Nanoco Group Transitioning from an R&D first mover to a commercial producer

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 unaudited Preliminary Results for the year ended 31 July 2023.

Overview – strong progress towards commercial production, financially underpinned

·  Nanoco is now closer to commercial production than at any time in its 20-year history

·  Nanoco is in the strongest financial position since its inception – net $90m litigation proceeds underpin commercial business and return of capital

·   Retained litigation proceeds will be invested to secure a position in global electronics supply chains

·   Sensing and display markets are forecast to experience rapid growth

·   New NED recruitment at an advanced stage and in the shortlist process

Operational Summary – making ready for commercial production

·   Achieved all development, scale up and production readiness milestones

·   Two sensing materials in final production validation with customer

·   Deeper and longer development contracts under discussion with two long-standing customers

·   Increasing customer engagements for CFQD materials including micro-LED displays

Intellectual property – next steps taken to monetise IP following success with Samsung

·   Patent Trial and Appeal Board (‘PTAB’) validated all patents and 47 associated litigation claims

·   Nanoco retains 46 of the 47 validated claims with lives extending to 2028

·   Nanoco also retains 52 other patents held in reserve for the litigation, lives extending to 2033

·   Contact made with potential infringers based on heat map, product analysis, and market attractiveness

Financial Summary – performance in line with Board expectations, financially underpinned

·   Revenue more than doubled to £5.6m (FY22: £2.5m)

·   Adjusted LBITDA loss reduced by 83% to £0.4m (FY22: £2.3m LBITDA)

·   Year-end cash £8.2m, an increase of £2.2m since 31 January 2023

·   Payment and use of proceeds from the litigation settlement:

o  First net tranche £59.2m received March 2023, used to pay litigation costs

o  Second net tranche £58.8m due by 3 February 2024, wholly for Nanoco, fully hedged

·   Gross fixed cash cost base c.£0.5m per month before revenue and other operating income – an increase of just over £0.1m per month following investment in new staff capacity and inflationary cost increases in H2 FY23

Return of capital – capital reduction effected and process on track

·   Intention to return between £33-40 million (or approximately 10-12 pence per share) using the second tranche of the proceeds of the litigation

·   Capital reduction effected in July 2023 to facilitate the return of capital

·   Retained cash (following the return to shareholders) will be invested in R&D and commercial activities, a proactive IP licensing programme, payment of debt obligations, and to provide working capital through to the self-financing position that is expected during 2025

Current trading – continued strong progress

·   Discussing contract terms of our first ever commercial production order, expected to be received before the end of CY23 (for a low volume application in the first instance and as expected)

·   Expanding our commercial R&D contracts with a number of customers with the goal of adding a further global electronics supply chain customer in FY24

·   Investing retained funds to expand our range of high-performing materials, developing new materials with enhanced performance, as well as expanding our reach

·   Self-funding our next steps to monetise our IP whilst actively engaging with other potential infringers of our validated IP

·   We expect our order book to rise to deliver similar services and material revenue to that seen in FY23, licence income will reflect a full year of the litigation settlement

Brian Tenner, Nanoco Group’s CEO, commented on the results:

“We have driven Nanoco steadily towards its current inflection point. We have delivered all development and scale up milestones for our sensing customers. We have also significantly enhanced our robustness as an important partner in global electronics supply chains. We are now discussing the contract terms of our first ever commercial production order, expected to be received before the end of CY23.

“In parallel with the transition to production, we are also expanding our commercial R&D contracts with a number of customers with the goal of adding a further global electronics supply chain customer in FY24.

“Our transition from an R&D first mover to a commercial producer is underpinned by the proceeds from the settlement which are enabling us to invest carefully to expand the range and reach of our materials, whilst at the same time self-funding the monetisation of our IP.

“We started the litigation process in February 2020: a long legal road lay ahead, we had limited prospects for commercial production, there were no anchor customers in place, the Formal Sale Process was stalling in the face of Covid-19, and we had a recurring need to raise new funding every year. Fast forward: we exit FY23 with a successful outcome to the litigation, the expectation of a commercial production order before the end of CY23, two active global long-term customers, an expanding range of materials and device capability, a financially underpinned business and the ability to execute on our firm commitment to return significant capital to shareholders in Q1 CY24.

“The whole Nanoco team has worked hard to deliver these outcomes. A lot has been done. Our team will keep working hard as there is still a lot to do to capture the opportunities in front of us. The Board is therefore rightly confident in the strength of the investment proposition and value inherent in the business.”