REG - Nanoco Group PLC - Preliminary Results
20/10/2022 07:00
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RNS Number : 4797D Nanoco Group PLC 20 October 2022
20 October 2022
NANOCO GROUP PLC
("Nanoco", the "Group", or the "Company")
Unaudited Preliminary Results for the year ended 31 July 2022
"A critical year in which we delivered key value enhancing milestones"
Nanoco Group plc (LSE: NANO), a world leader in the development and
manufacture of cadmium-free quantum dots and other specific nanomaterials
emanating from its technology platform, is pleased to announce its unaudited
Preliminary Results for the year ended 31 July 2022.
Operational Summary - long term commercial visibility being generated
· Significant contract extension with European electronics customer to
deliver materials validated for commercial production in the short term
· Continuing development work with major Asian chemicals customer
· Increasing customer engagements for CFQD materials for display
applications
· Consolidating all operations into Runcorn to deliver long term cash
savings (net £0.7m p.a.)
Samsung Litigation - strengthened belief and confidence in our case
· Patent Trial and Appeal Board ('PTAB') confirmed validity of all 5
patents and 47 associated claims in the litigation against Samsung - firmly
underpinning our unique leading edge IP
· Jury trial in Texas expected in the short term
· Filed additional lawsuit seeking injunction against Samsung in Germany
· Goal remains delivering fair value for global nature and remaining
lives of our patents while acknowledging the remaining risks
Financial Summary - traded ahead of earlier expectations with enhanced and
extended funding
· Revenue increased 19% to £2.5m (FY21: £2.1m) on increased activity
levels
· Improved Adjusted LBITDA of £2.1m (FY21: £2.8m LBITDA) from revenue
growth and savings
· Equity fundraising extended cash runway to CY 2025, beyond expected
breakeven point
· Cash of £6.8 million at year end with average net monthly burn rate
now under £0.2m
Brian Tenner, Nanoco's CEO, commented on the results:
"We have consistently delivered on all of our target milestones throughout the
Period. The full year contract with the European electronics customer covers
product validation and new material development. This is a clear sign of their
commitment to commercialising infra-red sensors using Nanoco's quantum dots.
We maintain our goal of being ready in H1 FY23 for potential commercial
production orders in the short term.
"Interest has been re-energised in our CFQDs for use in displays. This
reflects the gradually increasing number of panel makers seeking cadmium free
solutions and also reflects the strong underpinning of Nanoco's IP provided by
the PTAB decisions earlier this year.
"We are consolidating our core R&D and scale up capabilities in our
Runcorn production facility to deliver sustainable net savings of around
£0.7m p.a. The over-subscribed equity fund raise significantly extended the
cash runway beyond when we expect to be self-financing. This has also allowed
targeted strategic investments in new equipment and additional personnel as we
increase our overall activity levels across the business, including new
R&D staff to support new materials for other quantum applications.
"We are also pleased with the developments in our litigation against Samsung
during the Period. The progress vindicates and enhances our confidence in the
merits of our case. We won all five of the inter partes reviews at PTAB. At
the pre-trial conference, the motions that are important to Nanoco were
resolved in our favour. We have been able to narrow our focus ahead of the
short one week trial onto those claims that Nanoco considers to be the
strongest and most clearly infringed. We patiently await a confirmed date for
that trial.
"The whole Nanoco team has worked hard to deliver significant progress on a
number of fronts during the year. We have increased the potential to create
significant shareholder value in our organic activities and the Samsung
litigation in the short to medium term. We will be working hard to continue
these trends, particularly with confidence in the visibility of commercial
production orders and an initial outcome to the trial in Texas during H1 FY23.
The Board therefore has growing confidence in the strength of the investment
proposition and value inherent in the business."
Analyst meeting and webcast details
A conference call and webcast for analysts will be held at 10:00am (UK time)
this morning (20 October 2022):
Dial in: +44 (0)330 551 0200
Link: https://stream.brrmedia.co.uk/broadcast/62fe66248b876c6ccc6b69d2
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.google.com%2Furl%3Fq%3Dhttps%3A%2F%2Fstream.brrmedia.co.uk%2Fbroadcast%2F62fe66248b876c6ccc6b69d2%26sa%3DD%26source%3Dcalendar%26ust%3D1666002480856041%26usg%3DAOvVaw1QG8440vkTH40mVuOvKAzN&data=05%7C01%7CLGray%40nanocotechnologies.com%7C4a17188f335440ea67f408dab1c80978%7C7365949d92c34a559a34eb6d34ef6545%7C0%7C0%7C638017769966779373%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=ekoPtPT4gRWCbb0oqjIxFt2ueh63hZVkk3RTKGv8CpA%3D&reserved=0)
For further details please contact MHP Communications on 0203 128 8990 or at
nanoco@mhpc.com (mailto:nanoco@mhpc.com)
A recording of the webcast will also be made available on Nanoco's website
www.nanocotechnologies.com, later today.
There will be a further presentation via the Investor Meet Company platform on
21 October at 10:00am. Questions can be submitted in advance via the Investor
Meet Company Dashboard before 9:00am on 21 October, or at any time during the
live presentation. Investors can sign up to the Investor Meet Company platform
for free and register their interest in events hosted by Nanoco Group Plc via:
https://www.investormeetcompany.com/nanoco-group-plc/register-investor
(https://www.investormeetcompany.com/nanoco-group-plc/register-investor)
Investors who already follow Nanoco Group Plc on the Investor Meet Company
platform will automatically be invited.
For further information, please contact:
Nanoco Group PLC:
Brian Tenner,
CEO
+44 (0) 161 603 7900
Liam Gray, CFO & Company Secretary
+44 (0) 161 603 7900
Peel Hunt (Joint Corporate Broker):
Paul Gillam
+44 (0) 20 7418 8900
James Smith
Turner Pope Investments (Joint Corporate Broker):
Andrew
Thacker
+44 (0) 20 3657 0050
James Pope
MHP Communications:
+44 (0) 203 128 8570
Reg Hoare
Pete Lambie
nanoco@mhpc.com
Notes for editors:
About Nanoco Group plc
Nanoco (LSE: NANO) harnesses the power of nano-materials. Nano-materials are
materials with dimensions typically in the range 1 - 100 nm. Nano-materials
have a range of useful properties, including optical and electronic. Quantum
dots are a subclass of nano-material that have size-dependent optical and
electronic properties. The Group produces quantum dots and other
nano-materials. Within the sphere of quantum dots, the Group exploits
different characteristics of the quantum dots to target different performance
criteria that are attractive to specific markets or end-user applications such
as the Display, Sensor and Electronics markets. An interesting property of
quantum dots is their absorption spectrum. Nanoco's HEATWAVE™ quantum dots
can be tuned to absorb light at different wavelengths across the near-infrared
spectrum, rendering them useful for applications including image sensors.
Another interesting property of quantum dots is photoluminescence: the
emission of longer wavelength light upon excitation by light of a shorter
wavelength. The colour of light emitted depends on the particle size. Nanoco's
CFQD® quantum dots are free of cadmium and other toxic heavy metals, and can
be tuned to emit light at different wavelengths across the visible and
infrared spectrum, rendering them useful for a wide range of applications
including displays, lighting and biological imaging.
Nanoco was founded in 2001 and is headquartered in Runcorn, UK, with a US
subsidiary, Nanoco Inc., in Concord, MA. Nanoco continues to build out a
world-class, patent-protected IP portfolio generated both by its own
innovation engine, as well as through acquisition.
Nanoco is listed on the Main Market of the London Stock Exchange and trades
under the ticker symbol NANO. For further information please visit:
www.nanocotechnologies.com (http://www.nanocotechnologies.com) .
Chairman's statement
Steady delivery of critical, value enhancing milestones
Summary
• Major contract extension agreed with important European customer,
underpinning scale-up and final production validation.
• Development agreement progressing with a major Asian chemical company
that supplies global electronics markets.
• Continued expansion of our range of different materials, customer
engagements, and applications for sensing materials.
• Growing expressions of interest in display materials following
validation of Nanoco IP by PTAB and global RoHS developments.
• Confidence in the merits of our case against Samsung for the wilful
infringement of the Group's IP in the USA further reinforced by PTAB decision
to confirm validity of all our patents; currently awaiting a firm trial date.
• Operations transferred successfully from Manchester to Runcorn
delivering net £0.7 million annualised savings from CY23.
• Over-subscribed equity issue of £5.4 million (net) secured cash
runway to CY25 - beyond the point when the Group expects to be self-financing
in its organic operations.
Strategy and business activity
This calendar year was always going to be a critical year for Nanoco. Our
challenge was to deliver key value inflection milestones, in both the organic
business and in the IP litigation against Samsung. By the end of the financial
year we had successfully delivered in both areas.
The significant contract extension with our important European electronics
customer underpins final product validation in the sensor market. It also
provides new material research service income in advance of potential
commercial production orders. We aim to have validated our materials and to
have visibility of commercial production from the customer around the end of
H1 FY23.
We have continued to build on our success in expanding our range of
nanomaterials for use in sensing applications and to grow the number of active
engagements with customers. This incremental approach to business development
ensures that we balance the Company's financial resources against the need to
continue to expand our product and customer reach.
Commercial success with materials in production will be the ultimate test for
the success or failure of the business in the medium to long term. In the
background, a small subset of the Nanoco team has driven the Samsung
litigation forward enabling the commercial team to focus fully on the organic
business.
Business performance
The organic business has enjoyed a number of notable successes during the
year. A new one-year contract with our important European electronics customer
creates a much more stable planning and operating environment for the Nanoco
team. We expect to continue the expansion of our portfolio of materials and
customers focused around infra-red sensing as we expand our IP in this area.
We are also starting to see additional inbound enquiries for our display
materials as markets take notice of our IP victories at PTAB.
The operations team completed a number of important change projects during the
year, not least of which were the exits from the first and ground floors of
our Manchester facility. We expect a number of operational benefits from
having the whole team in one location as we look forward to visibility of our
first commercial production orders around the end of H1 FY23. The operational
benefits will be supplemented by just under £0.7 million of net annualised
cash savings once the exits are complete towards the end of CY22.
The successful and significantly over-subscribed fundraise of £5.4 million
(net) in June 2022 creates a solid foundation for the business by extending
our cash runway out to CY25. This is expected to be beyond the resolution of
any PTAB appeals and also potentially beyond the point when we expect the
organic business to become self-financing.
No dividend is proposed for the year (2021: none).
Samsung litigation
It was extremely gratifying earlier in the year when the Patent Trial and
Appeal Board ("PTAB") emphatically rejected all of Samsung's objections to the
47 claims in the five patents in the case. This is a clear vindication of the
quality, strength and value of Nanoco's IP portfolio, which is now attracting
new commercial interest from other market participants.
At the time of writing, we are still awaiting a firm date for the Jury trial
in Texas. It is important to emphasise that Samsung is likely to appeal any
verdict that favours Nanoco in this trial. As a result, we do not expect a
conclusion of the US litigation until the appeals process is exhausted, which
could take some years. Samsung has already lodged notices that it intends to
appeal all of the PTAB findings, a process which is to be resolved over the
next twelve to eighteen months.
So, even if we are successful at trial there will still be much work to be
done before this matter is finally settled. Our resolve remains strong to
achieve fair value in this matter for all of our stakeholders, whether through
negotiated settlement or final enforced judicial outcome.
We have also recently taken steps to defend our IP in Germany, a major market
for Samsung. Other venues for litigation are also being evaluated. The costs
of the legal process in Germany are lower than the US, the speed of resolution
is faster, and, importantly, injunctions preventing the sale of infringing
units are more commonly granted. Our third party funding partner continues to
support all aspects of these lawsuits, including the appeals processes.
Finally, the Board continues to review options for litigation against other
potentially infringing entities, including third parties who may be purchasing
infringing display units from Samsung.
Governance and Board
This has been another busy year for the Board, with active engagement from all
members. Close monitoring of the IP litigation, as well the operational
aspects of the business, has kept Board members busy. We have also pursued
continuous improvement in our governance processes.
Non-Executive Director salary deferrals remained in place throughout the year
as the Board continued to show leadership on cash and cost control. Following
the improved outlook for the organic business and the successful fundraise in
June 2022, it was decided to cease the 35% deferral of NED salaries with
effect from 1 July 2022.
During the year, we benefited from the services of Henry Turcan as a
Non-Executive Director, representing our largest shareholder, Lombard Odier
Asset Management ("LOAM"). His contribution and perspectives on the capital
markets in particular were immediately valuable. After the year end, with the
business on a much more secure financial and commercial footing, Henry stepped
down from the Board and LOAM has chosen not to nominate a replacement NED at
this time.
Employees and shareholders
Our staff responded admirably to the welcome challenges of an increasing
workload across all aspects of the business. We continue our efforts to
provide staff with a supportive working environment and have made special
provision during the relocation from Manchester to Runcorn. We are pleased
that the vast majority of staff agreed to make the transition from Manchester
to Runcorn. We have moved swiftly to ensure that the business is staffed
appropriately in the run-up to potential commercial production orders in the
near term.
Following a number of challenging years, we are pleased that we have been able
to award a Company-wide pay rise for the first time since August 2019, whilst
enhancing the overall Nanoco reward package to retain and motivate our high
calibre team.
The Board is very grateful for the hard work of our staff, who have brought us
to this exciting point in our evolution. Capturing the short-term
opportunities we see in front of us will secure not just the Company's future
but also the futures of our dedicated Nanoco team, whilst becoming a
significant success story for the north west of England.
I would also like to thank our shareholders for their continuing support. The
successful fundraise emphasises the strength of backing from existing and new
shareholders. We hope to repay that support with significant growth in
shareholder value in the short term that then endures for the long term.
I look forward to engaging with as many shareholders as possible at our AGM to
be held on 20 December 2022.
Outlook
We continue to develop our product offering and to deliver technical
milestones for our significant customers, as we move towards commercial
production in the short term. This is a critical milestone in our aim to
become a self-financing organic business with a broad range of diversified
customers and products.
We expect that our confidence in the merits of our case against Samsung for
infringement of our IP will be vindicated when the trial takes place in Texas
in the near term. While undoubtedly there will be appeals and further delaying
tactics deployed by Samsung, we will be able to manage those with full
confidence and from a position of strength without ruling out our willingness
to entertain a fair value early settlement proposal from Samsung.
Our focus remains to build a self-sustaining organic business as the best way
to deliver enduring shareholder value. We will also work to protect and
realise any value that is delivered by a trial verdict, and to ensure that it
reflects not just the USA and the past, but the rest of the world and the
future lives of our patents. Achieving both goals will deliver the Nanoco for
which we have been striving for many years and a significant increase in value
for all stakeholders.
Dr Christopher Richards
Chairman
20 October 2022
Chief Executive Officer's statement
Strong delivery of commercial, technical, operational and litigation
milestones
"Extending our cash runway beyond expected key litigation milestones and
potential production order visibility in H1 FY23 was an important step. Both
the organic business and the litigation create potentially transformative
changes in shareholder value in the short to medium term."
This year has been all about delivery. We have delivered or exceeded almost
all of the targets we set at the start of the year. We outperformed our
revenue target for the year while doubling the size of our opening order book
for the coming FY23. We delivered all of the challenging technical milestones
set by our customers for our high performing nanomaterials. We have almost
completed the consolidation of our Manchester R&D and scale up activities
into our Runcorn facility. This was accomplished despite a lower headcount
that required us to call up all of our bench strength to ensure customer
service was maintained while we made operational changes to the business.
These changes will bring long-term operational benefits as well as welcome
financial savings of around £0.7 million (net) per annum from January 2023.
Last, but not least, we have moved confidently through the various stages of
the litigation against Samsung and cleared each of the hurdles in front of us.
The trial in Texas is anticipated soon and we expect to build on all of the
successful steps taken so far to deliver a favourable outcome. Our team of
witnesses, experts and advisers remain ready for a trial at short notice.
Given Samsung's appeals in the IPRs and the expected appeal of any verdict
favourable to Nanoco, the litigation is still very likely to have a long way
to go. With a favourable outcome to the trial, we will be able to approach the
next steps from a position of strength. Further facts, background information
and possible forward timelines can be found in the Annual Report and Accounts
when it is published.
The year finished with a significantly over-subscribed equity issue and we
took advantage of that appetite for investment by issuing the maximum 5%
equity allowed under our AGM resolutions. Net proceeds of £5.4 million,
combined with modest revenue growth in FY23 and a low volume use case for
commercial production orders in H2 FY23, will fund the Group beyond the point
at which we expect the organic business to be self-financing.
Business performance
Electronics
We continued our on-time delivery of all development milestones for our major
European electronics customer. The new full year contract that runs until the
end of April 2023 covers the scale up and final validation of two of our
materials and also adds a third novel material set to our R&D efforts.
While at a less advanced stage and at a smaller scale, promising progress
continues to be made with our major Asian chemical company customer. That
relationship has the potential to equal in scale the revenue generation we
earn today from the European customer. Both the European and Asian customers
participate in very large global markets wherein final customer adoption of QD
sensing technology would lead to significant revenue for Nanoco. We also
continued to seek out new customer relationships throughout the year with
encouraging initial progress.
Success with sensing materials allowed us to turn an opening order book of
just under £1.0 million into a full year revenue figure almost two and a half
times higher at £2.5 million, alongside delivering a closing order book
double the opening position. This larger closing order book gives a robust
underpin to revenue expectations for FY23.
Our offering of nanomaterials for use in sensing applications has moved from a
single customer/single product in early 2018 to a position today where we are
engaged with seven customers and are working with twelve distinct
materials/wavelength combinations. Additionally, a number of materials are
progressing as they move from development towards final validation - the last
step before commercial production orders are placed.
The mega-trends seen in electronics, automation, automotive and the Internet
of Things more generally continue to be very favourable, supporting our
strategy of adding our nanomaterials to silicon-based sensors to significantly
enhance their performance and overcome a number of current challenges faced by
those devices.
Given the scale of these sectors and the other market participants, we will
typically be part of an extensive supply chain. This does mean that we are
subject to events and decisions outside of our control - as happened with the
US customer in 2019 - but it also means the potential is very high to deliver
significant value if our materials make it into commercial production.
As previously announced, already published customer product launch plans
suggest we should have good visibility of potential commercial production
around the end of calendar year 2022, though, as always, the final decision to
adopt the technology lies with the customers of our customer and this cannot
be taken for granted. Our task is to ensure that our materials consistently
perform as required by our customer so that we are scaled up and ready for
those potential production orders.
Our small scale allows us to be much more agile and responsive to our
customers' needs than many other players in electronics supply chains. The
in-depth nature of our technological insight also means that we do tend to
"punch above our weight" in terms of direct engagement even with very large
end customers and their technology teams. Conversely, our small scale does
present challenges for customers in terms of supply chain risks and we
therefore work proactively to agree commercial solutions to the issue of
supply chain security.
Display (CFQD® quantum dots)
Display remains an important target market for Nanoco. We have maintained our
focus on our "dot only" strategy where we aim to provide the highest
performing CFQD® quantum dots.
Activity and inbound enquiries about display materials have begun to grow
again during the year. We believe this reflects a combination of our success
with our patents at PTAB, the continued reduction in Samsung's market share in
QD TV markets and associated entrance of new participants, and the increasing
profile of Restriction of Hazardous Substances ("RoHS") and equivalent
regulations around the world that limit the use of cadmium thus playing to our
cadmium free offering. We have also seen increasing interest in the use of
quantum dots in LEDs for both lighting and display applications.
We continue to seek out new relationships and a number of these are moving
forward at a small scale, having delivered a number of small material samples
to new customers during the year.
We are still awaiting the EU legislation to implement the final decision to
end the RoHS cadmium exemption for film-based displays. This will provide
fresh impetus to display panel manufacturers to embrace the benefits of our
CFQD® quantum dots. We note that a number of OEMs are investigating
environmentally friendly options rather than waiting for the EU legislation.
European markets currently have sales of cadmium-based QD televisions and a
move to cadmium-free solutions will provide a helpful tailwind.
We retain our core capabilities to deliver display R&D services, scale up
and commercial production of material from our Runcorn facility. We are
therefore well positioned to take advantage of any broadening in the adoption
of non-toxic quantum dots by global display manufacturers when the opportunity
arises.
A successful verdict in the litigation with Samsung will also positively
affect our ability to derive income from our capabilities in display, whether
in production, further robust defence of our existing IP portfolio, or the
future licensing of our technology.
We will continue to adopt a dual approach to commercial exploitation of our
display materials. We are still ready to license our technology to different
channel partners but also retain our own manufacturing capability.
Life Sciences
In November 2020, the Life Sciences team secured a grant from Innovate UK, the
UK's innovation agency, for a life sciences project to develop a quantum dot
testing kit for the accurate and rapid visual detection of Covid-19. This
project builds on Nanoco's existing capabilities in utilising quantum dots
conjugated with antibodies as a diagnostic tool in the detection of cancer
(VIVODOTS® nanoparticles). The project specifically focuses on antibodies for
Covid-19.
However, as is the case with our other materials, our goal is to create a
platform technology that is applicable to other pathogens and potential future
variants of Covid-19. The project therefore remains relevant despite many
other tests now being available on the market for Covid-19.
The project completed successfully and on time in May 2022 with a working
prototype. We also had time to assess the test against other pathogens,
clearly demonstrating the multiple use cases for our VIVODOTS®. We have now
stood the team down following the move to Runcorn and our residual efforts
relate to identifying potential exploitation avenues for the technology.
Further progress and any value implications are likely to require the
engagement of a partner organisation specialising in this field.
Operations
We completed the exit from the first floor of our Manchester facility early in
the second half of FY22. We then took the decision to exit the ground floor
and co-locate our entire suite of operations into our Runcorn facility. The
display facility in Runcorn has been taken out of mothball and now hosts the
R&D teams as well as our production capability for CFQD® quantum dots.
The co-location will create a number of operational and team benefits while
also reducing our annualised installed cost base by around £0.7 million (net)
once decommissioning and dilapidations are complete in Manchester towards the
end of CY22.
Our resulting team now numbers approximately 36 operational staff. We have
delivered a striking reduction in our installed cash cost base from over
£12.0 million in FY19 to around £4.0 million for FY23 while retaining our
core capabilities. We have achieved this by focusing on our "dot only"
strategy that plays to our core quantum dot expertise.
We continue to cross train our flexible production team to be able to operate
both facilities to maximise our capability while minimising costs in the short
term, allowing us to maintain our significant production revenue-generating
capacity. In FY23, following a successful pilot in FY22, we plan on rolling
out initial LEAN Six Sigma training ("LEAN") to every single member of staff
whether in R&D, scale up or production. The behavioural and analytical
benefits of LEAN will be a great boost for team performance.
Responding to Covid-19
We remain vigilant in the aftermath of the Covid-19 pandemic. We continue to
emphasise good housekeeping practice such as hand hygiene and self-testing if
symptoms occur followed by staying home if a test is positive. Many staff are
able to work remotely if required to isolate and a number regular mix working
from the labs and home with little impact on activity or effectiveness. We
encourage staff to attend the office as much as possible as the working
environment and relationships formed there are enhanced by this interaction.
Intellectual property
We continue to proactively manage our IP portfolio to maximise value and
protect our core competencies. During the year, we focused the Group's IP
portfolio on to a core of 503 (2021: 559) patents and patent applications with
the most promising commercial potential. This net reduction reflected 24 new
applications and 80 that were eliminated in territories or potential
applications no longer felt worthwhile.
We continue to preserve trade secrets and have targeted our financial
resources on strategic areas such as infra-red sensing where there is a strong
overlap with our core IP. These are also areas with clear future commercial
opportunities and benefits to be had from holding high quality patents.
Environment/Restriction of Hazardous Substances ("RoHS")
We reported last year that the European Commission ("EC") had received
recommendations that:
• the exemption to allow cadmium (>100ppm) in QD films for display
is no longer justified and should be phased out by 31 October 2021; and
• a new exemption is granted to allow cadmium-based quantum dots
applied directly onto LED chips for displays and high CRI lighting for a
period of five years.
Progress in implementing legislation to enforce this recommendation has been
slow. It therefore seems likely that European consumers will continue to be
exposed for some time to the known hazards of cadmium in televisions that
exceed the limits shown above. Ahead of nations passing the required
legislation, a number of display manufacturers appear to be anticipating the
changes and Nanoco has received inbound enquiries in this field.
People
Our employees continue to provide great service to our customers in delivering
high quality materials on time and achieving often stretching milestones and
deliverables. It is welcome that the vast majority of staff have embraced the
move to the Runcorn facility.
Retaining and incentivising our highly skilled team are key to delivering
organic value from the business. We were therefore pleased to be able to
propose a very reasonable pay award for the coming year. We also undertook a
review of comparative salaries against national benchmarks (excluding London).
Following that exercise, we were also able to offer structural pay rises for
almost a third of our highly skilled workforce to remove everyone from the
lower decile of comparator pay. Our goal for staff (excluding Executives) is
to be a median payer with upside potential from our annual performance linked
bonus scheme and Company-wide participation in the same Long Term Incentive
Plan that the Directors enjoy.
Finally, reflecting staff feedback on their preferred benefits in addition to
basic salaries, we have now increased the Company pension contributions to our
medium-term target of 7.5%, an increase of 1.5%. We will review other benefits
options and further potential improvements to pension contributions as our
financial situation improves and when the Company becomes self-financing in
its organic operations.
Outlook
We have created strong foundations for the Group to rebuild our value
proposition. We expect visibility of commercial production orders for sensing
materials around the end of H1 FY23. We also expect to complete our
preparations for production readiness in H1 FY23. In parallel we continue to
expand our material offering to other customers and other materials in sensing
markets.
We have also seen growing interest in CFQD® quantum dots for use in the
display industry and are engaging cautiously with market players other than
Samsung which already participate in or are seeking to enter the QD TV market.
This extends to interest in Gen 2 QD displays as well as displays utilising
LEDs.
The recent fundraise has allowed us to plan or make a small number of tactical
new hires in the business. These new hires range from income-generating
customer facing roles, to scale up and production readiness roles, as well as
front line and back office support staff. These will allow us to gradually
grow our top line revenue and also position us for commercial production
orders.
As ever, the main unknown is the actual timing and size of the initial use
case for sensing materials. However, the significant investment by our
customers in Nanoco materials and their own production and marketing efforts,
emphasise that it is more likely to be a question of "when" and not "if". In
any event, Nanoco has the flexibility, capability and capacity to meet small
or large scale production orders in parallel with continued revenue generation
from R&D services.
Most of our team is primarily focused on our organic business. However, a
small group of staff is also focused on the Samsung litigation and realising
value from our IP portfolio. It is likely that it will be some time before the
financial benefits of any favourable verdict are enjoyed by Nanoco. However,
we will continually seek to apply pressure to Samsung in various forms and
jurisdictions with a view to settlement before the final exhaustion of every
legal step. Our goal remains to deliver fair value that reflects the global
nature and remaining lives of our patents while acknowledging there are risks
for Nanoco in the continuing litigation, not least of which is the time value
of money.
We continue to adopt a conservative stance with regards to future financial
forecasts. We expect to achieve at least 20% revenue growth in FY23 based on a
stronger opening order book, an increasing range of R&D services being
offered to a broader base of customers, and an assumed low volume use case for
commercial production orders commencing in H2 FY23. A larger or earlier use
case for sensing materials would clearly improve the outlook. I remain
confident that we can deliver value for all of our stakeholders in the short
to medium term with the potential for additional transformative value in the
Samsung litigation.
Brian Tenner
Chief Executive Officer
20 October 2022
Financial review
Creating a stable cost base from which to grow organically
Summary
• Revenue and other operating income increased by 24% to £2.8 million
(2021: £2.3 million).
• Adjusted LBITDA has reduced to £2.1 million (2021: £2.8 million),
reflecting the increase in revenue and operating income, and the continued
focus on reducing the cost base.
• The consolidation of operations in Runcorn, and subsequent closure of
the Manchester site, has further reduced our cash cost base.
• Cash remains a key focus - the fundraising completed in the year
takes the cash runway out to CY25.
Revenue and other operating income increased by £0.5 million to £2.8 million
(2021: £2.3 million). The increase is due to the ongoing contract with the
European electronics customer and the grant for the development of a Covid-19
diagnostic testing kit, which was completed during the year.
Revenue from the sale of products and services rendered accounted for 96%
(2021: 95%) of revenues with the balance being royalty and licence income.
Revenue from services has increased from £1.3 million to £1.5 million due to
the continued work with the European electronics customer. Revenue from the
sale of development products was £0.8 million (2021: £0.7 million).
Billings have increased by £1.0 million to £2.7 million (2021: £1.7
million), which is in line with revenue.
Total operating expenses, excluding Share Based Payments ("SBP") and
associated costs, depreciation, amortisation and exceptional items, reduced in
the year by £0.8 million to a total of £4.5 million (2021: £5.4 million).
This reduction was primarily due to the fall in payroll costs to £2.6 million
(2021: £3.3 million) and other cost savings identified.
During the prior year, our headcount was decreased from c.46 full time
employees to c.39 employees. In the current year, this has fallen further to
36 employees. We have made these changes whilst retaining full operational and
commercial viability.
In March 2022, we exited the first floor of our Manchester premises, and at
year end, we were in the process of vacating the ground floor, with the lease
set to expire in November 2022. The closure of the Manchester site, and
consolidation into Runcorn, will save c. £0.7 million (net) per year.
During the year, we completed an over-subscribed fundraise, resulting in net
proceeds of c. £5.4 million. This extended the Group's cash runway to
calendar year 2025, beyond the point when we expect the Group's organic
operations to be self-financing.
Highlights 2022 2021 % change
£ million £ million
Revenue 2.5 2.1 18%
Other operating income 0.4 0.2 97%
Adjusted operating loss (4.2) (4.6) (10%)
Adjusted LBITDA (2.1) (2.8) (26%)
Net loss (4.7) (4.4) (7%)
Loss per share (p) (1.52) (1.44) 6%
Billings 2.7 1.7 55%
Cash and cash equivalents 6.8 3.8 77%
Non-GAAP measures
The non-GAAP measures of adjusted operating loss and adjusted loss before
interest, tax, amortisation and share-based payment charges ("LBITDA") are
provided in order to give a clearer understanding of the underlying loss for
the year that reflects cash outflow from the business. The calculation of both
non-GAAP measures is shown in the table below:
2022 2021
£ million
£ million
Operating loss (4.8) (5.0)
Share Based Payments 0.6 0.4
Employers NI on SBP 0.3 0.1
Depreciation 0.5 0.5
Amortisation¹ 1.3 1.2
Adjusted LBITDA (2.1) (2.8)
1 Includes impairment of intangible assets.
The loss before tax was £5.2 million (2021: £5.1 million), with the increase
driven by non-cash SBP charges arising from the growth in the share price and
a first full year of accrued interest on the loan notes issued in June 2021,
offset by cost savings during the year.
Taxation
The tax credit for the year was £0.5 million (2021: £0.7 million). The tax
credit to be claimed, in respect of R&D spend, is £0.5 million (2021:
£0.7 million). Overseas corporation tax was £nil during the year (2021:
£nil). There was no deferred tax credit or charge (2021: £nil).
In the financial year, the Company entered the patent box regime
retrospectively, which should provide an advantageous tax rate of 10% on
revenues or litigation proceeds arising from the Group's IP portfolio. At the
year end, the Company had £40.5 million of accumulated losses to offset
against any potential future profits.
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term investments
increased to £6.8 million (2021: £3.8 million). The net cash outflow,
excluding the benefits of the equity fundraise of £5.4 million in June 2022
(net of costs), was £2.4 million (2021: £4.4 million outflow). The decrease
in cash outflows reflects increased revenue, a reduction in the cost base and
some favourable movements in working capital compared to FY21, with a
reduction in deferred revenue year on year. Tax credits of £0.7 million
(2021: £0.9 million) were received during the year.
Expenditure incurred in registering patents totalled £0.1 million (2021:
£0.4 million), reflecting the Group's continued focus on developing and
registering intellectual property. Capitalised patent spend is amortised over
ten years in line with the established Group accounting policy.
During the year, an impairment charge of £0.9m was posted against the net
book value of the Group's IP. This reflects the continued rationalisation of
the patent portfolio to ensure the remaining patents are commercially viable
in the short to medium term.
Treasury activities and policies
The Group manages its cash deposits prudently. Cash deposits are regularly
reviewed by the Board and cash forecasts are updated monthly to ensure that
there is sufficient cash available for foreseeable requirements.
More details on the Group's treasury policies will be provided in the Annual
Report and Accounts.
Credit risk
The Group only trades with recognised, creditworthy third parties. Receivable
balances are monitored on an ongoing 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 relative to Sterling. The Group will use forward currency
contracts to fix the exchange rate on invoiced or confirmed foreign currency
receipts should the amount become significant and more predictable.
There were no open forward contracts as at 31 July 2022 (2021: none). The
Group's net profit and 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 retranslation of the
closing balance sheet will be summarised in note 27 to the Annual Report and
Accounts, based on the year-end position.
Brexit
The Board continues to monitor the ongoing developments. Currently, the
majority of the Group's revenues are for services delivered in the UK with
minimal Brexit impact. Going forward, the Group expects a significant portion
of its revenues from material sales to be from non-UK countries where the
Government either already has or hopes to have in place equivalent trading
arrangements as existed prior to Brexit.
Although there were some logistical challenges on trade with EU countries,
this has largely been mitigated with little to no ongoing disruption.
Going concern
The equity fundraising in June 2022 raised £5.4 million net of costs. This
extended the Group's cash runway to 2025. The Directors have a reasonable
expectation that the Group has access to adequate resources to continue in
operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
consolidated financial statements and the Board concluded that it is
appropriate to utilise the going concern assumption.
Covid-19 pandemic
The Group has completed detailed risk assessments and implemented the
resulting action plans and Government guidance to create Covid-19 secure
workplaces. We are able to meet customer needs while working in a safe
fashion. We do not currently expect significant financial downsides though
this is clearly dependent on changes in regulations and the scale of any
further lockdowns, both in the UK and the wider world.
Macroeconomic factors
We continue to see inflationary pressures on raw materials. We attempt to
mitigate these by reviewing suppliers and achieving volume breaks. In
addition, with the ongoing cost of living crisis, we are cognisant of the
impact on our staff, and have implemented a company-wide 6% inflationary wage
increase from August 2022. We will continue to review market conditions and
assess the impact on all stakeholders.
Summary
This year has been one of steady operational delivery and consolidation of our
cost base. The closure of the Manchester site and relocation of operations to
Runcorn, although producing some challenges, provides the Group with a central
base from which to grow - one where R&D and production can operate in
close proximity and improved collaboration.
Work has progressed very well with our customers, and we anticipate having
visibility of commercial orders by the end of H1 FY23.
We are confident that the Group has a solid foundation from which to grow, to
provide value to shareholders in the medium term.
Liam Gray
Chief Financial Officer
20 October 2022
Principal risks and uncertainties
In common with all businesses at Nanoco's stage of development, the Group is
exposed to a range of risks, some of which are not wholly within our control
or capable of complete mitigation or protection through insurance.
Specifically, a number of the Group's products and potential applications are
at a research or development stage and hence it is not possible to be certain
that a particular project or product will lead to a commercial application.
Other products require further development work to confirm a commercially
viable application.
Equally, a number of products are considered commercially viable but have yet
to see demand for full scale production. It is also the case that the Group is
often only one part of a long and complex supply chain for new product
applications. The Group therefore has little visibility of demand other than
from contracts already in place. There are therefore a range of risks that are
associated with the different stages of product development as well as for the
Group as a whole.
Principal overarching risk
The principal overarching strategic risk faced by the business is that the
Group exhausts its available funding before achieving adequate levels of
commercial revenues and cash flows to be self-funding.
This risk has been very significantly mitigated in the short term by the
recent equity fund raise which has extended the Group's organic cash runway to
CY25. This date is beyond a number of key litigation milestones which could
trigger a significant inflow of funds to the Group.
More importantly, it is also beyond the point when the Group aims to be
self-funding in its organic business activities, subject to final adoption of
the technology by our customers and their end customers. The Board now
considers that a plausible downside scenario no longer includes the risk or
need for a major restructuring in the short term. Instead, the plausible
downside scenario is based on delays in customer orders and a slower ramp-up
in demand once those orders begin.
Additional continuing principal risk in FY22 and FY23, first identified in
FY20
In February 2020, the Group initiated litigation against Samsung for wilful
infringement of its IP. In May 2022 the Patent Trial and Appeal Board ("PTAB")
confirmed the validity of all 47 of Nanoco's claims in the five patents
relevant to the lawsuit. The Company expects a jury trial in Texas to be held
in Q4 CY22 or shortly after.
Samsung has lodged notices to appeal against the decision of the PTAB and is
likely to appeal against any trial verdict that favours Nanoco once the
judge's final written decision is published. The Group therefore remains
exposed to both positive and negative aspects of the litigation.
Successfully overcoming the appeals by Samsung will crystallise any contingent
asset inherent in a favourable verdict, though the value of that contingent
asset may change. Conversely, if Samsung is successful in its appeals, any
contingent asset could become worthless.
Both outcomes will have significant implications for the value of the Group's
IP portfolio, for potential licensing or royalty income, and for the prospects
regarding the sale of CFQD® quantum dots. The implications could be
significantly adverse or favourable depending on the eventual resolution of
the lawsuit.
The Board consider that the balance of risk and reward has swung in Nanoco's
favour but given the binary nature of a trial verdict and the likely appeals
processes, it is, as yet, by no means certain that Nanoco will benefit from
any contingent asset that arises from a potentially favourable verdict and
damages award.
In either outcome (successful or unsuccessful), the Board will initiate a
further review of the future strategy of the business.
Other principal risks
Other risks are those set out in the prior year's Annual Report and an update
on their status will be included in the Annual Report for the year ended 31
July 2022.
Directors' responsibility statement
In accordance with the FCA's Disclosure and Transparency Rules, the Directors
listed on the Company's website
(www.nanocotechnologies.com/about-us/board-directors) confirm, to the best of
their knowledge, that:
1. the unaudited Preliminary Results have been prepared in accordance
with IFRS as adopted by the European Union and give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Group
and Company and the undertakings included in the consolidation taken as a
whole; and
2. the foregoing reviews and statements, include a fair review of the
development and performance of the business and the position of the Group and
the undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties faced by the Group.
By order of the Board
Brian Tenner
Chief Executive Officer
20 October 2022
Unaudited consolidated statement of comprehensive income
for the year ended 31 July 2022
2022 2021
£'000 Restated1
£'000
Revenue 2,467 2,091
Cost of sales (420) (343)(1)
Gross profit 2,047 1,748
Other operating income 361 183
Operating expenses
Research and development expenses (1,770) (2,150)
Administrative expenses (5,409) (4,790)1
Operating loss (4,771) (5,009)
- before share-based payments (4,152) (4,592)
- share-based payments (619) (417)
Finance income - -
Finance expense (450) (71)
Loss before taxation (5,221) (5,080)
Taxation 524 685
Loss after taxation (4,697) (4,395)
Other comprehensive income/(loss)
Gain on exchange rate translations - -
Total comprehensive loss for the year (4,697) (4,395)
Loss per share
Basic and diluted loss for the year (1.52)p (1.44)p
1 The comparative balances for Cost of Sales and Administrative
expenses have been restated for the year ended 31 July 2021. Refer to note 2b
of the accounting policies for more information.
The loss for the current and preceding year arises from the Group's continuing
operations and is attributable to the equity holders of the Parent.
The basic and diluted loss per share are the same as the effect of share
options is anti-dilutive.
Unaudited consolidated statement of changes in equity
for the year ended 31 July 2022
Group Share Share Reverse Share-based Merger Accumulated Total
capital premium acquisition payment reserve losses £'000
£'000 £'000 reserve reserve £'000 £'000
£'000 £'000
At 1 August 2020 30,570 117,292 (77,868) 3,901 (1,242) (65,623) 7,030
Loss for the year - - - - - (4,395) (4,395)
Other comprehensive income - - - - - - -
Total comprehensive loss - - - - - (4,395) (4,395)
Share-based payments - - - 417 - - 417
At 31 July 2021 30,570 117,292 (77,868) 4,318 (1,242) (70,018) 3,052
Loss for the year - - - - - (4,697) (4,697)
Other comprehensive income - - - - - - -
Total comprehensive loss - - - - - (4,697) (4,697)
Issue of share capital on placing 1,528 4,127 - - - - 5,655
Costs of share placing - (274) - - - - (274)
Issue of share capital on exercise of options 146 - - (167) - - (21)
Share-based payments - - - 619 - - 619
At 31 July 2022 32,244 121,145 (77,868) 4,770 (1,242) (74,715) 4,334
Unaudited Group and Company statements of financial position
at 31 July 2022
Registered no. 05067291
31 July 2022 31 July 2022 31 July 2021 31 July 2021
Group Company Group Company
£'000 £'000 £'000 £'000
Assets
Non-current assets
Tangible fixed assets 98 - 199 -
Right of use assets 56 - 340 -
Intangible assets 1,616 - 2,858 -
Investment in subsidiaries - 40,747 - 40,128
1,770 40,747 3,397 40,128
Current assets
Inventories 174 - 110 -
Trade and other receivables 1,518 29 1,227 -
Income tax asset 524 - 686 -
Cash and cash equivalents 6,762 5,497 3,813 1
8,978 5,526 5,836 1
Total assets 10,748 46,273 9,233 40,129
Liabilities
Current liabilities
Trade and other payables (1,510) (638) (1,617) (80)
Lease liabilities (153) - (545) -
Provisions (172) - - -
Deferred revenue (560) - (253) -
(2,395) (638) (2,415) (80)
Non-current liabilities
Financial liabilities (3,919) (3,392) (3,487) (3,445)
Lease liabilities (16) - (133) -
Provisions (40) - - -
Deferred revenue (44) - (146) -
(4,019) (3,392) (3,766) (3,445)
Total liabilities (6,414) (4,030) (6,181) (3,525)
Net assets 4,334 42,243 3,052 36,604
Capital and reserves
Share capital 32,244 32,244 30,570 30,570
Share premium 121,145 121,145 117,292 117,292
Reverse acquisition reserve (77,868) - (77,868) -
Share-based payment reserve 4,770 4,770 4,318 4,318
Merger reserve (1,242) - (1,242) -
Capital redemption reserve - 4,402 - 4,402
Accumulated losses (74,715) (120,318) (70,018) (119,978)
Total equity 4,334 42,243 3,052 36,604
The Parent Company's result for the year ended 31 July 2022 was a loss of
£340,000 (2021: loss of £6,516,000). There was no other comprehensive income
in either the current or prior year.
The unaudited financial statements were approved by the Board of Directors on
20 October 2022 and signed on its behalf by:
Dr Christopher Richards Brian Tenner
Chairman
Director
20 October 2022 20 October
2022
Unaudited Group and Company cash flow statements
for the year ended 31 July 2022
31 July 2022 31 July 2022 31 July 2021 31 July 2021
Group Company Group Company
£'000 £'000 £'000 £'000
Loss before tax (5,221) (340) (5,080) (6,516)
Adjustments for:
Net finance expense 450 396 71 6
(Profit)/loss on exchange rate translations (211) 19 17 2
Depreciation of tangible fixed assets 105 - 99 -
Depreciation of right of use assets 366 - 408 -
Amortisation of intangible assets 498 - 618 -
Impairment of intangible assets 858 - 623 -
Share-based payments 619 - 417 -
Gain on disposal of tangible fixed assets (36) - (48) -
Changes in working capital:
(Increase)/decrease in inventories (62) - 30 -
(Increase) in trade and other receivables (141) (58) (209) -
Increase/(decrease) in trade and other payables (105) 98 (757) 80
Decrease in provisions 212 - - -
Decrease/(Increase) in deferred revenue 205 - (453) -
Cash outflow from operating activities (2,463) 115 (4,264) (6,428)
Research and development tax credit received 686 - 908 -
Net cash outflow from operating activities (1,777) 115 (3,356) (6,428)
Cash flow from investing activities
Purchases of tangible fixed assets (4) - (35) -
Purchases of intangible fixed assets (114) - (357) -
Proceeds from sale of tangible fixed assets 36 - 48 -
Interest received - - - -
Net cash outflow from investing activities (82) - (344) -
Cash flow from financing activities
Proceeds from placing of ordinary share capital 5,655 5,655 - -
Proceeds from issue of loan notes - - 3,150 3,150
Costs of financing/placing (274) (274) (161) (161)
Payment of lease liabilities (capital) (506) - (642) -
Payment of lease liabilities (interest) (83) - (30) -
Interest paid (3) - (4) -
Net cash inflow from financing activities 4,789 5,381 2,313 2,989
Increase/(decrease) in cash and cash equivalents 2,930 5,496 (1,387) (3,439)
Cash and cash equivalents at the start of the year 3,813 1 5,170 3,440
Effects of exchange rate changes 19 - 30 -
Cash and cash equivalents at the end of the year 6,762 5,497 3,813 1
Notes to the financial statements
1. Reporting entity
Nanoco Group plc (the "Company"), a public company limited by shares, is on
the premium list of the London Stock Exchange. The Company is incorporated and
domiciled in England, UK. The registered number is 05067291 and the address of
its registered office is Science Centre, The Heath Business and Technical
Park, Runcorn, WA7 4QX. The Company is registered in England.
These Group unaudited preliminary results 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 2022.
The information set out below has been extracted from the Group's draft report
and accounts for the year ended 31 July 2022 and has not been audited. The
Group expects to publish its audited annual report and accounts on 24 October
2022, which will be sent to Shareholders and available to view on the
Company's website at www.nanocotechnologies.com. A further announcement will
be made once published. No material amendments to the disclosures contained
within this announcement are expected within the audited financial statements.
The unaudited preliminary results of Nanoco Group plc and its subsidiaries for
the year ended 31 July 2022 were authorised for issue by the Board of
Directors on 20 October 2022 and the unaudited statements of financial
position were signed on the Board's behalf by Dr Christopher Richards and
Brian Tenner.
The unaudited preliminary results 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 2021 has been
delivered to the Registrar of Companies. There were no statements under
section 498(2) or section 498(3) of the Companies Act 2006.
The statutory financial statements for the year ended 31 July 2022 will be
delivered to the registrar of companies as soon as practicable.
The Company has elected to take the exemption under section 408 of the
Companies Act 2006 not to present the Parent Company's income statement.
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 and Parent Company's unaudited financial statements have been
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and UK adopted IFRSs as issued
by the International Accounting Standards Board for the year ended 31 July
2022.
(b) Basis of measurement
The Parent Company and Group unaudited financial statements have been prepared
on the historical cost basis, except for the revaluation of financial assets
classified as "fair value through other comprehensive income" or "fair value
through profit or loss", which are reported in accordance with the accounting
policies below.
In order to more fairly represent the cost of sales of the Group we have
reclassified certain costs from administrative expenses to cost of sales for
the comparative period. Total impact of the reclassification is an increase to
cost of sales of £124,000 (2021: £134,000). There is no impact on reported
loss or net assets of this reclassification.
(c) Going concern
All of the following matters are taken into account by the Directors in
forming their assessment of going concern. The Group's business activities
and market conditions, the principal risks and uncertainties, the Group's
financial position and the Group's financial risk management objectives,
policies and processes. The Group funds its day-to-day cash requirements from
existing cash reserves.
For the purposes of their going concern assessment and the basis for the
preparation of the financial statements, the Directors have reviewed the same
trading and cash flow forecasts and sensitivity analyses that were used by the
Group in the viability assessment, which cover the period to October 2024, a
period of two years from the date of approval of the Annual Report and these
financial statements. The same base case and downside (severe but plausible)
sensitivities were also used.
The base case represents the Board's current expectations. Assumptions in the
base case are:
• minimal sales of nanomaterials beyond current contracts - commercial
services contracts are based on the existing pipeline of opportunities or
agreements already in place;
• modest demand for commercial production materials in CY2023 with a
subsequent slow ramp-up;
• a further extension to the services and supply contract with the
European electronics customer;
• no revenue is assumed from other business lines though some small
scale commercial deals are currently under discussion;
• consolidation of activities on one site in Runcorn to reduce costs
with modest staff increases in key areas;
• small expansion of our self- funded research activities and
continued maintenance costs to support our IP portfolio;
• loan notes are repaid as they fall due in June 2024 through either
an equity fundraise or improved commercial opportunities;
• Board, plc and other costs reflect the current inflationary
environment;
• the Group remains a going concern and hence eligible for R&D tax
credits; and
• the installed cost base is capable of supporting significant
increases in revenue above those assumed in the base case so there is no
immediate requirement for short-term increases or new capital expenditure.
The downside case then flexes those assumptions as follows:
• a full year delay in small scale commercial production revenues
(into CY24); and
• no new business from other customers once existing active
engagements end.
The extreme downside case then flexes those assumptions further as follows:
• the engagement with the European electronics customer comes to an
end without any commercial production;
• no revenues other than those already contracted; and
• the Group contracts to become an IP shell to protect the value in
the Samsung lawsuit.
All three cases above produce cash flow statements that demonstrate that the
Group has sufficient cash throughout the period of the forecast to October
2024, which is much longer than the twelve months requirement for a favourable
going concern conclusion. Considering the current financial resources and
monthly cash costs of the Group, with potential for further mitigating action
as noted above, and after making appropriate enquiries, the Directors have a
reasonable expectation that the Group has access to adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
consolidated financial statements. The financial statements do not reflect any
adjustments that would be required to be made if they were prepared on a basis
other than the going concern basis.
(d) Functional and presentational currency
These financial statements are presented in Pounds Sterling, which is the
presentational currency of the Group and the functional currency of the
Company. 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.
In the process of applying the Group's accounting policies, management has
made the following estimates and judgements, which have the most significant
effect on the amounts recognised in the consolidated financial statements.
Estimates
Equity-settled share-based payments
The Group has historically issued LTIPs to incentivise employees. 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 and to the future volatility of the future share price factor.
Judgements
Impairment of investment and inter-company receivable
Judgement is required to assess the carrying value of the Company investment
and inter-company receivable at each reporting date.
Accounting standards (IAS 36 Impairment of Assets) require investments in
subsidiary undertakings (equity and loans) to be carried at the lower of cost
or recoverable value. Recoverable value is defined as the higher of fair value
less costs of disposal (effectively net sale proceeds) and value in use.
Indicators of potential impairment noted in IAS 36 (paragraph 12) include, but
are not limited to, situations where the carrying amount of the net assets of
the entity is more than its market value and where significant changes with an
adverse effect on the entity have taken place during the year.
The Directors consider the fair value of the Group to be market value
(calculated as market capitalisation at year end) less costs to sell. Given
the main trading entity is Nanoco Technologies Limited (owned by Nanoco Tech
Limited), this holds the majority of the value. As the Group market value was
in excess of the book value, no further impairment is proposed.
In line with IFRS 9, the Group and Company assesses on a forward-looking basis
the expected credit losses ("ECLs") associated with its debt instruments
carried at amortised cost. The Group applies the IFRS 9 simplified approach in
calculating ECLs. Therefore, the Group does not track changes in credit risk,
but instead recognises a loss allowance based on lifetime ECLs at each
reporting date.
Revenue recognition
Judgement is required in reviewing the terms of development agreements to
identify separate components of revenue, if any, that are consistent with the
economic substance of the agreement and in turn the period over which
development revenue should be recognised. Judgements are required to assess
the stage of completion including, as appropriate, whether and when
contractual milestones have been achieved. 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. This matter
is further complicated where a contract may have different elements which may
result in separate recognition treatments under IFRS 15.
Impairment of intellectual property
As the Group has not made a profit to date, the carrying value of these assets
may need to be impaired. Impairment exists where the carrying value of an
asset exceeds its recoverable amount, which is the higher of its fair value
less costs of disposal and its potential value in use. The value in use
calculation uses market assumptions and the potential share the Nanoco
technology could unlock. The Directors also use available information to
assess whether the fair value less costs of disposal of the Group's
non-current assets, including intellectual property, is less than their
carrying amount. Furthermore, during the year another extensive review was
undertaken to identify which patents are uncertain to be of value to Nanoco
and should be allowed to lapse. As a consequence, patents with a value of
£0.9 million (2021: £0.6 million) have been fully impaired in these
financial statements. 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. The Group does not believe that any of its
patents in isolation are material to the business. 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.
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 of the financial
statements.
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 unaudited 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 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 of 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 unaudited consolidated financial statements, the assets and liabilities
of the foreign operations are translated into Sterling at the exchange rate
prevailing at the reporting date. 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. The exchange differences
arising on translation are recognised in other comprehensive income. See note
3(b) of the financial statements.
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) New accounting standards and interpretations
The following standards have been issued but have not been applied by the
Group in these financial statements. These amendments to standards and
interpretations had no significant impact on the financial statements:
· IFRS amendments effective from 1 January 2022 (UK adopted and EU
endorsed)
· IAS 16 Amendment: Property, Plant and Equipment:
Proceeds Before Intended Use
· IAS 37 Amendment: Onerous Contracts: Cost of Fulfilling a
Contract
· IFRS 3 Amendment: Reference to the Conceptual Framework
· Annual Improvements Cycle 2018 to 2020 FRS 101 amendments
effective from 1 January 2022:
· FRS 101 Amendment: 2020/21 Cycle - Disclosure Exemption from IAS
16
The following standards and amendments to standards have been issued but are
not effective for the financial year beginning 1 August 2021 and have not been
early adopted:
· IFRS standards effective from 1 January 2023 (EU endorsed and UK
adopted)
· IFRS 17 Insurance Contracts and IFRS 17 Amendment: Amendments to
IFRS 17 IFRS standards effective from 1 January 2023 (EU endorsed, not UK
adopted)
· IAS 1 Amendment: Disclosure of Accounting Policies
· IAS 8 Amendment: Definition of Accounting Estimates
· IFRS standards effective from 1 January 2023 (not
UK adopted, nor EU endorsed)
· IAS 1 Amendment: Classification of Liabilities as Current or
Non-current
· IAS 12 Amendment: Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction
· IFRS 17 Amendment: Initial Application of IFRS 17 and IFRS 9 -
Comparative Information FRS 101 amendments effective from 1 January 2023:
· FRS 101 Reduced Disclosure Framework: Prohibiting Insurers to
Apply FRS 101 when IFRS 17 Becomes Effective
The amendments to standards and interpretations noted above are expected to
have no significant impact on the financial statements.
4. Segmental information
Operating segments
At 31 July 2022 and 2021 the Group operated as one segment, being the
research, development and manufacture of products and services based on high
performance nanoparticles. This is the level at which operating results are
reviewed by the chief operating decision maker (i.e. the Board) to make
decisions about resources, and for which financial information is available.
All revenues have been generated from continuing operations and are from
external customers.
31 July 31 July
2022 2021
£'000 £'000
Analysis of revenue
Products sold 782 685
Rendering of services 1,582 1,303
Royalties and licences 103 103
2,467 2,091
There was one material customer who generated revenue of £2,089,000 (2021:
one material customer amounting to £1,590,000).
The Group operates in four main geographic areas, although all are managed in
the UK. The Group's revenue per market based on the customer's location is as
follows:
31 July 31 July
2022 2021
£'000 £'000
Revenue
Holland 1,474 1,031
Taiwan 351 291
France 348 372
Japan 244 80
USA 27 20
Canada 19 15
Singapore 3 -
UK 1 27
Saudi Arabia - 255
2,467 2,091
All of the Group's assets are held in the UK and all of its capital
expenditure arises in the UK. The loss before taxation and attributable to the
single segment was £5,221,000 (2021: £5,080,000).
5. Earnings per share
Group 31 July 31 July
2022 2021
£'000 £'000
Loss for the financial year attributable to equity shareholders (4,697) (4,395)
Share-based payments 619 417
Loss for the financial year before share-based payments (4,078) (3,978)
Weighted average number of shares
Ordinary shares in issue 308,610,928 305,699,102
Adjusted loss per share before share-based payments (pence) (1.32) (1.30)
Basic loss per share (pence) (1.52) (1.44)
Diluted loss per share has not been presented above as the effect of share
options issued is anti-dilutive.
== Ends ==
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