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, has announced its Preliminary Results for the year ended 31st July 2019.
Operational highlights
· Platform technology strategy implemented – focus on capabilities in design, development and scale-up of cadmium-free quantum dots (CFQD® quantum dots) and novel nano-materials
· Significant improvements in dot performance
· Continued investment in IP portfolio with 745 granted and pending patents (2018: 654)
· Core R&D, IP and production capabilities retained following display resource pivot
· Commercial efforts focussed on two attractive, high growth markets which are summarised below:
Nano-materials (for use in the electronics industry)1
o Achieved US Customer milestones, with £7.8 million contract delivering through to December 2019
o Completed new Runcorn manufacturing facility, funded by US Customer, now in final product validation
o Patented nano-material technology now proven in devices
o Actively engaging with other potential customers in Infrared (IR) sensing market
Display
o Further deepening of R&D activity into QD-OLED and micro-LED (Gen 2) and electro-luminescent (Gen 3) displays while enhancing performance of dots for film based application as it moves into the mass market (Gen1)
o Significant improvements in key performance characteristics in Green and Red dots
o Engaged in commercial opportunities in all three generations of display technology as noted above
Financial highlights
· Significant increase in billings to £9.6 million (2018: £6.5 million)
· Revenue more than doubled to £7.1 million (2018: £3.3 million)
· Loss after tax reduced to £4.4 million (2018: £6.0 million, 2017: £9.1 million)
· Q4 reorganisation following display resource pivot in Q2, now delivering £0.6m of savings in FY20
· Waiver of £4.2m contract liability by US Customer offsets non-cash costs triggered by completion of current project
· Cash of £7.0 million as at 31 July 2019 (31 January 2019: £6.2 million; 31 July 2018: £10.7 million)
o Expect to have c.£6.0m cash on hand in December 2019 when US Customer contract ends
o Further headroom to reduce costs and preserve cash if commercial revenue streams are delayed
[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® quantum dots are another subset.
Dr Christopher Richards, Nanoco Group Chairman, commented on the results:
“Nanoco has delivered a strong performance this year, achieving our best ever financial results in the Company’s history. We pushed our innovative platform technology into a range of potentially lucrative commercial applications including IR sensing, while significantly enhancing the performance of our nano-materials and actively engaging in development work in all three display technology generations.
“It was clearly disappointing, for reasons wholly unconnected to Nanoco’s performance or our materials, that the US Customer decided not to continue the current project contract when it expires in December 2019. However, we remain confident in the Group’s assets, team and capabilities. Our expected positive cash position of £6.0m following completion of the current contract deliverables for the US Customer provides us with reasonable headroom to deliver on new sources of commercial income.
“Our commercial focus going forward will primarily be in the electronics and display markets. We are already actively engaged with an encouraging pipeline of potentially attractive opportunities, all of which can be delivered by our current asset and cost base. As ever, the Executive team is alert to the impact of further delays in the realisation of these opportunities and contingency plans are in place to manage any such delays to our commercial development.
“There are still challenges and uncertainties to be managed and the Board remains focused on maximizing shareholder value. Our expanded platform technology continues to be relevant across a wide range of market applications and has created a number of commercial opportunities to pursue. The Board therefore remains confident in the value inherent in the business.”
Chairman’s statement
The successful delivery of a number of milestones and the new Runcorn production facility for our US Customer was a source of great pride for the whole Nanoco team and has driven the strongest financial results in the Group’s history. For the year to 31 July 2019, revenue more than doubled for the second year in a row to £7.1 million (2018: £3.3 million), our Adjusted EBITDA loss was cut 38% to £3.8 million (2018: £6.2 million) and the second half saw the business generate a small cash surplus.
It was therefore clearly disappointing that the US Customer decided, for reasons wholly unconnected to the performance of Nanoco and our nanomaterials, that the current contract will not be extended after it expires on 31 December 2019. However, we continue to operate on a broadly cash neutral basis through to the end of December 2019, when we expect to have some £6.0 million of cash on hand.
The Group is in active discussions with other potential new customers for our materials, with a particular emphasis on both the electronics and display sectors. In addition to these potentially lucrative commercial opportunities for continued funding of the Group’s operations, the Board is also reviewing other sources of funding.
Strategy and business activity
Nanoco’s platform technology has remained our key strategic focus during the year (our ‘dot only’ strategy). We continued to extend and deepen the commercial relationship with our US Customer in the electronics industry, which exploits and builds on the technology platform developed over a number of years. Building on the absorption characteristics of our quantum dots and leveraging the outstanding skills of our technical teams, we moved into a significantly wider field of nanomaterials and delivered all of our customer’s very challenging technical expectations. Though the end of the current contract is disappointing, the Group is left in a stronger position in terms of our own know-how and the new, unencumbered production facility at Runcorn which can be utilised freely to service other existing and potential customers in the rapidly growing electronics and infra-red sensing markets.
Our research teams have also significantly improved the emission performance of our CFQD® quantum dots by improving their energy efficiency and clarity of colour. These performance improvements are reflected in our growing IP portfolio and increasing specialist know-how. It is this platform technology, which can be deployed across a wide range of applications that is key to unlocking the true value potential of the Group.
In the Display sector, some momentum is starting to build, with film, QD OLED hybrid and micro-LED screens being actively pursued by the larger brands of device builders. On film-based systems, volumes will be greatly aided by the lowering of prices for televisions featuring quantum dots, meaning this is no longer a high-end, niche application. Quantum dots on QD OLED hybrid TVs are likely to appear on the market in 2021/2022 and we are supporting material pre-qualification work with our licence partners.
Recognising that the Group’s core strengths with respect to the display market are in quantum dots, we have redeployed resources that were previously working on resin and film, back onto our core quantum dot technology platform. In addition, we have increased our engagement with other companies which specialise in resin, film and ultimately display panels themselves for potential future partnerships.
In Life Sciences, the Board recognises that this application requires different capabilities from our core electronic materials business and we continue to explore a number of strategic options, including a possible spin-out of this business line.
In the application itself, we have made further progress in demonstrating the clinical safety of our materials. This will allow us to move forward with the development of new commercial applications in several therapeutic areas which we have identified as most applicable to our technology.
Other market niches continue to be explored.
Financial performance
Revenue in the last financial year more than doubled to £7.1 million (2018: £3.3 million). The loss before tax benefited directly from the increased revenue on a relatively fixed cost base and narrowed to £5.5 million (2018: £7.4 million). Cash consumption of £4.6 million in the first half was dominated by the completion of capital spend on the Runcorn production facility expansion. In the second half the Group delivered a net positive cash flow of £0.8 million and the Group expects to have around £6.0m of cash by the time of the completion of the contract extension with the US Customer at the end of December 2019.
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 £7.0 million (31 July 2018: £10.7 million; 31 January 2019: £6.2 million). No dividend is proposed for the year (2018: 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. During the year, the Board has overseen the roll out of a number of new or improved elements of our corporate governance framework, such as a new electronic platform for delivering more timely information to the Board and a significantly revised monthly Board information pack with more targeted, clear strategic KPI’s and forward looking analysis.
We have also recently made a number of changes to the Board itself. At the end of the last financial year, we decided to combine the executive roles of COO and CFO. The aim was to provide enhanced leadership in finance and governance, as well as driving underlying business operations and performance at a time of significant change. Brian Tenner was appointed to this role on 20 August 2018. I am pleased to report that the three-person team made up of the CEO, CTO and COO/CFO has already proven effective in this, its first year of working together. Keith Wiggins, the former COO, and David Blain, the former CFO, both left the business during the first half of the financial year following an orderly transition and handover and we wish them well.
A number of changes were also made to the Non-Executive membership of the Board as well as the roles carried out by each member. Brendan Cummins, Non-Executive Director and Chair of the Remuneration Committee, stepped down from the Board to focus on other commitments, particularly in the area of social enterprise. The Board would like to thank Brendan for his wise counsel and commitment to the Group over the last four years. We wish him well in the years ahead.
Dr Alison Fielding took over Brendan’s responsibility as Chair of the Remuneration Committee and also assumed Brendan’s responsibilities as Senior Independent Director. At the same time, we were pleased to welcome Christopher Batterham to the Board as a Non-Executive Director, Chair of the Audit Committee and member of the Remuneration and the Nominations Committees, bringing his considerable financial and operational experience to the Board.
Employees and shareholders
On behalf of the Board, I would like once again to pay tribute to Nanoco’s employees for their achievements during the year. This has been an exceptionally busy year which has also seen periods of uncertainty for staff as we have adjusted our activities to reflect changes in business focus. The Group’s highly skilled 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 5 December 2019.
Outlook
The last year has demonstrated the strong merits of our broad-based platform technology, particularly as we used our deep technical knowledge and know-how to quickly develop a high performing material for use in infrared sensors in electronics applications. This is an attractive and high growth market that the Group is keen and able to exploit.
The loss of potential future revenue arising from the US Customer’s decision not to continue its current project with Nanoco past December 2019 presents certain financial challenges for the business. However, we are actively engaged in discussions with customers regarding a number of other commercial opportunities in our focus markets to mitigate this. Our expected positive cash position of £6.0m following completion of the current contract deliverables for the US Customer provides us with reasonable headroom to deliver on these new sources of commercial income.
The Group showed a high level of agility and responsiveness in the past 12 months, in delivering new and improved nanomaterials, in pivoting our resources to match commercial opportunities and in fine-tuning our cost base to match the current levels of activity. That agility will stand us in good stead in the year ahead as we manage the uncertainty around commercial revenue generating opportunities and, consequently, our cost base. Contingency plans are in place in the event of any major shortfall in the balance of our income and costs.
The Group’s core assets, team, and capabilities remain an attractive investment opportunity. Our expanded platform technology and production infrastructure allow us to explore a number of new commercial markets and applications as potential sources of income in the short-term. The Board therefore remains confident in the value inherent in the business.
Dr Christopher Richards
Chairman
16 October 2019
