Nanoco Group share price, company news, analysis and interviews

Nanoco Group plc (LON:NANO) is the topic of conversation when Edison Group’s Director of TMT/Industrials Anne Margaret Crow caught up with DirectorsTalk for an exclusive interview.

Q1: Nanoco Group has announced they’ve received a fourth work package from a major European customer, what’s the work package for?

A1: The work package is with the company’s important European electronics customer and it’s for the delivery of an enhanced and scaled up of its technology. The customer is undisclosed but it’s likely to be ST Microelectronics because they gave a paper at The Society for Information Display in 2021 that was about using quantum dots for shortwave infrared imaging. They noted at the time that they were ready to commercialise the technology and we know that NANO is one of the few companies globally that makes quantum dots.

So, the company’s nanomaterials are probably being used in this work package to extend the sensitivity of silicon sensors into the infrared region. That opens up the potential for cost effective sensors for use in autonomous vehicles and being able to put sensors under the screen of a mobile handset instead of having to put them under a cut-out or notch which eats into the display area.

Q2: What is the significance of the award?

A2: It’s important to note the agreement is for an enhanced and scaled up version of its technology and that’s great because it indicates that the performance the customer has achieved so far with the company’s nanomaterials merits scaling up the process at this point.

Getting to that particular of scale up is consistent with the company’s goal of having visibility of production revenues during calendar H2 2022. This is important because their cash runway for ordinary organic business activities only extends into the second half of the current calendar year.

Q3: That leads me to the financial implications of the award.

A3: Well, the size of the award hasn’t been disclosed, though it was sufficient for the group to guide to a year-on-year increase in revenues for the financial year ending July 2022 whereas previously it had guided to a year-on-year decrease.

We still won’t see big revenues until the customer, ST probably, decides to launch electronic sensors containing the company’s quantum dots and that in turn is going to depend on one or more of ST’s own customers deciding to launch products containing those sensors, and quantum dots go a long way.

So, whilst the company’s existing fabrication facility could potentially output £100 million’s worth of nanomaterials a year if it was working 24/7, making enough nanomaterial to put sensors on a major handset model, sensors including their quantum dots, would take a single shift of production, working 5 days a week, which would be equivalent to £15-£20 million of revenues. That’s if it’s an application requiring very many sensors, if the first application is a niche product such as augmented reality or virtual reality glasses then annual revenues would be a lot less than that £15-£20 million.

There’s a good chance that having one product out in the market with cost effective infrared silicon sensors in it would encourage other electronic companies to start using quantum dot-enhanced silicon sensors as well.

Q4: Are there any implications with regards to Nanoco Group’s valuation?

A4: In our opinion, it doesn’t really change it because although the award of this fourth work package in the series is clearly really good news, because it shows the company moving closer to commercial production, it still hasn’t got to commercial production yet.

Until that definitely happens, we believe that much of the company’s value still lies in a satisfactory resolution of the patent infringement dispute with Samsung. The value of the potential payout in that dispute to the company hasn’t been disclosed but we’ve calculated that the lost revenue in the United States alone, that’s attributable to the patent infringement, to date could be in the region of $200-$250 million or more. Any damages awarded could also make an additional allowance for future sales for TV’s that have got their quantum dots in them and even a possible uplift for wilfulness.

Nanoco Group PLC (LON:NANO) Chief Executive Officer Michael Edelman caught up with DirectorsTalk for an exclusive interview to discuss their interim results, details of the contracts announced, progress in display, funding the business and what to look out for the rest of the year.

Q1: In your recent announcement, you commented about significant progress in the first half of your financial year, can you talk about the key operational and financial highlights?

A1: We delivered all of our 2018 milestones under the original agreement with our US customer, part of that was expanding our Runcorn facility which we have done. We signed a significant follow-on agreement with the same US customer covering the commissioning of the new Runcorn facility and validating the product produced there. We’ve also enhanced our performance of our quantum dots for display.

We’ve finished the period with £6.2 million in cash and we have an order book of £8.2 million which for the first time in company’s history we’re able to share that we have visibility going forward.

Q2: Can you explain for us the key details of the various contracts that you’ve announced over the past 14 months with the new US customer and the value of those to Nanoco Group?

A2: Last year, in February 2018, we signed an overarching agreement which governs the rules of how our two companies work together, everything from payment terms, pricing and how IP flows. Underneath that overarching agreement, we hang different workstreams and there are two active workstreams.

Stream one covers the scale up of a specific quantum dot and the built out of our Runcorn facility, that was worth approximately £8 million in 2018. Earlier this year, 2019, we signed an extension to stream one, which is also worth approximately £8 million, and goes on through the end so cover the full calendar year. It’s focussed on getting Runcorn production fully validated and ready to go by the end of 2019 and what that means is ensuring that the material we produce in our Runcorn manufacturing facility matches what we’ve been producing, what’s validated, that comes out of our pilot plant in Manchester.

Moving on to workstream two, this involves a whole new generation of quantum dots for use well out in the future.

So, those are the two key workstreams underneath this overarching agreement.

Q3: Now, progress in display so far has been slow, how is your strategy evolving to address this with regards to your own R&D and manufacturing and you licensees Dow and Merck?

A3: What we’ve done is over the last 6 month period, we’ve dedicated additional resource to improving the performance of our cadmium-free quantum dots for display and this has been successful. We are now sampling customers with new generations of material, new generation of quantum dots, the performance of which are really world-leading so we’re excited about that.

Additionally, we’ve refocussed our business development efforts on working with leading companies who are supplying film resin ink and photo-resist solutions for the display industry so rather than solely working with the OEM’s, the panel makers themselves, working with the folks are delivering product to the OEM’s. So, these are companies that are able to incorporate our quantum dots into various systems, I would call them integrators as they are integrating our quantum dots into resin and film to supply directly to the panel makers and that is proving successful.

Our relationship with DowDuPont, so Dow as move forward they’ve merged with DuPont and then split off again, the division that we work with will be called DuPont going forward, we’ll call them DowDuPont now, I suspect the next time we talk we’ll be calling them DuPont.

Merck remains strong and active, we continue to work on different programmes with both those companies.

Q4: Whilst you remain unprofitable ahead of a commercial order from your US customer, how do you expect to fund the business over the coming year?

A4: Pleasingly, you’ll note in the financial highlights that our loss has narrowed so we’ll losing less money and as I mentioned earlier, we finished the year with £6.2 million in the bank. For the first time in our history, we’ve been able to forecast and look forward and I’m pleased to say that I look towards the end of our calendar year, by the end of December, we’ll also have above £6 million in the bank.

So, we’re running largely cash neutral now, we’re spending somewhere between £800,000-900,000 a month on the total organisation so you can see the level of cash coming, the level of cash going out in a very transparent fashion.

So, as I mentioned, this is the first time we’ve been able to forecast, we have a strong orderbook with about £8.2 million of orders on the system to be delivered but with all of this, we continue to manage our costs really closely.

What we don’t know is when, for example, large PO’s will start to come in from our US customer, when they’re going to start incorporating this into product.

What we do know is we have to be ready and the supply chain has to be ready by the end of 2019 and we’re doing our bit as is the rest of the supply chain, we will be ready.

Q5: What should we look out for over the rest of the year from Nanoco Group?

A5: Continued delivery. So, continued delivery of our obligations opposite the US customer and that really involves getting Runcorn fully validated for commercial supply, we’ve worked closely with other player in the supply chain and making sure that’s ready to go.

Outside of that, in the display industry, we’re very actively engaged in acquiring new partnerships and new customers and I’d hope you’d see some news flow in that area.

So, we’re very bullish, we’re very optimistic and we’re excited to be delivering and working with the great customers we’re working with.

Nanoco Group PLC (LON:NANO) Chief Financial Officer Brian Tenner caught up with DirectorsTalk for an exclusive interview to discuss their recent contract extension, revenue visibility, additional commercial agreements and what to look out for in the coming months.

Q1: On Friday, we saw the announcement that you have signed a contract extension to deliver additional services and materials to the undisclosed US Company. Can you just remind us of the work you are currently doing with them and the new services that you will provide there?

A1: So, we’re basically working on two different work streams.

One I’ll refer to as generation one so that’s an existing new product with enhanced performance, we had to prove it at a lab scale for a customer in the US who has remained unnamed at this point. Once we’d proved it at a lab scale, we then had to prove it as a scale-up level and that ultimately will lead to commercial production.

In parallel with that, the customer actually funded us to build a new production facility so, if you like, the handover from R&D and scale-up will eventually be given to the new production facility which was substantially completed at the end of December 2018.

In parallel with that generation one materials, we have been doing some R&D work for the customer on the next generational materials which would have a different materials set with enhanced performance.

So, that’s what we have been working on. The contract extension then actually continues on the generation one piece of work, if you like, and that will take us through to commercial production some time in the second half of this calendar year or the first half of the financial year 2020.

Q2: Can you talk to us about the financial implications of this contract extension and what it does to revenue visibility for this financial year and next?

A2: The contract spans two financial years, it runs for a full calendar year so from January ’19 to December ’19. So, I just want to make sure I’m clear that when I’m talking about financial years, I mean to the end of Nanoco Group’s financial year which is July 2019.

We started this year and we said that our revenue was going to double this year and we had, at that point, just over £3 million of revenue that was already contracted. Signing this new contract extension basically fully underpins that doubling of revenue and the consensus revenue forecast has got a range of £6.7 million to £7 million this year. So, you can see from them that this extension adds roughly £3.5 million to revenue in the current year. We’ve also said it gives a similar amount of revenue to next financial year so FY20.

It’s also important to note that unlike some of our previous work, it’s not linked to deliverables or milestones, we just have to provide the ongoing service to the customer. So, whilst we do have to provide that service, it’s pretty secure revenue.

So, as I say, roughly £3.5 million on to this year and a similar amount onto next year.

Q3: We know there are a number of active discussions for additional commercial agreements, are you able to give us any further detail on those?

A3: We can’t name customers or potential customers at this stage but what we can say is we’re looking or talking to a number of different either customers or supply chain partners across a range of applications.

So, you may have seen recently that we announced a collaboration with Plessey on microLED’s where the combination of their technology and our quantum dots will allow a reduction in the size of a microLED by more than 80%.

Also, in display, we are continuing to talk to some end customers but also additional supply chain partners on potential new licence agreements. Again, we are continuing to support and talk to our existing licence partners in the display sector.

On top of that, we are talking both to end users and lighting manufacturers and designers in the horticultural lighting market, both in the UK and also in North America, it is early days there, but the initial conversations have started.

Finally, in our life science business, that’s where we produce dots that can be used in the detection of different types of cancer in the human body, we recently hired a new Business Development Director. They have already started some initial conversations with some potential development partners to be able to take forward that life science application.

So, as I say, it’s early days, we’re not in a position to announce any new customers but we are in active conversations with them.

Q4: Finally, what should investors be looking out for over the coming months from Nanoco Group?

A4: Well, our interim results will be out on the 9th April, at that point in time we should be able to provide an update on both the continued delivery against this new contract extension with the US customer but also those commercial conversations that we mentioned are ongoing. Clearly, if any of those come to fruition, we would expect to be able to make an announcement about it but as I say, the main thing to look out for is our interim results on 9th April.

Nanoco Group PLC (LON:NANO) Chief Executive Officer Dr Michael Edelman caught up with DirectorsTalk for an exclusive interview to discuss the progress with their new US partner, their display technology coming to market, cash position and other target markets.

Q1: Michael, can you talk about the progress that’s been made with your new US partner?

A1: We and our large US partner are really pleased with the progress to date, the programme is on track, the new Runcorn production facility will be completed and fully commissioned by this calendar year-end. We will then move into a period of stress-testing the facility before volume production can enter second half of calendar 2019.

Q2: Display finally looks like we should see products containing Nanoco’s technology in the market this calendar year, can you give some more detail around that?

A2: Display has taken longer to materialise, but we are finally seeing the first products heading for the market. The first display products are gaming monitors being manufactured by our Taiwanese partners and we look forward to seeing these products on the shelves for the coming holiday season.

Q3: Now, it’s very encouraging to see that your cash position has improved since your half year, are you comfortable with the funding of the business going forward?

A3: Yes, cash, as you note, has increased by £2 million since we last reported 6 months ago, we’ve worked really hard to keep all costs within the business down and we believe Nanoco Group remains in a strong cash position.

Q4: Can you add or update us on the progress in Nanoco Group’s other target markets?

A4: Lighting has made good progress, we’re focussed on niche lighting applications namely horticultural lighting and more specifically, vertical farming. Additionally, our US customer CareWear has launched its medical device lighting products into the US market focussed on professional sports teams and our life sciences business has made excellent pre-clinical progress in the diagnosis and imaging of pancreatic cancer.