REG - Nanoco Group PLC - Unaudited Preliminary Results
17/10/2023 07:00
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RNS Number : 3024Q Nanoco Group PLC 17 October 2023
For Immediate Release
17 October 2023
NANOCO GROUP PLC
("Nanoco", the "Group", or the "Company")
Unaudited Preliminary Results for the year ended 31 July 2023
"Transitioning from an R&D first mover to a commercial producer"
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 2023.
Overview - strong progress towards commercial production, financially
underpinned
· Nanoco is now closer to commercial production than at any time in its
20-year history
· Nanoco is in the strongest financial position since its inception - net
$90m litigation proceeds underpin commercial business and return of capital
· Retained litigation proceeds will be invested to secure a position in
global electronics supply chains
· Sensing and display markets are forecast to experience rapid growth
· New NED recruitment at an advanced stage and in the shortlist process
Operational Summary - making ready for commercial production
· Achieved all development, scale up and production readiness milestones
· Two sensing materials in final production validation with customer
· Deeper and longer development contracts under discussion with two
long-standing customers
· Increasing customer engagements for CFQD materials including micro-LED
displays
Intellectual property - next steps taken to monetise IP following success with
Samsung
· Patent Trial and Appeal Board ('PTAB') validated all patents and 47
associated litigation claims
· Nanoco retains 46 of the 47 validated claims with lives extending to
2028
· Nanoco also retains 52 other patents held in reserve for the
litigation, lives extending to 2033
· Contact made with potential infringers based on heat map, product
analysis, and market attractiveness
Financial Summary - performance in line with Board expectations, financially
underpinned
· Revenue more than doubled to £5.6m (FY22: £2.5m)
· Adjusted LBITDA loss reduced by 83% to £0.4m (FY22: £2.3m LBITDA)
· Year-end cash £8.2m, an increase of £2.2m since 31 January 2023
· Payment and use of proceeds from the litigation settlement:
o First net tranche £59.2m received March 2023, used to pay litigation
costs
o Second net tranche £58.8m due by 3 February 2024, wholly for Nanoco,
fully hedged
· Gross fixed cash cost base c.£0.5m per month before revenue and other
operating income - an increase of just over £0.1m per month following
investment in new staff capacity and inflationary cost increases in H2 FY23
Return of capital - capital reduction effected and process on track
· Intention to return between £33-40 million (or approximately 10-12
pence per share) using the second tranche of the proceeds of the litigation
· Capital reduction effected in July 2023 to facilitate the return of
capital
· Retained cash (following the return to shareholders) will be invested
in R&D and commercial activities, a proactive IP licensing programme,
payment of debt obligations, and to provide working capital through to the
self-financing position that is expected during 2025
Current trading - continued strong progress
· Discussing contract terms of our first ever commercial production
order, expected to be received before the end of CY23 (for a low volume
application in the first instance and as expected)
· Expanding our commercial R&D contracts with a number of customers
with the goal of adding a further global electronics supply chain customer in
FY24
· Investing retained funds to expand our range of high-performing
materials, developing new materials with enhanced performance, as well as
expanding our reach
· Self-funding our next steps to monetise our IP whilst actively engaging
with other potential infringers of our validated IP
· We expect our order book to rise to deliver similar services and
material revenue to that seen in FY23, licence income will reflect a full year
of the litigation settlement
Brian Tenner, Nanoco's CEO, commented on the results:
"We have driven Nanoco steadily towards its current inflection point. We have
delivered all development and scale up milestones for our sensing customers.
We have also significantly enhanced our robustness as an important partner in
global electronics supply chains. We are now discussing the contract terms of
our first ever commercial production order, expected to be received before the
end of CY23.
"In parallel with the transition to production, we are also expanding our
commercial R&D contracts with a number of customers with the goal of
adding a further global electronics supply chain customer in FY24.
"Our transition from an R&D first mover to a commercial producer is
underpinned by the proceeds from the settlement which are enabling us to
invest carefully to expand the range and reach of our materials, whilst at the
same time self-funding the monetisation of our IP.
"We started the litigation process in February 2020: a long legal road lay
ahead, we had limited prospects for commercial production, there were no
anchor customers in place, the Formal Sale Process was stalling in the face of
Covid-19, and we had a recurring need to raise new funding every year. Fast
forward: we exit FY23 with a successful outcome to the litigation, the
expectation of a commercial production order before the end of CY23, two
active global long-term customers, an expanding range of materials and device
capability, a financially underpinned business and the ability to execute on
our firm commitment to return significant capital to shareholders in Q1 CY24.
"The whole Nanoco team has worked hard to deliver these outcomes. A lot has
been done. Our team will keep working hard as there is still a lot to do to
capture the opportunities in front of us. The Board is therefore rightly
confident in the strength of the investment proposition and value inherent in
the business."
- Ends -
A conference call and webcast combined for analysts and investors will be held
at 10:00am (UK time) this morning (17 October 2023):
Dial in: +44 (0) 33 0551 0200
PIN: Nanoco Preliminary Results
Link: https://stream.brrmedia.co.uk/broadcast/6516f5ce01d979c8a2eccfcd
(https://stream.brrmedia.co.uk/broadcast/6516f5ce01d979c8a2eccfcd)
Questions may be submitted in advance via nanoco@mhpc.com
(mailto:nanoco@mhpc.com)
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.
In order to allow investors to digest the Final Results more fully, there will
be a further presentation via the Investor Meet Company platform on 24 October
at 09:30am. Questions can be submitted in advance via the Investor Meet
Company Dashboard before 4:00pm on 23 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: +44 (0) 1928 761 422
Brian Tenner, CEO
Liam Gray, CFO & Company Secretary
Peel Hunt (Joint Corporate Broker): +44 (0) 20 7418 8900
Pail Gillam
James Smith
Turner Pope Investments (Joint Corporate Broker): +44 (0) 20 3657 0050
Andrew Thacker
James Pope
MHP +44 (0) 2023 128 8793
Reg Hoare / Matthew Taylor / Christian Harte
nanoco@mhpgroup.com
Notes for editors:
About Nanoco Group plc
Nanoco (LSE: NANO) harnesses the power of nano-materials. Nano-materials are
materials with dimensions typically in the range 1 - 100 nm. Nano-materials
have a range of useful properties, including optical and electronic. Quantum
dots are a subclass of nano-material that have size-dependent optical and
electronic properties. The Group produces quantum dots and other
nano-materials. Within the sphere of quantum dots, the Group exploits
different characteristics of the quantum dots to target different performance
criteria that are attractive to specific markets or end-user applications such
as the Display, Sensor and Electronics markets. An interesting property of
quantum dots is their absorption spectrum. Nanoco's HEATWAVE™ quantum dots
can be tuned to absorb light at different wavelengths across the near-infrared
spectrum, rendering them useful for applications including image sensors.
Another interesting property of quantum dots is photoluminescence: the
emission of longer wavelength light upon excitation by light of a shorter
wavelength. The colour of light emitted depends on the particle size. Nanoco's
CFQD® quantum dots are free of cadmium and other toxic heavy metals, and can
be tuned to emit light at different wavelengths across the visible and
infrared spectrum, rendering them useful for a wide range of applications
including displays, lighting and biological imaging.
Nanoco was founded in 2001 and is headquartered in Runcorn, UK, with a US
subsidiary, Nanoco Inc., in Concord, MA. Nanoco continues to build out a
world-class, patent-protected IP portfolio generated both by its own
innovation engine, as well as through acquisition.
Nanoco is listed on the Main Market of the London Stock Exchange and trades
under the ticker symbol NANO. For further information please visit:
www.nanocotechnologies.com (http://www.nanocotechnologies.com) .
Chairman's statement
Nanoco's commercial business is now financially underpinned, enabling the
Company to pursue exciting mid-term opportunities
Summary
· Settlement in the Samsung litigation delivered a gross $150 million
for the Company, and $90 million after litigation costs
· Very large "blue ocean" opportunity in sensors, with Nanoco
technology in forefront; embedded with European electronics customer, with
first production order expected in CY23
· Five sensing development projects with Asian chemical customer
completed in full, a sixth in progress
· Validated IP in display presents mid-term potential
· Consolidation of operations in Runcorn, investing to accelerate
product development and create device capability
· Firm commitment to return significant capital to shareholders in Q1
CY24
Overview
This has been an incredibly important year for Nanoco. The $150 million
settlement agreement with Samsung (structured as a sale of IP for $85 million
and an ongoing licence arrangement for $65 million) vindicated our decision to
litigate. Our IP in display has now been emphatically validated. The net $90
million proceeds underpin Nanoco's commercial potential, and allows the
business to plan for growth on a more secure financial footing.
We believe there is still value to be unlocked in our IP - though this will
take time. We do not believe anyone can make Cadmium-free Quantum Dots at
scale without using our IP. We have identified potential infringers and have
now engaged with the most likely candidates to pursue monetisation through
licensing or litigation.
In sensing, devices are now being trialled which incorporate Nanoco's QDs. The
market opportunity is clearly very large, when and if adoption gains traction.
During the year, we successfully delivered all milestones on time in our major
development agreement for the European electronics customer, sending two first
generation sensing products for final validation for potential use in
commercial applications. We are now focusing on building our supply chain
capabilities in preparation for a commercial production order expected by the
end of 2023.
We have also successfully delivered all challenging milestones in a series of
short-term development projects for our Asian chemical customer. This work
continues and we are now discussing a much longer-term collaboration which
will signal a significant investment in the future of this technology.
The Executive team continues to seek further customer engagements in both
sensing and display markets.
Strategy
Nanoco has a clear vision for the future. Underpinned by our IP, we intend to
be the "go-to" manufacturer of quantum dots for a variety of applications and
markets. Our ultimate aim is to advance technology through making the small
things matter. By focusing on our core competencies (our "dot only strategy")
we play to our key strengths and continue to build on and extend our
foundational intellectual property. 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.
Our people
Our staff have shown great fortitude in coping with the stresses and
challenges of the uncertain working environment at Nanoco over the last four
years. A number of staff have also relocated as part of the consolidation of
our operations to our Runcorn production facility. Our employees have
continued to work hard throughout this period, and deserve special recognition
for where we are today. We are now able to increase our investment in our
staff, including expanding their training and career development, and thereby
providing them with the opportunities to achieve their individual potential.
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
company. To that end, we have set ourselves the target of achieving ISO 14001
accreditation (Environmental Management) in the financial year ending 31 July
2024. We are also pursuing accreditation to ISO 45001 (Occupational Health and
Safety). Post year end, we have appointed an ESG steering committee with a
wide remit to support the Company to achieve its ESG goals. This is
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.
Board and the Extraordinary General Meeting
As the majority of stakeholders will be aware, during the year a small group
of activist shareholders called a general meeting in August 2023 with the aim
of removing the entire Board and appointing their own six nominees instead.
All of the activists' resolutions were emphatically voted down. Voting in
favour of the Board ranged from 80.8% to 89.1% of votes cast. I strongly
believe that these votes reflect shareholders' confidence in the current Board
and its strategy.
We have taken on board the constructive criticism received during the last six
months. In particular, we are working to improve our communications and to
bolster the Board's current breadth of experience by recruiting an additional
Non-Executive Director with a background in commercialising technology in
consumer electronics markets. We expect to update the market on an appointment
in the short term.
Dividends
No dividend is proposed for the year (2022: none).
Return of Capital
As announced in February 2023 at the time of the litigation settlement, the
Board stated that, when considering the allocation of the net proceeds its
intention was to balance any investment needs of Nanoco's growing commercial
business with delivery of a material return of capital to shareholders.
Accordingly, the Board resolved to return between £33-40 million (or
approximately 10-12 pence per share) to shareholders, using some of the second
tranche of the proceeds of the litigation (net $71.75 million), which is
expected to be received during February 2024.
In July 2023 a capital reduction was effected to create the sufficient
distributable reserves to facilitate the return of capital. No decision has
yet been taken as to the method of any such return of capital and further
announcements will be made in due course.
Outlook
Our near-term goal remains to achieve the transition to commercial production.
We expect our technology to gain traction in a number of different electronics
applications after an expected initial low volume use case. Ultimately, our
medium-term goal is to achieve adoption in high volume use cases such as
premium and mass market mobile phones.
The funds that we intend to retain from the settlement of the Samsung
litigation will allow us to plan with confidence for the future and to
accelerate the development of higher performing second-generation materials.
Our industrial production capacity positions us well to benefit from any
widespread adoption of quantum dots in commercial applications, whilst our
validated IP creates a strong barrier to entry to the industry.
By leveraging our validated IP portfolio and successfully delivering near-term
commercial opportunities, we hope to deliver an increase in value for all
stakeholders.
Dr Christopher Richards
Chairman
17 October 2023
Chief Executive Officer's statement
We are at an exciting inflection point: the litigation proceeds fully underpin
our transition from an R&D first mover to a leading producer of QD
materials in the short term
The Nanoco team continues to deliver outstanding service and results for key
customers. We have successfully achieved all of the challenging technical
milestones set for our high performing nanomaterials. As a result, our
customers are now seeking longer and deeper collaborations for the
development, scale up and commercial production of nano-materials for use in
sensing devices.
In parallel with organic progress, we achieved a successful conclusion to the
IP litigation against Samsung. Nanoco is now on a firm financial footing to
transition from being an R&D first mover to being a leading producer of QD
materials in the short term.
We have also completed a number of critical first steps for further potential
monetisation of our IP: these steps include identifying potential infringers
and associated devices, analysing those devices, and shortly after year end,
engaging with companies who may want or need to take a license over Nanoco IP.
This will take time to deliver but as the market grows, so does the
opportunity.
We continue to strengthen our operational capabilities to assure our critical
place in complex global supply chains for electronics devices. We expect to
achieve certification to ISO 14001 (the environmental standard) and ISO 45001
(the health and safety standard) during FY24. We increased our headcount in
the second half of the year by one third (11 people) to reflect increasing
activity levels across the business and preparations for commercial
production.
After the year end, we signed an agreement to hedge the second tranche of
proceeds from the Samsung settlement due to be received in February 2024. The
hedge means Nanoco will receive £58.8 million in return for selling $71.75
million, which is the net receipt after deducting withholding tax.
Business performance
Electronics
We continued our on-time delivery of all development milestones for our major
European electronics customer. Our processes for two sensing materials have
been successfully scaled up to industrial production levels for consumer
electronics and additional raw material suppliers have been qualified to
secure the supply chain as part of the full year contract that ran until the
end of April 2023. Two materials are now in final production validation with
our customer and a new second generation material has passed the "proof of
concept" stage.
As previously announced, the size of any first production order for the
materials in final validation is likely to be modest in scale, potentially a
few million devices, with consequently low associated revenue. This is typical
of many new technologies' initial use cases. The critical point is that for
the first time in our 20 year history, we will have a product in commercial
production with a world leading customer operating in electronics markets. A
significant validation of our technology and production capacity. There is
then clear scope for growth to other use cases.
We also made progress throughout the year on a number of sequential short term
development projects for our major Asian chemical customer. Material
performance has exceeded challenging expectations, and we continue discussions
around further collaboration.
Both the European and Asian customers operate in large global markets wherein
final customer adoption of QD sensing technology could lead to significant
revenue growth for Nanoco. Following the validation of our IP in the Samsung
litigation process, we have received inbound enquiries not just for display
applications but also for sensing applications. This reflects the fact that
our scale up IP is equally applicable to a range of sensing materials.
Enquiries have ranged in size from customers of a similar scale to the
European and Asian customers to startups. We are working to add further
customers and development work to our commercial pipeline.
We started FY24 with a limited short term order book for development work due
to the successful completion of the large contract with the European customer
in April 2023. Discussions are ongoing with our European customer on the
development of a next generation material and on commercial supply terms for
production orders. Any production orders will run in parallel with any new
development agreement. If the negotiations are successful with the European
customer, in combination with other revenues, we expect our order book to rise
to deliver similar services and material revenue to that seen in FY23.
The Board recognises that the adoption of nano-material technology has taken
longer than expected for both Nanoco and its competitors, creating commercial
challenges. Shareholders will be aware that development cycles for new
advanced materials for use in consumer electronics can be very long: For
example, Samsung was working with quantum dots for over ten years before
commercialising the technology, and QD Vision worked for almost ten years to
commercialise a technology that was withdrawn after only one year.
The development cycles tend to be long because the whole supply chain often
needs to be re-engineered on top of developing QD material. One of the
advantages of the QD enhanced CMOS sensors that Nanoco specialises in is that
the material represents an extra layer in a pre-existing material stack.
Reaching final product validation testing within six years demonstrates
Nanoco's clear ability to develop and scale novel materials to the exacting
standards of consumer electronics applications in a relatively short time
frame.
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.
As previously announced, already published customer plans for a product launch
in 2024 support our goal of a commercial production order by the end of
calendar year 2023, 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 customers so that we are scaled up and ready for a potential
production order.
Our small scale allows us to be much more agile and responsive to our
customers' needs 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 large end customers and their technology
teams. Conversely, given our small scale we work proactively to agree
commercial solutions for our customers to the issue of supply chain risk.
Display (CFQD® quantum dots)
Display materials remain a key focus for Nanoco. Independent market research
supports a growing share of quantum dot technology in the flat panel display
market where consumer and environmental concerns mean that cadmium free
solutions are much preferred (source: Omdia, TDR). The forecast combination of
cadmium free systems taking a larger share of the overall market, together
with a fall in Samsung's relative share, is expected to create two
opportunities for Nanoco:
· Firstly, as a manufacturer of cadmium free quantum dots (in our own
facility which can be readily expanded); and
· Secondly, as the owner of a validated IP portfolio and process know
how which is fundamental to the manufacture of cadmium free quantum dots on an
industrial scale.
The licence taken by Samsung on our IP clearly demonstrates the broader need
to access our IP and technology. This demand will grow over time, in line with
the number of cadmium free display products sold in the market. With a firm
financial underpin, we now have the option to self‑finance the pursuit of
those who chose to incorporate our patented IP without entering into either a
licence or material supply agreement with us.
As noted above, activity and new inbound enquiries about display materials
have continued following our success with our patents at the Patent Trial and
Appeal Board ("PTAB") and the final outcome to the litigation.
Applying quantum dots to micro-LEDs for small screen devices, such as smart
watches or phones, is becoming an important focus for a number of industry
participants. 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.
While legislative progress around the Restriction of Hazardous Substances
("RoHS") in Europe continues to be frustratingly slow, a number of display
makers appear to be pre‑empting the legislative enforcement by exploring a
move to cadmium free solutions.
We have maintained our focus on our "dot only" strategy where we aim to
provide the highest performing CFQD® quantum dots. We retain our core
capabilities to deliver display R&D services, scale up and commercial
production of material from our Runcorn facility. We will continue to adopt a
dual approach to commercial exploitation of our display materials, whether
through licencing or material supply from our own manufacturing capability. We
remain well positioned to take advantage of any broadening in the adoption of
non-toxic quantum dots by global display manufacturers when the opportunity
arises.
Operations
The first half of 2023 saw further consolidation and re-organisation of
equipment and processes in our Runcorn production facility, having completed
the exit from our Manchester facility at the end of CY22. The display facility
in Runcorn was taken out of "mothball" and now hosts the R&D teams as well
as our production capability for CFQD® quantum dots. We are seeing the
operational benefits of R&D, scale up and production teams all working in
the same location. The financial benefits of the Manchester exit have helped
offset inflationary increases in salaries and other input costs.
The proceeds from the Samsung litigation have allowed us to expand our team in
the second half of FY23. At the end of the year we had 46 staff (FY22: 39).
The additional staff are largely involved in customer facing or customer
support roles which were added in preparation for a commercial production
order. We also added staff in key positions where we had been operating on a
lean basis while tightly managing our cash resources over the last three
years. Our estimated recurring cash cost base for FY24 is approximately
£6.4m, which is just over half of the approximately £11.0 million seen in
FY19. This reduction was achieved without losing any of our core "dot only"
capabilities.
We expect to deploy some of the retained proceeds from the Samsung litigation
to further reinforce and upgrade our production processes and systems. As part
of our quality management system we are implementing electronic batch
recording and line side systems to match our position in important electronics
supply chains. As with our staffing profile, we expect to increase our capital
expenditure from the absolute minimum levels of the last three years of
extremely tight cash management. This will proceed in parallel with projects
to deliver accreditation to ISO 14001 (the environmental standard) and ISO
45001 (the health and safety standard). Both certifications are often expected
fundamental requirements of our customers in electronics supply chains.
After the year end we signed a new rolling one year licence to occupy
additional space in our Runcorn facility. That space is being used to create a
small-scale facility for device fabrication and a dedicated analytical
laboratory. Both will significantly increase the speed of new product
development as we will be able to generate our own device performance data on
our new materials without having to wait on third party feedback. The new
device facility will also support business development by allowing us to
demonstrate proven 'in device' performance to potential customers.
Leveraging intellectual property
We continue to proactively manage our IP portfolio to maximise value and
protect our core competencies. We finished the year with 375 patents and
patents pending (2022: 503). The Group has retained its most strategic IP,
including both of the patents that had been scheduled to go to trial and two
others included in earlier stages of the litigation (the "patent families" of
these four patents number 46 patents in total covering various territories
around the world).
Only one of the five patents involved at the start of the litigation was sold
as part of the settlement (representing just one PTAB validated claim from the
total of 47). This patent had an unfavourable outcome in the Markman
hearing. As a film patent, it was also outside the scope of our "dot only"
strategy. The remainder of the patents sold to Samsung (excluding the film
family which had 23 patents), made up of 95 individual patents, included
patents for applications such as Animal Husbandry, which is not considered a
high value market for Nanoco in the medium term.
In summary, the sale of the IP is expected to have minimal impact on Nanoco's
current or planned commercial activities. In any case, the sale agreement also
includes a licence back to Nanoco so that it retains the right to utilise the
IP in those same patents if so required. The IP licence granted to Samsung is
a non-exclusive licence and hence does not impede Nanoco's current or planned
commercial activities.
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.
We have created a heat map of potential infringers. That heat map then guided
our analysis towards a sample of devices from the more promising
opportunities. We have now engaged with a number of potential infringers to
explore options for commercial engagement. Further information is set out in
our Annual Report and Accounts on how we are self-funding actions aimed at
monetising our IP. If significant and costly litigation is eventually
required, the Group will have the option to self-finance any legal action for
a higher return or once again use third party financing for a lower return but
with lower risk.
Investing retained litigation proceeds
Given the promising opportunities facing the Group, as outlined in the
Reduction of Capital Circular issued on 20 June 2023, the Board intends to
invest as follows:
· Funding the Group's commercial business activities until they become
self-financing (expected in CY25);
· Pursuing a number of promising investments in R&D to accelerate
the development of new generation sensing materials;
· Capital investments to improve production efficiency;
· Capital investment to expand our footprint at Runcorn by creating
in-house device capability;
· Self-financing the IP licencing programme while retaining ownership
and control of the Group's core IP which also includes significant know-how
and trade secrets;
· Paying off the Group's entire current borrowings (approximately £5.0
million) to become debt-free; and
· The Group will also maintain a cash buffer for working capital and to
mitigate the risk of unforeseen events.
Environment/Restriction of Hazardous Substances ("RoHS")
We previously reported that the European Commission ("EC") received a
recommendation that the exemption to allow cadmium (>100 ppm) in QD films
for display is no longer justified and should be phased out by 31 October
2021. 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.
In December 2022, the EC received further recommendations that:
· a request to allow cadmium (> 100 ppm) in solid-state lighting
should be denied; and
· a new exemption should be granted for on-chip QD applications until
30 November 2027.
Ahead of nations passing the required legislation, a number of display
manufacturers appear to be anticipating the phasing out of cadmium from QD
displays 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 challenging milestones and
deliverables. As noted above, we have increased the number of staff in the
second half of FY23 to reinforce our capabilities and to ensure that the
workload for staff is manageable. Our Employee Voice Committee ("EVC") has
been very active throughout the year to support the group and all staff on
matters of stress, mental health and general well-being at a time of
significant change and uncertainty.
During the year the majority of staff have been trained on LEAN techniques to
improve problem solving and quality control processes. All staff are also
actively engaged on health and safety 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.
Retaining and incentivising our highly skilled team is key to delivering
organic value and growth from the business. We have awarded a general cost of
living increase for all staff for FY24 of 5% of salary (excluding the
Executive Directors who are receiving 3%). We are also in the process of
arranging a workplace health programme for all staff that has an equivalent
cost of 1% of salary. In combination with the review of comparative salaries
against national benchmarks (excluding London) in FY22, we believe that all
staff are now paid around median salaries or higher. Upside potential comes
from bonuses linked to company-wide performance objectives covering revenue,
health and safety, quality, and LEAN improvement initiatives. 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 Company
becomes self-financing in its organic operations.
Outlook
Over the last five years, Nanoco has grown from a "one customer, one product"
position for sensing materials to multiple first and second generation
materials for two global electronics supply chain companies, increasing our
reach to thousands of their own customers. The focus of R&D activity has
been narrowed to near-term commercial opportunities and our fixed cash cost
base has been carefully managed. The successful completion of the Samsung
litigation will deliver a net $90 million of proceeds by February 2024.
We are also seeing growing interest in CFQD® quantum dots for use in the
display industry and are engaging cautiously with market players other than
Samsung who already participate in or are seeking to enter the QD display
market. This extends to interest in Gen 2 QD displays as well as displays
utilising micro-LEDs.
At this time, the Board expects Nanoco's first commercial production order
before the end of CY23 and expects the first order to be for a low volume
application (measured in millions of sensor units; mid-volume would be tens of
millions and high volume would be hundreds of millions). Once the material has
been adopted in the technology ecosystem for one application by one end
customer, our expectation is that customers and applications will increase
towards the ultimate goal of a high volume mobile phone application.
The significant investment by our customers in Nanoco materials as part of
their production and marketing efforts strongly supports this view. In any
event, Nanoco already has the flexibility, capability and capacity to meet low
and high volume demand and everything in between.
The Board is confident that near-term opportunities for commercial production
of sensing materials, growing interest in the Group's display materials and
the potential for leveraging the Group's IP portfolio will deliver increases
in shareholder value in the short to medium term. We remain focused on our
goal of becoming a self-financing producer of high performing nano-materials.
Brian Tenner
Chief Executive Officer
17 October 2023
Financial review
Financially underpinned group with growth opportunities
Summary
· Revenue increased by 128% to £5.6 million (2022: £2.5 million),
driven by the licence income from the Samsung licencing contract.
· The sale of non-core IP to Samsung in the year generated a one-off
profit of £68.7 million.
· Litigation related costs of £49.3 million were recognised in full in
the year.
· Adjusted LBITDA has reduced to £0.4 million (2022: £2.3 million)
excluding the profit on disposal of IP, reflecting the additional revenue in
the period.
· Nanoco retained £4.5 million of the first tranche of cash received
from Samsung after paying all litigation related costs.
Revenue increased by £3.1 million to £5.6 million (2022: £2.5 million). The
increase is due to the licence agreement signed with Samsung which contributed
£3.0 million, with the remaining revenue largely related to the ongoing
project with the European electronics customer.
The sale of products and services rendered accounted for 46% (2022: 96%) of
revenue, with the balance being licence income (including Samsung income in
FY23). Revenue from services has increased from £1.6 million to £1.7 million
due to the continued work with our European electronics customer. Revenue from
the sale of development products was £0.9 million (2022: £0.8 million).
Billings, including those to Samsung, increased by £60.3 million to £63.0
million (2022: £2.7 million). Excluding the impact of any Samsung related
billings, billings were £2.1 million which is lower than revenue due to the
invoicing profile of the agreement with our European electronics customer.
Other operating income generated £0.2 million (2022: £0.4 million) and
related to two ongoing projects with Innovate UK.
During the year, the group sold non-core IP to Samsung which generated a
profit on disposal of £68.7 million (2022: £nil) as part of the settlement
of the Samsung litigation. As part of the agreement, Nanoco dismissed its
litigation against Samsung, and incurred litigation-related costs of £49.3
million.
Highlights 2023 2022 % change
£ million £ million
Revenue 5.6 2.5 128%
Other operating income 0.2 0.4 (36%)
Adjusted LBITDA (0.4) (2.3) 83%
Net profit/(loss) 11.1 (4.7) 236%
Profit/(loss) per share (p) 3.44 (1.52) 226%
Billings 63.0 2.7 2,233%
Cash and cash equivalents 8.2 6.8 21%
There were a number of significant one-off costs in the financial year ended
31 July 2023, shown below:
2023 2022
£ million
£ million
R&D expense 1.3 1.3
Administrative expenses 57.4 5.4
Total operating expenses 58.7 6.7
Settled litigation costs (49.3) -
Foreign exchange on US balance (1.7) 0.2
Share-based payment charge (1.0) (0.6)
Employer's NI on SBP 0.2 (0.3)
Requisitioned general meeting (0.5) -
Adjusted operating expenses 6.4 6.0
Total adjusted operating expenses increased on prior year to £6.4 million
(2022: £6.0 million). Savings from the completion of the exit from the
Manchester premises in November 2022 were offset by an increased headcount,
which at year end totalled 46 (2022: 39), and additional inflationary cost
increases across the group.
Non-GAAP measures
The non-GAAP measures of adjusted operating loss and adjusted loss before
interest, tax, depreciation, amortisation, share-based payment charges and
exceptional items ("LBITDA") are provided in order to give a clearer
understanding of the underlying loss for the year that more closely reflects
the recurring operational cash flow of the business. The calculation of
Adjusted LBITDA is shown in the table below:
2023 2022
£ million
£ million
Operating profit/(loss) 15.0 (4.8)
Settled litigation costs 49.3 -
Profit on sale of IP (68.7) -
Requisitioned general meeting 0.5 -
Foreign exchange loss / (gain) 1.7 (0.2)
Share-based payment charge 1.0 0.6
Employer's NI on SBP (0.2) 0.3
Depreciation 0.6 0.5
Amortisation(1) 0.4 1.3
Adjusted LBITDA (0.4) (2.3)
1 Includes impairment of intangible assets.
The finance expense in the year of £5.5m (2022: £0.5m) included a one-off
contingent interest payment of £4.7m against the outstanding loan notes in
relation to the successful conclusion of the Samsung litigation.
The profit before tax was £9.6 million (2022: £5.2 million loss), with the
improvement driven by the sale of IP during the year, contributing a profit of
£68.7 million, offset by the litigation costs of £49.3 million and
contingent interest of £4.7 million.
Taxation
The tax credit for the year was £1.5 million (2022: £0.5 million). This
comprises of a UK corporation tax charge of £1.0 million (2022: £nil) and an
overseas corporation tax charge of £0.3m (2022: £nil), offset by an R&D
tax credit of £0.3 million (2022: £0.5 million) and the recognition of a
deferred tax asset of £2.5 million (2022: £nil). In addition, the Group
incurred withholding tax in Korea of £2.3 million in the year, which has been
recognised as an asset as it can be offset against future profits. The Group
has £31.6 million of accumulated losses to offset against future profits.
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term investments
increased to £8.2 million (2022: £6.8 million). The net cash outflow,
excluding the net cash flows related to the Samsung settlement in February
2023 (£4.5 million inflow after fees), was £3.1 million (2022: £2.4 million
outflow). The increase in cash outflows reflects increases in the cost base,
with an increase in headcount in the second half of the year, inflationary
pressures, one off costs including the requisitioned general meeting, and
investment in capital expenditure compared to FY22. Tax credits of £0.5
million (2022: £0.7 million) were received during the year.
Expenditure incurred in registering patents totalled £0.1 million (2022:
£0.1 million). Capitalised patent spend is amortised over ten years in line
with the established group accounting policy. During the year, the group
disposed of patents with a net book value of £0.3 million as part of the
Samsung settlement.
During the year, an IP impairment charge of £0.1 million was recognised
(2022: £0.9 million). This reflects the continued rationalisation of the
patent portfolio to ensure the remaining patents are commercially viable in
the short to medium term.
Expenditure on tangible fixed assets increased to £0.3 million (2022: £nil)
as the Company improved its Runcorn infrastructure.
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 litigation proceeds is expected to be received in
February 2024 (gross $75 million, net $71.75 million after $3.25 million
withholding tax paid at source). After the year end, the group took out a
one-off hedge at a rate of GBP1:USD1.22, which means the net cash receipt of
$71.75 million will be converted to £58.8 million.
There were no open forward contracts as at 31 July 2023 (2022: 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 is disclosed in the Annual Report and Accounts and was
based on the year-end position.
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.
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 are provided in the Annual
Report and Accounts.
Going concern
The settlement signed during the year with Samsung will result in a
significant cash surplus for the business upon receipt of the second tranche
of cash in February 2024. The Company has committed to a return of capital to
shareholders, but will retain enough cash for our business needs. Given the
remaining cash balance, our low cost base, and the exciting 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.
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. Further detail is
included in the Annual Report and Accounts.
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 are also cognisant
of the impact of the cost of living crisis on our staff and implemented a
Company-wide 5% inflationary wage increase from August 2023. 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, IP that has
been validated by the US PTAB, and we have commercial opportunities in large
and growing markets. As we continue to deliver against our strategic
objectives, we aim to achieve a value inflection point in the short to medium
term. We look forward to updating shareholders on our progress in due course.
Liam Gray
Chief Financial Officer
17 October 2023
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 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 market adoption.
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 2023.
This year, 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 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". The Group's principal risks are detailed further in the
Annual Report and Accounts.
Principal overarching risk
The historical principal overarching strategic risk faced by the business was
that the Group exhausted its available funding before achieving adequate
levels of commercial revenues and cash flows to be self-funding. This risk has
been largely mitigated by the settlement with Samsung during the financial
year ended 31 July 2023. This mitigation has shifted the focus of risk to
market adoption of the Group's technology, which is required for the business
to be commercially viable in the long term.
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 2023.
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 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
Liam Gray
Chief Executive
Officer
Chief Financial Officer
17 October
2023
17 October 2023
Unaudited consolidated statement of comprehensive income
for the year ended 31 July 2023
2023 2022
£'000 Restated(1)
£'000
Revenue 5,618 2,467
Cost of sales (847) (932)(1)
Gross profit 4,771 1,535
Other operating income
Government grants 230 361
Profit on sale of IP 68,687 -
Operating expenses
Research and development expenses (1,295) (1,258)(1)
Administrative expenses (57,401) (5,409)
Operating profit/(loss) 14,992 (4,771)
- Before share-based payments and non-recurring items (2,915) (4,152)
- Share-based payments (953) (619)
- Profit on sale of IP 68,687 -
- Litigation costs (49,337) -
- EGM requisition (490) -
Finance income 38 -
Finance expense (5,457) (450)
Profit/(loss) before taxation 9,573 (5,221)
Taxation 1,512 524
Profit/(loss) after taxation 11,085 (4,697)
Other comprehensive income/(loss) - -
Total comprehensive profit/(loss) for the year 11,085 (4,697)
Profit/(loss) per share
Basic profit/(loss) for the year 3.44p (1.52)p
Diluted profit/(loss) for the year 3.32p (1.52)p
1 The comparative balances for cost of sales and research and
development expenses have been restated for the year ended 31 July 2022. Refer
to note 2b of the accounting policies for more information. The restatement
has no impact on the reported loss or net assets.
The profit for the current and loss for the preceding year arises from the
Group's continuing operations and is attributable to the equity holders of the
Parent.
Unaudited consolidated statement of changes in equity
for the year ended 31 July 2023
Group Share Share Reverse Share-based Merger Retained earnings/ Total
capital premium acquisition payment reserve Accumulated £'000
£'000 £'000 reserve reserve £'000 Shares held by EBT losses
£'000 £'000 £'000 £'000
At 1 August 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 - - (21) - - 125
-
Share-based payments - - - 619 - - - 619
At 31 July 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) - 60 (105)
(105)
Share-based payments - - - 953 - - - 953
At 31 July 2023 32,443 - (77,868) 5,610 (1,242) (105) 57,575 16,413
Unaudited Group and Company statements of financial position
at 31 July 2023
Registered no. 05067291
31 July 2023 31 July 2023 31 July 2022 31 July 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Assets
Non-current assets
Tangible fixed assets 304 - 98 -
Right of use assets 2,075 - 56 -
Intangible assets 966 - 1,616 -
Deferred tax asset 2,573 - - -
Foreign withholding tax receivable 1,756 - - -
Investment in subsidiaries - 41,700 - 40,747
7,674 41,700 1,770 40,747
Current assets
Inventories 308 - 174 -
Trade and other receivables 33,986 52,876 1,664 175
Foreign withholding tax receivable 592 - - -
Income tax receivable - - 524 -
Cash and cash equivalents 8,207 105 6,762 5,497
43,093 52,981 9,124 5,672
Total assets 50,767 94,681 10,894 46,419
Liabilities
Current liabilities
Trade and other payables (2,783) (1,153) (1,510) (638)
Financial liabilities (4,004) (4,004) - -
Lease liabilities (456) - (153) -
Income tax liability (770) - - -
Provisions - - (172) -
Deferred revenue (6,123) - (560) -
(14,136) (5,157) (2,395) (638)
Non-current liabilities
Financial loans (557) - (3,919) (3,392)
Lease liabilities (1,415) - (16) -
Provisions (445) - (40) -
Deferred revenue (17,801) - (44) -
(20,218) - (4,019) (3,392)
Total liabilities (34,354) (5,157) (6,414) (4,030)
Net assets 16,413 89,524 4,480 42,389
Capital and reserves
Share capital 32,443 32,443 32,244 32,244
Share premium - - 121,145 121,145
Reverse acquisition reserve (77,868) - (77,868) -
Share-based payment reserve 5,610 5,610 4,916 4,916
Merger reserve (1,242) - (1,242) -
Capital redemption reserve - - - 4,402
Shares held by EBT (105) -
Accumulated losses 57,575 51,471 (74,715) (120,318)
Total equity 16,413 89,524 4,480 42,389
The Parent Company's result for the year ended 31 July 2023 was a profit of
£46,182,000 (2022: loss of £340,000). 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
17 October 2023 and signed on its behalf by:
Dr Christopher Richards Brian Tenner
Chairman
Director
17 October 2023
17 October 2023
Unaudited Group and Company cash flow statements
for the year ended 31 July 2023
31 July 2023 31 July 2023 31 July 2022 31 July 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Loss before tax 9,573 46,182 (5,221) (340)
Adjustments for:
Net finance expense 5,419 5,337 450 396
(Profit)/loss on exchange rate translations 1,747 (10) (211) 19
Depreciation of tangible fixed assets 76 - 105 -
Depreciation of right of use assets 555 - 366 -
Amortisation of intangible assets 279 - 498 -
Profit on disposal of intangible assets (68,687) - - -
Impairment of intangible assets 92 - 858 -
Reversal of impairment - - - (76)
Share-based payments 953 - 619 -
(Profit)/loss on disposal of tangible fixed assets 8 - (36) -
Changes in working capital:
(Increase)/decrease in inventories (134) - (64) -
(Increase)/decrease in trade and other receivables 282 (52,701) (141) -
Increase/(decrease) in trade and other payables 1,169 515 (105) 116
(Decrease)/increase in provisions (176) - 212 -
Increase/(decrease) in deferred revenue 23,320 - 205 -
Cash outflow from operating activities (25,524) (677) (2,465) 115
Foreign withholding tax paid (2,641) - - -
Research and development tax credit received 524 - 688 -
Net cash outflow from operating activities (27,641) (677) (1,777) 115
Cash flow from investing activities
Purchases of tangible fixed assets (305) - (4) -
Purchases of intangible fixed assets (76) - (114) -
Proceeds from sale of tangible fixed assets 15 - 36 -
Proceeds from sale of intangible fixed assets 34,509 - - -
Interest received 38 - - -
Net cash outflow from investing activities 34,181 - (82) -
Cash flow from financing activities
Proceeds from placing of ordinary share capital - - 5,655 5,655
Costs of financing/placing - - (274) (274)
Payment of lease liabilities (capital) (463) - (506) -
Payment of lease liabilities (interest) (86) - (83) -
Interest paid (4,728) (4,725) (3) -
Net cash inflow from financing activities (5,277) (4,725) 4,789 5,381
Increase/(decrease) in cash and cash equivalents 1,263 (5,402) 2,930 5,496
Cash and cash equivalents at the start of the year 6,762 5,497 3,813 1
Effects of exchange rate changes 182 10 19 -
Cash and cash equivalents at the end of the year 8,207 105 6,762 5,497
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 2023. The unaudited preliminary
results of Nanoco Group plc and its subsidiaries for the year ended 31 July
2023 were authorised for issue by the Board of Directors on 17 October 2023
and the 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 2022 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 information set out below has been extracted from the Group's draft report
and accounts for the year ended 31 July 2023 and has not been audited. The
Group expects to publish its audited annual report and accounts on 19 October
2023, 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 statutory financial statements for the year ended 31 July 2023 will be
delivered to the registrar of companies as soon as practicable.
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
2023.
(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 £512,000 with an equal and opposite reduction in
administrative expenses. 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, with the going concern assessment covering
the period to November 2024. The same base case and downside sensitivities
were also used with the addition of an extreme downside where no uncontracted
revenue was included and the group contracted to become an IP shell.
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 CY24 with a
subsequent slow ramp-up in demand;
· a further extension to the services and supply contract with the
European electronics customer;
· no revenue is assumed from other small scale commercial deals
currently under discussion;
· small expansion of our self-funded research activities and
continued maintenance costs to support our IP portfolio;
· Board, plc and other costs reflect the current inflationary
environment; 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 CY25); and
· no new business from other customers once existing active
engagements end.
The extreme downside case then flexes those assumptions further as follows:
· all commercial agreements come to an end;
· no revenues other than those already contracted; and
· the group ceases all operations.
As the IP sold in the year was non-core and unrelated to current and forecast
revenue streams, there is no impact on future cash flows other than the inflow
from the sale.
All three 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 2024.
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 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
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
company had an ongoing performance obligation in regards to the licence and
therefore the revenue should be recognised over time. It was determined that
the appropriate period for revenue recognition was the average remaining life
of the relevant IP of 8.8 years.
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 non-market
vesting assumptions and to the future volatility of the future share price
factor.
Deferred tax
The Company 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. The Company has recognised £2.2 million of deferred tax assets in
the year (2022: £nil) which represents the proportion of accumulated losses
that are expected to be utilised in the medium term.
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.
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 there are no indicators of impairment in the year.
Given the main trading entity is Nanoco Technologies Limited (owned by Nanoco
Tech Limited), this holds the majority of the value.
The recoverable amount of intercompany receivables is measured under IFRS 9 at
the lower of original value and recoverable amount. The value of the required
provision is set such that the recoverable amount is the amount that is
intended to be repaid.
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 generates IP as part of early stage research projects, 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. A regular review is 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 £0.1 million (2022: £0.9 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 shorter than the life of the patent to
reflect obsolescence risk in rapidly changing technology markets. 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.
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.
During the 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 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 standards effective from 1 January 2023 (EU endorsed and UK adopted)
· IFRS 17 Insurance Contracts
· IAS 1 Amendment: Disclosure of Accounting Policies
· IAS 8 Amendment: Definition of Accounting Estimates
· 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 standards effective from 1 January 2023 (EU endorsed, not UK adopted)
· IFRS 17 Amendment: Initial Application of IFRS 17 and IFRS 9 -
Comparative Information
IFRS standards effective from 1 January 2023 (not yet EU endorsed)
· IAS 12 Amendment: International Tax Reform - Pillar Two Model
Rules
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 2023 and 2022 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
2023 2022
£'000 £'000
Analysis of revenue
Products sold 867 782
Rendering of services 1,685 1,582
Royalties and licences 3,066 103
5,618 2,467
There was one material customer who generated revenue of £2,014,000 (2021:
one material customer amounting to £2,089,000). £2,963,000 of the licence
income related to the Samsung licence (2022: nil).
Revenue from the provision of services delivered over time totalled
£4,751,000 (2022: £1,685,000). Revenue from the sale of goods transferred at
a point in time amounted to £867,000 (2022: £782,000).
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
2023 2022
£'000 £'000
Revenue
Holland 1,423 1,474
Taiwan 323 351
France 385 348
Japan 447 244
USA 59 27
Canada 9 19
Singapore - 3
UK 1 1
Poland 8 -
South Korea 2,963 -
5,618 2,467
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 £9,573,000 (2022: loss of £5,221,000).
5. Earnings per share
Group 31 July 31 July
2023 2022
£'000 £'000
Profit/(loss) for the financial year attributable to equity shareholders 11,085 (4,697)
Share-based payments 953 619
Loss for the financial year before share-based payments 12,038 (4,078)
Weighted average number of shares
Ordinary shares in issue 322,472,939 308,610,928
Options exercisable at the reporting date 195,000 -
Options not yet exercisable at the reporting date 11,720,600 -
Diluted weighted average number of shares 334,388,539 -
Adjusted loss per share before share-based payments (pence) 3.73 (1.32)
Basic profit/(loss) per share (pence) 3.44 (1.52)
Diluted adjusted profit/(loss) per share before share-based payments (pence) 3.60 -
Diluted profit/(loss) per share (pence) 3.32 -
Diluted loss per share has not been presented for 2022 above as the effect of
share options issued is anti-dilutive.
== Ends ==
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