REG - Nanoco Group PLC - Preliminary Results <Origin Href="QuoteRef">NANON.L</Origin> - Part 2
16/11/2017 07:06
- Part 2: For the preceding part double click ID:nRSP6522Wa
reasonable, by their nature they are uncertain and, as such, changes in
estimates and judgements may have a material impact on the preliminary
results.
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the consolidated preliminary results.
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; and judgement regarding when and if performance
conditions will be met. 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 (below) and to the future volatility of the future share price
factor. Further information is included in note 3.
Outlook
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, which have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are those relating to the estimation of the number of
share options that will ultimately vest (note 22). The Group based its
assumptions and estimates on parameters available when the consolidated
preliminary results were prepared. Existing circumstances and assumptions
about future developments, however, may change due to market changes or
circumstances arising that are beyond the control of the Group. Such changes
are reflected in the assumptions when they occur.
Impairment of intellectual property and tangible fixed assets
Management judgement is required to determine the carrying value of these
assets. As the Group has not, to date, made a profit the carrying value of
these assets may need to be impaired. During the year an extensive review was
undertaken to identify which patents are of no further value to Nanoco and
should be allowed to lapse. As a consequence, patents with a value of £77,000
(2016: £nil) have been fully impaired in these preliminary results. 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. Management has
adopted the prudent approach of amortising patent registration costs over a
ten-year period, which is substantially shorter than the life of the patent.
For external patents acquired the same rule is adopted unless the remaining
life of the patent is shorter, in which event the cost of acquisition is
amortised over the remaining life of the patent.
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. Further information is included in note 9.
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.
(a) Basis of consolidation
The Group preliminary results consolidate the preliminary results 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 over the
investee (i.e. existing rights that give it the current ability to direct the
relevant activities of the investee), exposure, or rights, to variable returns
from its involvement with the investee and ability to use its power over the
investee to affect its returns. All Nanoco Group plc's subsidiaries are 100%
owned. Subsidiaries are fully consolidated from the date control passes.
The acquisition 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.
In the consolidated preliminary results, income and cash flow statement items
for Group entities with a functional currency other than Sterling are
translated into Sterling at monthly average exchange rates, which approximate
to the actual rates, for the relevant accounting periods.
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 (including
those of the Group's US subsidiary) 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, being
the research, development and manufacture of products and services based on
high performance nanoparticles.
(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, individual project development programmes and 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 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. Upfront
licence fees, where control over the intellectual property has been retained
by the Group, are taken to income on a straight-line basis over the initial
period of the contract in accordance with the continuing obligations under the
contract.
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 other operating income
in the consolidated statement of comprehensive income.
Government grants relating to capital expenditure are deducted in arriving at
the carrying amount of the asset.
(f) Cost of sales
Cost of sales comprises the labour, materials and power costs incurred in the
generation of revenue from products sold.
Revenue from royalties and licences and revenue from the rendering of
services, which comprise payments from customers to gain preferential
treatment in terms of supply or pricing, do not have an associated cost of
sale.
(g) Operating loss
Operating losses are stated after research and development and administration
expenses but before finance charges and taxation.
(h) 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 Group.
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, the exception being
the costs of filing and maintenance of intellectual property as these are
considered to generate probable future economic benefits and are capitalised
as intangible assets (see note 12).
(i) 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.
(j) 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. All borrowing costs
are recognised using the effective interest method.
(k) 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 (including research and development income tax
credit) 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
preliminary results 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 or 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 substantively
enacted by the balance sheet 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 of
economic benefits in the future is uncertain.
Deferred income tax assets and liabilities are offset only if a legally
enforceable right exists to set off current tax assets against current tax
liabilities, the deferred income taxes relate to the same taxation authority
and that authority permits the Group to make a single payment.
(l) Property, plant and equipment
Property, plant and equipment 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
(two to ten years)
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 derecognised 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 derecognition of the asset is included in the
consolidated statement of comprehensive income in the period of
derecognition.
(m) 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 consideration for the purchase of an intangible asset includes
contingent consideration, the fair value of the contingent consideration is
included in the cost of the asset.
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
(n) 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 and these calculations are 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 a revalued
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 and equipment as at the reporting date have not
been subjected to impairment charges.
An impairment loss in the year is respect of intangible fixed assets is
described in note 12.
(o) Assets held for sale
Non-current assets are classified as held for sale if their carrying amounts
will be recovered principally through a sale transaction, rather than through
continuing use. They are measured at the lower of carrying amount and fair
value less costs to sell, which are incremental costs directly attributable to
the disposal of the asset. The carrying value is assessed at each reporting
period.
Property, plant and equipment and intangible assets are not amortised once
classified as held for sale. Assets classified as held for sale are presented
separately as current assets in the statement of financial position.
(p) Investments in subsidiaries
Investments in subsidiaries are stated in the Company statement of financial
position at cost less provision for any impairment.
(q) 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.
(r) Financial instruments
Financial assets and financial liabilities are recognised when the Group
becomes party to the contractual provisions of the relevant instrument and
derecognised when it ceases to be party to such provisions. Such assets and
liabilities are classified as current if they are expected to be realised or
settled within twelve months after the balance sheet date. Financial assets
and liabilities are initially recognised at fair value and subsequently
measured at either fair value or amortised cost including directly
attributable transaction costs.
The Group has the following categories of financial assets and liabilities:
Loans and receivables
(i) 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 uncollectable, it is written off against the
allowance account for trade receivables.
(ii) 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.
Financial liabilities at amortised cost
(i) 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.
(ii) Loans
Obligations for loans and borrowings are measured initially at fair value and
subsequently interest-bearing loans are measured at fair value.
(s) 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.
(t) Shares held by the Employee Benefit Trust ("EBT")
Following the exercise on 2 August 2016 upon which jointly owned shares were
transferred to the sole beneficiary, there are no further shares held in the
EBT.
(u) 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 preliminary
results as an increase in the value of the investment with a corresponding
increase in equity via the share-based payment reserve.
(v) 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.
(w) New accounting standards and interpretations
The following amendments to IFRS became mandatory in this reporting period.
The Group has applied the following standards and amendments for the first
time for the reporting period commencing 1 August 2016:
· Disclosure initiative - amendments to IAS 1 Presentation of Financial
Statements;
· Clarification of acceptable methods of depreciation and amortisation -
amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible
Assets;
· Accounting for acquisitions of interests in joint operations - amendments
to IFRS 11; and
· Annual improvements to IFRS 2012-2014 cycle.
The adoption of these amendments did not have an impact on the current period
or any prior period.
New standards not yet adopted
The IASB has published three new accounting standards relevant to the Group
that will be mandatory in future periods. These standards have not been early
adopted in these consolidated preliminary results. The Group's initial
assessment of the future impact of these new standards is as follows:
IFRS 9 Financial Instruments (effective for annual periods beginning on or
after 1 January 2018)
The new financial instruments standard introduces changing to accounting for
credit losses, including related disclosures. The new standard also introduces
changes to how financial assets are measured on an ongoing basis to align with
the asset's cash flow characteristics and the business model in which the
asset is held. In addition the Company will be required to measure expected
losses in respect of balances due from other Group companies.
As the Group does not have any complex financial instruments, this is not
expected to impact on reported performance.
IFRS 15 Revenue from Contracts with Customers (effective for annual periods
beginning on or after 1 January 2018)
The new revenue standard provides a clearer and more detailed five-step model
for revenue recognition and disclosure in a framework that is designed to
improve comparability of revenue amounts over a range of industries, companies
and geographical boundaries. The standard can significantly change an issuer's
timing of recognition of revenue, among other changes.
Revenue is often not only a key performance measure in its own right, but also
a starting point for other performance measures, such as operating income, net
income and earnings per share; key analytical ratios, such as margins, return
on equity and return on assets; and valuation metrics, such as revenue
multiples and price-to-earnings ratios.
The standard is effective for Nanoco in the year ending 31 July 2019. The new
standard provides enhanced detail and a five-step revenue recognition approach
to reflect the transfer of goods and services to customers.
IFRS 15 requires the identification of deliverables in contracts with
customers that qualify as performance obligations. The transaction price
receivable from customers must be allocated between the Company's performance
obligations under contracts on a relative stand-alone basis. Where goods or
services sold together are concluded to be distinct performance obligations,
revenue allocated to such goods or services is recognised when the control of
goods passes to the customer or as the service is delivered.
Detailed reviews of revenue arrangements are under way and will continue into
2017/18 as we finalise our assessment of the impact of the new standard. Key
matters arising from the assessment relate to the identification of
performance obligations and determining when they are satisfied.
Based on work to date we expect that one contract will be impacted by IFRS 15
in that an upfront licence fee, currently recognised over the life of the
agreement (seven and a half years) under IAS 18, will be recognised over time,
based on the number of units of product sold under IFRS 15 thereby deferring
revenues and profits recognised under IAS 18 in the early years of the
agreement. We continue to work on other agreements but we do not expect them
to be significantly impacted by the implementation of IFRS 15.
When IFRS 15 is adopted, it can be applied either on a fully retrospective
basis, requiring the restatement of the comparative periods presented in the
preliminary results, or with the cumulative retrospective impact of IFRS 15
applied as an adjustment to equity on the date of adoption. When the latter
approach is applied it is necessary to disclose the impact of IFRS 15 on each
line item in the preliminary results in the reporting period. A cumulative
retrospective approach as modified in accordance with the standard is expected
to be taken.
IFRS 16 Leases (effective for annual periods beginning on or after 1 January
2019)
The new leases standard changes the previous lease accounting model so a
lessee will now reflect more assets and liabilities arising from leases on its
balance sheet. This can substantially affect key financial ratios, including
ratios related to debt covenants or debt-to-equity ratios.
The Group expects to recognise certain assets and liabilities (as outlined in
note 25) on initial recognition of this standard, although it is not expected
to have a major impact on the consolidated income statement as the Group only
has a limited number of off-balance sheet leases classified as operating
leases under current lease accounting requirements per IAS 17 Leases.
4. Segmental information
Operating segments
At 31 July 2017 the Group operated as one segment, being the research,
development and manufacture of products and services based on high performance
nanoparticles. This is the level at which operating results are reviewed by
the chief operating decision maker (i.e. the Chief Executive Officer) 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 July2017£'000 31 July2016£'000
Analysis of revenue
Products sold 470 204
Rendering of services 241 114
Royalties and licences 615 156
1,326 474
There were two material customers who generated revenue of £832,000 and
£150,000 (2016: one material customer amounting to £114,000).
The Group operates in four main geographic areas, although all are managed in
the UK. The Group's revenue per geographical segment based on the customer's
location is as follows:
31 July 2017£'000 31 July2016£'000
Revenue
UK 167 20
Europe (excluding UK) 843 42
Asia 163 135
USA 153 277
1,326 474
All the Group's assets are held in the UK and all of its capital expenditure
arises in the UK. The loss on ordinary activities before taxation and
attributable to the single segment was £10,898,000 (2016: £12,600,000).
5. Other operating income
31 July 2017£'000 31 July2016£'000
Government grants 213 284
Other income - insurance proceeds 68 -
281 284
6. Operating loss
31 July 2017£'000 31 July2016£'000
Operating loss is stated after charging:
Depreciation of tangible fixed assets (see note 11) 741 991
Amortisation of intangible assets (see note 12) 405 298
Impairment of intangible assets (see note 12) 77 -
Staff costs (see note 7) 5,947 6,801
Foreign exchange losses 43 4
Research and development expense* 5,508 5,995
Share-based payments 242 270
Operating lease rentals (see note 25):
Land and buildings 733 723
* Included within research and development expense are staff costs
totalling £4,011,000 (2016: £4,590,000) also included in note 7.
Auditor's remuneration
Audit services:
- Fees payable to Company auditor for the audit of the Parent and the consolidated accounts 60 20
- Auditing the accounts of subsidiaries pursuant to legislation 30 23
Fees payable to Company auditor for other services:
- Assurance services in connection with the review of interim results 22 8
- Services relating to corporate finance transactions not covered above 30 -
Total auditor's remuneration 142 51
7. Staff costs
31 July 2017£'000 31 July2016£'000
Wages and salaries 4,947 5,622
Social security costs 453 567
Pension contributions 305 342
Share-based payments 242 270
5,947 6,801
Directors' remuneration (including benefits in kind) included in the aggregate remuneration above comprised:
Emoluments for qualifying services 1,071 1,227
Directors' emoluments (excluding social security costs and long-term
incentives, but including benefits in kind) disclosed above include £327,000
paid to the highest paid Director (2016: £349,000).
Pension contributions into money purchase schemes were made for four Directors
(2016: four).
Aggregate gains made by Directors during the year following the exercise of
share options and jointly owned EBT shares were £nil (2016: £nil).
Not included in the costs reported above are share awards to be made to
Directors under the deferred bonus plan amounting to £nil (2016: £166,000)
which are included in the Directors' remuneration report. The awards are
recognised in the income statement by way of a share-based payment charge over
the deferral period as required by IFRS 2.
An analysis of the highest paid Director's remuneration is included in the
Directors' remuneration report.
The average number of employees during the year (including Directors) was as
follows:
Group 31 July 2017Number 31 July2016Number
Directors 8 9
Laboratory and administrative staff 102 120
110 129
8. Finance income and expense
Group 31 July2017£'000 31 July2016£'000
Finance income
Bank interest receivable 44 193
Finance expense
Loan interest payable - (12)
44 181
Bank interest receivable includes £nil (2016: £12,000), which is receivable
after the year end.
9. Taxation
The tax credit is made up as follows:
Group 31 July2017£'000 31 July2016£'000
Current income tax
Research and development income tax credit receivable (1,837) (1,970)
Adjustment in respect of prior years (30) (30)
Overseas corporation tax 79 7
(1,788) (1,993)
Deferred tax
Charge for the year - -
Total income tax credit (1,788) (1,993)
The adjustments in respect of prior years relate to research and development
income tax credits. The research and development income tax for the year ended
31 July 2016 was submitted in May 2017 and the repayment was received in June
2017. The income tax receivable shown in the statement of financial position
is the R&D tax credit receivable reported above.
The tax assessed for the year varies from the standard rate of corporation tax
as explained below:
Group 31 July2017£'000 31 July2016£'000
Loss on ordinary activities before taxation (10,898) (12,600)
Tax at standard rate of 19.67% (2016: 20%) (2,143) (2,520)
Effects of:
Expenses not deductible for tax purposes 78 243
Additional reduction for research and development expenditure (1,405) (1,556)
Surrender of research and development relief for repayable tax credit 2,492 2,758
Research and development tax credit receivable (1,837) (1,970)
Share options exercised (CTA 2009 Pt 12 deduction) (17) -
Overseas corporation tax 79 7
Losses and share-based payment charges carried forward not recognised in deferred tax 995 1,075
Adjustment in respect of prior years (30) (30)
Tax credit in income statement (1,788) (1,993)
The Group has accumulated losses available to carry forward against future
trading profits of £29.1 million (2016: £24.3 million).
Deferred tax liabilities/(assets) provided/(recognised) at a standard rate of
17% (2016: 20%) are as follows:
31 July2017£'000 31 July2016£'000
Accelerated capital allowances 83 189
Share-based payments - (189)
Tax losses (83) -
- -
The Group also has deferred tax assets, measured at a standard rate of 17%
(2016: 20%), in respect of share-based payments of £369,000 (2016: £455,000)
and tax losses of £4,951,000 (2016: £4,850,000) which have not been recognised
as an asset as it is not yet probable that future taxable profits will be
available against which the assets can be utilised.
10. Earnings per share
Group 31 July 2017 £'000 31 July2016 £'000
Loss for the financial year attributable to equity shareholders (9,110) (10,607)
Share-based payments 242 270
Loss for the financial year before share-based payments (8,868) (10,337)
Weighted average number of shares
Ordinary shares in issue 238,180,510 237,077,578
Adjusted loss per share before share-based payments (pence) (3.72) (4.36)
Basic loss per share (pence) (3.82) (4.47)
Diluted loss per share has not been presented above as the effect of share
options issued is anti-dilutive.
11. Property, plant and equipment
Group Laboratoryinfrastructure£'000 Officeequipment,fixturesand fittings£'000 Plant andmachinery£'000 Total£'000
Cost
At 1 August 2015 2,578 230 4,652 7,460
Additions 67 26 96 189
At 31 July 2016 2,645 256 4,748 7,649
Additions 10 139 225 374
Reclassified as assets held for sale (note 13) - - (203) (203)
At 31 July 2017 2,655 395 4,770 7,820
Depreciation
At 1 August 2015 2,007 161 3,230 5,398
Provided during the year 394 47 550 991
At 31 July 2016 2,401 208 3,780 6,389
Provided during the year 213 55 473 741
Reclassified as assets held for sale (note 13) - - (175) (175)
At 31 July 2017 2,614 263 4,078 6,955
Net book value
At 31 July 2017 41 132 692 865
At 31 July 2016 244 48 968 1,260
The aggregate original cost of tangible assets now fully depreciated but
considered to be still in use is £5,081,000 (2016: £3,301,000).
12. Intangible assets
Group Patents£'000
Cost
At 1 August 2015 2,803
Additions 900
At 31 July 2016 3,703
Additions 1,185
Reclassified as assets held for sale (note 13) (597)
At 31 July 2017 4,291
Amortisation
At 1 August 2015 982
Provided during the year 298
At 31 July 2016 1,280
Provided during the year 405
Impairment charge 77
Reclassified as assets held for sale (note 13) (90)
At 31 July 2017 1,672
Net book value
At 31 July 2017 2,619
At 31 July 2016 2,423
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 are
material to the business. The aggregate original cost of intangible assets now
fully depreciated but considered to be still in use is £161,000 (2016:
£154,000). During the year an extensive review was undertaken to identify
which patents are of no further value to Nanoco and should be allowed to
lapse. As a consequence, patents with a value of £77,000 (2016: £nil) have
been fully impaired in these preliminary results. This impairment charge is
recognised within administrative expenses.
Contingent consideration of $150,000 is payable in respect of a purchase of
patents made during the year. The amount is payable if the Group reaches a
revenue target in a future reporting period. The addition is recorded above
at the directors' estimate of fair value of the consideration payable.
13. Assets held for sale
Plant andmachinery£'000 Intellectualproperty£'000 Total£'000
At 1 August 2016 - - -
Reclassified during the period 28 507 535
At 31 July 2017 28 507 535
These assets represent those held for sale following the Board's decision to
dispose of the equipment and intellectual property arising from the Group's
studies on solar power generation using CIGS (copper indium gallium selenide)
materials. The Directors consider that these assets will be disposed of within
twelve months through a sale transaction. Upon reclassification no
re-measurement was necessary and therefore there have been no gains or losses
recognised. All of the assets are held by the one operating segment.
14. Investment in subsidiaries
Company Shares£'000 Loans£'000 Loan impairment£'000 Total£'000
At 1 August 2015 63,235 23,103 (20,286) 66,052
Increase in respect of share-based payments - 270 - 270
At 31 July 2016 63,235 23,373 (20,286) 66,322
Increase in respect of share-based payments - 242 - 242
At 31 July 2017 63,235 23,615 (20,286) 66,564
By subsidiary
Nanoco Tech Limited 63,235 - - 63,235
Nanoco Life Sciences Limited - 20,286 (20,286) -
Nanoco Technologies Limited - 3,329 - 3,329
At 31 July 2017 63,235 23,615 (20,286) 66,564
Loans to subsidiary undertakings carry no interest and are repayable on
demand. Further information in relation to these loans is given in note 27.
Share of issued ordinary share capital
Subsidiary undertakings Country of incorporation Principal activity 31 July 2017 31 July 2016
Nanoco Life Sciences 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 Manufacture and development of nanoparticles 100% 100%
Nanoco 2D Materials Limited*** England and Wales Research and development 100% -
Nanoco US Inc.** USA Management services 100% 100%
All subsidiaries incorporated in England and Wales are registered at 46
Grafton Street, Manchester M13 9NT.
Nanoco US Inc. is registered at 33 Bradford Street, Concord, MA 01742.
With the exception of the two companies footnoted 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.
*** Nanoco 2D Materials Limited was incorporated on 6 February 2017.
15. Inventories
31 July 2017Group£'000 31 July 2017Company£'000 31 July 2016Group£'000 31 July 2016Company£'000
Raw materials, finished goods and consumables 188 - 208 -
A total of £80,000 (2016: £85,000) was included in cost of sales with respect
to inventory during the year.
16. Trade and other receivables
31 July 2017Group£'000 31 July 2017Company£'000 31 July 2016Group£'000 31 July 2016Company£'000
Trade receivables 111 - 1,455 -
Prepayments and accrued income 329 - 422 12
Inter-company short-term loan to subsidiary - 47,957 - 42,976
Other receivables 229 - 168 -
669 47,957 2,045 42,988
Trade receivables are non-interest bearing and are generally due and paid
within 30 to 60 days. The Directors consider that the carrying amount of trade
and other receivables approximates to their fair value and that no impairment
is required at the reporting date. Therefore there is no provision for
impairment at the balance sheet date (2016: £nil).
Trade receivables are denominated in the following currency:
31 July 2017Group£'000 31 July 2017Company£'000 31 July 2016Group£'000 31 July 2016Company£'000
US Dollars 15 - 1,032 -
Euros 53 - 423 -
Sterling 43 - - -
111 - 1,455 -
At 31 July the analysis of trade receivables that were past due but not
impaired was as follows:
Not yetdue£'000 Duebut not impaired£'000 Past due but not impaired>90 days£'000 Past duebut not impaired120 to150 days£'000 Total£'000
2017 105 6 - - 111
2016 1,374 30 8 43 1,455
17. Cash, cash equivalents and deposits
31 July 2017Group£'000 31 July 2017Company£'000 31 July2016Group£'000 31 July2016Company£'000
Short-term investments and cash on deposit - - 5,000 5,000
Cash and cash equivalents 5,706 4,670 9,511 4,057
5,706 4,670 14,511 9,057
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 2017 include deposits with original
maturity of three months or less of £nil (2016: £5,000,000).
An analysis of cash, cash equivalents and deposits by denominated currency is
given in note 26.
18. Trade and other payables
31 July 2017Group£'000 31 July 2017Company£'000 31 July 2016Group£'000 31 July 2016Company£'000
Current
Trade payables 814 - 1,093 -
Other payables 136 - 185 -
Accruals 368 - 1,165 -
1,318 - 2,443 -
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. Interest is not charged on inter-company
loans (2016: no interest). The average credit period taken is 37 days (2016:
45 days).
19. Financial liabilities
31 July 2017Group£'000 31 July 2017Company£'000 31 July 2016Group£'000 31 July 2016Company£'000
Other loan
Current - - 32 -
- More to follow, for following part double click ID:nRSP6522WcRecent news on Nanoco
See all newsREG - Nanoco Group PLC - Conclusion of CDX process & Directorate changes
AnnouncementREG - Nanoco Group PLC - Receipt of Litigation Proceeds
AnnouncementREG - Nanoco Group PLC - Result of AGM
AnnouncementREG - Nanoco Group PLC - Litigation update
AnnouncementREG - Nanoco Group PLC - Blocklisting Six-Monthly Return
Announcement