Nanoco Group plc (LON:NANO), a world leader in the development and manufacture of cadmium-free quantum dots and other specific nanomaterials emanating from its technology platform, announced the final agreements have been signed to settle the litigation with Samsung on a no fault basis for the alleged infringement of the Group’s IP.
The Group has also published a trading update this morning for its half year ended 31 January 2023 (See below).
Litigation settlement overview
· Litigation concluded with $150m cash settlement to be paid in two equal tranches (by 5 March 2023 and by 3 February 2024)
· Nanoco retain over $90m net proceeds after litigation costs
· Settlement structured as a sale of non-core patents and a global, perpetual, fully paid up licence agreement
· Settlement ends all global litigation with Samsung; Nanoco’s IP fully validated by the legal process
· Nanoco retains full freedom to operate in all markets, territories, products and material types
Chris Richards, Chairman of Nanoco Group plc, said:
“This has been a long and hard battle for Nanoco. The outcome is remarkable, given the relative scale of Nanoco and Samsung. The settlement value is almost three times our own low case damages model; settling now avoids the risks associated with further litigation and the adverse impact from the time value of money in an appeals process that would have extended for years. Even more importantly, it validates Nanoco’s core IP, which we will continue to defend vigorously.
“In deciding the allocation of the net proceeds, the Board will balance any investment needs of Nanoco’s growing organic business with a firm intention to deliver a material return of capital to shareholders.”
Brian Tenner, Chief Executive Officer of Nanoco Group plc, said:
“Today marks the start of a new chapter for Nanoco. We have successfully validated our core IP against one of the world’s biggest electronics companies, who were advised by one of the most expensive law firms in the world. Others operating in our space should take note.
“We therefore remain vigilant to other potential infringement activity, as well as opportunities to pro-actively deliver new licence agreements. The confirmation of the validity of our IP is already encouraging more commercial interest in Nanoco as a supplier of leading edge nano-materials.
“We have also generated a transformational amount of value for our stakeholders, whilst providing the funding for investment in the business. We have done this while transforming Nanoco and positioning ourselves for significant organic growth in the near term. Most importantly, we have a foundation on which to focus on the organic business as we continue to build on the significant positive momentum achieved in the last few years.”
Settlement agreements
The Settlement is structured as two agreements:
· IP Licence agreement: This global, perpetual, fully paid up licence agreement encapsulates any past or future royalties that would have been paid / come due to be paid.
· IP Sale agreement: This encapsulates the divestment of a number of non-core patents from Nanoco to Samsung, with Nanoco receiving a fully paid up, perpetual and global licence on the divested patents. Neither of the two patents due to be presented at trial were included in the sale.
For clarity, Nanoco retains complete freedom to operate in all of its markets, territories, products and material types.
Nanoco will receive gross proceeds of $150 million (£125 million[1]), $65m for the IP Licence agreement and $85m for the IP Sale agreement, payable in two equal tranches by 5 March 2023 and by 3 February 2024. Nanoco expect to retain over 60% (over $90m) of this sum, after deducting legal and litigation funding costs. Legal and litigation funding costs have first claim on the proceeds. There will be a tax liability but this is anticipated to be modest.
The Settlement ends all global litigation between the Parties (including Germany and China), and Samsung will receive a fully paid up, perpetual, global licence that runs until the expiration of Nanoco’s current individual patents.
Expected accounting impact of the settlement
The notes below set out a summary of the expected accounting treatment of the two agreements in the Group’s Financial Statements, subject to confirmation during the statutory audit of the Group’s FY23 Annual Report and Accounts.
The sale of IP will be accounted for as a profit on disposal of intangible assets in accordance with the requirements of IAS 38 Intangible Assets. This is expected to generate a net profit on disposal of approximately £70.0m based on the proceeds noted above less the current net book value of the patents at the point of sale. This profit on disposal will be recognised in the FY23 Financial Statements.
The income from the IP Licence agreement will be accounted for in accordance with the requirements of IFRS15 Revenue from Contracts with Customers. It is expected that the revenue from the IP contract will be recognised over the average estimated remaining life of the existing entire IP portfolio after the sale of IP noted above, even though the cash will be received in the two tranches noted earlier (a revenue recognition period of approximately nine years). The patents that would have been presented if the trial had gone ahead had remaining lives of two and a half years and five years respectively.
The cash and receivable due for the IP licence will give rise to a significant deferred income balance of approximately £54.0m in the Group’s Financial Statements that will be recognised as revenue in line with the nine year period noted above. Revenue from the IP licence in H2 of FY23 is expected to be approximately £3.0m and then £6.0m each year thereafter until the deferred income has been recognised in full.
The costs of the litigation (approximately £47.0m) will be expensed in full in FY23 as a standalone cost reflecting the fact that the litigation itself has now ceased. There will also be a one off interest charge of approximately £4.7m linked to the Group’s loan notes that were executed in July 2021, based on a successful conclusion to the Samsung litigation.
The Group’s accumulated tax losses will be available to offset any tax impacts from the above subject to final tax computations, normal UK rules restricting the utilisation of losses in any one year, and any overseas withholding tax. Depending on forecasts of the possible utilisation of tax losses in future financial years, a deferred tax asset may be recognised in the Group’s Financial Statements. It is expected that net cash tax payable in respect of FY23 will be modest. The final tax position will also depend on any losses in the organic business in the year (excluding the Samsung agreements) as well as any beneficial impact of both the UK’s R&D tax credit and Patent Box regimes.
The Group expects to have net negative distributable reserves in a number of subsidiary companies and in the parent company itself after the impact of the transactions noted above. The Group will therefore review options for its future capital structure prior to the receipt of the second tranche of proceeds around February 2024 in order to facilitate a possible return of funds to shareholders.
Separately to the update on the litigation settlement published today, Nanoco today issued the following trading update for the half year ended 31 January 2023 in relation to the organic business, which has continued to make further progress in customer delivery and scaling for potential production orders this year.
Operational overview
· Continued successful delivery of technical milestones throughout the Period for the European Electronics and Asian Chemical customers.
· Increase in demand for volumes of development materials.
· On track to deliver two fully validated production materials for use in infra-red sensing.
· Manchester exit and Runcorn relocation delivered on budget and slightly ahead of time.
· Runcorn CFQD facility re-commissioning alongside recruitment of additional production and production support personnel.
· Focus remains on delivering production ready facility and validated materials in anticipation of production orders in CY23.
Financial overview
· Revenue remains comfortably in line with the Board’s expectations.
· Active cost management is delivering costs also comfortably in line with the Board’s expectations.
· As a result of the factors above, combined with FX tailwinds, the Adjusted EBITDA loss for the year is now expected to be narrower than (and therefore ahead of) the Board’s expectations.
· Net cash consumption in the Period was £0.8m, leaving a cash balance of £6.0m, also comfortably in line with the Board’s expectations.
The Company expects to announce its Interim Results for the half year ended 31 January 2023 on 28 March 2023. The financial impact of the litigation settlement will be included in the Company’s results from the second half of this financial year, onwards.
Brian Tenner, CEO of Nanoco Group, said:
“In the first half, we have continued to build on the significant positive momentum achieved in the last few years, positioning ourselves for significant organic growth in the near term.
“For potential customers, the validation of our IP and the funding that the litigation settlement announced separately today cements the viability of Nanoco as a robust and reliable supplier operating in huge international electronics markets.”
