TIDMNANO
RNS Number : 1238E
Nanoco Group PLC
16 October 2018
16 October 2018
NANOCO GROUP PLC
("Nanoco" or the "Company")
Preliminary Results for the year ended 31 July 2018
Nanoco Group plc (LSE: NANO), a world leader in the development
and manufacture of cadmium-free quantum dots and other specific
nanomaterials emanating from our technology platform, is pleased to
announce its preliminary results for the year ended 31 July
2018.
Operational highlights
The Group's nano-material platform technology supports
opportunities across a wide range of markets and end-user
applications. Recent performance in a number of these is summarised
below:
Nano-materials (for use in the electronics industry)(1)
* Excellent progress in the execution of material
development and supply agreements with undisclosed US
Company
* GBP2.6 million received in milestone payments and
fees from these contracts during the year
* Development of new manufacturing facilities in
Runcorn, funded by GBP2.9 million advance payments by
US Company against discounted future product sales
* Expansion project on track to complete by 31 December
2018
* Exploring further revenue generating commercial
service opportunities in advance of product sales
Display
* R&D activity changed focus during the year to improve
dot performance in line with ever increasing
technical requirements of the display industry
* Internal development and production resources pivoted
away from Display to focus on the immediate
nano-materials opportunity in the electronics market
(noted above)
* Progress in Display continues to be hampered by the
slow pace of market evolution
* Working with Wah Hong to provide film to a Taiwanese
display panel maker targeting the gaming monitor
niche. Revised customer launch date pushes back sales,
previously expected in the 2018 Christmas holiday
season
Lighting
* Continue to explore a number of specialist
applications in the UK and US, specifically targeting
commercial vertical farms for vegetables and sports
turf
* CareWear(R) (one of Carewear Corp's products) gaining
early traction in the US
Life sciences
* Further progress in exploring potential uses of the
Company's CFQD technology for imaging and diagnosis
of cancer
* Initial toxicology tests passed successfully
Financial highlights
* Significant increase in billings to GBP6.5 million
(2017: GBP1.1 million)
* Revenue and other operating income more than doubled
to GBP3.5 million (2017: GBP1.6 million)
* Loss after tax cut to GBP6.0 million (2017: GBP9.1
million) with GBP1.5 million full-year benefit of
prior year cost reductions
* GBP7.9 million net proceeds from November 2017
fundraise
* Cash position increased to GBP10.7 million (31
January 2018: GBP8.7 million; 31 July 2017: GBP5.7
million), sufficient to fund Group assuming
commercial production revenues early in H1 FY20. Cash
includes an amount of GBP0.8 million received from a
customer for the purchase of capital equipment. The
cash cannot be used for any other purpose.
* Contingency plans in place to reduce costs and
preserve cash in event of further delays to
commercial revenue streams.
1 The Group's platform technology is built on nano-materials.
Nano-materials for use in the electronics industry are one subset
of that platform. CFQD(R) quantum dots are another subset.
Dr Christopher Richards, Nanoco's Chairman, commented on the
results:
"The last year has clearly shown the benefits of Nanoco's
technological leadership, with some potentially very attractive
commercial opportunities emerging in the short term. The rapid
re-deployment of our internal resources to focus on emerging and
attractive nano-materials opportunities demonstrates our agility
and the strength of the Group's technology platform, which allows
us to respond quickly to our existing customers and to new unmet
needs and opportunities that are emerging.
Our challenge is to execute and deliver on those opportunities
within the constraints of our current resource base. The Executive
team is alert to the potential of further delays in the realisation
of those opportunities and contingency plans are in place to manage
further delays to our commercial development.
While there are still hurdles to overcome and a degree of
uncertainty to be navigated, the Group is currently actively
engaged in potentially transformative technological and commercial
activities. The Board is therefore confident about the relevance of
our technology and excited about the prospects for the Group in
both the short and the long term."
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 8.30am
on 16 October 2018:
http://webcasting.brrmedia.co.uk/broadcast/5bbde6c4269b0c1ded189741
A recording of the webcast will also be made available on
Nanoco's website, www.nanocogroup.com, later today.
A meeting for analysts will be held at 8.30am this morning, 16
October 2018 at the offices of MHP Communications, 6 Agar Street,
WC2N 4HN. For further details please contact MHP Communications on
0203 128 8570.
For further information, please contact:
Nanoco Tel: +44 (0) 161 603 7900
Michael Edelman, Chief Executive
Officer
Brian Tenner, Chief Operating and
Financial Officer
Caroline Watson, Investor Relations Tel: + 44 (0) 7799 897357
Manager
cwatson@nanocotechnologies.com
Peel Hunt Tel: +44 (0) 20 7418 8900
Adrian Trimmings
George Sellar
Guy Pengelley
MHP Communications Tel: +44 (0) 20 3128 8570
Reg Hoare / Giles Robinson / Peter
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 has non-exclusive manufacturing and marketing licensing
agreements in display with The Dow Chemical Company, Merck KGaA of
Germany and Wah Hong Industrial Corporation of Taiwan.
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
Introduction
This has been a year of substantial progress for Nanoco, most
notably in relation to our agreements with a new customer in the
electronics industry ("the US Company") to develop and produce
advanced nano-materials. These new contracts, first announced in
February 2018, represent a significant win against competition from
major international companies. They demonstrate our capability in
the design of nano-materials and our ability to scale up production
to commercial volumes. Potential further agreements are in
discussion which are expected to remove the material uncertainty
that we face with respect to reducing our cost base if commercial
revenues are further delayed.
At the same time, we continue to invest in cadmium-free quantum
dots (CFQD(R) quantum dots) for other sectors. We have made
progress towards commercialisation in the Display sector, while
developing the applications of our technology in both the Life
sciences and Lighting sectors. Meanwhile, our new investment in 2-D
nano-materials, in collaboration with the University of Manchester,
will help to keep the Group at the forefront of developments in
material science in this exciting area.
Business performance
Building on the global technological lead which Nanoco has
developed over recent years, the nano-materials contract wins with
the US Company are a recognition of both the Group's strong
capabilities, and our highly skilled and adaptable professional
staff. The Group has taken advantage of our strengths in technology
and agility, to respond quickly to new commercial opportunities as
they have arisen and where the potential is significant. Our
manufacturing capability at Runcorn and our laboratories in
Manchester are being substantially improved in readiness to enter
commercial production of specific nano-materials and to develop
improved versions of them. Good progress is being made in building
the new customer-funded production facilities at Runcorn.
The performance of our CFQD(R) quantum dots will allow us to
capitalise on commercial opportunities as they arise. The pressure
on the electronics industry to remove toxic cadmium from the supply
chain will add to the attractions of our products. This remains a
critical investment for the Group. While movement of the commercial
display market to quantum dots has been slower than anticipated, we
are actively pursuing 'early adopter' niches such as gaming
monitors. We also continue to support our licensees in their
efforts to access the large-scale TV display market.
Specialist lighting applications continue to make progress. We
look forward to the full launch of CareWear(R) products in the
coming financial year, while potential horticultural commercial
sales are also currently being negotiated. Vertical farming is an
area which is receiving very large investment and we believe our
lighting technology is capable of delivering significant yield and
quality benefits to growers.
In Life sciences, we have made important progress in
demonstrating the safety-in-use of our materials. This will allow
us to move forward towards the development of commercial
applications in several therapeutic areas which we have identified
as most relevant for our technology. The Board recognises that Life
sciences requires different capabilities from our core electronic
materials businesses and is exploring a number of strategic
options, including a possible spin-out and / or partnership of this
business line.
In 2017 we set up Nanoco 2D Materials Limited to develop next
generation 2-D materials, in collaboration with the Nobel Laureate
Professor Konstantin Novosellov. The project is jointly funded with
the University of Manchester. This early stage research has the
potential to take the Group into new areas of nano-materials and
keeps us at the leading edge of this sector.
Financial performance
Revenues and other operating income in the year to 31 July 2018
were GBP3.5 million (2017 GBP1.6 million) and the loss before tax
was GBP7.4 million (2017: loss before tax of GBP10.9 million). Cash
consumption during the year, excluding the benefit of the net
GBP7.9 million equity raised in November 2017, was GBP3.0 million.
With the Group still being at a pre-commercial production stage in
its evolution, our financial focus remains firmly fixed on close
management and control of our cost base and cash resources. Cash,
cash equivalents and deposits at the year end were GBP10.7 million
(31 July 2017: GBP5.7 million; 31 January 2018: GBP8.7 million). No
dividend is proposed for the year (2017: none).
Governance and Board
The Board recognises the value of meeting the highest standards
of corporate governance and will continue to strive to achieve such
standards for the benefit of all stakeholders.
Following the resignation of Keith Wiggins, the Group's former
COO, the Board concluded that an individual with a background in
finance and a strong grounding in operational management would be
the right match for the CEO and CTO. The Board decided therefore to
create a new combined role of Chief Operating Officer and Chief
Financial Officer to be based in the UK.
Brian Tenner was appointed to this new combined role, effective
from 20 August 2018, with previous CFO David Blain standing down
from his position on the Board as a result of this reorganisation.
David remained involved in the business until 15 October 2018 in
order to effect an orderly handover of the CFO duties.
Brian brings significant experience of performing operational
finance roles in a number of diverse industries. He also brings
broad experience of leading publicly listed businesses through
transformation and change at critical points in a business
lifecycle. I welcome Brian to the Board and would like to thank
Keith and David for their contributions to the Group during their
tenure.
Employees and shareholders
On behalf of the Board, I would like to pay tribute to Nanoco's
employees for their achievements during the year. This has been an
exceptionally busy year, even by our own standards. The Group's
exceptional, multi-national team has responded with remarkable
professionalism, flexibility and dedication. The Board is
enormously appreciative of their contributions and commitment to
the Group.
I would also like to thank our shareholders for their continuing
support and look forward to meeting as many as possible at our AGM
to be held on 14 December 2018.
Outlook
The last year has demonstrated the benefits of the technological
leadership which the Group has developed. There are some
potentially very attractive commercial opportunities emerging in
the short term with a particular focus on the electronics market.
Our challenge is to execute and deliver on those opportunities
within the constraints of our current resource base. The Executive
team is alert to the potential for any further delays in the
realisation of those opportunities and contingency plans are in
place to manage any further delays to our commercial
development.
While there are still hurdles to overcome and a degree of
uncertainty to be navigated, the Group is currently actively
engaged in potentially transformative technological and commercial
activities. The Board is therefore confident about the relevance of
our technology and excited about the prospects for the Group in
both the short and the long term.
Dr Christopher Richards
Chairman
16 October 2018
Chief Executive Officer's review
Overview
This has been an exciting but challenging year for the Group. We
have seen significant new opportunities open up in the electronics
industry. These opportunities are a recognition of our
world-leading capability to design and produce commercial volumes
of nano-materials. We have committed significant resources to
further enhance the capabilities of our team which has enabled the
Group to improve the materials offered. We have formed a close
working relationship with a US Company which has demonstrated their
commitment and belief in Nanoco with a number of valuable
collaborative contracts.
The challenges have included setbacks in display, where our
progress in getting a commercial product to market has suffered
further delays, and the commercial supply of nano-materials to the
US Company, which has been pushed back to the second half of
calendar year 2019. This impacts our revenue expectations for the
coming year which are now lower than they would otherwise have
been.
The Group raised GBP8 million of additional equity funding in
November 2017 to support our further development. We are
maintaining close control of our cost base to take advantage of the
restructuring carried out in the prior year. Our goal is to manage
the business within our existing resources until we are generating
meaningful cash flows from one or more of our key market sectors.
Our medium-term goal is to achieve a self-sustaining level of
annual cash flows.
Nano-materials for the electronics industry
Building on our world leading understanding of nano-materials
and our capability to scale-up commercial production, we identified
a potentially valuable opportunity in the electronics market. The
US Company has brought a number of well-funded contracts to the
Group during the year. These projects have focused on scaling-up
and manufacturing specific nano-materials. In order to be ready for
the commercial production of these new materials, we have designed,
built and are in the process of fitting out a new manufacturing
facility at the Group's Runcorn site. The new nano-material
manufacturing facility is on schedule to be completed by 31
December 2018.
We will then continue to push the performance capabilities of
our materials and expect to begin delivery of commercial production
volumes of material in the second half of the 2019 calendar year.
We are part of an extensive supply chain in the electronics market
and, as we announced during the past year, our own future
performance and activities are subject to changes outside our
control. We are therefore continuing to carefully manage and match
our resources to value adding activities. While our work is
currently focused on one large commercial opportunity, our
materials have clear benefits in a wide range of applications and
markets, both within the electronics sector but also in broader
industrial sectors. The Group is also actively exploring further
commercial research and development opportunities to exploit in the
period leading up to full scale production.
Display
We recognise that our display business continues to take longer
than originally anticipated to deliver meaningful commercial
revenues. The technical demands of the display industry have also
continued to increase and so we have allocated more of our R&D
resources to improving the performance of our CFQD(R) quantum dots
in order to keep pace with these demands.
Two years ago we modified our strategy from a pure licensing
model to a hybrid business model; we have licensed our technology
to three different channel partners while also developing our own
manufacturing capability. We have continued to work with our
licence partners Dow, Merck and Wah Hong as our R&D efforts
lead to enhanced product performance, in order to support their
efforts to reach commercial sales agreements with their own
potential customers. We also continue to receive modest minimum
licence fees and royalty payments from our partners.
Our own direct sales efforts are targeted on specific OEM's
within the display sector. In the near term we have focused on
gaming monitors as a first step on the technology pathway to
broader adoption of quantum dots in television mass markets. It
remains the case that the Group is part of a relatively long supply
chain and any delays in that chain which impact product launch
dates can have a considerable knock-on effect on when commercial
revenues can be achieved by Nanoco.
As noted above, the broad base of our nano-material platform
technology (of which CFQD(R) quantum dots are a sub-set), has
allowed us to pivot a significant proportion of our development and
manufacturing resource away from Display to take advantage of the
electronics industry opportunity with the US Company. This
nano-materials opportunity is both more near term and potentially
more commercially significant over the next two financial years
than any of the current display opportunities which continue to be
held back by the slow pace of market development. It is the
strength in depth and skills developed in our Display business over
recent years that has allowed us to take advantage of this
alternative nano-materials opportunity. Meanwhile, we will continue
to invest in CFQD(R) quantum dots R&D and to explore the short
to medium-term commercial opportunities that the Display industry
offers.
Specialist lighting
The properties of properly tuned light in accelerating both
plant growth and the quality and freshness of vegetables in
particular is well documented. The Group's CFQD(R) quantum dots
have been found to be particularly effective in improving crop
yields in both quantity and quality. The Group is working closely
with potential lighting manufacturing and installation companies
which are targeting indoor (vertical) farms. The vertical farming
sector is currently attracting substantial investment and is set to
grow rapidly over the coming years. The Group's CFQD(R) quantum
dots are well placed to support this activity and a number of
near-term commercial opportunities are being worked on.
Nanoco is working with CareWear(R) Corp., a developer and
manufacturer of patented wearable therapeutics that emit specific
wavelengths of light to help professional athletes and patients
recover from injuries faster. CareWear's FDA registered light
therapy delivery system features the first fully flexible,
wearable, ultra-slim light patches that integrate Nanoco's CFQD(R)
quantum dot films, along with a proprietary printed LED substrate,
and a hydrogel interface to adhere the patches to the skin.
CareWear's light patches deliver PhotoBioModulation (PBM)
therapy using a combination of blue and red light to relax muscles,
improve circulation and treat inflammation, which reduces pain and
promotes tissue healing following injury.
Recent university research has shown that CareWear's wearable
therapeutics have a significant effect on recovery from exercise.
Professional sports teams are beginning adoption of CareWear's
light patches as part of the initial deployment strategy into the
sports markets. CareWear(R) is currently shipping product in
commercial quantities and anticipates its wearable light patches to
become a standard of care for the immediate treatment of soft
tissue injuries and reduction of recovery time following intense
activity. We expect demand to grow now that the product is
commercially available.
Life sciences and Solar
Nanoco Life sciences continued to make meaningful pre-clinical
progress in the development of our cancer imaging and diagnostic
agents. The materials have passed initial toxicology tests; further
tests are due to complete during the first half of calendar 2019.
We believe that significant commercial progress for our Life
sciences business line will depend on attracting the right
strategic development partner. The Group is taking the initial
steps to identify such a partner.
Separately, the Group continues to pursue the license of its
Solar assets.
Production capability - Runcorn
We have made a major investment in our Runcorn production
facility during the year. The majority of the Group's capital
expenditure in the year related to the expansion at Runcorn for
production of nano-materials for the US Company mentioned
above.
The cost incurred during the year was GBP2.0 million and the
estimated total cost of expanding the facility is approximately
GBP4.0 million. Funding for the expansion project was provided as
part of one of the collaboration agreements with the US Company.
The end result will be a doubling of the production footprint at
Runcorn and the new facility will have new production equipment,
more than capable of meeting the demanding specifications for our
nano-materials in an electronics supply chain.
Environment / Restriction of Hazardous Substances ("RoHS")
Nanoco is committed to protecting the environment in which our
activities are conducted. This commitment 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 our competitors in
their quantum dot products.
Nanoco has participated actively with regulators on the use of
cadmium-based quantum dots in displays and LED light products. The
European Commission (EC) revised the RoHS exemption last year so
that it immediately ceased for lighting and will end on 31 October
2019 for display products, after which the normal RoHS limit for
cadmium of 100ppm will apply. Nanoco expects that regulations in
other key markets, including China, will fall in line with RoHS in
future. Meanwhile, our contacts with display companies indicate
that most already accept the need for new display products to be
cadmium-free - especially the world leading brands in television,
computer monitor and laptop displays. The current legal exemption
from the cadmium free requirements of RoHS was subject to a final
review by the EC as in April 2018 one European lighting company and
one Chinese QD company requested a further extension.
The EC has also started a project to review the list of toxic
substances that are restricted under RoHS regulations and to review
how to evaluate exemption requests. Indium Phosphide (InP) is
included in materials to be considered for future inclusion in the
RoHS restricted materials list because it is rated as a probable
carcinogen. However, it is far less harmful and does not persist in
the environment as cadmium does. It is important to note that
Nanoco does not use InP in its CFQD(R) quantum dots, which have
been tested and shown to be non-toxic for potential medical use in
cancer imaging and diagnostics. The EC has also included in this
package of work one new request for cadmium based QDs to be used in
'on-chip' LED lighting applications. Nanoco is actively
participating in the review process for the proposed RoHS changes
and continues to champion the use of safer alternatives to
cadmium-based QD.
People
Our employees are our strongest asset. It is their technical
skill and ingenuity which allows the Company to continue to
aggressively innovate and remain at the leading edge of our
industry. We therefore remain committed to ensuring that they have
access to the appropriate resources to keep their skills and
experience up to date. The additional focus this year on our
nano-material opportunity was an example of where we were able to
leverage our scientifically broad based skill set and technical
know-how.
Outlook
It has been a challenging year for the Group due to changes in
programme launches by both our existing and potential new customers
which have had an adverse impact on revenue expectations. In
response to these delays we continue to maintain close control of
our cost base and our cash resources. We remain alert to the
uncertainty around our short term revenue and cash flow
expectations. We have developed contingency plans that will give
the Group time to deal with any further potential delays in
realising new commercial revenue generating opportunities.
On the upside, the rapid progress in developing our
nano-materials into a viable product for use in a highly demanding
electronics environment is a testament to the unique capabilities
of the Group, the flexibility of each member of our staff and the
agility of the organisation as a whole. While currently focusing on
one specific and, for Nanoco, significant commercial opportunity,
we continue to explore other avenues to sell our expertise and high
performing nano-materials. These near term electronics
opportunities will necessarily divert some production resources
away from our Display business where our short term focus will be
on R&D improvements to the performance of our dots so that
medium term commercial opportunities can be exploited as they
emerge.
We are also negotiating a number of new commercial revenue
opportunities for our services in advance of material production
revenues and will inform the market as they are won. Our current
pipeline of opportunities is expected to support revenues in 2019
that are around double those achieved in 2018. We remain positive
about the opportunity ahead of us. The Group has sufficient funding
assuming commercial production revenues begin early in the first
half of FY20. By managing the uncertainty and challenges around our
current short term commercial opportunities we can deliver a
transformative change in the Group's evolution that will create a
robust foundation for our longer term future.
Dr Michael Edelman
Chief Executive Officer
16 October 2018
Financial review
Results
Revenue for the year was GBP3.3 million (2017: GBP1.3 million)
and the loss before tax was GBP7.4 million (2017: GBP10.9
million).
Revenue and other operating income increased by 114.7% to GBP3.4
million (2017: GBP1.6 million).
Revenue from sale of products and services rendered accounted
for 95.6% (2017: 53.6%) of revenues with the balance being royalty
and licence income. Revenue from sale of products was GBP0.2
million (2017: GBP0.5 million).
Revenue from royalties and licences and revenue from the joint
development agreements which comprise payments from customers to
gain preferential treatment in terms of supply or pricing do not
have an associated cost of sale. Cost of sales increased by GBP0.1
million to GBP0.4 million (2017: GBP0.3 million) as a result of
increased sales.
The generation of cash for the Group is important and as a
result the level of billings is considered a key performance
indicator. Billings have increased by GBP5.4 million to GBP6.5
million (2017: GBP1.1 million) as a new development and supply
agreement was signed during the year.
2018 2017
GBP million GBP million
----------------------------------------------------- ------------ ------------
Value of sales invoices ("billings") raised
during the year 6.5 1.1
Movement in deferred income from last year
end to this year 0.1 0.5
Less revenue deferred to future years (3.1) -
----------------------------------------------------- ------------ ------------
Revenue and other operating income per consolidated
statement of comprehensive income 3.5 1.6
----------------------------------------------------- ------------ ------------
The decrease in research and development expenditure of GBP1.5
million to GBP4.0 million (2017: GBP5.5 million) comprises
decreases in R&D labour costs of GBP0.9 million, material costs
and utilities totalling GBP0.6 million. Labour costs represent
77.4% (2017: 72.8%) of total R&D costs with the balance of
costs comprising materials and utility costs.
Total payroll costs (before the charge for share-based payments)
decreased by GBP0.4 million to GBP5.3 million (2017: GBP5.7
million). The decrease in payroll costs is attributable to a 21.8%
decrease in average staff numbers compared to 2017 largely due to
the restructuring that occurred in December 2016. The decrease in
administrative costs of GBP0.3 million to GBP6.5 million reflects
decreased professional fees (GBP0.3 million), depreciation (GBP0.2
million) offset by increases in employee costs (GBP0.3
million).
Non-GAAP measures
The non-GAAP measures of adjusted operating loss and loss before
interest, tax, amortisation and share-based payment charges
("LBITDA") are provided to show the operating loss and loss before
interest and tax, before including non-cash charges and large
non-recurring items, in order to give a clearer understanding of
the loss for the year that reflects cash outflow from the
business.
The adjusted operating loss* for the year ended 31 July 2018 was
GBP7.2 million (2016: GBP10.7 million).
LBITDA was as shown in the table below:
The decrease of GBP3.3 million in LBITDA compared to 2017 is a
result of the higher revenue leading to an increase in gross profit
of GBP1.8 million, a decrease in other operating income of GBP0.1
million and a net decrease in R&D and administrative costs of
GBP1.6 million (excluding the items added back in the table
below).
2018 2017
GBP million GBP million
---------------------------- ------------ ------------
Operating loss (7.4) (10.9)
Share-based payment charge 0.2 0.2
---------------------------- ------------ ------------
Adjusted operating loss* (7.2) (10.7)
Depreciation 0.5 0.7
Amortisation 0.5 0.5
---------------------------- ------------ ------------
LBITDA (6.2) (9.5)
---------------------------- ------------ ------------
The loss before tax was GBP7.4 million (2017: 10.9 million).
The tax credit for the year is GBP1.4 million (2017: GBP1.8
million). The tax credit to be claimed, in respect of R&D
spend, is GBP1.4 million (2017: GBP1.8 million). Overseas
corporation tax was GBPnil million during the year (2017: GBP0.1).
There was no deferred tax credit or charge (2017: GBPnil).
Cash flow and balance sheet
During the year cash, cash equivalents, deposits and short-term
investments increased by GBP5.0 million to GBP10.7 million (2017:
GBP5.7 million) largely as a result of the fundraise of net GBP7.9
million offset by cash outflow from operating activities. At 31
July 2017, cash and cash equivalents include an amount of
GBP840,000 received from a customer for the purchase of capital
equipment. The cash cannot be used for any other purpose.
Tax credits of GBP1.8 million (2017: GBP2.0 million) were
received during the year.
The Group increased its capital spend in tangible assets in the
year to a total of GBP2.2 million (2017: GBP0.4 million).
Expenditure incurred in registering patents totalled GBP0.8 million
(2017: GBP1.2 million) during the year 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.
On 14 November 2017 the Company's shareholders voted in favour
of a placing of 19.9% of the Company's issued share capital raising
approximately GBP7.9 million net of costs. This fundraise
strengthened the Company's balance sheet and helped to alleviate
going concern issues.
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 26 to the preliminary results.
Credit risk
The Group only trades with recognised, credit-worthy 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. The Group does not take out forward contracts against
uncertain or forecast income.
There were no open forward contracts as at 31 July 2018 (2017:
none). The Group's net profit and its 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 are summarised in note 26 to the preliminary results
and were based on the year-end position.
Significant accounting judgements
Set out below are the key accounting matters and judgements
assessed during the year:
o Revenue recognition and deferred income
o Carrying values of intangible assets
o Going concern
o The impact of IFRS 15, Revenue from Contracts with
Customers
The audit committee was closely involved in the above accounting
matters and judgements and further details are set out in the Audit
Committee's report.
A key area is the assessment of going concern due to the
existence of the material uncertainty regarding management's
ability to implement the necessary cost savings in appropriate
timely manner should expected revenues not be secured and further
details of this assessment are set out in note 2(c). Nevertheless,
considering the mitigating actions that can be made and after
making enquiries and considering the uncertainty described above,
the Directors have a reasonable expectation that the Group has
access to adequate resources to continue in operational existence
for the foreseeable future. Accordingly they continue to adopt the
going concern basis in preparing the Consolidated preliminary
results and the Board concluded that it is appropriate to utilise
the going concern assumption.
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 its 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 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. Finally, a number of products are considered
commercially viable but have yet to see demand for full scale
production level quantities. There are a range of risks therefore
that are associated with the different stages of product
development as well as for the Group as a whole.
The Board has established a routine process for carrying out a
robust risk assessment which evaluates and manages the principal
risks faced by the Group. The Board reviews the process and a
detailed review of risks was undertaken by the Audit Committee
during the financial year ended 31 July 2018. The Board has also
established an acceptable level of risk (risk appetite) which is
used to inform the scale and urgency of actions required. Where
risks are deemed to be outside management control, efforts are
focused on mitigating any potential impact. Where all practical
measures to prevent or mitigate risks have been taken and a
residual element of risk still remains, these risks are accepted by
the Group.
Risks are evaluated with respect to probability of occurrence
and the potential impact if a risk crystallised. Where the Group
has identified risks, these are monitored with controls and action
plans to reduce the probability of a risk crystallising and the
impact of each potential event if it did occur.
The principal over-arching 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 able to
be self-funding. As described in mote 2(c), the Directors consider
that a material uncertainty exists regarding the Group's ability to
implement the required cost savings within the necessary timeframe,
as indicated in the downside case, should expected revenues not be
secured. The new agreement with a US Company, agreed in early 2018,
provides attractive cash generating opportunities. However, the
natural consequence of having this attractive new agreement is that
the Group is now inevitably exposed to a new risk in the short term
of 'key customer reliance'. The Group is exposed to the risk of any
delays in the future supply of commercial quantities of products to
this new customer in the same way that the Group is exposed to
delays in the widespread adoption of quantum dots in display
markets. These factors both increase the risk of not becoming
self-funding before existing cash resources are exhausted. The
terms of the agreement with the US Company also require specific
deliverables and milestones to be achieved. Both are being actively
managed and as milestones are achieved and additional customer
relationships are formed these risks will inevitably reduce.
Commercial negotiations are ongoing to secure additional revenues
to mitigate the exposure in this area. As set out in the going
concern statement in note 2(c), management has identified the short
term actions that would need to be taken if no further sales
contracts are agreed.
Summary
We are carefully managing our cash resources and cost base in
the period running up to the expected delivery of commercial
production revenues in the first half of the financial year ending
31 July 2020. This approach to our cash and cost base reflects an
appropriate level of caution given that there is inevitably some
uncertainty surrounding the timing of commercial revenues which are
not yet subject to contract. There is then an associated material
uncertainty which is referenced in the Going Concern Statement with
regard to the timeliness and effectiveness of any contingency plan
around our cost base that has to be implemented in the event of
commercial delays.
The Group has sufficient financial resources to sustain the
expected level of operating losses and cash burn assuming
commercial production revenues are achieved early in the first half
of the financial year ending 31 July 2020. On delivering commercial
production revenues the Group then expects to be able to
significantly reduce our operating losses and cash outflows with a
medium term goal to deliver self-sustaining levels of cash
generation.
Brian Tenner
Chief Operating Officer and Chief Financial Officer
16 October 2018
Forward-looking statements
The disclosures in these Preliminary Results for Nanoco Group
plc (the "Company") and its subsidiaries ("Nanoco" or the "Group")
contain certain forward--looking statements. Although the Board
believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these
expectations will arise. Because the expectations are subject to
risks and uncertainties, actual results may vary significantly from
those expressed or implied by the forward-looking statements based
upon a number of factors. Such forward-looking statements include
the statements under "outlook", prospects and the commercial
success of our CFQDP(R) Papplications and other existing or future
revenue-generating sources, risks related to the Group's ability or
that of its sub-contractors and partners to manufacture products on
a large scale or at all, risks related to the Group's and its
marketing partners' ability to market products on a large scale or
expand market share in the face of changes in customer
requirements, competition and regulatory and technological change,
risks related to the ownership and use of intellectual property,
and risks related to the Group's ability to manage growth. Nanoco
undertakes no obligation to revise or update any forward-looking
statement to reflect events or circumstances after the date of the
Preliminary Results.
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, includes 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 Operating Officer and Chief Financial Officer
16 October 2018
Consolidated statement of comprehensive income
for the year ended 31 July 2018
2018 2017
Notes GBP'000 GBP'000
-------------------------------------------- ------ --------- ---------
Revenue 4 3,315 1,326
Cost of sales (432) (257)
-------------------------------------------- ------ --------- ---------
Gross profit 2,883 1,069
Other operating income 5 136 281
Operating expenses
Research and development expenses (3,960) (5,508)
Administrative expenses (6,468) (6,784)
-------------------------------------------- ------ --------- ---------
Operating loss 6 (7,409) (10,942)
-------------------------------------------- ------ --------- ---------
- before share-based payments (7,152) (10,700)
- share-based payments 22 (257) (242)
-------------------------------------------- ------ --------- ---------
Finance income 8 11 44
Finance expense 8 (7) -
-------------------------------------------- ------ --------- ---------
Loss before taxation (7,405) (10,898)
Taxation 9 1,400 1,788
-------------------------------------------- ------ --------- ---------
Loss after taxation (6,005) (9,110)
Other comprehensive income
Loss on exchange rate translations (13) -
Loss after taxation for the year and total
comprehensive loss for the year (6,018) (9,110)
-------------------------------------------- ------ --------- ---------
Loss per share
Basic and diluted loss for the year 10 (2.21)p (3.82)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 2018
Issued Share-based
equity payment Merger Retained
capital reserve reserve earnings Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- --------- ------------ --------- ---------- ---------
At 31 July 2016 58,057 2,715 (1,242) (40,767) 18,763
Loss for the year and total comprehensive
loss for the year - - - (9,110) (9,110)
Issue of share capital on exercise
of options (note 21) 552 - - - 552
Share-based payments - 242 - - 242
------------------------------------------- --------- ------------ --------- ---------- ---------
At 31 July 2017 58,609 2,957 (1,242) (49,877) 10,447
Loss for the year - - - (6,005) (6,005)
Other comprehensive income - - - (13) (13)
------------------------------------------- --------- ------------ --------- ---------- ---------
Total comprehensive loss - - - (6,018) (6,018)
Issue of share capital on placing
(note 21) 8,578 - - - 8,578
Costs of placing (629) - - - (629)
Share-based payments - 257 - - 257
------------------------------------------- --------- ------------ --------- ---------- ---------
At 31 July 2018 66,558 3,214 (1,242) (55,895) 12,635
------------------------------------------- --------- ------------ --------- ---------- ---------
Company statement of changes in equity
for the year ended 31 July 2018
Issued Share-based Capital
equity payment redemption Retained
capital reserve reserve earnings Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- --------- ------------ ------------ ---------- ---------
At 31 July 2016 135,925 2,715 4,402 (25,125) 117,917
Profit for the year and total comprehensive
profit for the year - - - 30 30
Issue of share capital on exercise
of options (note 21) 552 - - - 552
Share-based payments - 242 - - 242
--------------------------------------------- --------- ------------ ------------ ---------- ---------
At 31 July 2017 136,477 2,957 4,402 (25,095) 118,741
Loss for the year and total comprehensive
profit for the year - - - (50,025) (50,025)
Issue of share capital on placing
(note 21) 8,578 - - - 8,578
Costs of placing (629) - - - (629)
Share-based payments - 257 - - 257
--------------------------------------------- --------- ------------ ------------ ---------- ---------
At 31 July 2018 144,426 3,214 4,402 (75,120) 76,922
--------------------------------------------- --------- ------------ ------------ ---------- ---------
Statement of financial position
at 31 July 2018
Registered no. 05067291
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------ --------- --------- --------- ---------
Assets
Non-current assets
Tangible fixed assets 11 2,604 - 865 -
Intangible assets 12 3,432 - 2,619 -
Investment in subsidiaries 14 - 66,821 - 66,564
----------------------------- ------ --------- --------- --------- ---------
6,036 66,821 3,484 66,564
----------------------------- ------ --------- --------- --------- ---------
Current assets
Inventories 15 217 - 188 -
Trade and other receivables 16 1,415 10,508 669 47,957
Income tax asset 1,400 - 1,837 -
Cash and cash equivalents 17 10,729 43 5,706 4,670
----------------------------- ------ --------- --------- --------- ---------
13,761 10,551 8,400 52,627
----------------------------- ------ --------- --------- --------- ---------
Assets held for sale 13 - - 535 -
----------------------------- ------ --------- --------- --------- ---------
Total assets 19,797 77,372 12,419 119,191
----------------------------- ------ --------- --------- --------- ---------
Liabilities
Current liabilities
Trade and other payables 18 3,020 - 1,318 -
Deferred revenue 20 400 - 102 -
----------------------------- ------ --------- --------- --------- ---------
3,420 - 1,420 -
----------------------------- ------ --------- --------- --------- ---------
Non-current liabilities
Financial liabilities 19 407 450 - 450
Deferred revenue 20 3,335 - 552 -
----------------------------- ------ --------- --------- --------- ---------
3,742 450 552 450
----------------------------- ------ --------- --------- --------- ---------
Total liabilities 7,162 450 1,972 450
----------------------------- ------ --------- --------- --------- ---------
Net assets 12,635 76,922 10,447 118,741
----------------------------- ------ --------- --------- --------- ---------
Capital and reserves
Issued equity capital 21 66,558 144,426 58,609 136,477
Share-based payment reserve 22 3,214 3,214 2,957 2,957
Merger reserve 23 (1,242) - (1,242) -
Capital redemption reserve 23 - 4,402 - 4,402
Retained earnings 24 (55,895) (75,120) (49,877) (25,095)
----------------------------- ------ --------- --------- --------- ---------
Total equity 12,635 76,922 10,447 118,741
----------------------------- ------ --------- --------- --------- ---------
The Parent Company's result for the period ended 31 July 2018
was a loss of GBP50,025,000 (2017: profit of GBP30,000). There were
no other recognised gains or losses in either the current or prior
year.
Dr Michael Edelman Mr Brian Tenner
Director Director
16 October 2018 16 October 2018
Cash flow statements
for the year ended 31 July 2018
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------ --------- --------- --------- ---------
(Loss)/profit before tax (7,405) (50,025) (10,898) 30
Adjustments for:
Net finance income 8 (4) - (44) (30)
Loss on exchange rate translations (13) - - -
Depreciation of tangible fixed
assets 11 504 - 741 -
Amortisation of intangible assets 12 476 - 482 -
Impairment of inter-company
receivable 16 - 50,000 - -
Share-based payments 22 257 - 242 -
Changes in working capital:
(Increase)/decrease in inventories (29) - 20 -
(Increase)/decrease in trade
and other receivables (746) - 1,365 -
Increase/(decrease) in trade
and other payables 1,702 - (1,125) -
Increase/(decrease) in deferred
revenue 20 3,081 - (525) -
------------------------------------- ------ --------- --------- --------- ---------
Cash outflow from operating
activities (2,177) (25) (9,742) -
Research and development tax
credit received 1,837 - 2,000 -
Overseas corporation tax paid - - (79) -
------------------------------------- ------ --------- --------- --------- ---------
Net cash outflow from operating
activities (340) (25) (7,821) -
------------------------------------- ------ --------- --------- --------- ---------
Cash flow from investing activities
Purchases of tangible fixed
assets 11 (2,215) - (374) -
Purchases of intangible fixed
assets 12 (782) - (1,185) -
Inter-company loans to a subsidiary - (12,551) - (4,980)
Decrease in cash placed on deposit 17 - - 5,000 5,000
Interest received 11 - 55 41
------------------------------------- ------ --------- --------- --------- ---------
Net cash (outflow)/inflow from
investing activities (2,986) (12,551) 3,496 61
------------------------------------- ------ --------- --------- --------- ---------
Cash flow from financing activities
Proceeds from placing of ordinary
share capital 8,578 8,578 552 552
Costs of placing (629) (629) - -
Issue of convertible loan note 19 400 - - -
Loan repayment - - (32) -
------------------------------------- ------ --------- --------- --------- ---------
Net cash inflow from financing
activities 8,349 7,949 520 552
------------------------------------- ------ --------- --------- --------- ---------
Increase/(decrease) in cash
and cash equivalents 5,023 (4,627) (3,805) 613
Cash and cash equivalents at
the start of the year 5,706 4,670 9,511 4,057
------------------------------------- ------ --------- --------- --------- ---------
Cash and cash equivalents at
the end of the year 17 10,729 43 5,706 4,670
------------------------------------- ------ --------- --------- --------- ---------
Notes to the preliminary results
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.
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
2018.
The preliminary results of Nanoco Group plc and its subsidiaries
(the "Group") for the year ended 31 July 2018 were authorised for
issue by the Board of Directors on 16 October 2018 and the
statements of financial position were signed on the Board's behalf
by Dr Michael Edelman 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 2017 has been delivered to the Registrar of
Companies. 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 statutory financial statements for the year ended 31 July
2018 will be delivered to the registrar of companies as soon as
practicable. The auditors have reported on those financial
statements and 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 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 preliminary results have been
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ("IFRS") and IFRS
Interpretations Committee ("IFRSC") interpretations as they apply
to the preliminary results of the Group for the year ended 31 July
2018.
(b) Basis of measurement
The Parent Company and Group preliminary results have been
prepared on the historical cost basis. There were no assets or
liabilities that were measured at fair value at 31 July 2018.
(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 are described in
the Financial Review. Furthermore, note 26 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 2018 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
noted earlier in this report. The same base case and downside
sensitivities were also used.
The base case represents the Board's current expectations. The
key assumptions underpinning the base case are:
-- Commercial production levels of nano-materials from Runcorn
do not commence until the second half of calendar year 2019 (that
is, the financial year ending July 2020);
-- Cash generating revenue from display, lighting and other
business lines is limited to contractual amounts already agreed in
royalty and licence agreements and in grant awards. While the Group
continues discussions with a number of potential display customers,
in the interests of being conservative none are assumed to come to
fruition during the forecast period;
-- Revenue generating milestones already under contract are
assumed to be achieved as good progress has already been made on
these. In addition, new research service income is assumed to be
generated based on active discussions and some additional new
milestones under negotiation; and
-- The Group's variable costs grow in line with manufacturing
activities while the fixed overhead base is held broadly flat on
2018.
The base case produces a cash flow forecast that demonstrates
that the Group has sufficient cash throughout the period of the
forecast. The Group also has a medium term goal to achieve
self-sustaining levels of cash flows.
However, the Board acknowledges that there is a risk that some
or all of these non-contracted projects may not convert to sales
during the forecast period. Accordingly, the Board has identified a
downside scenario in which no revenue, except that already under
contract, is achieved during the period. This was considered in
addition to the base case in assessing the going concern status of
the business. The downside scenario could arise from a number of
possible causes which include, but are not limited to, changes in
key customers' supply chains, the replacement of the Group as a
supplier of nano-materials, the expansion of the Runcorn facility
falling short of its design specifications or the failure of our
materials to meet customers' technical specifications.
In the downside scenario, the Group's cash resources would run
out in the third quarter of calendar year 2019 if no action to
reduce current costs is taken. Management has identified a series
of mitigating actions, including cost savings and a reorganisation
of its operations that could be undertaken in the event cash
generating revenues do not materialise. In this scenario the Group
would enact its cost reduction plans in the current financial year
ending 31 July 2019 with the objective of protecting the new
Runcorn facility while reducing other manufacturing capabilities
and indirect overheads. Management would aim to put in place
sub-contract manufacturing agreements to satisfy future demand with
a focus on existing licensees. While management has identified a
number of cost savings, we recognise that our ability to deliver
them in an appropriate timely manner could be constrained by other
business activities.
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
uncertainty regarding the Group's ability to implement cost savings
in the downside case in the necessary timeframe meet the definition
of a "material uncertainty". Nevertheless, considering the
mitigating actions that can be made and after making enquiries and
considering the uncertainties described above, 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 preliminary results. The preliminary
results 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 preliminary results 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 preliminary results 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
preliminary results 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 preliminary results.
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 preliminary results.
Estimates
Equity-settled share-based payments
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 (below) and to the future
volatility of the future share price factor. Further information is
included in note 3.
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 GBPnil (2017: GBP77,000) have been fully impaired
in these preliminary results. 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
investment and inter-company receivable at each reporting date.
Following the assessment of the carrying value of IP within the
investment, and the likely repayment of the receivable by reference
to discounted cash flow forecasts, management has concluded that
the short term loan of the Company to its primary trading
subsidiary, Nanoco Technologies Limited, is now impaired with the
carrying value impaired by GBP50 million (2017: GBPnil). The
quantum of this provision will be reviewed at each reporting
date.
Taxation
Management judgement is required to determine the amount of tax
assets that can be recognised, based upon the likely timing and
level of future taxable profits together with an assessment of the
effect of future tax planning strategies. Further information is
included in note 9.
Judgements
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.
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. Further information is
included in note 3(d).
Assets held for sale
Judgements are required as to whether assets are still required
within the business and, if not, whether they have a realisable
value outwith the Group. This is particularly pertinent if a
particular line of research and development is not likely to be
commercialised by the Group. If such assets are identified they are
separately identified within the preliminary results.
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 22). The Group based its
assumptions and estimates on parameters available when the
consolidated preliminary results 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
The accounting policies set out below are consistent with those
of the previous financial year and are applied consistently by
Group entities.
(a) Basis of consolidation
The Group preliminary results consolidate the preliminary
results 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 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 preliminary results, 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) Foreign currency transactions
Transactions in foreign currencies are initially recorded in the
functional currency by applying the spot rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in
foreign currencies (including those of the Group's US subsidiary)
are retranslated at the functional currency rate of exchange ruling
at the reporting date. All differences are taken to the
consolidated statement of comprehensive income.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates as at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
(c) Segmental reporting
An operating segment is a component of an entity that engages in
business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
entity's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its
performance, and for which discrete financial information is
available. As at the reporting date the Company operated with only
a single segment, being the research, development and manufacture
of products and services based on high performance
nanoparticles.
(d) Revenue recognition
Revenue is recognised to the extent that it is probable that
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured at the fair value of the
consideration received or receivable for the sale of goods or
services, excluding discounts, rebates, VAT and other sales taxes
or duties.
The Group's revenues to date comprise amounts earned under joint
development agreements, individual project development programmes
and material supply and licence agreements and revenue from the
sale of quantum dot products.
Revenues received in advance of work performed from development
programmes are recognised on a straight-line basis over the period
that the development work is being performed as measured by
contractual milestones. Revenue is not recognised where there is
uncertainty regarding the achievement of such milestones and where
the customer has the right to recoup advance payments.
Cash advances from customers for the funding of capital
equipment are accounted for in accordance with IFRIC 18: Transfer
of assets from Customers where the Company retains control over the
related assets. The advances are taken to deferred revenue where
they are expected to be repaid as a proportion of future revenue
under the contract.
Contractual payments received from licence agreements are
recognised as revenue when goods, services or rights and
entitlements are supplied. Upfront licence fees, where control over
the intellectual property has been retained by the Group, are taken
to income on a straight-line basis over the initial period of the
contract in accordance with the continuing obligations under the
contract.
Revenue from the sale of products is recognised at the point of
transfer of risks and rewards of ownership, which is generally on
shipment of product.
(e) Government grants
Government grants are recognised when it is reasonable to expect
that the grants will be received and that all related conditions
are met, usually on submission of a valid claim for payment.
Government grants of a revenue nature are recognised as other
operating income in the consolidated statement of comprehensive
income.
Government grants relating to capital expenditure are deducted
in arriving at the carrying amount of the asset.
(f) Cost of sales
Cost of sales comprises the labour, materials and power costs
incurred in the generation of revenue from products sold and the
rendering of services.
Revenue from royalties and licences, which comprise payments
from customers to gain preferential treatment in terms of supply or
pricing, do not have an associated cost of sale.
(g) Operating loss
Operating losses are stated after research and development and
administration expenses but before finance charges and
taxation.
(h) Research and development
Research costs are charged in the consolidated statement of
comprehensive income as they are incurred. Development costs will
be capitalised as intangible assets when it is probable that future
economic benefits will flow to the Group. Such intangible assets
will be amortised on a straight-line basis from the point at which
the assets are ready for use over the period of the expected
benefit, and will be reviewed for impairment at each reporting date
based on the circumstances at the reporting date.
The criteria for recognising expenditure as an asset are:
-- it is technically feasible to complete the product;
-- management intends to complete the product and use or sell it;
-- there is an ability to use or sell the product;
-- it can be demonstrated how the product will generate probable future economic benefits;
-- adequate technical, financial and other resources are
available to complete the development, use and sale of the product;
and
-- expenditure attributable to the product can be reliably measured.
Development costs are currently charged against income as
incurred since the criteria for their recognition as an asset are
not met, the exception being the costs of filing and maintenance of
intellectual property as these are considered to generate probable
future economic benefits and are capitalised as intangible assets
(see note 12).
(i) Lease payments
Rentals payable under operating leases, which are leases where
the lessor retains a significant proportion of the risks and
rewards of the underlying asset, are charged in the consolidated
statement of comprehensive income on a straight-line basis over the
expected lease term.
Lease incentives received are recognised as an integral part of
the total lease expense, over the term of the lease.
(j) Finance income and expense
Finance income comprises interest income on funds invested and
changes in the fair value of financial assets at fair value through
the consolidated statement of comprehensive income. Interest income
is recognised as interest accrues using the effective interest rate
method.
Finance expense comprises interest expense on borrowings. All
borrowing costs are recognised using the effective interest
method.
(k) Income tax
Income tax expense comprises current and deferred tax. Income
tax expense is recognised in the consolidated statement of
comprehensive income except to the extent that it relates to items
recognised directly in equity or in other comprehensive income.
Current income tax assets (including research and development
income tax credit) and liabilities for the current and prior
periods are measured at the amount expected to be recovered from,
or paid to, the tax authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively
enacted by the reporting date.
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the preliminary results with the following
exceptions:
-- where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss; and
-- in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable
future.
Deferred income tax assets and liabilities are measured on an
undiscounted basis using the tax rates and tax laws that have been
enacted or substantively enacted by the balance sheet date and
which are expected to apply when the related deferred tax asset is
realised or the deferred tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profits will be available against
which differences can be utilised. An asset is not recognised to
the extent that the transfer of economic benefits in the future is
uncertain.
Deferred income tax assets and liabilities are offset only if a
legally enforceable right exists to set off current tax assets
against current tax liabilities, the deferred income taxes relate
to the same taxation authority and that authority permits the Group
to make a single payment.
(l) Property, plant and equipment
Property, plant and equipment assets are recognised initially at
cost. After initial recognition, these assets are carried at cost
less any accumulated depreciation and any accumulated impairment
losses. Cost comprises the aggregate amount paid and the fair value
of any other consideration given to acquire the asset and includes
costs directly attributable to making the asset capable of
operating as intended.
Depreciation is computed by allocating the depreciable amount of
an asset on a systematic basis over its useful life and is applied
separately to each identifiable component.
The following bases and rates are used to depreciate classes of
assets:
Laboratory infrastructure - straight line over remainder of lease period (two to ten years)
Fixtures and fittings - straight line over five years
Office equipment - straight line over three years
Plant and machinery - straight line over five years
The carrying values of tangible fixed assets are reviewed for
impairment if events or changes in circumstances indicate that the
carrying value may not be recoverable, and are written down
immediately to their recoverable amount. Useful lives and residual
values are reviewed annually and where adjustments are required
these are made prospectively.
A tangible fixed asset item is derecognised on disposal or when
no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on the
derecognition of the asset is included in the consolidated
statement of comprehensive income in the period of
derecognition.
(m) Intangible assets
Intangible assets acquired either as part of a business
combination or from contractual or other legal rights are
recognised separately from goodwill provided they are separable and
their fair value can be measured reliably. This includes the costs
associated with acquiring and registering patents in respect of
intellectual property rights.
Where consideration for the purchase of an intangible asset
includes contingent consideration, the fair value of the contingent
consideration is included in the cost of the asset.
Where intangible assets recognised have finite lives, after
initial recognition their carrying value is amortised on a
straight-line basis over those lives. The nature of those
intangibles recognised and their estimated useful lives are as
follows:
Patents - straight line over ten years
(n) Impairment of assets
At each reporting date the Group reviews the carrying value of
its plant, equipment and intangible assets to determine whether
there is an indication that these assets have suffered an
impairment loss. If any such indication exists, or when annual
impairment testing for an asset is required, the Company makes an
assessment of the asset's recoverable amount.
An asset's recoverable amount is the higher of an asset's or
cash-generating unit's fair value less costs to sell and its value
in use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. Where the carrying
value of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. In determining fair value less
costs of disposal, an appropriate valuation model is used and these
calculations are corroborated by valuation multiples or other
available fair value indicators. Impairment losses on continuing
operations are recognised in the consolidated statement of
comprehensive income in those expense categories consistent with
the function of the impaired asset.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously recognised
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since
the last impairment loss was recognised. If that is the case the
carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount
that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. Such
reversal is recognised in the consolidated statement of
comprehensive income unless the asset is carried at a revalued
amount, in which case the reversal is treated as a valuation
increase. After such a reversal the depreciation charge is adjusted
in future periods to allocate the asset's revised carrying amount,
less any residual value, on a systematic basis over its remaining
useful life.
The carrying values of plant and equipment as at the reporting
date have not been subjected to impairment charges.
After an extensive review during the current year no patents
were identified that required further impairment. An impairment
loss in the previous year in respect of intangible fixed assets is
described in note 12.
(o) Assets held for sale
Non-current assets are classified as held for sale if their
carrying amounts will be recovered principally through a sale
transaction, rather than through continuing use. They are measured
at the lower of carrying amount and fair value less costs to sell,
which are incremental costs directly attributable to the disposal
of the asset. The carrying value is assessed at each reporting
period.
Property, plant and equipment and intangible assets are not
amortised once classified as held for sale. Assets classified as
held for sale are presented separately as current assets in the
statement of financial position.
(p) Investments in subsidiaries
Investments in subsidiaries are stated in the Company statement
of financial position at cost less provision for any
impairment.
(q) Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost based on latest contractual prices includes all costs
incurred in bringing each product to its present location and
condition. Net realisable value is based on estimated selling price
less any further costs expected to be incurred to disposal.
Provision is made for slow-moving or obsolete items.
(r) Financial instruments
Financial assets and financial liabilities are recognised when
the Group becomes party to the contractual provisions of the
relevant instrument and derecognised when it ceases to be party to
such provisions. Such assets and liabilities are classified as
current if they are expected to be realised or settled within
twelve months after the balance sheet date. Financial assets and
liabilities are initially recognised at fair value and subsequently
measured at either fair value or amortised cost including directly
attributable transaction costs.
The Group has the following categories of financial assets and
liabilities:
Loans and receivables
(i) Trade and other receivables
Trade receivables, which generally have 30 to 60-day terms, are
recognised and carried at the lower of their original invoiced
value and recoverable amount. The time value of money is not
material.
Provision is made when there is objective evidence that the
Group will not be able to recover balances in full. Significant
financial difficulties faced by the customer, probability that the
customer will enter bankruptcy or financial reorganisation and
default in payments are considered indicators that the trade
receivable is impaired. The amount of the provision is the
difference between the asset's carrying amount and the present
value of estimated future cash flows, discounted at the original
effective interest rate. The carrying value of the asset is reduced
through the use of an allowance account, and the amount of the loss
is recognised in the consolidated statement of comprehensive income
within administrative expenses.
When a trade receivable is uncollectable, it is written off
against the allowance account for trade receivables.
(ii) Cash, cash equivalents and short-term investments
Cash and cash equivalents comprise cash at hand and deposits
with maturities of three months or less. Short-term investments
comprise deposits with maturities of more than three months, but no
greater than twelve months.
Financial liabilities at amortised cost
(i) Trade and other payables
Trade and other payables are non-interest bearing and are
initially recognised at fair value. They are subsequently measured
at amortised cost using the effective interest rate method.
(ii) Loans and Convertible loan notes
Obligations for loans and borrowings are measured initially at
fair value and subsequently interest-bearing loans are measured at
fair value. Convertible loan notes are presented as financial
liabilities as rights of the note holder to convert the loan notes
into equity are within the control of the Company.
(s) Share capital
Proceeds on issue of shares are included in shareholders'
equity, net of transaction costs. The carrying amount is not
re-measured in subsequent years.
(t) Shares held by the Employee Benefit Trust ("EBT")
Following the exercise on 2 August 2016 upon which jointly owned
shares were transferred to the sole beneficiary, there are no
further shares held in the EBT. Administration of the Trust has
been maintained during the current period.
(u) Share-based payments
Equity-settled share-based payment transactions are measured
with reference to the fair value at the date of grant, recognised
on a straight-line basis over the vesting period, based on the
Company's estimate of shares that will eventually vest. Fair value
is measured using a suitable option pricing model.
At each reporting date before vesting, the cumulative expense is
calculated, representing the extent to which the vesting period has
expired and management's best estimate of the achievement or
otherwise of non-market conditions and the number of equity
instruments that will ultimately vest. The movement in cumulative
expense since the previous reporting date is recognised in the
consolidated statement of comprehensive income, with a
corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new
award is designated as replacing a cancelled or settled award, the
cost based on the original award terms continues to be recognised
over the original vesting period. In addition, an expense is
recognised over the remainder of the new vesting period for the
incremental fair value of any modification, based on the difference
between the fair value of the original award and the fair value of
the modified award, both as measured on the date of the
modification. No reduction is recognised if this difference is
negative.
Where awards are granted to the employees of the subsidiary
company, the fair value of the awards at grant date is recorded in
the Company's preliminary results as an increase in the value of
the investment with a corresponding increase in equity via the
share-based payment reserve.
(v) Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The
assets of the scheme are held separately from those of the Company
in an independently administered fund. The amounts charged against
profits represent the contributions payable to the scheme in
respect of the accounting period.
(w) New accounting standards and interpretations
The following amendments to IFRS 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 2017:
-- Disclosure initiative - amendments to IAS 7 Statement of Cash Flows;
-- Amendments to IAS 12: Recognition of Deferred Tax Assets for unrelieved losses.
The adoption of these amendments did not have an impact on the
current period or any prior period.
New standards not yet adopted
The IASB has published three new accounting standards relevant
to the Group that will be mandatory in future periods. These
standards have not been early adopted in these consolidated
preliminary results. The Group's initial assessment of the future
impact of these new standards is as follows:
IFRS 9 Financial Instruments (effective for annual periods
beginning on or after 1 January 2018)
The Group will adopt the new standard on 1 August 2018 and will
not restate comparative information. Following the assessment of
the impact of the standard, based on currently available
information, the impairment requirements of IFRS 9, which require
the Group to record expected credit losses on debt securities,
loans and trade receivables on either a 12 month or lifetime basis,
are likely to lead to an increase in the loss allowance.
The Group does not expect that the classification and
measurement requirements of IFRS 9, in the context of the
simplicity of the group's financial instruments, will lead to a
significant impact on the group balance sheet or on its equity.
IFRS 15 Revenue from Contracts with Customers (effective for
annual periods beginning on or after 1 January 2018)
The new revenue standard provides a five-step model for revenue
recognition and disclosure in a framework that is designed to
improve comparability of revenue amounts over a range of
industries, companies and geographical boundaries. The standard can
significantly change an issuer's timing of recognition of revenue,
among other changes and is effective for Nanoco in the year ending
31 July 2019.
IFRS 15 requires the identification of deliverables in contracts
with customers that qualify as performance obligations. The
transaction price receivable from customers must be allocated
between the Company's performance obligations under contracts on a
relative stand-alone basis. Where goods or services sold together
are concluded to be distinct performance obligations, revenue
allocated to such goods or services is recognised when the control
of goods passes to the customer or as the service is delivered.
Detailed reviews of revenue arrangements are under way and will
continue into 2018/19 as we finalise our assessment of the impact
of the new standard. Key matters arising from the assessment relate
to the identification of performance obligations and determining
when they are satisfied.
Based on work to date we expect that one contract will be
impacted by IFRS 15 in that an upfront licence fee, currently
recognised over the life of the agreement (seven and a half years)
under IAS 18, will be recognised over time, based on the number of
units of product sold under IFRS 15 thereby deferring revenues and
profits recognised under IAS 18 in the early years of the
agreement.
We continue to assess the impact of the introduction of IFRS 15
on how we measure revenue for services performed under the major
contract signed during the year with our US customer.
When IFRS 15 is adopted, it can be applied either on a fully
retrospective basis, requiring the restatement of the comparative
periods presented in the preliminary results, or with the
cumulative retrospective impact of IFRS 15 applied as an adjustment
to equity on the date of adoption. When the latter approach is
applied it is necessary to disclose the impact of IFRS 15 on each
line item in the preliminary results in the reporting period. A
cumulative retrospective approach as modified in accordance with
the standard is expected to be taken.
IFRS 16 Leases (effective for annual periods beginning on or
after 1 January 2019)
The new leases standard changes the previous lease accounting
model so a lessee will now reflect more assets and liabilities
arising from leases on its balance sheet. This can substantially
affect key financial ratios, including ratios related to debt
covenants or debt-to-equity ratios.
The Group expects to recognise certain assets and liabilities
(as outlined in note 25) on initial recognition of this standard,
and it is expected to have an impact on the consolidated income
statement and balance sheet. However, the Group only has a limited
number of off-balance sheet leases classified as operating leases
under current lease accounting requirements per IAS 17 Leases.
Amendments to IFRS 2 Classification and Measurement of
Share-based Payment Transactions (effective for annual periods
beginning on or after 1 January 2018)
The amendments are intended to eliminate diversity in practice,
but are narrow in scope and address specific areas of
classification and measurement. We do not anticipate the
introduction of these amendments will have a material impact on our
preliminary results.
4. Segmental information
Operating segments
At 31 July 2018 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 Chief Executive Officer) 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
2018 2017
GBP'000 GBP'000
------------------------ --------- ---------
Analysis of revenue
Products sold 168 470
Rendering of services 3,000 241
Royalties and licences 147 615
------------------------ --------- ---------
3,315 1,326
------------------------ --------- ---------
There was one material customer who generated revenue of
GBP3,000,000 (2017: two material customers amounting to GBP832,000
and GBP150,000).
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
2018 2017
GBP'000 GBP'000
----------------------- --------- ---------
Revenue
UK 9 167
Europe (excluding UK) 42 843
Asia 176 163
USA 3,088 153
----------------------- --------- ---------
3,315 1,326
----------------------- --------- ---------
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 GBP7,405,000 (2017:
GBP10,898,000).
5. Other operating income
31 July 31 July
2018 2017
GBP'000 GBP'000
----------------------------------- --------- ---------
Government grants 136 213
Other income - insurance proceeds - 68
----------------------------------- --------- ---------
136 281
----------------------------------- --------- ---------
6. Operating loss
31 July 31 July
2018 2017
GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Operating loss is stated after charging:
Depreciation of tangible fixed assets (see note 11) 504 741
Amortisation of intangible assets (see note 12) 476 405
Impairment of intangible assets (see note 12) - 77
Staff costs (see note 7) 5,577 5,947
Foreign exchange losses 64 43
Research and development expense* 3,960 5,508
Share-based payments 257 242
Operating lease rentals (see note 25):
Land and buildings 867 733
------------------------------------------------------- ---------
* Included within research and development expense are
staff costs totalling GBP3,076,000 (2017: GBP4,011,000)
also included in note 7.
Auditor's remuneration
Audit services:
- Fees payable to Company auditor for the audit of
the Parent and the consolidated accounts 82 60
- Auditing the accounts of subsidiaries pursuant
to legislation 58 30
Fees payable to Company auditor for other services:
- Assurance services in connection with the review
of interim results 12 22
- Services relating to corporate finance transactions
not covered above 25 30
------------------------------------------------------- --------- ---------
Total auditor's remuneration 177 142
------------------------------------------------------- --------- ---------
7. Staff costs
31 July 31 July
2018 2017
GBP'000 GBP'000
---------------------------------------------------------- --------- ---------
Wages and salaries 4,587 4,947
Social security costs 445 453
Pension contributions 288 305
Share-based payments 257 242
---------------------------------------------------------- --------- ---------
5,577 5,947
---------------------------------------------------------- --------- ---------
Directors' remuneration (including benefits in kind)
included in the aggregate remuneration above comprised:
Emoluments for qualifying services 1,015 1,071
---------------------------------------------------------- --------- ---------
Directors' emoluments (excluding social security costs and
long-term incentives, but including benefits in kind) disclosed
above include GBP312,000 paid to the highest paid Director (2017:
GBP327,000). Details of the compensation of key management
personnel are described in note 28.
Pension contributions into money purchase pension schemes were
made for four Directors (2017: four).
Aggregate gains made by Directors during the year following the
exercise of share options and jointly owned EBT shares were GBPnil
(2017: GBPnil).
Not included in the costs reported above are share awards to be
made to Directors under the Deferred Bonus Plan amounting to GBPnil
(2017: GBPnil) which are included in the Directors' remuneration
report. The awards are recognised in the income statement by way of
a share-based payment charge over the deferral period as required
by IFRS 2.
An analysis of the highest paid Director's remuneration is
included in the Directors' remuneration report.
The average number of employees during the year (including
Directors) was as follows:
31 July 31 July
2018 2017
Group Number Number
------------------------------------- -------- --------
Directors 7 8
Laboratory and administrative staff 79 102
------------------------------------- -------- --------
86 110
------------------------------------- -------- --------
8. Finance income and expense
31 July 31 July
2018 2017
Group GBP'000 GBP'000
--------------------- --------- ---------
Finance income
Interest receivable 11 44
Finance expense
Loan note interest (7) -
--------------------- --------- ---------
4 44
--------------------- --------- ---------
9. Taxation
The tax credit is made up as follows:
31 July 31 July
2018 2017
Group GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Current income tax
Research and development income tax credit receivable (1,400) (1,837)
Adjustment in respect of prior years - (30)
Overseas corporation tax - 79
------------------------------------------------------- --------- ---------
(1,400) (1,788)
Deferred tax
Charge for the year - -
------------------------------------------------------- --------- ---------
Total income tax credit (1,400) (1,788)
------------------------------------------------------- --------- ---------
The adjustments in respect of prior years relate to research and
development income tax credits. The research and development income
tax for the year ended 31 July 2017 was submitted in May 2018 and
the repayment was received in June 2018. The income tax receivable
shown in the statement of financial position is the R&D tax
credit receivable reported above.
The tax assessed for the year varies from the standard rate of
corporation tax as explained below:
31 July 31 July
2018 2017
Group GBP'000 GBP'000
---------------------------------------------------- --------- ---------
Loss before taxation (7,405) (10,898)
---------------------------------------------------- --------- ---------
Tax at standard rate of 19% (2017: 19.67%) (1,407) (2,143)
Effects of:
Expenses not deductible for tax purposes 3 24
Capital allowances in excess of depreciation (62) 54
Additional deduction for research and development
expenditure (1,037) (1,405)
Surrender of research and development relief
for repayable tax credit 1,839 2,492
Research and development tax credit receivable (1,400) (1,837)
Share options exercised (CTA 2009 Pt 12 deduction) - (17)
Overseas corporation tax - 79
Losses and share-based payment charges carried
forward not recognised in deferred tax 669 995
Adjustment in respect of rate changes (5) -
Adjustment in respect of prior years - (30)
---------------------------------------------------- --------- ---------
Tax credit in income statement (1,400) (1,788)
---------------------------------------------------- --------- ---------
The Group has accumulated losses available to carry forward
against future trading profits of GBP32.2 million (2017: GBP29.1
million).
Deferred tax liabilities/(assets) provided/(recognised) at a
standard rate of 17% (2017: 17%) are as follows:
31 July 31 July
2018 2017
GBP'000 GBP'000
-------------------------------- --------- ---------
Accelerated capital allowances 407 83
Tax losses (407) (83)
-------------------------------- --------- ---------
- -
-------------------------------- --------- ---------
The Group also has deferred tax assets, measured at a standard
rate of 17% (2017: 17%), in respect of share-based payments of
GBP23,000 (2017: GBP369,000) and tax losses of GBP5,486,000 (2017:
GBP4,951,000) which have not been recognised as an asset as it is
not yet probable that future taxable profits will be available
against which the assets can be utilised.
10. Earnings per share
31 July 31 July
2018 2017
Group GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Loss for the financial year attributable to
equity shareholders (6,005) (9,110)
Share-based payments 257 242
------------------------------------------------ ------------ ------------
Loss for the financial year before share-based
payments (5,748) (8,868)
------------------------------------------------ ------------ ------------
Weighted average number of shares
Ordinary shares in issue 271,964,590 238,180,510
------------------------------------------------ ------------ ------------
Adjusted loss per share before share-based
payments (pence) (2.11) (3.72)
------------------------------------------------ ------------ ------------
Basic loss per share (pence) (2.21) (3.82)
------------------------------------------------ ------------ ------------
Diluted loss per share has not been presented above as the
effect of share options issued is anti-dilutive.
11. Property, plant and equipment
Assets Office
under equipment, Plant
construction Laboratory fixtures and
GBP'000 infrastructure and fittings machinery Total
Group GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- ---------------- -------------- ----------- ---------
Cost
At 1 August 2016 - 2,645 256 4,748 7,649
Additions 10 139 225 374
Reclassified as assets held
for sale (note 13) - - - (203) (203)
------------------------------- --------------- ---------------- -------------- ----------- ---------
At 31 July 2017 - 2,655 395 4,770 7,820
Additions 1,391 748 44 32 2,215
Reclassified from assets held
for sale (note 13) - - - 203 203
------------------------------- --------------- ---------------- -------------- ----------- ---------
At 31 July 2018 1,391 3,403 439 5,005 10,238
------------------------------- --------------- ---------------- -------------- ----------- ---------
Depreciation
At 1 August 2016 - 2,401 208 3,780 6,389
Provided during the year - 213 55 473 741
Reclassified as assets held
for sale (note 13) - - - (175) (175)
------------------------------- --------------- ---------------- -------------- ----------- ---------
At 31 July 2017 - 2,614 263 4,078 6,955
Provided during the year - 12 66 426 504
Reclassified from assets held
for sale (note 13) - - - 175 175
------------------------------- --------------- ---------------- -------------- ----------- ---------
At 31 July 2018 - 2,626 329 4,679 7,634
------------------------------- --------------- ---------------- -------------- ----------- ---------
Net book value
At 31 July 2018 1,391 777 110 326 2,604
------------------------------- --------------- ---------------- -------------- ----------- ---------
At 31 July 2017 - 41 132 692 865
------------------------------- --------------- ---------------- -------------- ----------- ---------
The aggregate original cost of tangible assets now fully
depreciated but considered to be still in use is GBP6,790,000
(2017: GBP5,081,000). Assets under construction (plant and
machinery) relate to the expansion of our Runcorn facility and
these assets will commence to be depreciated once the plant is
fully commissioned.
12. Intangible assets
Patents
Group GBP'000
-------------------------------------------------- ---------
Cost
At 1 August 2016 3,703
Additions 1,185
Reclassified as assets held for sale (note 13) (597)
-------------------------------------------------- ---------
At 31 July 2017 4,291
Additions 782
Reclassified from assets held for sale (note 13) 597
-------------------------------------------------- ---------
At 31 July 2018 5,670
-------------------------------------------------- ---------
Amortisation
At 1 August 2016 1,280
Provided during the year 405
Impairment charge 77
Reclassified as assets held for sale (note 13) (90)
-------------------------------------------------- ---------
At 31 July 2017 1,672
Provided during the year 476
Impairment charge -
Reclassified from assets held for sale (note 13) 90
-------------------------------------------------- ---------
At 31 July 2018 2,238
-------------------------------------------------- ---------
Net book value
At 31 July 2018 3,432
-------------------------------------------------- ---------
At 31 July 2017 2,619
-------------------------------------------------- ---------
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.
Intangible assets are amortised on a straight-line basis over
ten years. Amortisation provided during the period is recognised in
administrative expenses. The Group does not believe that any of its
patents in isolation are material to the business. The aggregate
original cost of intangible assets now fully depreciated but
considered to be still in use is GBP471,000 (2017: GBP161,000).
During the year an extensive review was undertaken to identify
which patents are of no further value to Nanoco and should be
allowed to lapse. No such patents were identified. As a
consequence, patents with a value of GBPNil (2017: GBP77,000) have
been fully impaired in these preliminary results. The impairment
charge is recognised within administrative expenses.
13. Assets held for sale
Plant Intellectual
and property
machinery GBP'000 Total
GBP'000 GBP'000
-------------------------------- ----------- ------------- ---------
At 1 August 2017 28 507 535
Reclassified during the period (28) (507) (535)
-------------------------------- ----------- ------------- ---------
At 31 July 2018 - - -
-------------------------------- ----------- ------------- ---------
At 31 July 2017 these assets represented those held for sale
following the Board's decision to dispose of the equipment and
intellectual property arising from the Group's studies on solar
power generation using CIGS (copper indium gallium selenide)
materials. The Directors considered that these assets would be
disposed of within twelve months through a sale transaction. Upon
reclassification no re-measurement was necessary and therefore
there have been no gains or losses recognised. All of the assets
are held by the one operating segment. However, during the current
year the Board decided that the assets were of continuing value to
the Group's activities and therefore they have been reclassified
back to tangible and intangible assets as disclosed above.
Additional amortisation of GBP30,000 and depreciation of GBP16,000
was charged to administrative expenses in the current period to
account for the fact that such charges were not made during the
time when the assets were held for sale.
14. Investment in subsidiaries
Loan
Shares Loans impairment Total
Company GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- --------- ------------ ---------
At 1 August 2016 63,235 23,373 (20,286) 66,322
Increase in respect of share-based
payments - 242 - 242
------------------------------------ --------- --------- ------------ ---------
At 31 July 2017 63,235 23,615 (20,286) 66,564
Increase in respect of share-based
payments - 257 - 257
------------------------------------ --------- --------- ------------ ---------
At 31 July 2018 63,235 23,872 (20,286) 66,821
------------------------------------ --------- --------- ------------ ---------
By subsidiary
------------------------------ ------- ------- --------- -------
Nanoco Tech Limited 63,235 - - 63,235
Nanoco Life Sciences Limited - 20,286 (20,286) -
Nanoco Technologies Limited - 3,586 - 3,586
------------------------------ ------- ------- --------- -------
At 31 July 2018 63,235 23,872 (20,286) 66,821
------------------------------ ------- ------- --------- -------
Loans to subsidiary undertakings carry no interest and are
repayable on demand. Further information in relation to these loans
is given in note 27.
Share of issued
ordinary share
capital
------------------
Country of 31 July 31 July
Subsidiary undertakings incorporation Principal activity 2018 2017
------------------------- ---------------- ----------------------------- -------- --------
Nanoco Life Sciences England and
Limited Wales Research and development 100% 100%
England and
Nanoco Tech Limited Wales Holding company 100% 100%
Nanoco Technologies England and Manufacture and development
Limited* Wales of nanoparticles 100% 100%
Nanoco 2D Materials England and
Limited Wales Research and development 100% 100%
Nanoco US Inc. ** USA Management services 100% 100%
------------------------- ---------------- ----------------------------- -------- --------
All subsidiaries incorporated in England and Wales are
registered at 46 Grafton Street, Manchester M13 9NT. Nanoco US Inc.
is registered at 33 Bradford Street, Concord, MA 01742.
With the exception of the two companies footnoted below all
other shareholdings are owned by Nanoco Group plc.
* Share capital is owned by Nanoco Tech Limited.
** Nanoco US Inc. is a wholly owned subsidiary of Nanoco Tech
Limited. It was formed in July 2013 primarily in order to provide
the services of US-located staff to the rest of the Group.
15. Inventories
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- --------- --------- --------- ---------
Raw materials, finished goods and consumables 217 - 188 -
----------------------------------------------- --------- --------- --------- ---------
A total of GBP144,000 (2017: GBP80,000) was included in cost of
sales with respect to the cost of inventory expensed during the
year.
16. Trade and other receivables
. 31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- --------- --------- --------- ---------
Trade receivables 290 - 111 -
Prepayments and accrued income 435 - 329 -
Inter-company short-term loan to subsidiary - 60,508 - 47,957
Less impairment provision - (50,000) - -
Other receivables 690 - 229 -
--------------------------------------------- --------- --------- --------- ---------
1,415 10,508 669 47,957
--------------------------------------------- --------- --------- --------- ---------
Following the assessment of the carrying value of IP within the
investment, and the likely repayment of the receivable by reference
to discounted cash flow forecasts, management has concluded that
the short term loan of the Company to its primary trading
subsidiary, Nanoco Technologies Limited, is now impaired with the
carrying value impaired by GBP50 million (2017: GBPnil). The
quantum of this provision will be reviewed at each reporting
date.
Trade receivables are non-interest bearing and are generally due
and paid within 30 to 60 days. The Directors consider that the
carrying amount of trade and other receivables approximates to
their fair value and that no impairment is required at the
reporting date. Therefore there is no provision for impairment at
the balance sheet date (2017: GBPnil).
Trade receivables are denominated in the following currency:
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------ --------- --------- --------- ---------
US Dollars 10 - 15 -
Euros - - 53 -
Sterling 280 - 43 -
------------ --------- --------- --------- ---------
290 - 111 -
------------ --------- --------- --------- ---------
At 31 July the analysis of trade receivables that were past due
but not impaired was as follows:
Past
due
Past but
due not
but impaired
Due not 120
Not but impaired to
yet not >90 150
due impaired days days Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------ --------- ---------- ---------- ---------- ---------
2018 279 11 - - 290
------ --------- ---------- ---------- ---------- ---------
2017 105 6 - - 111
------ --------- ---------- ---------- ---------- ---------
17. Cash and cash equivalents
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- ---------
Cash and cash equivalents 10,729 43 5,706 4,670
--------------------------- --------- --------- --------- ---------
10,729 43 5,706 4,670
--------------------------- --------- --------- --------- ---------
At 31 July 2018, cash and cash equivalents include an amount of
GBP840,000 received from a customer for the purchase of capital
equipment. The cash cannot be used for any other purpose.
Under IAS 7, cash held on long-term deposits (being deposits
with original maturity of greater than three months and no more
than twelve months) that cannot readily be converted into cash must
be classified as a short-term investment. There were no such
deposits at 31 July 2018 (2017: same).
An analysis of cash, cash equivalents and deposits by
denominated currency is given in note 26.
18. Trade and other payables
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
---------------- --------- --------- --------- ---------
Current
Trade payables 2,016 - 814 -
Other payables 126 - 136 -
Accruals 878 - 368 -
---------------- --------- --------- --------- ---------
3,020 - 1,318 -
---------------- --------- --------- --------- ---------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value. The average credit
period taken is 41 days (2017: 37 days).
19. Financial liabilities
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- --------- --------- --------- ---------
Non-current
Long-term loan from subsidiary - 450 - 450
Convertible Series A Loan note 2028 400 - - -
Accrued interest 7 - - -
------------------------------------- --------- --------- --------- ---------
407 450 - 450
------------------------------------- --------- --------- --------- ---------
The loan note issued by Nanoco 2D Materials Limited is
unsecured, bears a fixed interest at 6.5% pa and is fully repayable
with accrued interest in 2028 unless options to convert into shares
of that company have been exercised. The note holders have a right
to convert the loan note into shares of the subsidiary in certain
circumstances but these are within the control of the Company.
Interest is not charged on inter-company loans (2017: no
interest).
There have been no changes in liabilities arising from financing
activities other than described in this note.
20. Deferred revenue
31 July 31 July 31 July 31 July
2018 2018 2017 2017
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------- ---------
Current
Upfront licence fees 102 -- 102 -
Milestone payments 298 - - -
------------------------------ --------- --------- --------- ---------
400 - 102 -
------------------------------ --------- --------- --------- ---------
Non-current
Upfront licence fees 450 - 552 -
Cash advanced from customers 2,885 - - -
------------------------------ --------- --------- --------- ---------
3,335 - 552 -
------------------------------ --------- --------- --------- ---------
3,735 - 654 -
------------------------------ --------- --------- --------- ---------
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. Additionally, cash received in advance
from customers is accounted for in accordance with IFRIC 18, where
the advance may be repaid as a proportion of future revenue under
the contract.
21. Issued equity capital
Reverse
Share Share acquisition
capital premium reserve Total
Group Number GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------------- --------- --------- ------------- ---------
Allotted, called up and fully
paid ordinary shares of 10p
At 31 July 2016 237,077,578 23,708 112,217 (77,868) 58,057
Shares issued on exercise of
options 1,213,750 121 431 - 552
------------------------------- ------------- --------- --------- ------------- ---------
At 31 July 2017 238,291,328 23,829 112,648 (77,868) 58,609
Shares issued on placing 47,655,821 4,766 3,812 - 8,578
Costs of placing - - (629) - (629)
------------------------------- ------------- --------- --------- ------------- ---------
At 31 July 2018 285,947,149] 28,595 115,831- (77,868) 66,558
------------------------------- ------------- --------- --------- ------------- ---------
The balances classified as share capital and share premium
include the total net proceeds (nominal value and share premium
respectively) on issue of the Company's equity share capital,
comprising ordinary shares.
The retained loss and other equity balances recognised in the
Group preliminary results reflect the consolidated retained loss
and other equity balances of Nanoco Tech Limited immediately before
the business combination which was reported in the year ended 31
July 2009. The consolidated results for the period from 1 August
2008 to the date of the acquisition by the Company are those of
Nanoco Tech Limited. However, the equity structure appearing in the
Group preliminary results reflects the equity structure of the
legal parent, including the equity instruments issued under the
share-for-share exchange to effect the transaction. The effect of
using the equity structure of the legal parent gives rise to an
adjustment to the Group's issued equity capital in the form of a
reverse acquisition reserve.
Shares issued on placing
On 15 December 2017, 47,655,821 shares were issued at 18 pence
each.
Share Share
capital premium Total
Company Number GBP'000 GBP'000 GBP'000
-------------------------------------- ------------ --------- --------- ---------
Allotted, called up and fully paid
ordinary shares of 10p
At 31 July 2016 237,077,578 23,708 112,217 135,925
Shares issued on exercise of options 1,213,750 121 431 552
-------------------------------------- ------------ --------- --------- ---------
At 31 July 2017 238,291,328 23,829 112,648 136,477
Shares issued on placing 47,655,821 4,766 3,812 8,578
Costs of placing - - (629) (629)
-------------------------------------- ------------ --------- --------- ---------
At 31 July 2018 285,947,149 28,595 115,831 144,426
-------------------------------------- ------------ --------- --------- ---------
22. Share-based payment reserve
Group and Company GBP'000
---------------------- --------
At 31 July 2016 2,715
Share-based payments 242
---------------------- --------
At 31 July 2017 2,957
Share-based payments 257
---------------------- --------
At 31 July 2018 3,214
---------------------- --------
The share-based payment reserve accumulates the corresponding
credit entry in respect of share-based payment charges. Movements
in the reserve are disclosed in the consolidated statement of
changes in equity.
A charge of GBP257,000 has been recognised in the statement of
comprehensive income for the year (2017: charge of GBP242,000).
Share option schemes
The Group operates the following share option schemes, all of
which are operated as Enterprise Management Incentive ("EMI")
schemes insofar as the share options being issued meet the EMI
criteria as defined by HM Revenue & Customs. Share options
issued that do not meet EMI criteria are issued as unapproved share
options, but are subject to the same exercise performance
conditions.
Nanoco Group plc Long Term Incentive Plan ("LTIP")
Grant in November 2011
Share options were granted to staff and Executive Directors on
25 November 2011. The options granted to Executive Directors were
subject to commercial targets being achieved. The exercise price
was set at 50 pence, being the average closing share price on the
day preceding the issue of the share options. The fair value
benefit is measured using a binomial model, taking into account the
terms and conditions upon which the share options were issued.
Share options issued to staff vest over a three-year period from
the date of grant and are exercisable until the tenth anniversary
of the award, but are not subject to performance conditions.
Grant in October 2012
Share options were granted to staff and Executive Directors on
22 October 2012. The options granted to Executive Directors were
subject to commercial targets being achieved. The exercise price
was set at 57 pence, being the average closing share price on the
day preceding the issue of the share options. The fair value
benefit is measured using a binomial model, taking into account the
terms and conditions upon which the share options were issued.
Share options issued to staff vest over a three-year period from
the date of grant and are exercisable until the tenth anniversary
of the award, but are not subject to performance conditions.
Grant in May 2014
Share options were granted to certain staff on 23 May 2014. The
exercise price was set at 89 pence, being the average closing share
price on the day preceding the issue of the share options. The fair
value benefit is measured using a binomial model, taking into
account the terms and conditions upon which the share options were
issued. The options vest at the end of three years from the date of
grant and are exercisable until the tenth anniversary of the award.
The awards are not subject to performance conditions. Vesting of
the award is subject to the employee remaining a full-time member
of staff at the point of vesting. No options were granted to
Executive Directors.
Grant in October 2014
Share options were granted to an Executive Director on 14
October 2014. The exercise price was set at 10 pence, being the
nominal value of the share. The fair value benefit is measured
using a binomial model, taking into account the terms and
conditions upon which the share options were issued. The options
vest at the end of three years from the date of grant and are
exercisable until the tenth anniversary of the award. The awards
are subject to performance conditions which were amended during the
year so as to be in line with the 2015 LTIP scheme. As a result of
the modification, the fair value of the award was reduced. However,
in accordance with IFRS 2 no change was made to the charge in the
preliminary results. Vesting of the award is subject to the
employee remaining a full-time member of staff at the point of
vesting.
Nanoco Group plc 2015 Long Term Incentive Plan ("LTIP")
Grant in December 2015
Following approval of the new scheme at the 2015 AGM, share
options were granted to four Executive Directors at nil cost. The
fair value benefit is measured using a stochastic model, taking
into account the terms and conditions upon which the share options
were issued. The options vest at the end of the three-year
performance period subject to meeting the performance criteria and
are exercisable after a two-year holding period until the tenth
anniversary of the award.
Grant in April 2016
Share options were granted to an employee on 12 April 2016 at
nil cost. The fair value benefit is measured using a stochastic
model, taking into account the terms and conditions upon which the
share options were issued. The options vest at the end of a
three-year performance period subject to meeting performance
criteria and are exercisable until the tenth anniversary of the
award.
Grant in November 2016
Options were granted to the Executive Directors and all eligible
staff on 22 November 2016 at nil cost. The fair value benefit is
measured using a stochastic model, taking into account the terms
and conditions upon which the share options were issued and are
subject to a two-year holding period. The options vest at the end
of a three-year performance period subject to meeting performance
criteria and are exercisable until the tenth anniversary of the
award.
Grant in December 2017
Options were granted to the Executive Directors and certain
eligible staff on 6 December 2017 at nil cost. The fair value
benefit is measured using a stochastic model, taking into account
the terms and conditions upon which the share options were issued
and are subject to a two-year holding period. The options vest at
the end of a three-year performance period subject to meeting
performance criteria and are exercisable until the tenth
anniversary of the award.
Other awards
Share options are awarded to management and key staff as a
mechanism for attracting and retaining key members of staff. The
options are issued at either market price on the day preceding
grant or, in the event of abnormal price movements, at an average
market price for the week preceding grant date. On 14 October 2015,
unapproved options were granted to a member of staff with an
exercise price of 56.5 pence. These options vest over a three-year
period from the date of grant with performance conditions and are
exercisable until the tenth anniversary of the award. Vesting of
the award is subject to the employee remaining a full-time member
of staff at the point of vesting. The fair value benefit is
measured using a binomial valuation model, taking into account the
terms and conditions upon which the share options were issued.
Shares held in the Employee Benefit Trust ("EBT")
The Group operates a jointly owned EBT share scheme but
currently no shares or options are held within the Trust.
The following tables illustrate the number and weighted average
exercise prices of, and movements in, share options during the
year.
2018
total 2017 total
Group and Company Number Number
---------------------------- ------------ ------------
Outstanding at 1 August 16,136,316 14,008,022
Granted during the year 3,787,608 4,158,821
Exercised during the year - (1,743,839)
Forfeited/cancelled/lapsed (2,670,445) (286,688)
------------------------------ ------------ ------------
Outstanding at 31 July 17,253,479 16,136,316
------------------------------ ------------ ------------
Exercisable at 31 July 10,076,620 9,784,814
------------------------------ ------------ ------------
Weighted average exercise price of options
2018 2017
Group and Company Pence Pence
--------------------------- ------- -------
Outstanding at 1 August 38.6 48.9
Granted during the year - -
Exercised during the year - 31.7
Forfeited/cancelled - 22.6
--------------------------- ------- -------
Outstanding at 31 July 35.9 38.6
--------------------------- ------- -------
The weighted average exercise price of options granted during
the year to 31 July 2018 was nil (2017: nil). The range of exercise
prices for options outstanding at the end of the year was nil-110
pence (2017: nil-110 pence).
For the share options outstanding as at 31 July 2018, the
weighted average remaining contractual life is 6.0 years (2017: 6.4
years).
The following table lists the inputs to the models used for the
years ended 31 July 2018 and 31 July 2017.
Market performance- Non-market performance-
linked grants linked grants
------------------------ --------------------------
Group and Company 2018 2017 2018 2017
--------------------------------- ----------- ----------- ------------ ------------
Expected volatility 62% 59% 62% n/a
Risk-free interest rate 0.52% 0.26% 0.52% n/a
Expected life of options (years
average) 3 3 3 3
Weighted average exercise price nil nil nil nil
Weighted average share price at
date of grant 26p 49p 26p 49p
Model used Stochastic Stochastic Binomial Binomial
--------------------------------- ----------- ----------- ------------ ------------
The expected life of the options is based on historical data and
is not necessarily indicative of exercise patterns that may occur.
The expected volatility reflects the assumption that the historical
volatility is indicative of future trends, which may also not
necessarily be the actual outcome.
Certain awards are subject to a holding period after vesting. A
Finnerty model has been used to determine a discount for the lack
of marketability of the shares.
23. Merger reserve and capital redemption reserve
Merger reserve
Group GBP'000
------------------------------------------------ --------
At 31 July 2016, 31 July 2017 and 31 July 2018 (1,242)
------------------------------------------------ --------
The merger reserve arises under section 612 of the Companies Act
2006 on the shares issued by Nanoco Tech Limited to acquire Nanoco
Technologies Limited as part of a simple Group reorganisation on 27
June 2007.
Capital redemption reserve
Company GBP'000
------------------------------------------------ --------
At 31 July 2016, 31 July 2017 and 31 July 2018 4,402
------------------------------------------------ --------
The capital redemption reserve arises from the off-market
purchase of deferred shares on 4 May 2005 and their subsequent
cancellation.
24. Movement in retained earnings
Foreign currency Total
Profit & translation reserve Treasury retained
loss GBP'000 shares earnings
Group GBP'000 GBP'000 GBP'000
---------------------------- --------- ---------------------- --------- ----------
At 31 July 2016 (40,670) - (97) (40,767)
Loss for the year (9,110) - - (9,110)
Exercise of options (77) - 77 -
---------------------------- --------- ---------------------- --------- ----------
At 31 July 2017 (49,857) - (20) (49,877)
Loss for the year (6,005) - - (6,005)
Other comprehensive income - (13) - (13)
At 31 July 2018 (55,862) (13) (20) (55,895)
---------------------------- --------- ---------------------- --------- ----------
Profit & loss represents the cumulative loss attributable to
the equity holders of the Parent Company.
Historically, treasury shares included the value of Nanoco Group
plc shares issued as jointly owned equity shares and held by the
Nanoco Group-sponsored EBT jointly with a number of the Group's
employees. At 31 July 2018 no shares in the Company were held by
the EBT (2017: nil). In addition there are 12,222 (2017: 12,222)
treasury shares not held by the EBT.
Total
Retained Treasury revenue
deficit shares reserve
Company GBP'000 GBP'000 GBP'000
--------------------- --------- --------- ---------
At 31 July 2016 (25,028) (97) (25,125)
Profit for the year 30 - 30
Exercise of options (77) 77 -
--------------------- --------- --------- ---------
At 31 July 2017 (25,075) (20) (25,095)
Loss for the year (50,025) - (50,025)
At 31 July 2018 (75,100) (20) (75,120)
--------------------- --------- --------- ---------
25. Commitments
Operating lease commitments
The Group leases premises under non-cancellable operating lease
agreements. The future aggregate minimum lease and service charge
payments under non-cancellable operating leases are as follows:
31 July 31 July
2018 2017
Group Group
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Land and buildings:
Not later than one year 988 779
After one year but not more than five years 2,027 2,039
After five years - -
--------------------------------------------- --------- ---------
3,015 2,818
--------------------------------------------- --------- ---------
Capital commitments
At 31 July 2018, the group had capital commitments amounting to
GBP1,940,000 in respect of orders placed for capital expenditure
(2017: GBPnil)
26. Financial risk management
Overview
This note presents information about the Group's exposure to
various kinds of financial risks, the Group's objectives, policies
and processes for measuring and managing risk, and the Group's
management of capital.
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Executive Directors report regularly to the Board on
Group risk management.
Capital risk management
The Company reviews its forecast capital requirements on a
half-yearly basis to ensure that entities in the Group will be able
to continue as a going concern while maximising the return to
stakeholders.
The capital structure of the Group consists of equity
attributable to equity holders of the Parent, comprising issued
share capital, reserves and retained earnings as disclosed in notes
21 to 24 and in the Group statement of changes in equity. At 31
July 2018 total equity was GBP12,635,000 (2017: GBP10,447,000).
The Company is not subject to externally imposed capital
requirements.
Liquidity risk
The Group's approach to managing liquidity is to ensure that, as
far as possible, it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage
to the Group's reputation.
The Group manages all of its external bank relationships
centrally in accordance with defined treasury policies. The
policies include the minimum acceptable credit rating of
relationship banks and financial transaction authority limits. Any
material change to the Group's principal banking facility requires
Board approval. The Group seeks to mitigate the risk of bank
failure by ensuring that it maintains relationships with a number
of investment-grade banks.
At the reporting date the Group was cash positive with no
outstanding borrowings.
Categorisation of financial instruments
Financial
liabilities Loans
Loans at and
and amortised receivables
receivables cost Group Company
Financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- --------- -------------
31 July 2018
Trade receivables 290 - 290 -
Other receivables 75 - 75 -
Inter-company short-term loan to
subsidiary - - - 60,508
Less impairment provision - - - (50,000)
Trade and other payables - (2,894) (2,894) -
Loan notes and accrued interest - (407) (407) -
Inter-company long-term loan from
subsidiary - - - (450)
----------------------------------- ------------- ------------- --------- -------------
365 (3,301) (2,936) 10,058
----------------------------------- ------------- ------------- --------- -------------
Financial
liabilities Loans
Loans at and
and amortised receivables
receivables cost Group Company
Financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- --------- -------------
31 July 2017
Trade receivables 111 - 111 -
Inter-company short-term loan to
subsidiary - - - 47,957
Trade and other payables - (1,318) (1,318) -
Inter-company long-term loan from
subsidiary - - - (450)
----------------------------------- ------------- ------------- --------- -------------
111 (1,318) (1,207) 47,507
----------------------------------- ------------- ------------- --------- -------------
The values disclosed in the above table are carrying values. The
Board considers that the carrying amount of financial assets and
liabilities approximates to their fair value.
The main risks arising from the Group's financial instruments
are credit risk and foreign currency risk. The Board of Directors
reviews and agrees policies for managing each of these risks which
are summarised below.
Credit risk
The Group's principal financial assets are cash, cash
equivalents and deposits. The Group seeks to limit the level of
credit risk on the cash balances by only depositing surplus liquid
funds with multiple counterparty banks that have investment-grade
credit ratings.
The Group trades only with recognised, creditworthy third
parties. Receivable balances are monitored on an ongoing basis with
the result that the Group's exposure to bad debts is not
significant. The Group's maximum exposure is the carrying amount as
disclosed in note 16, which was neither past due nor impaired. All
trade receivables are ultimately overseen by the Chief Financial
Officer and are managed on a day-to-day basis by the UK credit
control team. Credit limits are set as deemed appropriate for the
customer.
The maximum exposure to credit risk in relation to cash, cash
equivalents and deposits is the carrying value at the balance sheet
date.
Foreign currency risk
The Group is exposed to currency risk on sales and purchases
that are denominated in a currency other than the respective
functional currency of the Company. These are primarily US Dollars
("USD") and Euros. Transactions outside of these currencies are
limited.
Almost all of the Company's revenue is denominated in USD. The
Group purchases some raw materials, certain services and some
assets in USD which partly offsets its USD revenue, thereby
reducing net foreign exchange exposure.
The Group may use forward exchange contracts as an economic
hedge against currency risk, where cash flow can be judged with
reasonable certainty. Foreign exchange swaps and options may be
used to hedge foreign currency receipts in the event that the
timing of the receipt is less certain. There were no open forward
contracts as at 31 July 2018 or at 31 July 2017.
The split of Group assets between Sterling and other currencies
at the year end is analysed as follows (Company assets are all in
Sterling):
31 July 2018 31 July 2017
GBP EUR USD Total GBP EUR USD Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Cash and cash equivalents 10,686 17 26 10,729 5,659 7 40 5,706
Trade receivables 280 - 10 290 43 53 15 111
Trade payables (1,571) (79) (366) (2,016) (503) (5) (306) (814)
--------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
9,395 (62) (330) 9,003 5,199 55 (251) 5,003
--------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
All other categories of assets and liabilities in the Statement
of financial position are denominated in Sterling.
Sensitivity analysis to movement in exchange rates
The following table demonstrates the sensitivity to a reasonably
possible change in the Sterling rate against other currencies used
within the business, with all other variables held constant, of the
Group's loss before tax (due to foreign exchange translation of
monetary assets and liabilities) and the Group's equity.
Impact Impact
on loss on loss
before before
tax tax
and Group and Group
equity equity
2018 2017
Increase/(decrease) GBP'000 GBP'000
-------------------- ----------- -----------
10% (54) (32)
5% (28) (16)
(5)% 31 18
(10)% 65 39
-------------------- ----------- -----------
Interest rate risk
As the Group has no significant borrowings the risk is limited
to the reduction of interest received on cash surpluses held at
bank which receive a floating rate of interest. The principal
impact to the Group is to interest-bearing cash and cash equivalent
balances held, which are as set out below:
31 July 2018 31 July 2017
-------------------------------
Fixed Floating Fixed Floating
rate rate Total rate rate Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- --------- --------- ---------
Cash and cash equivalents - 10,729 10,729 - 5,706 5,706
Loan notes (400) - (400) - - -
--------------------------- --------- --------- --------- --------- --------- ---------
Company
--------------------------- --------- --------- --------- --------- --------- ---------
Cash and cash equivalents - 43 43 - 4,670 4,670
--------------------------- --------- --------- --------- --------- --------- ---------
The exposure to interest rate movements is immaterial.
Maturity profile
Set out below is the maturity profile of the Group's financial
liabilities at 31 July 2018 based on contractual undiscounted
payments, including contractual interest.
Less Greater
than One than
one to five five
year years years Total
2018 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- --------- --------- ---------
Financial liabilities
----------------------------------------- --------- --------- --------- ---------
Trade and other payables 2,894 - - 2,894
Convertible loan (including contractual
interest) - - 407 407
----------------------------------------- --------- --------- --------- ---------
2,894 - 407 3,301
----------------------------------------- --------- --------- --------- ---------
Less Greater
than One than
one to five five
year years years Total
2017 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- --------- ---------
Financial liabilities
Trade and other payables 1,318 - - 1,318
-------------------------- --------- --------- --------- ---------
1,318 - - 1,318
-------------------------- --------- --------- --------- ---------
Trade and other payables are due within three months.
The Directors consider that the carrying amount of the financial
liabilities approximates to their fair value.
As all financial assets are expected to mature within the next
twelve months, an aged analysis of financial assets has not been
presented.
The Company's financial liability, a long-term loan from a
subsidiary undertaking, is due after more than five years.
27. Related party transactions
The Group
There were no sales to, purchases from or, at the year end,
balances with any related party.
The Company
The following table summarises inter-company balances at the
year end between Nanoco Group plc and subsidiary entities:
31 July 31 July
2018 2017
Notes GBP'000 GBP'000
-------------------------------------------- ------ --------- ---------
Long-term loans owed to Nanoco Group plc
by
Nanoco Life Sciences Limited 20,286 20,286
Nanoco Technologies Limited* 3,586 3,329
-------------------------------------------- ------ --------- ---------
14 23,872 23,615
Less provision against debt owed by Nanoco
Life Sciences Limited 14 (20,286) (20,286)
-------------------------------------------- ------ --------- ---------
3,586 3,329
-------------------------------------------- ------ --------- ---------
Short-term loan owed to Nanoco Group plc
by
Nanoco Technologies Limited** 16 60,508 47,957
Less impairment provision 16 (50,000) -
-------------------------------------------- ------ --------- ---------
10,508 47,957
-------------------------------------------- ------ --------- ---------
Long-term loan owed by Nanoco Group plc
to
Nanoco Tech Limited 18 (450) (450)
-------------------------------------------- ------ --------- ---------
* The movement in the long-term loan due from Nanoco
Technologies Limited relates to the recharge in respect of the
expense for share-based payments for staff working for Nanoco
Technologies Limited and is included in investments.
** The movement in the short-term loan due from Nanoco
Technologies Limited relates to transfers of cash balances between
the entities for the purposes of investing short-term funds and the
funding of trading losses.
There are no formal terms of repayment in place for these loans
and it has been confirmed by the Directors that the long-term loans
will not be recalled within the next twelve months.
None of the loans are interest bearing.
28. Compensation of key management personnel (including
Directors)
2018 2017
GBP'000 GBP'000
------------------------------ --------- ---------
Short-term employee benefits 1,242 1,218
Pension costs 77 73
Benefits in kind - 32
Share-based payments 243 188
------------------------------ --------- ---------
1,562 1,511
------------------------------ --------- ---------
The key management team comprises the Directors and three
members of staff (2017: two) who are not Directors of the Company.
The staff members of the team are the supply chain and compliance
director, the applications development director and the head of
investor relations.
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
FR BQLBFVBFXFBE
(END) Dow Jones Newswires
October 16, 2018 02:01 ET (06:01 GMT)
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