REG - Nanoco Group PLC - Preliminary Results
20/11/2024 07:00
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RNS Number : 8752M Nanoco Group PLC 20 November 2024
For Immediate Release
20 November 2024
NANOCO GROUP PLC
("Nanoco", the "Group")
Unaudited Group Preliminary Results for the year ended 31 July 2024
"A strategy to maximise value and deliver returns to shareholders"
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
Group Preliminary Results for the year ended 31 July 2024.
A clear strategy to maximise value and deliver returns
· Having received advice following the commencement of the CDX
process, the Board remains confident that the Group has commercial potential
and inherent value
· The Board has:
o appointed CDX Advisors to explore an orderly sale of the Group's trading
business (including IP);
o significantly reduced the Group's cost base;
o determined that surplus cash reserves will be returned to Shareholders;
and
o appointed Dmitry Shashkov as CEO, bringing a track record of driving
shareholder value through transformational business development
· Christopher Richards will retire as Non-Executive Chairman of
Nanoco at the Annual General Meeting in January 2025 and will be succeeded by
Jalal Bagherli, bringing his commercial expertise and track record to the
leadership of the Board
· Cash will be progressively returned to Shareholders as the CDX
process progresses and the Board gains more certainty on the execution of a
potential sale process and clarity in the Group's working capital requirements
and the surplus nature of the Group's cash balance.
Operational Summary - investing in our capabilities
· Nanoco delivered its first ever commercial production orders for
two different first generation materials for use in infra-red sensing
materials
· Commenced Joint Development Agreements with two customers on
second generation sensing materials, with one of these ending post year end
· Continue to achieve all development, scale up and production
readiness milestones
· Completed fit out of device and analytical testing facility
· Achieved ISO 14001 accreditation - a key customer requirement
· Increasing customer engagements across all materials
Financial Summary - performance in line with Board expectations, financially
underpinned
· Revenue increased by 40% to £7.9m (FY23: £5.6m)
· Adjusted EBITDA improved to £1.2m (FY23: £0.4m LBITDA)
· Cash of £20.3m at year end (FY23: £8.2m)
· Tender offer of £30m completed during the year, and share
buyback of £3m completed post year end
· Post year end restructuring ongoing following the cancellation of
the JDA with the European customer
Dmitry Shashkov, CEO of Nanoco, said:
"I joined Nanoco because I saw an organisation with unique IP and inherent
value to be realised. Having only been here a short time, my confidence in the
value in this business has only been reinforced. We have a clear strategy to
address our two core markets of Display and Sensing, along with working to
define the opportunities outside of these. We have restructured the
organisation to minimise cash burn and focus on commercial growth, reducing
our gross annual cost base to around £6 million. In tandem, we are engaged
with CDX to identify and pursue external investors for our operating business.
Taken together, there is a clear opportunity to maximise value in the trading
business and deliver returns to shareholders."
Christopher Richards, Nanoco's Chairman, commented on the results:
"Nanoco is strongly positioned to take advantage of developing markets. We
have delivered all development milestones for our sensing customers, and
whilst the cancellation of the JDA with the European customer post year end
was disappointing, we continue to engage with a variety of customers in a
number of different markets.
"The Board is determined to deliver shareholder value as rapidly as possible.
In light of the plans set out to shareholders, the Board has committed to a
return of surplus cash to shareholders during the course of FY25. Cash will be
progressively returned to Shareholders as the CDX process progresses and the
Board gains more certainty on the execution of a potential sale process and
clarity in the Group's working capital requirements and the surplus nature of
the Group's cash balance. We returned £30m to shareholders through the tender
process, and post year end completed the additional £3m share buyback
program.
"We have increased the industry expertise of the Board, with two non-executive
appointments during the year, and post year end we have appointed Dmitry
Shashkov as CEO.
"As a Board we are committed to achieving the best value for shareholders, and
the whole team is committed to making Nanoco a highly successful nanomaterials
group."
Investor webcast details
There will be a presentation via the Investor Meet Company platform on 25
November at 10:00am GMT. Questions can be submitted in advance via the
Investor Meet Company Dashboard before 9:00am GMT on 22 November, 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: +44 (0)1928 761 404
Christopher Richards, Non-Executive Chairman
Dmitry Shashkov, CEO
Liam Gray, CFO & Company Secretary
Cavendish Capital Markets Limited (Financial Adviser & Corporate Broker): +44 (0)20 7220 0500
Ed Frisby / George Lawson (Corporate Finance)
Tim Redfern / Charlie Combe (Corporate Broking)
Jasper Berry (Sales)
Sodali & Co (Public +44 (0)79 3535 1934
Relations):
Elly Williamson
Pete Lambie
Nanoco@sodali.com (mailto:Nanoco@sodali.com)
- Ends -
About Nanoco Group plc
Nanoco (LSE: NANO) is a nanomaterial production and licensing group,
specialising in the production of its patented cadmium free quantum dots
(CFQD®) and other patented nanomaterials for use in the electronics
industries.
Founded in 2001 and headquartered in Runcorn, UK, Nanoco continues to build
out a world-class, patent-protected IP portfolio alongside its existing scaled
up production facilities for commercial orders.
Nanomaterials are materials with dimensions typically in the range 1 - 100 nm.
Nanomaterials have a range of useful properties, including optical and
electronic. Quantum dots are a subclass of nanomaterial that have
size-dependent optical and electronic properties. 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 Sensor, Electronics and Display markets.
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 display
applications. Nanoco's HEATWAVE™ quantum dots can be tuned to absorb light
at different wavelengths across the near-infrared spectra, rendering them
useful for applications including cameras and image sensors.
Nanoco is listed on the Main Market of the London Stock Exchange, holds the
LSE's Green Economy Mark, and trades under the ticker symbol NANO. For further
information please visit: www.nanocotechnologies.com
(http://www.nanocotechnologies.com)
Chairman's statement
A clear strategy to maximise value and deliver returns to shareholders
Summary
• Fulfilled first ever commercial production orders for two
different first generation materials for use in infra-red sensing
applications.
• Commenced two-year Joint Development Agreements ("JDA") with the
Asian chemical customer to optimise the performance of second generation
sensing materials.
• Completed fit out of new device and analytical testing facility at
our Runcorn base in Cheshire, UK.
• Second and final tranche of litigation proceeds (net £58.8
million) received from Samsung, including a net foreign exchange gain of £1.8
million compared to spot rates on the date of translation.
• Completed £30.0 million tender offer. Started £3.0 million
buy-back.
Post year end
• Completed £3 million broker managed buy-back.
• Post-year-end restructure underway following contract termination
by European customer.
• Outlined new strategy to minimise costs, divest the group's
operating business and return surplus cash to shareholders.
• Appointed Dmitry Shashkov as Chief Executive Officer to lead new
strategy and deliver value from operating business.
Overview
This has been another important year for Nanoco. We delivered our first ever
commercial production orders while commencing significant new development
projects with two global electronics players. The receipt of the second
tranche of the Samsung litigation proceeds has allowed us to make a
significant return of capital to shareholders while retaining sufficient cash
to secure the Group's medium-term future.
Our European customer's decision after the year end to focus on other larger
short-term opportunities was clearly disappointing. This decision came after
our technology had been proven and there remain meaningful, albeit smaller,
commercial opportunities for Nanoco to pursue directly in the short to medium
term. We have announced a reduction in our staffing levels and plans to
progressively reduce the size and cost of the Board to match our new activity
levels.
Our focus now is on the prudent use of those retained funds to drive forward
our efforts to commercialise our technology across a wider range of customers
and potential applications in our chosen markets of sensing and display. The
expansion of our Runcorn facility to create our new device lab is one such
investment that will rapidly accelerate new product development and enhance
customer outreach. We are also significantly increasing our future-focused
business development spend.
Commercial strategy
The Board has a clear vision for Nanoco's trading business. Underpinned by our
IP, we aspire to be the "go-to" manufacturer of quantum dots for a variety of
applications and markets. By focusing on our core competencies, we play to our
key strengths while ensuring that we understand enough about the full device
stacks to be a credible and trusted supply chain partner to some of the
world's largest companies. Our sensing materials can provide significant
improvements over existing technologies at a competitive price point while our
display materials offer performance and clear environmental benefits over
highly toxic, cadmium-based quantum dots. We will continue to add to our IP
assets - the value of which was amply proven in the litigation with Samsung -
and to defend it vigorously.
Group strategy to realise value
This commercial strategy goes hand in hand with the Board's strategy for the
Group to deliver value for shareholders, which was outlined to shareholders on
3 October 2024.
The Board is strongly of the view that there are significant organic
commercial applications for Nanoco's technology across a range of markets that
will generate value for the business over time.
Pursuing these commercial and licence opportunities will require investment
and the maintenance of critical technology and commercial capabilities. The
Board is confident that the Group can succeed in pursuing these commercial
objectives with the appropriate investment of money and time. The Board
believes that it is now prudent to consider if this growth and investment
would be best led in a different ownership setting than allowed for as the
sole business of a listed group. The Board has concluded that it is in the
Group's best interests to appoint advisers to review the options for the
Group's business and assets, including the potential for a sale of the trading
business (including IP).
With this in mind, post period end, we took steps to rationalise the Group's
cost base. This includes reducing headcount, reducing the cost and size of the
Board during FY25 and reducing non-critical operating costs across the Group.
Once complete, these measures will reduce the Group's annualised cash cost
base by £2.6 million (or 34%) on a like-for-like basis compared to the Q4
FY24 run rate, with an associated, one-off, cash restructuring cost of just
over £0.1 million.
The Board is determined to deliver shareholder value as rapidly as possible.
In light of the plans set out above, the Board believes that it is now
appropriate to make plans to return surplus cash to shareholders during the
course of FY25.
The timing and size of further returns of surplus cash will be contingent on
the completion of the right-sizing noted above, working capital needs and
progress on the execution of a potential sale process.
Our people
Nanoco benefits from an exceptional group of staff, who have come to Runcorn
from many countries to build our exceptional technology capability. Our staff
are dedicated to delivering the focused tasks we set for them. We are repaying
that commitment by further investments in learning and development
opportunities.
This was recognised when Nanoco was featured in the prestigious Sunday Times
Best Places to Work 2024 award in the Small Organisation category.
Sustainability and ESG strategy
The Board is committed to the promotion and achievement of environmental,
social and governance objectives within the context of a small, listed group.
During the year, we achieved the important milestone of ISO 14001
Environmental Management Systems accreditation, a key criterion for our
customers. We are now pursuing accreditation to ISO 45001 Occupational Health
and Safety Management Systems. We have also appointed an ESG steering
committee represented at Board level by Liam Gray, our CFO.
Governance
We remain committed to the highest standards of corporate governance and we
comply with all of the provisions of the UK Corporate Governance Code.
Return of capital
We have now completed the promised £33.0 million return of capital to
shareholders. This represents just under half of the total equity raised by
the Group since its founding in 2001. This has resulted in the cancellation of
just over 128 million shares (40% of the equity in issue prior to the return
of capital). A further 13.8 million shares are held in the Group's Employee
Benefit Trust to meet future obligations arising from the Group's employee
share plans, mitigating any future dilution.
As outlined above, the Board is determined to deliver shareholder value as
rapidly as possible. The timing and size of further returns of surplus cash
will be contingent on the completion of the right-sizing noted above, working
capital needs, progress on the execution of a potential sale process and the
availability of distributable reserves.
Board and Annual General Meeting
We have further strengthened the Board with the addition in the second half of
the year of two new Independent Non-Executive Directors, Dieter May and Dr
Jalal Bagherli. Dieter and Jalal add significant experience in the Group's key
target markets of industrial and consumer electronics markets.
In July 2024, CEO Brian Tenner advised the Board of his intention to leave the
Group to pursue new opportunities.
Brian led the Group through a period of significant change that delivered a
multi-disciplinary team based in Runcorn, a successful outcome to the Samsung
litigation and financial stability.
As outlined above, Dmitry Shashkov took up the post of CEO post period end.
And finally, after nine years with Nanoco, I will not be putting myself
forward for re-election at the upcoming AGM. Dr Jalal Bagherli has agreed to
take over the role of Chairperson from the next AGM.
Requisitioned General Meeting
Ahead of the Annual General Meeting to be held in January 2025, the Company
has received a requisition from The Milkwood Fund to appoint two of their
representatives to the Nanoco Board of Directors. This general meeting is to
be held at 11.30 am on 13 December 2024, and further details are included on
the Nanoco website. The Nanoco Board do not believe this is in the interest of
all shareholders, and firmly believe shareholders should vote against both
resolutions. It is a point of deep frustration that we find ourselves once
again having to defend shareholders' cash against an activist acting in their
own interests.
Dividends
No dividend is proposed for the year (2023: none).
Outlook
The Board is highly confident in the inherent value and commercial potential
of our technology, IP and trading business. A balance needs to be struck, in
the interests of all of its shareholders, between supporting this growth and
prudence with regard to risk, to preserve cash and to take a highly
disciplined approach to investment.
We concluded that it is in the Group's best interests to appoint CDX Advisors
to review the options for the Group's trading business, IP and other assets,
including the potential for a sale of these assets.
While this process will be undertaken at pace, the Group's considerable
financial resources mean that the trading business will continue to be
supported to grow and not compromise its potential.
Dr Christopher Richards
Chairman
20 November 2024
Operational Review
The case for the use of quantum dots in new generations of displays and the
multitude of potential infra-red sensing applications continues to grow.
The Nanoco team worked throughout the year to develop novel nanomaterials for
use in sensing and display applications for a number of customers. We met
every technical specification required as part of the work programmes that
commenced H1 FY24 and are looking at other opportunities to apply our
technology.
We have continued to invest in our capabilities with our new device team and
facility, and this allows us to understand more about the impact of changes to
our quantum dot chemistry on sensors. This shortened feedback loop will reduce
the time required to develop new products in generation 2 and generation 3
infra-red sensing materials. The associated ability to demonstrate device
performance to potential customers will significantly strengthen our
commercial outreach.
The case for the use of quantum dots in new generations of displays and the
multitude of potential infra-red sensing applications continues to grow. This
remains true in sensing despite the setback in the European customer deciding
to focus their own efforts away from QD-enabled CMOS sensors. Growing
investment by major players in display technology development and M&A
activity in both sectors reinforces this growing commercial interest.
Business performance
Electronics
We successfully delivered two sensing materials for low volume commercial
production with our European customer in H1 FY24. Critically, this is the
first time in our history that we have had a product in commercial production.
The subsequent decision by the European customer to withdraw from the QD CMOS
sensing market was no reflection on the effectiveness of Nanoco's technology
but instead reflected their own commercial focus on larger short-term business
priorities.
There remain a number of other routes to market for Nanoco's first generation
sensing materials in a range of niche markets that are attractive to a group
of our size and scale. As previously announced, the size of the next
production orders for our first generation materials is likely to be modest in
scale, enabling potentially a few million devices. This is typical of many new
technologies initial use cases and is expected to grow over time if and when
end users adopt the technology. Some initial market feedback indicates
reluctance among some electronics companies to incorporate lead-based products
in their supply chains. This is not true of all potential customers and
markets so first generation materials still have a viable commercial future.
This situation does, however, emphasise the importance of the development
programmes that Nanoco is delivering for lead-free materials. These new
materials should also result in significantly higher performance (speed,
response times) and the ability to be used in more demanding applications such
as automotive where first generation materials struggle to meet the required
operating temperature.
Turning to those second generation sensing products, prior to the termination
of the JDA with the European electronics customer, we had achieved all
development milestones as part of our two-year development project. This now
includes the incorporation of quantum dots onto silicon wafers within Nanoco's
device facility. We intend to self-fund the final development steps to get
this material ready for scale up because of its exceptional performance. We
also achieved all technical milestones for our major Asian chemical customer
as part of our two-year development programme for a different second
generation material for use in infra-red sensing. We have also fulfilled some
smaller orders for this customer of different materials.
We are adapting our approach to commercial business development by engaging
with a wider range of smaller players in the sensing markets. We retain the
capacity to service mass market applications and are supplementing that with a
service offering for smaller but still attractive niche markets. Adoption of
our technology in smaller niche markets will provide valuable proof points on
the journey towards our overarching goal of mass market adoption in consumer
electronics applications. Visibility on the size and ramp up in any demand for
our materials is inevitably limited as is the case for any new material
awaiting mass market adoption.
Our offering of nanomaterials for use in sensing applications continues to
progress from a single customer/single product offering in early 2018 to a
position today where we are engaged with multiple customers and are working
with many distinct materials and wavelength combinations.
Display (CFQD® quantum dots)
Display materials remain a key focus for Nanoco. Our analysis divides the
market into existing display technologies and nascent display technologies.
The former includes QD film (whether the QDs are in a barrier film sandwich or
an extruded product) and QD-OLED. Independent market research continues to
support a growing share of quantum dot technology in these early generation
display technologies where consumer and environmental concerns mean that
cadmium-free solutions are sometimes preferred (source: Omdia, TDR).
In early generation QD displays, the opportunity for Nanoco primarily relates
to licensing opportunities as opposed to commercial supply. These displays are
of lower commercial supply interest for two primary reasons: firstly
cadmium-based solutions continue to dominate the market despite the impending
RoHS limits and secondly because of the strategy pursued by a number of market
participants in commoditising what should be a premium product in mass markets
(ultimately leading to their own financial difficulties). For Nanoco, interest
in supply agreements for early generation displays is now focused on niche
applications where quality, IP protection and a lack of toxicity can attract
premium pricing.
The nascent display technologies which have now been demonstrated at various
trade shows and which are attracting significant investment include the use of
quantum dots in micro-LED devices and in electro-luminescent devices. The
application of quantum dots to micro-LEDs for small screen devices, such as
smart watches or phones, is an area of growing focus for a number of
companies. In such applications, the volume of quantum dots, as a ratio to the
area covered, is significantly higher than in a film for a television. So,
while the end devices may be smaller, this is partly compensated for by the
higher concentration required. The Group has completed some initial
development work and is supplying the resultant material to a number of
customers, including a global capital equipment manufacturer.
These nascent technologies are of much greater potential interest to Nanoco
for a number of reasons:
• our IP is equally relevant to the production of quantum dots for
these technologies;
• the density of active material required is much higher (more
quantum dots);
• the quantum dots in these applications are eliminating other
layers needed in the stacks in the first generation technologies - meaning the
value add is much higher allowing a premium price for an IP backed premium
product; and
• the likely timeline to commercialisation of these new display
technologies fits strongly with RoHS requirements, which should reduce the
temptation to detour via cadmium-based systems.
Our routes to revenue generation are therefore still threefold in display:
• development services for new materials;
• supply of consistent high quality materials from our Runcorn
facility which can be easily expanded; and
• the licensing of our IP that protects our unique scale up process
for the mass market production of cadmium-free nanomaterials.
In the post-year-end restructuring necessitated by the end of the sensing
project with our European customer, we are being careful to maintain these
core capabilities to service the display markets and retain our potential
revenue sources. We will continue to adopt a dual approach to commercial
exploitation of our display materials, whether through licensing or material
supply from our own manufacturing capability.
Market developments
The Board recognises that the adoption of nano material technology has taken
longer than expected for both Nanoco and its competitors, creating commercial
challenges for Nanoco and leading to terminal financial distress for other
market participants. Development cycles tend to be long because the whole
supply chain often needs to be re-engineered on top of developing new
materials with every step of the process subject to stringent testing. One of
the advantages of the sensing and display materials that Nanoco specialises in
is that the material represents an extra layer in a pre-existing material
stack or is actually removing cost from existing supply chains (and hence
adding value).
Our small scale allows us to be much more agile and responsive to our
customers when compared to our competitors. The in-depth nature of our
technological insight also means that we do tend to "punch above our weight"
in terms of direct engagement with very large end customers and their
technology teams. Reaching final product validation for two novel
nanomaterials within six years demonstrates Nanoco's clear ability to meet the
exacting standards of consumer electronics applications in a relatively short
timeframe. Of course, the downside to this situation is that our small scale
and position in the supply chain mean that we are inevitably exposed to
customer concentration risk and have lower visibility of demand that we would
like. We leverage our expertise and IP in negotiating commercial terms to
mitigate some of these supply chain risks.
Operations
We have invested significantly in our capabilities in the year, with the new
device facility costing £1.2 million, with the vast majority of the
second-hand equipment being heavily discounted from cost "as new". As
mentioned previously, this strategic investment significantly reduces the
duration of the feedback loop on the impact of changes in our chemistry on the
devices. A process which used to take circa three months now takes one week.
This is critical as long-term success in developing new materials is driven by
the number of new reactions and recipes that can be run in a period of time.
This new capability can be applied to various generations of our technology,
and we have complete freedom to operate the facility with any customer.
During the year, and in line with our investment in our quality management
systems, we implemented electronic batch recording and line side systems to
match our position in important electronics supply chains. This, along with
some other improvements, has ensured we can meet and have been accredited to
ISO 14001 Environmental Management Systems. This again demonstrates Nanoco's
position as a robust supply chain partner for electronic materials. This
certification is often a fundamental requirement of our electronics customers
before they will even consider signing a supply contract.
Leveraging intellectual property
We continue to proactively manage our IP portfolio to maximise value and
protect our core competencies while carefully managing our IP maintenance
spend. We finished the year with 366 patents and patents pending (2023: 375).
Our annual IP maintenance spend is approximately £0.2 million which is a
significant reduction from the figure of approximately £0.4 million in 2020.
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 pre-existing IP. These are also areas with clear future
commercial opportunities and benefits to be had from holding high quality
patents.
As we explained last year, to drive licensing value from an IP portfolio, any
business needs firstly a "commanding IP portfolio" and secondly, a "deep and
impacted market." Our success in generating an IP licence with Samsung shows
that we already have the first of these. The market for devices containing
cadmium-free quantum dots is growing in line with the low end of external
market forecasts. However, new technologies using quantum dots such as
micro-LED and electro-luminescence are attracting significant investment and
if successful in their own right will lead to an increase in demand for
cadmium-free materials. Until such time as the market becomes attractive
enough to pursue such opportunities, we will continue to proactively engage
with parties who would benefit from sourcing material from Nanoco or having a
licence over our IP. It is a frustrating but unavoidable fact that the
economics of IP enforcement and licensing programmes strongly favour the
infringer and not the patent holder. Even when it is clear that a company is
likely to be infringing our IP, the cost of legal action is often prohibitive,
especially when the likely infringer is a small competitor.
People and community
Our employees make Nanoco and have provided great service to our customers
throughout the year by delivering high quality materials on time and achieving
challenging milestones and deliverables in our development work.
Our Employee Voice Committee ("EVC") has been very active throughout the year
to support the Group and all staff on matters of physical and mental
wellbeing, relaying concerns to the Board and helping with our CSR activities.
The EVC was instrumental in choosing Emmaus as our charity of choice for the
forthcoming year. Emmaus is a charity local to Runcorn that focuses on
supporting the homeless.
We continue to invest in our LEAN programme, with all staff trained on LEAN
techniques to improve problem solving and quality control processes. All staff
remain actively engaged on health and safety, with initiatives to improve our
working environment and reduce the overall risk environment. We will continue
to invest in further training and development for all staff as part of their
career development and our staff retention aims. This includes general
management training that feeds into succession planning.
We have awarded a general cost of living increase for all staff for FY25 of 3%
of salary (excluding the Executive Directors who are receiving 2.5%). In FY24,
we implemented a workplace health programme for all staff that has an
equivalent cost of 1% of salary. We also completed a further benchmarking
exercise post year end, and we believe that all staff are now paid around
median salaries or higher. All staff are also eligible to participate in the
Group's Deferred Bonus Plan and Long Term Incentive Plan.
We will review other benefits options and further potential improvements to
pension contributions as our financial situation improves and when the Group
becomes self-financing in its organic operations.
Post-year-end events and our response
We announced on 30 August that our European customer had decided to focus
their priorities away from QD-enabled CMOS sensors and hence will not be
placing any further orders for first generation sensing materials and have
cancelled the development project for second generation sensing materials. The
Group continues to negotiate the final commercial compensation payable as a
result of these actions, including the fate of potentially surplus customer
assets.
Nanoco now has complete freedom to operate with respect to all materials
developed with the European customer (first and second generation). Nanoco is
also now focusing directly on niche market opportunities that were too small
to be of interest to our European customer but which can be meaningful for
Nanoco. This will inevitably require an expansion of a "fabless" supply chain
for Nanoco and efforts are already underway to replicate the previous supply
chain.
The lower activity levels that have resulted from the termination of the
development agreement with the European customer have necessitated a review of
our staffing levels and costs. We regrettably had to announce a consultation
on the restructuring of the business that has seen twelve valued and trusted,
highly skilled employees leave the business (27% of our workforce). A summary
of the actions being taken includes:
• a reduction of approximately 27% of employees in the operating
business;
• a planned reduction in the size of the Board over FY25;
• all Non-Executive Directors have agreed to defer at least 50% of
their salaries until the earlier of either 31 July 2025, their cessation as
Directors, or a sale transaction of the underlying business;
• a switch of all Executive Director potential bonuses to being paid
in options rather than cash;
• mothballing of equipment and, where possible, facilities to reduce
the holding costs of critical capabilities; and
• a reduction in activity-based costs consequent with the reduction
in activity levels.
The result of these actions is that the Q4 FY25 cash cost run rate is expected
to be approximately £2.6 million (34%) below the equivalent Q4 run rate in
FY24.
Outlook
The Board is strongly of the view that there are significant organic
commercial applications for Nanoco's technology across a range of markets that
will generate value for the business over time. Initial applications are
likely to be in various niche markets that can deliver meaningful revenue for
Nanoco in the short to medium term growing into mass market applications over
time. The current collaboration with the Asian customer specifically targets
mass market applications for a leading global sensing group. This assessment
is based on growing market interest and participation in quantum dot
technology in display and sensing markets. It also draws on direct customer
feedback, independent expert technical analysis and the Group's own extensive
knowledge.
The vast majority of long-term investors in the Group are, like the Board,
believers in the long-term inevitability of the adoption of quantum dots
across a very broad range of commercial electronics applications. With
validated products for sensing and display applications, a robust and valuable
IP portfolio, leading-edge skills and capabilities in our talented staff and
complex assets, and growing commercial interest in QD technology, it would be
economic terrorism to abandon all of those valuable foundations.
That being said, the Group's trading business clearly remains in the scale up
phase of business growth and is exposed to what can appear as binary decisions
by a concentrated customer base of global players. The Board therefore
believes that it is now prudent to consider if the growth and investment in
the trading business and IP assets would be best led in a different ownership
setting than allowed for as the sole business of a listed group given also the
costs of the group's listing.
The Board has therefore appointed advisers (CDX Advisors LLC ("CDX")) to
review the options for the group's trading business and assets (which includes
our IP), including a potential sale. To be clear, this is not a proposed sale
of the whole Group. Work with CDX has commenced with a view to achieving the
best possible financial outcome and to secure the long-term future of the
Group's IP and operations. This process will be undertaken at pace and the
Group's considerable financial resources mean that the trading business will
continue to be supported to grow and not compromise its potential.
The Board is highly confident in the potential of the business. A balance
needs to be struck, in the interests of all of its shareholders, between
supporting this growth and prudence with regard to risk, to preserve cash and
to take a highly disciplined approach to investment. A successful outcome to
the current activities to secure the long-term future of the trading business
is intended to lead to a further return of capital to shareholders.
Dr Christopher Richards
Chairman
20 November 2024
Financial review
Financially underpinned Group with growth opportunities
Liam Gray
Chief Financial Officer
Highlights 2024 2023 % change
£ million £ million
Revenue 7.9 5.6 40%
Other operating income 0.1 0.2 (38%)
Adjusted EBITDA 1.2 (0.4) 175%
Net (loss)/profit (1.3) 11.1 (92%)
(Loss)/profit per share (p) (0.43) 3.44 (91%)
Billings 61.0 63.0 (3%)
Cash and cash equivalents 20.3 8.2 147%
Summary
• Revenue increased by 40% to £7.9 million (2023: £5.6 million),
driven by the licence income from Samsung. Excluding Samsung licence income,
revenue declined by 29% due primarily to timing differences in the start and
end of a number of development projects.
• The gain on a foreign exchange forward contract on the second
tranche of the Samsung litigation proceeds generated a one-off gain of £1.8
million in the year, in addition to a £0.3 million gain on the cash which was
held in USD before utilising the forward contract.
• Adjusted EBITDA has increased to £1.2 million (2023: £0.4
million loss), reflecting the additional revenue in the period.
• Completed tender offer at a 25.1% premium to the closing
mid-market price per ordinary share on the day before the tender was announced
to return £30.0 million to shareholders following the receipt of litigation
proceeds noted above.
• Commenced broker managed market buy-back to return a further £3.0
million to shareholders, completed post year end.
• £5.1 million of loans were repaid in the year, leaving the Group
debt free.
Revenue increased by £2.3 million to £7.9 million (2023: £5.6 million). The
increase is due to the licence agreement signed with Samsung which contributed
£6.0 million, with the remaining revenue largely related to the ongoing
project with the European electronics customer. Excluding Samsung licence
income, revenue declined by 29% due primarily to timing differences in the
start and end of a number of development projects.
The sale of products and services rendered accounted for 23% (2023: 45%) of
revenue, with the balance being licence income. Revenue from services has
decreased from £1.7 million to £1.4 million due to the time gap prior to the
current development agreements being started. Revenue from the sale of
products, including development products, was £0.4 million (2023: £0.9
million).
Non-GAAP measures
Billings, including those to Samsung, decreased by £2.0 million to £61.0
million (2023: £63.0 million). Excluding the impact of any Samsung related
billings, billings were £1.8 million, which was in line with revenue.
Billings reconciliation 2024 2023
£ million £ million
Revenue 7.9 5.6
Movement in deferred income 19.6 23.3
Movement in accrued income 33.1 34.5
FX movement between billing and recognition 0.4 (0.4)
Billings 61.0 63.0
The movement in deferred income reflects the second tranche of the payment
less licence income in the period. Other operating income generated £0.1
million (2023: £0.2 million) and related to grant income for two projects
with Innovate UK which were successfully completed during the year. An
additional £1.8 million gain related to the foreign currency contract on the
second tranche of the Samsung litigation proceeds.
The non-GAAP measure of adjusted earnings/(loss) before interest, tax,
depreciation, amortisation, share-based payment charges and exceptional items
("EBITDA") is provided in order to give a clearer understanding of the
underlying profit for the year that more closely reflects the recurring
operational earnings of the business. The calculation of these non-GAAP
measures is shown in the table below:
2024 2023
£ million £ million
Operating profit 1.7 15.0
Settled litigation costs - 49.3
Profit on sale of IP - (68.7)
Gain on derivative financial instrument (1.8) -
Requisitioned general meeting - 0.5
Foreign exchange (0.9) 1.7
Share-based payment charge 1.0 1.0
Employer's NI on SBP 0.0 (0.2)
Depreciation 0.8 0.6
Amortisation1 0.4 0.4
Adjusted EBITDA 1.2 (0.4)
1 Includes impairment of intangible assets (2024: £0.2 million, 2023:
£0.1 million).
Finance income and expense
During the year, the Group generated finance income of £0.8 million on the
Group's cash deposits, earned primarily in the six months following receipt of
the second tranche of the Samsung litigation proceeds. The finance expense in
the year of £0.7 million (2023: £5.5 million) included £0.5 million of
interest on loans which were repaid in the year with the balance being the
inherent interest charge on finance leases under IFRS 16.
The profit before tax was £1.9 million (2023: £9.6 million profit).
Taxation
The tax charge for the year was £3.1 million (2023: £1.5 million credit).
This comprises a UK corporation tax charge of £nil (2023: £1.0 million) and
an overseas corporation tax charge of £0.6 million (2023: £0.3 million),
offset by an R&D tax credit of £0.2 million (2023: £0.3 million) and the
derecognition of deferred tax assets of £0.2 million (2023: £2.5 million
recognition). In addition, the Group incurred withholding tax in Korea of
£2.6 million in the year, of which £1.8 million has been recognised as an
asset as it can be offset against future profits.
The Group has £30.0 million of accumulated losses to offset against future
profits (2023: £30.8 million).
Cash flow and balance sheet
During the year, cash, cash equivalents, deposits and short-term investments
increased to £20.3 million (2023: £8.2 million) caused by a net cash inflow
of £12.1 million (2023: £1.4 million inflow). The increase reflects the
£58.8 million Samsung receipt, offset by £33.0 million returned to
shareholders via the tender and buy-back, £5.1 million of loan repayments,
£1.5 million investment in new facilities and £7.1 million operating cash
outflow. Interest on cash deposits of £0.8 million was received in the year.
Tax payments of £0.8 million (2023: £0.5 million receipt) were made during
the year.
Expenditure incurred in registering patents totalled £0.1 million (2023:
£0.1 million). Capitalised patent spend is amortised over ten years in line
with the established Group accounting policy.
IP impairment charges during the year were £0.1 million (2023: £0.1
million). This reflects the rationalisation of the patent portfolio in prior
years to ensure the remaining patents are commercially and technologically
viable in the short to medium term.
Expenditure on tangible fixed assets increased to £1.5 million (2023: £0.3
million) as the Group invested in its new device facility.
During the year, the Group repaid all of its outstanding loans totalling £5.1
million, leaving the Group debt free.
Capital reduction
At the end of the prior year, the Group carried out a capital reduction that
was approved by the High Court in England to eliminate the share premium and
capital redemptions reserves. This increased the Group's distributable
reserves and allowed the return of capital below to take place.
Return of capital
In April 2024, the Group completed a tender offer at 24 pence, a 25.1% premium
to the closing mid-market price per ordinary share on the day before the
tender was announced, to return £30.0 million to shareholders. Of the 125
million shares acquired by the Company via the tender offer, 90% were
subsequently cancelled with the remainder being held by the Employee Benefit
Trust for use in the future to satisfy employee share options granted under
the Nanoco Long Term Incentive Plan and the Deferred Bonus Plan.
Immediately following the tender offer, the Group commenced a broker managed
on-market buy-back to return a further £3.0 million to shareholders. As at 31
July 2024, £2.0 million had been returned via this mechanism, which led to
the purchase and subsequent cancellation of a further 10.9 million shares. The
remainder of the buy-back was completed post year end. The Company's
outstanding share capital was 202,571,497 shares as at 31 July 2024 and
194,608,038 on completion of the on-market buy-back on 30 October 2024.
The Group incurred fees and taxes on the tender offer and buy-back totalling
£1.0 million, the cost of which was charged directly to reserves.
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.
The second tranche of the litigation proceeds was received in January 2024
(gross $75 million, net $71.75 million after $3.25 million withholding tax
paid at source). The Group took out a one-off hedge at a rate of GBP1:USD1.22,
which meant the net cash receipt of $71.75 million was converted to £58.8
million. This was a £1.8 million gain over the prevailing rate in February
2024 when the hedge was utilised.
There were no open forward contracts as at 31 July 2024 (2023: none).
Credit risk
The Group only trades with recognised, creditworthy third parties. Credit risk
is increased by the concentration of receivables to a small number of
customers. 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.
Treasury activities and policies
The Group manages its cash deposits prudently. Cash balances are regularly
reviewed by the Board and cash forecasts are updated monthly to ensure that
there is sufficient cash available for foreseeable requirements.
Going concern
Following the receipts from Samsung and the return of capital to shareholders,
the Group retains a cash balance of £20.3 million at 31 July 2024. Given the
remaining cash balance, our low cost base, and the identified commercial
opportunities, the Directors have a reasonable expectation that the Group has
access to adequate resources to continue in operational existence for the
foreseeable future. Any future return of surplus cash will take into account
the on-going viability of the group.
Accordingly, the Board concluded that it remains appropriate to continue to
adopt the going concern basis in preparing the consolidated financial
statements. Further detail is included in the going concern statement.
Macroeconomic factors
We continue to see inflationary pressures on raw materials. We attempt to
mitigate these by regularly reviewing suppliers where possible, negotiating
with new suppliers and trying to achieve volume breaks. We will continue to
review market conditions and assess the impact on all stakeholders.
Summary
Nanoco is now financially underpinned with a stable cost base and IP that has
been validated by the US PTAB and we have commercial opportunities in large
and growing markets. We look forward to updating shareholders on progress
against our strategic objectives in due course.
Liam Gray
Chief Financial Officer
20 November 2024
Principal risks and uncertainties
Managing risk is key to the delivery of the Group's strategic objectives
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 an early stage in their development, or still being validated by customers,
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. The technology,
particularly in the sensing division, is still in its infancy and has yet to
see end market adoption in higher volume applications.
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.
Risk management process
The Group has established a process for carrying out a robust risk assessment
that evaluates and manages the principal risks faced by the Group. A detailed
review of individual risks was undertaken initially by the leadership team and
then reviewed by the Board during the financial year ended 31 July 2024. That
review also incorporated climate-related risks, as required by TCFD reporting.
The Board has also established an acceptable level of risk (risk appetite)
that informs the scale and urgency of actions required. Where risks are deemed
to be outside of management control, efforts are focused on mitigating any
potential impact. Where all practical measures to prevent or mitigate risks
have been taken and a residual element of risk still remains, these risks are
accepted by the Group.
Risks are evaluated with respect to the probability of occurrence and the
potential impact if a risk crystallised. Where the Group has identified risks,
these are monitored with controls and action plans to reduce the probability
of a risk crystallising and the impact of each potential event if it did
occur. The residual risk score, after mitigating controls, is then plotted on
a "risk heat map".
Principal overarching risk
The historical principal overarching strategic risk faced by the business was
that the Group exhausted its available funding before achieving a
self-financing level of commercial revenue. This risk has significantly
mitigated in the short to medium term following the proceeds from the Samsung
litigation settlement. The underlying risk relating to market adoption of
Nanoco's technology remains but has been shifted further out in time due to
the improved cash position noted above.
Other principal risks
Risks are broadly categorised as strategic, operational, financial or
compliance. The Group focuses on those risks that the Directors believe are
the most important currently faced by the business. Other risks may be unknown
at present and some that are currently rated as low risk could become more
material risks in the future. The Group's risk management process tracks risks
as they evolve and change.
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 issued by the IASB as adopted by the UK and give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Group
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
Dr Christopher Richards
Chairman
20 November 2024
Unaudited consolidated statement of comprehensive income
for the year ended 31 July 2024
Notes 2024 2023
£'000 £'000
Revenue 4 7,874 5,618
Cost of sales (1,211) (847)
Gross profit 6,663 4,771
Other operating income
Government grants 142 230
Profit on sale of IP - 68,687
Gain on derivative financial instrument 1,814 -
Operating expenses
Research and development expenses (853) (1,295)
Administrative expenses (6,059) (57,401)
Operating profit 1,707 14,992
- Before share-based payments and non-recurring items 850 (2,915)
- Share-based payments (957) (953)
- Profit on sale of IP - 68,687
- Gain on derivative financial instrument 1,814 -
- Litigation costs - (49,337)
- EGM requisition - (490)
Finance income 835 38
Finance expense (677) (5,457)
Profit before taxation 1,865 9,573
Taxation (3,118) 1,512
(Loss)/profit after taxation (1,253) 11,085
Other comprehensive income - -
Total comprehensive (loss)/profit for the year (1,253) 11,085
Profit per share
Basic (loss)/profit per share for the year 5 (0.43p) 3.44p
Diluted (loss)/profit per share for the year (0.43p) 3.32p
The loss for the current year and profit for the prior year arise from the
Group's continuing operations and are attributable to the equity holders of
the Parent.
Unaudited consolidated statement of changes in equity
for the year ended 31 July 2024
Group Notes Share Share Capital redemption reserve Reverse Share- Merger Shares held (Accumulated Total
capital premium £'000 acquisition based reserve by EBT Losses) /retained £'000
£'000 £'000 reserve payment £'000 £'000 earnings
£'000 reserve £'000
£'000
At 1 August 2022 32,244 121,145 - (77,868) 4,916 (1,242) - (74,715) 4,480
Profit for the year - - - - - - - 11,085 11,085
Other comprehensive income - - - - - - - - -
Total comprehensive profit - - - - - - - 11,085 11,085
Capital reduction - (121,145) - - - - - 121,145 -
Issue of capital to EBT on option exercise 199 - - - (259) - (105) 60 (105)
Share-based payments - - - - 953 - - - 953
At 31 July 2023 32,443 - - (77,868) 5,610 (1,242) (105) 57,575 16,413
Loss for the year - - - - - - - (1,253) (1,253)
Other comprehensive income - - - - - - - - -
Total comprehensive loss - - - - - - - (1,253) (1,253)
Share buy-back (12,186) - 12,186 - - - (3,348) (29,683) (33,031)
Issue of capital to EBT on option exercise - - - - (207) - 105 5 (97)
Transfer of expired options - - - - (4,788) - - 4,788 -
Share-based payments - - - - 957 - - - 957
At 31 July 2024 20,257 - 12,186 (77,868) 1,572 (1,242) (3,348) 31,432 (17,011)
Unaudited Group statement of financial position
at 31 July 2024
Registered no. 05067291
31 July 2024 31 July 2023
Group Group
£'000 £'000
Assets
Non-current assets
Tangible fixed assets 1,651 304
Right of use assets 2,188 2,075
Intangible assets 745 966
Deferred tax assets 2,350 2,573
Foreign withholding tax receivable 1,664 1,756
Investment in subsidiaries - -
8,598 7,674
Current assets
Inventories 305 308
Trade and other receivables 1,083 33,986
Foreign withholding tax receivable 149 592
Income tax receivable 235 -
Cash and cash equivalents 20,293 8,207
22,065 43,093
Total assets 30,663 50,767
Liabilities
Current liabilities
Trade and other payables (1,578) (2,783)
Loans - (4,004)
Lease liabilities (621) (456)
Income tax liability - (770)
Deferred revenue (5,934) (6,123)
(8,133) (14,136)
Non-current liabilities
Loans - (557)
Lease liabilities (1,288) (1,415)
Provisions (659) (445)
Deferred revenue (37,594) (17,801)
(39,541) (20,218)
Total liabilities (47,674) (34,354)
Net (liabilities)/assets (17,011) 16,413
Capital and reserves
Share capital 20,257 32,443
Capital redemption reserve 12,186 -
Reverse acquisition reserve (77,868) (77,868)
Share-based payment reserve 1,572 5,610
Merger reserve (1,242) (1,242)
Shares held by EBT (3,348) (105)
Retained earnings 31,432 57,575
Total equity (17,011) 16,413
Unaudited Group cash flow statement
for the year ended 31 July 2024
31 July 2024 31 July 2023
Group Group
£'000 £'000
Profit before tax 1,865 9,573
Adjustments for:
Net finance income (158) 5,419
(Profit)/loss on exchange rate translations (852) 1,747
Depreciation of tangible fixed assets 117 76
Depreciation of right of use assets 698 555
Amortisation of intangible assets 224 279
Profit on disposal of intangible assets - (68,687)
Impairment of intangible assets 132 92
Impairment of investment - -
Share-based payments 957 953
Loss on disposal of tangible fixed assets 2 8
Increase/(decrease) in inventory provision 93 (15)
(Decrease)/increase in receivables provision - -
Changes in working capital:
Increase in inventories (90) (119)
Decrease/(increase) in trade and other receivables 33,459 282
(Decrease)/increase in trade and other payables (1,208) 970
Decrease in provisions - (176)
Increase in deferred revenue 19,604 23,320
Cash inflow/(outflow) from operating activities 54,842 (25,723)
Foreign withholding tax paid (2,566) (2,641)
Tax paid (797) -
Research and development tax credit received - 524
Net cash inflow/(outflow) from operating activities 51,479 (27,840)
Cash flow from investing activities
Purchases of tangible fixed assets (1,466) (305)
Purchases of intangible fixed assets (135) (76)
Proceeds from sale of tangible fixed assets - 15
Proceeds from sale of intangible fixed assets - 34,509
Interest received 785 38
Net cash (outflow)/inflow from investing activities (816) 34,181
Cash flow from financing activities
Proceeds from placing of ordinary share capital - 199
Purchase of shares to satisfy options (97) -
Return of capital to shareholders (32,000) -
Fees on return of capital to shareholders (1,027) -
Repayment of loan - capital (3,550) -
Repayment of loan - interest (1,528) -
Payment of lease liabilities (capital) (558) (463)
Payment of lease liabilities (interest) (103) (86)
Interest paid (57) (4,728)
Net cash outflow from financing activities (38,920) (5,078)
Increase/(decrease) in cash and cash equivalents 11,743 1,263
Cash and cash equivalents at the start of the year 8,207 6,762
Effects of exchange rate changes 343 182
Cash and cash equivalents at the end of the year 20,293 8,207
Notes to the unaudited financial statements
1. Reporting entity
Nanoco Group plc, a public company limited by shares, has its shares admitted
to trading on the Main Market of the London Stock Exchange. The Group 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 Group 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 2024. The unaudited preliminary
results of the Group for the year ended 31 July 2024 were authorised for issue
by the Board of Directors on 20 November 2024 and the statements of financial
position were signed on the Board's behalf by Dr Christopher Richards and Liam
Gray. The unaudited preliminary results do not constitute statutory financial
statements within the meaning of section 435 of the Companies Act 2006. The
statutory financial statements for the year ended 31 July 2024 will be
delivered to the registrar of companies as soon as practicable.
There were no statements under section 498(2) or section 498(3) of the
Companies Act 2006.
The information set out below has been extracted from the Group's draft report
and accounts for the year ended 31 July 2024 and has not been audited. The
Group expects to publish its audited annual report and accounts on 21 November
2024, 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 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 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 2024.
(b) Basis of measurement
The Group 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.
(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 key factor in the Group's going concern assessment is the strength of the
balance sheet at 31 July 2024 with £20.3 million of cash reserves and all
external loans having been repaid in the year. There are sufficient cash
reserves to support the Group's cost base throughout the going concern period
in any of its forecast scenarios. Any future distribution of surplus cash
will take into consideration the viability of the group and sufficient cash
will be retained to ensure viability.
For the purposes of their going concern assessment and the basis for the
preparation of the 2024 Annual Report, the Directors have reviewed the same
trading and cash flow forecasts and sensitivity analyses that were used by the
Group in the viability assessment, with the going concern assessment covering
the period to November 2025. The same base case and downside sensitivities
were also used.
The base case represents the Board's current expectations. Assumptions in the
base case are:
• reduced revenue in FY25 following the loss of the European
electronics customer;
• new services revenue will be generated from CY25;
• ramp up of product sales from FY26 moving to larger scale in FY27;
• other companies pay to access Nanoco's technology in the future;
• reduction in headcount and overheads to reflect reduced short-term
revenue expectations;
• costs associated with being a listed entity and other costs
reflect the current inflationary environment; and
• the reduced 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 FY26); and
• no new service customers until FY27.
Both cases above produce cash flow statements that demonstrate that the Group
has sufficient cash throughout the period of the forecast, being a period to
November 2025.
Accordingly, the Directors 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. 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
Samsung licence of IP
Following the judgement over the method of revenue recognition of the Samsung
contract described below, it was determined that the appropriate period for
revenue recognition was the average remaining life of the relevant IP of 8.8
years. The average remaining life of the IP is a significant estimate and is
reviewed each year.
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, 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 non-market vesting assumptions. Further information is
included in note 24.
Deferred tax
The Group recognises deferred tax assets only to the extent that it is
probable that future taxable profits, feasible tax planning strategies and
deferred tax liabilities will be available against which the tax losses can be
utilised. Estimation of the level of future taxable profits is therefore
required in order to determine the appropriate carrying value of the deferred
tax asset. Future profits are based on sensitised management forecasts for the
following 3 years which is the period over which the profits are considered to
be probable. The period over which forecast profits are considered to be
probable is a key assumption and as such a sensitivity analysis has been
performed. The Group has recognised £2.4 million of deferred tax assets in
the year (2023: £2.6 million) which represents the proportion of accumulated
losses that are expected to be utilised in the medium term.
Judgements
Revenue recognition
Judgement is required in reviewing the terms of development agreements to
identify separate components of revenue, if any, that are distinct 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. This matter is further complicated where a contract may have
different elements which may result in separate recognition treatments under
IFRS 15. Further information is included in note 3(d).
Samsung licence of IP
Judgement is required in reviewing the terms of the licence agreement with
Samsung as to whether the associated revenue should be recognised at a point
in time or over time, and if over time, over what period. The Directors
reviewed the contract in detail and analysed the terms against the specific
requirements of IFRS 15 in relation to licences. They concluded that the Group
had an ongoing performance obligation in regard to the licence and therefore
the revenue should be recognised over time.
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(h).
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 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.
During the prior year, the Group established an Employee Benefit Trust ("EBT")
for the purpose of awarding shares to employees on exercise of options under
the share-based compensation schemes. Although the EBT is an independent legal
entity and not owned by the Group, it is reliant on funding from the Group and
acts at its request; as such, it is deemed to be controlled by the Group and
is consolidated into the Group accounts.
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 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).
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 standards effective from 1 January 2024 (UK adopted):
• IAS 1 Amendment: Classification of Liabilities as Current or
Non-current
• IAS 1 Amendment: Non-current Liabilities with Covenants
• IFRS 16 Leases Amendment: Lease liability in a sale and leaseback
• IAS 7 and IFRS 7 Amendment: Supplier finance arrangements
IFRS standards effective from 1 January 2025 (UK adopted):
• IAS 21 The Effects of Changes in Foreign Exchange Rates
(Amendment): Lack of exchangeability
The amendments to standards and interpretations noted above are expected to
have no significant impact on the financial statements.
4. Segmental information
Operating segments
During the years ended 31 July 2024 and 2023, 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
2024 2023
£'000 £'000
Analysis of revenue
Products sold 408 867
Rendering of services 1,410 1,685
Licences 6,056 3,066
7,874 5,618
There was one material customer who generated product and service revenue of
£1,194,000 (2023: one material customer amounting to £2,014,000).
£6,013,000 of the licence income related to the Samsung licence (2023:
£2,963,000).
Revenue from the provision of services delivered over time totalled
£7,466,000 (2023: £4,751,000). Revenue from the sale of goods transferred at
a point in time amounted to £408,000 (2023: £867,000).
The Group operates in a number of countries across the world, although all are
managed in the UK. The Group's revenue per country based on the customer's
location is as follows:
31 July 31 July
2024 2023
£'000 £'000
Revenue
South Korea 6,013 2,963
Netherlands 926 1,423
Japan 573 447
France 268 385
USA 46 59
Taiwan 42 323
Canada 3 9
Belgium 2 -
UK 1 1
Poland - 8
7,874 5,618
All of the Group's assets are held in the UK and all of its capital
expenditure arises in the UK. The profit before taxation and attributable to
the single segment was £1,865,000 (2023: loss of £9,573,000).
5. Earnings per share
Group 31 July 31 July
2024 2023
£'000 £'000
(Loss)/profit for the financial year attributable to equity shareholders (1,253) 11,085
Share-based payments 957 953
(Loss)/profit for the financial year before share-based payments (296) 12,038
Weighted average number of shares
Ordinary shares in issue 288,791,171 322,472,939
Options exercisable at the reporting date 160,664 195,000
Options not yet exercisable at the reporting date 12,717,665 11,720,600
Diluted weighted average number of shares 301,669,500 334,388,539
Adjusted (loss)/profit per share before share-based payments (pence) (0.10) 3.73
Basic (loss)/profit per share (pence) (0.43) 3.44
Diluted adjusted (loss)/profit per share before share-based payments (pence) (0.10) 3.60
Diluted (loss)/profit per share (pence) (0.43) 3.32
Adjusted (loss)/profit per share and diluted adjusted (loss)/profit per share
are non-GAAP measures included for reference.
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