TIDMNANO
RNS Number : 8549B
Nanoco Group PLC
13 October 2020
For Immediate Release 13 October 2020
NANOCO GROUP PLC
( " Nanoco", the " Group ", or the " Company")
Preliminary Results for the year ended 31 July 2020
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
2020.
Operational highlights
-- New contracts with ST Microelectronics to develop novel
materials for infra-red sensing and other customers for display
applications
-- Business restructured to focus resources and reduce monthly cash costs by 50%
-- Commenced legal action against Samsung for the alleged wilful infringement of the Group's IP
-- Secured substantial Litigation Funding Agreement with third party for Samsung lawsuit
-- Over-subscribed equity fundraise that facilitated participation from retail investors
Financial highlights
-- Cash runway extended to December 2022, providing opportunity to re-build organic value
-- Adjusted operating loss reduced despite 46% reduction in revenue
-- Cash of GBP5.2 million at year end with net monthly burn rate reduced to c. GBP0.3 million
Dr Christopher Richards, Nanoco's Chairman, commented on the
results:
"This has been a year of substantial change for Nanoco. We
finished the year with new leadership and a more focused team,
poised to win new business in our core target sectors. This new
focus was strongly endorsed by our shareholders, who supported the
raising of GBP3.4 million in new equity.
"As we closed the year, a number of small but significant
commercial wins were added to our existing agreements with ST
Microelectronics ("ST Micro"), including new applications in the
sensing and display sectors, to give GBP1.0 million of contracted
revenues for FY21.
"The launch of litigation proceedings against Samsung was an
important step to protect our IP. The funding we subsequently
achieved for that litigation is both critical to facilitating a
successful outcome while also being a strong third party
endorsement of the strength of our case.
"We have taken decisive action to reduce our cost base, starting
by reducing the cost of the Board, while retaining our key
operational capabilities. In combination with the equity fundraise,
the actions we have taken have significantly extended the cash
runway for the Group to December 2022. This creates significant
optionality for shareholders, whether in re-building the organic
value of the business or in the Samsung lawsuit."
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 9:00am
on 13 October 2020:
https://webcasting.brrmedia.co.uk/broadcast/5f745915c4d0076f2b939da0
A recording of the webcast will also be made available on
Nanoco's website, www.nanocogroup.com, later today.
For further information, please contact:
Nanoco Tel: +44 (0) 161 603 7900
Brian Tenner, Chief Executive Officer
Caroline Watson, Investor Relations Tel: + 44 (0) 7799 897357
Manager
cwatson@nanocotechnologies.com
Peel Hunt Tel: +44 (0) 20 7418 8900
Edward Knight / Nick Prowting
MHP Communications Tel: +44 (0) 20 3128 8570
Reg Hoare / Giles Robinson / 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.
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 substantial change for Nanoco. We
finished the year with new leadership and a more focused team,
poised to win new business in our core target sectors. This new
focus was strongly endorsed by our shareholders, who supported the
raising of GBP3.4 million in new equity.
As we closed the year, a number of small but significant
commercial wins were added to our existing agreements with ST
Microelectronics ("ST Micro"), including new applications in the
sensing and display sectors, to give GBP1.0 million of contracted
revenues for FY21.
We successfully completed the final deliverables for the US
Customer in December 2019. While it was disappointing that the
contract was not extended, we developed new materials and a new
production facility that we will leverage in future
opportunities.
The launch of litigation proceedings against Samsung was an
important step to protect our IP. The funding we subsequently
achieved for that litigation is both critical to facilitating a
successful outcome while being a strong third party endorsement of
the strength of our case.
We have taken decisive action to reduce our cost base, starting
by reducing the cost of the Board, while retaining our key
operational capabilities. In combination with the equity fundraise,
the actions we have taken have significantly extended the cash
runway for the Group to December 2022. This creates significant
optionality for shareholders, whether in re-building the organic
value of the business or in the Samsung lawsuit.
Strategy and business activity
Nanoco's platform technology remains our key strategic focus
(our "dot only" strategy). Following a strategic review, we decided
to focus on a limited number of opportunities where our core
capabilities give us the largest competitive edge.
We are therefore prioritising sensing and display applications
with short-term commercial prospects. We are also exploiting the
assets we generated during the relationship with the US Customer in
the electronics industry. Our new five-year agreement with ST Micro
creates multiple routes to leverage value from those assets and
know-how.
By using the outstanding skills of our technical teams, we
continue to move deeper into the sensing and display fields where
our nanomaterials can offer real competitive advantage.
We continue to explore alternative partnership arrangements with
various parties to increase channels to market and penetration in
certain strategic territories. Engagement also continues with
existing and former licence partners.
Samsung litigation
Extensive efforts over the previous 12 months led to the Group
filing a lawsuit on 14 February 2020 against Samsung for what we
allege to be wilful infringement of our IP in a number of key
areas. This was a necessary step to protect our core IP assets.
Having worked collaboratively with Samsung on a number of key areas
for many years it was disappointing that no commercial licence or
supply agreement followed. We have established a new sub-committee
of the Board to manage the litigation process.
We also successfully secured third party funding for the
lawsuit. This will protect the Group's financial resources and
entitles the funder to a return only in the event of a successful
outcome to the suit. Given the potential scale of a successful
outcome, it was critical to ensure that the Group has adequate
funding for its own activities while the suit is ongoing. This has
now been achieved with the over-subscribed equity fundraise giving
the Group a cash runway that currently extends to December
2022.
Covid-19 and financial performance
The Board responded promptly to the Covid-19 pandemic, leading
the way with reductions in Director salaries which were followed by
Company-wide temporary pay reductions and the adoption of the
Government Job Retention Scheme. At its peak, the Group saw
approximately two-thirds of its staff on furlough with staff in
work limited to those on customer driven activities. The Board
would like to thank our dedicated staff for their exceptional
efforts in maintaining customer service during this challenging
time.
Effective and prompt management action was taken to manage our
costs tightly. Our monthly gross cash costs are stabilising at
around GBP0.4 million per month. The cash burn rate then reduces
further with the benefit of revenues and R&D tax credits to
GBP0.3 million per month.
It was a major achievement by the end of the year to be able to
extend our cash runway to December 2022, particularly when our
preliminary results in October 2019 indicated a cash runway that
only extended to July 2020. Any new business wins will enhance this
further.
No dividend is proposed for the year (2019: none).
Governance and Board
After extensive Board discussions and engagement with major
shareholders, in line with the reductions in the scale of our
operations, we decided to reduce the size and cost of the Board.
Once the announced changes are complete, the cost of the Board will
be broadly half its previous level.
Following the successful completion of the equity fundraising in
July 2020, Michael Edelman stepped down from the Board and as CEO
with effect from 1 September 2020. Michael remains available to the
Group in his role as Special Adviser to the Litigation
Sub-Committee, and on behalf of the Board and all of our staff, I
would like to take this opportunity to thank Michael for his many
years of service to the Group. Nigel Picketts' notice as CTO was
served in March 2020 and is due to expire in March 2021. Nigel
remains fully engaged with the business and the Board will review
his position in the months ahead.
In 2018, we combined the executive roles of COO and CFO and
appointed Brian Tenner to that post. The aim was to provide
enhanced and visible leadership to our business operations and
support functions in the UK. Reflecting the positive impact he has
made on all aspects of the business since his appointment, the
Board was pleased to implement its succession plans and appoint
Brian as CEO on 1 September 2020.
Supporting Brian and Nigel in the business we have a highly
experienced and capable Leadership team with Kevin Smith
responsible for production operations, Liam Gray for finance and a
number of other supporting functions, and Joss Little as HR
Business Partner. The Group also has an extremely talented senior
management team and has retained a highly skilled and adaptable
workforce with the skills and experience needed to drive the
business forward.
Continuing with the succession plan, Liam Gray has been
appointed as UK Finance Director and Company Secretary and will
attend Board meetings in those capacities. The Board will consider
other changes to the Executive team and other management as
activity levels and resources require.
Looking forward, the Board will continue to pursue the highest
standards of corporate governance for the benefit of all
stakeholders while operating in a more focused and less costly
way.
Formal Sales Process
We commenced a Formal Sales Process in November 2019 to reflect
our view that the Group's value would be best protected and
exploited in the longer-term by being part of a larger Group. After
a number of expressions of interest and detailed due diligence
activity, progress slowed as the effects of the Covid-19 pandemic
made themselves felt around the world.
We therefore decided to terminate the Formal Sales Process in
April 2020 to allow us to focus on reshaping the business as set
out above.
Employees and shareholders
Our staff have again demonstrated great commitment in a
challenging year. The team continues to deliver great service,
innovative ideas and practical solutions to our customers.
Unfortunately, a number of staff had to leave the business
during the year and shortly after the year end as we work to
balance our financial resources, activity levels, ongoing customer
contracts and cash runway.
We wish all of those former members of staff well in their
future endeavours.
As we look forward, it is the continuing dedication and
professionalism of our highly skilled team that will create new and
enhanced value for all stakeholders. The Board is grateful for its
continuing contributions and commitment.
I would also like to thank our shareholders for their continuing
support and in particular their confidence in our future as shown
in the over subscription for our equity fundraise in July 2020. It
was a key objective to allow our loyal retail investors to
participate in the fundraise and it was gratifying to see so many
take the opportunity to continue to support the Group. I look
forward to speaking to as many as possible at our AGM to be held
via video conferencing on 3(rd) December 2020.
Outlook
The Group has delivered a number of notable successes in a year
that started inauspiciously with the decision by the US Customer
not to sign a new contract when the current one ended in December
2019. The challenges were exacerbated by running a Formal Sales
Process in parallel with normal business activities, followed by
the onset of the Covid-19 pandemic. These combined challenges would
have been formidable for any business and I am proud of how the
small Nanoco team responded. I would particularly like to thank the
Non-Executive Directors who selflessly gave very significant time
to Nanoco as evidenced in the corporate governance report and the
number of Board, Committee and informal meetings held during the
year.
The Board remains convinced of the strong merits of our
broad-based platform technology. The last year has seen a number of
enquiries on new applications for our nanomaterials in sensing and
display.
The new framework agreement with ST Micro is a foundation for a
potential move into commercial production in the medium-term. Key
milestones to be delivered in the next 12-18 months will include
the successful delivery of the new material at an R&D scale in
Phase 1 of the programme. This will then lead to a potential
customer decision to progress to Phase 2 of the development
programme with a transition into scale-up activities in the second
half of FY21. If scale-up is successful, the customer will then
have the option to move to preliminary pre-production manufacture
at Runcorn and ultimately to full scale commercial production
thereafter.
However, we must be cautious. We have been in this position
before on the programme with the US Customer. In that case, the
Nanoco team delivered every milestone but other considerations led
to the cancellation of the product of which we were a crucial part.
Once again, Nanoco is part of a complex supply chain and the
project could fail even when we (as we fully expect) meet all of
our targets. If any other part of the supply chain fails, or if the
end customers decide not to adopt the technology or to make design
changes to their own products - all of these can have an adverse
impact on Nanoco which could again require further
restructuring.
It is because of this uncertainty and our financial resources
that we will be taking a prudent approach to pursuing new
commercial opportunities, how we deploy our human and financial
capital, and how we manage our cost base.
The Group has now been restructured around a highly skilled and
adaptable workforce that can be flexed across different activities
and products as customer opportunities dictate. This is a robust
foundation on which our organic business can build.
We have also secured funding for the potentially valuable
lawsuit against Samsung for what we believe to be a wilful
infringement of our IP, and now have the financial means to support
Nanoco itself through to its likely conclusion, including in a
scenario where further commercial progress is not delivered in the
new financial year.
The Group's core assets, team and capabilities and the Samsung
lawsuit remain, in the opinion of the Board, an attractive
investment opportunity. The Board therefore remains confident in
the value inherent in the business.
Dr Christopher Richards
Chairman
13 October 2020
Chief Executive Officer's statement
The Group made a number of significant achievements this year
that set the scene for potential future value creation. This was
against a very difficult economic backdrop and required very high
levels of activity from the Board, the Executive team, and all of
our staff.
In the second half, we reached an important new five-year
agreement with ST Microelectronics NV ("ST Micro") that utilises
our capabilities with nanomaterials for use in infra-red sensing
applications. This, and certain other development agreements,
provide Nanoco with strong customer relationships on which we plan
to build the business over the coming years.
We also launched litigation against Samsung for the wilful
infringement of our IP and subsequently secured third party funding
for this suit. The costs of this litigation could exceed $10
million and will now be borne by the funder in return for a share
of any award or settlement. The year was then completed with an
over-subscribed equity fundraise, extending the Group's cash runway
to the end of 2022.
A Formal Sales Process was launched in November 2019 and
occupied a lot of management bandwidth until it was terminated in
the midst of the Covid-19 pandemic in April 2020. By that time the
Group had also commenced a consultation process to restructure the
business, introduced a furlough scheme to take advantage of the
Government's Job Retention Scheme, and implemented salary
reductions for all staff to conserve cash.
Our team today now numbers approximately 45 staff and we have
more than halved our installed cost base from over GBP12.0 million
in FY19 to around GBP5.0 million on an underlying basis for FY21
(underlying excludes severance and notice costs). In so doing, we
have retained our core capabilities in R&D, scale-up and
manufacturing, including both facilities at our Runcorn site.
Maintaining these core capabilities and facilities is essential to
deliver the business we hope to win over the coming months.
Business performance
Electronics
In the first half we successfully completed the final
deliverables for the US Customer. This followed the disappointing
news in June 2019 that a new hoped for programme of work would not
be forthcoming. All revenues under the work programme were earned
in full.
Early in the second half we then had more positive news with the
announcement of a five-year collaboration with ST Micro to develop
and scale up nanomaterials for use in infra-red sensing. The master
agreement was followed shortly thereafter with a development work
programme for a new material and delivery schedules for test and
validation volumes of an existing material.
Given the scale of the sector and the participants, we are often
going to be part of an extensive supply chain in the electronics
market. This does mean that we are subject to events and decisions
outside of our control - as happened with the US Customer.
However, the new agreement with ST Micro allows us to take
advantage of knowledge, skills and assets developed during the
programme with the US Customer. We also now have "freedom to
operate" and can apply those capabilities to applications and other
end customers within the consumer electronics and other applicable
markets through our agreement with ST Micro.
We are actively seeking to create a number of new opportunities
to utilise the dedicated Runcorn production facility for the
large-scale manufacture of materials for use in infra-red sensing.
ST Micro is an excellent partner and cornerstone. Our current
activities are more heavily weighted towards development work at
this stage and, if successful, scale-up projects will follow with
the potential for commercial production volumes in the short to
medium-term.
We are therefore pursuing in parallel smaller market niches
where we are able to have direct relationships with a greater
number of smaller OEMs to allow us to mitigate the risk of being
overly reliant on a very small number of larger customers. The same
strategy applies to our work in CFQD and other market sectors.
The in-depth nature of our technological insight 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.
Having proven our capability on one material for use in sensing
applications, we are now in discussions to develop other materials
for use in adjacent applications.
The revenue-generating capacity of the new Runcorn facility
remains very significant if appropriate commercial orders can be
won. Our goal is still to transition the majority of our activity
to commercial production, supported by our deep technical knowledge
and skills that allow world leading development work in
parallel.
Display (CFQD(R) quantum dots)
Display remains an important target market for Nanoco. To
improve our competitive proposition, we are maintaining our focus
on our "dot only" strategy where we aim to provide the highest
performing CFQD(R) quantum dots to multiple film coating,
photo-resist and ink producing companies.
We measure CFQD(R) material performance using a number of key
metrics including, but not limited to, Full Width Half Maximum
("FWHM") (the width in nanometres of the emission peak halfway up
its height; narrower is better), quantum yield ("QY") percentage (a
measure of how efficiently the quantum dots absorb blue light and
convert it to red or green light) and stability (how durable the
quantum dot is in any specific application). An example of our
improved performance in the period is a 15% reduction of the
CFQD(R) quantum dots' FWHM while retaining very high quantum yields
and stability.
It is also clear that as more market sectors look at alternative
applications for quantum dots, that the range of characteristics
and performance criteria continues to evolve and we are well placed
to tune our materials over the full range of material
characteristics.
The integration of quantum dots into TVs is evolving. The first
generation of QD displays use red and green quantum dots in a
resin, which is then coated onto a film and finally integrated into
the backlight of an LCD display. This dramatically enhances colour
performance and reduces power consumption. The second generation of
QD-based displays will integrate red and green quantum dots onto a
blue OLED panel or blue microLEDs using ink jet printing or
photo-resist patterning technology. We anticipate that displays
using second generation technology may enter the market as early as
2022 though investment in the technology has slowed recently.
The third generation of quantum dot display is
electroluminescent red, green and blue quantum dots fabricated into
a display. It is likely to be a number of years before this third
generation of TVs enters the market on a commercial basis. Nanoco
is active in development work in the first two generations and also
maintains capabilities in the third generation.
Three years ago we modified our strategy from a pure licensing
model to a hybrid business model where we have licensed our
technology to different channel partners while also developing our
own manufacturing capability. We continue to work with our license
partners DuPont (formerly Dow) as well as our film coating partner
Wah Hong and have also started to increase the range of companies
with whom we are actively engaged.
Merck decided not to renew its license agreement and issued
notice of this in the third quarter. We continued to work with
Merck for the remainder of the contract year and still continue to
discuss options for possible future collaboration and access to
Nanoco technology and IP.
Other sectors including Life Sciences and Lighting
Following the need to restructure and downsize the business, our
core focus is on sensing and display. Where there is an immediate
substitution opportunity we will continue to proactively engage
with other sectors. With respect to our Life Sciences team, our
focus is on securing a new strategic partner to take the business
forward, to allow us to concentrate our resources and efforts on
our two core markets. If no spin off is achieved, we will retain
our IP and continue to explore clear short-term commercial
opportunities. Other applications in horticultural lighting will be
unaffected as they are a direct part of our CFQD(R) quantum dot
activities.
Operations
Commissioning of the new Sensing production facility at Runcorn
was finalised in the first half of the year. Testing and process
improvements have increased the capacity of the plant beyond its
original design targets.
In the Display facility, changes to our recipes and process
routings have also led to significant capacity increases with
further gains available from relatively modest capital expenditure
should the need arise. While both plants are currently in mothball
or standby mode, they can be fully operational in four weeks or
less and together they represent very significant
revenue-generating capacity.
Responding to Covid-19
At its peak, the Group had 49 of 67 staff on furlough. The
remainder were working in Covid-19 secure ways by either working
from home or, in the case of those needing to attend our
facilities, in a regime of enhanced PPE, cleaning and social
distancing.
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 we are now confident staff
can safely return to the workplace while allowing remote working
where possible.
Intellectual property
We consciously rationalised the number of patent applications in
progress during the year. As a result, the Group's IP portfolio
fell marginally to 731 patents and patent applications (2019: 745).
This net reduction reflected 42 new applications and 56 that were
dropped, mainly in territories where it was no longer felt
worthwhile to pursue. We have also slowed the rate of filing new IP
in the second half 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")
Our commitment to protecting the environment is directly
expressed in our decision to develop our CFQD(R) quantum dot
products to be free of toxic cadmium, which is still widely used by
competitors in their quantum dot products.
Nanoco has participated actively with regulators concerning the
use of cadmium-based quantum dots in displays and LED light
products. Nanoco's consultation response opposed any further
extensions. The European Commission ("EC") review of requests to
extend the duration and scope of the current RoHS exemption remains
outstanding at this time. We believe that the majority of display
companies agree with our position and accept the need for new
display products to be cadmium free which should stimulate demand
once the exemptions for cadmium expire.
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 Company-wide
salary reduction.
During the year and shortly after we have had to say farewell to
just over 20 of our valuable staff. We wish them all well for the
future, whether in new careers or new academic pursuits.
For our remaining 45 staff, the combination of the end of the
consultation process in September 2020, new commercial activity and
a firmer financial foundation will bring welcome stability and
allow the team to continue to display its technical skill and
ingenuity in providing solutions for customers. We have managed the
staff reductions in such a way as to retain our core R&D,
scale-up and production capabilities.
The new Leadership team that we put in place in the prior year
has performed well throughout the challenges of the year. Its
support has been invaluable and, working with the senior management
team and all of our staff, will help to maintain a disciplined and
commercial focus to our activities in the year ahead.
Outlook
The past year has undoubtedly been a turbulent one with highs
and lows and also a huge effort by the whole Nanoco team.
While we are still conscious of the risks around the Covid-19
pandemic, and other challenges ahead, some normality is now
starting to return to the business. The delivery of third party
funding for the Samsung lawsuit, the equity raise for the Group's
organic operations, and completing the restructuring of the Group
are all adding a measure of stability to the Group.
Our whole team is now focused on taking advantage of the
extended cash runway for our organic business to deliver new
commercial opportunities that will further extend that runway. Our
existing commercial relationships, including live development
projects in Sensing and Display, combined with a much lower cost
base, create the potential for breakeven production revenues in the
medium term. There are technical milestones to be delivered along
the way but our track record of success in development gives us
confidence in being able to deliver materials that meet our
customers' challenging performance criteria. By exploring other new
customer applications, we aim to de-risk any reliance on one
customer or product. Contingency plans remain in place to ensure
that the potential value in the lawsuit can be protected.
In a more stable environment, and with our smaller, more focused
team, I am confident that we can deliver value for all of our
stakeholders in the medium-term.
Brian Tenner
Chief Executive Officer
13 October 2020
Financial review
Revenue and other operating income decreased by GBP3.3 million
to GBP4.0 million (2019: GBP7.3 million). The decrease is largely
due to the lower revenues from the US Customer.
Revenue from the sale of products and services rendered
accounted for 89% (2019: 94%) of revenues with the balance being
royalty and licence income. Revenue from the sale of products was
GBP0.4 million (2019: GBP0.2 million).
Billings have significantly decreased by GBP7.1 million to
GBP2.5 million (2019: GBP9.6 million), which reflects the end of
the contract with the US Customer.
Revenue from royalties and licences does not have a directly
associated cost of sale. Service income also has a lower cost of
sale. Cost of sales decreased by GBP0.4 million to GBP0.3 million
(2019: GBP0.7 million) as a result of the fall in revenue and
change in sales mix.
Research and development expenditure is below prior year at
GBP3.1 million. The largest reduction was due to the fall in
payroll costs. Total payroll costs in the year were GBP4.2 million
(2019: GBP5.6 million). The decrease is due to:
-- full year impact of the prior year restructuring (GBP0.6 million);
-- headcount reductions during the year (GBP0.4 million); and
-- benefits of a company-wide pay cut and Government furlough scheme (GBP0.4 million).
In March 2020, we announced a further consultation with all
employees. The consultation is now complete and the resulting
business will have c.45 full time employees (2019: 72) once the
final changes are made. The revised structure reduces our cost
base, whilst ensuring we still have operational and commercial
viability.
In July 2020, we launched a fundraise which was over-subscribed,
and resulted in GBP3.2 million of cash inflow (net of fees). Cash
at year end was GBP5.2 million, which reflects a GBP5.0 million
consumption of cash before the impact of the fundraise.
2020 2019
Highlights GBP million GBP million % change
-------------------------- ------------ ------------ --------
Turnover 3.9 7.1 (46%)
Adjusted operating loss (4.8) (5.0) (4%)
Adjusted LBITDA (2.9) (3.8) (23%)
Net loss (5.1) (4.4) 17%
Loss per share (1.76) (1.52) 13%
Billings 2.5 9.6 74%
Cash and cash equivalents 5.2 7.0 (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 2019
GBP million GBP million
--------------------------- ------------ ------------
Operating loss (5.9) (5.5)
Share-based payment charge 0.4 0.2
Exceptional costs 0.7 0.3
--------------------------- ------------ ------------
Adjusted operating loss (4.8) (5.0)
Depreciation* 1.1 0.6
Amortisation** 0.8 0.6
--------------------------- ------------ ------------
Adjusted LBITDA (2.9) (3.8)
--------------------------- ------------ ------------
* Includes depreciation of right of use assets in 2020.
** Includes impairment of intangible assets.
IFRS 16 Leases replaced IAS 17 Leases with effect from 1 August
2019. We present current year results on the new IFRS 16 basis but
prior year comparatives on an IAS 17 basis. Under IFRS 16, the
prior year adjusted LBITDA would have been GBP3.1 million. More
details are disclosed in note 3(v) to the financial statements.
The loss before tax was GBP6.0 million (2019: GBP5.5
million).
Exceptional items
Exceptional costs in the year 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 5.
Taxation
The tax credit for the year is GBP0.9 million (2019: GBP1.1
million). The tax credit to be claimed, in respect of R&D
spend, is GBP0.9 million (2019: GBP1.1 million). Overseas
corporation tax was GBPnil during the year (2019: GBPnil). There
was no deferred tax credit or charge (2019: GBPnil).
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term
investments decreased to GBP5.2 million (2019: GBP7.0 million). The
net cash outflow, excluding the benefits of the equity raise of
GBP3.2m in July 2020 (net of costs), was GBP5.0 million (2019:
GBP3.7 million outflow). The increase was driven by lower revenues
from the US Customer.
Tax credits of GBP1.1 million (2019: GBP1.4 million) were
received during the year.
Expenditure incurred in registering patents totalled GBP0.6
million (2019: GBP1.0 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.
More details on the Group's treasury policies are provided in
note 28 to the financial statements.
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 2020 (2019:
none). The Group's net profit and equity are exposed to movements
in the value of Sterling relative to the US Dollar. The indicative
impact of movements in the Sterling exchange rate on profits and
equity based on the retranslation of the closing balance sheet is
summarised in note 28 to the financial statements and was based on
the year end position.
Brexit
The Board continues to monitor the proposals being made.
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-EU countries where the Government hopes to
have in place equivalent trading arrangements as exist today.
Specific conditions for trade with EU countries will be put in
place once the shape of any deal is known. As a point of note, WTO
tariffs on our products are relatively low and not deemed to be a
risk to our competitiveness.
Going concern
The fundraise in July 2020 raised GBP3.2 million net of costs.
This further extended the Group's cash runway to December 2022.
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 secure workplaces. We are able to meet customer needs
while working in a safe fashion. The Group will continue to access
financial support where available and appropriate. We do not
currently expect significant financial downsides though this is
clearly dependent on changes in regulations and the scale of any
further lockdowns.
Summary
Whilst the news relating to the US Customer in the prior year
was a commercial setback, since then we have announced a new
project with ST Micro.
The Group has demonstrated its agility and ability to reduce its
costs when needed a number of times over recent years. However, we
have ensured we have continued operational and commercial ability
to meet the needs of customers.
We launched our litigation against Samsung, which is fully
financed and therefore no cash flow risk to the Group.
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
13 October 2020
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 significantly mitigated in the short to
medium-term by the recent equity fundraising which has extended the
Group's cash runway to December 2022. This date can be extended for
the operational side of the business with each new business win. In
a worst case scenario with no new business wins, the date can still
be delivered though this would require further significant
restructuring. Experience in 2019 and 2020 shows that the Board is
ready and able to take prompt action to reduce costs should the
need arise.
In FY18, the Group became exposed to a new risk that potentially
had a direct impact on its financial stability, namely "key
customer reliance" as a result of the scale of the contract with
the US Customer. This risk crystallised in the fourth quarter of
FY19 with the decision by the US Customer not to sign a new
contract.
The relationship with ST Microelectronics N.V. is also important
but it is smaller in scale and therefore less concentrated a risk
than with the US Customer. This is partly mitigated by new customer
relationships developed during the year.
Commercial negotiations continue to secure new customers and
revenues to reduce our reliance on a single big customer.
New principal risk in FY20
The Group has now 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 in 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 2020.
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 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
13 October 2020
Consolidated statement of comprehensive income
for the year ended 31 July 2020
2020 2019
Notes GBP'000 GBP'000
-------------------------------------------- ----- -------- --------
Revenue 4 3,856 7,123
Cost of sales (345) (665)
-------------------------------------------- ----- -------- --------
Gross profit 3,511 6,458
Other operating income 101 204
Operating expenses
Research and development expenses (3,143) (4,385)
Administrative expenses (6,350) (7,760)
-------------------------------------------- ----- -------- --------
Operating loss (5,881) (5,483)
-------------------------------------------- ----- -------- --------
- before exceptional items and share-based
payments (4,783) (4,985)
- share-based payments (376) (232)
- net exceptional costs 5 (722) (266)
------------------------------------------- ----- -------- --------
Finance income 8 12
Finance expense (87) (38)
-------------------------------------------- ----- -------- --------
Loss before taxation (5,960) (5,509)
Taxation 893 1,151
-------------------------------------------- ----- -------- --------
Loss after taxation (5,067) (4,358)
Other comprehensive income/(loss)
Gain on exchange rate translations 3 14
-------------------------------------------- ----- -------- --------
Total comprehensive loss for the year (5,064) (4,344)
-------------------------------------------- ----- -------- --------
Loss per share
Basic and diluted loss for the year 6 (1.76)p (1.52)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 2020
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 2018 144,426 (77,868) 3,214 (1,242) (55,895) 12,635
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
Loss for the year - - - - (4,358) (4,358)
Other comprehensive income - - - - 14 14
------------------------------------- -------- ------------ ----------- -------- ----------- --------
Total comprehensive loss - - - - (4,344) (4,344)
Issue of share capital on exercise
of options 27 - (27) - - -
Share-based payments - - 232 - - 232
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
At 31 July 2019 144,453 (77,868) 3,419 (1,242) (60,239) 8,523
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
Loss for the year - - - - (5,067) (5,067)
Other comprehensive income - - - - 3 3
------------------------------------- -------- ------------ ----------- -------- ----------- --------
Total comprehensive loss - - - - (5,064) (5,064)
Issue of share capital on placing 3,409 - - - - 3,409
Share-based payments - - 376 - - 376
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
At 31 July 2020 147,862 (77,868) 3,795 (1,242) (65,303) 7,244
-------------------------------------- -------- ------------ ----------- -------- ----------- --------
Company statement of changes in equity
for the year ended 31 July 2020
Issued Share-based Capital
equity payment redemption Accumulated
capital reserve reserve losses Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- -------- ----------- ----------- ----------- --------
At 1 August 2018 144,426 3,214 4,402 (75,120) 76,922
Loss for the year and total comprehensive
loss for the year - - - (38,278) (38,278)
Issue of share capital on exercise of
options 27 (27) - - -
Share-based payments - 232 - - 232
-------------------------------------------- -------- ----------- ----------- ----------- --------
At 31 July 2019 144,453 3,419 4,402 (113,398) 38,876
Loss for the year and total comprehensive
loss for the year - - - (64) (64)
Issue of share capital on placing 3,409 - - - 3,409
Share-based payments - 376 - - 376
-------------------------------------------- -------- ----------- ----------- ----------- --------
At 31 July 2020 147,862 3,795 4,402 (113,462) 42,597
-------------------------------------------- -------- ----------- ----------- ----------- --------
Group and Company statements of financial position
at 31 July 2020
Registered no. 05067291
31 July 31 July 31 July 31 July
2020 2020 2019 2019
Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----- -------- --------- -------- ---------
Assets
Non-current assets
Tangible fixed assets 263 - 747 -
Right of use assets 3 612 - - -
Intangible assets 3,742 - 3,897 -
Investment in subsidiaries - 39,607 - 39,229
------------------------------ ----- -------- --------- -------- ---------
4,617 39,607 4,644 39,229
------------------------------ ----- -------- --------- -------- ---------
Current assets
Inventories 140 - 226 -
Trade and other receivables 1,018 - 1,117 -
Income tax asset 910 - 1,129 -
Cash and cash equivalents 5,170 3,440 7,005 97
------------------------------ ----- -------- --------- -------- ---------
7,238 3,440 9,477 97
------------------------------ ----- -------- --------- -------- ---------
Total assets 11,855 43,047 14,121 39,326
------------------------------ ----- -------- --------- -------- ---------
Liabilities
Current liabilities
Trade and other payables (2,113) - (2,553) -
Lease liabilities 8 (642) - - -
Provisions - - (797) -
Deferred revenue 7 (603) - (1,462) -
------------------------------ ----- -------- --------- -------- ---------
(3,358) - (4,812) -
------------------------------ ----- -------- --------- -------- ---------
Non-current liabilities
Financial liabilities (462) (450) (433) (450)
Lease liabilities 8 (542) - - -
Deferred revenue 7 (249) - (353) -
------------------------------ ----- -------- --------- -------- ---------
(1,253) (450) (786) (450)
------------------------------ ----- -------- --------- -------- ---------
Total liabilities (4,611) (450) (5,598) (450)
------------------------------ ----- -------- --------- -------- ---------
Net assets 7,244 42,597 8,523 38,876
------------------------------ ----- -------- --------- -------- ---------
Capital and reserves
Share capital 30,570 30,570 28,622 28,622
Share premium 117,292 117,292 115,831 115,831
Reverse acquisition reserve (77,868) - (77,868) -
Share-based payment reserve 3,795 3,795 3,419 3,419
Merger reserve (1,242) - (1,242) -
Capital redemption reserve - 4,402 - 4,402
Accumulated losses (65,303) (113,462) (60,239) (113,398)
------------------------------ ----- -------- --------- -------- ---------
Total equity 7,244 42,597 8,523 38,876
------------------------------ ----- -------- --------- -------- ---------
The Parent Company's result for the period ended 31 July 2020
was a loss of GBP64,000 (2019: loss of GBP38,278,000). 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 13th October and signed on its behalf by:
Dr Christopher Richards Brian Tenner
Chairman Chief Executive Officer
13 October 2020 13 October 2020
Group and Company cash flow statements
for the year ended 31 July 2020
31 July 31 July 31 July 31 July
2020 2020 2019 2019
Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ ------ -------- -------- -------- --------
Loss before tax (5,960) (64) (5,509) (38,278)
Adjustments for:
Net finance expense (79) - (26) -
(Profit)/Loss on exchange rate translations (87) - 14 -
Depreciation of tangible fixed assets 590 - 613 -
Depreciation of right of use assets 505 - - -
Amortisation of intangible assets 633 - 552 -
Impairment of intangible assets 120 - 26 -
Impairment of Company investment - - - 24,006
Impairment of inter-company receivable - - - 14,272
Share-based payments 376 - 232 -
Exceptional items 722 64 266 -
Changes in working capital:
Decrease/(increase) in inventories 221 - (9) -
Decrease in trade and other receivables 99 - 298 -
Decrease in trade and other payables (30) - (1,515) -
(Decrease)/increase in provisions (797) - 797 -
(Decrease)/increase in deferred revenue (963) - 2,226 -
-------------------------------------------------------------- -------- -------- -------- --------
Cash outflow from operating activities (4,650) - (2,035) -
Research and development tax credit
received 1,111 - 1,423 -
Overseas corporation tax paid - - - -
------------------------------------------------------ ------ -------- -------- -------- --------
Net cash outflow from operating activities (3,539) - (612) -
-------------------------------------------------------------- -------- -------- -------- --------
Cash flow from investing activities
Purchases of tangible fixed assets (106) - (2,081) -
Purchases of intangible fixed assets (598) - (1,043) -
Inter-company receipt - - - 54
Interest received 8 - 12 -
-------------------------------------------------------------- -------- -------- -------- --------
Net cash (outflow)/inflow from investing
activities (696) - (3,112) 54
-------------------------------------------------------------- -------- -------- -------- --------
Cash flow from financing activities
Proceeds from placing of ordinary
share capital 3,409 3,409 - -
Costs of placing (237) (64) - -
Payment of lease liabilities (772) - - -
-------------------------------------------------------------- -------- -------- -------- --------
Net cash inflow from financing activities 2,400 3,343 - -
-------------------------------------------------------------- -------- -------- -------- --------
(Decrease)/increase in cash and cash
equivalents (1,835) 3,343 (3,724) 54
Cash and cash equivalents at the
start of the year 7,005 97 10,729 43
-------------------------------------------------------------- -------- -------- -------- --------
Cash and cash equivalents at the
end of the year 5,170 3,440 7,005 97
-------------------------------------------------------------- -------- -------- -------- --------
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
2020.
The preliminary results of Nanoco Group plc and its subsidiaries
(the "Group") for the year ended 31 July 2020 were authorised for
issue by the Board of Directors on 13 October 2020 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 2019 has been delivered to the Registrar of
Companies. The Auditors' opinion on those financial statements
included an emphasis of matter in respect of a material uncertainty
relating to going concern. 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
2020 will be delivered to the registrar of companies as soon as
practicable. The auditors opinion on those financial statements was
unqualified, did not draw attention to any matters by way of an
emphasis of matter paragraph, and 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 the Companies Act 2006 as applicable to
companies using International Financial Reporting Standards as
adopted by the European Union ("IFRS") and IFRS Interpretations
Committee ("IFRS IC") interpretations as they apply to the
financial statements of the Group for the year ended 31 July
2020.
(b) Basis of measurement
The Parent Company and Group financial statements have been
prepared on the historical cost basis.
(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, and the Group's financial position is described in
the Financial review. Furthermore, note 28 of the annual report
summarises the Group's financial risk management objectives,
policies and processes. The Group funds its day-to-day cash
requirements from existing cash reserves (as is common with
businesses at a similar stage of development, the Group does not
currently have access to any debt facilities).
For the purposes of their going concern assessment and the basis
for the preparation of the 2020 Annual Report, the Directors have
reviewed the same trading and cash flow forecasts and sensitivity
analyses that were used by the Group in the viability assessment in
the annual report. The same base case and downside sensitivities
were also used. The base case represents the Board's current
expectations, and builds on the fundraise of GBP3.2 million (net of
costs) completed in July 2020. The key assumptions underpinning the
base case are:
-- new commercial contracts are entered into based on existing pipeline of opportunities;
-- the Groups' variable costs remain in line with manufacturing activities; and
-- the overhead cost base benefits from the restructuring exercise in September 2020.
The base case produces a cash flow forecast that demonstrates
that the Group has cash resources to December 2022.
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,
was achieved during the period. In this scenario, management has
identified a series of mitigating actions, including cost savings
and a reorganisation of its operations, that could be undertaken in
the event additional sales contracts do not materialise. These
actions would be adequate to preserve funding for the two years of
the viability assessment and the twelve months of the going concern
assessment.
Covid-19 may have an impact on our business - the full impact on
the Group will depend on the duration of the crisis, and how it
affects the economy. The Group currently has plans in place to
mitigate the risk to the operational business. However, there is a
continued risk that revenue opportunities reduce due to the wider
economic impact. We will continue to evaluate the potential impacts
as the situation develops further.
The Directors have a reasonable expectation that the Company 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 GBP0.1 million (2019: GBP26,000) 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 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.
Outlook
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, which have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are those relating to the estimation of the number of share options
that will ultimately vest (note 25 in the annual report). The Group
based its assumptions and estimates on parameters available when
the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising that are
beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
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 2019.
(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. See note 3(b).
All intra-group transactions, balances and unrealised gains on
transactions between Group companies are eliminated on
consolidation. Subsidiaries' accounting policies are amended where
necessary to ensure consistency with the policies adopted by the
Group.
(b) New accounting standards and interpretations
The following amendments to IFRSs became mandatory in this
reporting period. The Group has applied the following standards and
amendments for the first time for the reporting period commencing 1
August 2019:
IFRS 16 Leases
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases for both the
lessee and the lessor. It eliminates the lease clarification of
leases as either operating leases or financial leases and
introduces a single lease accounting model requiring lessees to
recognise a lease liability reflecting the future lease payments
and a right of use asset for lease contracts.
The Group has applied the modified retrospective transition
approach, with recognition of transitional adjustments on the date
of initial application (1 August 2019), without restatement of
comparative figures.
On transition to IFRS 16, the Group elected to apply the
following practical expedients on a lease by lease basis as allowed
by the standard:
-- to apply a single discount rate to a portfolio of leases with
reasonably similar characteristics;
-- to rely upon previous assessments of onerous leases; and
-- apply the short-term and low value exemptions.
All of these leases relate to property. None of these are
sub-let. Lease payments for low value or short-term leases where
the Group has elected not to recognise a right of use asset and
lease liability are charged as an expense on a straight-line
basis.
At the date of commencement of property leases the Group
determines the lease term to be the full term of the lease,
assuming that any option to break or extend is not likely to be
exercised. Leases are regularly reviewed and will be revalued if it
becomes likely that a break clause or option to extend will be
exercised. The weighted average incremental borrowing rate applied
at the date of transition was 3.75%.
The Group recognises a right of use asset at the lease
commencement date. The right of use asset is measured at its
carrying amount as if IFRS 16 has been applied since the
commencement date, discounted using the lessee's incremental rate
at the date of initial application. Subsequent to measurement,
right of use assets are amortised on a straight-line basis over the
remaining term of the lease or over the remaining economic life of
the asset if assessed to be shorter.
The lease liabilities are measured at the present value of the
remaining lease payments, discounted using the Group's incremental
borrowing rate as at 1 August 2019. The Group's incremental
borrowing rate is the rate at which a similar borrowing could be
obtained over a similar term in a similar economic environment.
Judgement is required to determine an approximation with
consideration given to the Bank of England base rates adjusted by
an indicative credit premium and lease specific adjustment.
Subsequently, the lease liability is increased by the interest cost
on the lease liability and decreased by the lease payments made. It
is remeasured if there is a modification, a change in lease term or
a change in the fixed lease payment.
The impact on the balance sheet on transition is summarised
below:
As at
As at 31 IFRS 16 1 August
July 2019 adjustment 2019
As at 31 July 2019 GBP'000 GBP'000 GBP'000
----------------------------------------- ------- ----------- ---------
Right of use assets (leased property) - 981 981
Lease liabilities - (1,769) (1,769)
Trade and other payables (2,553) 125 (2,428)
Onerous lease liabilities (663) 663 -
----------------------------------------- ------- ----------- ---------
During the year, the movements on the right of use assets and
lease liabilities are as follows:
Right of use assets GBP'000
---------------------------------------- -------
Opening net book value at 1 August 2019 981
Additions 136
Depreciation (505)
Closing net book value at 31 July 2020 612
---------------------------------------- -------
Lease liabilities GBP'000
--------------------------------------- -------
Opening liabilities at 1 August 2019 (1,769)
Additions (136)
Lease payments 772
Interest charge (51)
Closing net book value at 31 July 2020 (1,184)
--------------------------------------- -------
The reconciliation of operating lease commitments disclosed at
31 July 2019 to lease liabilities recognised at 1 August 2019 is as
follows:
GBP'000
------------------------------------------------------ -------
Operating lease commitments disclosed as at 31 July
2019 1,954
Short-term and low value leases recognised as an
expense on a straight-line basis (14)
Effect of discounting under the Group's incremental
borrowing rate (171)
------------------------------------------------------ -------
Total lease liabilities recognised at 1 August 2019 1,769
------------------------------------------------------ -------
If the prior year the income statement was presented under IFRS
16, Adjusted LBITDA would be presented as follows:
2019
GBP million
-------------------------------------- ------------
Adjusted LBITDA as presented (3.8)
Reclassification of operating lease
costs as depreciation 0.7
Revised LBITDA (3.1)
-------------------------------------- ------------
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:
-- IFRIC 23 "Uncertainty over Income Tax Treatments"
-- Amendments to IFRS 4 "Insurance Contracts"
-- Amendments to IFRS 9 "Financial Instruments"
-- Amendments to IAS 28 "Investments in Associates and Joint Ventures"
-- Amendments to IAS 19 "Plan Amendment, Curtailment or Settlement"
The following standards and amendments to standards have been
issued but are not effective for the financial year beginning 1
August 2019 and have not been early adopted:
-- Amendments to IFRS 3 "Definition of a Business"
-- Amendments to IAS 1 and IAS 8 "Definition of Material"
-- IFRS 17 "Insurance Contracts"
-- Amendment to IAS 1 "Classification of Liabilities as Current or Non-Current"
-- Amendments to IFRS 9, IAS 39 and IFRS 17 "Interest Rate Benchmark Reform"
-- Various standards Amendments to References to the Conceptual Framework in IFRS Standards
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 2020 and 2019 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
2020 2019
GBP'000 GBP'000
------------------------- -------- --------
Analysis of revenue
Products sold 448 186
Rendering of services 2,981 6,488
Royalties and licences 427 449
------------------------- -------- --------
3,856 7,123
------------------------- -------- --------
There was a material customer who generated revenue of
GBP2,475,000 (2019: one material customer amounting to
GBP6,461,000).
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
2020 2019
GBP'000 GBP'000
------------------------ -------- --------
Revenue
UK 17 1
Europe (excluding UK) 1,111 485
Asia 228 141
USA 2,500 6,496
------------------------ -------- --------
3,856 7,123
------------------------ -------- --------
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 GBP5,960,000 (2019:
GBP5,509,000).
5. Exceptional items
During the financial year, the Group incurred a number of
charges which are considered to be exceptional in nature. These
have been aggregated and disclosed separately in the consolidated
statement of comprehensive income.
31 July 31 July
2020 2019
(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) -
Customer contract liability waived - 4,245
Financial impairment of production facility - (3,325)
Onerous lease provision - (663)
Provision for contract specific stock - (261)
Other US Customer contract liabilities - (134)
Restructuring cost (128) (128)
---------------------------------------------- -------- --------
Total net exceptional items (722) (266)
---------------------------------------------- -------- --------
During the year, as part of the Strategic Review, the Group
entered into a Formal Sale Process that was subsequently terminated
after the start of the Covid 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 law
suit 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.
During the prior year, the US Customer confirmed that the
project would not continue beyond the current contract which
completed in December 2019. As a result, the following financial
adjustments were posted:
-- an outstanding contract liability owed by Nanoco Group to the
US Customer was waived, resulting in an exceptional credit of
GBP4.2 million;
-- given the lack of any signed or near-term commercial
prospects for the new production facility, a tangible asset
impairment was posted of GBP3.3 million;
-- linked to the above, an onerous lease provision was
recognised in relation to the new production facility from the end
of the existing contract with the US Customer to the expiry of the
lease; and
-- other liabilities or costs incurred in the period relating to
the US Customer were a provision against stock purchased
specifically for the US Customer and existing non-cancellable
purchase commitments.
Further to the US Customer items above, 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.
6. Earnings per share
31 July 31 July
2020 2019
Group GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Loss for the financial year attributable to equity
shareholders (5,064) (4,344)
Share-based payments 376 232
------------------------------------------------------ ----------- -----------
Loss for the financial year before share-based
payments (4,688) (4,112)
------------------------------------------------------ ----------- -----------
Weighted average number of shares
Ordinary shares in issue 287,070,824 286,025,561
------------------------------------------------------ ----------- -----------
Adjusted loss per share before share-based payments
(pence) (1.63) (1.44)
------------------------------------------------------ ----------- -----------
Basic loss per share (pence) (1.76) (1.52)
------------------------------------------------------ ----------- -----------
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
2020 2020 2019 31 July 2019
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- -------- -------- ------------
Current
Upfront licence fees 103 - 103 -
Milestone payments 500 - 1,359 -
----------------------- -------- -------- -------- ------------
603 - 1,462 -
----------------------- -------- -------- -------- ------------
Non-current
Upfront licence fees 249 - 353 -
----------------------- -------- -------- -------- ------------
852 - 1,815 -
----------------------- -------- -------- -------- ------------
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
2020 2020 2019 2019
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- -------- --------
Current
Property leases 642 - - -
------------------ -------- -------- -------- --------
Non-current
Property leases 542 - - -
------------------ -------- -------- -------- --------
== Ends ==
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