TIDMNANO
RNS Number : 4158L
Nanoco Group PLC
30 April 2020
30 April 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
NANOCO GROUP PLC
("Nanoco", the "Company" or the "Group")
Interim Results
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, announces
unaudited Interim Results for the half year ended 31 January 2020
("the Period" or "H1 FY20").
Operational Summary
H1 FY20
-- Successful completion of contract deliverables with US Customer - revenue earned in full
-- Reduction in monthly cash burn to under GBP0.7m by Period end
-- Operational and R&D capability protected alongside core IP assets
Post Period End
-- Patent infringement lawsuit filed against Samsung in February
2020 - multiple offers received for contingent third-party funding,
discussions on final terms under way
-- Purchase Orders already received for existing and new
materials for sensing applications and a new Joint Development
Agreement for R&D services being documented with an existing
customer
-- Monthly cash burn reduced further to under GBP0.4m through a
combination of new commercial revenues, management actions, and UK
Government Covid-19 employment support
-- Cash runway now extending to Q2 in 2021, subject to new
commercial agreements being completed, with contingency plans in
place if required
-- Operating during Covid-19 pandemic: While focusing on the
safety and well-being of our staff, the Group continues to service
its customers through lab-based work being carried out by
respecting social distancing, increased use of PPE and additional
cleaning of protective equipment, with other staff either working
remotely or furloughed
Financial Summary
-- Revenue of GBP2.9m (H1 FY19: GBP3.2m) including all final deliverables for US Customer
-- Adjusted LBITDA significantly reduced to GBP1.1m (H1 FY19: loss GBP2.5m)
-- Cash at Period end of GBP4.2m (FY19: GBP7.0m ), cash runway significantly extended
Formal Sale Process ('FSP')
Over the past few weeks, the disruptions caused by Covid-19 have
escalated rapidly and impacted ongoing discussions as part of the
FSP. The economic climate remains highly challenging today and, as
a result, the Board has concluded that it is unlikely that the FSP
would produce an attractive outcome in such an uncertain
environment. The Board has therefore decided to terminate the FSP.
The Board continues to review all the strategic options available
as part of the Group strategic review including, but not limited
to, possible sources of medium-term funding for the Company and
will make further announcements as appropriate.
Dr Michael Edelman, Chief Executive Officer of Nanoco Group plc,
said:
"The last six months saw the successful completion of commercial
deliveries for the US Customer as well as continued improvement in
the technical performance of our nano-materials in both display and
sensing applications. We have successfully maintained our core
capabilities while scaling down our cost base to offset a slowdown
in new commercial orders following the announcement of the FSP.
"Following the Period end, we filed a patent infringement
lawsuit against Samsung, seeking an injunction from further acts of
infringement and significant monetary damages. We have received a
number of offers of third-party funding for the lawsuit and are now
discussing the final terms of a litigation financing agreement.
Once agreed, this will protect the Group's cash resources and
decouple the funding of the lawsuit from the Group's financial
position.
"In response to Covid-19, we have taken immediate action to
reduce our cost base further and to extend our cash runway while
retaining our core competence in production, scale-up and R&D.
These actions are designed to preserve the financial position of
the Group and to safeguard the interests of all stakeholders by
protecting our core IP assets, the ongoing Samsung lawsuit, and
continued employment of our highly skilled staff. Whilst we are
disappointed that we had to terminate the FSP, in light of the
challenging market environment, all of these measures preserve
optionality to deliver maximum value to shareholders. "
Analyst meeting and webcast details
A conference call and webcast for analysts will be held at
11:00am (UK time) this morning (30 April 2020). For further details
please contact MHP Communications on 0203 128 8570 or at
nanoco@mhpc.com
A recording of the webcast will also be made available on
Nanoco's website www.nanocotechnologies.com, later today.
For further information, please contact:
Nanoco Group PLC :
Michael Edelman, CEO +44 (0) 161 603 7900
Brian Tenner, COO & CFO +44 (0) 161 603 7900
Caroline Watson, Investor Relations Manager +44 (0) 7799 897
357
cwatson@nanocotechnologies.com
Peel Hunt:
Edward Knight +44 (0) 20 7418 8900
Nick Prowting
MHP Communications : +44 (0) 203 128 8570
Reg Hoare
Giles Robinson
Pete Lambie
nanoco@mhpc.com
The person responsible for arranging for the release of this
announcement on behalf of Nanoco is Brian Tenner, Chief Financial
Officer.
MAR
The information contained within this announcement is considered
by the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014. Upon the publication
of this announcement via a Regulatory Information Service, this
inside information will be considered to be in the public
domain.
FORWARD LOOKING STATEMENTS
This announcement (including information incorporated by
reference in this announcement), oral statements made regarding the
FSP, and other information published by Nanoco may contain
statements about Nanoco that are or may be deemed to be forward
looking statements. Such statements are prospective in nature. All
statements other than historical statements of facts may be forward
looking statements. Without limitation, statements containing the
words "targets", "plans", "believes", "expects", "aims", "intends",
"will", "may", "anticipates", "estimates", "projects" or
"considers" or other similar words may be forward looking
statements.
Forward looking statements inherently contain risks and
uncertainties as they relate to events or circumstances in the
future. Important factors such as business or economic cycles, the
terms and conditions of Nanoco's financing arrangements, tax rates,
or increased competition may cause Nanoco's actual financial
results, performance or achievements to differ materially from any
forward looking statements. Due to such uncertainties and risks,
readers are cautioned not to place undue reliance on such forward
looking statements, which speak only as of the date hereof. Nanoco
disclaims any obligation to update any forward looking or other
statements contained herein, except as required by applicable
law.
Notes for editors:
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.nanocotechnologies.com .
Business Review
Overview
The first half of the year saw us successfully complete the
deliverables for the US Customer, earning all contracted revenues
in full. However, that did not signify the end of our involvement
in developing materials for use in enhancing the performance of
infra-red sensors. We have continued a dialogue and agreed new
commercial engagements with a key player in the semi-conductor
sensor sector on both shorter and longer wavelength applications.
In Display R&D we have further enhanced the performance of our
Cadmium Free Quantum Dots (CFQD(R)) in collaboration with a number
of different partners.
We have taken steps to retain our core capabilities in
manufacturing and R&D against a backdrop of tight cost
management and cash preservation. At the same time, we have also
moved to protect our significant IP portfolio, filing a lawsuit
against Samsung. The combination of these steps represents
significant potential value for all stakeholders.
During the current Covid-19 crisis, our efforts today are
focused on protecting the health, safety and wellbeing of our
employees while mitigating the economic challenges. The pandemic
has forced us to scale back our operations. We have put together a
series of measures that allow us to continue to meet customer needs
by operating our Manchester R&D facility on a limited basis.
Our Runcorn site has been temporarily closed and employees from
both sites have been furloughed. Other essential work is being
carried out remotely.
We have, as a result of these steps, created further optionality
through a longer cash runway; the ultimate realisation of which
will enhance value for all stakeholders.
Strategic Review and Formal Sale Process ('FSP')
Over the past few weeks, the disruptions caused by Covid-19 have
escalated rapidly and impacted ongoing discussions as part of the
FSP. The economic climate remains highly challenging today and, as
a result, the Board has concluded that it is unlikely that the FSP
would produce an attractive outcome in such an uncertain
environment. The Board has therefore decided to terminate the FSP.
The Board continues to review all the strategic options available
as part of the Group strategic review including, but not limited
to, possible sources of medium-term funding for the Company and
will make further announcements as appropriate.
Business Performance
Following the successful delivery of the material development
and supply contract with the US Customer, we have continued to
pursue a number of other commercial opportunities, in both the
sensing and display market sectors, as detailed below:
Infra-red sensing
During the Period, we successfully delivered the final
milestones for the US Customer, earning the contracted milestone
revenues in full. At the end of the Period, we started discussions
on two new programmes of work with a large participant in the
semi-conductor sensing supply chain. One programme is focused on
the current generation of infra-red sensing nano-materials as well
as potential customers and applications beyond the US Customer. The
second programme is for a new generation of nano-materials, also in
the sensing markets, but for a different potential application.
Work commenced on both programmes in April 2020 under purchase
order cover while the new JDA is being documented (and is expected
to be signed shortly).
Our R&D efforts in sensing materials have also continued
throughout the Period. This includes the creation of new materials
that are capable of absorbing much longer wavelengths of infra-red
light at specifically targeted bands such as 1,400 nm, 1,550 nm and
1,800 nm.
Display (CFQD(R) Quantum Dots)
Display remains a key target market for Nanoco. To continue
improving our competitive proposition, the Company's focus has
remained on providing the highest performing CFQD(R) quantum dots
in the market to multiple film coating, photo-resist and ink
companies. Our mission is to work with the companies who are
considered by the display industry to be best in class.
We measure CFQD(R) 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,
where narrower is better), quantum yield percentage (a measure of
how efficiently the quantum dots absorb blue light and convert it
to red or green light, where higher is better) and stability (how
durable the quantum dot is in any specific application). We
continue to improve year on year our material performance against
all of these metrics. We have also significantly enhanced the
performance of material designed for second generation quantum dot
enabled displays ('QD-OLED').
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 integrated into the
backlight of an LCD display. This dramatically enhances colour
performance and reduces power consumption. The second generation of
QD displays integrate red and green quantum dots onto a blue OLED
panel or blue micro-LEDs using ink jet printing or photo-resist
patterning technology. Major display OEMs are currently converting
existing LCD production lines to accommodate this new hybrid
QD-OLED device structure. We anticipate that displays using second
generation technology will enter the market as early as 2021. The
third generation of quantum dot display incorporates
electroluminescent red, green and blue quantum dots into a display.
Nanoco is heavily involved in all three stages of this quantum dot
display evolution.
Separately, a number of major technology companies are exploring
wearable display devices (such as headsets or glasses) and we
continue to support our partner, Plessey, in these efforts.
In March 2020, our licence partner Merck notified us that they
wished to renegotiate the existing agreement. In order to avoid
becoming committed to the next contract year's minimum royalties
(GBP0.65m), they were obliged to serve notice by 31 March 2020.
Negotiations of the new arrangement continue at this time.
Other sectors - Life Sciences
Following the confirmation of the safety and clinical
applicability of our biological CFQD(R) nanoparticles (Vivodots(TM)
nanoparticles), Nanoco's Life Sciences team has developed a number
of proprietary nano-probes that can enable several unmet needs in
medical imaging and treatment. Most significant is the nano-probe
for enhancing 5-amino levulinic acid (5ALA), a standard of care
drug in cancer imaging and therapeutics but one that suffers from
several shortcomings related to effectiveness and consistency. This
development is being translated into applications for earlier
detection and treatment of numerous types of cancers starting with
those of the skin, bladder, and brain. We have established clinical
and academic partners ready to engage in further development.
Likewise, and based on the attributes of Vivodots(TM)
nanoparticles, we have identified several market opportunities for
in-vitro diagnostic applications that we are currently working
on.
Defending our Intellectual Property portfolio
We continue to grow our Intellectual Property ("IP") portfolio.
The Group now benefits from c.770 patents and patent applications.
Our IP strongly underpins the Group's valuation while also
operating as a challenging barrier to entry to potential
competitors. Our 'know how' in quantum dot composition of matter,
surface chemistry, process methodologies and devices also continues
to grow and adds to the already challenging IP barriers to entry
for potential competitors.
As a UK-based business specialising in the design, scale up and
manufacture of novel nano-materials, it is critical that we take
steps to protect our platform technology and the IP that underpins
it. Historically the Group worked collaboratively with Samsung on
developing enhanced quantum dots based on our unique and patented
CFQD(R) Quantum Dot technology and associated IP. We were
understandably disappointed when Samsung ended the collaboration
and launched its QD-based televisions without entering into either
a licensing or supply agreement with Nanoco.
We therefore took the step of initiating an IP infringement
lawsuit against Samsung for damages and other equitable relief on
14 February 2020. In March 2020 we received a number of offers of
third-party funding for the lawsuit. A preferred partner was
selected and a Litigation Funding Agreement ('LFA') is now being
discussed which will lead to the third-party funding the cost of
the lawsuit through trial and potentially beyond in return for a
share of any damages or settlement agreement. The lawsuit is likely
to be served in early May and this step starts the more formal
exchanges between the lawyers for the Plaintiff (Nanoco) and the
Defendant (Samsung). At this early stage, it is estimated that the
lawsuit could proceed to trial in the fourth quarter of calendar
year 2021 or the first quarter of 2022.
It is the Board's expectation that, if successful, the lawsuit
will see Nanoco retain the majority of any such award or settlement
in most of the likely outcome scenarios . If the lawsuit is
successful, it is not possible at this point to predict the amount
of any award or settlement, but it does have the potential to
generate very substantial upside for shareholders.
Environment / Restriction of Hazardous Substances ("RoHS")
Nanoco is committed to protecting the environment in which our
activities are conducted. This commitment has driven us to develop
our CFQD(R) quantum dot products to be free of toxic cadmium, which
is still widely used by our competitors. The European Commission
("EC") has initially had an exemption for display which was due to
end on 31 October 2019. However, following consultation on renewal
requests, no decision has yet been made, and therefore the
exemption continues.
Our contacts with leading display companies continue to indicate
that most already accept the need for new display products to be
cadmium-free. The EC is also yet to consider a new request for
cadmium based QDs to be used in 'on-chip' LED lighting
applications.
Financial Performance
Despite the fall in revenue during the Period, the restructuring
completed in the prior year and management's continued focus on
cost control have enabled the Group to reduce its Adjusted LBITDA
by around 50% for the Period to GBP1.1m. Our production and R&D
teams have transferable skill sets which can be pivoted to
commercial needs in display or sensing applications. The Group
therefore remains able to capture commercial opportunities in both
markets while maintaining a more cost-effective resource base.
Cash at 31 January 2019 was GBP4.2m (H1 FY19: GBP7.0m; FY19:
GBP6.2m) and was consistent at that time with the previously
indicated cash runway to July 2020. This has since been extended
through a combination of new commercial revenues, further
management action and UK Government employment support to Q2 in
2021 and maintains operational capability within the business.
Whilst we are confident in our chances of success given the
advanced stage of discussions, if new commercial revenues or other
sources of funding are not obtained, this runway can be maintained
through the use of contingency plans though these would effectively
remove the ability of the Group to further develop or scale our
technology. Cash continues to be the main area of focus for the
Group and is being monitored closely.
No dividend is proposed for the year (2019: GBPnil).
Outlook
The first half of the financial year saw the successful
completion of the contract with the US Customer. We continue to
develop further commercial opportunities in the sensing and display
sectors with key players in both industries.
As noted previously, our Runcorn facility is complete and fully
operational, while continuous process improvement efforts
throughout the Period have delivered a significant increase in
production capacity and a reduction in production costs. Both of
these factors materially increase the value that can be generated
through operational leverage once production volumes are
gained.
It is critical that we preserve the financial position of the
Company and extend our cash runway as far as possible to create
optionality for the realisation of the value inherent in our IP,
the lawsuit against Samsung and our operational capabilities. Our
efforts to control costs and sign new commercial agreements,
supported by the UK Government's employment support scheme, have
resulted in a cash runway that now extends to the second quarter of
2021 for a more streamlined but still operationally capable
business. This reflects our central planning scenario which
includes new sources of revenue that are at an advanced stage of
negotiation. This is a significant improvement on the previous
outlook which saw cash being exhausted around July 2020.
In the downside scenario, where no new revenue is agreed and no
new funding is sourced, the Board has contingency plans that can
maintain the cash runway through to the second quarter of 2021.
However, the Board believes that implementing these contingency
plans should be a last resort as they would lead to a reduction in
the capabilities and value inherent in the business, by focusing on
protecting only our IP portfolio and the lawsuit against Samsung.
In either scenario, the Board consider that there are still
significant challenges to be overcome and hence the Board considers
there to be a material uncertainty regarding going concern (as
defined in IAS 1 Presentation of Financial Statements), based on
our ability to implement cost savings on a timely enough basis if
new sales agreements are not forthcoming.
Whilst we reluctantly had to terminate the FSP, in light of the
exceptionally challenging environment caused by Covid-19, it is now
vital that we capitalise on the additional time we have and the
opportunity it creates to explore fully all alternative options
available to us and potential sources of medium-term funding as
part of the Strategic Review. Market interest in the use of quantum
dots across a range of applications is increasing, and a number of
approaches have been made to Nanoco with a view to working together
on existing and emerging applications for quantum dots. The Board
therefore has growing confidence in our ability to secure and
enhance value for all stakeholders in the medium-term.
Dr Christopher Richards Dr Michael Edelman
Chairman Chief Executive Officer
30 April 2020 30 April 2020
Financial review
Revenue
Revenue in the Period was GBP2.9m (H1 2019: GBP3.2m), the
majority of which relates to the completion of the contract with
the US Customer in December 2019.
Sources of revenue H1 FY20 H1 FY19 FY19
GBPm GBPm GBPm
------------------- ------------- ------------- -------------
Services 2.5 / 87.0% 2.9 / 90.8% 6.5 / 91.1%
Material sales 0.1 / 3.6% 0.1 / 2.2% 0.2 / 2.6%
Licence fees 0.0 / 0.0% 0.0 / 1.6% 0.0 / 1.4%
Royalties 0.3 / 9.4% 0.2 / 5.4% 0.4 / 3.0%
------------------- ------------- ------------- -------------
Total revenue 2.9 / 100.0% 3.2 / 100.0% 7.1 / 100.0%
=================== ============= ============= =============
The table clearly shows the importance of the service income
being generated, primarily from the US Customer (in the current
year and prior year). Material sales represent continued shipments
of nano-materials to supply chain partners in the infra-red sensing
and display markets.
As previously announced, the commencement of the FSP in November
2019 led to delays in signing new business opportunities and
contributed to a decrease in revenue for the Period and following
months. However, we have now received some new orders for materials
to be used in infra-red sensors and a material new joint
development agreement ('JDA') in the same field is currently being
negotiated.
Other operating income was GBP0.1m (H1 FY19: GBP0.1m) which, as
in the prior year, was generated by grant income earned by our Life
Sciences research team.
Operating expenses
Operating expenses comprise R&D and administrative expenses.
Gross investment in R&D in the Period was GBP1.7m (H1 FY19:
GBP1.6m) to support the ongoing development of CFQD(R) Quantum Dots
and other nano-particles. Administrative expenses were GBP3.6m (H1
FY19: GBP4.3m) and decreased through the combination of
restructuring completed in the prior year (which generated GBP0.6m
of annualised savings and GBP0.3m in the Period) and other actions
to closely control costs.
Operating loss and Adjusted LBITDA
Despite a GBP0.3m fall in year on year revenue, the operating
loss in the Period fell by 19% to GBP2.4m and Adjusted LBITDA in
the Period fell by 44% to GBP1.3m. This is on a like for like basis
with the comparative periods, prior to the introduction of IFRS16.
Including the impact of IFRS16, Adjusted LBITDA improved in the
Period and reduced further to GBP1.1m. These improvements reflect
the benefits of the restructuring completed in Q4 FY19 and the
additional cost savings implemented in the Period.
H1 FY20 H1 FY19 FY19
GBPm GBPm GBPm
------------------------------ -------- -------- ------
Operating loss (2.4) (3.1) (5.5)
Share-based payment charge 0.2 0.1 0.2
Exceptional costs 0.1 - 0.3
------------------------------ -------- -------- ------
Adjusted(*) operating loss (2.1) (3.0) (5.0)
Depreciation (IFRS 16 impact
GBP0.2m in FY20) 0.7 0.2 0.6
Amortisation 0.3 0.3 0.6
------------------------------ -------- -------- ------
Adjusted(*) LBITDA (1.1) (2.5) (3.8)
============================== ======== ======== ======
Management monitor Adjusted (*) LBITDA as it is a close
approximation for operating cash flow which is considered a KPI at
a time when the Group is closely managing its cash resources. Share
based payments, depreciation and amortisation are added back to the
operating result to arrive at Adjusted LBTIDA as they are all
non-cash charges. The exceptional charge in the Period is in
respect of costs incurred as part of the FSP and are clearly not
part of the Group's normal activities and hence are excluded to
allow a user of the accounts a clearer understanding of underlying
business performance. The net exceptional costs in FY19 are set out
in the Annual Report and Accounts for FY19.
We remain mindful of the Group's restricted cash resources and
continue to scrutinise all categories of cost with new savings
opportunities being identified and captured on a regular basis. In
October 2019 we reported current monthly gross cash costs of
approximately GBP0.8m when we announced our results for the year
ended 31 July 2019 and we reduced these further to GBP0.7m by the
end of the Period. This figure was then reduced further after the
Period end and by March 2020, prior to the onset of Covid-19, had
been reduced to just over GBP0.6m. Further measures announced in
the light of Covid-19 and their potential impact on the business
are set out in the sections below on Principal Risks and Going
Concern but, in summary, we have now reduced our monthly cash cost
to approximately GBP0.4m.
Taxation
The Group continues to make research and development tax credit
claims on its qualifying expenditure. We also take advantage of the
provision whereby losses generated are surrendered for cash
credits. The tax credit for the Period is estimated at GBP0.6m (H1
2019: GBP0.6m). The amount receivable at 31 January 2020 was
GBP0.6m (H1 FY19: GBP2.0m), which is the accrual for the current
year. The prior year tax credit of GBP1.1m was received in January
2020.
Net result
The loss after tax for H1 FY20 was GBP1.9m (H1 FY19: loss of
GBP2.5m).
Earnings per share
The basic loss per share was 0.66 pence per share (H1 FY19: loss
of 0.88 pence per share). As at 31 January 2020 there were
286,219,246 ordinary shares in issue (31 July 2019: 286,219,246)
including shares held in treasury.
Cash position and liquidity
During H1 FY20, the Group generated a significantly improved net
cash outflow of GBP2.8m (H1 FY19: GBP4.6m).
Cash flow summary H1 FY20 H1 FY19 FY19
GBPm GBPm GBPm
Operating losses (2.4) (3.1) (5.5)
Depreciation and amortisation 1.0 0.5 1.2
Share based payments 0.2 0.1 0.2
Exceptional items 0.1 - 0.3
Changes in working capital (0.6) (0.8) (0.4)
Changes in deferred income / contract
liabilities (1.4) 1.0 2.2
--------------------------------------- -------- -------- ------
Cash flow from operating activities (3.1) (2.3) (2.0)
R&D tax credits received 1.1 - 1.4
--------------------------------------- -------- -------- ------
Operating cash flow (2.0) (2.3) (0.6)
Purchases of tangible fixed assets (0.1) (1.7) (2.1)
Purchases of intangible fixed assets (0.3) (0.5) (1.0)
Payment of IFRS 16 lease liabilities (0.4) - -
--------------------------------------- -------- -------- ------
Net cash (outflow) (2.8) (4.5) (3.7)
Opening net cash 7.0 10.7 10.7
--------------------------------------- -------- -------- ------
Closing net cash 4.2 6.2 7.0
--------------------------------------- -------- -------- ------
Expenditure on fixed asset additions in the Period was GBP0.1m
compared to GBP1.7m in the prior year. The significant expenditure
in the prior year relates to the completion of the Runcorn
facility, whereas the current Period spend represents a more normal
level of maintenance type capital expenditure.
Expenditure in respect of intangible fixed assets was GBP0.3m
(H1 FY19: GBP0.5m) and related to patent costs. We continue to
focus our R&D resource on new materials and applications whilst
ensuring that we continue to meet our customer requirements.
Going concern
A key area of judgement is the assessment of going concern due
to the material uncertainty regarding management's ability to
generate new sales revenues and to implement the necessary cost
savings in an appropriately timely manner, should significant
additional revenues beyond those already contracted not be secured
or, as an alternative, if other significant sources of medium term
funding not be secured. Further details of this assessment and the
associated risks and mitigating actions are set out in the sections
on Principal Risks, Going Concern and Basis of Preparation.
Nevertheless, considering the mitigating actions that can be
taken, and after making enquiries and considering the uncertainty
described above, the Directors have a reasonable expectation that
the Group has access to adequate resources to continue in
operational existence for the foreseeable future , that is, at
least 12 months from the date of the issue of these interim
condensed consolidated financial statements . Accordingly, they
continue to adopt the going concern basis of accounting in
preparing the interim consolidated financial statements and the
Board concluded that it is appropriate to adopt the going concern
assumption.
However, given that a degree of uncertainty exists in respect of
future revenue and management's ability to implement the necessary
cost savings in a timely fashion, there exists a material
uncertainty in relation to the going concern basis adopted in the
preparation of the financial statements.
Fixed assets
The Group decreased its capital spend in tangible assets in the
Period to a total of GBP0.1m (H1 FY19: GBP1.7m), which reflects the
fact that the Runcorn facility was completed in the prior year.
Depreciation was higher than the prior year due to the additional
charges on the new Runcorn facility in the current year.
Expenditure incurred in registering patents totalled GBP0.3m (H1
FY19: GBP0.5m) during the Period reflecting the Group's continued
focus on developing and registering intellectual property.
Stock
Stock in the Period decreased to GBP0.1m compared to the
position at 31 July 2019 (GBP0.3m). This reduction was due to the
Group utilising existing stock levels and ensuring efficient stock
management.
Brexit
The main impact from Brexit and the continuing uncertainty
around the post Brexit arrangements depends on whether or not it
has a potential negative effect on the Group's existing
relationships with customers, the majority of which are based
outside of the UK, and the supply chain upon which we rely. The
Group has undertaken a review of potential actions that it would
take in the event that mitigation was required. This assessment is
unchanged since the year ending 31 July 2019 despite the successful
negotiation of an exit deal between the UK and the European Union
because clarity on the shape of any future trading arrangements
have not yet been delivered.
Principal risks
The Directors have considered the principal risks which may have
a material impact on the Group's performance. The risks remain as
disclosed in pages 30 to 31 of the 2019 Annual Report and
Accounts.
The principal over-arching strategic risk to the Group remains
that it exhausts its financial resources before it can achieve a
self-financing level of commercial production and service revenue.
This risk has undoubtedly been heightened as a result of the
Covid-19 pandemic. The impact of the pandemic and mitigating
actions by management are set out below.
Covid-19 impact and actions to reduce costs since the Period
end
The FSP has been severely challenged by the Covid-19 pandemic
which led to the decision by the Board to terminate the process.
The Group also previously announced that the FSP itself had led to
some delays in commercial discussions and potential new orders.
This has continued and been further exacerbated by Covid-19 as
customers restrict their own operations and take measures to
preserve their own cash resources. While this has had limited
impact on the Board's expectations for revenue in the current
financial year, it has almost entirely eliminated the potential for
upside this year.
The safety and wellbeing of Nanoco's employees is a key priority
for the Board. Since the onset of the Covid-19 pandemic and the UK
Government's ('HMG') actions to control the spread of the disease
and to support employers, we have taken the following actions:
-- Implemented home working for all those who have necessary
duties to perform that can be performed from a remote location.
This has included ensuring that all staff have access to a laptop
and remote teleconferencing and video conferencing facilities;
-- Where customer orders have continued, we have implemented
revised risk-based working practices in our facilities to minimise
risk while we try to ensure that income generating revenue from
customers continues to be serviced;
-- In order to access the UK Government's employment support
scheme (the 'furlough' scheme) we commenced a consultation with
staff to amend contracts to allow staff to be furloughed. The
consultation period is due to end on 30 April 2020 at which point
the benefits to staff and the company should start to flow
through;
-- We are also consulting on a company-wide 20% reduction in
salary for those who are not furloughed which will take effect on 1
May 2020. The Board has taken the lead in this area, with the
Chairman and Non-Executive Directors taking an immediate 35% pay
cut while the Executive Directors reduced their pay by 20% (both
effective from 1 April 2020);
-- The Board felt it was appropriate to protect our lower paid
employees (Gross salary is less than GBP2,500 per month or salary
of less than GBP25,000 per annum) - who will continue to receive
the lower of full pay or GBP2,500. In addition, all other benefits
such as employer pension contributions and death in service
benefits have been protected for all staff at their unreduced
levels of salary; and
-- Discussions with our landlords and a number of other major
suppliers and partners are underway and may lead to absolute
savings or deferral of cash expenditure in the short term (in some
cases these savings are still subject to agreeing final terms).
The estimated impact of the changes above (excluding the third
party savings noted above since they are still subject to final
agreement) is to cut the Group's monthly cash overhead costs in
half to approximately GBP0.4m, with the largest saving resulting
from the furloughing of around 50 of the Group's current 70
employees and the 20% company-wide pay cut.
This revised monthly gross cash burn rate will be effective from
1 May 2020 and extends the Group's cash runway from the previously
indicated July 2020 until December 2020 and potentially beyond.
However, it should be noted that this position is contingent on the
continued availability of HMG employment support in line with
current indications from HMG, the continued ability of the Group to
furlough staff, and a potential small-scale restructuring in the
third or fourth quarter.
In the event that the Group does not deliver new sources of
commercial revenue or medium term funding, a more significant
restructuring will be required that removes the Group's R&D,
production, and scale up capabilities with the remaining business
focussed on protecting the IP portfolio and the lawsuit against
Samsung. In this scenario, the cash runway extends to the second
quarter of 2021.
Commercial opportunities
The Group remains engaged on a number of commercial
opportunities, including some recently received purchase orders in
respect of nano materials for use in infra-red sensors. The Group
is also documenting a new joint development agreement with an
existing significant European customer, again in the field of
sensing applications. This new commercial opportunity, if formally
agreed, is a large enough opportunity to allow the Group to retain
operational capability to the end of 2020 (with the restructuring
activity noted above creating the extension to the second quarter
of 2021). This and other new opportunities remain subject to the
risk of delay in the future supply of commercial quantities of
products to the customer in the normal way regarding widespread
adoption of quantum dots in sensing or display markets, in addition
to the potential impact of the Covid-19 pandemic.
Other sources of financing
The Board is actively pursuing a number of sources of financing
for the Group to secure all or the majority of our operations and
capabilities for the medium term (being the next two to three
years). These alternative sources of funding will be particularly
important now that the FSP has been terminated.
The Group has approached its bank regarding access to either the
Government's Coronavirus Business Interruption Loan scheme
('C-BILS') or an alternative commercial loan or asset backed
finance agreement. At the time of writing, we have been given to
understand that while we qualify for C-BILS, only businesses with
an historical track record of strong positive EBITDA are eligible
for such loans. Hence they do not appear to be an option for starts
ups, or pre-profit technology companies such as Nanoco. The Board
is actively monitoring this rapidly evolving position and is
reviewing all new options as they are announced.
The Board continues to consider other potential providers of
finance, whether debt or equity based, including the potential to
approach shareholders for further support at an appropriate
time.
As previously announced, the lawsuit against Samsung is not
having any adverse impact on the Group's cash flows as our legal
counsel is working on a partial contingency basis and the Group is
at an advanced stage of negotiations to secure third party funding
of the lawsuit through to a trial in potentially 18 months' time
(and beyond).
Going concern
For the purposes of assessing whether 'going concern' is an
appropriate basis for preparing the interim financial statements,
the Directors have used their detailed forecasts for the period to
31 July 2021 and summary forecasts for the following financial year
(the 'forecast period'). These reflect current and expected
business activities including the impact of the growing commercial
relationship with our European customer focused on infra-red
sensing opportunities, the cash balance of GBP4.2m as shown in the
Group consolidated balance sheet at 31 January 2020, and all of the
matters set out in the section above on Principal risks and in
particular the detailed comments in the sections on Covid-19, Other
commercial opportunities, and Other sources of financing.
The principal risks and uncertainties faced (as set out earlier
in this report) are also considered as are other factors
potentially impacting future performance. The key assumptions
underpinning the base case assessment during the forecast period
cover the following areas:
-- Final agreement being signed with an existing customer on the
first stage of a nine-month JDA as discussed above. Indicative
costing has been assumed for the potential second and final stage
to that JDA prior to the start of production of validation
materials in 2021 leading to commercial production revenues in
2022;
-- Minimum royalty and licence fee income from channel partners in respect of CFQD(R) products;
-- Modest sales of CFQD(R) products and other nano-particles
through existing contractual arrangements;
-- No new revenue has been assumed to arise from the current
renegotiation of the Merck license agreement as its conclusion is
uncertain;
-- The benefit of the cost reductions already agreed as discussed above.
-- Availability of UK Government employment support in line with
the timelines indicated by UK Treasury;
-- In the absence of significant new income beyond that noted
above, or if the Group fails to secure an alternative source of
medium term financing for the Group, then a restructuring of the
Group's cost base will be implemented in the fourth quarter of
calendar year 2020;
-- In the event of a restructuring, the Group will aim to
preserve its core IP, the ongoing lawsuit against Samsung, and as
much core R&D and production capability as is feasible.
This base case scenario, with the small-scale restructuring
described above, should deliver adequate financial resources for
the Group to trade until the second quarter of 2021.
Sensitivity analysis has been performed to reflect a possible
downside scenario which includes only contracted revenues for the
forecast period as well as the receipt of R&D tax credits. The
downside scenario also excludes any of the alternative sources of
medium-term financing that the Board is considering. In this
downside scenario, management would be required to undertake a
significant restructuring exercise to reflect the lower revenue
expectations and such an exercise would create new risks regarding
its effectiveness and time to deliver the expected benefits.
These additional risks represent a material uncertainty with
respect to going concern. In the downside scenario, the Group
effectively becomes an IP Shell with the Samsung lawsuit
continuing. The Board's immediate efforts aim to avoid this
scenario and to protect the operational and R&D capabilities to
support the commercial efforts of the Company.
Going concern conclusion and basis of preparation
IAS 1 Presentation of Financial Statements requires the
Directors to disclose "material uncertainties related to events or
conditions that may cast significant doubt upon the Group's ability
to continue as a going concern". The Directors consider that the re
is a material uncertainty regarding the Group's ability to
implement the necessary cost savings in an appropriately timely
manner should significant additional revenues beyond those already
contracted not be secured or, as an alternative, if other
significant sources of medium term funding not be secured.
Nevertheless, considering the mitigating actions that can be
taken and after making enquiries and considering the uncertainty
described above, at the time of approving the interim condensed
consolidated financial statements, the Directors therefore have a
reasonable expectation that the Company has access to adequate
resources to continue in operational existence for the foreseeable
future, that is, at least 12 months from the date of the issue of
these interim condensed consolidated financial statements.
Accordingly, they continue to adopt the going concern basis in
preparing the interim condensed 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.
Brian Tenner
Chief Operating Officer and Chief Financial Officer
30 April 2020
Responsibility statement
The Directors of Nanoco Group plc, as listed on pages 46 and 47
of the 2019 Annual Report and Accounts, confirm to the best of
their knowledge:
a) the condensed set of financial statements has been prepared
in accordance with International Accounting Standard 34 Interim
Financial Reporting, as required by paragraph 4.2.4 of the
Disclosure and Transparency Rules ("DTR");
b) the condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer, or the
undertakings included in the consolidation as a whole as required
by DTR 4.2.10;
c) the interim management report includes a fair review of the
information required by DTR 4.2.7 - an indication of important
events which have occurred during the first six months of the year
and a description of the principal risks and uncertainties for the
remaining six months of the year; and
d) the interim management report includes a fair review of the
information required by DTR 4.2.8 - the disclosure of related party
transactions occurring during the first six months of the year and
any changes in related party transactions disclosed in the 2018
Annual Report and Accounts.
By order of the Board
Dr Michael Edelman
Chief Executive Officer
30 April 2020
Condensed consolidated statement of comprehensive income
For the six months ended 31 January 2020
H1 FY20 H1 FY19 FY19
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
-------------------------------------------- ------ ------------ ------------ ----------
Revenue 3 2,858 3,192 7,123
Cost of sales (47) (485) (665)
Gross profit 2,811 2,707 6,458
Other operating income (grants) 77 79 204
Operating expenses
Research and development expenses (1,654) (1,562) (4,385)
Administrative expenses (3,643) (4,285) (7,760)
Operating loss (2,409) (3,061) (5,483)
* Before share-based payments (2,133) (2,935) (4,985)
* Share-based payments (181) (126) (232)
* Net exceptional costs (95) - (266)
-------------------------------------------- ------ ------------ ------------ ----------
* Operating loss as shown above (2,409) (3,061) (5,483)
-------------------------------------------- ------ ------------ ------------ ----------
Net finance (expense) / income 4 (40) (13) (26)
Loss before taxation (2,449) (3,074) (5,509)
Taxation 5 552 563 1,151
Loss after tax (1,897) (2,511) (4,358)
-------------------------------------------- ------ ------------ ------------ ----------
Other comprehensive income
(Loss)/profit on exchange
rate translations (3) - 14
Loss after taxation for the
year and total comprehensive
loss for the year (1,900) (2,511) (4,344)
Loss per share:
Basic and diluted loss for
the period 6 (0.66)p (0.88)p (1.52)p
-------------------------------------------- ------ ------------ ------------ ----------
Condensed consolidated statement of changes in equity
For the six months ended 31 January 2020
Issued Reverse Share-based
equity Acquisition payment Merger Accumulated
capital Reserve reserve reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------------- ------------ -------- ------------ --------
At 31 July 2018 (audited) 144,426 (77,868) 3,214 (1,242) (55,895) 12,635
Loss for the six months
to 31 January 2019 - - - - (2,511) (2,511)
Shares issued on exercise
of options 14 - (14) - - -
Share-based payments - - 126 - - 126
At 31 January 2019 (unaudited) 144,440 (77,868) 3,326 (1,242) (58,406) 10,250
Loss for the six months
to 31 July 2019 - - - - (1,833) (1,833)
Shares issued on exercise
of options 13 - (13) - - -
Share-based payments - - 106 - - 106
At 31 July 2019 (audited) 144,453 (77,868) 3,419 (1,242) (60,239) 8,523
Loss for the six months
to 31 January 2020 - - - - (1,900) (1,900)
Share-based payments - - 181 - - 181
At 31 January 2020 (unaudited) 144,453 (77,868) 3,600 (1,242) (62,139) 6,804
-------------------------------- -------- -------------- ------------ -------- ------------ --------
Condensed consolidated statement of financial position
As at 31 January 2020
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
----------------------------- ------ ------------ ------------ ----------
Assets
Non-current assets
Property, plant and
equipment 7 353 4,155 747
Right of use asset 729 - -
Intangible assets 8 3,904 3,731 3,897
4,986 7,886 4,644
----------------------------- ------ ------------ ------------ ----------
Current assets
Inventories 109 278 226
Trade and other receivables 9 871 1,314 1,117
Income tax asset 569 1,963 1,129
Cash and cash equivalents 4,184 6,157 7,005
5,733 9,712 9,477
----------------------------- ------ ------------ ------------ ----------
Total assets 10,719 17,598 14,121
----------------------------- ------ ------------ ------------ ----------
Liabilities
Current liabilities
Trade and other payables 10 (1,651) (2,135) (2,553)
Lease liabilities (364) - -
Provisions - - (797)
Deferred revenue 11 (102) (149) (1,462)
(2,117) (2,284) (4,812)
----------------------------- ------ ------------ ------------ ----------
Non-current liabilities
Deferred revenue 11 (303) (399) (353)
Lease liabilities (1,048) - -
Contract liabilities 12 - (4,245) -
Financial liabilities 13 (447) (420) (433)
(1,798) (5,064) (786)
----------------------------- ------ ------------ ------------ ----------
Total liabilities (3,915) (7,348) (5,598)
----------------------------- ------ ------------ ------------ ----------
Net assets 6,804 10,250 8,523
----------------------------- ------ ------------ ------------ ----------
Capital and reserves
Issued equity capital 144,453 144,440 144,453
Reverse Acquisition
Reserve (77,868) (77,868) (77,868)
Share-based payment
reserve 3,600 3,326 3,419
Merger reserve (1,242) (1,242) (1,242)
Accumulated loss (62,139) (58,406) (60,239)
----------------------------- ------ ------------ ------------ ----------
Total equity 6,804 10,250 8,523
----------------------------- ------ ------------ ------------ ----------
Approved by the Board and authorised for issue on 30 April
2020.
Dr Michael Edelman Brian Tenner
Chief Executive Officer Chief Operating Officer and Chief
Financial Officer
Condensed consolidated cash flow statement
For the six months ended 31 January 2020
Six months Six months Year to
to to
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) Audited
GBP'000 GBP'000 GBP'000
------------------------------------------ ------------ ------------ --------
Loss before tax (2,449) (3,074) (5,509)
Adjustments for:
Net finance costs / (income) 40 13 (26)
Loss on exchange rate translations 3 - 14
Depreciation of tangible fixed
assets 468 191 613
Depreciation of right of use 252 -
asset -
Amortisation of intangible assets 309 254 552
Impairment of intangible assets - - 26
Share-based payments 181 126 232
Exceptional items 95 - 266
Changes in working capital:
Decrease/(increase) in inventories 187 (61) (9)
Decrease in trade and other receivables 246 101 298
(Decrease) in trade and other
payables (282) (885) (1,515)
(Decrease)/increase in provisions (797) - 797
(Decrease)/increase in deferred
revenue & contract liabilities (1,410) 1,058 2,226
------------------------------------------- ------------ ------------ --------
Cash outflow from operating activities (3,157) (2,277) (2,035)
Research and development tax
credit received 1,112 - 1,423
Net cash outflow from operating
activities (2,045) (2,277) (612)
------------------------------------------- ------------ ------------ --------
Cash flows from investing activities
Purchases of tangible fixed assets (74) (1,742) (2,081)
Purchases of intangible fixed
assets (316) (553) (1,043)
Interest received - - 12
------------------------------------------- ------------ ------------ --------
Net cash outflow from investing
activities (390) (2,295) (3,112)
------------------------------------------- ------------ ------------ --------
Cash flows from financing activities
Payment of IFRS 16 lease liabilities (386) - -
Net cash outflow from investing (386) - -
activities
------------------------------------------ ------------ ------------ --------
Decrease in cash and cash equivalents (2,821) (4,572) (3,724)
Cash and cash equivalents at
the start of the period 7,005 10,729 10,729
------------------------------------------- ------------ ------------ --------
Cash and cash equivalents at
the end of the period 4,184 6,157 7,005
------------------------------------------- ------------ ------------ --------
Notes to the condensed consolidated financial statements
For the six months ended 31 January 2019
1. Corporate information
Nanoco Group plc (the "Company") has a premium listing on the
Main Market of the London Stock Exchange and is incorporated and
domiciled in the UK. The Group Interim Report and Accounts for the
six months ended 31 January 2020 was authorised for issue in
accordance with a resolution by the Directors on 30 April 2020.
These interim condensed consolidated financial statements
include the financial statements of Nanoco Group plc and the
entities it controls (its subsidiaries).
These interim condensed consolidated financial statements are
unaudited and do not constitute statutory accounts of the Group as
defined in section 434 of the Companies Act 2006. The auditor,
PricewaterhouseCoopers LLP, has carried out a review of the
financial information in accordance with the guidance contained in
International Standard on Review Engagements (UK and Ireland) 2410
Review of Interim Financial Information Performed by the
Independent Auditor of the Entity, and its review report is set out
at the end of this report.
2. Accounting policies
a. Basis of preparation
These interim condensed consolidated financial statements have
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority, IAS 34 Interim Financial
Reporting as adopted by the European Union, using the recognition
and measurement principles of IFRSs as adopted by the European
Union and have been prepared under the historical cost convention.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Services Authority the accounting policies adopted in
these condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's Annual Report
and Accounts for the year to 31 July 2019, with the exception of
the impact of adopting of IFRS 16. The impact of the adoption of
new accounting standards is set out below.
These interim condensed consolidated financial statements
include audited comparatives for the year to 31 July 2019. The 2019
Annual Report and Accounts, which was prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union, received an unqualified audit opinion and has
been filed with the Registrar of Companies. The financial
statements of the Group for the year ended 31 July 2019 are
available from the Company's registered office, or from the website
www.nanocotechnologies.com.
b. Presentation of figures
Certain figures contained in this announcement, including
financial information, have been subject to rounding adjustments.
Accordingly, in some cases, the sum or percentage change of the
numbers contained in this announcement may not conform exactly to
the total figure given.
c. Going concern
In assessing whether 'going concern' is an appropriate basis for
preparing the financial statements, the Directors have used their
detailed forecasts for the period to 31 July 2021 and summary
forecasts for the following financial year (the 'forecast period').
These reflect current and expected business activities including
the impact of the growing commercial relationship with our European
customer focused on infra-red sensing opportunities, the cash
balance of GBP4.2m as shown in the Group consolidated balance sheet
at 31 January 2020, and the estimated FY20 R&D tax credit
expected to be received in December 2020. The matters set out in
the section above on Principal risks and uncertainties faced, in
particular the detailed comments in the sections on Covid-19, Other
commercial opportunities, and Other sources of financing, are also
considered as factors potentially impacting future performance.
Sensitivity analysis has been performed to reflect a possible
downside scenario which includes only contracted revenues (and
contracts already underpinned by a letter of intent) for the
forecast period as well as the receipt of R&D tax credits. The
downside scenario also excludes any of the alternative sources of
medium-term financing that the Board are considering. In this
downside scenario management would be required to undertake a
significant restructuring exercise to reflect the lower revenue
expectations and such an exercise would create new risks regarding
its effectiveness and time to deliver the expected benefits. In the
downside scenario, the Group effectively becomes an IP Shell with
the Samsung lawsuit continuing. The board's immediate efforts aim
to avoid this scenario and to protect the operational and R&D
capabilities to support the commercial efforts of the Company.
However, even if the restructuring plan did not deliver all of
the expected benefits or was slightly delayed in the downside
scenario, the Company and Group have sufficient resources to
continue in operational existence for the foreseeable future, that
is, at least 12 months from the date of the issue of these interim
condensed consolidated financial statements.
Therefore, at the time of approving the interim condensed
consolidated financial statements, the Directors have a reasonable
expectation that the Company and Group have adequate resources to
continue in operational existence for the foreseeable future, that
is, at least 12 months from the date of the issue of these interim
condensed consolidated financial statements. Thus they continue to
adopt the going concern basis of accounting in preparing the
financial statements.
However given that a degree of uncertainty exists in respect of
future revenue and management's ability to implement the necessary
cost savings in a timely fashion, there exists a material
uncertainty in relation to the going concern basis adopted in the
preparation of the financial statements.
d. Use of estimates and judgements
Preparation of the interim condensed consolidated financial
statements requires management to make judgements, estimates and
assumptions affecting the application of accounting policies and
the reporting of assets, liabilities, income and expenses. Actual
results may differ from these estimates. The significant judgements
made by management in applying the Group's accounting policies and
key sources of estimated uncertainty were the same as those applied
to the consolidated financial statements for the year ended 31 July
2019. These are summarised below:
Estimates Judgements
Equity-settled share-based payments Capitalisation (or not) of research
and development expenditure
------------------------------------
Impairment of intellectual property Revenue recognition
and tangible fixed assets
------------------------------------
Taxation Going concern
------------------------------------
e. New accounting standards
IFRS 16 Leases (effective for annual periods beginning on or
after 1 January 2019)
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:
-- Apply a single discount rate to a portfolio of leases with reasonably similar characteristics
-- To rely upon previous assessments of onerous leases
-- Apply the short term and low value exemptions
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 re-measured 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 31 IFRS 16 As at 1
July 2019 Adjustment August 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 -
---------------------------- ----------- ------------ -------------
The table below reconciles operating profit between IAS 17 and
the new standard, IFRS 16:
GBP'000
---------------------------------- --------
Operating loss as reported under
IFRS 16 (2,409)
Additional depreciation of right
to use assets 252
Operating costs under IAS 17 (382)
Rent free accrual release 26
Onerous lease accrual release 19
----------------------------------- --------
Operating loss under IAS 17 (2,494)
=================================== ========
During the half year to 31 January 2020, the movements on the
right of use assets and lease liabilities are as follows:
Right of use Assets GBP'000
------------------------ --------
Opening net book value 981
Depreciation (252)
Closing net book value 729
========================= ========
Lease liabilities GBP'000
------------------------ --------
Opening liabilities (1,769)
Lease payments 386
Interest charge (29)
Closing net book value (1,412)
========================= ========
3. Segmental information
Operating segments
The Board has identified that it has one reportable operating
segment being the provision of high-performance nano-particles.
These are applicable to a wide range of end markets and
applications which have similar activities, economic
characteristics and future prospects and hence are treated as one
reporting segment.
All revenue has been generated Six months Six months Year to
from continuing operations and to to 31 July
is from external customers. 31 January 31 January 2019
2020 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------- ------------ ------------ ----------
Analysis of revenue
Products sold 103 71 186
Rendering of services 2,485 2,899 6,488
Royalties and licences 270 222 449
---------------------------------- ------------ ------------ ----------
2,858 3,192 7,123
--------------------------------- ------------ ------------ ----------
The timing of the annual submission and subsequent receipt of
the R&D tax credit has a material effect on the cash flow of
the Group. There are no other factors of a seasonal or cyclical
nature affecting the results of the Group. The R&D tax credit
of GBP1.1m for the financial year ending 31 July 2019 was received
in January 2020. All assets are held in the UK and all of its
capital expenditure arises in the UK.
4. Finance income and expense
Six months Six months Year to
to to 31 July
31 January 31 January 2019
2020 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------- ------------ ------------ ----------
Finance income
Bank interest receivable 7 - 12
Other interest payable (33) - (10)
Loan note interest payable (14) (13) (28)
(40) (13) (26)
---------------------------- ------------ ------------ ----------
5. Taxation
The tax credit is made up as follows:
Six months Six months Year to
to to 31 July
31 January 31 January 2019
2020 2019
(Unaudited) (Unaudited) (Audited)
Current income tax GBP'000 GBP'000 GBP'000
-------------------------------------- ------------ ------------ ----------
Research and development income tax
credit receivable (552) (521) (1,128)
Adjustment in respect of prior years (-) (42) (23)
Income tax (552) (563) (1,151)
--------------------------------------- ------------ ------------ ----------
Accumulated losses available to carry forward against future
trading profits were GBP32.6m (2019: GBP33.9m).
6. Loss per share
Six months Six months Year to
to to 31 July
31 January 31 January 2019
2020 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------------- ------------ ------------ ------------
Loss for the period attributable
to equity shareholders (1,900) (2,511) (4,344)
Share-based payments 181 126 232
------------------------------------ ------------ ------------ ------------
Adjusted loss for the period (1,719) (2,385) (4,112)
------------------------------------ ------------ ------------ ------------
Weighted average number of shares No. No. No.
----------------------------------- ------------ ------------ ------------
Ordinary shares in issue 286,219,246 285,974,557 286,025,561
------------------------------------ ------------ ------------ ------------
Adjusted loss per share (pence) (0.60) (0.83) (1.44)
------------------------------------ ------------ ------------ ------------
Basic loss per share (pence) (0.66) (0.88) (1.52)
------------------------------------ ------------ ------------ ------------
Diluted loss per share is not presented as the effect of share
options issued is anti-dilutive. The adjusted loss is presented as
the Board measures underlying business performance which excludes
non-cash IFRS2 charges.
7. Property, plant and equipment
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
Cost GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ ----------
At the beginning of the period 12,319 10,238 10,238
Additions in the period 74 1,742 2,081
At the end of the period 12,393 11,980 12,319
--------------------------------- ------------ ------------ ----------
Depreciation
--------------------------------- ------------ ------------ ----------
At the beginning of the period (11,572) (7,634) (7,634)
Provided in the period (468) (191) (613)
Impairment charge - - (3,325)
At the end of the period (12,040) (7,825) (11,572)
--------------------------------- ------------ ------------ ----------
Net book value 353 4,155 747
--------------------------------- ------------ ------------ ----------
During the year ended 31 July 2019, the Group posted an
impairment charge against the new facility in Runcorn due to the
lack of firm customer orders (GBP3,325,000, 2018: GBPnil).
8. Intangible assets
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
Cost GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ ----------
At the beginning of the period 6,713 5,670 5,670
Additions in the period 316 553 1,043
At the end of the period 7,029 6,223 6,713
--------------------------------- ------------ ------------ ----------
Amortisation
--------------------------------- ------------ ------------ ----------
At the beginning of the period (2,816) (2,238) (2,238)
Provided in the period (309) (254) (552)
Impairment charge - - (26)
At the end of the period (3,125) (2,492) (2,816)
--------------------------------- ------------ ------------ ----------
Net book value 3,904 3,731 3,897
--------------------------------- ------------ ------------ ----------
Contingent consideration of $150,000 is payable in respect of a
purchase of patents made during a previous period. The amount is
payable if the Group reaches a revenue target in a future reporting
period. The addition is recorded above at the Directors estimate of
fair value of the consideration payable.
The expenditure recorded above all relates to patents and is
amortised on a straight-line basis over ten years. Ten years is
considered an appropriate basis for amortisation as an average of
the expected useful economic life of the Group's patents if no
additional enhancing expenditure occurred (which could potentially
extend the life of the patents). Amortisation is recognised in
administrative expenses. No individual patents are deemed material
to the Group.
To date the Group has not capitalised any of its development
costs and all such costs are written off as incurred. Careful
judgement by the Directors is applied when deciding whether the
capitalisation 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. All R&D activities related to new products are
continuously monitored by the Directors.
The aggregate original cost of intangible assets now fully
depreciated but considered to be still in use is GBP604,000 (2019:
GBP421,000).
During the year ended 31 July 2019 a review was undertaken to
identify which patents are of no further value to Nanoco and should
be allowed to lapse. Two patent families were identified. As a
result, patents with a value of GBP26,000 were fully impaired. The
impairment charge was recognised within administrative expenses. No
impairment charge has been recognised in the current Period.
9. Trade and other receivables
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ ----------
Trade receivables 51 293 202
Prepayments and accrued income 665 493 383
Other receivables 155 528 532
--------------------------------- ------------ ------------ ----------
Trade and other receivables 871 1,314 1,117
--------------------------------- ------------ ------------ ----------
Trade receivables are non-interest bearing and are generally due
and paid within 30 to 60 days. The Directors have adopted the
practical expedient available in IFRS9 which allows the assumption
that there is no significant financing charge on receivables with a
maturity less than one year, given the Group's experience of no bad
debts in the past 3 years. This in turn allows the receivables to
be stated at their invoice value less any provision for impairment
(instead of calculating an expected credit loss required by IFRS9
if the expedient is not available). The prior periods have been
considered on the same basis and in all cases there is no
requirement for an impairment provision at any of the balance sheet
dates.
10. Trade and other payables
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------- ------------ ------------ ----------
Trade payables 1,111 1,501 1,764
Other payables 97 88 101
Accruals 443 546 688
--------------------------- ------------ ------------ ----------
Trade and other payables 1,651 2,135 2,553
--------------------------- ------------ ------------ ----------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
11. Deferred revenue
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------ ------------ ------------ ----------
Current
Upfront licence fees 102 149 102
Milestone payments - - 1,359
------------------------- ------------ ------------ ----------
Total current 102 149 1,462
------------------------- ------------ ------------ ----------
Non-current
Upfront licence fees 303 399 353
Total non-current 303 399 353
------------------------- ------------ ------------ ----------
Total deferred revenue 405 548 1,815
------------------------- ------------ ------------ ----------
Deferred revenue arises under IFRS where upfront licence fees
have been invoiced (and often paid) in advance of the associated
service provision. Historically the revenue was recognised on a
straight-line basis over the initial term of the contract which led
to a portion of the advance payments being deferred at the period
ends.
12. Contract liabilities
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------------------ ------------- ------------ ----------
Non-current
Balance at the start of the period - 2,885 2,885
Cash advanced from customers - 1,360 1,360
Waiver by customer - - (4,245)
------------------------------------- ------------ ------------ ----------
Contract liabilities - 4,245 -
------------------------------------- ------------ ------------ ----------
Following the adoption of IFRS15, certain advance payments from
the US customer were reclassified in the prior year from deferred
revenue to contract liabilities. The total sum outstanding was
formally waived by the US Customer in the second half of the prior
year as part of the close out negotiations on the final contract
deliverables.
13. Convertible loan
31 January 31 January 31 July
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ ----------
Convertible Series A loan note
2028 400 400 400
Accrued interest 47 20 33
--------------------------------- ------------ ------------ ----------
Convertible loan 447 420 433
--------------------------------- ------------ ------------ ----------
The loan note issued by Nanoco 2D Materials Limited is
unsecured, bears a fixed interest rate of 6.5% p.a. and is fully
repayable with accrued interest in 2028 unless options to convert
into shares of that company have been exercised. Other details are
as set out in the 2019 Annual Report and Accounts.
14. Non-Adjusting Post Balance Sheet Events
Covid-19
The impact of the Covid-19 pandemic on the business and the FSP
is set out in the Business Review and in the sections on Going
Concern and Principal Risks.
FSP
The Group terminated the FSP on 30 April 2020 due to the
challenging market conditions brought about by the Covid-19
pandemic.
Independent review report to Nanoco Group plc
Report on the interim condensed consolidated financial
statements
Our conclusion
We have reviewed Nanoco Group plc's interim condensed
consolidated financial statements (the "interim financial
statements") in the Interim Results of Nanoco Group plc for the 6
month period ended 31 January 2020. Based on our review, nothing
has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
Emphasis of matter - Going Concern
Without modifying our conclusion on the interim financial
statements, we have considered the adequacy of the disclosure made
in note 2 to the interim financial statements concerning the
Group's ability to continue as a going concern. As explained by the
directors in note 2 to the interim financial statements, there are
a number of uncertainties with respect to the going concern status
of the Group. The principal uncertainty is the ability of
management to implement the necessary cost savings in an
appropriately timely manner should significant additional revenues
beyond those already contracted not be secured or, as an
alternative, if other significant sources of medium term funding
not be secured. These conditions, along with the other matters
explained in note 2 to the interim financial statements, indicate
the existence of a material uncertainty which may cast significant
doubt about the Group's ability to continue as a going concern. The
interim financial statements do not include the adjustments that
would result if the Group were unable to continue as a going
concern.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 31 January 2020;
-- the condensed consolidated statement of comprehensive income for the period then ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the Interim Results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Manchester
30 April 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR URRRRRSUSORR
(END) Dow Jones Newswires
April 30, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Nanoco (AQSE:NANO.GB)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Nanoco (AQSE:NANO.GB)
Storico
Da Lug 2023 a Lug 2024