2013: loss of 5,042,000).
The tax credit for the year is 1,249,000 (2013: 920,000). The Research & Development tax credit to be claimed, in respect of R&D spend, is 1,210,000 (2013: 870,000). There was also a 48,000 credit in respect of the prior year R&D tax claim (2013: 50,000 credit). Overseas corporation tax in respect of the US subsidiary, Nanoco US Inc., of 9,000 was paid during the year (2013: nil). There was no deferred tax credit or charge (2013: nil).
Adjusted basic loss per share* was 3.38 pence (2013: adjusted loss* of 1.58 pence). Basic loss per share was 3.65 pence (2013: loss of 2.00 pence).
No dividend has been proposed (2013: nil).
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term investments increased by 2,238,000 to 12,182,000 (2013: 9,944,000).
The Company raised gross proceeds of 10,000,000 from a placing on 15 October 2013 through the issue of 6,369,427 new ordinary shares at an issue price of 157 pence per share. Issue costs associated with the placing totalled 263,000.
The Group reduced its capital spend in the year, to a total of 494,000 (2013: 1,775,000). Expenditure incurred in registering patents totalled 536,000 (2013: 340,000) during the year reflecting the Group's continued focus on developing and registering intellectual property. Capitalised patent spend is amortised over ten years in line with the Group's accounting policy.
Treasury activities and policies
The Group manages its cash deposits prudently and invests its funds across a number of financial institutions which have investment grade credit ratings. The deposits range from instant access to 12 month term deposits and are regularly reviewed by the Board. Cash forecasts are updated monthly to ensure that there is sufficient cash available for foreseeable requirements. More details on the Group's treasury policies are provided in note 23 to the financial statements.
Credit risk
The Group only trades with recognised, creditworthy third parties. Receivable balances are monitored on an on-going basis and any late payments are promptly investigated to ensure that the Group's exposure to bad debts is not significant.
Foreign exchange management
The Group invoices most of its revenues in US Dollars. The Group is therefore exposed to movements in the US Dollar relative to Sterling. The Group uses forward currency contracts to fix the exchange rate on invoiced or confirmed foreign currency receipts. The Group does not take out forward contracts against uncertain or forecast income. There were no open forward contracts as at 31 July 2014 (2013: none). At the year end the Group had a net asset position of 135,000 (2013: net liability 8,000) in US Dollar cash, debtor, less creditor balances. The Group's net profit and its equity are exposed to movements in the value of Sterling relative to the US Dollar. The indicative impact of movements in the Sterling exchange rate on profits and equity based on the re-translation of the closing balance sheet are summarised in note 23 to the financial statements and were based on the year-end position. As US Dollar revenues increase so the exposure of the Group's profit and loss and equity to movements in the Sterling/US Dollar exchange rate will increase as well.
* adjusted figures are stated before the share-based payment charge
Colin White
Chief Financial Officer
13 October 2014
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2014
Notes
2014
2013
000
000
Revenue
4
1.433
3,928
Cost of sales
(1,563)
(1,293)
Gross (loss)/profit
(130)
2,635
Administrative expenses
(9,119)
(7,957)
Operating loss
- before share-based payments
(8,676)
(4,452)
- share-based payments
19
(573)
(870)
5
(9,249)
(5,322)
Finance income
7
194
286
Finance costs
7
(5)
(6)
Loss on ordinary activities before taxation
(9,060)
(5,042)
Taxation
8
1,249
920
Loss for the year and total comprehensive loss for the year
(7,811)
(4,122)
Loss per share
Basic and diluted loss for the year
9
( 3.65)p
(2.00)p
The loss for the year arises from the Group's continuing operations and is attributable to the equity holders of the parent.
There were no other items of comprehensive income for the year (2013: nil) and therefore the loss for the year is also the total comprehensive loss for the year.
The basic and diluted loss per share are the same as the effect of share options is anti-dilutive.
The notes below form an integral part of these financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 July 2014
Share-
Issued
Based
equity
Payment
Merger
Revenue
capital
Reserve
reserve
reserve
Total
000
000
000
000
000
At 31 July 2012
27,475
851
(1,242)
(10,152)
16,932
Loss for the year and total comprehensive loss for the year
-
-
-
(4,122)
(4,122)
Issue of share capital
579
-
-
-
579
Issue of shares by EBT
-
(468)
-
603
135
Share-based payments
-
870
-
-
870
At 31 July 2013
28,054
1,253
(1,242)
(13,671)
14,394
Loss for the year and total comprehensive loss for the year
-
-
-
(7,811)
(7,811)
Issue of share capital
10,000
-
-
-
10,000
Expenses of placing
(263)
-
-
-
(263)
Share-based payments
-
573
-
-
573
At 31 July 2014
37,791
1,826
(1,242)
(21,482)
16,893
Company Statement of Changes in Equity
for the year ended 31 July 2014
Issued
equity
capital
Share- based payment reserve
Capital redemption reserve
Revenue reserve
Total
000
000
000
000
000
At 31 July 2012
105,247
851
4,498
(26,409)
84,187
Profit for the year and total comprehensive profit for the year
-
-
-
96
96
Issue of share capital
675
-
(96)
-
579
Issue of shares by EBT
-
(468)
-
603
135
Share-based payments
-
870
-
-
870
At 31 July 2013
105,922
1,253
4,402
(25,710)
85,867
Profit for the year and total comprehensive profit for the year
-
-
-
39
39
Issue of share capital
10,000
-
-
-
10,000
Expenses of placing
(263)
-
-
-
(263)
Share-based payments
-
573
-
-
573
At 31 July 2014
115.659
1,826
4,402
(25,671)
96,216
Statements of Financial Position
at 31 July 2014
31 July
31 July
31 July
31 July
2014
2014
2013
2013
Group
Company
Group
Company
Notes
000
000
000
000
Assets
Non-current assets
Tangible fixed assets
10
2,783
-
3,470
-
Intangible assets
11
1,557
-
1,230
-
Investment in subsidiaries
12
-
65,433
-
64,860
4,340
65,433
4,700
64,860
Current assets
Inventories
13
134
-
120
-
Trade and other receivables
14
633
27,500
932
17,055
Income tax asset
1,210
-
870
-
Short-term investments and cash on deposit
15
5,791
-
6,176
1,500
Cash and cash equivalents
15
6,391
3,733
3,768
2,902
14,159
31,233
11,866
21,457
Total assets
18,499
96,666
16,566
86,317
Liabilities
Current liabilities
Trade and other payables
16
1,448
-
1,951
-
Financial liabilities
17
63
-
63
-
1,511
-
2,014
-
Non-current liabilities
Financial liabilities
17
95
-
158
-
Other payables
16
-
450
-
450
95
450
158
450
Total liabilities
1,606
450
2,172
450
Net assets
16,893
96,216
14,394
85,867
Capital and reserves
Issued equity capital
18
37,791
115,659
28,054
105,922
Share-based payment reserve
19
1,826
1,826
1,253
1,253
Merger reserve
20
(1,242)
-
(1,242)
-
Capital redemption reserve
20
-
4,402
-
4,402
Revenue reserve
21
(21,482)
(25,671)
(13,671)
(25,710)
Total equity
16,893
96,216
14,394
85,867
Approved by the Board and authorised for issue on 13 October 2014.
The notes below form an integral part of these financial statements.
Michael Edelman
Director
13 October 2014
Cash Flow Statements
For the year ended 31 July 2014
31 July
31 July
31 July
31 July
2014
2014
2013
2013
Group
Company
Group
Company
Notes
000
000
000
000
(Loss)/profit before interest and tax
(9,249)
(17)
(5,322)
15
Adjustments for:
Depreciation of tangible fixed assets
10
1,181
-
901
-
Amortisation of intangible assets
11
209
-
152
-
Share-based payments
19
573
-
870
-
Changes in working capital:
Increase in inventories
(14)
-
(41)
-
Decrease/(increase) in trade and other receivables
256
-
(130)
-
(Decrease)/increase in trade and other payables
(510)
-
384
-
Increase/(decrease) in deferred revenue
7
-
(1,823)
-
Cash (outflow)/inflow from operating activities
(7,547)
(17)
(5,009)
15
Research and development tax credit received
918
-
704
-
Overseas corporation tax paid
(9)
-
-
-
Net cash (outflow)/inflow from operating activities
(6,638)
(17)
(4,305)
15
Cash flows from investing activities
Purchases of tangible fixed assets
10
(494)
-
(1,775)
-
Purchases of intangible fixed assets
11
(536)
-
(340)
-
Cash advance to subsidiary
-
(10,445)
-
(104)
Decrease in cash placed on deposit
15
385
1,500
4,943
500
Interest paid
7
(5)
-
(6)
-
Interest received
237
56
246
81
Net cash (outflow)/inflow from investing activities
(413)
(8,889)
3,068
477
Cash flows from financing activities
Proceeds from issues of ordinary share capital
10,000
10,000
714
714
Expenses on issue of shares
18
(263)
(263)
-
-
Loan repayment
(63)
-
(64)
-
Net cash inflow from financing activities
9,674
9,737
650
714
Increase/(decrease) in cash and cash equivalents
2,623
831
(587)
1206
Cash and cash equivalents at the start of the year
3,768
2,902
4,355
1,696
Cash and cash equivalents at the end of the year
6,391
3,733
3,768
2,902
Monies placed on deposit at the end of the year
5,791
-
6,176
1,500
Cash, cash equivalents and deposits at the end of the year
15
12,182
3,733
9,944
4,402
The notes below form an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 July 2014
1. Reporting entity
Nanoco Group PLC ("the Company") is an AIM listed company incorporated and domiciled in the UK.
These Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group' and individually as 'Group entities') for the year ended 31 July 2014.
The preliminary results including the financial statements of Nanoco Group PLC and its subsidiaries (the "Group") for the year ended 31 July 2014 were authorised for issue by the Board of Directors on 13 October 2014 and the Statement of Financial Position was signed on the Board's behalf by Dr Michael Edelman.
These financial statements do not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006. A copy of the statutory financial statements for the year ended 31 July 2014 has not been delivered to the Registrar of Companies. The Auditors' opinion on those financial statements was unqualified, did not draw attention to any matters by way of an emphasis of matter paragraph, and it contained no statement under section 498(2) or section 498(3) of the Companies Act 2006.
The significant accounting policies adopted by the Group are set out in note 3.
2. Basis of preparation
(a) Statement of compliance
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and International Financial Reporting Committee ("IFRIC") interpretations as they apply to the financial statements of the Group for the period ended 31 July 2014.
(b) Basis of measurement
The parent company and Group financial statements have been prepared on the historical cost basis except for all derivative contracts being carried at their fair value.
The methods used to measure fair values of assets and liabilities are discussed in the respective notes in note 3 below.
(c) Going concern
The Chairman's and Chief Executive Officer's Review outlines the business activities of the Group along with the factors which may affect its future development and performance. The Group's financial position is discussed in the Financial Review along with details of its cash flow and liquidity. Note 23 to the financial statements sets out the Group's financial risks and the management of those risks.
Having prepared management forecasts and made appropriate enquiries, the Directors are satisfied that the Group has adequate resources for the foreseeable future. Accordingly they have continued to adopt the going concern basis in preparing the Group and Company financial statements.
(d) Functional and presentational currency
These financial statements are presented in pounds sterling, which is the Company's functional currency. All financial information presented has been rounded to the nearest thousand.
(e) Use of estimates and judgements
The preparation of financial statements requires management to make estimates and judgements that affect the amounts reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual amounts could differ from those estimates. Estimates and judgements used in the preparation of the financial statements are continually reviewed and revised as necessary. While every effort is made to ensure that such estimates and judgements are reasonable, by their nature they are uncertain and, as such, changes in estimates and judgements may have a material impact on the financial statements The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
Equity-settled share-based payments
The determination of share-based payment costs requires: the selection of an appropriate valuation method; consideration as to the inputs necessary for the valuation model chosen; judgement regarding when and if performance conditions will be met; and the estimation of the number of awards that will ultimately vest. Inputs required for this arise from judgements relating to the future volatility of the share price of Nanoco and comparable companies, the Company's expected dividend yields, risk free interest rates and expected lives of the options. The directors draw on a variety of sources to aid in the determination of the appropriate data to use in such calculations. The share-based payment expense is most sensitive to vesting assumptions and to the future volatility of the future share price factor. Further information is included in note 3.
Taxation
Management judgement is required to determine the amount of tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. The carrying value of the unrecognised tax losses at 31 July 2014 was 3,070,000 (2013: 2,171,000). The value of the additional deferred tax asset not recognised at the year-end is 18,000 (2013: nil). Further information is included in note 8.
Research and development
Careful judgement by the directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain until such time as technical viability has been proven and commercial supply agreements are likely to be achieved. Judgements are based on the information available at each reporting date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to research and development of new products are continuously monitored by the directors. Further information is included in note 3.
Revenue recognition
Judgements are required as to whether and when contractual milestones have been achieved and in turn the period over which development revenue should be recognised. Management judgements are similarly required to determine whether services or rights under licence agreements have been delivered so as to enable licence revenue to be recognised. Further information is included in note 3.
3. Significant accounting policies
The accounting policies set out below are consistent with those of the previous financial year and are applied consistently by Group entities.
The Group financial statements are presented in sterling and all values are rounded to the nearest thousand pounds except where otherwise indicated.
(a) Basis of consolidation
The Group financial statements consolidate the financial statements of Nanoco Group PLC and the entities it controls (its subsidiaries) drawn up to 31 July each year.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies. All Nanoco Group PLC's subsidiaries are 100% owned. Subsidiaries are fully consolidated from the date control passes.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The costs of an acquisition are measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at acquisition date irrespective of the extent of any minority interest. The difference between the cost of acquisition of shares in subsidiaries and the fair value of the identifiable net assets acquired is capitalised as goodwill and reviewed annually for impairment. Any deficiency in the cost of acquisition below the fair value of identifiable net assets acquired (i.e., discount on acquisition) is recognised directly in the Consolidated Statement of Comprehensive Income.
All intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group.
(b) Foreign currency transactions
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the Consolidated Statement of Comprehensive Income.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
(c) Segmental reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. As at the reporting date the Company operated with only a single segment.
(d) Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or services, excluding discounts, rebates, VAT and other sales taxes or duties.
The Group's revenues to date comprise amounts earned under joint development agreements and individual project development programmes, material supply and licence agreements and revenue from the sale of quantum dot products.
Revenues received in advance of work performed, from development programmes, are recognised on a straight line basis over the period that the development work is being performed as measured by contractual milestones. Revenue is not recognised where there is uncertainty regarding the achievement of such milestones and where, either revenue has not been paid, or where the customer has the right to recoup advance payments.
Contractual payments received from licence agreements are recognised as revenue when goods, services or rights and entitlements are supplied or when contractual rights for the customer to recoup such payments have lapsed.
Revenue from the sale of products is recognised at the point of transfer of risks and rewards of ownership which is generally on shipment of product.
(e) Government grants
Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions are met, usually on submission of a valid claim for payment.
Government grants of a revenue nature are recognised as (rendering of services) revenue in the Consolidated Statement of Comprehensive Income in line with the terms of the underlying grant agreement.
Government grants relating to capital expenditure are deducted in arriving at the carrying amount of the asset.
(f) Research and development
Research costs are charged in the Consolidated Statement of Comprehensive Income as they are incurred. Development costs will be capitalised as intangible assets when it is probable that future economic benefits will flow to the Company. Such intangible assets will be amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit, and will be reviewed for impairment at each reporting date based on the circumstances at the reporting date.
The criteria for recognising expenditure as an asset are:
it is technically feasible to complete the product;
management intends to complete the product and use or sell it;
there is an ability to use or sell the product;
it can be demonstrated how the product will generate probable future economic benefits;
adequate technical, financial and other resources are available to complete the development, use and sale of the product; and
expenditure attributable to the product can be reliably measured.
Development costs are currently charged against income as incurred since the criteria for their recognition as an asset are not met.
(g) Lease payments
Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and rewards of the underlying asset, are charged in the Consolidated Statement of Comprehensive Income on a straight-line basis over the expected lease term.
Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
(h) Finance income and expense
Finance income comprises interest income on funds invested and changes in the fair value of financial assets at fair value through the Consolidated Statement of Comprehensive Income. Interest income is recognised as interest accrues using the effective interest rate method.
Finance expense comprises interest expense on borrowings, changes in the fair value of financial assets at fair value through the Consolidated Statement of Comprehensive Income, impairment losses recognised on financial assets and losses on hedging instruments that are recognised in the Consolidated Statement of Comprehensive Income. All borrowing costs are recognised using the effective interest method.
(i) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity or in other comprehensive income.
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to, the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements with the following exceptions:
where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss; and
in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantially enacted by the date and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which differences can be utilised. An asset is not recognised to the extent that the transfer or economic benefits in the future is uncertain.
(j) Tangible fixed assets
Tangible fixed assets are recognised initially at cost. After initial recognition, these assets are carried at cost less any accumulated depreciation and any accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.
Depreciation is computed by allocating the depreciable amount of an asset on a systematic basis over its useful life and is applied separately to each identifiable component.
The following bases and rates are used to depreciate classes of assets:
Laboratory infrastructure - straight line over remainder of lease period
Fixtures and fittings - straight line over five years
Office equipment - straight line over three years
Plant and machinery - straight line over five years
The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.
A tangible fixed asset item is de-recognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the de-recognition of the asset is included in the Consolidated Statement of Comprehensive Income in the period of de-recognition.
(k) Intangible assets
Intangible assets acquired either as part of a business combination or from contractual or other legal rights are recognised separately from goodwill provided they are separable and their fair value can be measured reliably. This includes the costs associated with acquiring and registering patents in respect of intellectual property rights.
Where intangible assets recognised have finite lives, after initial recognition their carrying value is amortised on a straight line basis over those lives. The nature of those intangibles recognised and their estimated useful lives are as follows:
Patents - straight line over ten years
(l) Impairment of assets
At each reporting date the Group reviews the carrying value of its plant, equipment and intangible assets to determine whether there is an indication that these assets have suffered an impairment loss. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an assessment of the asset's recoverable amount.
An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators. Impairment losses on continuing operations are recognised in the Consolidated Statement of Comprehensive Income in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Consolidated Statement of Comprehensive Income unless the asset is carried at re-valued amount, in which case the reversal is treated as a valuation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
The carrying values of plant, equipment and intangible assets as at the reporting date have not been subjected to impairment charges.
(m) Investments in subsidiaries
Investments in subsidiaries are stated in the Company Statement of Financial Position at cost less provision for any impairment.
(n) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost based on latest contractual prices includes all costs incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal. Provision is made for slow-moving or obsolete items.
(o) Trade and other receivables
Trade receivables, which generally have 30 to 60 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. The time value of money is not material.
Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Significant financial difficulties faced by the customer, probability that the customer will enter bankruptcy or financial reorganisation and default in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying value of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income within administrative expenses.
When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.
(p) Cash, cash equivalents and short-term investments
Cash and cash equivalents comprise cash at hand and deposits with maturities of three months or less. Short-term investments comprise deposits with maturities of more than three months, but no greater than twelve months.
(q) Trade and other payables
Trade and other payables are non-interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method.
(r) Borrowings
Borrowings are recognised when the Group becomes party to related contracts and are measured initially at fair value, net of directly attributable transaction costs incurred. After initial recognition, borrowings are stated at amortised cost.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
Costs of borrowing funds are expensed in the period in which they occur.
(s) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The expense relating to any provision is presented in the Consolidated Statement of Comprehensive Income, net of any expected reimbursement, but only where recoverability of such reimbursement is virtually certain.
Provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risk specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
There were no provisions at 31 July 2014 (2013: Nil).
(t) Financial assets and liabilities
Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to them and are classified as financial assets and liabilities at fair value through the Consolidated Statement of Comprehensive Income. The Group determines the classification of its financial assets and liabilities at initial recognition and re-evaluates this designation at each financial year end.
A financial asset or liability is generally de-recognised when the contract that gives rise to it is settled, sold, cancelled or expires.
At the year end, the Group had no financial assets or liabilities designated at fair value through the Consolidated Statement of Comprehensive Income (2013: nil).
(u) Share capital
Proceeds on issue of shares are included in shareholders' equity, net of transaction costs. The carrying amount is not re-measured in subsequent years.
(v) Shares held by the Employee Benefit Trust
The Employee Benefit Trust is consolidated in the financial statements and the shares are reported as treasury shares in the Group's Statement of Financial Position. Shares are treated as though they had been cancelled when calculating earnings per share until such time that the shares are exercised. The Employee Benefit Trust is treated similarly in the financial statements of the parent company.
(w) Share-based payments
Equity settled share-based payment transactions are measured with reference to the fair value at the date of grant, recognised on a straight line basis over the vesting period, based on the Company's estimate of shares that will eventually vest. Fair value is measured using a suitable option pricing model.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the Consolidated Statement of Comprehensive Income, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.
Where awards are granted to the employees of the subsidiary company, the fair value of the awards at grant date is recorded in the Company's financial statements as an increase in the value of the investment with a corresponding increase in equity via the share-based payment reserve.
(x) Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The amounts charged against profits represent the contributions payable to the scheme in respect of the accounting period.
(y) New accounting standards and interpretations
The following new and amended IFRS, IAS and IFRIC interpretations were mandatory for accounting periods ending 31 July 2014 and thereafter, but have no material effect on the Group's financial statements.
IFRS 1 Government Loans (Amendments)
IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments)
IFRS 13 Fair Value Measurements
Annual Improvements to IFRSs 2009 to 2011 cycle
A number of new standards, amendments to standards and interpretations are effective for annual periods ending 31 July 2015 or thereafter and have not been applied in preparing these consolidated financial statements and those that are relevant to the Group are summarised below. None of these are expected to have a significant effect on the consolidated financial statements of the Group in the period of initial application.
The following standards and interpretations have an effective date after the date of these financial statements.
Effective date
IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements
1 January 2014
IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures
1 January 2014
IFRS 12 Disclosure of Interests in Other Entities
1 January 2014
IFRS 11 Accounting for Acquisitions of Interests in Joint Operations
1 January 2016
IFRS 15 Revenue from Contracts with Customers
1 January 2017
IFRS 9 Financial Instruments (issued in 2013)
1 January 2018
IAS 32 Offsetting Financial Assets and Financial Liabilities (Amendments)
1 January 2014
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (Amendments)
1 January 2014
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (Amendments)
1 January 2014
IAS 27 Equity Method in Separate Financial Statements (Amendments)
1 January 2016
IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation
1 January 2016
Annual Improvements to IFRSs 2010 to 2012 Cycle
1 July 2014
Annual Improvements to IFRSs 2011 to 2013 Cycle
1 July 2014
The effective dates stated above for IFRS 10, 11, 12, IAS 27 Separate Financial Statements and IAS 28 are based on the date of European Union (EU) adoption. As the Group prepares its financial statements in accordance with IFRS as adopted by the EU, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards.
4. Segmental information
Operating segments
At 31 July 2014 the Group operated as one segment, being the provision of high performance nano- particles for research and development purposes. This is the level at which operating results are reviewed by the chief operating decision maker (i.e. the CEO) 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.
31 July
2014
31 July 2013
000
000
Analysis of revenue
Products sold
178
110
Rendering of services
1,255
2,116
Royalties and licences
-
1,702
1,433
3,928
Included within rendering of services is revenue from one material customer amounting to 754,000 (2013: two material customers amounting to 1,573,000) and 184,000 (2013: 283,000) from government grants. During the year ended 31 July 2013 revenue from royalties and licences comprised two customers.
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:
31 July 2014
31 July 2013
000
000
Revenue
UK
159
254
Europe (excluding UK)
26
42
Asia
1,139
2,854
USA
109
778
1,433
3,928
All the Group's assets are held in the UK and all of its capital expenditure arises in the UK.
5. Operating loss
31 July
2014
31 July
2013
The Group
000
000
Operating loss is stated after charging /(crediting):
Depreciation of tangible fixed assets (see note 10)
1,181
901
Amortisation of intangible assets (see note 11)
209
152
Staff costs (see note 6)
5,107
4,336
Foreign exchange losses/(gains)
4
(13)
Research and development expense**
5,177
4,068
Cost of inventories recognised as an expense (included in cost of sales)
1,561
1,272
Operating lease rentals (see note 22):
Land and buildings
674
614
Auditor's remuneration:
Audit services:
- Fees payable to Company auditor for the audit of the parent and the consolidated accounts
10
10
Fees payable to Company auditor for other services:
- Auditing the accounts of subsidiaries pursuant to legislation
19
18
- Other services
2
3
Total auditor's remuneration
31
31
** Included within research and development expense are staff costs totalling 3,452,000 (2013: 2,666,000) also included in note 6.
6. Staff costs
31 July
2014
31 July
2013
000
000
Wages and salaries
3,777
2,960
Social security costs
424
296
Pension contributions
333
210
Share-based payments
573
870
5,107
4,336
Directors' remuneration (including benefits-in-kind) included in the aggregate remuneration above comprised:
Emoluments for qualifying services
879
1,228
Directors' emoluments (excluding social security costs, but including benefits in kind) disclosed above include 359,000 paid to the highest paid director (2013: 736,000).
Aggregate gains made by directors during the year following the exercise of share options and jointly owned EBT shares were nil (2013: 3,198,000).
The average number of employees during the year (including directors), was as follows:
31 July
2014
31 July
2013
The Group
Number
Number
Directors
7
7
Laboratory and administrative staff
97
73
104
80
7. Finance income and expense
31 July
2014
31 July
2013
The Group
000
000
Finance income:
Bank interest receivable
194
286
Finance expense:
Loan interest payable
(5)
(6)
189
280
Bank interest receivable includes 25,000 (2013: 68,000) which is receivable after the year end.
8. Income tax
The tax credit is made up as follows:
31 July
2014
31 July
2013
The Group
000
000
Current income tax:
UK corporation tax losses in the year
-
-
Research and development income tax credit receivable
(1,210)
(870)
Adjustment in respect of prior years
(48)
(50)
Overseas corporation tax
9
-
Total current income tax
(1,249)
(920)
The tax assessed for the year varies from the standard rate of corporation tax as explained below:
31 July
2014
31 July
2013
The Group
000
000
Loss on ordinary activities before taxation
(9,060)
(5,042)
Tax at standard rate of 22.33% (2013: 23.67%)
(2,023)
(1,193)
Effects of:
Expenses not deductible for tax purposes
43
207
Movement in unprovided deferred tax
-
(236)
Additional reduction for research and development expenditure
(1,390)
(1,121)
Surrender of research and development relief for repayable tax credit
2,471
1,972
Research and development tax credit receivable
(1,210)
(870)
Share options exercised (CTA 2009 Pt 12 deduction)
-
(509)
Overseas corporation tax paid
9
-
Tax losses carried forward
899
880
Adjustment in respect of prior years
(48)
(50)
Tax credit in income statement
(1,249)
(920)
Reductions of the main rate of corporation tax from 23% to 21% from 1 April 2014 and to 20% from 1 April 2015 were substantively enacted on 2 July 2013. The changes in tax rate are not considered to have had a material impact.
The Group has accumulated losses available to carry forward against future trading profits of 15.3m (2013: 12.0m).
The estimated value of the deferred tax asset, measured at a standard rate of 20% (2013: 20%) is 3,070,000 (2013: 2,391,000), of which nil (2013: 220,000) has been recognised. Remaining tax losses have not been recognised as an asset as it is not probable that future taxable profits will be available against which the unused tax losses can be utilised.
The Group has a deferred tax asset for share-based payments, for which the tax, measured at a standard rate of 21% (2013: 21%) is 464,000 (2013: 361,000); a further 18,000 has not been recognised as an asset as the transfer of economic benefits in the future is uncertain (2013: nil).
The Group also has a deferred tax liability being accelerated capital allowances, for which the tax, measured at a standard rate of 20% (2013: 20%) is 464,000 (2013: 581,000).
9. Earnings per share
31 July
2014
31 July
2013
The Group
000
000
Loss for the financial year attributable to equity shareholders
(7,811)
(4,122)
Share-based payments
573
870
Loss for the financial year before share-based payments
(7,238)
(3,252)
Weighted average number of shares:
Ordinary shares in issue
214,248,996
205,826,395
Adjusted loss per share before share-based payments (pence)
(3.38)
(1.58)
Basic loss per share (pence)
(3.65)
(2.00)
Diluted loss per share has not been presented above as the effect of share options issued is anti-dilutive.
10. Tangible fixed assets
Laboratory infrastructure
Office equipment, fixtures and fittings
Plant and machinery
Total
The Group
000
000
000
000
Cost:
At 31 July 2012
2,029
343
2,689
5,061
Additions
402
71
1,302
1,775
Disposals
-
(24)
-
(24)
At 31 July 2013
2,431
390
3,991
6,812
Additions
70
35
389
494
Disposals
-
(117)
-
(117)
At 31 July 2014
2,501
308
4,380
7,189
Depreciation:
At 31 July 2012
965
234
1,266
2,465
Provided during the year
309
61
531
901
Disposals
-
(24)
-
(24)
At 31 July 2013
1,274
271
1,797
3,342
Provided during the year
371
75
735
1,181
Eliminated on disposal
-
(117)
-
(117)
At 31 July 2014
1,645
229
2,532
4,406
Net book value:
At 31 July 2014
856
79
1,848
2,783
At 31 July 2013
1,157
119
2,194
3,470
11. Intangible assets
Patents
The Group
000
Cost:
At 31 July 2012
1,394
Additions
340
At 31 July 2013
1,734
Additions
536
At 31 July 2014
2,270
Amortisation:
At 31 July 2012
352
Provided during the year
152
At 31 July 2013
504
Provided during the year
209
At 31 July 2014
713
Net book value:
At 31 July 2014
1,557
At 31 July 2013
1,230
Intangible assets are amortised on a straight line basis over ten years. Amortisation provided during the period is recognised in administrative expenses. The Group does not believe that any of its patents in isolation is material to the business.
12. Investment in subsidiaries
Shares
Loans
Loan impairment
Total
The Company
000
000
000
000
At 31 July 2012
63,235
21,041
(20,286)
63,990
Increase in respect of share-based payments
-
870
-
870
At 31 July 2013
63,235
21,911
(20,286)
64,860
Increase in respect of share-based payments
-
573
573
At 31 July 2014
63,235
22,484
(20,286)
65,433
By subsidiary
Nanoco Tech Limited
63,235
-
-
63,235
Nanoco Life Sciences Limited
-
20,286
(20,286)
-
Nanoco Technologies Limited
-
2,198
-
2,198
At 31 July 2014
63,235
22,484
(20,286)
65,433
Loans to subsidiary undertakings carry no interest and are repayable on demand. Further information in relation to these loans is given in note 24.
Share of issued ordinary share capital
Subsidiary undertakings
Country of incorporation
Principal activity
31 July
2014
31 July 2013
Nanoco Life Sciences Limited (formerly Evolutec Limited)
England and Wales
Research and development
100%
100%
Nanoco Tech Limited
England and Wales
Holding company
100%
100%
Nanoco Technologies Limited*
England and Wales
Research and develop nano particles
100%
100%
Nanoco US Inc.**
USA
Management services
100%
100%
With the exception of the companies noted below all other shareholdings are owned by Nanoco Group PLC.
*Share capital is owned by Nanoco Tech Limited.
**Nanoco US Inc. is a wholly owned subsidiary of Nanoco Tech Limited. It was formed in July 2013 primarily in order to provide the services of US located staff to the rest of the Group.
13. Inventories
31 July 2014
31 July 2014
31 July 2013
31 July
2013
Group
Company
Group
Company
000
000
000
000
Raw materials and consumables
134
-
120
-
14. Trade and other receivables
31 July 2014
31 July 2014
31 July 2013
31 July
2013
Group
Company
Group
Company
000
000
000
000
Trade receivables
116
-
114
-
Prepayments
375
-
446
-
Inter-company short-term loan to subsidiary
-
27,500
-
17,055
Other receivables
142
-
372
-
633
27,500
932
17,055
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Trade receivables are denominated in the following currency:
31 July 2014
31 July 2014
31 July 2013
31 July
2013
Group
Company
Group
Company
000
000
000
000
US Dollars
116
-
114
-
At 31 July the analysis of trade receivables that were past due but not impaired was as follows:
Total
Neither past due nor impaired
Past due but not impaired >90 days
Past due but not impaired 120 to 150 days
000
000
000
000
2014
116
89
18
9
2013
114
114
-
-
15. Cash, cash equivalents and deposits
31 July 2014
31 July 2014
31 July 2013
31 July
2013
Group
Company
Group
Company
000
000
000
000
Short-term investments and cash on deposit
5,791
-
6,176
1,500
Cash and cash equivalents
6,391
3,733
3,768
2,902
12,182
3,733
9,944
4,402
Under IAS 7, cash held on long-term deposits (being deposits with maturity of greater than three months and no more than twelve months) that cannot readily be converted into cash has been classified as a short-term investment. The maturity on this investment was less than twelve months at the reporting date.
Cash and cash equivalents at 31 July 2014 include deposits with original maturity of three months or less of 6,391,000 (2013: 3,768,000).
An analysis of cash, cash equivalents and deposits by denominated currency is given in note 23.
16. Trade and other payables
31 July 2014
31 July 2014
31 July 2013
31 July 2013
Group
Company
Group
Company
000
000
000
000
Current
Current payables
760
-
1,277
-
Other payables
98
-
109
-
Deferred revenue
119
-
112
-
Accruals
471
-
453
-
`
1,448
-
1,951
-
Non-current
Long-term loan from subsidiary
-
450
-
450
-
450
-
450
The directors consider that the carrying amount of trade and other payables approximates to their fair value.
17. Financial liabilities
31 July 2014
31 July 2014
31 July 2013
31 July
2013
Group
Company
Group
Company
000
000
000
000
Other loan:
Current
63
-
63
-
Non-current
95
-
158
-
158
-
221
-
The directors consider that the carrying amount of financial liabilities approximate to their fair value, in so far as this is an arm's length transaction taken out at a market rate of interest.
The loan is unsecured, bears interest at 2% above base rate, is repayable in quarterly instalments and will be fully repaid in 2017.
18. Issued equity capital
Share capital
Share premium
Reverse acquisition reserve
Total
The Group
Number
000
000
000
000
Authorised ordinary shares of 10p:
At 31 July 2012, 31 July 2013 and 31 July 2014
250,000,000
25,000
-
-
25,000
Allotted, called up and fully paid ordinary shares of 10p:
As at 31 July 2012
207,384,167
20,738
84,509
(77,772)
27,475
Shares issued on exercise of options
2,776,842
278
397
(96)
579
As at 31 July 2013
210,161,009
21,016
84,906
(77,868)
28,054
Shares issued in placing
6,369,427
637
9,363
-
10,000
Expenses of placing
-
-
(263)
-
(263)
As at 31 July 2014
216,530,436
21,653
94,006
(77,868)
37,791
The balances classified as share capital and share premium include the total net proceeds (nominal value and share premium respectively) on issue of the Company's equity share capital, comprising 10 pence ordinary shares.
The retained loss and other equity balances recognised in the Group financial statements reflect the consolidated retained loss and other equity balances of Nanoco Tech Limited immediately before the business combination which was reported in the year ended 31 July 2009. The consolidated results for the period from 1 August 2008 to the date of the acquisition by Nanoco Group PLC are those of Nanoco Tech Limited. However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the transaction. The effect of using the equity structure of the legal parent gives rise to an adjustment to the Group's issued equity capital in the form of a reverse acquisition reserve.
Shares issued on exercise of options
No shares were issued on the exercise of options during the year (2013: 2,776,842 shares with an average exercise price of 20.86 pence were issued resulting in share proceeds of 579,000).
During the year ended 31 July 2013, options exercised included certain options which had an exercise price that was less than the nominal value of shares issued (see note 20).
The Company raised gross proceeds of 10,000,000 from a placing on 15 October 2013 through the issue of 6,369,427 new ordinary shares at an issue price of 157 pence per share. Issue costs associated with the placing totalled 263,000.
Share capital
Share premium
Total
The Company
Number
000
000
000
Authorised ordinary shares of 10p:
At 31 July 2012, 31 July 2013 and 31 July 2014
250,000,000
25,000
-
25,000
Allotted, called up and fully paid ordinary shares of 10p:
As at 31 July 2012
207,384,167
20,738
84,509
105,247
Shares issued on exercise of options
2,776,842
278
397
675
As at 31 July 2013
210,161,009
21,016
84,906
105,922
Shares issued in placing
6,369,427
637
9,363
10,000
Expenses of placing
-
-
(263)
(263)
As at 31 July 2014
216,530,436
21,653
94,006
115,659
19. Share-based payment reserve
The Group and Company
000
At 31 July 2012
851
Share-based payments
870
Issue of shares by EBT
(468)
At 31 July 2013
1,253
Share-based payments
573
At 31 July 2014
1,826
The share-based payment reserve accumulates the corresponding credit entry in respect of share-based payment charges. Movements in the reserve are disclosed in the Consolidated Statement of Changes in Equity.
A charge of 573,000 has been recognised in the Statement of Comprehensive Income for the year (2013: 870,000).
Share option schemes
The Group operates the following share option schemes all of which are operated as Enterprise Management Incentive ("EMI") schemes in so far as the share options being issued meet the EMI criteria as defined by HM Revenue & Customs. Share options issued that do not meet EMI criteria are issued as unapproved share options, but are subject to the same exercise performance conditions.
Nanoco Tech Share Incentive Plan
Share options issued under the Nanoco Tech Share Incentive Plan had been issued to staff who were employed by Nanoco Tech Limited in the period from 1 September 2006 up to the date of the reverse take-over on 1 May 2009. These options were conditional on achievement of share price performance criteria and either a sale or listing of the Company. All of the relevant vesting conditions have been successfully met and options are capable of being exercised at any time from 1 August 2010 to 31 August 2016. Following the reverse take-over the number of share options in issue were increased in line with the terms of the reverse acquisition by a factor of 4.55 times and the exercise price decreased by 4.55 times. This was reflected as a reverse acquisition adjustment in the 2009 accounts.
Nanoco Group PLC Long Term Incentive Plan ("LTIP")
- Grant in November 2011
Share options were granted to staff and executive directors on 25 November 2011. The options granted to executive directors were subject to commercial revenue targets being achieved over a three year period from the date of grant. The exercise price was set at 50 pence, being the average closing share price on the day preceding issue of the share options. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. Share options issued to staff vest over a three year period from the date of grant but are not subject to performance conditions.
- Grant in October 2012
Share options were granted to staff and executive directors on 22 October 2012. The options granted to executive directors were subject to commercial revenue targets being achieved over a three year period from the date of grant. The exercise price was set at 57 pence, being the average closing share price on the day preceding issue of the share options. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. Share options issued to staff vest over a three year period from the date of grant but are not subject to performance conditions.
- Grant in May 2014
Share options were granted to certain staff on 23 May 2014. The exercise price was set at 89 pence, being the average closing share price on the day preceding issue of the share options. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. The options vest at the end of three years from the date of grant and are exercisable until the tenth anniversary of the award. The awards are not subject to performance conditions. Exercise of the award is subject to the employee remaining a full time member of staff at the point of exercise. No options were granted to executive directors.
- Other awards
Share options are awarded to management and key staff as a mechanism for attracting and retaining key members of staff. The options are issued at either market price on the day preceding grant or in the event of abnormal price movements at an average market price for the week preceding grant date. These options vest over a three year period from the date of grant and are exercisable until the tenth anniversary of the award. Exercise of the award is subject to the employee remaining a full time member of staff at the point of exercise. The fair value benefit is measured using a binomial valuation model, taking into account the terms and conditions upon which the share options were issued.
Shares held in the Employee Benefit Trust ("EBT")
The Group operates a jointly owned EBT share scheme for senior management under which the trustee of the Group-sponsored EBT has acquired shares in the Company jointly with a number of employees. The shares were acquired pursuant to certain conditions set out in jointly owned agreements ("JOA"). Subject to meeting the performance criteria conditions set out in the JOA, the employees are able to exercise an option to acquire the trustee's interests in the jointly owned EBT shares at the option price. The jointly owned EBT shares issued on 1 September 2006 had met the option conditions on 1 August 2010 and are capable of being exercised at any time until 31 August 2016.
The fair value benefit is measured using a binomial valuation model, taking into account the terms and conditions upon which the jointly owned shares were issued.
The following tables illustrate the number and weighted average exercise prices of, and movements in, share options and jointly owned EBT shares during the year.
Share options
EBT
2014 total
2013 total
The Group and Company
Number
Number
Number
Number
Outstanding at 1 August
13,064,756
850,500
13,915,256
12,899,184
Granted during the year
444,000
-
444,000
8,260,000
Exercised during the year
-
-
-
(6,176,828)
Lapsed/cancelled
(135,000)
-
(135,000)
(1,067,100)
Outstanding at 31 July
13,373,756
850,500
14,224,256
13,915,256
Exercisable at 31 July
4,118,090
850,500
4,968,590
1,261,923
During the prior year ended 31 July 2013, options over 3,387,986 shares, jointly owned by the EBT and which had been issued at their original market value of 603,000, were exercised for an aggregate consideration of 135,000; the balance of 468,000 was charged to the share-based payment reserve.
Weighted average exercise price of options
2014
2013
The Group and Company
Pence
Pence
Outstanding at 1 August
56.8
34.3
Granted during the year
89.0
60.8
Exercised during the year
-
13.4
Forfeited/cancelled
113.2
95.6
Outstanding at 31 July
54.4
56.8
The weighted average fair value of options granted during the year to 31 July 2014 was 89 pence (2013: 61 pence). The range of exercise prices for options and jointly owned EBT shares outstanding at the end of the year was nil -146 pence, (2013: nil - 146 pence).
For the share options outstanding as at 31 July 2014, the weighted average remaining contractual life is 7.6 years (2013: 8.5 years).
No share options were exercised during the year (2013: the weighted average share price at the date of exercise for those share options exercised was 110 pence).
The following table lists the inputs to the models used for the years ended 31 July 2014 and 31 July 2013.
The Group and Company
Performance linked grants
Non-performance linked grants
2014 2013
2014 2013
Expected volatility (%)
n/a
50%-55%
56%
50%-55%
Risk-free interest rate (%)
n/a
0.8%
1.84%
0.7%-0.9%
Expected life of options (year's average)
n/a
2.5 years
3 years
2 years
Weighted average exercise price (pence)
n/a
61p
89.0
62.5p
Weighted average share price at date of grant (pence)
n/a
57p
89.0
62.5p
Model used
Binomial
Binomial
Binomial
Binomial
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
No other features of options granted were incorporated into the measurement of fair value.
20. Merger reserve and capital redemption reserve
Merger reserve
The Group
000
At 31 July 2012, 31 July 2013 and 31 July 2014
(1,242)
The merger reserve arises under section 612 of the Companies Act 2006 on the shares issued by Nanoco Tech Limited to acquire Nanoco Technologies Limited as part of a simple Group re-organisation on 27 June 2007.
Capital redemption reserve
The Company
000
At 31 July 2012
4,498
Share options exercised at a discount to nominal value
(96)
At 31 July 2013
4,402
Share options exercised at a discount to nominal value
-
At 31 July 2014
4,402
The capital redemption reserve arises from the off-market purchase of deferred shares on 4 May 2005 and their subsequent cancellation.
Certain share options exercised during the year ended 31 July 2013 had an exercise price less than nominal value. The aggregate discount to nominal value on these options was 96,000 and was charged to the Company's capital redemption reserve and, on consolidation, to the Group's reverse acquisition reserve. The discount arose as a result of the formula agreed, at the time of the acquisition of Nanoco Tech Limited by the Company on 1 May 2009, for converting share options in Nanoco Tech Limited into equivalent share options in the Company. This accounting treatment was authorised at the AGM held on 16 December 2011.
21. Movement in revenue reserve and treasury shares
The Group
Retained deficit
Treasury sharesTotal
revenue reserve
000
000
000
As at 31 July 2012
(9,155)
(997)
(10,152)
Issue of shares by EBT
-
603
603
Loss for the year
(4,122)
-
(4,122)
As at 31 July 2013
(13,277)
(394)
(13,671)
Loss for the year
(7,811)
-
(7,811)
As at 31 July 2014
(21,088)
(394)
(21,482)
No jointly owned EBT shares were granted during the year (2013: no shares).
No jointly owned EBT shares were exercised during the year. (2013: options over 3,387,986 shares, jointly owned by the EBT and which had been issued at their original market value of 603,000, were exercised for an aggregate consideration of 135,000; the balance of 468,000 is charged to the share-based payment reserve).
Retained deficit represents the cumulative loss attributable to the equity holders of the parent company.
Treasury shares include the value of Nanoco Group PLC shares issued as jointly owned equity shares and held by the Nanoco Group sponsored Employee Benefit Trust ("EBT") jointly with a number of the Group's employees. At 31 July 2014 850,500 shares in the Company were held by the EBT (2013: 850,500). In addition there are 12,222 (2013: 12,222) treasury shares not held by the EBT.
Retained deficit
Treasury shares
Total
revenue reserveThe Company
000
000
000
At 31 July 2012
(25,412)
(997)
(26,409)
Issue of shares by EBT
-
603
603
Profit for the year
96
-
96
At 31 July 2013
(25,316)
(394)
(25,710)
Profit for the year
39
-
39
At 31 July 2014
(25,277)
(394)
(25,671)
22. Commitments
Operating lease commitments
The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and service charge payments under non-cancellable operating leases are as follows:
31 July 2014
31 July 2013
Group
Group
000
000
Land and buildings:
Not later than one year
584
667
After one year but not more than five years
1,722
1,912
After five years
1,002
1,390
3,308
3,969
23. Financial risk management
Overview
This note presents information about the Group's exposure to various kinds of financial risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital.
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The executive directors report regularly to the Board on Group risk management.
Capital risk management
The Company reviews its forecast capital requirements on a half-yearly basis to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in notes 18, 19, 20 and 21 and in the Group Statement of Changes in Equity. Total equity was 16,893,000 at 31 July 2014 (14,394,000 at 31 July 2013).
The Company is not subject to externally imposed capital requirements.
Liquidity risk
The Group's approach to managing liquidity is to ensure that, as far as possible, it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The Group manages all of its external bank relationships centrally in accordance with defined treasury policies. The policies include the minimum acceptable credit rating of relationship banks and financial transaction authority limits. Any material change to the Group's principal banking facility requires Board approval. The Group seeks to mitigate the risk of bank failure by ensuring that it maintains relationships with a number of investment grade banks.
At the reporting date the Group was cash positive with no outstanding borrowings, apart from a long-term loan which is being repaid on a quarterly basis in line with the terms of the loan agreement.
Categorisation of financial instruments
Loans and receivables
Financial liabilities at amortised cost
Group
Company
Financial assets/(liabilities)
000
000
000
000
31 July 2014
Trade receivables
116
-
116
-
Inter-company short-term loan to subsidiary
-
-
-
27,500
Inter-company long-term loan from subsidiary
-
-
-
(450)
Cash, cash equivalents and deposits
12,182
-
12,182
3,733
Trade and other payables *
-
(858)
(858)
-
Financial liabilities
-
(158)
(158)
-
12,298
(1,016)
11,282
30,783
Loans and receivables
Financial liabilities at amortised cost
Group
Company
Financial assets/(liabilities)
000
000
000
000
31 July 2013
Trade receivables
114
-
114
-
Inter-company short-term loan to subsidiary
Inter-company long-term loan from subsidiary
-
-
-
17,055
(450)
Cash, cash equivalents and deposits
9,944
-
9,944
4,402
Trade and other payables *
-
(1,386)
(1,386)
-
Financial liabilities
-
(221)
(221)
-
10,058
(1,607)
8,451
21,007
*Excluding deferred revenue and accruals.
The values disclosed in the above table are carrying values. The Board considers that the carrying amount of financial assets and liabilities approximates to their fair value.
The main risks arising from the Group's financial instruments are credit risk and foreign currency risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.
Other loans (note 17) are subject to interest at base rate plus 2%, however as the Group's cash deposits which attract interest at rates set for the period of the respective deposit, are of a greater amount, any increase in base rate and thus interest payable are more than offset by higher interest income.
Credit risk
The Group's principal financial assets are cash, cash equivalents and deposits. The Group seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with multiple counterparty banks that have investment grade credit ratings.
The Group trades only with recognised, creditworthy third parties. Receivable balances are monitored on an on-going basis with the result that the Group's exposure to bad debts is not significant. The Group's maximum exposure is the carrying amount as disclosed in note 14, which was neither past due nor impaired. All trade receivables are ultimately overseen by the Chief Financial Officer and are managed on a day-to-day basis by the UK credit control team. Credit limits are set as deemed appropriate for the customer.
The maximum exposure to credit risk in relation to cash, cash equivalents and deposits is the carrying value at the balance sheet date.
Foreign currency risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Company. These are primarily US Dollars (USD) and Euros. Transactions outside of these currencies are limited.
Almost all of the Company's revenue is denominated in USD. The Group purchases some raw materials, certain services and some assets in USD which partly offsets its USD revenue, thereby reducing net foreign exchange exposure.
The Group may use forward exchange contracts as an economic hedge against currency risk, where cash flow can be judged with reasonable certainty. Foreign exchange swaps and options may be used to hedge foreign currency receipts in the event that the timing of the receipt is less certain. There were no open forward contracts as at 31 July 2014 or at 31 July 2013.
The split of Group assets between Sterling and other currencies at the year-end is analysed as follows:
31 July 2014
31 July 2013
GBP
USD
Total
GBP
USD
Total
The Group
000
000
000
000
000
000
Cash, cash equivalents and deposits
12,032
150
12,182
9,813
131
9,944
Trade receivables
-
116
116
-
114
114
Trade payables
(629)
(131)
(760)
(1,024)
(253)
(1,277)
11,403
135
11,538
8,789
(8)
8,781
Sensitivity analysis to movement in exchange rates
The following table demonstrates the sensitivity to a reasonably possible change in Sterling against the US Dollar exchange rate with all other variables held constant, on the Group's loss before tax (due to foreign exchange translation of monetary assets and liabilities) and the Group's equity.
Increase/(decrease)
in Sterling vs.
US Dollar rate
Impact on loss
before tax and
Group equity
Impact on loss before tax and
Group equity
%
2014
000
2013
000
10%
(12)
1
5%
(6)
1
(5)%
7
-
(10)%
15
(1)
Interest rate risk
As the Group has no significant borrowings the risk is limited to the reduction of interest received on cash surpluses held at bank which receive a floating rate of interest. The principal impact to the Group is the result of interest-bearing cash and cash equivalent balances held as set out below:
31 July 2014
31 July 2013
Fixed rate
Floating rate
Total
Fixed rate
Floating rate
Total
The Group
000
000
000
000
000
000
Cash, cash equivalents and deposits
11,996
186
12,182
6,176
3,768
9,944
The Company
Cash, cash equivalents and deposits
3,733
-
3,733
1,500
2,902
4,402
As the majority of cash and cash equivalents are held on fixed deposit the exposure to interest rate movements is immaterial.
Maturity profile
Set out below is the maturity profile of the Group's financial liabilities at 31 July 2013 based on contractual undiscounted payments including contractual interest.
Less than
1 year
1 to 5
years
Greater than 5 years
Total
2014
000
000
000
000
Financial liabilities
Trade and other payables *
858
-
-
858
Other loans (including contractual interest)
65
101
-
166
923
101
-
1,024
Less than 1 year
1 to 5 years
Greater than 5 years
Total
2013
000
000
000
000
Financial liabilities
Trade and other payables *
1,386
-
-
1,386
Other loans (including contractual interest)
68
163
-
231
1,454
163
-
1,617
*Excluding deferred revenue and accruals. Trade and other payables are due within three months.
The Directors consider that the carrying amount of the financial liabilities approximates to their fair value.
As all financial assets are expected to mature within the next twelve months an aged analysis of financial assets has not been presented.
The Company's financial liability, a long-term loan from a subsidiary undertaking, is due after more than five years.
24. Related party transactions
The Group:
There were no sales to, purchases from, or at the year-end, balances with any related party.
The Company:
The following table summarises inter-company balances at the year-end between Nanoco Group PLC and subsidiary entities:
Notes
31 July 2014
31 July 2013
000
000
Long term loans owed to Nanoco Group PLC by:
Nanoco Life Sciences Limited
20,286
20,286
Nanoco Technologies Limited*
2,198
1,625
12
22,484
21,911
Less provision against debt owed by Nanoco Life Sciences Limited
12
(20,286)
(20,286)
2,198
1,625
Short-term loan owed to Nanoco Group PLC by:
Nanoco Technologies Limited**
14
27,500
17,055
Long-term loan owed by Nanoco Group PLC to:
Nanoco Tech Limited
16
(450)
(450)
* The movement in the long-term loan due from Nanoco Technologies Limited relates to the recharge in respect of the expense for share-based payments for staff working for Nanoco Technologies Limited and is included in investments.
** The movement in the short-term loan due from Nanoco Technologies Limited relates to transfers of cash balances between the entities for the purposes of investing short term funds and the funding of trading losses.
There are no formal terms of repayment in place for these loans and it has been confirmed by the directors that the long-term loans will not be recalled within the next twelve months.
None of the loans is interest bearing.
25. Compensation of key management personnel (including directors)
2014
2013
000
000
Short-term employee benefits
624
549
Pension costs
204
97
Benefits in kind
64
468
Share-based payments
180
305
1,072
1,419
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Recent news on Nanoco
See all newsREG - Nanoco Group PLC - Transaction in Own Shares and Total Voting Rights
AnnouncementREG - Nanoco Group PLC - Transaction in Own Shares and Total Voting Rights
AnnouncementREG - Nanoco Group PLC - Transaction in Own Shares and Total Voting Rights
AnnouncementREG - Nanoco Group PLC - Transaction in Own Shares and Total Voting Rights
AnnouncementREG - Nanoco Group PLC - Transaction in Own Shares and Total Voting Rights
Announcement