TIDMNANO
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 - n et $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 GBP5.6m (FY22: GBP2.5m)
-- Adjusted LBITDA loss reduced by 83% to GBP0.4m (FY22: GBP2.3m LBITDA)
-- Year-end cash GBP8.2m, an increase of GBP2.2m since 31 January 2023
-- Payment and use of proceeds from the litigation settlement:
o First net tranche GBP59.2m received March 2023, used to pay
litigation costs
o Second net tranche GBP58.8m due by 3 February 2024, wholly for
Nanoco, fully hedged
-- Gross fixed cash cost base c.GBP0.5m per month before revenue
and other operating income - an increase of just over GBP0.1m 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 GBP33-40 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
Questions may be submitted in advance via nanoco@mhpc.com
For further details please contact MHP Communications on 0203
128 8990 or at 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
Investors who already follow Nanoco Group Plc on the Investor
Meet Company platform will automatically be invited.
For further information, please contact:
Nanoco Group PLC :
Brian Tenner, CEO +44 (0) 1928 761
Liam Gray, CFO & Company Secretary 422
Peel Hunt (Joint Corporate Broker):
P ail Gillam + 44 (0) 20 7418
James Smith 8900
Turner Pope Investments (Joint Corporate
Broker):
Andrew Thacker +44 (0) 20 3657
James Pope 0050
MHP
Reg Hoare / Matthew Taylor / Christian Harte +44 (0) 2023 128
nanoco@mhpgroup.com 8793
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(TM) 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(R)
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 .
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 GBP33-40 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 GBP58.8
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(R) 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(R) 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(R) 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 GBP6.4m, which is just over half of the approximately
GBP11.0 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 GBP5.0 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(R) 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 GBP5.6 million (2022: GBP2.5
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 GBP68.7 million.
-- Litigation related costs of GBP49.3 million were recognised in full in the year.
-- Adjusted LBITDA has reduced to GBP0.4 million (2022: GBP2.3
million) excluding the profit on disposal of IP, reflecting the
additional revenue in the period.
-- Nanoco retained GBP4.5 million of the first tranche of cash
received from Samsung after paying all litigation related
costs.
Revenue increased by GBP3.1 million to GBP5.6 million (2022:
GBP2.5 million). The increase is due to the licence agreement
signed with Samsung which contributed GBP3.0 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 GBP1.6 million to GBP1.7 million due to the
continued work with our European electronics customer. Revenue from
the sale of development products was GBP0.9 million (2022: GBP0.8
million).
Billings, including those to Samsung, increased by GBP60.3
million to GBP63.0 million (2022: GBP2.7 million). Excluding the
impact of any Samsung related billings, billings were GBP2.1
million which is lower than revenue due to the invoicing profile of
the agreement with our European electronics customer.
Other operating income generated GBP0.2 million (2022: GBP0.4
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 GBP68.7 million (2022: GBPnil) 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 GBP49.3 million.
2023 2022
Highlights GBP million GBP million % change
-------------------------- ------------------- ----------------- ----------
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
GBP million GBP 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
GBP6.4 million (2022: GBP6.0 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
GBP million GBP 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 GBP5.5m (2022: GBP0.5m)
included a one-off contingent interest payment of GBP4.7m against
the outstanding loan notes in relation to the successful conclusion
of the Samsung litigation.
The profit before tax was GBP9.6 million (2022: GBP5.2 million
loss), with the improvement driven by the sale of IP during the
year, contributing a profit of GBP68.7 million, offset by the
litigation costs of GBP49.3 million and contingent interest of
GBP4.7 million.
Taxation
The tax credit for the year was GBP1.5 million (2022: GBP0.5
million). This comprises of a UK corporation tax charge of GBP1.0
million (2022: GBPnil) and an overseas corporation tax charge of
GBP0.3m (2022: GBPnil), offset by an R&D tax credit of GBP0.3
million (2022: GBP0.5 million) and the recognition of a deferred
tax asset of GBP2.5 million (2022: GBPnil). In addition, the Group
incurred withholding tax in Korea of GBP2.3 million in the year,
which has been recognised as an asset as it can be offset against
future profits. The Group has GBP31.6 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 GBP8.2 million (2022: GBP6.8 million). The
net cash outflow, excluding the net cash flows related to the
Samsung settlement in February 2023 (GBP4.5 million inflow after
fees), was GBP3.1 million (2022: GBP2.4 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 GBP0.5 million (2022: GBP0.7 million) were
received during the year.
Expenditure incurred in registering patents totalled GBP0.1
million (2022: GBP0.1 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 GBP0.3 million as part of the Samsung
settlement.
During the year, an IP impairment charge of GBP0.1 million was
recognised (2022: GBP0.9 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 GBP0.3 million
(2022: GBPnil) 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 GBP58.8 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
2022
2023 Restated(1)
GBP'000 GBP'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
Retained
Reverse Share-based Shares earnings/
Share Share acquisition payment Merger held Accumulated
capital premium reserve reserve reserve by EBT losses Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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) - (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
------------------- -------- --------- ------------- ------------ --------- ---------- ------------- ---------
Unaudited Group and Company statements of financial position
at 31 July 2023
Registered no. 05067291
31 July 31 July 31 July 31 July
2023 2023 2022 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'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 GBP46,182,000 (2022: loss of GBP340,000). 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 31 July 31 July 31 July
2023 2023 2022 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'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
GBP512,000 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 GBP2.2 million of deferred tax assets in
the year (2022: GBPnil) 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 GBP0.1 million (2022:
GBP0.9 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
GBP'000 GBP'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
GBP2,014,000 (2021: one material customer amounting to
GBP2,089,000). GBP2,963,000 of the licence income related to the
Samsung licence (2022: nil).
Revenue from the provision of services delivered over time
totalled GBP4,751,000 (2022: GBP1,685,000). Revenue from the sale
of goods transferred at a point in time amounted to GBP867,000
(2022: GBP782,000).
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
GBP'000 GBP'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 GBP9,573,000 (2022: loss
of GBP5,221,000).
5. Earnings per share
31 July 31 July
2023 2022
Group GBP'000 GBP'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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END
FR DBBDGUGBDGXL
(END) Dow Jones Newswires
October 17, 2023 02:00 ET (06:00 GMT)
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