TIDMNANO
RNS Number : 4797D
Nanoco Group PLC
20 October 2022
20 October 2022
NANOCO GROUP PLC
( " Nanoco", the " Group ", or the " Company")
Unaudited Preliminary Results for the year ended 31 July
2022
"A critical year in which we delivered key value enhancing
milestones"
Nanoco Group plc (LSE: NANO), a world leader in the development
and manufacture of cadmium-free quantum dots and other specific
nanomaterials emanating from its technology platform, is pleased to
announce its unaudited Preliminary Results for the year ended 31
July 2022.
Operational Summary - long term commercial visibility being
generated
-- Significant contract extension with European electronics
customer to deliver materials validated for commercial production
in the short term
-- Continuing development work with major Asian chemicals customer
-- Increasing customer engagements for CFQD materials for display applications
-- Consolidating all operations into Runcorn to deliver long term cash savings (net GBP0.7m p.a.)
Samsung Litigation - strengthened belief and confidence in our
case
-- Patent Trial and Appeal Board ('PTAB') confirmed validity of
all 5 patents and 47 associated claims in the litigation against
Samsung - firmly underpinning our unique leading edge IP
-- Jury trial in Texas expected in the short term
-- Filed additional lawsuit seeking injunction against Samsung in Germany
-- Goal remains delivering fair value for global nature and
remaining lives of our patents while acknowledging the remaining
risks
Financial Summary - traded ahead of earlier expectations with
enhanced and extended funding
-- Revenue increased 19% to GBP2.5m (FY21: GBP2.1m) on increased activity levels
-- Improved Adjusted LBITDA of GBP2.1m (FY21: GBP2.8m LBITDA) from revenue growth and savings
-- Equity fundraising extended cash runway to CY 2025, beyond expected breakeven point
-- Cash of GBP6.8 million at year end with average net monthly burn rate now under GBP0.2m
Brian Tenner, Nanoco's CEO, commented on the results:
"We have consistently delivered on all of our target milestones
throughout the Period. The full year contract with the European
electronics customer covers product validation and new material
development. This is a clear sign of their commitment to
commercialising infra-red sensors using Nanoco's quantum dots. We
maintain our goal of being ready in H1 FY23 for potential
commercial production orders in the short term.
"Interest has been re-energised in our CFQDs for use in
displays. This reflects the gradually increasing number of panel
makers seeking cadmium free solutions and also reflects the strong
underpinning of Nanoco's IP provided by the PTAB decisions earlier
this year.
"We are consolidating our core R&D and scale up capabilities
in our Runcorn production facility to deliver sustainable net
savings of around GBP0.7m p.a. The over-subscribed equity fund
raise significantly extended the cash runway beyond when we expect
to be self-financing. This has also allowed targeted strategic
investments in new equipment and additional personnel as we
increase our overall activity levels across the business, including
new R&D staff to support new materials for other quantum
applications.
"We are also pleased with the developments in our litigation
against Samsung during the Period. The progress vindicates and
enhances our confidence in the merits of our case. We won all five
of the inter partes reviews at PTAB. At the pre-trial conference,
the motions that are important to Nanoco were resolved in our
favour. We have been able to narrow our focus ahead of the short
one week trial onto those claims that Nanoco considers to be the
strongest and most clearly infringed. We patiently await a
confirmed date for that trial.
"The whole Nanoco team has worked hard to deliver significant
progress on a number of fronts during the year. We have increased
the potential to create significant shareholder value in our
organic activities and the Samsung litigation in the short to
medium term. We will be working hard to continue these trends,
particularly with confidence in the visibility of commercial
production orders and an initial outcome to the trial in Texas
during H1 FY23. The Board therefore has growing confidence in the
strength of the investment proposition and value inherent in the
business."
Analyst meeting and webcast details
A conference call and webcast for analysts will be held at
10:00am (UK time) this morning (20 October 2022):
Dial in: +44 (0)330 551 0200
Link:
https://stream.brrmedia.co.uk/broadcast/62fe66248b876c6ccc6b69d2
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.
There will be a further presentation via the Investor Meet
Company platform on 21 October at 10:00am. Questions can be
submitted in advance via the Investor Meet Company Dashboard before
9:00am on 21 October, or at any time during the live presentation.
Investors can sign up to the Investor Meet Company platform for
free and register their interest in events hosted by Nanoco Group
Plc via:
https://www.investormeetcompany.com/nanoco-group-plc/register-investor
Investors who already follow Nanoco Group Plc on the Investor
Meet Company platform will automatically be invited.
For further information, please contact:
Nanoco Group PLC :
Brian Tenner, CEO +44 (0) 161 603 7900
Liam Gray, CFO & Company Secretary
+44 (0) 161 603 7900
Peel Hunt (Joint Corporate Broker):
Paul Gillam
+44 (0) 20 7418 8900
James Smith
Turner Pope Investments (Joint Corporate Broker):
Andrew Thacker +44 (0) 20 3657 0050
James Pope
MHP Communications :
+44 (0) 203 128 8570
Reg Hoare
Pete Lambie
nanoco@mhpc.com
Notes for editors:
About Nanoco Group plc
Nanoco (LSE: NANO) harnesses the power of nano-materials.
Nano-materials are materials with dimensions typically in the range
1 - 100 nm. Nano-materials have a range of useful properties,
including optical and electronic. Quantum dots are a subclass of
nano-material that have size-dependent optical and electronic
properties. The Group produces quantum dots and other
nano-materials. Within the sphere of quantum dots, the Group
exploits different characteristics of the quantum dots to target
different performance criteria that are attractive to specific
markets or end-user applications such as the Display, Sensor and
Electronics markets. An interesting property of quantum dots is
their absorption spectrum. Nanoco's HEATWAVE(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
Steady delivery of critical, value enhancing milestones
Summary
-- Major contract extension agreed with important European
customer, underpinning scale-up and final production
validation.
-- Development agreement progressing with a major Asian chemical
company that supplies global electronics markets.
-- Continued expansion of our range of different materials,
customer engagements, and applications for sensing materials.
-- Growing expressions of interest in display materials
following validation of Nanoco IP by PTAB and global RoHS
developments.
-- Confidence in the merits of our case against Samsung for the
wilful infringement of the Group's IP in the USA further reinforced
by PTAB decision to confirm validity of all our patents; currently
awaiting a firm trial date.
-- Operations transferred successfully from Manchester to
Runcorn delivering net GBP0.7 million annualised savings from
CY23.
-- Over-subscribed equity issue of GBP5.4 million (net) secured
cash runway to CY25 - beyond the point when the Group expects to be
self-financing in its organic operations.
Strategy and business activity
This calendar year was always going to be a critical year for
Nanoco. Our challenge was to deliver key value inflection
milestones, in both the organic business and in the IP litigation
against Samsung. By the end of the financial year we had
successfully delivered in both areas.
The significant contract extension with our important European
electronics customer underpins final product validation in the
sensor market. It also provides new material research service
income in advance of potential commercial production orders. We aim
to have validated our materials and to have visibility of
commercial production from the customer around the end of H1
FY23.
We have continued to build on our success in expanding our range
of nanomaterials for use in sensing applications and to grow the
number of active engagements with customers. This incremental
approach to business development ensures that we balance the
Company's financial resources against the need to continue to
expand our product and customer reach.
Commercial success with materials in production will be the
ultimate test for the success or failure of the business in the
medium to long term. In the background, a small subset of the
Nanoco team has driven the Samsung litigation forward enabling the
commercial team to focus fully on the organic business.
Business performance
The organic business has enjoyed a number of notable successes
during the year. A new one-year contract with our important
European electronics customer creates a much more stable planning
and operating environment for the Nanoco team. We expect to
continue the expansion of our portfolio of materials and customers
focused around infra-red sensing as we expand our IP in this area.
We are also starting to see additional inbound enquiries for our
display materials as markets take notice of our IP victories at
PTAB.
The operations team completed a number of important change
projects during the year, not least of which were the exits from
the first and ground floors of our Manchester facility. We expect a
number of operational benefits from having the whole team in one
location as we look forward to visibility of our first commercial
production orders around the end of H1 FY23. The operational
benefits will be supplemented by just under GBP0.7 million of net
annualised cash savings once the exits are complete towards the end
of CY22.
The successful and significantly over-subscribed fundraise of
GBP5.4 million (net) in June 2022 creates a solid foundation for
the business by extending our cash runway out to CY25. This is
expected to be beyond the resolution of any PTAB appeals and also
potentially beyond the point when we expect the organic business to
become self-financing.
No dividend is proposed for the year (2021: none).
Samsung litigation
It was extremely gratifying earlier in the year when the Patent
Trial and Appeal Board ("PTAB") emphatically rejected all of
Samsung's objections to the 47 claims in the five patents in the
case. This is a clear vindication of the quality, strength and
value of Nanoco's IP portfolio, which is now attracting new
commercial interest from other market participants.
At the time of writing, we are still awaiting a firm date for
the Jury trial in Texas. It is important to emphasise that Samsung
is likely to appeal any verdict that favours Nanoco in this trial.
As a result, we do not expect a conclusion of the US litigation
until the appeals process is exhausted, which could take some
years. Samsung has already lodged notices that it intends to appeal
all of the PTAB findings, a process which is to be resolved over
the next twelve to eighteen months.
So, even if we are successful at trial there will still be much
work to be done before this matter is finally settled. Our resolve
remains strong to achieve fair value in this matter for all of our
stakeholders, whether through negotiated settlement or final
enforced judicial outcome.
We have also recently taken steps to defend our IP in Germany, a
major market for Samsung. Other venues for litigation are also
being evaluated. The costs of the legal process in Germany are
lower than the US, the speed of resolution is faster, and,
importantly, injunctions preventing the sale of infringing units
are more commonly granted. Our third party funding partner
continues to support all aspects of these lawsuits, including the
appeals processes.
Finally, the Board continues to review options for litigation
against other potentially infringing entities, including third
parties who may be purchasing infringing display units from
Samsung.
Governance and Board
This has been another busy year for the Board, with active
engagement from all members. Close monitoring of the IP litigation,
as well the operational aspects of the business, has kept Board
members busy. We have also pursued continuous improvement in our
governance processes.
Non-Executive Director salary deferrals remained in place
throughout the year as the Board continued to show leadership on
cash and cost control. Following the improved outlook for the
organic business and the successful fundraise in June 2022, it was
decided to cease the 35% deferral of NED salaries with effect from
1 July 2022.
During the year, we benefited from the services of Henry Turcan
as a Non-Executive Director, representing our largest shareholder,
Lombard Odier Asset Management ("LOAM"). His contribution and
perspectives on the capital markets in particular were immediately
valuable. After the year end, with the business on a much more
secure financial and commercial footing, Henry stepped down from
the Board and LOAM has chosen not to nominate a replacement NED at
this time.
Employees and shareholders
Our staff responded admirably to the welcome challenges of an
increasing workload across all aspects of the business. We continue
our efforts to provide staff with a supportive working environment
and have made special provision during the relocation from
Manchester to Runcorn. We are pleased that the vast majority of
staff agreed to make the transition from Manchester to Runcorn. We
have moved swiftly to ensure that the business is staffed
appropriately in the run-up to potential commercial production
orders in the near term.
Following a number of challenging years, we are pleased that we
have been able to award a Company-wide pay rise for the first time
since August 2019, whilst enhancing the overall Nanoco reward
package to retain and motivate our high calibre team.
The Board is very grateful for the hard work of our staff, who
have brought us to this exciting point in our evolution. Capturing
the short-term opportunities we see in front of us will secure not
just the Company's future but also the futures of our dedicated
Nanoco team, whilst becoming a significant success story for the
north west of England.
I would also like to thank our shareholders for their continuing
support. The successful fundraise emphasises the strength of
backing from existing and new shareholders. We hope to repay that
support with significant growth in shareholder value in the short
term that then endures for the long term.
I look forward to engaging with as many shareholders as possible
at our AGM to be held on 20 December 2022.
Outlook
We continue to develop our product offering and to deliver
technical milestones for our significant customers, as we move
towards commercial production in the short term. This is a critical
milestone in our aim to become a self-financing organic business
with a broad range of diversified customers and products.
We expect that our confidence in the merits of our case against
Samsung for infringement of our IP will be vindicated when the
trial takes place in Texas in the near term. While undoubtedly
there will be appeals and further delaying tactics deployed by
Samsung, we will be able to manage those with full confidence and
from a position of strength without ruling out our willingness to
entertain a fair value early settlement proposal from Samsung.
Our focus remains to build a self-sustaining organic business as
the best way to deliver enduring shareholder value. We will also
work to protect and realise any value that is delivered by a trial
verdict, and to ensure that it reflects not just the USA and the
past, but the rest of the world and the future lives of our
patents. Achieving both goals will deliver the Nanoco for which we
have been striving for many years and a significant increase in
value for all stakeholders.
Dr Christopher Richards
Chairman
20 October 2022
Chief Executive Officer's statement
Strong delivery of commercial, technical, operational and
litigation milestones
"Extending our cash runway beyond expected key litigation
milestones and potential production order visibility in H1 FY23 was
an important step. Both the organic business and the litigation
create potentially transformative changes in shareholder value in
the short to medium term."
This year has been all about delivery. We have delivered or
exceeded almost all of the targets we set at the start of the year.
We outperformed our revenue target for the year while doubling the
size of our opening order book for the coming FY23. We delivered
all of the challenging technical milestones set by our customers
for our high performing nanomaterials. We have almost completed the
consolidation of our Manchester R&D and scale up activities
into our Runcorn facility. This was accomplished despite a lower
headcount that required us to call up all of our bench strength to
ensure customer service was maintained while we made operational
changes to the business. These changes will bring long-term
operational benefits as well as welcome financial savings of around
GBP0.7 million (net) per annum from January 2023.
Last, but not least, we have moved confidently through the
various stages of the litigation against Samsung and cleared each
of the hurdles in front of us. The trial in Texas is anticipated
soon and we expect to build on all of the successful steps taken so
far to deliver a favourable outcome. Our team of witnesses, experts
and advisers remain ready for a trial at short notice.
Given Samsung's appeals in the IPRs and the expected appeal of
any verdict favourable to Nanoco, the litigation is still very
likely to have a long way to go. With a favourable outcome to the
trial, we will be able to approach the next steps from a position
of strength. Further facts, background information and possible
forward timelines can be found in the Annual Report and Accounts
when it is published.
The year finished with a significantly over-subscribed equity
issue and we took advantage of that appetite for investment by
issuing the maximum 5% equity allowed under our AGM resolutions.
Net proceeds of GBP5.4 million, combined with modest revenue growth
in FY23 and a low volume use case for commercial production orders
in H2 FY23, will fund the Group beyond the point at which we expect
the organic business to be self-financing.
Business performance
Electronics
We continued our on-time delivery of all development milestones
for our major European electronics customer. The new full year
contract that runs until the end of April 2023 covers the scale up
and final validation of two of our materials and also adds a third
novel material set to our R&D efforts. While at a less advanced
stage and at a smaller scale, promising progress continues to be
made with our major Asian chemical company customer. That
relationship has the potential to equal in scale the revenue
generation we earn today from the European customer. Both the
European and Asian customers participate in very large global
markets wherein final customer adoption of QD sensing technology
would lead to significant revenue for Nanoco. We also continued to
seek out new customer relationships throughout the year with
encouraging initial progress.
Success with sensing materials allowed us to turn an opening
order book of just under GBP1.0 million into a full year revenue
figure almost two and a half times higher at GBP2.5 million,
alongside delivering a closing order book double the opening
position. This larger closing order book gives a robust underpin to
revenue expectations for FY23.
Our offering of nanomaterials for use in sensing applications
has moved from a single customer/single product in early 2018 to a
position today where we are engaged with seven customers and are
working with twelve distinct materials/wavelength combinations.
Additionally, a number of materials are progressing as they move
from development towards final validation - the last step before
commercial production orders are placed.
The mega-trends seen in electronics, automation, automotive and
the Internet of Things more generally continue to be very
favourable, supporting our strategy of adding our nanomaterials to
silicon-based sensors to significantly enhance their performance
and overcome a number of current challenges faced by those
devices.
Given the scale of these sectors and the other market
participants, we will typically be part of an extensive supply
chain. This does mean that we are subject to events and decisions
outside of our control - as happened with the US customer in 2019 -
but it also means the potential is very high to deliver significant
value if our materials make it into commercial production.
As previously announced, already published customer product
launch plans suggest we should have good visibility of potential
commercial production around the end of calendar year 2022, though,
as always, the final decision to adopt the technology lies with the
customers of our customer and this cannot be taken for granted. Our
task is to ensure that our materials consistently perform as
required by our customer so that we are scaled up and ready for
those potential production orders.
Our small scale allows us to be much more agile and responsive
to our customers' needs than many other players in electronics
supply chains. The in-depth nature of our technological insight
also means that we do tend to "punch above our weight" in terms of
direct engagement even with very large end customers and their
technology teams. Conversely, our small scale does present
challenges for customers in terms of supply chain risks and we
therefore work proactively to agree commercial solutions to the
issue of supply chain security.
Display (CFQD(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 and inbound enquiries about display materials have
begun to grow again during the year. We believe this reflects a
combination of our success with our patents at PTAB, the continued
reduction in Samsung's market share in QD TV markets and associated
entrance of new participants, and the increasing profile of
Restriction of Hazardous Substances ("RoHS") and equivalent
regulations around the world that limit the use of cadmium thus
playing to our cadmium free offering. We have also seen increasing
interest in the use of quantum dots in LEDs for both lighting and
display applications.
We continue to seek out new relationships and a number of these
are moving forward at a small scale, having delivered a number of
small material samples to new customers during the year.
We are still awaiting the EU legislation to implement the final
decision to end the RoHS cadmium exemption for film-based displays.
This will provide fresh impetus to display panel manufacturers to
embrace the benefits of our CFQD(R) quantum dots. We note that a
number of OEMs are investigating environmentally friendly options
rather than waiting for the EU legislation. European markets
currently have sales of cadmium-based QD televisions and a move to
cadmium-free solutions will provide a helpful tailwind.
We retain our core capabilities to deliver display R&D
services, scale up and commercial production of material from our
Runcorn facility. We are therefore well positioned to take
advantage of any broadening in the adoption of non-toxic quantum
dots by global display manufacturers when the opportunity
arises.
A successful verdict in the litigation with Samsung will also
positively affect our ability to derive income from our
capabilities in display, whether in production, further robust
defence of our existing IP portfolio, or the future licensing of
our technology.
We will continue to adopt a dual approach to commercial
exploitation of our display materials. We are still ready to
license our technology to different channel partners but also
retain our own manufacturing capability.
Life Sciences
In November 2020, the Life Sciences team secured a grant from
Innovate UK, the UK's innovation agency, for a life sciences
project to develop a quantum dot testing kit for the accurate and
rapid visual detection of Covid-19. This project builds on Nanoco's
existing capabilities in utilising quantum dots conjugated with
antibodies as a diagnostic tool in the detection of cancer
(VIVODOTS(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 completed successfully and on time in May 2022 with
a working prototype. We also had time to assess the test against
other pathogens, clearly demonstrating the multiple use cases for
our VIVODOTS(R). We have now stood the team down following the move
to Runcorn and our residual efforts relate to identifying potential
exploitation avenues for the technology. Further progress and any
value implications are likely to require the engagement of a
partner organisation specialising in this field.
Operations
We completed the exit from the first floor of our Manchester
facility early in the second half of FY22. We then took the
decision to exit the ground floor and co-locate our entire suite of
operations into our Runcorn facility. The display facility in
Runcorn has been taken out of mothball and now hosts the R&D
teams as well as our production capability for CFQD(R) quantum
dots. The co-location will create a number of operational and team
benefits while also reducing our annualised installed cost base by
around GBP0.7 million (net) once decommissioning and dilapidations
are complete in Manchester towards the end of CY22.
Our resulting team now numbers approximately 36 operational
staff. We have delivered a striking reduction in our installed cash
cost base from over GBP12.0 million in FY19 to around GBP4.0
million for FY23 while retaining our core capabilities. We have
achieved this by focusing on our "dot only" strategy that plays to
our core quantum dot expertise.
We continue to cross train our flexible production team to be
able to operate both facilities to maximise our capability while
minimising costs in the short term, allowing us to maintain our
significant production revenue-generating capacity. In FY23,
following a successful pilot in FY22, we plan on rolling out
initial LEAN Six Sigma training ("LEAN") to every single member of
staff whether in R&D, scale up or production. The behavioural
and analytical benefits of LEAN will be a great boost for team
performance.
Responding to Covid-19
We remain vigilant in the aftermath of the Covid-19 pandemic. We
continue to emphasise good housekeeping practice such as hand
hygiene and self-testing if symptoms occur followed by staying home
if a test is positive. Many staff are able to work remotely if
required to isolate and a number regular mix working from the labs
and home with little impact on activity or effectiveness. We
encourage staff to attend the office as much as possible as the
working environment and relationships formed there are enhanced by
this interaction.
Intellectual property
We continue to proactively manage our IP portfolio to maximise
value and protect our core competencies. During the year, we
focused the Group's IP portfolio on to a core of 503 (2021: 559)
patents and patent applications with the most promising commercial
potential. This net reduction reflected 24 new applications and 80
that were eliminated in territories or potential applications no
longer felt worthwhile.
We continue to preserve trade secrets and have targeted our
financial resources on strategic areas such as infra-red sensing
where there is a strong overlap with our core IP. These are also
areas with clear future commercial opportunities and benefits to be
had from holding high quality patents.
Environment/Restriction of Hazardous Substances ("RoHS")
We reported last year that the European Commission ("EC") had
received recommendations that:
-- the exemption to allow cadmium (>100ppm) in QD films for
display is no longer justified and should be phased out by 31
October 2021; and
-- a new exemption is granted to allow cadmium-based quantum
dots applied directly onto LED chips for displays and high CRI
lighting for a period of five years.
Progress in implementing legislation to enforce this
recommendation has been slow. It therefore seems likely that
European consumers will continue to be exposed for some time to the
known hazards of cadmium in televisions that exceed the limits
shown above. Ahead of nations passing the required legislation, a
number of display manufacturers appear to be anticipating the
changes and Nanoco has received inbound enquiries in this
field.
People
Our employees continue to provide great service to our customers
in delivering high quality materials on time and achieving often
stretching milestones and deliverables. It is welcome that the vast
majority of staff have embraced the move to the Runcorn
facility.
Retaining and incentivising our highly skilled team are key to
delivering organic value from the business. We were therefore
pleased to be able to propose a very reasonable pay award for the
coming year. We also undertook a review of comparative salaries
against national benchmarks (excluding London). Following that
exercise, we were also able to offer structural pay rises for
almost a third of our highly skilled workforce to remove everyone
from the lower decile of comparator pay. Our goal for staff
(excluding Executives) is to be a median payer with upside
potential from our annual performance linked bonus scheme and
Company-wide participation in the same Long Term Incentive Plan
that the Directors enjoy.
Finally, reflecting staff feedback on their preferred benefits
in addition to basic salaries, we have now increased the Company
pension contributions to our medium-term target of 7.5%, an
increase of 1.5%. We will review other benefits options and further
potential improvements to pension contributions as our financial
situation improves and when the Company becomes self-financing in
its organic operations.
Outlook
We have created strong foundations for the Group to rebuild our
value proposition. We expect visibility of commercial production
orders for sensing materials around the end of H1 FY23. We also
expect to complete our preparations for production readiness in H1
FY23. In parallel we continue to expand our material offering to
other customers and other materials in sensing markets.
We have also seen growing interest in CFQD(R) quantum dots for
use in the display industry and are engaging cautiously with market
players other than Samsung which already participate in or are
seeking to enter the QD TV market. This extends to interest in Gen
2 QD displays as well as displays utilising LEDs.
The recent fundraise has allowed us to plan or make a small
number of tactical new hires in the business. These new hires range
from income-generating customer facing roles, to scale up and
production readiness roles, as well as front line and back office
support staff. These will allow us to gradually grow our top line
revenue and also position us for commercial production orders.
As ever, the main unknown is the actual timing and size of the
initial use case for sensing materials. However, the significant
investment by our customers in Nanoco materials and their own
production and marketing efforts, emphasise that it is more likely
to be a question of "when" and not "if". In any event, Nanoco has
the flexibility, capability and capacity to meet small or large
scale production orders in parallel with continued revenue
generation from R&D services.
Most of our team is primarily focused on our organic business.
However, a small group of staff is also focused on the Samsung
litigation and realising value from our IP portfolio. It is likely
that it will be some time before the financial benefits of any
favourable verdict are enjoyed by Nanoco. However, we will
continually seek to apply pressure to Samsung in various forms and
jurisdictions with a view to settlement before the final exhaustion
of every legal step. Our goal remains to deliver fair value that
reflects the global nature and remaining lives of our patents while
acknowledging there are risks for Nanoco in the continuing
litigation, not least of which is the time value of money.
We continue to adopt a conservative stance with regards to
future financial forecasts. We expect to achieve at least 20%
revenue growth in FY23 based on a stronger opening order book, an
increasing range of R&D services being offered to a broader
base of customers, and an assumed low volume use case for
commercial production orders commencing in H2 FY23. A larger or
earlier use case for sensing materials would clearly improve the
outlook. I remain confident that we can deliver value for all of
our stakeholders in the short to medium term with the potential for
additional transformative value in the Samsung litigation.
Brian Tenner
Chief Executive Officer
20 October 2022
Financial review
Creating a stable cost base from which to grow organically
Summary
-- Revenue and other operating income increased by 24% to GBP2.8 million (2021: GBP2.3 million).
-- Adjusted LBITDA has reduced to GBP2.1 million (2021: GBP2.8
million), reflecting the increase in revenue and operating income,
and the continued focus on reducing the cost base.
-- The consolidation of operations in Runcorn, and subsequent
closure of the Manchester site, has further reduced our cash cost
base.
-- Cash remains a key focus - the fundraising completed in the
year takes the cash runway out to CY25.
Revenue and other operating income increased by GBP0.5 million
to GBP2.8 million (2021: GBP2.3 million). The increase is due to
the ongoing contract with the European electronics customer and the
grant for the development of a Covid-19 diagnostic testing kit,
which was completed during the year.
Revenue from the sale of products and services rendered
accounted for 96% (2021: 95%) of revenues with the balance being
royalty and licence income. Revenue from services has increased
from GBP1.3 million to GBP1.5 million due to the continued work
with the European electronics customer. Revenue from the sale of
development products was GBP0.8 million (2021: GBP0.7 million).
Billings have increased by GBP1.0 million to GBP2.7 million
(2021: GBP1.7 million), which is in line with revenue.
Total operating expenses, excluding Share Based Payments ("SBP")
and associated costs, depreciation, amortisation and exceptional
items, reduced in the year by GBP0.8 million to a total of GBP4.5
million (2021: GBP5.4 million). This reduction was primarily due to
the fall in payroll costs to GBP2.6 million (2021: GBP3.3 million)
and other cost savings identified.
During the prior year, our headcount was decreased from c.46
full time employees to c.39 employees. In the current year, this
has fallen further to 36 employees. We have made these changes
whilst retaining full operational and commercial viability.
In March 2022, we exited the first floor of our Manchester
premises, and at year end, we were in the process of vacating the
ground floor, with the lease set to expire in November 2022. The
closure of the Manchester site, and consolidation into Runcorn,
will save c. GBP0.7 million (net) per year.
During the year, we completed an over-subscribed fundraise,
resulting in net proceeds of c. GBP5.4 million. This extended the
Group's cash runway to calendar year 2025, beyond the point when we
expect the Group's organic operations to be self-financing.
2022 2021
Highlights GBP million GBP million % change
---------------------------- ------------- -------------- ----------
Revenue 2.5 2.1 18%
Other operating income 0.4 0.2 97%
Adjusted operating loss (4.2) (4.6) (10%)
Adjusted LBITDA (2.1) (2.8) (26%)
Net loss (4.7) (4.4) (7%)
Loss per share (p) (1.52) (1.44) 6%
Billings 2.7 1.7 55%
Cash and cash equivalents 6.8 3.8 77%
---------------------------- ------------- -------------- ----------
Non-GAAP measures
The non-GAAP measures of adjusted operating loss and adjusted
loss before interest, tax, amortisation and share-based payment
charges ("LBITDA") are provided in order to give a clearer
understanding of the underlying loss for the year that reflects
cash outflow from the business. The calculation of both non-GAAP
measures is shown in the table below:
2022 2021
GBP million GBP million
----------------------- -------------- --------------
Operating loss (4.8) (5.0)
Share Based Payments 0.6 0.4
Employers NI on SBP 0.3 0.1
Depreciation 0.5 0.5
Amortisation(1) 1.3 1.2
Adjusted LBITDA (2.1) (2.8)
----------------------- -------------- --------------
1 Includes impairment of intangible assets.
The loss before tax was GBP5.2 million (2021: GBP5.1 million),
with the increase driven by non-cash SBP charges arising from the
growth in the share price and a first full year of accrued interest
on the loan notes issued in June 2021, offset by cost savings
during the year.
Taxation
The tax credit for the year was GBP0.5 million (2021: GBP0.7
million). The tax credit to be claimed, in respect of R&D
spend, is GBP0.5 million (2021: GBP0.7 million). Overseas
corporation tax was GBPnil during the year (2021: GBPnil). There
was no deferred tax credit or charge (2021: GBPnil).
In the financial year, the Company entered the patent box regime
retrospectively, which should provide an advantageous tax rate of
10% on revenues or litigation proceeds arising from the Group's IP
portfolio. At the year end, the Company had GBP40.5 million of
accumulated losses to offset against any potential future
profits.
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term
investments increased to GBP6.8 million (2021: GBP3.8 million). The
net cash outflow, excluding the benefits of the equity fundraise of
GBP5.4 million in June 2022 (net of costs), was GBP2.4 million
(2021: GBP4.4 million outflow). The decrease in cash outflows
reflects increased revenue, a reduction in the cost base and some
favourable movements in working capital compared to FY21, with a
reduction in deferred revenue year on year. Tax credits of GBP0.7
million (2021: GBP0.9 million) were received during the year.
Expenditure incurred in registering patents totalled GBP0.1
million (2021: GBP0.4 million), reflecting the Group's continued
focus on developing and registering intellectual property.
Capitalised patent spend is amortised over ten years in line with
the established Group accounting policy.
During the year, an impairment charge of GBP0.9m was posted
against the net book value of the Group's IP. This reflects the
continued rationalisation of the patent portfolio to ensure the
remaining patents are commercially viable in the short to medium
term.
Treasury activities and policies
The Group manages its cash deposits prudently. Cash deposits are
regularly reviewed by the Board and cash forecasts are updated
monthly to ensure that there is sufficient cash available for
foreseeable requirements.
More details on the Group's treasury policies will be provided
in the Annual Report and Accounts.
Credit risk
The Group only trades with recognised, creditworthy third
parties. Receivable balances are monitored on an ongoing basis and
any late payments are promptly investigated to ensure that the
Group's exposure to bad debts is not significant.
Foreign exchange management
The Group invoices most of its revenues in US Dollars. The Group
is therefore exposed to movements relative to Sterling. The Group
will use forward currency contracts to fix the exchange rate on
invoiced or confirmed foreign currency receipts should the amount
become significant and more predictable.
There were no open forward contracts as at 31 July 2022 (2021:
none). The Group's net profit and equity are exposed to movements
in the value of Sterling relative to the US Dollar. The indicative
impact of movements in the Sterling exchange rate on profits and
equity based on the retranslation of the closing balance sheet will
be summarised in note 27 to the Annual Report and Accounts, based
on the year-end position.
Brexit
The Board continues to monitor the ongoing developments.
Currently, the majority of the Group's revenues are for services
delivered in the UK with minimal Brexit impact. Going forward, the
Group expects a significant portion of its revenues from material
sales to be from non-UK countries where the Government either
already has or hopes to have in place equivalent trading
arrangements as existed prior to Brexit.
Although there were some logistical challenges on trade with EU
countries, this has largely been mitigated with little to no
ongoing disruption.
Going concern
The equity fundraising in June 2022 raised GBP5.4 million net of
costs. This extended the Group's cash runway to 2025. The Directors
have a reasonable expectation that the Group has access to adequate
resources to continue in operational existence for the foreseeable
future.
Accordingly, they continue to adopt the going concern basis in
preparing the consolidated financial statements and the Board
concluded that it is appropriate to utilise the going concern
assumption.
Covid-19 pandemic
The Group has completed detailed risk assessments and
implemented the resulting action plans and Government guidance to
create Covid-19 secure workplaces. We are able to meet customer
needs while working in a safe fashion. We do not currently expect
significant financial downsides though this is clearly dependent on
changes in regulations and the scale of any further lockdowns, both
in the UK and the wider world.
Macroeconomic factors
We continue to see inflationary pressures on raw materials. We
attempt to mitigate these by reviewing suppliers and achieving
volume breaks. In addition, with the ongoing cost of living crisis,
we are cognisant of the impact on our staff, and have implemented a
company-wide 6% inflationary wage increase from August 2022. We
will continue to review market conditions and assess the impact on
all stakeholders.
Summary
This year has been one of steady operational delivery and
consolidation of our cost base. The closure of the Manchester site
and relocation of operations to Runcorn, although producing some
challenges, provides the Group with a central base from which to
grow - one where R&D and production can operate in close
proximity and improved collaboration.
Work has progressed very well with our customers, and we
anticipate having visibility of commercial orders by the end of H1
FY23.
We are confident that the Group has a solid foundation from
which to grow, to provide value to shareholders in the medium
term.
Liam Gray
Chief Financial Officer
20 October 2022
Principal risks and uncertainties
In common with all businesses at Nanoco's stage of development,
the Group is exposed to a range of risks, some of which are not
wholly within our control or capable of complete mitigation or
protection through insurance.
Specifically, a number of the Group's products and potential
applications are at a research or development stage and hence it is
not possible to be certain that a particular project or product
will lead to a commercial application. Other products require
further development work to confirm a commercially viable
application.
Equally, a number of products are considered commercially viable
but have yet to see demand for full scale production. It is also
the case that the Group is often only one part of a long and
complex supply chain for new product applications. The Group
therefore has little visibility of demand other than from contracts
already in place. There are therefore a range of risks that are
associated with the different stages of product development as well
as for the Group as a whole.
Principal overarching risk
The principal overarching strategic risk faced by the business
is that the Group exhausts its available funding before achieving
adequate levels of commercial revenues and cash flows to be
self-funding.
This risk has been very significantly mitigated in the short
term by the recent equity fund raise which has extended the Group's
organic cash runway to CY25. This date is beyond a number of key
litigation milestones which could trigger a significant inflow of
funds to the Group.
More importantly, it is also beyond the point when the Group
aims to be self-funding in its organic business activities, subject
to final adoption of the technology by our customers and their end
customers. The Board now considers that a plausible downside
scenario no longer includes the risk or need for a major
restructuring in the short term. Instead, the plausible downside
scenario is based on delays in customer orders and a slower ramp-up
in demand once those orders begin.
Additional continuing principal risk in FY22 and FY23, first
identified in FY20
In February 2020, the Group initiated litigation against Samsung
for wilful infringement of its IP. In May 2022 the Patent Trial and
Appeal Board ("PTAB") confirmed the validity of all 47 of Nanoco's
claims in the five patents relevant to the lawsuit. The Company
expects a jury trial in Texas to be held in Q4 CY22 or shortly
after.
Samsung has lodged notices to appeal against the decision of the
PTAB and is likely to appeal against any trial verdict that favours
Nanoco once the judge's final written decision is published. The
Group therefore remains exposed to both positive and negative
aspects of the litigation.
Successfully overcoming the appeals by Samsung will crystallise
any contingent asset inherent in a favourable verdict, though the
value of that contingent asset may change. Conversely, if Samsung
is successful in its appeals, any contingent asset could become
worthless.
Both outcomes will have significant implications for the value
of the Group's IP portfolio, for potential licensing or royalty
income, and for the prospects regarding the sale of CFQD(R) quantum
dots. The implications could be significantly adverse or favourable
depending on the eventual resolution of the lawsuit.
The Board consider that the balance of risk and reward has swung
in Nanoco's favour but given the binary nature of a trial verdict
and the likely appeals processes, it is, as yet, by no means
certain that Nanoco will benefit from any contingent asset that
arises from a potentially favourable verdict and damages award.
In either outcome (successful or unsuccessful), the Board will
initiate a further review of the future strategy of the
business.
Other principal risks
Other risks are those set out in the prior year's Annual Report
and an update on their status will be included in the Annual Report
for the year ended 31 July 2022.
Directors' responsibility statement
In accordance with the FCA's Disclosure and Transparency Rules,
the Directors listed on the Company's website
(www.nanocotechnologies.com/about-us/board-directors) confirm, to
the best of their knowledge, that:
1. the unaudited Preliminary Results have been prepared in
accordance with IFRS as adopted by the European Union and give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Group and Company and the undertakings
included in the consolidation taken as a whole; and
2. the foregoing reviews and statements, include a fair review
of the development and performance of the business and the position
of the Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties faced by the Group.
By order of the Board
Brian Tenner
Chief Executive Officer
20 October 2022
Unaudited consolidated statement of comprehensive income
for the year ended 31 July 2022
2021
2022 Restated1
GBP'000 GBP'000
-------------------------------------- ---------- ------------
Revenue 2,467 2,091
Cost of sales (420) (343)(1)
-------------------------------------- ---------- ------------
Gross profit 2,047 1,748
Other operating income 361 183
Operating expenses
Research and development expenses (1,770) (2,150)
Administrative expenses (5,409) (4,790)1
-------------------------------------- ---------- ------------
Operating loss (4,771) (5,009)
-------------------------------------- ---------- ------------
- before share-based payments (4,152) (4,592)
- share-based payments (619) (417)
-------------------------------------- ---------- ------------
Finance income - -
Finance expense (450) (71)
-------------------------------------- ---------- ------------
Loss before taxation (5,221) (5,080)
Taxation 524 685
-------------------------------------- ---------- ------------
Loss after taxation (4,697) (4,395)
Other comprehensive income/(loss)
Gain on exchange rate translations - -
-------------------------------------- ---------- ------------
Total comprehensive loss for the year (4,697) (4,395)
-------------------------------------- ---------- ------------
Loss per share
Basic and diluted loss for the year (1.52)p (1.44)p
-------------------------------------- ---------- ------------
1 The comparative balances for Cost of Sales and Administrative
expenses have been restated for the year ended 31 July 2021. Refer
to note 2b of the accounting policies for more information.
The loss for the current and preceding year arises from the
Group's continuing operations and is attributable to the equity
holders of the Parent.
The basic and diluted loss per share are the same as the effect
of share options is anti-dilutive.
Unaudited consolidated statement of changes in equity
for the year ended 31 July 2022
Reverse Share-based
Share Share acquisition payment Merger Accumulated
capital premium reserve reserve reserve losses Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- ------------- ------------ --------- ------------ ---------
At 1 August 2020 30,570 117,292 (77,868) 3,901 (1,242) (65,623) 7,030
------------------------------ -------- -------- ------------- ------------ --------- ------------ ---------
Loss for the year - - - - - (4,395) (4,395)
Other comprehensive income - - - - - - -
----------------------------- -------- -------- ------------- ------------ --------- ------------ ---------
Total comprehensive loss - - - - - (4,395) (4,395)
Share-based payments - - - 417 - - 417
------------------------------ -------- -------- ------------- ------------ --------- ------------ ---------
At 31 July 2021 30,570 117,292 (77,868) 4,318 (1,242) (70,018) 3,052
------------------------------ -------- -------- ------------- ------------ --------- ------------ ---------
Loss for the year - - - - - (4,697) (4,697)
Other comprehensive income - - - - - - -
----------------------------- -------- -------- ------------- ------------ --------- ------------ ---------
Total comprehensive loss - - - - - (4,697) (4,697)
Issue of share capital
on placing 1,528 4,127 - - - - 5,655
Costs of share placing - (274) - - - - (274)
Issue of share capital
on exercise of options 146 - - (167) - - (21)
Share-based payments - - - 619 - - 619
------------------------------ -------- -------- ------------- ------------ --------- ------------ ---------
At 31 July 2022 32,244 121,145 (77,868) 4,770 (1,242) (74,715) 4,334
------------------------------ -------- -------- ------------- ------------ --------- ------------ ---------
Unaudited Group and Company statements of financial position
at 31 July 2022
Registered no. 05067291
31 July 31 July 31 July 31 July
2022 2022 2021 2021
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- --------- -------- ---------
Assets
Non-current assets
Tangible fixed assets 98 - 199 -
Right of use assets 56 - 340 -
Intangible assets 1,616 - 2,858 -
Investment in subsidiaries - 40,747 - 40,128
----------------------------- -------- --------- -------- ---------
1,770 40,747 3,397 40,128
---------------------------- -------- --------- -------- ---------
Current assets
Inventories 174 - 110 -
Trade and other receivables 1,518 29 1,227 -
Income tax asset 524 - 686 -
Cash and cash equivalents 6,762 5,497 3,813 1
----------------------------- -------- --------- -------- ---------
8,978 5,526 5,836 1
---------------------------- -------- --------- -------- ---------
Total assets 10,748 46,273 9,233 40,129
----------------------------- -------- --------- -------- ---------
Liabilities
Current liabilities
Trade and other payables (1,510) (638) (1,617) (80)
Lease liabilities (153) - (545) -
Provisions (172) - - -
Deferred revenue (560) - (253) -
----------------------------- -------- --------- -------- ---------
(2,395) (638) (2,415) (80)
---------------------------- -------- --------- -------- ---------
Non-current liabilities
Financial liabilities (3,919) (3,392) (3,487) (3,445)
Lease liabilities (16) - (133) -
Provisions (40) - - -
Deferred revenue (44) - (146) -
----------------------------- -------- --------- -------- ---------
(4,019) (3,392) (3,766) (3,445)
---------------------------- -------- --------- -------- ---------
Total liabilities (6,414) (4,030) (6,181) (3,525)
----------------------------- -------- --------- -------- ---------
Net assets 4,334 42,243 3,052 36,604
----------------------------- -------- --------- -------- ---------
Capital and reserves
Share capital 32,244 32,244 30,570 30,570
Share premium 121,145 121,145 117,292 117,292
Reverse acquisition reserve (77,868) - (77,868) -
Share-based payment reserve 4,770 4,770 4,318 4,318
Merger reserve (1,242) - (1,242) -
Capital redemption reserve - 4,402 - 4,402
Accumulated losses (74,715) (120,318) (70,018) (119,978)
----------------------------- -------- --------- -------- ---------
Total equity 4,334 42,243 3,052 36,604
----------------------------- -------- --------- -------- ---------
The Parent Company's result for the year ended 31 July 2022 was
a loss of GBP340,000 (2021: loss of GBP6,516,000). There was no
other comprehensive income in either the current or prior year.
The unaudited financial statements were approved by the Board of
Directors on 20 October 2022 and signed on its behalf by:
Dr Christopher Richards Brian Tenner
Chairman Director
20 October 2022 20 October 2022
Unaudited Group and Company cash flow statements
for the year ended 31 July 2022
31 July 31 July 31 July 31 July
2022 2022 2021 2021
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ -------- -------- -------- --------
Loss before tax (5,221) (340) (5,080) (6,516)
Adjustments for:
Net finance expense 450 396 71 6
(Profit)/loss on exchange rate
translations (211) 19 17 2
Depreciation of tangible fixed
assets 105 - 99 -
Depreciation of right of use
assets 366 - 408 -
Amortisation of intangible assets 498 - 618 -
Impairment of intangible assets 858 - 623 -
Share-based payments 619 - 417 -
Gain on disposal of tangible
fixed assets (36) - (48) -
Changes in working capital:
(Increase)/decrease in inventories (62) - 30 -
(Increase) in trade and other
receivables (141) (58) (209) -
Increase/(decrease) in trade
and other payables (105) 98 (757) 80
Decrease in provisions 212 - - -
Decrease/(Increase) in deferred
revenue 205 - (453) -
------------------------------------- -------- -------- -------- --------
Cash outflow from operating
activities (2,463) 115 (4,264) (6,428)
Research and development tax
credit received 686 - 908 -
------------------------------------- -------- -------- -------- --------
Net cash outflow from operating
activities (1,777) 115 (3,356) (6,428)
------------------------------------- -------- -------- -------- --------
Cash flow from investing activities
Purchases of tangible fixed
assets (4) - (35) -
Purchases of intangible fixed
assets (114) - (357) -
Proceeds from sale of tangible
fixed assets 36 - 48 -
Interest received - - - -
------------------------------------ -------- -------- -------- --------
Net cash outflow from investing
activities (82) - (344) -
------------------------------------- -------- -------- -------- --------
Cash flow from financing activities
Proceeds from placing of ordinary
share capital 5,655 5,655 - -
Proceeds from issue of loan
notes - - 3,150 3,150
Costs of financing/placing (274) (274) (161) (161)
Payment of lease liabilities
(capital) (506) - (642) -
Payment of lease liabilities
(interest) (83) - (30) -
Interest paid (3) - (4) -
------------------------------------- -------- -------- -------- --------
Net cash inflow from financing
activities 4,789 5,381 2,313 2,989
------------------------------------- -------- -------- -------- --------
Increase/(decrease) in cash
and cash equivalents 2,930 5,496 (1,387) (3,439)
Cash and cash equivalents at
the start of the year 3,813 1 5,170 3,440
Effects of exchange rate changes 19 - 30 -
------------------------------------- -------- -------- -------- --------
Cash and cash equivalents at
the end of the year 6,762 5,497 3,813 1
------------------------------------- -------- -------- -------- --------
Notes to the financial statements
1. Reporting entity
Nanoco Group plc (the "Company"), a public company limited by
shares, is on the premium list of the London Stock Exchange. The
Company is incorporated and domiciled in England, UK. The
registered number is 05067291 and the address of its registered
office is Science Centre, The Heath Business and Technical Park,
Runcorn, WA7 4QX. The Company is registered in England.
These Group unaudited preliminary results consolidate those of
the Company and its subsidiaries (together referred to as the
"Group" and individually as "Group entities") for the year ended 31
July 2022.
The information set out below has been extracted from the
Group's draft report and accounts for the year ended 31 July 2022
and has not been audited. The Group expects to publish its audited
annual report and accounts on 24 October 2022, which will be sent
to Shareholders and available to view on the Company's website at
www.nanocotechnologies.com. A further announcement will be made
once published. No material amendments to the disclosures contained
within this announcement are expected within the audited financial
statements.
The unaudited preliminary results of Nanoco Group plc and its
subsidiaries for the year ended 31 July 2022 were authorised for
issue by the Board of Directors on 20 October 2022 and the
unaudited statements of financial position were signed on the
Board's behalf by Dr Christopher Richards and Brian Tenner.
The unaudited preliminary results do not constitute statutory
financial statements within the meaning of section 435 of the
Companies Act 2006. A copy of the statutory financial statements
for the year ended 31 July 2021 has been delivered to the Registrar
of Companies. There were no statements under section 498(2) or
section 498(3) of the Companies Act 2006.
The statutory financial statements for the year ended 31 July
2022 will be delivered to the registrar of companies as soon as
practicable.
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present the Parent Company's
income statement.
The significant accounting policies adopted by the Group are set
out in note 3.
2. Basis of preparation
(a) Statement of compliance
The Group's and Parent Company's unaudited financial statements
have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and UK adopted IFRSs as issued by the International Accounting
Standards Board for the year ended 31 July 2022.
(b) Basis of measurement
The Parent Company and Group unaudited financial statements have
been prepared on the historical cost basis, except for the
revaluation of financial assets classified as "fair value through
other comprehensive income" or "fair value through profit or loss",
which are reported in accordance with the accounting policies
below.
In order to more fairly represent the cost of sales of the Group
we have reclassified certain costs from administrative expenses to
cost of sales for the comparative period. Total impact of the
reclassification is an increase to cost of sales of GBP124,000
(2021: GBP134,000). There is no impact on reported loss or net
assets of this reclassification.
(c) Going concern
All of the following matters are taken into account by the
Directors in forming their assessment of going concern. The Group's
business activities and market conditions, the principal risks and
uncertainties, the Group's financial position and the Group's
financial risk management objectives, policies and processes. The
Group funds its day-to-day cash requirements from existing cash
reserves.
For the purposes of their going concern assessment and the basis
for the preparation of the financial statements, the Directors have
reviewed the same trading and cash flow forecasts and sensitivity
analyses that were used by the Group in the viability assessment,
which cover the period to October 2024, a period of two years from
the date of approval of the Annual Report and these financial
statements. The same base case and downside (severe but plausible)
sensitivities were also used.
The base case represents the Board's current expectations.
Assumptions in the base case are:
-- minimal sales of nanomaterials beyond current contracts -
commercial services contracts are based on the existing pipeline of
opportunities or agreements already in place;
-- modest demand for commercial production materials in CY2023 with a subsequent slow ramp-up;
-- a further extension to the services and supply contract with
the European electronics customer;
-- no revenue is assumed from other business lines though some
small scale commercial deals are currently under discussion;
-- consolidation of activities on one site in Runcorn to reduce
costs with modest staff increases in key areas;
-- small expansion of our self- funded research activities and
continued maintenance costs to support our IP portfolio;
-- loan notes are repaid as they fall due in June 2024 through
either an equity fundraise or improved commercial
opportunities;
-- Board, plc and other costs reflect the current inflationary environment;
-- the Group remains a going concern and hence eligible for R&D tax credits; and
-- the installed cost base is capable of supporting significant
increases in revenue above those assumed in the base case so there
is no immediate requirement for short-term increases or new capital
expenditure.
The downside case then flexes those assumptions as follows:
-- a full year delay in small scale commercial production revenues (into CY24); and
-- no new business from other customers once existing active engagements end.
The extreme downside case then flexes those assumptions further
as follows:
-- the engagement with the European electronics customer comes
to an end without any commercial production;
-- no revenues other than those already contracted; and
-- the Group contracts to become an IP shell to protect the value in the Samsung lawsuit.
All three cases above produce cash flow statements that
demonstrate that the Group has sufficient cash throughout the
period of the forecast to October 2024, which is much longer than
the twelve months requirement for a favourable going concern
conclusion. Considering the current financial resources and monthly
cash costs of the Group, with potential for further mitigating
action as noted above, and after making appropriate enquiries, the
Directors have a reasonable expectation that the Group has access
to adequate resources to continue in operational existence for the
foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the consolidated financial statements. The financial
statements do not reflect any adjustments that would be required to
be made if they were prepared on a basis other than the going
concern basis.
(d) Functional and presentational currency
These financial statements are presented in Pounds Sterling,
which is the presentational currency of the Group and the
functional currency of the Company. All financial information
presented has been rounded to the nearest thousand.
(e) Use of estimates and judgements
The preparation of financial statements requires management to
make estimates and judgements that affect the amounts reported for
assets and liabilities as at the reporting date and the amounts
reported for revenues and expenses during the year. The nature of
estimation means that actual amounts could differ from those
estimates. Estimates and judgements used in the preparation of the
financial statements are continually reviewed and revised as
necessary. While every effort is made to ensure that such estimates
and judgements are reasonable, by their nature they are uncertain
and, as such, changes in estimates and judgements may have a
material impact on the financial statements.
In the process of applying the Group's accounting policies,
management has made the following estimates and judgements, which
have the most significant effect on the amounts recognised in the
consolidated financial statements.
Estimates
Equity-settled share-based payments
The Group has historically issued LTIPs to incentivise
employees. The determination of share-based payment costs requires:
the selection of an appropriate valuation method; consideration as
to the inputs necessary for the valuation model chosen; and
judgement regarding when and if performance conditions will be met.
Inputs required for this arise from judgements relating to the
future volatility of the share price of Nanoco and comparable
companies, the Company's expected dividend yields, risk-free
interest rates and expected lives of the options. The Directors
draw on a variety of sources to aid in the determination of the
appropriate data to use in such calculations. The share-based
payment expense is most sensitive to vesting assumptions and to the
future volatility of the future share price factor.
Judgements
Impairment of investment and inter-company receivable
Judgement is required to assess the carrying value of the
Company investment and inter-company receivable at each reporting
date.
Accounting standards (IAS 36 Impairment of Assets) require
investments in subsidiary undertakings (equity and loans) to be
carried at the lower of cost or recoverable value. Recoverable
value is defined as the higher of fair value less costs of disposal
(effectively net sale proceeds) and value in use. Indicators of
potential impairment noted in IAS 36 (paragraph 12) include, but
are not limited to, situations where the carrying amount of the net
assets of the entity is more than its market value and where
significant changes with an adverse effect on the entity have taken
place during the year.
The Directors consider the fair value of the Group to be market
value (calculated as market capitalisation at year end) less costs
to sell. Given the main trading entity is Nanoco Technologies
Limited (owned by Nanoco Tech Limited), this holds the majority of
the value. As the Group market value was in excess of the book
value, no further impairment is proposed.
In line with IFRS 9, the Group and Company assesses on a
forward-looking basis the expected credit losses ("ECLs")
associated with its debt instruments carried at amortised cost. The
Group applies the IFRS 9 simplified approach in calculating ECLs.
Therefore, the Group does not track changes in credit risk, but
instead recognises a loss allowance based on lifetime ECLs at each
reporting date.
Revenue recognition
Judgement is required in reviewing the terms of development
agreements to identify separate components of revenue, if any, that
are consistent with the economic substance of the agreement and in
turn the period over which development revenue should be
recognised. Judgements are required to assess the stage of
completion including, as appropriate, whether and when contractual
milestones have been achieved. Management judgements are similarly
required to determine whether services or rights under licence
agreements have been delivered so as to enable licence revenue to
be recognised. This matter is further complicated where a contract
may have different elements which may result in separate
recognition treatments under IFRS 15.
Impairment of intellectual property
As the Group has not made a profit to date, the carrying value
of these assets may need to be impaired. Impairment exists where
the carrying value of an asset exceeds its recoverable amount,
which is the higher of its fair value less costs of disposal and
its potential value in use. The value in use calculation uses
market assumptions and the potential share the Nanoco technology
could unlock. The Directors also use available information to
assess whether the fair value less costs of disposal of the Group's
non-current assets, including intellectual property, is less than
their carrying amount. Furthermore, during the year another
extensive review was undertaken to identify which patents are
uncertain to be of value to Nanoco and should be allowed to lapse.
As a consequence, patents with a value of GBP0.9 million (2021:
GBP0.6 million) have been fully impaired in these financial
statements. Judgements are based on the information available at
each reporting date, which includes the progress with testing and
certification and progress on, for example, establishment of
commercial arrangements with third parties. The Group does not
believe that any of its patents in isolation are material to the
business. Management has adopted the prudent approach of amortising
patent registration costs over a ten-year period, which is
substantially shorter than the life of the patent. For external
patents acquired the same rule is adopted unless the remaining life
of the patent is shorter, in which event the cost of acquisition is
amortised over the remaining life of the patent.
Research and development
Careful judgement by the Directors is applied when deciding
whether the recognition requirements for development costs have
been met. This is necessary as the economic success of any product
development is uncertain until such time as technical viability has
been proven and commercial supply agreements are likely to be
achieved. Judgements are based on the information available at each
reporting date which includes the progress with testing and
certification and progress on, for example, establishment of
commercial arrangements with third parties. In addition, all
internal activities related to research and development of new
products are continuously monitored by the Directors. Further
information is included in note 3 of the financial statements.
3. Significant accounting policies
The accounting policies set out below are consistent with those
of the previous financial year and are applied consistently by
Group entities.
(a) Basis of consolidation
The unaudited Group financial statements consolidate the
financial statements of Nanoco Group plc and the entities it
controls (its subsidiaries) drawn up to 31 July each year.
Subsidiaries are all entities over which the Group has the power
over the investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee),
exposure, or rights, to variable returns from its involvement with
the investee and ability to use its power over the investee to
affect its returns. All of Nanoco Group plc's subsidiaries are 100%
owned. Subsidiaries are fully consolidated from the date control
passes.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group. The costs of an
acquisition are measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
initially measured at fair value at acquisition date irrespective
of the extent of any minority interest. The difference between the
cost of acquisition of shares in subsidiaries and the fair value of
the identifiable net assets acquired is capitalised as goodwill and
reviewed annually for impairment. Any deficiency in the cost of
acquisition below the fair value of identifiable net assets
acquired (i.e. discount on acquisition) is recognised directly in
the consolidated statement of comprehensive income.
In the unaudited consolidated financial statements, the assets
and liabilities of the foreign operations are translated into
Sterling at the exchange rate prevailing at the reporting date.
Income and cash flow statement items for Group entities with a
functional currency other than Sterling are translated into
Sterling at monthly average exchange rates, which approximate to
the actual rates, for the relevant accounting periods. The exchange
differences arising on translation are recognised in other
comprehensive income. See note 3(b) of the financial
statements.
All intra-group transactions, balances and unrealised gains on
transactions between Group companies are eliminated on
consolidation. Subsidiaries' accounting policies are amended where
necessary to ensure consistency with the policies adopted by the
Group.
(b) New accounting standards and interpretations
The following standards have been issued but have not been
applied by the Group in these financial statements. These
amendments to standards and interpretations had no significant
impact on the financial statements:
-- IFRS amendments effective from 1 January 2022 (UK adopted and EU endorsed)
-- IAS 16 Amendment: Property, Plant and Equipment: Proceeds Before Intended Use
-- IAS 37 Amendment: Onerous Contracts: Cost of Fulfilling a Contract
-- IFRS 3 Amendment: Reference to the Conceptual Framework
-- Annual Improvements Cycle 2018 to 2020 FRS 101 amendments effective from 1 January 2022:
-- FRS 101 Amendment: 2020/21 Cycle - Disclosure Exemption from IAS 16
The following standards and amendments to standards have been
issued but are not effective for the financial
year beginning 1 August 2021 and have not been early adopted:
-- IFRS standards effective from 1 January 2023 (EU endorsed and UK adopted)
-- IFRS 17 Insurance Contracts and IFRS 17 Amendment: Amendments
to IFRS 17 IFRS standards effective from 1 January 2023 (EU
endorsed, not UK adopted)
-- IAS 1 Amendment: Disclosure of Accounting Policies
-- IAS 8 Amendment: Definition of Accounting Estimates
-- IFRS standards effective from 1 January 2023 (not UK adopted, nor EU endorsed)
-- IAS 1 Amendment: Classification of Liabilities as Current or Non-current
-- IAS 12 Amendment: Deferred Tax Related to Assets and
Liabilities Arising from a Single Transaction
-- IFRS 17 Amendment: Initial Application of IFRS 17 and IFRS 9
- Comparative Information FRS 101 amendments effective from 1
January 2023:
-- FRS 101 Reduced Disclosure Framework: Prohibiting Insurers to
Apply FRS 101 when IFRS 17 Becomes Effective
The amendments to standards and interpretations noted above are
expected to have no significant impact on the financial
statements.
4. Segmental information
Operating segments
At 31 July 2022 and 2021 the Group operated as one segment,
being the research, development and manufacture of products and
services based on high performance nanoparticles. This is the level
at which operating results are reviewed by the chief operating
decision maker (i.e. the Board) to make decisions about resources,
and for which financial information is available. All revenues have
been generated from continuing operations and are from external
customers.
31 July 31 July
2022 2021
GBP'000 GBP'000
------------------------- ------------------- ----------
Analysis of revenue
Products sold 782 685
Rendering of services 1,582 1,303
Royalties and licences 103 103
------------------------- ------------------- ----------
2,467 2,091
------------------------- ------------------- ----------
There was one material customer who generated revenue of
GBP2,089,000 (2021: one material customer amounting to
GBP1,590,000).
The Group operates in four main geographic areas, although all
are managed in the UK. The Group's revenue per market based on the
customer's location is as follows:
31 July 31 July
2022 2021
GBP'000 GBP'000
--------------- ---------- ----------
Revenue
Holland 1,474 1,031
Taiwan 351 291
France 348 372
Japan 244 80
USA 27 20
Canada 19 15
Singapore 3 -
UK 1 27
Saudi Arabia - 255
--------------- ---------- ----------
2,467 2,091
--------------- ---------- ----------
All of the Group's assets are held in the UK and all of its
capital expenditure arises in the UK. The loss before taxation and
attributable to the single segment was GBP5,221,000 (2021:
GBP5,080,000).
5. Earnings per share
31 July 31 July
2022 2021
Group GBP'000 GBP'000
------------------------------------------------- ------------- -------------
Loss for the financial year attributable to
equity shareholders (4,697) (4,395)
Share-based payments 619 417
------------------------------------------------- ------------- -------------
Loss for the financial year before share-based
payments (4,078) (3,978)
------------------------------------------------- ------------- -------------
Weighted average number of shares
Ordinary shares in issue 308,610,928 305,699,102
------------------------------------------------- ------------- -------------
Adjusted loss per share before share-based
payments (pence) (1.32) (1.30)
------------------------------------------------- ------------- -------------
Basic loss per share (pence) (1.52) (1.44)
------------------------------------------------- ------------- -------------
Diluted loss per share has not been presented above as the
effect of share options issued is anti-dilutive.
== Ends ==
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END
FR BIBDGGUBDGDC
(END) Dow Jones Newswires
October 20, 2022 02:00 ET (06:00 GMT)
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