TIDMNANO
RNS Number : 1832R
Nanoco Group PLC
03 November 2021
For Immediate Release 3 November 2021
NANOCO GROUP PLC
( " Nanoco", the " Group ", or the " Company")
Preliminary Results for the year ended 31 July 2021
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 preliminary results for the year ended 31 July
2021.
Operational highlights
-- Delivered all technical milestones for our important European electronics customer
-- Signed major new Asian chemicals customer for novel materials in sensing applications
-- Completed restructuring of the business around core
competencies of R&D, scale up and production
-- Continued good progress in our legal action against Samsung for wilful infringement of our IP
-- Debt issuance of GBP3.0 million completed in July 2021 to
protect cash runway and value in organic business and the Samsung
lawsuit
-- Moved from a "single customer, single product" position to
one in which the Group now has multiple customers and eight
distinct materials.
Financial highlights
-- Group revenue at GBP2.1 million (2020: GBP3.9 million).
Decrease due to the completion of the contract with the US Customer
in the prior year
-- Organic cash runway extended to H2 2022, maximising the
Group's chances of delivering significant organic value and
litigation upside value in the coming years
-- Adjusted operating loss marginally better than prior year at
GBP4.6 million (2020: GBP4.8 million), despite reduction in
revenue
-- Cash of GBP3.8 million at year end with gross monthly cash
costs c. GBP0.4 million, following substantial and continuing
reduction of the cost base
Brian Tenner, Nanoco's CEO, commented on the results:
"This has been a year of steady progress for Nanoco. We met all
existing customer milestones and added new strategic customers,
whilst significantly expanding our range of nanomaterials for
sensing applications and their addressable wavelengths.
"Our extensive efforts on the litigation against Samsung for the
alleged wilful infringement of our IP have continued. The outcome
of the claim construction hearing (or "Markman") was very positive
for Nanoco: we won the argument on four of the five patents in the
case and the fifth had each side win one construction each.
"We retain our core competencies and capabilities in R&D,
scale up and production and have a small and focused team dedicated
to bringing our nanomaterials to market. The opportunities to
create significant shareholder value in our organic activities and
the Samsung litigation in the short to medium term, are clear and
compelling. The Board therefore remains confident in the strength
of the investment proposition and value inherent in the
business.
Analyst meeting and webcast details
To listen to a webcast of the analyst briefing, please log on to
the following web address approximately five minutes before
10:00am, today Wednesday 3 November 2021:
https://webcasting.brrmedia.co.uk/broadcast/615b17cf4e29f55a94190200
A recording of the webcast will also be made available on
Nanoco's website, www.nanocotechnologies.com, later today.
For further information, please contact:
Nanoco Tel: +44 (0) 161 603 7900
Brian Tenner, Chief Executive Officer
Caroline Watson, Investor Relations
Manager
cwatson@nanocotechnologies.com
Peel Hunt Tel: +44 (0) 20 7418 8900
Edward Knight / James Smith
MHP Communications Tel: +44 (0) 20 3128 8570
Reg Hoare / Pete Lambie / Charlie
Protheroe
nanoco@mhpc.com
Notes for editors:
About Nanoco Group plc
Nanoco (LSE: NANO) harnesses the power of nano-materials.
Nano-materials are materials with dimensions typically in the range
1 - 100 nm. Nano-materials have a range of useful properties,
including optical and electronic. Quantum dots are a subclass of
nano-material that have size-dependent optical and electronic
properties. The Group produces quantum dots.
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 and Electronics markets. One of
the interesting properties 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 Manchester,
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.nanocogroup.com.
Chairman's statement
This has been a year of steady progress for Nanoco. We delivered
all existing customer milestones and added new strategic customers.
We substantially reduced our cost base, starting with the Board,
and the broader team has been re-shaped while retaining our core
competencies. In parallel, we have successfully progressed our
litigation against Samsung.
Strategy and business activity
We have significantly expanded our range of nanomaterials for
sensing applications and their addressable wavelengths for a
variety of potential sensing applications. We have moved steadily
from a "single customer, single product" position in sensing to one
in which we have multiple customers and eight distinct materials.
This expanded range of market leading materials will support more
stable revenue growth over the medium term.
While sensing applications are our current primary focus, we
also continue to work with partners in display, horticulture and
life sciences.
Completion of restructuring activities during the year has
allowed us to retain a skilled and focussed team that is able to
deliver R&D, scale up and production at scale from our Runcorn
facility.
Samsung litigation
Our extensive efforts on the litigation against Samsung for the
alleged wilful infringement of our IP have continued. The outcome
of the claim construction hearing (or "Markman"), held in March
2021, was very positive for Nanoco: we won the argument on four of
the five patents in the case and the fifth had each side win one
construction each.
Once the Patent Trial and Appeal Board ("PTAB") took the
decision in May 2021 to review all five patents in the case, it
became clear that our best strategy for the case was to agree to a
deferral of the trial until after the PTAB issues its ruling on
patent validity - expected by May 2022. This approach simplifies
the trial process and increases potential damages from allegedly
infringing TVs sold by the time of the trial.
Our third party funding partner continues to support all aspects
of the lawsuit, including the parallel patent review process. This
allows us to focus our financial resources on our organic business
activities.
Covid-19 and financial performance
Through the sterling efforts of our staff we were able to
maintain Covid-19 secure customer-focused output in both of our
facilities. This allowed us to meet all technical milestones and
material deliveries on time.
The Board responded promptly to the Covid-19 pandemic, leading
the way with reductions in Directors' salaries, followed by
Company-wide temporary pay reductions. With the benefit of
restructuring during the year and new commercial business wins, we
were able to reverse most staff salary reductions in October 2020
(and in April 2021 for the leadership team).
Monthly gross cash costs are now stable at around GBP0.4 million
per month. With revenue running at between GBP0.2m and GBP0.3m per
month, the cash burn has been substantially reduced compared with
the prior year.
The debt issue in July 2021 extends the Group's cash runway past
the initial result of the PTAB and the expected re-scheduled trial
in H2 2022. The Board formed the view that the Company's share
price did not fairly reflect the value potential within the Group
and therefore a non-dilutive debt issue, instead of a highly
dilutive equity issue, was in the best interests of all
shareholders. Importantly, the debt issue also extends the organic
cash runway to a point when we expect to have visibility on
potential production orders in the short to medium term - a key
strategic priority.
No dividend is proposed for the year (2020:none)
Governance and Board
During the year, we took decisive steps to reduce the size and
cost of the Board, to make it commensurate with the scale of the
operations. The cost of the Board is now broadly half that of the
prior year. Executive Director salary reductions remained in place
for a full year up to March 2021. The Non-Executive Directors now
defer 35% of their salaries until there is a significant
improvement in the Group's financial condition.
Brian Tenner, the previous COO and CFO, was appointed as CEO on
1 September 2020. This planned succession reflects the positive
impact Brian has made on the business since his appointment in
August 2018. As previously announced, Michael Edelman stepped down
from the Board as CEO with effect from 1 September 2020. He remains
available to the Group in his part-time role of Special Adviser to
the Litigation Sub-Committee.
Nigel Pickett's notice as CTO was rescinded in March 2021
(having been served in March 2020 as a pre-emptive potential cost
reduction measure). Nigel remains critical to the development of
our new materials and the ongoing litigation against Samsung.
The smaller Executive team of Brian and Nigel successfully
oversaw the delivery of growing commercial opportunities and
important development programmes during the year. They have been
ably assisted in their efforts by Liam Gray as UK Finance Director
and Company Secretary, Kevin Smith as UK Operations Director and
the whole of the senior management team.
Just after the year end we welcomed Henry Turcan to the Board as
a new Non-Executive Director. Henry is a representative of our
major shareholder, Lombard Odier, and brings extensive and valuable
experience of capital markets and funding for companies at Nanoco's
stage of evolution.
Employees and shareholders
Our staff have again demonstrated great commitment in a
challenging year. With more tasks inevitably shared amongst a
smaller team, excellent customer service and on time delivery of
milestones and material orders have been maintained. This has only
been possible through the continued dedication and application of
all of our staff. The Board is immensely grateful to our staff for
their continued commitment.
I would also like to thank our shareholders for their continuing
support. We are very much aware that the Group will continue to
burn cash in the near term, as we pursue our goals of building the
commercial business while defending our IP through litigation. I
look forward to engaging with as many shareholders as possible at
our
AGM to be held on 30 November 2021.
Outlook
The Board remains convinced of the strong merits of our
broad-based platform technology. The programme with a major
European electronics company has the potential to move into
commercial production in the short to medium term, subject to the
delivery of technical milestones and final customer adoption of the
associated technology.
The new development programme with a significant Asian chemical
company announced in July 2021 also has the potential to follow a
similar path, albeit on a slightly longer timeframe.
It remains the case that our current programmes are still
subject to risks of failure in other parts of the supply chain or a
decision by final customers not to adopt the technology that uses
our nanomaterials. As a result, we reiterate the material
uncertainty around the timing of future revenue streams.
The litigation against Samsung has significant potential to
transform shareholder value. We therefore retain contingency plans
to protect our "IP shell" and the potential value in the litigation
if we cannot create a self-financing organic business in the medium
term. We retain our core competencies and capabilities in R&D,
scale up and production and have a small and focused team dedicated
to bringing our nanomaterials to market.
The opportunities to create significant shareholder value in our
organic activities and the Samsung litigation in the short to
medium term, are clear and compelling. The Board therefore remains
confident in the strength of the investment proposition and value
inherent in the business.
Dr Christopher Richards
Chairman
3 November 2021
Chief Executive Officer's statement
We have made a number of advances this year in building
foundations for potential future value creation. This was achieved
despite the continuing challenges of operating in a Covid-19 secure
way with unpredictable impacts on staffing due to isolation
requirements. The commitment of the team to service our customers
and to step up and adopt new responsibilities cannot be
faulted.
We grew our pipeline of customer opportunities throughout the
year, particularly in infra-red sensing markets. We have also
continued development work with customers in the display field
using our CFQD(R) quantum dots which are also relevant for lighting
and life sciences opportunities.
The litigation against Samsung for the alleged wilful
infringement of our IP has taken significant effort on the part of
a small number of team members. The Board is very pleased with
progress in the last year and remains confident in the strength of
our position and that transformative value can be generated for
shareholders if the outcome is successful.
The year finished with a non-dilutive debt issue to extend the
cash runway for the organic business and to strengthen the Group's
balance sheet for the litigation process.
Business performance
Electronics
In the first half we achieved all development milestones for our
major European electronics customer. A second scope of work was
added early in the second half and this was completed successfully
just after the year end. We also added additional customer
relationships throughout the year with the most notable being a
very significant Asian chemical company that supplies advanced
materials to global electronics supply chains.
Deliveries for these customers underpinned our revenue for the
year and allowed us to finish the year with revenue of GBP2.1
million in line with Board expectations, having started the year
with a contracted order book of GBP1.0 million. Both of these large
customers have the potential for demand volumes that could move the
Group significantly towards our goal of becoming self-financing in
the medium term. Both relationships are part of our strategy to
diversify our commercial risk.
Our offering of nanomaterials for use in sensing applications
has moved from a single customer/single product in early 2018 to a
position today where we are engaged with five customers and are
working with eight distinct materials/ wavelength combinations.
Nigel Pickett is leading our ongoing efforts to expand this further
to cover multiple material sets in all of the key operating
wavelengths, specifically targeting bands such as 1,400nm, 1,550nm
and 1,800nm.
The mega-trends seen in electronics, automation, automotive and
the Internet of Things more generally continue to be very
favourable and support our strategy of adding our nanomaterials to
silicon based sensors to significantly enhance their performance
and overcome a number of current challenges faced by those
devices.
Given the scale of these sectors and the other market
participants, we are often going to be part of an extensive supply
chain. This does mean that we are subject to events and decisions
outside of our control - as happened with the US Customer last year
- but it also means the potential is very high to deliver
significant value if our materials make it into commercial
production.
Delivery of technical milestones during the year has moved a
number of programmes closer to potential scale up and commercial
production. Indeed, already published customer product life cycles
suggest we may have good visibility of potential commercial
production by the second half of calendar year 2022. While our
current activities are more heavily weighted towards development
work at this stage, possible scale up activity may occur in FY22,
depending of course on the continued successful delivery of
technical milestones by Nanoco and ongoing support for these
projects by our customers and the ultimate adoption of the
technology by the final OEM's in the supply chains.
Our small scale allows us to be much more agile and responsive
to our customers' needs than many other players in electronics
supply chains. The in-depth nature of our technological insight
also means that we do tend to "punch above our weight" in terms of
direct engagement even with very large end customers and their
technology teams. Conversely, our scale does present challenges for
customers in terms of supply chain risks and we work proactively to
agree commercial solutions to the issue of supply chain
diversity.
Display (CFQD(R) quantum dots)
Display remains an important target market for Nanoco. We have
maintained our focus on our "dot only" strategy where we aim to
provide the highest performing CFQD(R) quantum dots.
Activity in Display reduced following the end of our
collaboration with Merck. Merck has announced its intention to
continue investing in electronics materials that may create
opportunities for Nanoco in the future but at present, there are no
ongoing commercial activities between the two companies. We
continue to seek out new relationships and a number of these are
moving forward at a small scale.
A number of small R&D projects were delivered for customers
during the year. We hope that the final decision to end the
Restriction of Hazardous Substances ("RoHS") cadmium exemption for
film based displays will soon be legislated and will provide fresh
impetus to display panel manufacturers to embrace the benefits of
our CFQD(R) quantum dots. While the European markets currently only
see limited sales of cadmium-based QD televisions, the focus of
growth on cadmium-free solutions may provide a helpful
tailwind.
We retain our core capabilities to deliver display R&D
services, scale up and commercial production of material from our
Runcorn facility. We are therefore well positioned to take
advantage of any broadening in the adoption of non-toxic quantum
dots by global display manufacturers when the opportunity
arises.
A successful outcome to the litigation with Samsung will also
positively affect our ability to derive income from our
capabilities in display, whether in production, further robust
defence of our existing IP portfolio, or the future licensing of
our technology.
We continue to adopt a dual approach to commercial exploitation
of our display materials. We are still ready to license our
technology to different channel partners but also retain our own
manufacturing capability.
Life Sciences
In November 2020, the Life Sciences team secured a grant from
Innovate UK, the UK's innovation agency, for a life sciences
project to develop a heavy metal-free quantum dot testing kit for
the accurate and rapid visual detection of Covid-19. The project
builds on Nanoco's existing capabilities in utilising quantum dots
conjugated with antibodies as a diagnostic tool in the detection of
cancer (VIVODOTS(R) nanoparticles). The project specifically
focuses on antibodies for Covid-19. However, as is the case with
our other materials, our goal is to create a platform technology
that is applicable to other pathogens and potential future variants
of Covid-19. The project therefore remains relevant despite many
other tests now being available on the market for Covid-19.
The project is scheduled to complete in May 2022 with a working
prototype. Good progress has been made to date with VIVODOTS(R)
conjugated with the appropriate antibodies successfully detecting
the presence of the target pathogen at the required level of
sensitivity to proceed to the next stage of the project. We are now
working with a device partner to create a functional device which
will then be subject to industrial design to create the functioning
prototype. The project is an exciting adjacent use of our
technology platform. Any medium term value implications will be
wholly contingent on the successful delivery of the targeted
project outcomes.
Other sectors including lighting
Following the need to restructure and downsize the business, our
core focus is primarily on near-term sensing opportunities. Where
there is an immediate substitution opportunity we will continue to
proactively engage with other sectors such as horticultural
applications that utilise the platform technology of our CFQD(R)
quantum dots.
Operations
In the early part of the year, in order to conserve our cash,
the Group completed the restructuring exercise that started at the
end of the prior year. A further small scale restructuring took
place in the second quarter.
Our resulting team now numbers approximately 39 staff and we
have cut our installed cash cost base from over GBP12.0 million in
FY19 to around GBP5.0 million for FY22. Critically, we have managed
to retain our core capabilities in R&D, scale up and
manufacturing, including both facilities at our Runcorn site. This
is essential to deliver the business growth we hope to achieve in
the short to medium term.
Activity in our production facility at Runcorn has focused on
supporting the higher demand levels we are seeing for sensing
materials from our R&D facility in Manchester. Our scale up
team has been re-trained to be able to operate the slightly larger
scale reactors in Manchester when customer demand has gone beyond
the normal small laboratory scale orders.
The Display facility in Runcorn is currently mothballed to
conserve cash but can be re-started at short notice. It also has
the potential to support sensing activities if multiple orders for
different materials are received at the same time. Our flexible
production team is trained to be able to operate both facilities to
maximise our capability while minimising costs in the short term
and maintaining our significant production revenue generating
capacity.
Responding to Covid-19
During the current Covid-19 pandemic, we continue to focus on
protecting the health, safety and wellbeing of our employees while
mitigating ongoing economic challenges. We have put together a
series of measures that allow us to continue to meet customer needs
from our Manchester R&D facility with support from our Runcorn
site as required.
Our Runcorn site has lower activity levels and our facility for
the large scale production of CFQD(R) quantum dot has been
temporarily mothballed. Other essential work is being carried out
remotely and no members of staff are using the Government's
furlough scheme.
Our reduced headcount and the layout of our split facilities
make it easier to follow many of the recommended practices for the
return to work. Having completed detailed risk assessments and
implemented the resulting action plans many staff have now safely
returned to the workplace while also allowing remote working where
appropriate.
Intellectual property
We continue to proactively manage our IP portfolio to maximise
value and protect our core competencies. During the year, the
Group's IP portfolio was reduced to 559 patents and patent
applications (2020: 731).
This net reduction reflected 74 new applications and 246 that
were dropped, mainly in territories or potential applications where
it was no longer felt worthwhile to pursue. We have also slowed the
rate of filing new IP to preserve trade secrets and to conserve
financial resources. Our IP and a significant range of business
process secrets strongly underpin the Group's valuation while also
operating as a challenging barrier to entry to potential
competitors.
Environment/restriction of hazardous substances ("RoHS")
The European Commission ("EC") was considering an appeal that
the exemption allowing the use of cadmium based quantum dots in
display films should continue. The EC was also considering an
appeal for a five-year exemption to allow cadmium-based quantum
dots to be applied directly onto LED chips for displays and
lighting.
The EC has now received a recommendation that:
-- the exemption to allow cadmium (>100ppm) in QD films for
display is no longer justified and should be phased out by 31
October 2021; and
-- a new exemption is granted to allow cadmium-based quantum
dots applied directly onto LED chips for displays and high CRI
lighting for a period of five years.
Before becoming law, this has to be adopted by the EC though
this is not expected to take a significant length of time. It
should also be noted that for film-based displays there is not an
outright ban which could allow displays with cadmium content below
the limit above to continue to be sold.
People
Our employees have shown great resilience during a very
uncertain year. They have remained focused on our customers and
supporting each other while coping with the Covid-19 pandemic,
uncertainty during the consultation process and a companywide
salary reduction. We were pleased to be able to reverse the salary
reduction for all staff outside the leadership team in October 2020
with the latter having pay cuts rescinded at the end of March
2021.
We were pleased that the staff achieved 100% of their shared
team goals for revenue and safety improvements and hence received
their full bonus awards. While we feel it is not an appropriate
time to make a general inflationary pay award, we have recognised
staff feedback on their preferred form of rewards and have
therefore increased the Company pension contribution from 5% to 6%
with a medium-term goal of achieving a 7.5% Company
contribution.
Retaining and incentivising our highly skilled team is key to
delivering organic value from the business.
Outlook
Some much needed stability has returned to the business. All
staff are now back at work and numbers are stable to match current
activity levels. The heavy workload and distraction of the lawsuit
is focused on a small number of the team and our advisers do much
of the heavy lifting. Our third party funding for the lawsuit and
patent review process allow us to focus Nanoco's cash resources on
capturing near-term commercial opportunities.
We continue to expand our range of materials offered in sensing
markets that are experiencing high rates of growth. We are focusing
our internal resources on a balance of commercial activities and
investment in new IP to protect the developments being made by our
R&D efforts.
Contingency plans remain in place in the event that the organic
business fails to become self financing. These plans ensure that
the potential value in the lawsuit can be protected. However, they
would result in the Group becoming an IP shell with all future
value potential linked only to our IP, the lawsuit, and a potential
licensing only business model. With our stable cost base, near-term
commercial opportunities and live development programmes with
significant global players in various electronics markets, I remain
confident that we can deliver value for all of our stakeholders in
the short to medium term with potentially additional transformative
value in the Samsung litigation.
Brian Tenner
Chief Executive Officer
3 November 2021
Financial review
Revenue and other operating income decreased by GBP1.7 million
to GBP2.3 million (2020: GBP4.0 million). The reduction is due to
the completion of the contract with the US Customer in the prior
year.
Revenue from the sale of products and services rendered
accounted for 95% (2020: 89%) of revenues with the balance being
royalty and licence income.
Revenue from services has decreased from GBP3.0 million to
GBP1.3 million as a result of the completion of the contract with
the US Customer in the prior year. Revenue from the sale of
products was GBP0.7 million (2020: GBP0.4 million). Billings have
decreased by GBP0.8 million to GBP1.7 million (2020: GBP2.5
million), which is in line with revenue.
Operating expenses were reduced in the year by GBP1.6m in total
to GBP6.7 million. (2020 (Restated): GBP8.4 million).
This reduction was primarily due to the fall in payroll costs to
GBP3.3 million (2020 (Restated): GBP4.5 million) which resulted
from:
-- the full year impact of the prior year restructuring (GBP0.2 million);
-- headcount reductions during the year (GBP0.3 million); and
-- the impact of a Company-wide pay cut and the Government's furlough scheme (GBP0.4 million).
In the prior year, we consulted with employees and reduced our
headcount from 72 to c. 46 full-time employees.
During the current year, our headcount has decreased further to
approximately 39 employees (c. 37 full time equivalents). We have
made these changes whilst retaining full operational and commercial
viability. We are currently in the process of exiting our first
floor premises at our Manchester offices, with the lease expiring
in March 2022. This will save an additional GBP0.6 million per
annum.
In July 2021, we agreed a non-dilutive debt facility with our
two major shareholders worth GBP3.0 million net of costs. Cash at
year end was GBP3.8 million, which reflects a GBP4.4 million
consumption of cash before the impact of the debt facility. This is
in part due to an adverse unwinding of working capital in FY21,
which we do not expect to repeat in FY22.
2021 2020
(Restated)
Highlights GBP million GBP million % change
-------------------------- ------------ ------------ --------
Turnover 2.1 3.9 (46%)
Adjusted operating loss (4.6) (4.8) 5%
Adjusted LBITDA (2.9) (2.9) 4%
Net loss (4.4) (5.1) 13%
Loss per share (1.44) (1.77) 19%
Billings 1.7 2.5 (32%)
Cash and cash equivalents 3.8 5.2 (26%)
-------------------------- ------------ ------------ --------
Non-GAAP measures
The non-GAAP measures of adjusted operating loss and adjusted
loss before interest, tax, amortisation and share- based payment
charges ("LBITDA") are provided in order to give a clearer
understanding of the underlying loss for the year that reflects
cash outflow from the business.
The calculation of both non-GAAP measures is shown in the table
below:
2020
2021 (Restated)
GBP million GBP million
--------------------------- ------------ ------------
Operating loss (5.0) (5.9)
Share-based payment charge 0.4 0.4
Exceptional costs - 0.7
--------------------------- ------------ ------------
Adjusted operating loss (4.6) (4.8)
Depreciation 0.5 1.1
Amortisation* 1.2 0.8
--------------------------- ------------ ------------
Adjusted LBITDA (2.9) (2.9)
--------------------------- ------------ ------------
* Includes impairment of intangible assets.
The loss before tax was GBP5.1 million (2020: GBP6.0
million).
Exceptional items
In the prior year, these costs related to the Formal Sales
Process, the start of the litigation against Samsung, the fundraise
and restructuring activities. They are set out in more detail in
note 7 to the financial statements.
Taxation
The tax credit for the year is GBP0.7 million (2020: GBP0.9
million). The tax credit to be claimed, in respect of R&D
spend, is GBP0.7 million (2020: GBP0.9 million). Overseas
corporation tax was GBPnil during the year (2020: GBPnil). There
was no deferred tax credit or charge (2020: GBPnil).
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term
investments decreased to GBP3.8 million (2020: GBP5.2 million). The
net cash outflow, excluding the benefits of the debt facility of
GBP3.0 million in July 2021 (net of costs), was GBP4.4 million
(2020: GBP5.0 million outflow).
The decrease in cash outflows reflects the reduction in the cost
base, which was offset by adverse working capital movements in the
year. Tax credits of GBP0.9 million (2020: GBP1.1 million) were
received during the year.
Expenditure incurred in registering patents totalled GBP0.4
million (2020: GBP0.6 million) reflecting the Group's continued
focus on developing and registering intellectual property.
Capitalised patent spend is amortised over ten years in line with
the established Group accounting policy.
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.
Credit risk
The Group only trades with recognised, creditworthy third
parties. Receivable balances are monitored on an ongoing basis and
any late payments are promptly investigated to ensure that the
Group's exposure to bad debts is not significant.
Foreign exchange management
The Group invoices most of its revenues in Sterling and also has
US Dollar and Euro revenues. The Group is therefore exposed to
movements in those currencies relative to Sterling. The Group will
use forward currency contracts to fix the exchange rate on invoiced
or confirmed foreign currency receipts should the amount become
significant and more predictable.
There were no open forward contracts as at 31 July 2021 (2020:
none). The Group's net profit and equity are exposed to movements
in the value of Sterling relative to the US Dollar.
Brexit
The Board continues to monitor the ongoing developments.
Currently, the majority of the Group's revenues are for services
delivered in the UK with minimal Brexit impact. Going forward, the
Group expects a significant portion of its revenues from material
sales to be from non-UK countries where the Government hopes to
have in place equivalent trading arrangements as exist today.
Although there were some logistical challenges on trade with EU
countries, this has largely been mitigated with little to no
ongoing disruption.
Going concern
A key area is the assessment of going concern due to the
existence of material uncertainty regarding the timing of adequate
commercial production orders and the implementation of any
necessary restructuring plans if those revenues are delayed. This
may cast significant doubt about the Group's and the Parent
Company's ability to continue as a going concern.
The debt issue in July 2021 raised GBP3.0 million net of costs.
This extended the Group's organic cash runway to the second half of
calendar year 2022. If the Group implemented an IP shell structure
when the current contractual order book is exhausted in early H2 of
FY22, the resulting cash runway for the IP shell would extend to
the middle of 2023.
Considering the mitigating actions that can be taken and recent
swift and robust actions to reduce our cost base, and after making
enquiries and considering the uncertainty described above, the
Directors have a reasonable expectation that the Group has access
to adequate resources to continue in operational existence for the
foreseeable future.
Accordingly, in preparing the consolidated financial statements,
the Board concluded that it is appropriate to utilise the going
concern assumption.
Prior year adjustment
The prior year Consolidated Statement of Comprehensive Income
and the prior year Group Statement of Financial Position have both
been restated for adjustments relating to prior years. Details of
these adjustments are included in Note 3.
Covid-19 Pandemic
The Group has completed detailed risk assessments and
implemented the resulting action plans and Government guidance to
create Covid-19 secure workplaces. We are able to meet customer
needs while working in a safe fashion. We do not currently expect
significant financial downsides though this is clearly dependent on
changes in regulations and the scale of any further lockdowns, both
in the UK and the wider world.
Summary
Although a challenging year for a number of reasons, the Group
has continued to develop products which provide the basis for
organic growth. We have shown our resilience and flexibility in
being able to reduce our cost base but maintain our operational and
commercial capabilities.
Our litigation against Samsung continues, and we look forward to
hearing the results of the PTAB review of the five patents in
question around May 2022. We believe a positive outcome in the
litigation would result in a transformational award for Nanoco and
its shareholders. We are therefore confident that we have the means
and the will to secure our medium-term future while our focus is
firmly on pursuing near-term commercial opportunities.
Brian Tenner
Chief Executive Officer
3 November 2021
Principal risks and uncertainties
In common with all businesses at Nanoco's stage of development,
the Group is exposed to a range of risks, some of which are not
wholly within our control or capable of complete mitigation or
protection through insurance.
Specifically, a number of the Group's products and potential
applications are at a research or development stage and hence it is
not possible to be certain that a particular project or product
will lead to a commercial application. Other products require
further development work to confirm a commercially viable
application.
Equally, a number of products are considered commercially viable
but have yet to see demand for full scale production. It is also
the case that the Group is often only one part of a long and
complex supply chain for new product applications. The Group
therefore has little visibility of demand other than from contracts
already in place. There are therefore a range of risks that are
associated with the different stages of product development as well
as for the Group as a whole.
Principal overarching risk
The principal overarching strategic risk faced by the business
is that the Group exhausts its available funding before achieving
adequate levels of commercial revenues and cash flows to be
self-funding.
This risk has been mitigated in the short term by the recent
debt facility which has maintained the Group's organic cash runway
to H2 2022. This date can be extended for the operational side of
the business with each new business win.
In a downside (severe but plausible) scenario with no new
business wins, this date can be extended to H1 2023, though this
would require further significant restructuring. Experience in the
past three years has shown that the Board is ready and able to take
prompt action to reduce costs should the need arise.
Principal risk in FY21
In February 2020, the Group initiated litigation against Samsung
for wilful infringement of its IP. The Group is therefore exposed
to the related positive and negative aspects of the litigation.
Winning the litigation could create a significant increase in value
for the Group in terms of any award or settlement but also in terms
of increasing the likelihood of other future valuable licensing of
the Group's IP.
Conversely, if the litigation is unsuccessful, this could
undermine the perceived value of the Group's IP portfolio. The cost
risk of the litigation if Samsung aims to delay and/or extend the
length of the process has been significantly mitigated by the third
party funding agreement that has been put in place whereby a large
US litigation funding specialist pays the costs of the
litigation.
In either case (successful or unsuccessful), the Board will
initiate a further review of the future strategy of the
business.
Other principal risks
Other risks are those set out in the prior year's Annual Report
and an update on their status will be included in the Annual Report
for the year ended 31 July 2021.
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 preliminary results which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and international
financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union, give a true and
fair view of the assets, liabilities and financial position of the
group and company, and of the loss of the group; and
2. the preliminary results include a fair review of the
development and performance of the business and the position of the
group and company, together with a description of the principal
risks and uncertainties that it faces.
By order of the Board
Brian Tenner
Chief Executive Officer
3 November 2021
Consolidated statement of comprehensive income
for the year ended 31 July 2021
2021 2020
(Restated
[1] )
Notes GBP'000 GBP'000
-------------------------------------------- ----- -------- ----------
Revenue 4 2,091 3,856
Cost of sales (209) (345)
-------------------------------------------- ----- -------- ----------
Gross profit 1,882 3,511
Other operating income 183 101
Operating expenses
Research and development expenses (2,150) (3,143)
Administrative expenses (4,924) (6,362)
-------------------------------------------- ----- -------- ----------
Operating loss (5,009) (5,893)
-------------------------------------------- ----- -------- ----------
- before exceptional items and share-based
payments (4,592) (4,811)
- share-based payments (417) (360)
- net exceptional costs 5 - (722)
------------------------------------------- ----- -------- ----------
Finance income - 8
Finance expense (71) (87)
-------------------------------------------- ----- -------- ----------
Loss before taxation (5,080) (5,972)
Taxation 685 893
-------------------------------------------- ----- -------- ----------
Loss after taxation (4,395) (5,079)
Other comprehensive income/(loss)
Gain on exchange rate translations - 3
-------------------------------------------- ----- -------- ----------
Total comprehensive loss for the year (4,395) (5,076)
-------------------------------------------- ----- -------- ----------
Loss per share
Basic and diluted loss for the year 6 (1.44)p (1.77)p
-------------------------------------------- ----- -------- ----------
The loss for the current and preceding year arises from the
Group's continuing operations and is attributable to the equity
holders of the Parent.
The basic and diluted loss per share are the same as the effect
of share options is anti-dilutive.
Consolidated statement of changes in equity
for the year ended 31 July 2021
Issued Reverse Share-based
equity acquisition payment Merger Accumulated
capital reserve reserve reserve losses Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
At 1 August 2019 144,453 (77,868) 3,419 (1,242) (60,239) 8,523
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
Amendments to dilapidations
calculation (1) - - - - (186) (186)
Amendments to calculation
of share based payments(1) - - 122 - (122) -
Restated At 1 August 2019 144,453 (77,868) 3,541 (1,242) (60,547) 8,337
Loss for the year (Restated) - - - - (5,079) (5,079)
Other comprehensive income - - - - 3 3
------------------------------------- -------- ------------ ----------- -------- ----------- --------
Total comprehensive loss - - - - (5,076) (5,076)
Issue of share capital on exercise
of options 3,409 - - - - 3,409
Share-based payments - - 360 - - 360
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
At 31 July 2020 147,862 (77,868) 3,901 (1,242) (65,623) 7,030
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
Loss for the year - - - - (4,395) (4,395)
Other comprehensive income - - - - - -
------------------------------------- -------- ------------ ----------- -------- ----------- --------
Total comprehensive loss - - - - (4,395) (4,395)
Share-based payments - - 417 - - 417
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
At 31 July 2021 147,862 (77,868) 4,318 (1,242) (70,018) 3,052
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
Group statements of financial position
at 31 July 2021
Registered no. 05067291
31 July 1 August
2020 2019
31 July Group Group
2021 (Restated(1) (Restated(1)
Group ) )
Notes GBP'000 GBP'000 GBP'000
---------------------------- ----- -------- ------------- -------------
Assets
Non-current assets
Tangible fixed assets 199 263 747
Right of use assets 340 612 981
Intangible assets 2,858 3,742 3,897
3,397 4,617 5,625
---------------------------- ----- -------- ------------- -------------
Current assets
Inventories 110 140 226
Trade and other receivables 1,227 1,018 1,117
Income tax asset 686 910 1,129
Cash and cash equivalents 3,813 5,170 7,005
---------------------------- ----- -------- ------------- -------------
5,836 7,238 9,477
---------------------------- ----- -------- ------------- -------------
Total assets 9,233 11,855 15,102
---------------------------- ----- -------- ------------- -------------
Liabilities
Current liabilities
Trade and other payables (1,617) (2,327) (2,614)
Lease liabilities 8 (545) (642) (749)
Provisions - - (134)
Deferred revenue 7 (253) (603) (1,462)
---------------------------- ----- -------- ------------- -------------
(2,415) (3,572) (4,959)
---------------------------- ----- -------- ------------- -------------
Non-current liabilities
Financial liabilities (3,487) (462) (433)
Lease liabilities 8 (133) (542) (1,020)
Deferred revenue 7 (146) (249) (353)
---------------------------- ----- -------- ------------- -------------
(3,766) (1,253) (1,806)
---------------------------- ----- -------- ------------- -------------
Total liabilities (6,181) (4,825) (6,765)
---------------------------- ----- -------- ------------- -------------
Net assets 3,052 7,030 8,337
---------------------------- ----- -------- ------------- -------------
Capital and reserves
Share capital 30,570 30,570 28,622
Share premium 117,292 117,292 115,831
Reverse acquisition reserve (77,868) (77,868) (77,868)
Share-based payment reserve 4,318 3,901 3,541
Merger reserve (1,242) (1,242) (1,242)
Accumulated losses (70,018) (65,623) (60,547)
---------------------------- ----- -------- ------------- -------------
Total equity 3,052 7,030 8,337
---------------------------- ----- -------- ------------- -------------
The Parent Company's result for the period ended 31 July 2021
was a loss of GBP6,516,000 (2020: loss of GBP64,000). There was no
other comprehensive income in either the current or prior year.
The financial statements on were approved by the Board of
Directors on 3 November 2021 and signed on its behalf by:
Dr Christopher Richards Brian Tenner
Chairman Chief Executive Officer
3 November 2021 3 November 2021
Group cash flow statements
for the year ended 31 July 2021
31 July
31 July 2020
2021 Group
Group (Restated(1)
)
Notes GBP'000 GBP'000
------------------------------------------------------ ------ -------- -------------
Loss before tax (5,080) (5,972)
Adjustments for:
Net finance expense 71 (79)
(Profit)/Loss on exchange rate translations 17 (87)
Depreciation of tangible fixed assets 99 590
Depreciation of right of use assets 408 505
Amortisation of intangible assets 618 633
Impairment of intangible assets 623 120
Share-based payments 417 360
Exceptional items - 722
Gain on disposal of tangible fixed
assets (48) -
Interest paid (4) -
Changes in working capital:
Decrease/(increase) in inventories 30 221
Decrease in trade and other receivables (209) 99
Decrease in trade and other payables (757) (2)
(Decrease)/increase in provisions - (797)
(Decrease)/increase in deferred revenue (453) (963)
-------------------------------------------------------------- -------- -------------
Cash outflow from operating activities (4,268) (4,650)
Research and development tax credit
received 908 1,111
-------------------------------------------------------------- -------- -------------
Net cash outflow from operating activities (3,360) (3,539)
-------------------------------------------------------------- -------- -------------
Cash flow from investing activities
Purchases of tangible fixed assets (35) (106)
Purchases of intangible fixed assets (357) (598)
Proceeds from sale of tangible fixed
assets 48 -
Interest (paid)/received - 8
-------------------------------------------------------------- -------- -------------
Net cash (outflow)/inflow from investing
activities (344) (696)
-------------------------------------------------------------- -------- -------------
Cash flow from financing activities
Proceeds from placing of ordinary
share capital - 3,409
Proceeds from issue of loan notes 3,150 -
Costs of financing/placing (161) (237)
Payment of lease liabilities (capital) (642) (772)
Payment of lease liabilities (interest) (30) -
-------------------------------------------------------------- -------- -------------
Net cash inflow from financing activities 2,317 2,400
-------------------------------------------------------------- -------- -------------
(Decrease)/increase in cash and cash
equivalents (1,387) (1,835)
Cash and cash equivalents at the
start of the year 5,170 7,005
-------------------------------------------------------------- -------- -------------
Effects of exchange rate changes 30
-------------------------------------------------------------- -------- -------------
Cash and cash equivalents at the
end of the year 3,813 5,170
-------------------------------------------------------------- -------- -------------
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 46 Grafton Street, Manchester M13 9NT. The Company is
registered in England.
These Group 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
2021.
The preliminary results of Nanoco Group plc and its subsidiaries
(the "Group") for the year ended 31 July 2021 were authorised for
issue by the Board of Directors on 3 November 2021 and the
statements of financial position were signed on the Board's behalf
by Dr Christopher Richards and Mr Brian Tenner.
The 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 2020 has been delivered to the Registrar of
Companies. There were no statements under section 498(2) or section
498(3) of the Companies Act 2006.
The statutory financial statements for the year ended 31 July
2021 will be delivered to the registrar of companies as soon as
practicable. The auditors opinion on those financial statements was
unqualified, but did draw attention to the Group's ability to
continue as a going concern by way of a material uncertainty
paragraph. It contained no statement under section 498(2) or
section 498(3) of the Companies Act 2006.
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present the Parent Company's
income statement.
The significant accounting policies adopted by the Group are set
out in note 3.
2. Basis of preparation
(a) Statement of compliance
The Group's and Parent Company's financial statements have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006,
International Financial Reporting Standards ("IFRS) adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union and IFRSs as issued by the International Accounting
Standards Board for the year ended 31 July 2021.
(b) Basis of measurement
The Parent Company and Group financial statements have been
prepared on the historical cost basis, except for the revaluation
of financial assets classified as "fair value through other
comprehensive income" or "fair value though profit or loss", which
are reported in accordance with the accounting policies below.
(c) Going concern
All of the following matters are taken into account by the
Directors in forming their assessment of going concern. The Group's
business activities and market conditions, the principal risks and
uncertainties, the Group's financial position and the Group's
financial risk management objectives, policies and processes. The
Group funds its day-to-day cash requirements from existing cash
reserves.
For the purposes of their going concern assessment and the basis
for the preparation of the financial statements, the Directors have
reviewed the same trading and cash flow forecasts and sensitivity
analyses that were used by the Group in the viability assessment,
which cover the period to October 2023, a period of two years from
the date of approval of the Annual Report and financial statements.
The same base case and downside (severe but plausible)
sensitivities were also used.
The base case represents the Board's current expectations.
Assumptions in the base case are:
-- the development programme with the European electronics
customer is successful and subsequently leads to scale up of the
product and thereafter to small scale commercial production in a
low volume application;
-- commercial services contracts are based on the existing
pipeline of opportunities or agreements already in place;
-- no revenue is assumed from other business lines though some
small scale commercial deals are currently under discussion;
-- the Group's variable costs remain in line with manufacturing activities;
-- Board costs reflect the 35% deferment of Non-Executive Directors' fees as agreed;
-- the Group remains a going concern and hence eligible for R&D tax credits; and
-- the installed cost base is capable of supporting significant
increases in revenue above those assumed in the base case so there
is no immediate requirement for short-term increases or new capital
expenditure.
The base case produces a cash flow statement that demonstrates
that the Group has sufficient cash throughout the period of the
forecast.
However, the Board acknowledges that the base case includes an
element of risk that some or all of these non-contracted projects
may not convert to sales during the forecast period. Accordingly,
the Board has considered the downside scenario in which no revenue,
except that already contracted or under contractual negotiation, is
achieved during the period.
In this downside scenario, management action to reduce the
activities of the Group to an IP shell that supports the Samsung
lawsuit allows the Group to maintain a cash runway to the middle of
2023. All of the potential cost savings are under the direct
control of the Board and the Board has the ability and intention to
make such changes on a timely basis if required.
IAS 1 Presentation of Financial Statements requires the
Directors to disclose "material uncertainties related to events or
conditions that may cast significant doubt upon the Group's ability
to continue as a going concern". The Directors consider that the
timing of adequate commercial production orders and the
implementation of any necessary restructuring plans if those
revenues are delayed is a material uncertainty which may cast
significant doubt about the Group's and the Parent Company's
ability to continue as a going concern.
Nevertheless, considering the mitigating actions that are within
management's control and can be taken and after making enquiries
and considering the uncertainty described above, the Directors have
a reasonable expectation that the Group has access to adequate
resources to continue in operational existence for the foreseeable
future.
Accordingly, they continue to adopt the going concern basis in
preparing the consolidated financial statements. The financial
statements do not reflect any adjustments that would be required to
be made if they were prepared on a basis other than the going
concern basis.
(d) Functional and presentational currency
These financial statements are presented in Pounds Sterling,
which is the presentational currency of the Group and the
functional currency of the Company. All financial information
presented has been rounded to the nearest thousand.
(e) Use of estimates and judgements
The preparation of financial statements requires management to
make estimates and judgements that affect the amounts reported for
assets and liabilities as at the reporting date and the amounts
reported for revenues and expenses during the year. The nature of
estimation means that actual amounts could differ from those
estimates. Estimates and judgements used in the preparation of the
financial statements are continually reviewed and revised as
necessary. While every effort is made to ensure that such estimates
and judgements are reasonable, by their nature they are uncertain
and, as such, changes in estimates and judgements may have a
material impact on the financial statements.
In the process of applying the Group's accounting policies,
management has made the following estimates and judgements, which
have the most significant effect on the amounts recognised in the
consolidated financial statements.
Estimates
Equity-settled share-based payments
The Group has historically issued LTIPs to incentivise
employees. The determination of share-based payment costs requires:
the selection of an appropriate valuation method; consideration as
to the inputs necessary for the valuation model chosen; and
judgement regarding when and if performance conditions will be met.
Inputs required for this arise from judgements relating to the
future volatility of the share price of Nanoco and comparable
companies, the Company's expected dividend yields, risk-free
interest rates and expected lives of the options. The Directors
draw on a variety of sources to aid in the determination of the
appropriate data to use in such calculations. The share-based
payment expense is most sensitive to vesting assumptions and to the
future volatility of the future share price factor. Further
information is included in note 3 of the financial statements.
Impairment of intellectual property and tangible fixed
assets
As the Group has not, to date, made a profit 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 value in use. The value in use calculation uses cash flows
based on budgets that have been approved by the Directors. The
Directors also use available information to assess whether the fair
value less costs of disposal of the Group's non-current assets,
including intellectual property, is less than their carrying
amount. Furthermore, during the year another extensive review was
undertaken to identify which patents are of no further value to
Nanoco and should be allowed to lapse. As a consequence, patents
with a value of GBP0.6 million (2020: GBP0.1 million) have been
fully impaired in these financial statements. Judgements are based
on the information available at each reporting date, which includes
the progress with testing and certification and progress on, for
example, establishment of commercial arrangements with third
parties. The Group does not believe that any of its patents in
isolation are material to the business. Management has adopted the
prudent approach of amortising patent registration costs over a
ten-year period, which is substantially shorter than the life of
the patent. For external patents acquired the same rule is adopted
unless the remaining life of the patent is shorter, in which event
the cost of acquisition is amortised over the remaining life of the
patent.
Impairment of investment and inter-company receivable
Judgement is required to assess the carrying value of the
Company investment and inter-company receivable at each reporting
date.
Accounting standards (IAS 36 Impairment of Assets) require
investments in subsidiary undertakings (equity and loans) to be
carried at the lower of cost or recoverable value. Recoverable
value is defined as the higher of fair value less costs of disposal
(effectively net sale proceeds) and value in use. Indicators of
potential impairment noted in IAS 36 (para 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 period.
The Directors consider the fair value to be market value
(calculated as market capitalisation at year end) less costs to
sell. As the market value was in excess of the book value, no
further impairment is proposed.
Judgements
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.
Research and development
Careful judgement by the Directors is applied when deciding
whether the recognition requirements for development costs have
been met. This is necessary as the economic success of any product
development is uncertain until such time as technical viability has
been proven and commercial supply agreements are likely to be
achieved. Judgements are based on the information available at each
reporting date which includes the progress with testing and
certification and progress on, for example, establishment of
commercial arrangements with third parties. In addition, all
internal activities related to research and development of new
products are continuously monitored by the Directors. Further
information is included in note 3 of the annual report.
3. Significant accounting policies
Other than as noted below in the section on new accounting
standards and interpretations, the accounting policies used in
preparing these financial statements are consistent with those of
the previous financial year and are applied consistently by Group
entities and can be found in the Annual Report for the year ending
31 July 2021.
(a) Basis of consolidation
The Group financial statements consolidate the financial
statements of Nanoco Group plc and the entities it controls (its
subsidiaries) drawn up to 31 July each year.
Subsidiaries are all entities over which the Group has the power
over the investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee),
exposure, or rights, to variable returns from its involvement with
the investee and ability to use its power over the investee to
affect its returns. All of Nanoco Group plc's subsidiaries are 100%
owned. Subsidiaries are fully consolidated from the date control
passes.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group. The costs of an
acquisition are measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
initially measured at fair value at acquisition date irrespective
of the extent of any minority interest. The difference between the
cost of acquisition of shares in subsidiaries and the fair value of
the identifiable net assets acquired is capitalised as goodwill and
reviewed annually for impairment. Any deficiency in the cost of
acquisition below the fair value of identifiable net assets
acquired (i.e. discount on acquisition) is recognised directly in
the consolidated statement of comprehensive income.
In the consolidated financial statements, the assets and
liabilities of the foreign operations are translated into Sterling
at the exchange rate prevailing at the reporting date. Income and
cash flow statement items for Group entities with a functional
currency other than Sterling are translated into Sterling at
monthly average exchange rates, which approximate to the actual
rates, for the relevant accounting periods. The exchange
differences arising on translation are recognised in other
comprehensive income.
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:
-- Amendments to IFRS 3: Definition of a Business;
-- Amendments to IAS 1 and IAS 8 Definition of Material;
-- Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform;
-- Conceptual Framework for Financial Reporting issued on 29 March 2018; and
-- Amendments to IFRS 16: Covid-19 Related Rent Concessions
The following standards and amendments to standards have been
issued but are not effective for the financial year beginning 1
August 2020 and have not been early adopted:
-- Amendments to IAS 1: Classification of Liabilities as Current or Non-current;
-- Reference to the Conceptual Framework - Amendments to IFRS 3;
-- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16;
-- Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37; and
-- IFRS 9 Financial Instruments - Fees in the '10%' test for
derecognition of financial liabilities
The amendments to standards and interpretations noted above are
expected to have no significant impact on the financial
statements.
(c) Prior year restatement
The following table summarises the impact of restatements
arising from the correction of prior year errors on the Group's
retained earnings:
Share based payment Accumulated losses
reserve GBP'000
GBP'000
At 1 August 2019 as reported 3,419 (60,239)
Amendment to dilapidations
calculation - (186)
--------------------- --------------------
Amendment to calculation
of SBP 122 (122)
--------------------- --------------------
Restated at 1 August 2019 3,541 (60,547)
--------------------- --------------------
Amendment to dilapidations calculation
During the year, management decided to exit the first floor of
the Group's Manchester facility instead of extending the lease when
it expires in April 2022 as a material cost reduction measure
(saving approximately GBP0.6m per annum from April 2022). As a
result, management have re-assessed the potential dilapidation
costs on leased properties. Upon discussions with landlords around
potential exit obligations, and after obtaining external third
party valuations which exclude potential receipts from sales of
surplus assets, the Group has increased the existing provisions for
wear and tear. In accordance with IFRS, an adjustment has therefore
been posted to the opening reserves and provisions as at 1 August
2019 (since the leases were signed a number of years before and in
some cases the original leases had already expired by that
date).
In the prior year, this adjustment increased administrative
costs by GBP28,000.
Amendment to calculation of SBP
Since 2015, when issuing deferred share options under the
Group's Deferred Bonus Plan (DBP) in respect of annual bonus
targets being achieved for executive directors, the fair value
charge for the share options was recognised between the grant date
of the deferred share options and their vesting date two years
later. This fair value charge has now been amended to be incurred
from the start of the performance period for the bonus was
achieved, through to the vesting date of the share options
(typically just over three years). This change largely relates to
the FY19 DBP share option grant. In accordance with IFRS, an
adjustment has therefore been posted to the opening reserves and
provisions as at 1 August 2019.
In the prior year, this adjustment decreased the share based
payment charge by GBP16,000.
Impact of adjustments on prior year loss per share
The impact on the loss per share of both the above prior year
adjustments is to increase it from 1.76p to 1.77p.
4. Segmental information
Operating segments
At 31 July 2021 and 2020 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
2021 2020
GBP'000 GBP'000
------------------------- -------- --------
Analysis of revenue
Products sold 685 448
Rendering of services 1,303 2,981
Royalties and licences 103 427
------------------------- -------- --------
2,091 3,856
------------------------- -------- --------
There was one material customer who generated revenue of
GBP1,590,000 (2020: one material customer amounting to
GBP2,475,000).
The Group operates in four main geographic areas, although all
are managed in the UK. The Group's revenue per geographical segment
based on the customer's location is as follows:
31 July 31 July
2021 2020
GBP'000 GBP'000
------------------------ -------- --------
Revenue
UK 28 17
Europe (excluding UK) 1,618 1,111
Asia 411 228
USA 34 2,500
------------------------ -------- --------
2,091 3,856
------------------------ -------- --------
All the Group's assets are held in the UK and all of its capital
expenditure arises in the UK. The loss before taxation and
attributable to the single segment was GBP5,080,000 (2020:
GBP5,972,000).
5. Exceptional items
During the prior financial year, the Group incurred a number of
charges which are considered to be exceptional in nature.
31 July 31 July
2021 2020
(Charge)/income GBP'000 GBP'000
--------------------------------------------- -------- --------
Formal Sale Process (legal fees) - (293)
Fundraise (adviser and commitment fees) - (237)
IP litigation (prior to litigation funding
agreement) - (64)
Restructuring cost - (128)
--------------------------------------------- -------- --------
Total net exceptional items - (722)
--------------------------------------------- -------- --------
During the prior year, as part of the strategic review, the
Group entered into a Formal Sales Process that was subsequently
terminated after the start of the Covid-19 pandemic. In July 2020,
the Group carried out a fundraising exercise, raising GBP3.2
million net of costs. Also during the year, the Group initiated a
significant lawsuit against Samsung for wilful infringement of its
IP. All three activities incurred adviser costs for processes that
are considered corporate in nature and hence do not form part of
the underlying business of the Group. They are therefore classified
as exceptional to allow the reader a better understanding of
underlying performance. Following the resource pivot in our Display
business in the second quarter, a restructuring exercise reflecting
our "dot only" focus in display activities was implemented. This
exercise completed in the fourth quarter of year ended 31 July
2020.
6. Earnings per share
31 July 31 July
2021 2020
(Restated)
Group GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Loss for the financial year attributable to equity
shareholders (4,395) (5,076)
Share-based payments 417 360
------------------------------------------------------ ----------- -----------
Loss for the financial year before share-based
payments (3,978) (4,716)
------------------------------------------------------ ----------- -----------
Weighted average number of shares
Ordinary shares in issue 305,699,102 287,070,824
------------------------------------------------------ ----------- -----------
Adjusted loss per share before share-based payments
(pence) (1.30) (1.64)
------------------------------------------------------ ----------- -----------
Basic loss per share (pence) (1.44) (1.77)
------------------------------------------------------ ----------- -----------
Diluted loss per share has not been presented above as the
effect of share options issued is anti-dilutive.
7. Deferred revenue
31 July 31 July 31 July
2021 2021 2020 31 July 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- -------- -------- ------------
Current
Upfront licence fees 103 - 103 -
Milestone payments 150 - 500 -
----------------------- -------- -------- -------- ------------
253 - 603 -
----------------------- -------- -------- -------- ------------
Non-current
Upfront licence fees 146 - 249 -
----------------------- -------- -------- -------- ------------
399 - 852 -
----------------------- -------- -------- -------- ------------
Deferred revenue arises under IFRS where upfront licence fees
are accounted for on a straight-line basis over the initial term of
the contract or where performance criteria have not been satisfied
in the accounting period.
8. Lease liabilities
31 July 31 July 31 July 31 July
2021 2021 2020 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- -------- --------
Current
Property leases 545 - 642 -
------------------ -------- -------- -------- --------
Non-current
Property leases 133 - 542 -
------------------ -------- -------- -------- --------
== Ends ==
[1] Details of the restatement are included in Note 3 to these
preliminary statements
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