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possibilities
Annual Report
and Accounts 2020
Infinite possibilities
Our platform technology can be customised for
almost any application, from sensing to display, and
from horticultural lighting to medical applications.
That’s what we mean by infinite possibilities.
Strong foundations in our technology platform
Nanoco is a market leader in the research, development, licensing and
large scale manufacture of novel nanomaterials for use in various
commercial applications.
Platform technology
IP portfolio
Volume production
Experienced team
We can design and
create nanomaterials
for a host of different
applications
Our IP portfolio protects our
unique production process
and materials, with significant
process know-how
Our unique production
process allows
controllable manufacture
on a large scale
Our R&D team has
many years of specialist
experience creating novel
nanomaterials
more on p5
more on p16
more on p19
more on p32
Strategic report
Our year in brief
We have successfully delivered a number of critical objectives during a challenging year
Signed new contracts to develop novel materials for infra-red sensing and display applications
Commenced legal action against Samsung for wilful infringement of our IP
Secured substantial third party funding for the Samsung lawsuit
Over-subscribed equity fundraise that facilitated participation from retail investors
Restructured the business to focus resources and reduce monthly cash costs by 50%
Extended our cash runway to December 2022
Revenue
Loss after tax
Billings
Cash
£3.9m
-46%
(£5.1m)
+17%
£2.5m
-74%
£5.2m
-26%
Fall in revenue reflects end
of US Customer contract
in H1 FY20
Fall in revenue offset
by cost reductions
Gross margins from R&D
sales contracts improve
working capital
Partly offset by new
business wins in H2 in
sensing and display
services remain strong and
costs closely controlled
Contracted backlog
for FY21 of £0.9 million
to December 2022
Monthly cash burn rate
improved to £0.4 million,
before revenue and tax
credits
Billing terms in new
Cash runway extended
For more on Nanoco, visit our new website:
www.nanocotechnologies.com
Corporate governance
Financial statements
Contents
Strategic report
Our year in brief
001
Board of Directors
Nanoco at a glance
002
Corporate governance statement
About our CFQD® platform
005
Nominations Committee report
Chairman’s statement
006
Audit Committee report
Chief Executive Officer’s statement 009
Remuneration Committee report
Revenue streams
012
Directors’ remuneration report
Section 172 (1) statement
014
Directors’ report
Our business model
016
Statement of Directors’ responsibilities 079
Our strategy
Our key performance indicators
Financial review
Principal risks and uncertainties
Viability statement
Sustainability
018
020
022
025
028
030
036
038
047
050
056
059
076
Independent auditors’ report
080
Consolidated statement
of comprehensive income
Consolidated statement
of changes in equity
Company statement
of changes in equity
Group and Company
statements of financial position
Group and Company
cash flow statements
Notes to the financial statements
Investor information
085
086
086
087
088
089
116
Nanoco Group plc – Annual Report and Accounts 2020 001
Nanoco at a glance
We design, develop, scale up and manufacture
novel nanomaterials for use in a wide range
of potential applications
Our core competencies
World-class talent
Respected globally
We custom design new
nanomaterials to exploit
their emissive, absorption
and other properties
Our IP protected processes
allow high quality control
of manufacturing on
a large scale
At 1st October 2020, 54
employees, of whom 13
are inventors
R&D and HQ functions
in Manchester, UK
Twin production facilities
14 staff with PhDs
in Runcorn, UK
Our materials can be
used in a variety of
commercial applications
Significant amount
of know-how and
business secrets
11 nationalities of staff:
Partnerships in a number
American, British, German,
Irish, Indian, Italian,
Lithuanian, Polish,
Portuguese, Syrian
and Ukrainian
of regions
Why invest in Nanoco?
Platform technology gives access
to a wide range of large and rapidly
growing end markets such as sensing
(Internet of Things), display, specialist
lighting and medical
Large and
defensible IP
portfolio
731
patents granted
or pending
Market opportunity
for QD materials
$25bn1
by 2022
Highly innovative
employees
13
listed inventors
Pioneer in
cadmium-free
quantum dot
technology
Diverse channel
partners
Continuing
investment
in R&D
£3.1m
invested in 2020
Significant
manufacturing scale
£130m
revenue capacity
CEO report
p9
1 Source – management estimate based on multiple independent market reports.
002
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Dual capabilities at our Runcorn manufacturing facility
Based at Runcorn, UK, an area with extensive chemical industry
expertise and supply chains
Production footprint of 22,000ft2
Dedicated facility for CFQD® quantum dots used in display, lighting
and life sciences
Separate facility for nanomaterials for use in infra-red sensing applications (IRQDs)
Revenue capacity in excess of £130 million when fully loaded at current market prices
Large and growing
addressable markets
Three major industries served
Two major licensees
One major development agreement
A number of commercial research
and development opportunities
in progress or under discussion
Internet
of Things
Security
and
detection
Infra-red
sensing
Electronics
$8.0bn1
addressable market
c.2022
Autonomous
vehicles
CFQD®
film
Solar farm
combinations
CFQD®
technology
platform
Lighting
$8.5bn1
addressable market
c.2022
QD on
microLED
Display
$7.5bn1
addressable market
c.2022
Horticultural
lighting
Business model
p16
1
Source – management estimate based on multiple independent market reports.
Electro-
luminescence
Nanoco Group plc – Annual Report and Accounts 2020 003
Infinite possibilities
What are nanomaterials and what is a quantum dot?
Nanomaterials are any material that has a dimension or structure measured at the
nanoscale, typically 10,000 to 100,000 times narrower than human hair (1–100 nm).
Nanomaterials have unique optical, electrical and mechanical properties often not
accessible in the bulk material. This can enhance properties such as light absorption,
emission, strength, reactivity and conductivity.
Quantum dots are a subclass of nanomaterials whose optical and electronic
properties depend on their size, shape and composition.
1
0
n
m
5
n
m
2
n
m
What this all means…
The Group’s platform technology means that we can design and
manufacture a bespoke material for a customer’s requirements across
a wide range of applications and industry sectors. For example, highly
absorptive dots can be used in infra-red sensing or solar energy
applications. Efficient emission dots can be used in high end displays
to create fantastic colour clarity and a brilliant range of colours.
Nanoco’s CFQD® quantum dots are free of cadmium and other
toxic heavy metals with clear environmental benefits, including
improving energy efficiency.
004
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report
About our CFQD® platform
Our technology has a wide range of
applications and we have the expertise
and knowledge to exploit them
Emit light in precisely
controlled wavelengths
for wide colour gamut
Improved energy
efficiency reduces
power consumption
Nanosecond lifetime
enables increased
modulation
Reduces production
challenges, cost
and complexity
Emission wavelength of
CFQD® quantum dots can
be tuned to nanometre
resolution, thereby improving
efficiency and effectiveness.
CFQD® quantum dots’
nanometre precision and
narrow width of emission
improve efficiency over
conventional phosphors.
Emission lifetimes 1,000 times
faster than conventional
phosphors open up
applications requiring high
light modulation speeds.
Wide excitation absorbance
band and flexibility in product
form factors allow CFQD®
quantum dots to be easily
integrated into applications.
Increases colour gamut
of displays by allowing
high specificity of LCD
pixel emission
Enables tuning of lighting
fixtures to increase the
range of visible colours
illuminated underneath
Enhances plant growth
with improved tuning of
horticultural lighting to
target specific molecules
in different plant species
Less light lost to subpixel
colour filters in high colour
gamut displays
Improved screen refresh
rates on displays for
gaming and virtual reality
No emission loss to
Opportunities to integrate
non-visible near infra-red
wavelengths in high
colour rendering general
lighting fixtures
Lower loss of output
gives the ability to reduce
energy input
LiFi into conventional
light fittings for secure
data connections
Less stringent binning
required on blue excitation
LEDs for display applications
reducing component cost
and improving supplier
availability
Sheet form factor allows for
simple drop in integration
to current electronics,
eliminating retooling costs
Ink jet and spin coat
processing allow for low
cost manufacture of next
generation µLED and
OLED/QD hybrid devices
Nanoco Group plc – Annual Report and Accounts 2020 005
Strategic report
Chairman’s statement
Developing new
applications for our
platform technology
This has been a year of substantial
change for Nanoco. We finished
the year with new leadership and
a more focused team, poised to
win new business in our core target sectors.
This new focus was strongly endorsed by
our shareholders, who supported the
raising of £3.4 million in new equity.
DR CHRISTOPHER RICHARDS
Chairman
Summary
Over-subscribed equity fundraise
extends our cash runway to
December 2022.
New business wins for sensing
applications and new materials
being developed leading to potential
commercial production in 2022 if
development and scale-up succeeds.
New development agreement signed
for a novel display application.
Litigation initiated against Samsung
for wilful infringement of Nanoco’s IP.
Lawsuit funded by a large US-based
litigation finance house with extensive
experience in IP technology litigation.
Restructuring of the business to create
a flexible team focused on executing
existing customer projects and
winning new opportunities.
Formal Sales Process terminated
in April 2020 amidst the uncertainty
and delays arising from the
Covid-19 pandemic.
As we closed the year, a number of small
but significant commercial wins were
added to our existing agreements with
ST Microelectronics (“ST Micro”), including
new applications in the sensing and
display sectors, to give £1.0 million of
contracted revenues for FY21.
We successfully completed the final
deliverables for the US Customer in
December 2019. While it was disappointing
that the contract was not extended, we
developed new materials and a new
production facility that we will leverage
in future opportunities.
The launch of litigation proceedings
against Samsung was an important
step to protect our IP. The funding we
subsequently achieved for that litigation
is both critical to facilitating a successful
outcome while being a strong third party
endorsement of the strength of our case.
We have taken decisive action to reduce
our cost base, starting by reducing the
cost of the Board, while retaining our key
operational capabilities. In combination
with the equity fundraise, we have
significantly extended the cash runway
for the Group to December 2022. The
Company is now determined to rebuild the
organic value of the business, alongside
the potential substantial shareholder
value inherent in the Samsung lawsuit.
Strategy and business activity
Nanoco’s platform technology remains
our key strategic focus (our “dot only”
strategy). Following a strategic review, we
decided to focus on a limited number of
006
Nanoco Group plc – Annual Report and Accounts 2020
opportunities where our core capabilities
give us the largest competitive edge.
We are therefore prioritising sensing
and display applications with short-term
commercial prospects. We are also
exploiting the assets we generated
during the relationship with the US
Customer in the electronics industry.
Our new five-year agreement with ST
Micro creates multiple routes to leverage
value from those assets and know-how.
By using the outstanding skills of our
technical teams, we continue to move
deeper into the sensing and display
fields where our nanomaterials can offer
real competitive advantage.
“Our platform technology
and deep IP portfolio have
significant value and are
relevant across a wide
range of markets and
commercial applications.”
We continue to explore alternative
partnership arrangements with various
parties to increase channels to market
and penetration in certain strategic
territories. Engagement also continues
with existing and former licence partners.
Samsung litigation
Extensive efforts over the previous twelve
months led to the Group filing a lawsuit
on 14 February 2020 against Samsung for
what we allege to be wilful infringement
of our IP in a number of key areas. This
was a necessary step to protect our core
IP assets. Having worked collaboratively
with Samsung on a number of key areas
for many years it was disappointing that
Strategic report “ This has been a
very tough year
in which our staff
have continued
to deliver new
ideas, solutions
and services
to satisfied
customers. With
our balance
sheet more
secure and our
cash runway
extended to the
end of 2022, we
will rebuild the
business around
our core sensing
and display
opportunities
while driving
the Samsung
litigation in
defence of
our extensive
and valuable
IP portfolio.”
Following the successful completion
of the equity fundraising in July 2020,
Michael Edelman stepped down from
the Board and as CEO with effect from
1 September 2020. Michael remains
available to the Group in his role
as Special Adviser to the Litigation
Sub-Committee and, on behalf of the
Board and all of our staff, I would like to
take this opportunity to thank Michael for
his many years of service to the Group.
Nigel Pickett’s notice as CTO was served
in March 2020 and is due to expire in
March 2021. Nigel remains fully engaged
with the business and the Board will
review his position in the months ahead.
In 2018, we combined the executive roles
of COO and CFO and appointed Brian
Tenner to that post. The aim was to provide
enhanced and visible leadership to our
business operations and support functions
in the UK. Reflecting the positive impact
he has made on all aspects of the business
since his appointment, the Board was
pleased to implement its succession
plans and appoint Brian as CEO on
1 September 2020.
Supporting Brian and Nigel in the business
we have a highly experienced and capable
Leadership team with Kevin Smith
responsible for production operations,
Liam Gray responsible for finance and
a number of other supporting functions,
and Joss Little as HR Business Partner.
The Group also has an extremely
talented senior management team
and has retained a highly skilled and
adaptable workforce with the skills
and experience needed to drive the
business forward.
Continuing with the succession plan,
Liam Gray has been appointed as UK
Finance Director and Company Secretary
and will attend Board meetings in those
capacities. The Board will consider other
changes to the Executive team and other
management as activity levels and
resources require.
Looking forward, the Board will continue
to pursue the highest standards of
corporate governance for the benefit
of all stakeholders while operating in
a more focused and less costly way.
no commercial licence or supply
agreement followed. We have
established a new sub-committee of the
Board to manage the litigation process.
We also successfully secured third party
funding for the lawsuit. This will protect
the Group’s financial resources and
entitles the funder to a return only in the
event of a successful outcome to the suit.
Given the potential scale of a successful
outcome, it was critical to ensure that the
Group has adequate funding for its own
activities while the suit is ongoing. This
has now been achieved with the over-
subscribed equity fundraise giving the
Group a cash runway that currently
extends to December 2022.
Covid-19 and financial performance
The Board responded promptly to the
Covid-19 pandemic, leading the way with
reductions in Director salaries which were
followed by Company-wide temporary
pay reductions and the adoption of the
Government Job Retention Scheme. At
its peak, the Group saw approximately
two-thirds of its staff on furlough with
staff in work limited to those on customer
driven activities. The Board would like
to thank our dedicated staff for their
exceptional efforts in maintaining customer
service during this challenging time.
Effective and prompt management
action was taken to manage our costs
tightly. Our monthly gross cash costs are
stabilising at around £0.4 million per
month. The cash burn rate then reduces
further with the benefit of revenues and
R&D tax credits to £0.3 million per month.
It was a major achievement by the end
of the year to be able to extend our cash
runway to December 2022, particularly
when our preliminary results in October
2019 indicated a cash runway that only
extended to July 2020. Any new business
wins will enhance this further.
No dividend is proposed for the year
(2019: none).
Governance and Board
After extensive Board discussions and
engagement with major shareholders,
in line with the reductions in the scale
of our operations, we decided to reduce
the size and cost of the Board. Once the
announced changes are complete, the
cost of the Board will be broadly half
its previous level.
Nanoco Group plc – Annual Report and Accounts 2020 007
Chairman’s statement continued
Formal Sales Process
Outlook
We commenced a Formal Sales Process
in November 2019 to reflect our view
that the Group’s value would be best
protected and exploited in the longer
term by being part of a larger Group.
After a number of expressions of interest
and detailed due diligence activity,
progress slowed as the effects of the
Covid-19 pandemic made themselves
felt around the world.
We therefore decided to terminate the
Formal Sales Process in April 2020 to
allow us to focus on reshaping the
business as set out above.
Employees and shareholders
Our staff have again demonstrated
great commitment in a challenging year.
The team continues to deliver great
service, innovative ideas and practical
solutions to our customers.
Unfortunately, a number of staff had to
leave the business during the year and
shortly after the year end as we work to
balance our financial resources, activity
levels, ongoing customer contracts and
cash runway.
We wish all of those former members of
staff well in their future endeavours.
As we look forward, it is the continuing
dedication and professionalism of our
highly skilled team that will create new
and enhanced value for all stakeholders.
The Board is grateful for its continuing
contributions and commitment.
I would also like to thank our shareholders
for their continuing support and in
particular their confidence in our future
as shown in the over-subscription for our
equity fundraise in July 2020. It was a key
objective to allow our loyal retail investors
to participate in the fundraise and it
was gratifying to see so many take the
opportunity to continue to support the
Group. I look forward to speaking to
as many as possible at our AGM to
be held via video conferencing on
3 December 2020.
The Group has delivered a number of
notable successes in a year that started
inauspiciously with the decision by the
US Customer not to sign a new contract
when the current one ended in
December 2019. The challenges were
exacerbated by running a Formal Sales
Process in parallel with normal business
activities, followed by the onset of the
Covid-19 pandemic. These combined
challenges would have been formidable
for any business and I am proud of how
the small Nanoco team responded.
I would particularly like to thank the
Non-Executive Directors, who selflessly
gave very significant time to Nanoco as
evidenced in the Corporate governance
report and the number of Board,
Committee and informal meetings
held during the year.
The Board remains convinced of the
strong merits of our broad-based
platform technology. The last year
has seen a number of enquiries on
new applications for our nanomaterials
in sensing and display.
The new framework agreement with
ST Micro is a foundation for a potential
move into commercial production in
the medium term. Key milestones to
be delivered in the next 12–18 months
will include the successful delivery of the
new material at an R&D scale in Phase 1
of the programme. This will then lead
to a potential customer decision to
progress to Phase 2 of the development
programme with a transition into
scale-up activities in the second half
of FY21. If scale-up is successful, the
customer will then have the option to move
to preliminary pre-production manufacture
at Runcorn and ultimately to full scale
commercial production thereafter.
However, we must be cautious. We
have been in this position before on the
programme with the US Customer. In that
case, the Nanoco team delivered every
milestone but other considerations led to
the cancellation of the product of which
we were a crucial part. Once again,
Nanoco is part of a complex supply
chain and the project could fail even
when we (as we fully expect) meet all
of our targets. If any other part of the
supply chain fails, or if the end customers
decide not to adopt the technology
or to make design changes to their
own products – all of these can have an
adverse impact on Nanoco which could
again require further restructuring.
It is because of this uncertainty and our
financial resources that we will be taking
a prudent approach to pursuing new
commercial opportunities, how we deploy
our human and financial capital, and
how we manage our cost base.
The Group has now been restructured
around a highly skilled and adaptable
workforce that can be flexed across
different activities and products as
customer opportunities dictate. This
is a robust foundation on which our
organic business can build.
We have also secured funding for the
potentially valuable lawsuit against
Samsung for what we believe to be a
wilful infringement of our IP, and now
have the financial means to support
Nanoco itself through to its likely
conclusion, including in a scenario
where further commercial progress is
not delivered in the new financial year.
The Group’s core assets, team and
capabilities and the Samsung lawsuit
remain, in the opinion of the Board,
an attractive investment opportunity.
The Board therefore remains confident
in the value inherent in the business.
Dr Christopher Richards
Chairman
13 October 2020
008
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Chief Executive Officer’s statement
Stabilising the business
to rebuild value
BRIAN TENNER
Chief Executive Officer
The Group made a number of
significant achievements this year
that set the scene for potential
future value creation. This was
against a very difficult economic backdrop
and required very high levels of activity
from the Board, the Executive team, and
all of our staff.
In the second half, we reached an
important new five-year agreement
with ST Microelectronics NV (“ST Micro”)
that utilises our capabilities with
nanomaterials for use in infra-red
sensing applications. This, and certain
other development agreements,
provide Nanoco with strong customer
relationships on which we plan to build
the business over the coming years.
We also launched litigation against
Samsung for the wilful infringement of our
IP and subsequently secured third party
funding for this suit. The costs of this
litigation could exceed $10 million and
will now be borne by the funder in return
for a share of any award or settlement.
The year was then completed with an
over-subscribed equity fundraise,
extending the Group’s cash runway
to the end of 2022.
A Formal Sales Process was launched
in November 2019 and occupied a lot
of management bandwidth until it was
terminated in the midst of the Covid-19
pandemic in April 2020. By that time the
Group had also commenced a consultation
process to restructure the business,
introduced a furlough scheme to take
advantage of the Government’s Job
Retention Scheme, and implemented salary
reductions for all staff to conserve cash.
Our team today now numbers
approximately 45 staff and we have
more than halved our installed cost base
from over £12.0 million in FY19 to around
£5.0 million on an underlying basis for
FY21 (underlying excludes severance
and notice costs). In so doing, we have
retained our core capabilities in R&D,
scale-up and manufacturing, including
both facilities at our Runcorn site.
Maintaining these core capabilities
and facilities is essential to deliver
the business we hope to win over the
coming months.
Business performance
Electronics
In the first half we successfully completed
the final deliverables for the US Customer.
This followed the disappointing news in
June 2019 that a new hoped for programme
of work would not be forthcoming.
ABOVE:
Laboratories at Nanoco.
All revenues under the work programme
were earned in full.
Early in the second half we then had more
positive news with the announcement of
a five-year collaboration with ST Micro
to develop and scale up nanomaterials
for use in infra-red sensing. The master
agreement was followed shortly thereafter
with a development work programme for
a new material and delivery schedules
for test and validation volumes of an
existing material.
Given the scale of the sector and the
participants, we are often going to be
part of an extensive supply chain in the
electronics market. This does mean that
we are subject to events and decisions
outside of our control – as happened
with the US Customer.
However, the new agreement with ST
Micro allows us to take advantage of
knowledge, skills and assets developed
during the programme with the US
Customer. We also now have “freedom
to operate” and can apply those
capabilities to applications and other
end customers within the consumer
electronics and other applicable markets
through our agreement with ST Micro.
Nanoco Group plc – Annual Report and Accounts 2020 009
Chief Executive Officer’s statement continued
Business performance continued
Electronics continued
We are actively seeking to create a
number of new opportunities to utilise the
dedicated Runcorn production facility for
the large-scale manufacture of materials
for use in infra-red sensing. ST Micro is an
excellent partner and cornerstone. Our
current activities are more heavily
weighted towards development work at
this stage and, if successful, scale-up
projects will follow with the potential for
commercial production volumes in the
short to medium term.
We are therefore pursuing in parallel
smaller market niches where we are able
to have direct relationships with a greater
number of smaller OEMs to allow us to
mitigate the risk of being overly reliant on
a very small number of larger customers.
The same strategy applies to our work in
CFQD and other market sectors.
The in-depth nature of our technological
insight means that we do tend to “punch
above our weight” in terms of direct
engagement even with very large end
customers and their technology teams.
Having proven our capability on one
material for use in sensing applications,
we are now in discussions to develop other
materials for use in adjacent applications.
The revenue-generating capacity of the
new Runcorn facility remains very
significant if appropriate commercial
orders can be won. Our goal is still to
transition the majority of our activity to
commercial production, supported by our
deep technical knowledge and skills that
allow world leading development work
in parallel.
Display (CFQD® quantum dots)
Display remains an important target
market for Nanoco. To improve our
competitive proposition, we are
maintaining our focus on our “dot only”
strategy where we aim to provide the
highest performing CFQD® quantum
dots to multiple film coating, photo-resist
and ink producing companies.
We measure CFQD® material
performance using a number of key
metrics including, but not limited to, Full
Width Half Maximum (“FWHM”) (the width
in nanometres of the emission peak
halfway up its height; narrower is better),
quantum yield (“QY”) percentage (a
measure of how efficiently the quantum
dots absorb blue light and convert it to
red or green light) and stability (how
durable the quantum dot is in any
specific application). An example of our
improved performance in the period is a
15% reduction of the CFQD® quantum
dots’ FWHM while retaining very high
quantum yields and stability.
It is also clear that as more market sectors
look at alternative applications for quantum
dots the range of characteristics and
performance criteria continues to evolve
and we are well placed to tune our
materials over the full range of material
characteristics.
The integration of quantum dots into
TVs is evolving. The first generation of
QD displays use red and green quantum
dots in a resin, which is then coated
onto a film and finally integrated into
the backlight of an LCD display. This
dramatically enhances colour performance
and reduces power consumption.
The second generation of QD-based
displays will integrate red and green
quantum dots onto a blue OLED panel
or blue microLEDs using ink jet printing
or photo-resist patterning technology.
We anticipate that displays using
second generation technology may
enter the market as early as 2022
though investment in the technology
has slowed recently.
The third generation of quantum dot
display is electroluminescent red, green
and blue quantum dots fabricated into a
display. It is likely to be a number of years
before this third generation of TVs enters
the market on a commercial basis. Nanoco
is active in development work in the first
two generations and also maintains
capabilities in the third generation.
Three years ago we modified our
strategy from a pure licensing model
to a hybrid business model where we
have licensed our technology to different
channel partners while also developing
our own manufacturing capability. We
continue to work with our licence partner
DuPont (formerly Dow) as well as our
film coating partner Wah Hong and
have also started to increase the
range of companies with whom we
are actively engaged.
Merck decided not to renew its licence
agreement and issued notice of this in
the third quarter. We continued to work
with Merck for the remainder of the
contract year and still continue to
discuss options for possible future
collaboration and access to Nanoco
technology and IP.
010
Nanoco Group plc – Annual Report and Accounts 2020
Other sectors including life sciences
and lighting
Following the need to restructure and
downsize the business, our core focus is
on sensing and display. Where there is
an immediate substitution opportunity
we will continue to proactively engage
with other sectors. With respect to our
Life Sciences team, our focus is on
securing a new strategic partner to
take the business forward, to allow us
to concentrate our resources and efforts
on our two core markets. If no spin-off
is achieved, we will retain our IP and
continue to explore clear short-term
commercial opportunities. Other
applications in horticultural lighting will
be unaffected as they are a direct part
of our CFQD® quantum dot activities.
Operations
Commissioning of the new Sensing
production facility at Runcorn was
finalised in the first half of the year.
Testing and process improvements
have increased the capacity of the
plant beyond its original design targets.
In the Display facility, changes to our
recipes and process routings have also
led to significant capacity increases with
further gains available from relatively
modest capital expenditure should
the need arise. While both plants are
currently in mothball or standby mode,
they can be fully operational in four weeks
or less and together they represent very
significant revenue-generating capacity.
Responding to Covid-19
At its peak, the Group had 49 of 67 staff
on furlough. The remainder were working
in Covid-19 secure ways by either working
from home or, in the case of those
needing to attend our facilities, in a
regime of enhanced PPE, cleaning
and social distancing.
Our reduced headcount and the layout
of our split facilities make it easier
to follow many of the recommended
practices for the return to work. Having
completed detailed risk assessments and
implemented the resulting action plans
we are now confident staff can safely
return to the workplace while allowing
remote working where possible.
Strategic report Q&A
Q: After a turbulent year, where
does the business go from here?
We now have a significantly
reduced cost base, less than half of
the level in FY19, with a more stable
platform of staff and funding on
which to generate new sources of
income over the next three years.
With market ready products in
Sensing and Display, and significant
capacity for R&D services, we will
push to achieve ongoing break even
revenues over that period.
Q: How do you view the
Samsung lawsuit?
The lawsuit clearly has very
significant potential value for the
Group. We have a well-resourced
third party funder in place and two
very experienced advisers in our
counsel and strategic adviser. Our
current funding position secures the
business until the end of December
2022. We are ready for the long haul.
The Management team can therefore
focus on the organic side of the
business on a day-to-day basis.
Q: What are your medium-term goals
over the next two to three years?
The Nanoco team is now focused
on winning new business to further
secure our funding and extend
our cash runway. By successfully
completing development work on
a number of existing opportunities,
we can then move to scale-up and
eventually to commercial production
from Runcorn. The latter will very
quickly lead to a cash-generative
business with a much more secure
footing for staff and our operations.
Intellectual property
We consciously rationalised the number
of patent applications in progress during
the year. As a result, the Group’s IP
portfolio fell marginally to 731 patents
and patent applications (2019: 745).
This net reduction reflected 42 new
applications and 56 that were dropped,
mainly in territories where it was no longer
felt worthwhile to pursue. We have also
slowed the rate of filing new IP in the
second half to preserve trade secrets
and to conserve financial resources.
Our IP and a significant range of business
process secrets strongly underpin the
Group’s valuation while also operating as
a challenging barrier to entry to potential
competitors.
Environment/restriction of
hazardous substances (“RoHS”)
Our commitment to protecting the
environment is directly expressed in our
decision to develop our CFQD® quantum
dot products to be free of toxic cadmium,
which is still widely used by competitors
in their quantum dot products.
Nanoco has participated actively
with regulators concerning the use
of cadmium-based quantum dots
in displays and LED light products.
Nanoco’s consultation response opposed
any further extensions. The European
Commission (“EC”) review of requests
to extend the duration and scope of
the current RoHS exemption remains
outstanding at this time. We believe that
the majority of display companies agree
with our position and accept the need for
new display products to be cadmium free,
which should stimulate demand once the
exemptions for cadmium expire.
People
Our employees have shown great
resilience during a very uncertain year.
They have remained focused on our
customers and supporting each other
while coping with the Covid-19 pandemic,
uncertainty during the consultation process
and a Company-wide salary reduction.
During the year and shortly after we
have had to say farewell to just over
20 of our valuable staff. We wish them
all well for the future, whether in new
careers or new academic pursuits.
For our remaining 45 staff, the combination
of the end of the consultation process in
September 2020, new commercial
activity and a firmer financial foundation
will bring welcome stability and allow the
team to continue to display its technical
skill and ingenuity in providing solutions
for customers. We have managed the
staff reductions in such a way as to
retain our core R&D, scale-up and
production capabilities.
The new Leadership team that we put
in place in the prior year has performed
well throughout the challenges of the
year. Its support has been invaluable
and, working with the senior management
team and all of our staff, will help to
maintain a disciplined and commercial
focus to our activities in the year ahead.
Outlook
The past year has undoubtedly been a
turbulent one with highs and lows and also
a huge effort by the whole Nanoco team.
While we are still conscious of the risks
around the Covid-19 pandemic, and other
challenges ahead, some normality is now
starting to return to the business. The
delivery of third party funding for the
Samsung lawsuit, the equity raise for the
Group’s organic operations and completing
the restructuring of the Group are all
adding a measure of stability to the Group.
Our whole team is now focused on taking
advantage of the extended cash runway
for our organic business to deliver new
commercial opportunities that will further
extend that runway. Our existing
commercial relationships, including live
development projects in Sensing and
Display, combined with a much lower cost
base, create the potential for breakeven
production revenues in the medium term.
There are technical milestones to be
delivered along the way but our track
record of success in development gives
us confidence in being able to deliver
materials that meet our customers’
challenging performance criteria. By
exploring other new customer applications,
we aim to de-risk any reliance on one
customer or product. Contingency plans
remain in place to ensure that the potential
value in the lawsuit can be protected.
In a more stable environment, and with our
smaller, more focused team, I am confident
that we can deliver value for all of our
stakeholders in the medium term.
Brian Tenner
Chief Executive Officer
13 October 2020
Nanoco Group plc – Annual Report and Accounts 2020 011
Revenue streams
We have significant potential
capacity for revenue generation
from our multiple revenue streams
Products
Services
Licences
Our Runcorn facility has the capacity to
make high volumes of CFQD® quantum
dots and HEATWAVE™ nanomaterials for
IR sensing applications. The revenue
generation capacity can be easily
scaled by adding additional shifts with
the overall potential return on the asset
base being extremely attractive, and
benefiting strongly from operational
leverage if extra shifts and volumes were
added. Revenue potential: HIGH.
Our highly skilled R&D and Scale Up
teams are able to design, develop and
scale new materials for customer-specific
applications. We are able to charge
customers for professional services when
we carry out these sorts of development
activities for them with rewards often
linked to achieving technical milestones
or outcomes. The last two financial years
have seen significant revenue generated
in this area. Revenue potential: MEDIUM.
When a channel partner initially acquires
a right of access to or use of Nanoco
technology and IP, they typically pay a
one-off licence fee. These fees reflect
the costs already previously incurred by
Nanoco in developing our technology
and IP and hence represent a return on
those historical investments. Revenue
potential: LOW–MEDIUM.
Royalties
As well as the ability to make and sell
materials directly to our customers, the
agreements with our channel partners
(DuPont and Wah Hong) allow them
to manufacture our materials themselves
(or source from elsewhere under further
licences) and then pay a royalty on the
value of their sales to their customers.
This revenue stream has the potential
for very high leverage since it is not
constrained by manufacturing scale
and also has minimal costs associated
with incremental sales via this channel.
Revenue potential: HIGH.
Products
Services
Our revenue
Royalties
Licences
Our strategy
p18
012
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Infinite possibilities
Fine-tuning light quality with CFQD®
quantum dots technology
Large improvements have been seen by the research team in CFQD Fine Color Film™ Deep
Red product this year. Combining the latest generation CFQD® quantum dots with
improvements to our resin technology has yielded huge gains in the photon conversion
efficiency of the film. For customers this has translated to a >40% increase in photosynthetic
active radiation, enabling even more efficient plant growth.
In usage we are continuing to find innovative new applications with our partners. Latest
interest has come from utilising CFQD Fine Color Film™ Deep Red product as a solar
concentrator for use in commercial greenhouses. The film tunes daylight to increase the red
component, known to optimise plant growth. This can also be combined with PV technology
to allow greenhouse roof panels to generate electricity with no compromise on the growth
rate of the plants within, moving us closer to carbon neutral food manufacture.
Range of colour produced
at the relevant wavelength
400
450
500
550
600
650
700
Wavelength (nm)
What this all means…
Fine-tunable, high purity light for a variety of different
applications ranging from mass market consumer
electronics to high specification machine vision
to enhancing plant growth.
Nanoco Group plc – Annual Report and Accounts 2020 013
Strategic report
Section 172 (1) statement
Section 172 (1) report
In line with section 172(1) of the Companies Act 2006, the
Directors of the Company must act in a way which they
consider, in good faith, would most likely promote the success
of the Company for the benefit of its members as a whole, and
in doing so must have regard to a number of other key matters.
Likely long-term consequences of decisions (s.172(1)(a))
Given the nature of the business, the Board takes a medium-term
approach to its decision making to ensure that the Company
is able to deliver its strategy of creating value for all of our
stakeholders. Risk management is also key to understanding
the likely consequences of actions. The Board plays a key role
in reviewing the Company’s approach to risk, including an
assessment of its emerging and principal risks. See pages 25 to
27 of the Strategic report for a description of the identified risks
and how these are being controlled or mitigated. Given the
Group’s finances, the Board has been continually reviewing the
Company’s current and forecast financial position. This year the
Directors selected a two-year timeframe over which to assess
the viability of the Company. The Viability statement can be
found on pages 28 and 29 of the Strategic report.
Maintaining a reputation for high standards of business
conduct (s.172(1)(e))
The Company has in place a Code of Conduct which acts as
a guide for employees to doing the right thing. The Company
also has well-embedded policies in place which assist with
ensuring high standards of conduct, including in respect
of the following key areas: health, safety and environment;
whistleblowing; anti-bribery and corruption; human rights;
and modern slavery. The Environmental, Social and Governance
Disclosures section of the Directors’ Report, from pages 30 to
35, provides further insight into measures put in place by the
Board to assist with maintaining a reputation for high business
conduct standards.
Acting fairly between members of the Company (s.172(1)(f))
The Directors also have regard to the need to act fairly between
members of the Company, aiming to understand their views
and act in their best interests. The ownership of the Company
follows a “one share, one vote” structure, which assists with
promoting parity in shareholder rights. The Board ensures that
there is fair and equal dissemination of information to all
shareholders and has a dedicated investors section on the
Company’s website which is available to all shareholders.
Why we engage
How we engage and respond
Impact of engagement
To ensure employees feel valued for
We communicate key decisions and
Our employees feel empowered to achieve solutions to problems
Employees
their contribution
To empower our employees
To enhance our employees through training
and progression
collaborate through our Employee Voice
Committee, which includes Directors
We give them the tools to work effectively
We encourage our employees to provide
solutions to problems
To ensure we can provide the best service
and products possible, to meet the
customers’ needs
We ensure open and constant communication
with customers, to ensure our products and
services are world leading
Customers
To protect our customers’ technology
Ensure we are complying with
regulatory requirements
We welcome feedback from customers,
and work collaboratively to achieve our
customers’ goals
To develop long-term, collaborative
We create close collaborative working
partnerships for key, difficult to source
R&D components
Suppliers
To mitigate the risk of not being able
to succeed commercially
To comply with regulatory requirements
To ensure compliance with
regulatory requirements
relationships with key suppliers, to ensure
clear communication, active issue resolution
and effective qualification of products
We encourage open engagement, to ensure
compliance with the relevant regulatory
requirements
We review our operations periodically to
ensure compliance with regulations
Regulators
To protect our staff and communities
We actively maintain standards through
To ensure best practice
external reviews (e.g. ISO 9001 accreditation)
Shareholders
To enable shareholders to understand
Nanoco’s strategic aims and results
To help understand management’s aim,
responsibilities and incentive structures
To understand our commitment to our staff,
communities and the wider environment
We build relationships with our investors through
our investor relations activities
In our annual reports, we update all
stakeholders on our strategic progress,
and explain any financial implications
We consider investor feedback, and what
impact this may have on the business
014
Nanoco Group plc – Annual Report and Accounts 2020
Our employees feel like an asset to the business
We improve as our employees improve
We build strong relationships with customers, who believe in the
capabilities of our platform technology and our employee expertise
Our customers trust us to be able to meet their requirements to
create world leading products
This helps us to attain best value from our supply chain, and mitigates
the risk of a breakdown in process negatively impacting the business
Through regulatory checks, we ensure our suppliers are complying
with regulatory requirements, e.g. payment of minimum wage
Compliance with regulatory requirements enables the business
to operate in a safe manner, protecting our employees and the
wider communities
We aim to create long-term investor value, through growing
from an R&D services business to a commercially viable niche
production company
Strategic report This provides easy access to RNS announcements and reports and
publications. In the ordinary course, and outside of the prohibition on
meeting attendance currently in force by the Government due to the
Covid-19 pandemic, all members are invited to attend the Annual General
Meetings of the Company, offering an opportunity for members of any
size shareholding to have a conversation with, and ask questions to,
each of the Directors. For any Annual General Meetings where in-person
attendance is prohibited due to the Government’s regulation, all
shareholders will be offered the opportunity to submit questions to the
Board ahead of the meeting with answers being made available to them.
Having regard to specific stakeholder groups (s.172(1)(b) to s.172(1)(d))
The table which follows seeks to provide insight into how the Board carries
out its duty under this section.
Why we engage
How we engage and respond
Impact of engagement
To ensure employees feel valued for
We communicate key decisions and
their contribution
To empower our employees
To enhance our employees through training
and progression
collaborate through our Employee Voice
Committee, which includes Directors
We give them the tools to work effectively
We encourage our employees to provide
solutions to problems
Our employees feel empowered to achieve solutions to problems
Our employees feel like an asset to the business
We improve as our employees improve
To ensure we can provide the best service
We ensure open and constant communication
and products possible, to meet the
with customers, to ensure our products and
customers’ needs
services are world leading
We build strong relationships with customers, who believe in the
capabilities of our platform technology and our employee expertise
Our customers trust us to be able to meet their requirements to
To protect our customers’ technology
We welcome feedback from customers,
create world leading products
Ensure we are complying with
regulatory requirements
and work collaboratively to achieve our
customers’ goals
To develop long-term, collaborative
We create close collaborative working
partnerships for key, difficult to source
relationships with key suppliers, to ensure
R&D components
To mitigate the risk of not being able
to succeed commercially
To comply with regulatory requirements
To ensure compliance with
regulatory requirements
clear communication, active issue resolution
and effective qualification of products
We encourage open engagement, to ensure
compliance with the relevant regulatory
requirements
We review our operations periodically to
ensure compliance with regulations
To protect our staff and communities
We actively maintain standards through
To ensure best practice
external reviews (e.g. ISO 9001 accreditation)
To enable shareholders to understand
We build relationships with our investors through
Nanoco’s strategic aims and results
our investor relations activities
To help understand management’s aim,
In our annual reports, we update all
responsibilities and incentive structures
To understand our commitment to our staff,
stakeholders on our strategic progress,
and explain any financial implications
communities and the wider environment
We consider investor feedback, and what
impact this may have on the business
This helps us to attain best value from our supply chain, and mitigates
the risk of a breakdown in process negatively impacting the business
Through regulatory checks, we ensure our suppliers are complying
with regulatory requirements, e.g. payment of minimum wage
Compliance with regulatory requirements enables the business
to operate in a safe manner, protecting our employees and the
wider communities
We aim to create long-term investor value, through growing
from an R&D services business to a commercially viable niche
production company
Near-term
developments
Display and sensor materials
OLED colour conversion can be
achieved with CFQD® quantum
dot materials allowing for the
development of hybrid display
devices, combining the improved
colour gamut capabilities of
quantum dots with the superior
blacks achievable with current
OLED TVs.
Near infra-red (“NIR”) materials
can be used to revolutionise the
sensor market extending the
range of CMOS camera sensors
from the visible through to the
near IR. This would open up
consumer device cameras to
allow depth sensing on top of
traditional photography all from
a single sensor array.
Short wave infra-red (“SWIR”)
materials will have a large
impact in the machine vision
sector by providing a low cost
alternative to traditional InGaAs
technology sensors. Reduction of
cost of these sensors opens up a
wide range of potential uses from
inspection of food materials
on factory production lines to
improved diagnostic capabilities
of wearable devices, such as
a smart watch.
R&D
µLED colour conversion can be
used to truly enable wearable
augmented reality (“AR”) devices
in the near future. CFQD®
quantum dots will be capable
of converting single colour blue
µLED projectors to full RGB
capability, allowing full colour
images to be displayed on heads
up displays at high brightness
with low power consumption.
QD-LED self-emissive display
technology can uniquely offer
excellent colour performance,
high brightness, and power
efficiency alongside low cost
printing production techniques.
Displays with novel form factors,
flexible or large area printable
displays hold great potential for
the next generation of screens.
Our markets
p3
Nanoco Group plc – Annual Report and Accounts 2020 015
Our business model
We are focused on bringing our platform
technology to market for our partners and
customers through innovation and research
EMPLO
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Nanoco Group plc – Annual Report and Accounts 2020
Intellectual
property
Deep IP portfolio,
a key investment
proposition
Platform
technology
High performing
nanomaterials
Expertise
Our platform and people
deliver novel solutions to
new application challenges
Agility
Broad skill set and agile
team structures enable rapid
resource pivot to alternative
commercial opportunities
Licence partner
Major channel partners
with global reach to multiple
markets and applications
Employees
Highly skilled staff with
extensive technical knowledge
and flexible skill set
Production capacity
Installed asset base capable
of generating significant
revenue in multiple markets
Strategic report
About our business model
Our business model has a
number of key strengths. It
also enjoys a diverse range
of potential income streams.
This was amply demonstrated over the
last two years where services income
featured strongly compared to previous
years. Our medium-term goal is to
maximise our revenue from direct
product sales by Nanoco and also
through royalty income on sales by
our channel partners.
Intellectual property (“IP”)
IP and process technology know-how are
foundational assets for the Group and a
key strength. Our technology is heavily
patented to secure its use for the Group.
New IP is continually generated through
our R&D activities and all potential
patents are reviewed by our internal
Patent Review Board for commercial
value before being filed.
It is worth noting that on top of our
formal IP portfolio, we also have
significant know-how around our
methods and processes. We tend to hold
this information as commercial secrets
rather than as formally registered IP.
Platform technology
Licence partners
Our nanomaterials have a wide range of
electronic properties, usually opto-electrical
in nature. These include absorption of
different forms of energy and its emission
and potentially its conversion to a different
form of energy (electricity to light, for
example) or a different variety of the
same energy (blue light to green light,
for example).
One specific class of our materials is our
CFQD® quantum dots that avoid the use
of toxic cadmium in display applications.
The same absence of toxic chemicals
means we can also develop dots that
can be applied in life sciences applications
for use in the human body.
Expertise and agility
We take advantage of our extensive
technical expertise and agile workforce
to be able to respond to complex and
challenging customer requirements. We
can also do this much faster than many
of our competitors. The example of the
US Customer is a case in point: within eleven
months of starting work, we solved a
number of technical challenges to develop
and scale up a novel nanomaterial and
then built a new production facility capable
of manufacturing that new nanomaterial
(once the facility is commissioned
and validated).
Our licence partners create an excellent
opportunity for the Group to access very
large global markets that our own scale
might make difficult. Our partners have
global scale and reach and in a number
of cases are closer to potential end market
uses that might go unnoticed by the Group.
Our licence partners also bring significant
skill sets in the respective supply chains
that would be too difficult or too costly
for the Group to develop internally. This
partner reach has allowed the Group to
move to the “dot only” strategy where we
focus our expertise and resources on our
core capabilities and allow the licence
partners to exploit their core strengths in
collaboration with Nanoco.
Employees
Our staff are highly skilled in a number of
specialist areas. There are 14 employees
with PhDs and other postgraduate
qualifications. In R&D our expertise
ranges from chemistry to physics, and
from biology to pharmacology. Staff are
also adept at taking lab scale process
and scaling them up to industrial
production scale. We also have
strong process improvement and yield
optimisation skills that improve both
production volumes and our input costs.
It is this extensive range of specialist skills
which makes our team such a valuable
asset which, when combined with our IP
portfolio, helps generate a compelling
investment proposition.
Production capacity
Our Runcorn production facility has
two distinct production labs. One is
focused on CFQD® quantum dots for
use in display, lighting and life sciences.
The other, new and recently completed
facility, is focused on nanomaterials
for use in infra-red sensing applications.
In combination they create an extensive
revenue-generating capacity for the
Group through direct product sales
to our customers. The nature of the
facilities means they also deliver strong
operational leverage if additional
volumes are added with additional shifts.
ABOVE:
Operator assessing the performance of test devices manufactured
with Nanoco Heatwave™ material designed for use in infra-red sensors.
Nanoco Group plc – Annual Report and Accounts 2020 017
Our strategy
Our “dot only” strategy is to focus on producing
the highest quality dots and meeting the needs
of our customers through the application of
innovative nanomaterials technology
Strategic
objectives
1
Growth
2
Investment
3
Licensing
Objective
Objective
Objective
To become self-sustaining
To maintain our
financially
competitive advantage
To continue to invest in
R&D for future products
To bring significant extra
capacity and resources
to address expected
market growth
How
How
How
Own manufacture and
direct supply to customers
Non-exclusive
technology licensing
Professional services
Royalty income
Continue to create
and patent new IP
Continue to develop
in-house manufacturing
capabilities
Assisting licensees
in maximising their
opportunities in
manufacturing
Working with licensees
to create routes to market
for our products
Future focus
Future focus
Future focus
Converting current
opportunities into
revenues with a strong
emphasis on nanomaterials
Continuing to invest in
R&D in order to remain
at the forefront of
this technology
Continuing to support
our licensing partners
to maximise the benefit
to all parties
Exploring opportunities
Exploring ways to open up
Giving partners the best
with a number of
potential customers
new market opportunities
performing dots
KPIs
KPIs
KPIs
Year-end cash and cash
Year-end cash and cash
burn rate
Revenue
Loss after tax
Total billings
Risks
Strategic
Operational
Financial
burn rate
Total investment
in research and
development
Risks
Strategic
Compliance
Portfolio of patents
and patents pending
Risks
Strategic
018
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Strategy in action
Investment in manufacturing this year
has seen a major increase in our capacity
for direct product sales
We built and commissioned a significant
new production facility at our Runcorn
site in the UK. The facility doubles the
production area of our Runcorn site.
More importantly, the new facility has
the potential to generate revenue in
excess of £100m p.a. if fully loaded on
maximum shifts (based on current price
and yield expectations).
We continue to work to improve routing
times and material yields to push
production capacity further still.
On the CFQD® plant we have also been
developing plans to expand our
capacity for direct production. This has
been in partnership with our R&D and
scale up teams where new generations
of higher performing dots have been
developed which lead to higher yields
and lower input costs for our display
materials. We estimate that we have
doubled the volume capacity of the
plant and with a small number of
additional capital investments could
push this to a fourfold increase in volume.
This will be useful in both being able to
meet higher demand but also in being
able to mitigate pressure for cost downs
in the industry.
RIGHT:
A selection of
Nanoco products.
£100.0m
Revenue capacity in IRQD
facility (sensing)
£30.0m
Revenue capacity
in CFQD® facility (display)
Nanoco Group plc – Annual Report and Accounts 2020 019
Our key performance indicators
We have continued our drive to make sure all employees
are aware of, and focused on, our key performance
metrics, making our performance a true team effort
Year-end cash and
cash burn rate
£ million
£5.2m
-26%
2020
2019
2018
2017
2016
Revenue
£ million
£3.9m
-46%
LBITDA
£ million
(£2.9m)1
-23%
5.2
7.0
10.7
5.7
9.5
2020
2019
2018
2017
2016
3.9
7.1
3.3
1.3
0.5
2020
2019
2018
2017
2016
(2.9)
(3.8)
(6.2)
(9.5)
(11.2)
Measurement
Measurement
Measurement
Reconciled bank balances including
committed but not yet cleared
receipts and payments.
The value of goods and services
recognised as income in accordance
with IFRS 15 Revenue Recognition.
Current monthly gross cash
consumption before revenues and
other receipts.
Why it is important
The business operates on a cash
consuming basis and this blended
KPI indicates the duration of
funding visibility.
What it means
In combination with the Group’s
operating plans and budgets, the
current balance underpins the
Directors’ going concern and
viability statements.
Why it is important
Revenue (and its change year on
year) shows the speed with which the
business is growing or contracting.
What it means
In combination with gross margins
and overheads it shows whether the
Group is getting closer to a
breakeven position.
The statutory result after deducting
exceptional items, share based
payment charges, depreciation,
amortisation, interest and tax from
our revenue.
Why it is important
Reducing LBITDA is a critical
medium-term goal as it would
significantly reduce the key risk of
running out of cash before realising
the Group’s full potential.
What it means
The Group’s LBITDA has reduced
year on year, bringing the Group
closer to cash flow neutral
and sustainability.
1
After impact of IFRS 16 in current year.
See note 3 to the financial statements.
Strategy link
1
2
Strategy link
1
Strategy link
1
020
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Key
Strategy link
1
2
3
Growth
Investment
Licensing
Billings
£ million
£2.5m
-74%
2020
2019
2018
2017
2016
Investment in R&D
£ million
£3.1m
-28%
2.5
9.6
6.5
1.1
1.9
2020
2019
2018
2017
2016
3.1
4.4
4.0
5.5
6.0
Portfolio of patents
and patents pending
Number of patents
731
-2%
2020
2019
2018
2017
2016
731
745
654
600
467
Measurement
Measurement
Measurement
The value of invoices raised during
the year for goods and services
delivered or to be delivered to
customers (excluding VAT).
The sum of all costs incurred in
research and development activities.
This includes salary costs and other
direct R&D costs.
The Group’s IP lawyers report
monthly on patents granted or filed
in the respective patent offices in
various countries.
Why it is important
Why it is important
Why it is important
Billings are a better indicator
of cash flow than revenue, as
revenue can be influenced by
non-cash accounting estimates
and judgements.
What it means
Billings in the year were significantly
down reflecting the fall in revenue
and also the fact that some FY20
revenue was invoiced in FY19. The
team is working to win new business
and restore billings to a healthier
position.
Nanoco prides itself on the scale
and quality of our R&D efforts –
which feed our IP portfolio and also
commercial opportunity pipeline as
we develop new materials for
potential new markets and
applications.
What it means
We aim to continue investment
in our core R&D activities despite
restructuring the business during
the year. In this way we will further
enhance the quality of our materials.
Our IP portfolio is a key strength
of Nanoco and a strong reason to
invest. It supports our efforts to
monetise our investments in R&D
and also underpins the major
litigation against Samsung.
What it means
The overall quality of our IP portfolio
continues to improve. We continue
to review the portfolio for relevance
and value. As our business focus
changes this can lead to a decision
to allow no longer relevant IP
to lapse.
Strategy link
1
Strategy link
2
3
Strategy link
2
3
Nanoco Group plc – Annual Report and Accounts 2020 021
Financial review
Maintaining commercial
and operational focus
with a lower fixed cost base
Revenue and other operating
income decreased by £3.3 million
to £4.0 million (2019: £7.3 million).
The decrease is largely due to
the lower revenues from the US Customer.
BRIAN TENNER
Chief Executive Officer
(Formerly Chief Operating Officer
and Chief Financial Officer)
Summary
Cash remains the key point of focus
– the fundraise pre-year end provided
£3.2 million net of costs, increasing
cash to £5.2 million at year end.
We continue to monitor our cost base,
and have cut our monthly cash burn
rate to approximately £0.4 million.
Revenue and other operating income
decreased by 45% to £4.0 million
(2019: £7.3 million).
Billings decreased by £7.1 million to
£2.5 million (2019: £9.6 million), due
to the end of the contract with the
US Customer.
The loss before tax increased
by £0.5 million to £6.0 million
(2019: £5.5 million) largely due
to increases in depreciation
and amortisation and various
one-off costs.
Revenue from the sale of products and
services rendered accounted for 89%
(2019: 94%) of revenues with the balance
being royalty and licence income.
Revenue from the sale of products
was £0.4 million (2019: £0.2 million).
Billings have significantly decreased by
£7.1 million to £2.5 million (2019: £9.6 million),
which reflects the end of the contract
with the US Customer.
Revenue from royalties and licences does
not have a directly associated cost of
sale. Service income also has a lower
cost of sale. Cost of sales decreased by
£0.4 million to £0.3 million (2019: £0.7 million)
as a result of the fall in revenue and change
in sales mix.
Research and development expenditure
is below prior year at £3.1 million. The
largest reduction was due to the fall in
payroll costs. Total payroll costs in the
year were £4.2 million (2019: £5.6 million).
The decrease is due to:
the full year impact of the prior year
restructuring (£0.6 million);
headcount reductions during the year
(£0.4 million); and
Highlights
Turnover
Adjusted operating loss
Adjusted LBITDA
Net loss
Loss per share
Billings
Cash and cash equivalents
022
Nanoco Group plc – Annual Report and Accounts 2020
the benefits of a Company-wide pay
cut and the Government’s furlough
scheme (£0.4 million).
In March 2020, we announced a further
consultation with all employees. The
consultation is now complete and the
resulting business will have c.45 full time
employees (2019: 72) once the final changes
are made. The revised structure reduces
our cost base, whilst ensuring we still have
operational and commercial viability.
In July 2020, we launched a fundraise
which was over-subscribed and resulted
in £3.2 million of cash inflow (net of fees).
Cash at year end was £5.2 million, which
reflects a £5.0 million consumption of
cash before the impact of the fundraise.
Non-GAAP measures
The non-GAAP measures of adjusted
operating loss and adjusted loss
before interest, tax, amortisation and
share-based payment charges (“LBITDA”)
are provided in order to give a clearer
understanding of the underlying loss for
the year that reflects cash outflow from
the business.
2020
£ million
2019
£ million
% change
3.9
(4.8)
(2.9)
(5.1)
(1.76)
2.5
5.2
7.1
(5.0)
(3.8)
(4.4)
(1.52)
9.6
7.0
(46%)
(4%)
(23%)
17%
13%
74%
(26%)
Strategic report Cash flow and balance sheet
Foreign exchange management
During the year cash, cash equivalents,
deposits and short-term investments
decreased to £5.2 million (2019: £7.0 million).
The net cash outflow, excluding the
benefits of the equity raise of £3.2 million
in July 2020 (net of costs), was £5.0 million
(2019: £3.7 million outflow). The increase
was driven by lower revenues from the
US Customer.
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 and more predictable.
Tax credits of £1.1 million (2019: £1.4 million)
were received during the year.
Expenditure incurred in registering patents
totalled £0.6 million (2019: £1.0 million)
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.
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 28 to the
financial statements.
Credit risk
The Group only trades with recognised,
creditworthy 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.
There were no open forward contracts as
at 31 July 2020 (2019: none). The Group’s
net profit and 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 is summarised in note 28 to the
financial statements and was based
on the year-end position.
Brexit
The Board continues to monitor the
proposals being made. Currently, the
majority of the Group’s revenues are for
services delivered in the UK with minimal
Brexit impact. Going forward, the Group
expects a significant portion of its
revenues from material sales to be from
non-EU countries where the Government
hopes to have in place equivalent
trading arrangements as exist today.
Specific conditions for trade with EU
countries will be put in place once the
shape of any deal is known. As a point
of note, WTO tariffs on our products
are relatively low and not deemed to
be a risk to our competitiveness.
The calculation of both non-GAAP
measures is shown in the table below:
2020
£ million
2019
£ million
Operating loss
(5.9)
(5.5)
Share-based
payment charge
Exceptional costs
Adjusted
operating loss
Depreciation1
Amortisation2
Adjusted LBITDA
0.4
0.7
(4.8)
1.1
0.8
(2.9)
0.2
0.3
(5.0)
0.6
0.6
(3.8)
1
Includes depreciation of right of use assets in 2020.
2 Includes impairment of intangible assets.
IFRS 16 Leases replaced IAS 17 Leases
with effect from 1 August 2019. We
present current year results on the new
IFRS 16 basis but prior year comparatives
on an IAS 17 basis. Under IFRS 16, the prior
year adjusted LBITDA would have been
£3.1 million. More details are disclosed
in note 3(v) to the financial statements.
The loss before tax was £6.0 million
(2019: £5.5 million).
Exceptional items
Exceptional costs in the year related to
the Formal Sales Process, the start of the
litigation against Samsung, the fundraise
and restructuring activities. They are set
out in more detail in note 7 to the
financial statements.
Taxation
The tax credit for the year is £0.9 million
(2019: £1.1 million). The tax credit to be
claimed, in respect of R&D spend, is
£0.9 million (2019: £1.1 million). Overseas
corporation tax was £nil during the year
(2019: £nil). There was no deferred tax
credit or charge (2019: £nil).
Nanoco Group plc – Annual Report and Accounts 2020 023
Financial review continued
Going concern
Summary
Whilst the news relating to the US
Customer in the prior year was a
commercial setback, since then we have
announced a new project with ST Micro.
The Group has demonstrated its agility
and ability to reduce its costs when
needed a number of times over recent
years. However, we have ensured
we have continued operational and
commercial ability to meet the needs
of customers.
We launched our litigation against
Samsung, which is fully financed and
therefore no cash flow risk to the Group.
We are therefore confident that we have
the means and the will to secure our
medium-term future while our focus is
firmly on pursuing near-term commercial
opportunities.
Brian Tenner
Chief Executive Officer
13 October 2020
The fundraise in July 2020 raised £3.2 million
net of costs. This extended the Group’s
cash runway to December 2022.
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 financial statements
and the Board concluded that it is
appropriate to utilise the going
concern assumption.
Covid-19 pandemic
The Group has completed detailed
risk assessments and implemented the
resulting action plans and Government
guidance to create Covid-19 secure
workplaces. We are able to meet
customer needs while working in a
safe fashion. The Group will continue to
access financial support where available
and appropriate. We do not currently
expect significant financial downsides
though this is clearly dependent on
changes in regulations and the scale
of any further lockdowns.
“ Cash remains
our key focus
and constraint,
and therefore
we continue
to explore
cost saving
opportunities
whilst ensuring
we deliver for
our customers.”
Cash and cash equivalents
£ million
2020
2019
5.2
7.0
Net decrease in cash explained by:
Investment in capital spend
£ million
2020
2019
0.2
2.1
The need to invest in capital spend
has decreased, following completion
of Runcorn facility in prior year.
Investment in intellectual property
£ million
2020
2019
0.6
1.0
Considerate rationalisation of the
patents has resulted in a decrease
in patents granted and patents
pending from 745 to 731.
R&D tax credit received
£ million
2020
2019
1.1
1.4
Our continued emphasis on
R&D has resulted in a tax claim
of £1.1 million (2019: £1.4 million)
being repaid in the year.
Cash outflow from operating activities
£ million
2020
2019
3.5
0.6
Cash outflow from operating
activities has increased due to
adverse working capital movements.
024
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Principal risks and uncertainties
Managing risk in a dynamic
business environment
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 our
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 or development 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.
Equally, a number of products are
considered commercially viable but
have yet to see demand for full scale
production. It is also the case that the
Group is often only one part of a long
and complex supply chain for new
product applications. The Group
therefore has little visibility of demand
other than from contracts already in
place. There are therefore a range of risks
that are associated with the different
stages of product development as well
as for the Group as a whole.
Likelihood and impact
of principal risks
B
D
G
H
C
A
h
g
H
i
S
E
S
I
L
L
A
T
S
Y
R
C
K
S
I
R
F
I
T
C
A
P
M
I
w
o
L
E
I
F
J
Low
PROBABILITY OF
RISK CRYSTALLISING
High
Risk management process
The Board has established a process for
carrying out a robust risk assessment that
evaluates and manages the principal risks
faced by the Group. The Board reviews
the process. A detailed review of
individual risks was undertaken by the
Audit Committee during the financial year
ended 31 July 2020. The Board has also
established an acceptable level of risk
(risk appetite) that informs 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
the 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 residual
risk score, after mitigating controls, is then
plotted on a “risk heat map”. The Group’s
principal risks are shown on the heat map
below and are discussed in further detail
in the pages following.
Principal overarching risk
The principal overarching 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 self-funding.
This risk has been significantly mitigated
in the short to medium term by the recent
equity fundraising which has extended the
Group’s cash runway to December 2022.
This date can be extended for the
operational side of the business with each
new business win. In a worst case scenario
with no new business wins, the date can
still be delivered though this would require
further significant restructuring. Experience
in 2019 and 2020 shows that the Board is
ready and able to take prompt action to
reduce costs should the need arise.
“key customer reliance” as a result of
the scale of the contract with the US
Customer. This risk crystallised in the
fourth quarter of FY19 with the decision
by the US Customer not to sign a
new contract.
The relationship with ST Microelectronics
N.V. is also important but it is smaller in
scale and therefore less concentrated
a risk than with the US Customer. This
is partly mitigated by new customer
relationships developed during the year.
Commercial negotiations continue to
secure new customers and revenues
to reduce our reliance on a single
big customer.
Other principal risks
Risks are broadly categorised as
strategic, operational, financial or
compliance. The table overleaf focuses
on those risks that the Directors believe
are the most important currently faced by
the business. Other risks may be unknown
at present and some that are currently
rated as low risk could become more
material risks in the future. The Group’s risk
management process tracks risks as they
evolve and change.
New principal risk in FY20 (D)
The Group has now initiated litigation
against Samsung for wilful infringement
of its IP. The Group is therefore exposed
to the related positive and negative
aspects of the litigation. Winning the
litigation could create a significant
increase in value for the Group in terms of
any award or settlement but also in terms
of increasing the likelihood of other future
valuable licensing of the Group’s IP.
Conversely, if the litigation is unsuccessful,
this could undermine the perceived value
in the Group’s IP portfolio. The cost risk of
the litigation if Samsung aims to delay
and/or extend the length of the process
has been significantly mitigated by the
third party funding agreement that has
been put in place whereby a large US
litigation funding specialist pays the
costs of the litigation.
In FY18, the Group became exposed to
a new risk that potentially had a direct
impact on its financial stability, namely
In either case (successful or unsuccessful),
the Board will initiate a further review of
the future strategy of the business.
Nanoco Group plc – Annual Report and Accounts 2020 025
Principal risks and uncertainties continued
Risk description
Potential causes and impact
Mitigation
Change
Link to
strategy Appetite
Strategic
A
Weak adoption or
further significant
delays of CFQD®
products in the
display market
Responsibility:
CEO
B
Customer
concentration risk
Responsibility:
CEO
C
Rapid product
commoditisation
Responsibility:
CEO
D
Intellectual
property and IP
lawsuit with
Samsung
Responsibility:
CEO/CTO
Operational
E
Meeting product
specifications
Responsibility:
CEO
Any of the following factors would have
a potentially adverse impact on the
Group’s prospects:
Actively pursue “dot only” strategy
which is less reliant on any single
particular application.
Nanoco technology does not become
fully accepted by the market;
drawn-out qualification processes
by display customers;
stronger than anticipated competition
from non-CFQD® solutions;
Samsung dominates the display
market, vertically integrated,
inhibiting access to the market; and
licence partners are slow to
generate their own sales with a
knock-on effect on Nanoco royalties.
Reliance on a small number of key
customers exposes the Group to risk of
delays in the customer’s own supply
chain over which the Group can exert
limited influence (one customer was
64% of revenue in FY20). These delays
can then have a knock-on adverse
effect on the Group’s expected
revenue streams.
High technical sales engagement
with all the major display OEM
brands and all parts of the display
supply chain.
Working actively to expedite
customer approvals processes.
Rapid product development.
Cross training of teams to ensure
flexibility to serve different markets
and customers reduces risk of excess
cost base.
Commercial strategy in the
medium term is to dilute customer
concentration risk by selling
into various markets, through
various channels and to a range
of customers.
Overcapacity for CFQD® products leads
to price and profit margin erosion.
Phased capacity expansion
available at Runcorn facility.
Reduce time to market of new
CFQD® products.
Competitors unlawfully infringing
Nanoco’s IP.
Nanoco constantly scans the market
for signs of infringement.
Success in the Samsung litigation will
create value; failure may reduce value.
Prosecute infringers – Samsung
litigation.
Maintain process know-how
as business secrets as opposed
to patents.
Technical specifications are increasing
as QD technology matures.
If Nanoco fails to meet specification
then competitor products will
be selected.
Active product life cycle
management with new generations
of each product to operate within
new specifications.
Similar approach to production
process improvements.
1
1
1
1
3
1
This risk increased
overall during the year
when Merck terminated
its licence agreement
with the Group. This was
partly offset by a new
customer application
being developed
and by the fact that
quantum dots are now
featuring on a wider
price range of TVs which
should stimulate demand.
This risk crystallised
during the year with the
completion of the US
Customer contract. ST
Microelectronics N.V. is
a new large customer
but is smaller in scale
for Nanoco and hence
the risk is less
concentrated.
Volume will be
stimulated with
adoption in more TVs
though we have seen
price pressure to
accompany this.
Capacity expansion
plans in place.
We monitor potential
infringement of our IP.
We also continue to file
patents to protect new
R&D outcomes where
appropriate.
During the year we
passed the technical
specifications for our
new nanomaterials.
We have also enhanced
the performance of our
CFQD® quantum dots.
026
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report
Key
Risk change
Strategy
Appetite
Up
Neutral
Down
1
2
3
Growth
Acceptable
Investment
Review
Licensing
Unacceptable
Risk description
Potential causes and impact
Mitigation
Change
Link to
strategy Appetite
Operational continued
F
Manufacturing
capacity is unable
to fulfil customer
demand
Responsibility:
CEO
G
Loss of key
personnel
Responsibility:
CEO
Financial
H
Lack of adequate
resources to sustain
the Group until it
becomes self-
sustaining
Responsibility:
CEO
Compliance
I
Major
environmental,
health and safety
(“EHS”) issue
Responsibility:
CEO
J
Legislation to ban
cadmium in displays
is delayed (RoHS
Exemption 39)
Responsibility:
CEO
Customer markets are large and a
significant demand request would
require additional capacity. Failure
to meet demand could harm
commercial relationships.
Capacity flexibility can be delivered
by additional shifts, use of scale-up
labs for smaller overrun quantities and
access to tolling manufacturers and
also to licensee production capacity.
Conservative plant design to reduce
technical risks. Accelerating R&D
trials with extended hours working.
1
3
Manufacturing capacity
significantly increased
with the new Runcorn
facility and major
process improvements.
While the Group maintains a high level
of protected documented IP, our staff
remain a critical asset with significant
levels of technical and sector know-how.
Loss of key personnel would have
an adverse impact on the Group’s
development and commercialisation.
The Group offers rewarding careers
that allow staff to develop new skills
while pursuing interesting research ideas.
The Group reviews remuneration
to ensure that appropriate reward
packages accompany the fulfilling
work environment.
Revenues from own product sales,
services rendered and licensee
royalties do not materialise as planned.
The Group is unable to carry out its
operations and hence cannot deliver
on medium-term or strategic goals.
Cash will continue to be
prudently managed.
Focus on revenue-generating
activities without abandoning
worthwhile and focused R&D work.
Cost reduction actions identified
if necessary.
Failure to follow existing procedures or
a new unforeseen risk could result in
injury to staff, equipment, reputation
and finances and potential loss of
operating licences.
Extensive and ongoing efforts to
continuously improve procedures.
Renewed leadership focus on the
“tone at the top” and cultural change.
Continuous training of staff in risks
and how to mitigate risks.
Cadmium-based quantum dots
(“CdQDs”) are a key competitive
product and any delay to them being
phased out adversely impacts the
Group’s ability to generate revenues
in the estimated timescales.
The use of cadmium-based
quantum dots was to be phased out
in Europe in October 2019 (subject to
appeals for an extension).
1
1
2
1
2
Staff redundancies
during the year increased
uncertainty for the team.
The equity fundraise will
help to create a more
stable environment.
Material new business
wins, third party funding
for the Samsung litigation
and the equity fundraise
give a much more stable
cash flow platform for
the medium term.
Performance on safety
has been good this
year with an increase
in the number of safety
opportunities identified
in a growing number
of leadership audits.
Nanoco and other
industry players
responded to the most
recent request for views
on a further extension.
The result of the extension
request is awaited. The
ban will not come into
place until a decision
is reached.
Nanoco Group plc – Annual Report and Accounts 2020 027
Viability statement
The Directors have a reasonable expectation
that the Group has access to adequate
resources to continue in operational
existence for the foreseeable future
In accordance with the provisions
in the UK Corporate Governance
Code (C.2.2 of the 2018 revision), the
Directors have assessed the viability
of the Group’s business model and
determined that a two-year period
continues to be a suitable period to be
utilised. A two-year period is considered
appropriate given the rapidly evolving
nature of the markets for the Group’s
products. As noted in the section
on principal risks and uncertainties,
market wide adoption of quantum dot
technology is still in its infancy and, until
well established in multiple applications,
forecasting time horizons will be
necessarily short.
The Directors’ assessment has been
made with reference to the current
position of the Group, the Group’s current
strategy and principal risks as described
in this Strategic report.
This assessment also includes the
potential impact of a no deal Brexit
and ongoing safety measures to ensure
staff can work safely in a "Covid secure"
environment or in the event of a
second lockdown.
Customer had been a key source of
revenue and cash for the previous two
years. The Group has taken steps to win
new business to replace the revenues
from the US Customer and has had some
success, though not on the same scale.
Changes during the year
The Samsung litigation represents a
potentially significant upside opportunity
but one that the Group would not
have been able to pursue with its own
resources. Securing third party funding
means that the opportunity can be
pursued without any drain or risk to
the Group’s financial reserves since the
funder will only see a return of its capital
if a judgement or settlement is made
in Nanoco’s favour.
We announced in the fourth quarter of
FY19 that the US Customer would not
extend the contract then in place when
it finished in December 2019. The US
We have taken significant steps to
reduce the size and monthly cash costs
of the Group to partly offset this fall in
revenue. This includes accessing the
Government’s Coronavirus Employment
Support scheme.
Having taken the actions noted above to
reduce cash outflows and win new business,
we then issued equity to shareholders in
the last month of the year to strengthen
the Group’s balance sheet and ensure
that the Group remained a going concern.
The fundraise was over-subscribed and
additional funds were raised above the
initial target. This extends the Group’s
cash runway further to the end of
December 2022.
The viability assessment process
In assessing the viability of the Group, the Directors have utilised their forecasts for the period to 31 July 2022 which take into
account the Group’s current and expected business activities, current cash resources (£5.2 million as at 31 July 2020), the
contracted revenue for FY21, and the principal risks and uncertainties it faces. These inputs were then used to create a
reasonably plausible downside stress test which included:
Minimal CFQD®
quantum dots sales
(whether due to lower
customer demand or
supply chain issues with
the Group’s channel
partners)
An early end
to the ST Micro
contract - before
commercial production
revenues or before
a second sensing
customer is
created
The Group’s ability
to reduce costs in
a timely manner
Continued support
of our IP portfolio
028
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report A two-year time horizon creates scope
to win new business and production
revenues that could allow the Group
to become self-financing. It is also a
reasonable possibility that the outcome
of the Samsung lawsuit could be known
in this timeframe.
A "worst case" downside sensitivity
analysis has been performed wherein
the Group wins no more new revenues
beyond those already under contract.
In this downside scenario, significant
management action would be required
to reduce the Group’s cost base and
capital expenditure. However, even in the
worst case, the Group can take action to
protect our core IP assets while retaining
viability as an ‘IP shell’ while the Samsung
lawsuit continues.
Conclusion
As a result of the assessment outlined
above, the Directors have confirmed that
they have a reasonable expectation that
the Group will remain viable and able to
continue in operation and meet liabilities
as they fall due over the two-year period
of their assessment.
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 are set out on
pages 2 to 19.
The principal risks and uncertainties
are shown on pages 25 to 27.
The Group’s financial position is
described in the Financial review
on pages 22 to 24.
Note 28 to the accounts 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 2020 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
as noted earlier in this report. The same
base case and downside (worst case)
sensitivities were also used.
The base case represents the Board’s
current expectations. Assumptions in
the base case are:
the development programme with ST
Micro is successful and subsequently
leads to scale-up of the product and
thereafter to small scale commercial
production in a relatively low
volume application;
small scale production of a second,
already developed, product for use
in infra-red sensing devices;
commercial contracts are based on
the existing pipeline of opportunities
or agreements already under
negotiation in display and
sensing applications;
no revenue is assumed from other
business lines though some small
scale commercial deals are currently
under discussion;
the Group’s variable costs remain
in line with manufacturing activities;
the overhead base benefits
from £0.6 million of savings in FY21
(£0.8 million on an annualised basis)
following the restructuring exercise
in the first quarter of FY21;
Board costs are significantly reduced
to reflect the scaled down size of the
Board and Executive team at the end
of third quarter of FY21;
the Group remains eligible for R&D tax
credits; and
the installed cost base is capable
of supporting significant increases in
revenue above those assumed in the
base case so there is no immediate
requirement for short-term increases
or new capital expenditure.
The base case indicates that the Group
has more than sufficient cash throughout
the period of the forecast.
However, the Board acknowledges that
the base case includes an element of risk
that some or all of these non-contracted
projects may not convert to sales during
the forecast period. Accordingly, the
Board has considered the downside
scenario in which no revenue, except that
already contracted or under contractual
negotiation, is achieved during the period.
In this downside scenario, management
action to reduce the activities of the
Group to an IP shell that supports the
Samsung lawsuit allows the Group to
maintain a cash runway to the end
of 2022.
All of the potential cost savings are under
the direct control of the Board and the
Board has the ability and intention to
make such changes on a timely basis
if required.
Going concern conclusion
Considering the current financial
resources and monthly cash costs of
the Group, with potential for further
mitigating action as noted above, and
after making appropriate enquiries, 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 financial statements.
The financial statements 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.
Nanoco Group plc – Annual Report and Accounts 2020 029
Sustainability
Nanoco recognises that providing a safe,
secure and healthy working environment
is essential and contributes to productivity
and improved performance
The Group recognises that, although
its primary responsibility under UK
corporate law is to its shareholders,
it also has responsibilities towards
its employees, customers, suppliers and
also, ultimately, those consumers who
benefit from its products, the broader
public and the environment.
Health and safety
Nanoco recognises that providing a safe,
secure and healthy working environment
is essential and contributes to productivity
and improved performance. The health,
safety and welfare of all of our employees,
contractors and visitors is taken seriously
across the entire organisation, with ultimate
responsibility lying with the CEO. Health
and safety performance is a standing
item on each Board and Executive team
agenda, and is also discussed within
departmental meetings. The Group’s
health and safety policy is reviewed
annually. In addition, the Board has
established an Environmental, Health
and Safety (“EHS”) Committee to oversee
the implementation of policy and involve
staff in generating improvement plans.
v)
There are various improvement and
reporting systems in place to monitor
the performance of the Group’s health
and safety management system.
These initiatives include:
i)
ii)
reporting all incidents (including near
misses) with appropriate ownership,
root cause analysis and action
tracking systems;
communication of relevant topics
and incidents via weekly toolbox
talks to all departments;
iii) monthly and quarterly leadership
safety and observation audits with
the focus on immediate action
resolution by the executive or senior
manager leading the audit;
iv) monthly departmental audits with
assigned action tracking processes
in place to address issues;
monthly health and safety reports
issued across the organisation to
communicate performance against
annual metrics and progress on key
improvement initiatives and projects;
vi) annual health checks for staff,
including tests for chemical exposure
where required; and
vii) annual occupational chemical
exposure tests using fixed and
personal monitors.
A risk assessment programme is in place
to identify and mitigate the risks from our
operations. These assessments include
but are not limited to:
i)
the storage, handling and processing
of hazardous substances;
ii)
fire safety and emergency evacuation;
iii) use of mechanical and electrical
equipment; and
iv) other workplace operations involving
manual handling and ergonomic
risks, working at height and other
hazards identified as part of the EHS
improvement programme.
Covid-19
Whilst essential work carried on at Nanoco through the
lockdown period, staffing levels were much reduced due
to the government’s staff retention scheme. Because of
the EHS training which all managers and staff undergo,
EHS standards were maintained and there was no impact
on health and safety due to the reduction in numbers during
affected periods. Measures were taken by the Company
to address the risk of Covid-19 on the Company and
employees, including but not limited to:
PPE policies and protocols for prevention of infection;
social distancing;
shielding for vulnerable workers;
login system for staff, and supervision by management
which can be accessed remotely;
liaising with the Employee Voice Committee to address
any concerns; and
risk assessments for both sites;
return to work assessments for all employees.
030
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report Whole portfolio carbon generation (energy use)
2020 tCO2e
2019 tCO2e
Scope 2
Electricity
Natural gas
390
292
267
336
-13.1%
Intensity (tCO2e/average number
of employees)
2020
2019
Change
9.8
7.7
+27.3%
Change
+46.1%
Scope 3
Air travel
22
104
-78.8%
Total
704
707
-0.4%
Data notes
Reporting period
Boundary
Reporting method
1 August 2019 to 31 July 2020
Operational control
The Greenhouse Gas (“GHG”) Protocol Corporate Accounting and Reporting Standard
Emissions factor source
Department for Business, Energy & Industrial Strategy, Standard Set 2017
Data changes and restatements
None
All risk assessments are documented
and actions assigned and reviewed
according to the defined frequency.
All research and development functions
are actively encouraged to, wherever
possible, eliminate or reduce the levels
of hazardous substances used in our
products and processes. All relevant
chemical legislation and regulatory
frameworks are used to assess the
suitability of a substance prior to use
as part of the risk assessment process.
Standard operating procedures are
documented and regularly reviewed.
All controlled documents are reviewed and
approved via the electronic document
management system. A health and
safety induction programme is in place
for all new staff and visitors/contractors
performing work on our premises. Staff
are trained in standard operating
procedures, hazard awareness, generic
workplace health and safety risks and
behavioural safety expectations
applicable to their role within the Group.
Each stakeholder has different interests,
some of which are listed below:
Employees
Nanoco acknowledges its responsibilities
for the health and safety of its employees,
for their training and development
and for treating them fairly. Further
information about its employment
policies is outlined overleaf.
Customers
Nanoco is responsible for the quality
and safety of its products and for the
performance of its research and
development projects.
Shareholders
Nanoco seeks to increase shareholder
value over the long term.
A serious H&S incident could jeopardise
our “licence to operate” and threaten
shareholder value.
A cross-functional employee health and
safety team meets on a monthly basis
with representation from all areas of the
Group, including the Executive team.
Effective inputs and outputs from the
team are designed to facilitate a greater
focus on health and safety and to
actively encourage discussions within
respective groups.
The Group has an excellent safety record
and there has only been one reportable
incident to the respective UK authorities
across all our operations. Nanoco is
committed to the continuous improvement
of the health and safety management
system. However, given the impact of
Covid-19, we have not been able to
complete our annual HSL safety survey.
Environment
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® 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”) is carrying out a review of requests
to extend the duration and scope of the
current RoHS exemption, which excludes
lighting products and limits display
products to 31 October 2019, after which
the normal RoHS limit of 100ppm will
apply. Nanoco has responded to the
consultation to oppose any extensions.
Nanoco continues to expect that
regulations in other key markets, including
China, will fall in line with RoHS in future.
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 Group’s environmental policy aims
to foster a positive attitude towards the
environment and to raise the awareness
of employees towards responsible
environmental practices at all sites
operated by the Group. The Group
endeavours to ensure compliance with
all relevant legislation and regulatory
requirements and, where practical and
economically viable, standards are
developed in excess of such requirements.
Nanoco Group plc – Annual Report and Accounts 2020 031
Sustainability continued
Environment continued
Waste
The CEO has responsibility for reporting
on relevant environmental matters
to the Board. There have been no
environmental incidents to report to
the authorities across all our operations.
Shareholders and other interested
parties are encouraged to use the
online version of the Annual Report
and Accounts rather than requesting
hard copies. Interested parties are
encouraged to visit the Group’s website
or use the regulatory news services
instead of a hard copy. Employees
are also encouraged to recycle paper,
plastic, glass, cardboard and cans
wherever possible.
Greenhouse gas (“GHG”) reporting
Under the Companies Act 2006
(Strategic and Directors’ Reports)
Regulations 2013, the Group is required
to state the annual quantity of emissions
in tonnes of carbon dioxide equivalent
from activities for which the business is
responsible, including the combustion
of fuel and the operation of its facilities,
and resulting from the purchase of
electricity, heat, steam or cooling
by the business for its own use.
As both of the Group’s UK premises are in
multi-occupancy sites we place reliance
upon their respective landlords to provide
the data needed to determine emissions.
Our laboratories require continuous
negative pressure environments and,
consequently, it is not possible to set
realistic reduction targets in the
consumption of electricity.
Our gas consumption is used for
heating premises and site costs are
shared between tenants on the basis
of area of occupancy. In the absence
of significant amounts of revenue from
the sale of commercial products, the
emissions of the business primarily arise
from the occupation of its research and
administration facilities rather than from
revenue related production operations.
Emissions in respect of the Group’s US
office are considered to be negligible.
Our emissions, based on appropriate
conversion factors published by the
Department for Business, Energy &
Industrial Strategy, for the current year
are shown in the table on page 31.
During the year, the Group generated
28.6 tonnes of waste (2019: 57.7 tonnes)
and recycled 8.0 tonnes of this (2019: 46.8
tonnes). The Group engages a specialist
contractor to incinerate batches of
chemicals and dispose of other materials
no longer required. All waste contractors
are assessed to ensure the waste
hierarchy approach is applied to all of
our materials handled, and that their
operations and systems are compliant
with the relevant legislation. Audits are
performed every three years in line with
our duty of care as a waste producer.
Other environmental matters
Consideration of the benefits to the
environment is a significant factor in
decisions regarding investments to
upgrade the Group’s research and
development facilities in Manchester
and Runcorn.
Video conferencing is used where possible
instead of physical travel in order to reduce
the Group’s environmental footprint through
fewer flights and other means of travel.
This has also been imperative to the
Group continuing operations during
the existing Covid-19 pandemic.
The Group’s display, lighting and
solar technologies all sit in the energy
efficiency and low environmental impact
arena and, as such, will enable customer
companies to increase the uptake of
their products while reducing their
impact on the environment.
Attraction and retention
Recruiting technical specialists has
always been key to Nanoco’s success.
In a highly competitive market this means
that we strive to offer a competitive benefits
package and an attractive workplace
culture to ensure that we attract and
retain the best of the best. The number
of long-serving employees demonstrates
Nanoco’s ability to retain top talent; out
of 68 employees at 31 July 2020, 21% had
over ten years’ length of service and
a further 26% had between five and ten
years’ service.
Nanoco operates an employee referral
scheme for recruiting new talent. Referrals
from existing employees are a valued
source of new recruits, typically introducing
high quality candidates with a better
cultural fit.
032
Nanoco Group plc – Annual Report and Accounts 2020
26%
21%
Employee
length
of service
53+
53%
Key
0-4 years
5-10 years
> 10 years
Nanoco has a comprehensive
onboarding process for new joiners which
includes H&S, HR, intellectual property,
IT, finance and corporate induction
sessions. The aim of this is to get
employees engaged from their first day
at Nanoco, and fully equipped to work
towards Nanoco goals from the very
beginning of their Nanoco career.
Employees with disabilities
It is Nanoco’s policy that people with
disabilities, including job applicants and
employees, should be able to participate
in all of Nanoco’s activities fully on an
equal basis with people who are not
disabled. Nanoco strives to promote
an environment free from discrimination,
harassment and victimisation.
Nanoco has a disability inclusion policy
that states that Nanoco will not, on the
grounds of a person’s disability, or for
a reason relating to a person’s disability,
treat that person less favourably than
it treats, or would treat, others to whom
the same reason does not or would not
apply, unless genuinely justified.
At the point of appointment, Nanoco
obtains occupational health advice as
to reasonable adjustments. For disabled
employees we put together a “Reasonable
Adjustment Action Plan” to support
employees with disabilities or health
conditions by removing or minimising
workplace barriers. These plans are
reviewed collaboratively between
managers and employees to ensure that
they remain relevant. Culturally, we believe
that it is important to offer adjustments in
a proactive manner where appropriate
rather than waiting for our employees to
request these.
Strategic report26
+
21
+
M
including events such as Mental Health
Awareness Week, mindfulness sessions
and charity events to raise awareness of
the support available to those that suffer
from mental health issues. We encourage
an open door policy where employees
are able to disclose and receive support
for any mental health issues they may face.
The employee assistance programme,
as part of the wellbeing policy, provides
caring and compassionate support to help
people cope and build resilience. Both
telephone counselling and face-to-face
counselling are available to all employees
through the programme. This support
aims to reduce absence and improve
wellbeing by addressing issues head on
and reducing their impact.
We believe that building a positive
partnership between strategic
management and the wider workforce
is crucial to Nanoco’s success. Our
people are our best problem solvers
and possess the insight on how we
can make Nanoco a top organisation
to work for. A meaningful employee
voice will support us as an organisation
undergoing change and responding to
industry changes. A direct link with the
Board also enables our Board members
to better understand the diverse nature
of the Company, allowing them to
execute their roles more effectively.
Recognition
Nanoco recognises that it has a duty
to ensure the health, safety and welfare
of its employees as far as reasonably
practicable. This includes physical,
mental and social wellbeing. It is also
required to have in place measures to
mitigate as far as practicable factors
that could harm employees’ physical
and mental wellbeing, which includes
work related stress.
Nanoco, as part of its wellbeing strategy,
puts particular focus on mental health.
It does so through a variety of means
Engagement and wellbeing
Communication channels at Nanoco
include all-Company meetings,
leadership meetings, and senior team
meetings which then cascade information
down. Communication media used
includes the Group intranet, all-Group
email briefings and online meeting
software. Our line managers hold regular
team meetings, cross-functional working
group meetings and management
one-to-one updates with their
team members.
Nanoco is committed to a policy of
engaging employees in the activities
and growth of the Group. Human
resources and senior management
review communication channels via
the use of employee surveys and plan
communication activities to ensure
employees are fully informed of current
business strategy and financial results
or corporate news.
Corporate communication is key to the
engagement of our workforce. We have
focused on improving the look, feel and
content of Company-wide electronic
communications in order to make these
more engaging to employees. In order
to help us communicate, measure and
achieve our goals we use a process
called objectives and key results (“OKRs”).
Aligning the entire Nanoco organisation
to ensure that we focus on what is
important to achieve our goals is critical
to our success. In order to help us navigate
the exciting opportunities in front of us it
is crucial that as Nanoco employees and
managers we make conscious, careful
and informed choices about how we
allocate our time and energy – as
individuals and members of teams.
OKRs are the result of those careful
choices, and the means by which we
co-ordinate the actions of individuals
to achieve great collective goals.
We use OKRs to plan what people are
going to produce, track their progress
vs. plan, and co-ordinate priorities and
milestones between people and teams.
We also use OKRs to help people stay
focused on the most important goals,
and help them avoid being distracted
by urgent but less important activities.
To improve our employee engagement,
in 2019 we established the Employee
Voice Committee, which allows employee
representatives a forum to raise concerns
and communicate directly with
Board members.
Nanoco Group plc – Annual Report and Accounts 2020 033
Sustainability continued
Gender diversity at Nanoco
Key
Female
Male
19%
27%
20%
All
employees
81+
81% 80+
80% 73+
Board of
Directors
Senior
team
73%
Nationalities represented
by our employees
11
The Group’s equal opportunities policy
is reviewed annually and is available to
employees on the Group intranet. A copy
can be obtained upon request from the
Company Secretary.
Ethics
Nanoco aims to demonstrate and
promote high standards of honest and
ethical conduct throughout the Group.
Formal policies and procedures are
reviewed annually and the policies listed
below are available on the Group intranet
or upon request from the Company
Secretary. All Group employees are
required to adhere to specified codes
of conduct, policies and procedures,
including, but not limited to the:
anti-bribery and corruption policy;
whistleblowing policy; and
equal opportunities policy.
Nanoco is a member of the Chemical
Industries Association (“CIA”) and applies
the principles of Responsible Care® to all
of its operations.
All Nanoco employees are required to
complete annual training in the areas
of cyber security, GDPR and information
security to ensure they remain up to date
and alert to the signs of fraud and
unethical practices.
Equality and diversity
Racial and geographical diversity
The Group’s employees are from many
different backgrounds, including eleven
different nationalities: American, British,
German, Irish, Indian, Italian, Lithuanian,
Polish, Portuguese, Syrian and Ukrainian.
In addition, Group employees come from
a range of business backgrounds, not
purely research and development. Indeed,
of the Board members, previous roles
and responsibilities include those in the
supply of chemicals and the engineering,
electronics, life sciences, fast-moving
consumer goods, publishing and
financial industries.
Nanoco has business development
people in America and the UK, also
covering Europe and Asia. Increasingly
Nanoco seeks individuals with
experience in the business and
geographic markets in which the Group
operates in order to support its employees
and job applicants equally. Nanoco will
appoint, train, develop, reward and
promote on the basis of merit and ability.
Nanoco’s equal opportunities policy states
that employees will not receive less
favourable treatment or consideration
on the grounds of age; disability; gender
or gender reassignment; marriage and
civil partnership status; pregnancy and
maternity; race; religion or belief; sex;
sexual orientation; or part-time status,
nor will they be disadvantaged by any
conditions of employment that cannot
be justified as necessary on operational
grounds relevant to the performance
of the job.
034
Nanoco Group plc – Annual Report and Accounts 2020
Strategic report19
+
M
20
+
M
27
+
M
Proportion of males and females in each income quartile
Gender pay gap
Upper quartile
82%
Upper middle quartile
72%
Lower middle quartile
94%
Lower quartile
76%
18%
28%
6%
24%
Key
Female
Male
Mean hourly earnings
Median hourly earnings
£29.03
Total1
£28.36
Male1
£31.87
Female1
1 Excluding NEDs.
£22.02
Total1
£22.06
Male1
£21.98
Female1
The median gender pay gap for all
Nanoco employees excluding NEDs is 0%
(2019: -2%). This means that for every £1
the median man earns at Nanoco, the
median woman earns £1 also. The
National average pay gap in 2019 for
all UK employees is 17.3%1.
1
Source: Annual Survey of Hours and Earnings
(“ASHE”) – Office for National Statistics.
On behalf of the Board
Dr Christopher Richards
Chairman
Brian Tenner
Chief Executive Officer
13 October 2020
Strategic report approval
The Strategic report on
pages 6 to 35 incorporates:
Chairman’s statement
Chief Executive Officer’s statement
Our business model
Our strategy
Key Performance Indicators
Principal risks and uncertainties
Viability statement
Sustainability
Brian Tenner
Chief Executive Officer
13 October 2020
Gender pay gap
Scientific research is a sector challenged
by a lack of gender diversity, but we
feel that we have an opportunity to
challenge this status quo. Nanoco
believes in being an inclusive and diverse
organisation where everyone is able to
reach their full potential. The challenge in
our organisation and across Great Britain
is to eliminate any gender pay gap; we
therefore voluntarily analysed gender
pay gap data as at 31 March 2020. We
can use these results to assess the levels
of gender equality in our workplace and
the balance of male and female
employees at different levels.
At the snapshot date of 5 April 2020,
Nanoco employed 71 employees
(2019: 90) in the UK, of whom 20%
were female (2019: 22%). Employees
work across a variety of roles in research
and production environments.
Overall female representation across
the quartile pay bands corresponds fairly
closely to the percentage of female
to male employees overall.
Nanoco Group plc – Annual Report and Accounts 2020 035
Board of Directors
Our refocused Board comprises
experienced and talented people from
scientific, chemical, industrial and
commercial backgrounds
Dr Christopher Richards
Brian Tenner
Non-Executive Chairman
Appointed
Chris was appointed Chairman of Nanoco Group
plc in May 2016, having joined the Board as a
Non-Executive Director in November 2015.
Skills and experience
Following a successful international career in the
agrochemical and life sciences industries, Chris
has become a highly experienced non-executive
director and business adviser. Chris is the former
Chief Executive Officer of Arysta LifeScience, a
Japan-based agrochemical business which grew
rapidly under his leadership. After stepping down
as CEO in 2010, he became Arysta LifeScience’s
Non-Executive Chairman until the sale of the
business in 2015 to Platform Specialty Products.
After gaining his DPhil from the University of
Oxford in Biological Science, Chris worked as a
research scientist for four years. He began his
executive career in 1983 in the Plant Protection
division at Imperial Chemical Industries plc, which
later became Syngenta. For 20 years, he has lived
in various countries including Colombia and
Japan and led international marketing and
commercial functions.
Other roles
Chris currently holds a number of executive and
non-executive roles at quoted and private
businesses. He is the CEO of Plant Health Care
plc (AIM: PHC) and a Non-Executive Director
of Origin Enterprises plc (AIM: OGN).
Committees
N
R
Chief Executive Officer
(previously Chief Operating Officer
and Chief Financial Officer)
Appointed
Brian was appointed Chief Executive Officer in
September 2020. He originally joined the Board
as Chief Operating Officer and Chief Financial
Officer in August 2018. He has had a significant
impact on the Group’s performance in his time
with Nanoco, particularly in sharpening the
commercial focus, providing people leadership
in the UK and improving cost control. Brian also
previously served as the Company Secretary and
this role is transitioning to the UK Finance Director.
Skills and experience
Prior to joining Nanoco, Brian held a number of
senior executive positions with both publicly listed
and private multinational companies. His roles
have typically encompassed the full range of
commercial, operational and financial activities
with an emphasis on leading change and
transformation programmes. Brian’s previous
roles include Interim CEO and subsequently CFO
of NCC (LSE: NCC) from 2017 to 2018 (cyber security
professional services) and CFO of Renold plc (LSE:
RNO) from 2010 to 2016 (engineering manufacturing),
Scapa plc (AIM: SCPA) from 2007 to 2010 (speciality
chemicals) and British Nuclear Group (hi-tech
chemicals and large-scale decommissioning
projects) from 2003 to 2007. Brian qualified
as a Chartered Accountant with PwC in 1994.
He holds a Law degree (LLB Hons) from
Edinburgh University.
Other roles
None.
Dr Nigel Pickett
Chief Technology Officer
Appointed
Nanoco’s technology team is led by Nigel, who is
a co-founder of Nanoco and inventor of Nanoco’s
key quantum dot scale-up technology. In 2000
he moved to Manchester where he co-founded
Nanoco Technologies in 2001.
Skills and experience
Nigel has co-authored over 70 academic papers
and is an inventor on 150 patents and pending
applications. He has a passion and experience
in taking research work from the academic
bench through to full commercialisation. Nigel
graduated from Newcastle University in 1991 and
chose to remain at Newcastle to pursue a PhD
in the field of Main Group Organometallics and
is a Fellow of the Royal Society of Chemistry. After
graduation in 1994 he undertook a postdoctoral
fellowship at St Andrews University, Scotland, in
the field of precursor design for metalorganic
vapour phase epitaxy (“MOVPE”) growth and
synthesis of nanoparticles using chemical vapour
deposition (“CVD”) techniques. In 1996 he won
a Japan Society for the Promotion of Science
(“JSPS”) fellowship and spent the following year
working at Tokyo University of Agriculture and
Technology, Japan. In 1998 he became a
Research Fellow at Georgia Institute of
Technology, US, working on the design and
evaluation of precursors used in MOVPE.
Other roles
None.
036
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Key
A
N
R
Audit Committee
Nominations Committee
Remuneration Committee
Chair
Dr Alison Fielding
Chris Batterham
Non-Executive Senior Independent Director
Non-Executive Director
Appointed
Alison was appointed to the Board in April 2017.
Skills and experience
Alison holds an MBA from Manchester Business
School, a PhD in Organic Chemistry and a
first-class degree in Chemistry from the University
of Glasgow and an MSc in Mindfulness from the
University of Aberdeen.
Appointed
Chris Batterham was appointed to the Board
in April 2019.
Skills and experience
Chris holds a Natural Sciences degree from
Cambridge University. He then qualified as a
Chartered Accountant with Arthur Andersen LLP
in 1979 where he spent his early career.
Alison started her career at Zeneca PLC (now
Astra Zeneca) followed by five years at McKinsey
& Company and later co-founded Techtran
Group Limited, which was acquired by IP Group
in 2005, where she held the role of Director and
COO until 2013. Whilst at IP Group, she also sat on
the board of and advised several early stage and
quoted IP Group-backed technology companies.
Chris has considerable financial and operational
experience and became the Finance Director of
Unipalm Group plc, from 1996 to 2001. He then
went on to become CFO of Searchspace Group
Limited from 2001 until 2005. Chris then went on
to hold a number of non-executive roles across
a range of companies with a technology focus
in many cases.
Other roles
Alison is currently a Non-Executive Director
of Getech Group plc, a Non-Executive Director
of Maven Income and Growth VCT PLC, and
a Non-Executive Director of Zotefoams plc.
Other roles
Chris is currently Deputy Chairman of Blue Prism
Group plc and a Non-Executive Director of
NCC Group plc.
Committees
A N R
Committees
A N R
Other Directors holding office during the year
Dr Michael Edelman served as CEO and a member of the Board throughout
the year. He stepped down from his role and the Board on 1 September 2020
and remains an employee of the Group in an advisory role.
Nanoco Group plc – Annual Report and Accounts 2020 037
Corporate governance statement
The importance of good governance
is emphasised in times of uncertainty
and business change and the
challenges that brings
DR CHRISTOPHER RICHARDS
Chairman
I am pleased to present the Corporate
governance report for the year ended
31 July 2020. This section of the Annual
Report describes our corporate
governance structures and processes
and their application throughout the
year ended 31 July 2020.
The Board’s views on
corporate governance
The UK Corporate Governance Code
embodies core principles of accountability,
transparency, probity and a focus on
long-term success. The Board firmly
believes that a company governed in
accordance with these principles will be
a successful and well-managed business
and that this is all the more important
in a time of significant uncertainty
and challenge.
The Board and its Committees play
a central role in the Group’s governance
by providing an external and independent
perspective on matters material to
Nanoco’s stakeholders, and by seeking
to ensure that effective internal controls
and risk management processes are
in place.
The Board also promotes a culture of
good governance throughout the Group
by creating an environment of openness,
transparency and accountability.
The members of the Board bring a wide
range of skills and experience to the
Group as set out on pages 36 and 37.
This diverse skill set allows the Board to
appropriately challenge and lead the
Group’s strategy.
Board focus during the year
Agreeing strategic priorities
with the Executive Directors
The Board has devoted considerable
time to strategic discussion in the current
year. Following the completion of the
contract with the US Customer in
December 2019, a review of the competitive
environment has led to the decision to
refocus the Company’s “dot only” strategy.
This seeks to leverage our core skills and
IP in the creation of novel nanomaterials
for use in a wide range of applications.
In addition, the decision to initiate
litigation against Samsung involved
significant and lengthy discussions
with executive management and
a number of advisers. The creation
of a Litigation Sub-Committee of
the Board is also a recognition of
the critical support which the Board
is providing to the Executive on
this matter.
Initiating and monitoring the strategic
review, including the Formal Sales
Process ("FSP")
This was a key series of actions and
involved significant commitment from
all members of the Board. The Board
received weekly updates from the
Executive team and our advisers over a
prolonged period of time. The focus was
to ensure that all efforts were aligned
and that all approaches to the Group
were responded to appropriately.
Strategic
priorities
Learn and
improve
Strong
corporate
governance
Allocate
resources
Monitor
performance
038
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Board
22
Attendance
Number of meetings
Executive Directors
Brian Tenner
Dr Nigel Pickett
Dr Michael Edelman (former CEO)
Non-Executive Directors
Dr Christopher Richards
Dr Alison Fielding
Chris Batterham
Audit
Committee
Nominations
Committee
Remuneration
Committee
4
3
5
—
—
The Non-Executive Directors met six times during the year without any Executive Directors present.
Non-Executives
3
2
Executives
Board
composition
60+
80+
Tenure
(years)
16-20
0-5
4
1
Board focus during the year
continued
Overall management of risk and change
within the Group
Initiating and monitoring the lawsuit
against Samsung and the associated
third party funding
The Board felt compelled to act to
defend the Group’s IP portfolio against
what we believe is Samsung’s wilful
infringement of our IP in a number
of areas. This has been especially
disappointing given the previous
collaboration between the two
companies. The Board received regular
updates from the Executive team and
our advisers on the basis of the case
itself and the commercial negotiations
for third party funding.
Funding and restructuring Group
Following the termination of the FSP
the Board’s focus switched to the
restructuring of the Group to protect
the long-term value inherent in its core
IP assets, the lawsuit against Samsung,
and as much of the organic business
that could be secured with available
medium-term funding. The restructuring
included a review of the Board’s own
structure and processes to ensure
that governance and cost remain
appropriate for the Group’s current
operations. This led to the successful
and over-subscribed equity fundraise in
July 2020 and the subsequent changes
to the Board itself as set out in the
Chairman’s statement.
The rapidly evolving challenges
brought about by the end of the
contract with the US Customer, followed
soon after by the risks and issues created
by the Covid-19 pandemic, against a
background of the strategic review and
Formal Sales Process, have required
active real time engagement between all
members of the Board. This has entailed
a significant level of activity outside the
formal Board meetings.
These focus areas were in addition to
the normal ongoing responsibilities for
approving the annual operating and
capital expenditure budgets and any
material changes to them. Finally, the
Board continues to play an active role
in approval of the half-yearly report,
trading updates, the preliminary results
announcement and the Annual Report
and Accounts.
A typical Board agenda
Each full Board meeting is structured
around a standard agenda of standing
items that then includes a number of
additional specific focus items for that
month’s meeting. These focus items are
either recurring items (such as risk
management) or are in response to
emerging issues in our markets,
regulation, or the business itself. An
example of an agenda taken from the
February 2020 meeting is shown below:
minutes and matters arising from
previous meetings (standing item);
Nanoco Group plc – Annual Report and Accounts 2020 039
40
+
M
20
+
M
Corporate governance statement continued
A typical Board agenda continued
My role as Chairman
CEO report on business performance
(standing item);
CEO report on Samsung litigation and
third party funding (focus item);
CFO report on financial performance
and rolling forecasts (standing item);
CTO report on technical and IP
matters (standing item);
COO report on progress and customer
deliverables (recurring item);
update on Formal Sales Process
including reports from advisers
(investment bank Evercore and Group
Counsel, Reed Smith);
Company Secretary report on
governance issues and any material
litigation (standing item);
investor relations update (standing item);
reports from Committee Chairs (Audit,
Nominations, Remuneration and EHS)
(recurring item); and
any other business (standing item).
Certain key senior management members
are invited to give presentations at Board
and Committee meetings where appropriate.
Other areas, including the review of the
Group risk register, the strategic plan, the
annual budget, contentious matters,
succession planning, etc. are reviewed by
the Board during each year at intervals
commensurate with their importance.
Ad hoc meetings and
conference calls
It should be noted that the Board held
a significant number of additional
meetings and conference calls (22 in
total) to ensure active co-ordination and
oversight during the strategic review and
the Formal Sales Process in particular.
These typically focused on updates on
the FSP, interaction with potentially
interested parties and the preparations
for the litigation against Samsung.
The structure of the Board, its
Committees and their respective
responsibilities are summarised on pages
41 and 42. My key focus is to ensure that
Nanoco has an effective Board which is
collectively responsible for the long-term
success of the Group. One of my most
important jobs is to ensure that the
Board and its Committees have the
right balance of skills, experience and
knowledge suitable for Nanoco’s evolving
strategy and growth aspirations as
we progress through a new phase of
our development.
Board and Committee evaluation
Regular and appropriate Board and
Committee evaluation is vital to
improving Board effectiveness. This year,
given the extremely uncertain operating
environment, it was felt that an external
performance review would not be as
value adding as it would be in future with
a more settled Board. Therefore, I once
again conducted an internal Board
evaluation process, which was discussed
by the Board. Overall, it was concluded that
the Board and Executive team performed
well during the year. The quality of
information, focus and discussion had
improved and Directors felt fully able to
voice their differing opinions. In addition,
the review identified areas of potential
improvement to further enhance the
Board’s performance.
Once again it was felt that the balance
of time allocated to strategy, operations
and functional areas and governance
was broadly correct. The Board displayed
great flexibility and nimbleness in responding
to rapidly emerging issues. Throughout
the year, the Board has maintained good
corporate governance and challenged
management to continue to improve the
processes and systems that underpin the
Group’s normal operating activities.
Each of the Audit Committee,
Remuneration Committee and
Nominations Committee carried out
an internal self-evaluation of their
effectiveness during the year. The
conclusion from the Committee reviews
is that, overall, the Committees are
working well.
Shareholder engagement activities
Engagement with shareholders remains
an important activity for the Board.
Our ability to engage with shareholders
was limited this year during the FSP due
to the additional regulatory restrictions.
The Group did maintain its more
formal calendar of engagement with
shareholders and potential investors.
Longer-term viability statement
The Group utilised the forecast for the
next two years to assess its long-term
viability. The two-year period was
chosen due to the inherent difficulty and
uncertainties in preparing forecasts for
the Group at its current stage of
development. Further details are
provided on pages 28 and 29.
Statement of compliance with
the Code
I am pleased to confirm that the Board
considers that it has been in compliance
with the Code throughout the year
ended 31 July 2020 in all material areas.
Whilst in compliance with the Code, we
believe that the ratio of Non-Executive
Directors to Executive Directors was not
ideal in that the number of Non-Executive
Directors matched the number of Executive
Directors. As at 31 July 2020, as permitted
by the Code due to the size of the Group,
the Board comprised the Non-Executive
Chairman, two independent Non-Executive
Directors and three Executive Directors.
With the changes in the Board following
the year end, reducing the number of
Executives by one, the Board considers
that the size and composition of the
Board is now fully appropriate for the
Group’s current stage of development
and it has sufficient depth and breadth
of experience amongst its current
Board members.
Dr Christopher Richards
Chairman
13 October 2020
040
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Governance framework
The different parts of the Company’s
governance framework are shown below,
with a description of how they operate
and the linkages between them.
Board
The Board provides leadership
and is responsible for the overall
management of Nanoco, its strategy,
long-term objectives and risk
management.
It ensures the right Company structure
is in place to deliver long-term value
to shareholders and other
stakeholders.
Board Committees
Support the Board in its work with specific areas of review and oversight objectives and risk
management. They ensure the right Company structure is in place to deliver long-term value to
shareholders and other stakeholders.
Audit
Committee
Primary function is to assist the
Board in fulfilling its financial and risk
responsibilities. It also reviews
financial reporting and the internal
controls in place and the
external audit process.
Nominations
Committee
Responsible for considering the
Board’s structure, size, composition
and succession planning.
Remuneration
Committee
Responsible for determining
the overall remuneration of the
Executive Directors and the
remuneration of senior managers
within the broader institutional
context of remuneration
practice.
Chief Executive
Has responsibility for managing
the business and overseeing the
implementation of the strategy
agreed by the Board.
Leadership Team
The Leadership team currently represents the Group’s most senior business and operational executives.
It is responsible for assisting the Chief Executive in the performance of its duties including:
developing the annual operating plan;
reviewing the Company’s policies and procedures;
monitoring the performance of the different
divisions of the Company against the plan;
prioritisation and allocation of resources; and
overseeing the day-to-day running
carrying out a formal risk review process;
of the Company.
Nanoco Group plc – Annual Report and Accounts 2020 041
Corporate governance statement continued
Board composition and division of responsibilities
Role profiles are in place for the Chairman, Chief Executive Officer and others, which clearly set out the duties of each role.
Role
Responsibilities
Chairman of the Board
(Dr Christopher Richards)
Chief Executive Officer
(Brian Tenner)
Chief Financial Officer
(In transition)
Chief Technical Officer
(Dr Nigel Pickett)
Senior Independent Director
(Dr Alison Fielding)
Other Non-Executive Directors
(Chris Batterham)
Company Secretary
(Liam Gray)
Is responsible for the running of the Board and promoting a culture of openness and debate. The
Chairman, in conjunction with the CEO and other Board members, plans the agendas, which are issued
with the supporting Board papers in advance of the Board meetings. These supporting papers provide
appropriate information to enable the Board to discharge its duties which include monitoring, assessing
and challenging the executive management of the Group.
Together with the Senior Management team, is responsible for the day-to-day running of the Group and
regularly provides performance reports to the Board. The role of CEO is separate from that of the Chairman
to ensure that no one individual has unfettered powers of decision making. The CEO works directly
through the Leadership team (CTO, Production Manager, UK Finance Director and HR Business Partner).
Works closely with the CEO and CTO to support them in the delivery of their roles. Key objectives are to
ensure the smooth running of many of the back office functions. Includes responsibility for all financial
matters including costings and plant efficiencies as well as commercial margins. Following the recent
Board changes, the Group Financial Controller, Liam Gray, has taken the role of UK Finance Director
to support the Board and a managed transition of the CEO’s former CFO responsibilities is underway.
Responsible for all research and development activities of the Group. Includes stewardship of the Group’s
IP portfolio, new additions and maintenance. Takes leadership position on critical new research areas.
Provides a sounding board for the Chairman and serves as an intermediary for other Directors, employees
and shareholders when necessary. The main responsibility is to be available to the shareholders should
they have concerns that they have been unable to resolve through normal channels or when such
channels would be inappropriate.
Maintains an ongoing dialogue with the Executive Directors which includes constructive challenge
of performance and the Group’s strategy.
Ensures good information flows within the Board and its Committees and between senior management
and Non-Executive Directors. The Company Secretary is responsible for facilitating the induction of new
Directors and assisting with their professional development as required. All Directors have access to the
advice and services of the Company Secretary to enable them to discharge their duties as Directors.
The Company Secretary is responsible for ensuring that Board procedures are complied with and for
advising the Board through the Chairman on governance matters. The appointment and removal
of the Company Secretary is a matter for the Board as a whole.
Experience of the Board
The members of the Board bring a wide range of skills and experience to the Group. This diverse skill set allows the Board to
appropriately challenge and lead the Group’s strategy.
The chart below summarises its key areas of significant experience.
Strategy
development
Chemical
Human resources
Corporate
governance
Financial
management
M&A
–
–
–
–
–
–
–
–
–
–
Name
Dr Christopher Richards
Dr Nigel Pickett
Brian Tenner
Dr Alison Fielding
Chris Batterham
Dr Christopher Richards
Chairman
13 October 2020
042
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance This section of the Corporate governance
report contains the Group’s other reporting
disclosures on corporate governance
required by the Companies Act 2006,
the UK Corporate Governance Code 2018
(the “Code”) and the UKLA’s Disclosure
and Transparency Rule 7 including the
required statement of compliance.
A copy of the Code is publicly available
at http://www.frc.org.uk.
Disclosure and Transparency Rule 7
This statement complies with sub-sections
2.1, 2.2(i), 2.3(i), 2.5, 2.7 and 2.10 of Rule 7 of
the UK Listing Authority Disclosure Rules.
The information required to be disclosed
by sub-section 2.6 of Rule 7 is shown in
the Statement of Directors’ responsibilities
on page 79 and is incorporated in this
section by reference.
The Board
The Group is controlled through its Board of
Directors. The Board’s main responsibilities
and those of its various sub-committees
are set out on pages 41 and 42 and are
summarised opposite.
To enable it to discharge its key
responsibilities as set out above, the
Board receives appropriate and timely
information prior to each meeting.
A formal agenda is set by each Chair
and Committee papers are distributed
several days before meetings take place.
Any Director may challenge Group
proposals, and decisions are taken
democratically after discussion. Any
Director who feels that any concern
remains unresolved after discussion may
ask for that concern to be noted in the
minutes of the meeting. Specific actions
arising from meetings are agreed by the
Board and then appropriately followed up.
The terms of reference of the
Committees are publicly available
at www.nanocotechnologies.com.
The same pages of the Annual Report
show the key officers and the division
of responsibilities and duties between
each role holder.
The Directors
There is a formal, rigorous and transparent
procedure for the appointment of new
Directors to the Board, which is led by
the Nominations Committee.
All Directors are then subject to election
by the shareholders at the next general
meeting following appointment to
the Board. In accordance with best
practice, they are then subject to annual
re-election thereafter. The contracts
of the Non-Executive Directors are
available for inspection by shareholders
at the AGM.
The Chairman has sufficient time to
devote to his duties as Chairman and
this has been demonstrated by his active
participation in the Group’s activities.
The Non-Executive Directors constructively
challenge and help develop proposals on
strategy and bring strong, independent
judgement, knowledge and experience
to the Board’s deliberations.
The Directors are given access to
independent professional advice at
the Group’s expense when the Directors
deem it is necessary in order for them
to carry out their responsibilities.
The Group maintains, for its Directors
and officers, liability insurance for any
claims against them in that capacity.
Donations
During the year the Group made
no political donations.
Independence and conflicts
of interest
The Group has effective procedures
in place to deal with potential conflicts
of interest. The Board is aware of the
other commitments of its Directors and
changes to these commitments are
reported to the Board. The Companies
Act 2006 requires Directors to avoid
situations where they have, or could
have, a direct or indirect interest that
conflicts or potentially conflicts with
the interests of the Group.
Directors are required to declare in
advance of a Board meeting whether
any of the business to be discussed
in that meeting gives rise to a conflict
or potential conflict. That Director will
then be excluded from the relevant
discussions unless agreed otherwise by
the Directors of the Group in the limited
circumstances specified in the Articles
of Association. They will not be counted
in the quorum or permitted to vote on
any issue in which they have an interest.
The Board considers its independent
Non-Executive Directors to be
independent in character and
judgement. No Non-Executive Director
has been an employee of the Group; has
had a material business relationship with
the Group; receives remuneration other
than a Director’s fee; has close family
ties with any of the Group’s advisers,
Directors or senior employees; or holds
cross-directorships.
Professional development
On appointment, each Director takes
part in an induction programme in which
they receive comprehensive information
about the Group; the role of the Board
and the matters reserved for its decision;
the terms of reference and membership
of the Board and Committees and the
powers delegated to those Committees;
the Group’s corporate governance
practices and procedures, including the
powers reserved to the Group’s most
senior Executives; and the Group’s latest
financial information. Throughout their
period in office the Directors are updated
on the Group’s business, the competitive
environment in which it operates, corporate
social responsibility matters and other
changes affecting the Group and the
industry it operates in as a whole.
Nanoco Group plc – Annual Report and Accounts 2020 043
Corporate governance statement continued
Professional development
continued
The Group acknowledges the
importance of developing the skills of
the Directors to run an effective Board.
To assist in this, Directors are given the
opportunity to attend relevant courses
and seminars to acquire additional
skills and experience to enhance their
contribution to the ongoing progress of
the Group. All of the Directors are given
briefings on trends and developments
in corporate governance.
Performance evaluation
The Board has established a formal
process for the annual evaluation of
the performance of the Directors. This
evaluation is based on a performance
evaluation questionnaire completed
by each Director. The Chairman’s
performance is reviewed annually by
the Non-Executive Directors and led
by the Senior Non-Executive Director,
Dr Alison Fielding. The evaluation of the
Chief Executive Officer is performed by
the Chairman and the evaluation of the
other Executive Directors is performed
by the Chief Executive Officer.
Director dealings in the Group’s
shares
The Group has adopted a model code
for Directors’ dealings in securities of
the Group which is appropriate for a
company quoted on the premium list
of the London Stock Exchange. The
Directors comply with the rules relating
to Directors’ dealings and also take all
reasonable steps to ensure compliance
by the Group’s “applicable employees”
as defined in the rules.
The Directors’ interests in the ordinary
share capital and in options over such
shares of the Company are shown in the
Directors’ remuneration report on pages
59 to 75.
Investor communications
Nanoco recognises the importance
of good and timely communication. Its
primary communication channel is the
internet. All press releases are published
on the Company’s website shortly after
they are issued via the regulatory news
service in the United Kingdom. In addition,
a broad range of other relevant information
is available on the Group’s website.
The Group also endeavours to ensure
that all published information is capable
of being readily understood on a
stand-alone basis without the need
for a one-to-one meeting. This is an
extension of the “fair, balanced, and
understandable” requirement inherent
in the Annual Report and Accounts.
Investor engagement
Meetings with analysts and institutional
shareholders are held following the
interim and preliminary results and on an
ad hoc basis. These are usually attended
by the Chief Executive Officer and Chief
Financial Officer.
Engagement during the year
Number
One-to-one meetings
Conference calls
Group meetings
Investor conferences
7
14
4
—
The Group takes care to ensure that
meetings with shareholders or potential
investors are structured around information
that is already available to all shareholders
on an equal footing.
Feedback from these meetings and
regular market updates are prepared by
the Group’s broker and are shared with
the Board.
The Chairman and other Non-Executive
Directors are available to shareholders to
discuss strategy and governance issues
at a shareholder’s request.
044
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Shareholder analysis
Shareholders at 31 July 2020 are analysed as follows:
Territory
UK
Europe (ex UK)
North America
Asia
Rest of World
Total
Type of holder
Retail investors
Hedge funds
Pension funds
Directors
Employees
Unidentified
Total
Investment style
Retail
Hybrid
Directors
Trading
Value and growth
GARP
Unidentified
Total
Shares
271,911,230
14,246,808
17,941,138
95,994
1,503,932
305,699,102
Shares
202,626,721
48,807,105
26,737,242
14,189,829
12,851,279
486,926
305,699,102
Shares
190,216,182
69,840,776
14,189,829
12,941,479
11,067,628
315,000
7,128,208
305,699,102
%
88.95%
4.66%
5.87%
0.03%
0.49%
100%
%
66.28%
15.97%
8.75%
4.64%
4.20%
0.16%
100%
%
62.22%
22.85%
4.64%
4.23%
3.62%
0.10%
2.34%
100%
34
11
89
UK shares
(%)
Domestic
institutions’
shares
(%)
89+
66+
62+
Private
client
brokers’
shares
(%)
66
62
38
Nanoco Group plc – Annual Report and Accounts 2020 045
38
+
M
34
+
M
11
+
M
Corporate governance statement continued
Annual General Meeting (“AGM”)
At the AGM, separate resolutions will be
proposed for each substantially different
issue. The outcome of the voting on
AGM resolutions is disclosed by means
of an announcement on the London
Stock Exchange.
All shareholders are encouraged to
attend the Annual General Meeting and
talk to the Directors there. All Directors,
including the Chairs of the Audit,
Remuneration and Nominations
Committees, are available at the
meeting to answer questions.
Shareholders not attending the AGM
can contact the Group via email at
info@nanocotechnologies.com.
The table below shows the different
resolutions proposed at the 2019 AGM,
the proportions of possible votes
that were cast and the proportions in
favour of and against each resolution
(resolutions 1 to 13 were passed as
ordinary resolutions and resolutions 14
to 17 were passed as special resolutions).
The Board takes steps to ensure that
the views of major shareholders are
considered through regular contact.
As appropriate, the Board takes due
note of their views insofar as these are
relevant to the Group’s overall approach
to corporate governance. This is achieved,
as noted previously, through feedback
from meetings with significant shareholders
and feedback from the Group’s brokers.
Significant shareholders were consulted
regarding the changes to the remuneration
policy which were proposed at the 2018
AGM and that policy (as amended)
became effective for three years
(until 31 July 2021).
Votes for
Votes against
Votes
% of total
votes cast
% of total
voting rights
Votes
% of total
votes cast
% of total
voting rights
Votes withheld
% of total
voting rights
Votes
No.
resolution
1
To receive the Annual Report
and Accounts
80,540,713
100.0%
2
To re-appoint the auditors
80,178,456
100.0%
3 Authority to agree the auditors’ fee 80,180,028
100.0%
4 To elect Chris Batterham
80,165,614
99.9%
28.1%
28.0%
28.0%
28.0%
23,969
31,127
30,054
43,969
5
6
7
8
9
To re-elect Dr Christopher Richards
76,698,672
95.6%
26.8%
3,510,911
To re-elect Dr Michael Edelman
76,782,439
To re-elect Dr Nigel Pickett
To re-elect Brian Tenner
76,793,158
76,800,258
To re-elect Dr Alison Fielding
80,165,614
95.7%
95.7%
95.7%
99.9%
26.8%
3,427,144
26.8%
3,416,425
26.8%
3,409,325
28.0%
43,969
0.0%
0.0%
0.0%
0.1%
4.4%
4.3%
4.3%
4.3%
0.1%
0.0%
0.0%
0.0%
0.0%
1.2%
1.2%
1.2%
1.2%
0.0%
4,000
4,499
4,000
4,499
4,499
4,499
4,499
4,499
4,499
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
10 Approval of Directors’
remuneration report
11 Approval of amendment to
78,238,132
99.8%
27.3%
164,580
0.2%
0.1%
1,811,370
0.6%
Directors’ remuneration policy
80,041,102
99.8%
28.0%
155,767
12 Approval for political donations
76,382,597
95.2%
26.7%
3,825,109
13 Authority to issue and allot shares
80,140,091
99.9%
28.0%
63,906
141 Disapplication of pre-emption rights 76,473,160
95.5%
26.7%
3,609,462
151 Disapplication of pre-emption
rights for specific
investment purposes
78,284,859
97.8%
27.4%
1,797,073
161 Authority to purchase own shares
80,166,739
100.0%
28.0%
31,069
0.2%
4.8%
0.1%
4.5%
2.2%
0.0%
0.1%
1.3%
0.0%
1.3%
0.6%
0.0%
17,213
6,376
10,085
131,460
132,150
16,274
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
171 Authority to reduce notice
of general meetings (excluding
the AGM)
1 Proposed as special resolutions.
80,040,010
99.9%
28.0%
69,382
0.1%
0.0%
104,690
0.0%
046
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Nominations Committee report
Maintaining the right mix of skills and
experience is our key responsibility
and is critical to creating long-term
shareholder value in a rapidly evolving
operating environment
DR CHRISTOPHER RICHARDS
Nominations Committee Chair
The Board deeply believes that
strong, responsible and balanced
leadership with an appropriate
mix of skills for the challenges the
Group faces are critical to creating
long-term shareholder value and
business success. The Committee met
five times during the year.
Roles and responsibilities
The Committee is primarily responsible
for assisting the Board in ensuring the
appropriate composition of the Board
and any Committees of the Board. It is
also responsible for periodically reviewing
the Board’s structure and identifying
potential candidates to be appointed as
Directors or Committee members as the
need may arise within the parameters
illustrated below:
Board mix
of skills and
experience
Recruitment
to Board and
Committees
Supporting
value creation
Diversity of
Board and
employees
Good
governance
Members
Dr Christopher Richards (Chair)
Dr Alison Fielding
Christopher Batterham
50%
15%
Allocation
of time1
15+
Performance evaluation
35%
Succession planning
Board and Committee composition
1 Estimated.
Nanoco Group plc – Annual Report and Accounts 2020 047
35
+
50
+
M
Committee activities during
the year
During the year the Nominations
Committee discussed a range of topics
including Board structure, its
independence and skill set. In addition,
the Committee discussed options to
enhance employee engagement with
the Board, in line with recent trends in
corporate social responsibility. The key
activities are set out in more detail below.
Board structure
Given the Group’s new form, and
considering both the scale and
commercial focus of the business, as
well as the available financial resources
following the equity fundraise in July 2020,
the Committee discussed the appropriate
shape, size and skill set of the Board for
its future operations. Our discussions
aimed to ensure that the future cost and
governance benefits of a larger Board
are balanced against the need to extend
the Group’s cash runway and to ensure
that the Group remains a going concern.
The Committee concluded that now is
the appropriate time to reduce the size
and financial cost of the Board. The
Committee also felt strongly that the
Board should show leadership in cutting
costs before considering significant
changes to the employee base.
The new composition where the majority
of the Board are Non-Executive Directors
will also further the Group’s maintenance
of high standards of corporate governance.
Board membership
As a protective pre-emptive measure
prior to the new commercial deals, third
party funding for the lawsuit and the
equity raise in July 2020, notice had been
served on Dr Michael Edelman (CEO)
and Dr Nigel Pickett (CTO) in April 2020.
This action was taken to mitigate
any incremental cost arising from the
twelve-month notice periods in the event
that the Group was unable to source
adequate additional funding or new
commercial revenues.
Nominations Committee report continued
Roles and responsibilities
continued
The Nominations Committee is
responsible for evaluating the balance
of skills, knowledge and experience and
the size, structure and composition of
the Board and Committees of the Board,
and retirements and appointments of
additional and replacement Directors
and Committee members, and makes
appropriate recommendations to the
Board on such matters.
Governance
The responsibilities of the Committee
include an additional focus on
governance. This change was made
in order to enhance the Group’s
improvement plans for governance
issues. The Committee’s terms of
reference now include:
Committee membership
In accordance with the UK Corporate
Governance Code the Nominations
Committee consists of Non-Executive
Directors. It is chaired by me, Dr Christopher
Richards, since my appointment as a
Non-Executive Director in November
2015. I have continued in this role after
having been made Chairman of the
Board in May 2016. The Board considers it
appropriate for me to chair the Nominations
Committee in order to achieve a balance
with the Audit and Remuneration
Committees, which are each chaired
by other Non-Executive Directors.
The Committee’s other members are
Dr Alison Fielding and Christopher
Batterham. All members of the
Committee are considered to have
experience and competence relevant
to the duties and responsibilities of
the Committee.
reviewing and considering the
Company’s procedures and controls
for ensuring compliance with:
Summary biographies of all members
of the Committee are detailed on pages
36 and 37.
the UK Corporate Governance Code;
the FCA Disclosure Guidance and
Transparency Rules, the Market
Abuse Regulation, and any other
applicable rules and regulations
that apply to the Group; and
the timely and accurate disclosure
of all information that is required to
be disclosed in order to satisfy the
Company’s legal and regulatory
obligations under the Corporate
Governance Requirements;
Meeting frequency and attendance
The terms of reference of the Committee
require at least two meetings per year.
When specific issues or changes need to
be addressed, such as the appointment
of a new Board member, the Committee
meets on additional occasions. The
Committee met five times during the
financial year and was attended as
shown in the table below:
recommending any proposed
Committee member
changes in the management of
corporate governance to the Board;
reporting on such compliance
to the Board;
reviewing potential conflicts of interest
involving Directors and determining
whether such Director or Directors
may vote on any issue as to which
there may be a conflict; and
reviewing all related party transactions
and determining whether such
transactions are appropriate for the
Company to undertake and advise
the Board accordingly.
Dr Christopher Richards (Chair)
Chris Batterham
Dr Alison Fielding
Meetings/
attended
5/5
5/5
5/5
As well as the members of the Committee,
the meetings are occasionally attended
on an invitational basis by the Chief
Executive Officer and the Chief Financial
Officer where there are no perceived
conflicts of interest. On matters of
remuneration of new appointees the
Chair works closely with the Chair and
members of the Remuneration Committee.
Meetings of the Nominations Committee
are either scheduled around existing
Board meetings or else on an ad hoc
basis such as during a recruitment
process. The Committee Chair provides
the Board with a full briefing on all
relevant matters.
048
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Review of the Nominations
Committee’s effectiveness
The Committee has reviewed and
considered the effectiveness of its
performance during the year. The review
included the views of members of the
Committee and of regular attendees at
the various meetings (including the
Executive Directors). I am satisfied that
the degree of rigour and challenge
applied in performing the Committee’s
responsibilities is appropriate and
effective and continues to improve.
Dr Christopher Richards
Nominations Committee Chair
13 October 2020
Committee activities during
the year continued
Board membership continued
Following the successful equity raise and
having concluded that a smaller Board
would be more appropriate for the likely
short to medium-term operational
activities within the Group, the
Committee reviewed the previously
agreed succession plan for the role of
CEO. The Committee was pleased to
recommend to the Board that Brian
Tenner be promoted to the role of CEO,
having been recruited with this in mind
and having made a significant positive
contribution to all aspects of the Group
since his appointment.
Michael Edelman stepped down from
his role as CEO and as a member of
the Board on 1 September 2020 while
remaining an employee of the Group.
The financial arrangements for his
ceasing to hold office are set out in the
Remuneration Committee report. Nigel
Pickett’s notice of termination will be
reassessed in due course in light of
emerging opportunities and the level
of business activity.
Employee engagement
In the prior year, the Committee
discussed at some length options to
enhance employee engagement, with
options ranging from an employee director
to more opportunities for employees to
meet with and put their views to the
Non-Executive Directors. The Committee
concluded that we would establish an
employee representative body which
would formally meet with a designated
member of the Board at least twice
a year. Recognising her strong skills
and experience in this area, the Board
agreed that Dr Alison Fielding should be
the designated Non-Executive Director
responsible for formal engagement with
the employee body (the Employee Voice
Committee). That Committee met very
effectively during the year, both formally
and informally, with a focus on meetings
and open question and answer sessions
during challenging times within the
business, such as business restructuring.
Diversity
The Group pursues diversity, including
gender diversity, throughout the
business. When recruiting at Board level,
the Nominations Committee requires that
any executive search firms used by the
Group have signed up to its industry’s
voluntary code of conduct (prepared in
response to the Davies Review of Women
on Boards). The Group follows a policy of
appointing talented people on merit at
every level and does not have a specific
target for numbers of female Directors.
The Board will also ensure that its own
development in this area is consistent
with its strategic objectives and
enhances Board effectiveness. Other
aspects of diversity in the Group are
commented on in the Report on
corporate social responsibility on pages
30 to 35.
Nanoco Group plc – Annual Report and Accounts 2020 049
Audit Committee report
Maintaining a robust internal control
and risk management framework
at a time of heightened business
uncertainty and funding constraints
CHRIS BATTERHAM
Audit Committee Chair
Members
Chris Batterham (Chair)
Dr Alison Fielding
5%
5%
25%
Allocation
of time1
5+
Performance evaluation
10%
20%
35%
Succession planning
Accounting matters
Risk management
Internal controls
Financial reporting
1 Estimated.
Meeting frequency and
attendance
The terms of reference of the Committee
require at least four meetings per year.
The Committee met four times during the
financial year. As well as the members of
the Committee, the meetings are usually
attended on an invitational basis by the
Chairman, the Chief Executive Officer
and the UK Finance Director. The external
auditors attend each meeting unless the
business of the meeting does not need
them to be present. The Committee also
has meetings with the external auditors
without the Executive Directors being
present. Attendance of each member
is set out below:
Committee member
Chris Batterham (Chair)
Dr Alison Fielding
Meetings/
attended
4/4
4/4
The Audit Committee plays
a central role in the review of
the Group’s financial reporting,
internal control and risk
management processes. Its aim is
to ensure that these processes deliver
high quality and timely information.
The Audit Committee monitors internal
and external risk factors on behalf of
the Board. These are maintained in the
Group’s risk register. The status and
assessment of matters in the risk register
also inform the drafting of the viability
report. As a Committee it seeks not just
to respond to external factors but to
support and challenge management to
anticipate future risks and opportunities.
Committee membership
The composition of the Committee
currently comprises me, Chris Batterham
(Chair), and Dr Alison Fielding. In
accordance with the provisions of the
Code, the Committee is made up of
independent Non-Executive Directors.
The Board considers that I have recent
and relevant financial experience to act
as Chair of the Committee, by virtue of
being a qualified Chartered Accountant
with extensive relevant experience as a
former CFO and finance director of a
number of private and public companies.
All members of the Committee are
considered to have experience and
competence relevant to the material
science sector.
Summary biographies of all members of
the Committee are detailed on pages
36 and 37.
050
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance5
+
35
+
10
+
20
+
25
+
M
Audit Committee
responsibilities
The key areas of focus for the Audit
Committee are set out below. This
includes specific duties of the
Committee in each area, how it
operates and any changes and
improvements made over time. The
subjects referred to are a mix of annual
recurring areas and also specific issues
that have arisen or been reviewed
during the last year.
ensuring the Group remains up
to date with developments in
accounting and reporting
requirements; and
advising the Board on whether or
not the financial statements, when
taken as a whole, is fair, balanced
and understandable. In simple terms
this means that shareholders receive
adequate information to assess the
Group’s strategy, business model
and performance.
External audit
The primary objective in this area is
to ensure that the Group is subject to
an appropriately robust, risk focused
external audit from a qualified and
independent firm of auditors.
Our responsibilities in this area include:
advising the Board on the
appointment of the external
auditors;
reviewing and monitoring the
performance of the external
auditors, which includes the
planning and effective execution
of the external audit process itself;
setting the audit and non-audit
fees of the auditors to avoid any
potential conflicts of interest with
executive management (non-audit
fees are set out in note 6 to the
financial statements); and
controlling the award of non-audit
work to the external auditors to
ensure that there is no actual or
perceived threat to its
independence.
Financial reporting
The primary objective here is to ensure
that internal and external financial
information is robust, relevant, reliable,
and a firm basis for decision making by
management and external stakeholders
alike. These activities are typically
carried on throughout the year. They
lend themselves to a “continuous
improvement” mindset that means
we are always looking to do better.
Our responsibilities in this area include:
reviewing and monitoring the
integrity of the Group’s annual
and interim financial statements;
ensuring the appropriateness
of accounting policies;
reviewing and challenging the
critical judgements and estimates
used in financial reporting. This
includes assessing any potential
impact of accounting judgements
and estimates on executive
remuneration;
ensuring that the financial
information being provided internally
to the Board and to management is
as robust as that reported externally
and evolves to meet the changing
needs of the business;
Internal control and risk
management
Our internal control and risk
management processes are a
fundamental part of the over-arching
framework used to safeguard the
assets of the business and to ensure
that investments represent an
appropriate balance of risk and return.
We work to ensure that these are as
good as they can be for our business.
Our responsibilities in this area include:
continual monitoring of the
appropriateness and effectiveness
of internal controls (including
whether an internal audit function
is required);
review of lessons learned and
management remediation plans for
any shortcomings or improvement
plans to internal control processes;
review of progress and commitment
to addressing control improvement
opportunities identified by the
external auditors;
review and challenge of the models
and assumptions underlying the going
concern and viability statements;
oversight of whistleblowing and
fraud detection and prevention
mechanisms; and
ongoing review of the Group’s
risk management processes
and systems, including a
substantive review and challenge
of management’s assessment
of key risks.
The Audit Committee also assists the
Board in ensuring the overall corporate
governance framework is appropriate
by giving due consideration to laws
and regulations, the provisions of the
UK Corporate Governance Code and
the requirements of the Listing Rules.
Financial
reporting
External
audit
Internal control
and risk
management
Audit
Committee
Nanoco Group plc – Annual Report and Accounts 2020 051
Audit Committee report continued
Meeting frequency
and attendance continued
continuing appropriateness of the
Group’s accounting policies;
Meetings of the Audit Committee are
scheduled to occur in the run up to key
events in the Group’s reporting calendar.
Each meeting precedes a Board meeting
to allow the Committee Chair to fully
brief the Board on all relevant matters.
The Committee has a pre-determined
series of subjects and issues to be
reviewed each year. These are then
supplemented by additional review of
emerging issues or changes in the
financial reporting or governance
regimes. In this way the Committee
ensures that key recurring themes are
regularly reviewed while maintaining
the flexibility to adapt to changing
circumstances.
In addition to the scheduled Committee
meetings, the members of the Committee
meet and discuss emerging issues for the
business with the CFO and Group Financial
Controller to ensure that the work of the
Committee remains appropriately focused
on the risks and needs of the business.
Continued improvements in the quality,
relevance and timeliness of information
being provided to the Committee and
the Board as a whole have allowed an
enhanced level of review, challenge and
scrutiny by the Committee.
Activities of the Audit Committee
The Committee discharged its
obligations in response to the financial
year as follows:
Significant issues considered during the
year in respect of the financial statements
The Committee assessed the following
matters in respect of financial reporting
and in the preparation of the Interim Report
and the Annual Report and Accounts:
continuous development in the quality
and transparency of the Group’s
external reporting;
a review of key judgements and
estimates made by management
(see table below);
considering if the financial statements,
when taken as a whole, are fair,
balanced and understandable; and
considering the impact of the
implementation of the new revenue
recognition standard, IFRS 16, the new
leases standard, which applies in full
for the first time in this year’s financial
statements.
In this way, the Directors aim to make sure
as wide a range of issues as possible are
considered without over-burdening the
reader of the financial statements with
insignificant or immaterial matters.
Significant accounting matters
and areas of significant
management judgement
The Committee, together with the
Board, considered what the significant
accounting matters and areas of
management judgement in relation to
the financial statements were and how
these would be addressed.
Each item is considered in further
detail below.
Our approach to materiality
Adoption of IFRS 16 Leases
The financial statements must present
a true and fair view of the performance
and financial position of the Group. They
must also present a fair, balanced and
understandable view. These are both
aimed at ensuring that a user of the
accounts can gain an accurate picture
of the underlying performance and
position of the business. To achieve this
all material matters need to be
addressed. Material matters are those
that are considered by the Directors to
be likely to influence the decisions of a
reader of the accounts.
The Directors take a range of quantitative
and qualitative matters into account in
assessing whether or not a matter is
deemed to be material. These include the
absolute size of a potential adjustment by
reference to the overall income statement
or the financial position statement but
also by reference to an individual
component. Qualitative judgements
include whether an issue would reverse or
materially alter a trend (such as turning a
profit into a loss, or growth into a decline).
IFRS 16 deals with accounting for leases
that were previously split between
operating and finance leases. Note 3
to the financial statements shows the
impact of this new accounting standard.
The Committee reviewed the technical
accounting paper prepared by
management. The Committee was
satisfied that the carrying value of the
assets and liabilities arising from the
Group’s leases were properly stated
and disclosed.
Revenue recognition and deferred
income (recurring item)
The Committee reviewed the revenue
recognition policies and management
judgements made in the preparation of
the financial statements. Where revenue
relates to the sale of products or services
to customers, there is little need for
judgement or estimates as these types
of revenue are recognised either on the
transfer of risks and rewards of ownership
of goods or on a time and material basis
for delivery of services.
052
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Significant accounting matters
and areas of significant
management judgement continued
Revenue recognition and deferred
income (recurring item) continued
The contract with the US Customer was
the most material source of revenue in
the year. This contract and all associated
performance obligations were delivered
in full by 31 December and hence no
estimates or judgements were required
to conclude that all revenue had been
earned in full by the end of the contract.
Other new sources of revenue earned in
the year were derived from the sale of
goods or the performance of short-term
professional services work and hence
little judgement was required in assessing
these contracts under IFRS 15.
The Committee concluded that the
judgements and estimates made by
management in respect of revenue
recognition and the treatment of
deferred income and contract liabilities
were reasonable and appropriately
disclosed in the financial statements.
Carrying value of intangible assets
(recurring item)
The Group holds a number of intangible
assets, primarily relating to IP. At the end of
the year these had a value of £3.7 million
(2019: £3.9 million). Given that the Group is
yet to make a profit, management must
exercise judgement in assessing whether
or not this value can be recovered from
the ongoing operation of the business or
through disposal. Actual market disposal
values achieved for equivalent IP
technology-based businesses are one
data point used in this assessment.
Management performs an annual
assessment of whether or not these
assets should be impaired.
The Committee challenged and reviewed
the results of the assessment carried out
by management. The Committee agreed
with management that a £0.1 million
impairment of a small number of
individual assets was required in the
current year.
Going concern (recurring item)
The Committee considered the use of
the going concern basis for preparing
the financial statements. This is currently
an annual recurring activity given the
ongoing losses incurred by the business
in advance of generating full scale
production levels of commercial revenues.
The review by management takes
into account existing available cash
resources, run rates on operating costs
and cash burn, as well as probability
weighted assessments of potential
income streams. The Group’s base case
forecasts (which are approved by the
Board) are then subject to downside
scenario modelling and sensitivity
analysis. This includes identifying
different management action plans
in response to a downside scenario
crystallising. The analysis is performed
for the twin purposes of preparing the
viability statement and also assessing
whether or not the going concern basis
for the preparation of the financial
statements remains appropriate. The
going concern analysis is effectively a
subset of the two-year period used for
viability analysis.
The assessment by management and
the Committee includes reference to the
material potential risks identified in the
Group’s risk register and any mitigating
actions and controls as shown on pages
25 to 27.
The Committee concluded that the
restructured Group has adequate
financial resources to adopt the going
concern basis for the preparation of the
financial statements. Given the nature of
the risks that the Group faces while its
activities are at a pre-commercial stage,
the Committee continues to recommend
that the Annual Report and Accounts
maintains a relatively high level of
disclosure of these matters in the
financial statements – as set out in
the sections on risk, viability and going
concern on pages 25 to 29.
Financial reporting on a fair,
balanced and understandable
(“FBU”) basis
The Committee reviewed the interim
and annual financial statements. As
part of that review process, the members
of the Committee were provided with a
draft of the full Annual Report enabling
them to ensure that the numbers
therein were consistent with those
in the financial statements or were
sourced from appropriate data and their
knowledge gained from the monthly
management accounts.
The Committee also assessed whether
the narrative description of the Group’s
activities and performance was
consistent with its own understanding
obtained through Board and Audit
Committee meetings and other
interactions it had with management.
The CFO advised the Committee of the
findings of independent readers of the
draft Annual Report and Accounts. These
reviews are carried out by Nanoco senior
managers who have not been closely
involved in drafting the Annual Report.
Their knowledge of the business
allows them to form an opinion if the
document conveys a fair, balanced
and understandable view of business
performance in the current year. The
Committee members themselves also
perform this function by reference to
the matters discussed at the regular
Board meetings.
Drawing on this knowledge of the
Group’s activities and its own industry
knowledge and experience, supplemented
by advice received from external
advisers during the drafting process,
the Board determined that the Annual
Report and Accounts are fair, balanced
and understandable.
Nanoco Group plc – Annual Report and Accounts 2020 053
Audit Committee report continued
External audit
External audit plan
The Committee reviewed the proposed
audit plan ahead of the year end. The
Committee was satisfied that the areas
of audit risk highlighted by PwC were
appropriate and included all material
matters. The Committee subsequently
reviewed the actual audit report by PwC
to ensure that it aligned closely with
those risks and the planned audit work.
Safeguarding auditors’ independence
The independence of the external
auditors is essential to the provision
of an objective opinion on the true
and fair view presented in the financial
statements. The Committee reviews the
policies and status of the independence
of the external auditors consistent with
the ethical standards published by the
Auditing Practices Board.
Auditors’ independence and objectivity
are also safeguarded by limiting the
nature and value of non-audit services
performed by the external auditors (see
later section). The Group has a policy
of not recruiting senior employees of
the external auditors who have worked
on the audit in the past two years. The
Group works with the external auditors
to achieve the rotation of the lead
engagement partner at least every five
years. With the change in auditors, the
current lead engagement partner is
in their second year of this position.
The external auditors are also required
periodically to assess whether, in their
professional opinion, they are independent
and those views are shared with the
Audit Committee. The Committee has
authority to take independent advice as
it deems appropriate in order to resolve
issues on auditors’ independence. No
such advice has to date been required.
The audit was last tendered in 2018, and
PwC were appointed. This is their second
year as external auditors of the annual
report and financial statements.
For the current year, the Committee has
concluded that the external auditors
remain independent and objective for
the purposes of their role.
Non-audit services provided by the
external auditors
The Audit Committee will only approve
the provision of non-audit services
by the external auditors where they
do not represent a threat (by their
nature or scale) to this requirement for
independence. The aim is to ensure that
no material risk is taken of the auditors
both advising on and auditing the same
information in the financial statements.
The Audit Committee’s approval is
required for any fees for non-audit work
paid to the auditors in excess of £10,000
in any financial year. However, the Group
recognises that it can receive particular
benefit from certain non-audit services
provided by the external auditors due
to their technical skills and detailed
understanding of the Group’s business
and hence some non-audit work is allowed.
The only fees paid for non-audit services
during the year related to a review
of the interim results. This additional
piece of work is not considered at risk
of jeopardising their independence.
Separate external firms are engaged
for taxation advice.
Internal controls and risk
management
The Board has overall responsibility for
the Group’s system of internal controls as
one critical part of the overall corporate
governance framework. This includes
reviewing the effectiveness of these
controls and the processes in place for
risk management. In accordance with
the Internal Control Guidance for
Directors issued by the Financial
Reporting Council, there is an ongoing
process for identifying, evaluating and
managing the significant risks faced by
the Group. This process was introduced
during 2015 and is summarised on pages
25 to 27.
The role of the Executive Directors is to
implement the Board’s policies on risk
and control and to provide assurance
on compliance with these policies.
The processes and procedures in place
are designed to manage rather than
eliminate risk and operate within the
“ The Board
determined that the
Annual Report and
Accounts are fair,
balanced and
understandable.”
Board’s defined risk appetite. They
therefore can only provide a reasonable
and not absolute assurance against
material misstatement or loss.
Executive Directors have a close involvement
with all day-to-day operations. They also
meet with staff on a regular basis to
identify and review business risks, the
controls needed to minimise those risks
and the effectiveness of controls in
place. Business risks are monitored and
discussed on a regular basis at meetings
of the Leadership and Senior Management
teams. The principal risks faced by the
Group and other aspects of how they are
individually assessed and managed are
set out below and on pages 25 to 27.
Internal controls
Key features of the internal control
system are summarised below:
(i)
annual budgets and rolling forecasts
are reviewed and approved by
the Board;
(ii) monthly management accounts
are reviewed and challenged by
comparison to the budget;
(iii) written operational, accounting and
employment policies are in place;
(iv) the Board actively identifies and
evaluates the risks inherent in
the business and ensures that
appropriate controls and procedures
are in place to manage these risks;
054
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance system is effective in safeguarding
shareholders’ interests and the Group’s
assets. Such a system can only provide
reasonable and not absolute assurance
against material misstatement or loss,
nor can it eliminate the risk of failure.
The Committee notes any control
improvement opportunities identified by
the external auditors and is overseeing a
programme of continuous improvement
to our control environment in a rolling
plan developed by the finance team.
Review of the Audit Committee’s
effectiveness
The Committee has reviewed and
considered the effectiveness of its
performance during the year. The review
included the views of members of the
Committee and of regular attendees
at the various meetings (including the
Executive Directors). We specifically
considered the performance of the
Committee following the transition
of the Chair’s role to myself at the
end of the prior year. I am satisfied that
the degree of rigour and challenge
applied in performing the Committee’s
responsibilities is appropriate and
effective and continues to improve.
Christopher Batterham
Audit Committee Chair
13 October 2020
Internal controls and risk
management continued
Internal controls continued
(v) expenditure approval limits and
approval processes are in place
to cover all major commitments;
(vi) quality assurance processes are
overseen and audited by the internal
quality assurance department, with
a particular focus on non-financial
processes and procedures which
drive financial performance; and
(vii) compliance with control procedures
is monitored by the Audit Committee
through its reviews of internal and
external audit findings and its reviews
of exceptions.
The Committee considers that the
need for an internal audit function is
not currently warranted due to the size
and complexity of the business but will
reconsider this need not less than annually.
Whistleblowing and confidential
reporting procedures
The Group operates a confidential
reporting and whistleblowing procedure.
The policy aims to support the
stewardship of the Group’s assets and
the integrity of the financial statements
as well as protecting staff welfare. The
procedure is reviewed annually by the
Committee to ensure that it remains fit
for purpose.
The Committee did not receive any
notifications through the whistleblowing
process during the year. The Committee
has recommended that staff are
regularly reminded of the whistleblowing
process as part of ongoing engagement
with staff on compliance issues such as
anti-bribery training.
Internal accountability
The Board has overall responsibility for
the Group’s system of risk management
and internal control. The Audit Committee
reviews the effectiveness of the system
at least annually on behalf of the Board
and, having carried out this review, the
Board continues to believe that the
Nanoco Group plc – Annual Report and Accounts 2020 055
Remuneration Committee report
Taking the lead in maintaining
an appropriate cost base for the
Board, balanced with the need to
retain and incentivise management
in line with our strategic goals
DR ALISON FIELDING
Remuneration Committee Chair
Dear shareholder
As the Chairman of Nanoco’s
Remuneration Committee (the
“Committee”), I am pleased to
present our Directors’ remuneration
report for the year ended 31 July 2020.
The Committee’s report seeks to deliver
an appropriate balance between the
required regulatory disclosures, commercial
sensitivities and the context for our
approach and decisions.
This report is presented in three parts:
(1)
an overview of the year from me,
the Committee Chair, including
prospective matters for the new year
ending 31 July 2021;
(2) the Directors’ remuneration policy
setting out the framework approved
by shareholders at the AGM in
December 2018 (with one small
modification approved by
shareholders in December 2019); and
(3) the Annual report on remuneration,
which sets out the actual results of
applying the policy to executive
remuneration over the year ended
31 July 2020.
Our remuneration policy is designed
to promote the long-term success of
the business by ensuring a focus on
performance related pay that drives
our transformation from an R&D focus
to a commercial production focus
and provides a clear emphasis on
long-term sustainable performance.
The Remuneration Committee seeks to
ensure that the Directors’ remuneration
arrangements continue to be aligned
to the strategic direction of the Group
and to our stakeholder philosophy.
This Directors’ remuneration report for
the year ended 31 July 2020 complies
with the requirements of the Listing Rules
of the UK Listing Authority, Schedule 8 of
the Large and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008 and the provisions of
the UK Corporate Governance Code
(July 2018). The Regulations require the
auditors to report to the Company’s
members on certain parts of the Directors’
remuneration report and to state
whether, in their opinion, those parts of
the report have been properly prepared
in accordance with the accounting
regulations. Items that are audited
throughout this report are clearly marked
as audited in the heading of the section.
Board changes
During the year, and following the end of
the contract with the US Customer, the
Group took a number of actions to reduce
our cost base and to extend our cash
runway. This included 35% reductions to
Non-Executive Directors’ fees and 20%
salary reductions for the Executive Directors,
both taking effect on 1 April 2020. In
consultation with the Nominations
Committee, it was also deemed prudent
to take pre-emptive action to mitigate a
potential future financial risk by serving
notice on the CEO (Dr Michael Edelman)
and the CTO (Dr Nigel Pickett) at that
time, given the twelve-months notice
periods in their employment contracts.
During the year, the Chairman continued to
defer the second increase in his fees that
had been agreed in the prior year. This
was in addition to the 35% reduction
applied to all Non-Executive Directors.
056
Nanoco Group plc – Annual Report and Accounts 2020
Members
Dr Alison Fielding (Chair)
Chris Batterham
Dr Christopher Richards
40%
25%
5%
Allocation
of time1
5+
Performance evaluation
10%
15%
5%
Succession planning
Employee engagement
Diversity
Governance
Reward and targets
1 Estimated.
Following the year end, Michael Edelman
stepped down from his position as CEO and
from the Board. The payments associated
with his ceasing to hold office are disclosed
in the relevant section of this report. Brian
Tenner became CEO with effect from
1 September 2020 any potential change
to his remuneration will be assessed in
the coming months. There were no other
changes to the Board during the year.
Corporate governance25
+
15
+
5
+
10
+
40
+
M
Relating remuneration to current business performance
The Committee has at all times been fully cognisant of the need to show leadership in Executive and Board remuneration at a
time when a significant number of staff have been furloughed during the Covid-19 pandemic and also when a number of staff
were facing redundancy. While a number of important and potentially value adding outcomes have been delivered in the current
year, the Group’s financial resources mean that variable reward has been limited and the focus in the new financial year will be
on non-cash incentives that are closely aligned to shareholder objectives.
Shareholders voted to approve a small amendment to the Group’s remuneration policy at the AGM in December 2019 which
allows 100% of any annual bonus to be paid in shares under the Deferred Bonus Plan. This was then applied to the bonus award
for the financial year ending 31 July 2019 with an award of deferred shares in December 2019. This approach was designed to
preserve the Group’s cash resources and this is likely to continue for any potential bonus awards in the medium term.
Directors’ remuneration policy
Our Directors’ remuneration policy was last approved by shareholders at the 2018 Annual General Meeting, with more than 96%
of votes cast being in favour of it. It was subsequently amended at the 2019 AGM as described above.
That policy was applied during the year ended 31 July 2020, as described in the Annual report on remuneration, and will be
applicable for the three years ending 31 July 2021. The Remuneration Committee believes that the policy approved in 2018 and
as amended in 2019 provides an appropriate alignment to both the Group’s strategy and shareholders.
Element
Changes, rationale and summary of current position
Base salary
No change to policy. The Executive Directors’ salaries for the new financial year were frozen at the same
level as last year, with the 20% salary reductions to be reviewed in March 2021.
Benefits
No change to policy. Life insurance is the only benefit currently provided.
Retirement benefits No change to policy. Contributions remain at 5% of salary (a policy limit of 10%). Company pension
contributions for all staff will be increased from 4% to 5% to fully align with the Executive Directors.
Annual bonus
No change to policy. Maximum remains 100% of salary. Up to 100% of any award can be paid in awards of shares
or options, deferred for two years, with any balance paid in cash. 80% of the annual bonus is based on financial
measures and 20% on stretching personal objectives. Bonus only payable if financial measures achieved.
LTIP
No change to policy. Normal maximum remains at 100% of salary (up to 250% in exceptional circumstances).
Shareholding
guideline
Other changes
No change to policy. All Executive Directors to acquire and retain shares with a value equal to 200%
of salary (increased in 2018 from the 100% level for others than the CEO in the 2015 policy).
No change to policy. Malus and clawback provisions were extended in the policy approved in 2018
to permit the application of malus and clawback in the event of a material corporate failure.
Nanoco Group plc – Annual Report and Accounts 2020 057
Non-Executive Director fees will
remain subject to the 35% cut
implemented on 1 April 2020. This will
also be reviewed in March 2021. The
second increase in the Chairman’s
underlying fees (before the 35%
reduction) also remains on hold.
Under the updated Corporate
Governance Code the Committee is
required to develop a post-employment
shareholding policy. Recognising that
at the 2021 Annual General Meeting
the Company will seek shareholder
approval for a revised Directors’
remuneration policy, the Committee
will consider its approach to post-
employment shareholding during
the course of the year commencing
1 August 2020, before formalising its
approach in that Policy. In this context,
its current approach is to reply upon
the “leaver” provisions in its share
plans, the deferral applied to the
annual bonus, and the holding
period applied to the LTIP.
As a Committee, we believe that ongoing
dialogue with our major shareholders
is of key importance. Should you have
any queries or feedback in relation to
the Directors’ remuneration report,
please contact me through the
Company Secretary.
Dr Alison Fielding
Remuneration Committee Chair
13 October 2020
Remuneration Committee report continued
Annual report on remuneration
The Annual report on remuneration
section of this report provides details
of the amounts earned by Directors in
respect of the year ended 31 July 2020
and how the Directors’ remuneration
policy will be operated for the year
commencing 1 August 2020. This section
of the report will be subject to an
advisory vote at the 2020 AGM.
Remuneration decisions in respect
of the year ended 31 July 2020
As referred to in the 2019 Directors’
remuneration report, our Executive
Directors’ salaries for the year ended
31 July 2020 were increased by 3% in
line with the average increase for all
other staff and followed a year of no
increase in 2018. However, as noted in
the Remuneration Committee Chair’s
statement on page 56, the Executive
Directors’ salaries were temporarily
reduced by 20% with effect from
1 April 2020.
The 2020 bonus opportunity for the
Executive Directors was based on a
combination of financial and corporate
measures and challenging personal
objectives. The Remuneration Committee
determined that neither of the corporate
financial targets were achieved. As a
result, no bonus was therefore payable in
respect of performance against the
Executive Directors’ personal targets.
While no bonus was payable against
these latter personal objectives,
performance has still been disclosed.
Further information is set out on pages
68 and 69.
The LTIP awards granted in December
2017 failed to achieve their performance
targets for the three years ending 31 July
2020 and consequently lapsed. No other
long-term incentive awards vested.
Further LTIP information is set out on
page 69.
No long-term incentive awards were
granted in the year under the LTIP. This
reflected the Company’s financial
position and also the Formal Sales
Process which was ongoing for five
months of the year and during which
time no LTIPs could be awarded. Awards
in the form of nil-cost options were granted
on 31 October and 10 December in respect
of the annual bonus awarded for the
prior year, as part of the Deferred Bonus
Plan (which is open to all members of staff).
Remuneration in the year
commencing 1 August 2020
With the addition of the small change
to the Directors’ remuneration policy
approved at the AGM in December 2019,
the Directors’ remuneration policy will
be applied as follows in the year
commencing 1 August 2020:
Base salaries for the Executive team
will be unchanged from the prior year.
The freeze in the base salaries of
each of the Executive Directors is in
line with the decision for staff wages
generally though it is intended that
the staff salary cut will be reviewed in
October 2020 and will be reversed if
circumstance allow at that time. The
salary reductions for the Board will
remain in place and will be reviewed
in March 2021.
For the year commencing 1 August
2020, employer pension contributions
above the amount of any salary
sacrifice (and the associated
employer National Insurance
contribution savings) will continue
to be capped at 5% of salary.
The annual bonus opportunity for
Executive Directors will remain at 100%
of salary, subject to the achievement
of stretching performance conditions.
The details of the proposed targets,
to the extent they are not disclosed
on page 74, will be disclosed once
they are not commercially sensitive.
LTIP awards for the year commencing
1 August 2020 will be set in line with
the approved policy which specifies
an award level of 100% (and up to
250% in exceptional circumstances).
LTIP awards are ordinarily made in the
period following the announcement of
the Group’s annual results though the
approved policy also allows for the
Board to vary this timing at its
discretion. The Committee notes the
lapsing in full of the awards made in
2017 and that no awards were made
in 2019. The intended awards to be
made to the continuing Executives
and to Michael Edelman in October
are set out in the relevant sections of
this report. The targets and weightings
for any award in FY21 will be announced
if and when any awards are made.
058
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Directors’ remuneration report
Directors’ remuneration policy
This part of the report sets out the Company’s forward-looking Directors’ remuneration policy that was subject to a binding
vote at the AGM on 13 December 2018 (as amended in December 2019) and is scheduled to continue in operation for three
years. The Directors’ remuneration policy is not audited.
Element and purpose
Operation
Maximum opportunity
Performance measures
Base salary
Core element of fixed remuneration
that provides the basis to recruit
and retain talent necessary to
deliver the business strategy.
Normally reviewed annually; applied
from 1 August (or more frequently
if required).
No maximum. Annual increase normally
in line with the wider workforce. Larger
increases:
N/A
Consideration is given to the following:
on promotion or changes in scope
the role, responsibility and
or responsibility;
experience of the individual;
an individual’s performance in a role;
corporate and individual
where there has been a change in
performance;
market practice; or
Benefits
Provide a market-competitive
benefits package and promote the
wellbeing of employees.
Retirement benefits
Provide market-competitive
post-employment benefits to
recruit and retain Directors of the
calibre required for the business.
market comparators such as
equivalent roles – by size and
complexity; and
other Nanoco salary increases.
The Company provides life assurance
of eight times salary, for all Executive
Directors.
Directors are reimbursed for out-of-pocket
expenses incurred on Company business
and any associated tax where the
expenses are wholly and necessarily
for business purposes.
Benefits are reviewed periodically,
taking individual circumstances into
consideration. Benefits provided may
include, for example, medical insurance,
relocation expenses, expatriate
allowances and travel expenses.
The Company currently operates a
salary sacrifice pension arrangement
under which Executives may elect to
sacrifice salary and the Company pays
an amount equal to the amount of the
salary sacrifice, together with the
employer National Insurance saved,
into a private pension scheme.
Executive Directors are also eligible to
participate in the Company’s defined
contribution scheme (or such other
pension plan as may be deemed
appropriate). In appropriate
circumstances, such as where the
lifetime allowance is protected,
Executive Directors are permitted
to take an equal cash supplement
(this would not count towards the
bonus or LTIP opportunity).
if there is a change in the size and/or
complexity of the business.
N/A
No absolute maximum. The value
of benefits is set at a level which
the Committee considers to be
appropriately positioned taking
into account relevant market factors
based on the nature and location of
the role, the level of benefits provided
to other employees in the Group and
individual circumstances.
For the year commencing 1 August 2020,
employer pension contributions above
the amount of any salary sacrifice and
employer NIC saved have again been
capped at 5.0% (2019: 5.0%) of salary.
N/A
An overall contribution limit of up to 10%
of base salary may be made in future
years (in addition to the amount of any
salary sacrifice and employer NIC saved)
to take account of circumstances
including, but not limited to, a change
in the scope of the role, an increase in
responsibility and/or a change in the
size and/or complexity of the business.
Nanoco Group plc – Annual Report and Accounts 2020 059
Directors’ remuneration report continued
Directors’ remuneration policy continued
Element and purpose
Operation
Maximum opportunity
Performance measures
Annual bonus
Rewards and incentivises the
achievement of annual objectives
which are aligned with key financial
and strategic goals that support
the enhancement of shareholder
value.
Long Term Incentive Plan (“LTIP”)
To reflect stakeholder philosophy,
provide a longer-term retention
mechanism and provide alignment
with shareholders.
Shareholding requirement
To align Directors to
shareholder interests.
Performance targets are set annually
and payout levels are determined after
the year end following the Committee’s
assessment of actual performance
against set targets.
Maximum annual bonus opportunity
is 100% of salary.
The percentage of maximum bonus
payable for the different levels of
performance would be no greater than:
Stretching performance
targets are set each year,
reflecting the business
priorities that underpin
Group strategy.
Below threshold
Threshold
On-target
Maximum
0%
25%
60%
100%
On target performance pays out at
60% (and not 50%) as the Committee
includes an element of stretch when
setting targets.
Ordinarily, at least 75% will be
subject to achievement of
financial and/or corporate
measures and the balance
will be based on challenging
personal objectives. The
Committee retains discretion
to apply different weightings
in relevant circumstances.
The maximum value of shares over
which an individual can be granted an
award in respect of a financial year is
normally 100% of base salary, although
this limit may be increased to 250% of
base salary in exceptional circumstances.
The percentage of maximum awards for
the different levels of performance
would be no greater than:
Below threshold
Threshold
On-target
Maximum
0%
25%
60%
100%
On target performance pays out at
60% (and not 50%) as the Committee
includes an element of stretch when
setting targets.
The vesting of LTIP awards is
subject to the satisfaction of
performance targets set by
the Committee.
The performance measures
are reviewed regularly to
ensure they remain relevant
but will be based on financial
measures which link directly
or indirectly to the creation of
shareholder value (such as
share price, revenue and EPS)
and/or the achievement of
strategic milestones.
The relevant metrics and the
respective weightings may
vary each year based on
Company strategic priorities.
N/A
N/A
Up to 100% of any bonus earned can
be paid in deferred shares under the
DBP which vest after two years and
the balance is awarded in cash.
Deferred share awards may incorporate
the right to receive (in cash or shares)
the value of the dividends that would
have been paid on the shares that vest;
this may assume the reinvestment of
dividends into shares on such terms as
the Committee determines.
Under the LTIP, awards of conditional
shares, restricted stock or nil-cost
options (or similar cash equivalent)
can be made with vesting dependent
on the achievement of performance
conditions, normally over a three-year
performance period.
Under the LTIP, there will be no retesting
of performance following the end of the
performance period.
After the end of the performance period
the vested awards would normally be
subject to a two-year holding period.
LTIP awards may incorporate the right
to receive (in cash or shares) the value
of the dividends that would have been
paid on the shares that vest; this may
assume the reinvestment of dividends
into shares on such terms as the
Committee determines.
A requirement to build up and hold
a shareholding of at least 200% of
base salary.
50% of vested shares under the DBP
or LTIP (post-tax) are to be retained
until the shareholding requirement
has been met.
Notes to the policy table
Application of clawback and malus to variable remuneration
Under the Deferred Bonus Plan (“DBP”), during the two-year deferral period, the Committee has the right to reduce any deferred
bonus awards which have not yet been released in the event of a material misstatement of the Group’s financial results, a
material misconduct on the part of the participant, a material corporate failure as determined by the Board or a material failure
of risk management by the Group (i.e. a malus provision). For up to two years following the payment of a cash bonus award, the
Committee may also require the repayment of some or all of the award in these circumstances (i.e. a clawback provision).
Under the 2015 LTIP, at any time prior to the end of the holding period for LTIP awards, the Committee in its discretion may reduce,
cancel or impose further conditions on LTIP awards which have not yet been released in the event of a material misstatement
of the Group’s financial results, a material misconduct on the part of the participant, a material corporate failure as determined
by the Board or a material failure of risk management by the Group.
060
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Directors’ remuneration policy continued
Notes to the policy table continued
Explanation of performance measures chosen
Selected performance measures for the annual bonus and LTIP awards reflect the Group’s strategy. Stretching performance
targets are set each year by the Committee taking into account a number of different factors.
Annual bonus
At least 75% of the potential maximum annual bonus will be subject to achievement of a combination of financial and corporate
measures, whilst the balance will be based on challenging personal objectives. The Committee will disclose the metrics and
performance against these on a retrospective basis to the extent that these are not commercially sensitive.
LTIP
The Company historically used commercial revenue targets as its primary measure for LTIP awards for Executive Directors.
However, the Committee recognises that the Company’s transition from a research and development company to a commercial,
product-driven organisation presents a number of challenges to defining meaningful and appropriate performance metrics and
targets. The Committee has opted therefore for awards granted under the LTIP in 2018 and any potential award in 2020 to be based
on share price growth which has the benefit of being absolutely aligned to long-term shareholder interests and is not subject to
the same risk of unearned reward or absence of reward due to unforeseen one-off significant contracts. This metric will be subject
to a performance underpin to ensure that the share price metric for the LTIP does not lead to behaviours that are divergent from
the core commercialisation strategy and that appropriate developments are made in all areas of the business. It is the Committee’s
view that this combination is the most appropriate performance measure at present for determining LTIP vesting for the awards
on the basis that share price growth is a key measure of value delivered to shareholders and should reflect the achievement
of commercial milestones. This ensures that this element only vests where significant value is delivered to shareholders.
The Committee intends to review each year the performance metrics for future awards taking into account the business priorities
and strategy at that time.
The Committee also retains the discretion to adjust or set different performance measures or targets where it considers it
appropriate to do so (for example, to reflect a change in strategy, a material acquisition and/or a divestment of a Group business
or a change in prevailing market conditions) and to assess performance on a fair and consistent basis from year to year.
Operation of the LTIP and DBP
The LTIP and DBP are operated by the Committee in accordance with their respective rules, including the ability to adjust the
number of shares subject to awards in the event of a variation of share capital, demerger, delisting, special dividend, rights issue
or other event which may, in the opinion of the Company, affect the current or future value of shares. The “market value” of a
share for the purposes of determining the number of shares subject to the LTIP or DBP award will be the average share price over
the three dealing days following the announcement of results preceding the grant date, unless the Committee determines that
an alternative basis should apply but would still be by reference to market prices such as the average price over the three-day
period leading up to an award at a different date. All members of staff are eligible to participate in both schemes.
Early vesting of awards
As described on pages 64 and 65, awards under the DBP and LTIP may vest earlier than anticipated in “good leaver” circumstances.
On a change of control of the Company or other relevant corporate event (such as a demerger, delisting, special dividend
or other event which may affect the value of an award), the extent to which unvested awards will vest will be determined
in accordance with the rules of the relevant plan.
Awards under the DBP will vest in full in the event of a takeover, merger or other relevant corporate event.
Awards under the LTIP may vest early on a takeover, merger or other relevant corporate event. The Committee will determine the
level of vesting taking into account the extent to which the performance conditions are satisfied and the perceived value created
as a result of such an event. Such vesting would ordinarily be on a time pro-rata basis, although the Committee has discretion
not to apply time pro-rating.
Nanoco Group plc – Annual Report and Accounts 2020 061
Directors’ remuneration report continued
Directors’ remuneration policy continued
How the Executive Directors’ remuneration policy relates to the Group
The remuneration policy summarised previously provides an overview of the structure that operates for the Executive Directors.
The same broad structure also operates for the members of the Senior Management team, although with lower levels of
participation in the annual bonus, the DBP and/or the LTIP. For other employees, the same remuneration principles are applied
and the Company aims to provide a remuneration package that is competitive in an employee’s country of employment and
which is appropriate to promote the long-term success of the Group.
Remuneration outcomes in different performance scenarios
The charts below set out an illustration of the remuneration policy for FY21. The charts provide an illustration of the proportion
of total remuneration made up of each component of the remuneration policy and the potential value of each component.
Five scenarios have been illustrated for each Executive Director:
Below threshold performance Fixed remuneration
No annual bonus payout
No vesting under the LTIP
Threshold performance
Fixed remuneration
25% annual bonus payout (25% of salary)
25% vesting under the LTIP (50% of salary in the case of Brian Tenner, 37.5% of salary in the case
of Nigel Pickett)
Target performance
Fixed remuneration
60% annual bonus payout (60% of salary)
60% vesting under the LTIP (120% of salary in the case of Brian Tenner, 90% of salary in the case
of Nigel Pickett)
Maximum performance
Fixed remuneration
100% annual bonus payout (100% of salary)
100% vesting under the LTIP (200% of salary in the case of Brian Tenner, 150% of salary in the case
of Nigel Pickett)
Maximum + 50% share price
increase
Fixed remuneration
100% annual bonus payout (100% of salary)
100% vesting under the LTIP (200% of salary in the case of Brian Tenner, 150% of salary in the case
of Nigel Pickett) plus an assumed 50% increase in share price from grant date
Brian Tenner
Dr Nigel Pickett
1,200,000
1,000,000
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
800,000
600,000
400,000
200,000
£1,118,323
£896,873
59%
£631,133
49%
£398,610.5
28%
14%
58%
£232,523
100%
42%
21%
25%
20%
37%
26%
21%
0
Below
threshold
performance
Threshold
performance
Target
performance
Maximum
performance
Maximum +
50% share
price increase
1,200,000
1,000,000
800,000
600,000
400,000
£352,260
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
28%
14%
58%
200,000
£205,485
100%
0
Below
threshold
performance
£792,585
£988,285
59%
£557,745
49%
42%
21%
25%
20%
37%
26%
21%
Threshold
performance
Target
performance
Maximum
performance
Maximum +
50% share
price increase
Fixed pay
Annual bonus
LTIP
Fixed pay
Annual bonus
LTIP
062
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance
Directors’ remuneration policy continued
Remuneration outcomes in different performance scenarios continued
Fixed pay currently comprises the following elements (before the temporary 20% reduction applied to base salaries):
Chief Executive Officer – Brian Tenner
Chief Technical Officer – Dr Nigel Pickett
Current
base salary
£221,450
£195,700
Benefits 1
Pension 2
Total
—
—
£11,073 £232,523
£9,785 £205,485
1
No benefits are currently provided to the Executive Directors other than under the Group life assurance scheme, the value of which in the case of the
Executive Directors cannot be identified as noted on page 67.
2 Based on 5% employer pension contribution/cash supplement in lieu of pension which applies for the year ended 31 July 2021.
The values illustrated assume a constant share price from the time of grant of LTIPs and do not take into account share price
fluctuation or dividend equivalents that may be received under the share plans. The ultimate amounts received by the Directors
may be higher or lower than the amounts illustrated above.
Remuneration policy for Non-Executive Directors
Purpose and link to strategy
Operation
Other items
To enable the Company to
attract and retain Non-
Executive Directors of the
required calibre by offering
market-competitive rates.
The Chairman’s fee is determined by the Committee
and the fees of the other Non-Executive Directors
are determined by the Board.
Fees take into account several factors, including
the size and complexity of the business, fees paid
at companies of a similar size and complexity, and
the expected time commitment and contribution
for the role.
Overall fees paid to Non-Executive Directors will
remain within the limits set by the Company’s
Articles of Association.
Non-Executive Directors are provided
with directors’ and officers’ insurance
and indemnity protection and are eligible
to be reimbursed for any reasonable
hotel and travelling expenses and other
reasonable expenses incurred in the
performance of their duties.
The Non-Executive Directors do not
participate in the Company’s annual
bonus, share plans or pension schemes.
Remuneration policy on recruitment
When hiring a new Executive Director, the Committee will seek to align the remuneration package with the above policy. When
determining appropriate remuneration arrangements, the Committee may include other elements of pay which it considers are
appropriate and necessary in the circumstances. However, this discretion is capped and is subject to the limits referred to below:
base salary will be set at a level appropriate to the role and the experience of the appointee. We may agree future increases
up to a market rate, in line with increased experience and/or responsibilities, subject to good performance;
benefits and pension contributions will only be provided in line with the above policy;
the Committee will not offer non-performance related incentive payments (for example a “guaranteed sign-on bonus”);
other elements may be included in the following circumstances:
an interim appointment being made to fill an Executive Director role on a short-term basis;
if exceptional circumstances require the Chairman or a Non-Executive Director to take on a short-term executive function;
if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term
incentive award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable
remuneration set out below, the quantum in respect of the months employed during the year may be transferred to the
subsequent year so that reward is provided on a fair and appropriate basis; and
if the Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable
relocation, travel and subsistence payments. Any such payments will be at the discretion of the Committee;
the Committee may also alter the performance measures, performance period and vesting period of the annual bonus or LTIP,
if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale for any such
alterations will be clearly explained in the next Directors’ remuneration report; and
the maximum level of variable remuneration which may be granted (excluding “buyout” awards as referred to below) is 350% of
salary, in line with the policy set out on pages 59 and 60.
Nanoco Group plc – Annual Report and Accounts 2020 063
Directors’ remuneration report continued
Directors’ remuneration policy continued
Remuneration policy on recruitment continued
The Committee may make payments or awards in respect of hiring an employee to “buy out” remuneration arrangements
forfeited on leaving a previous employer. In doing so, the Committee will take account of relevant factors, including any
performance conditions attached to the forfeited arrangements and the time over which they would have vested or been
paid. The Committee will generally seek to structure buyout awards or payments on a comparable basis to the remuneration
arrangements forfeited. Any such payments or awards are excluded from the maximum level of variable remuneration referred
to previously. “Buyout” awards will ordinarily be granted on the basis that they are subject to forfeiture or “clawback” in the event
of departure within twelve months of joining the Company, although the Committee will retain discretion not to apply forfeiture
or clawback in appropriate circumstances.
Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans.
If necessary, and subject to the limits referred to above, recruitment awards may be granted outside of these plans.
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed
to continue in accordance with their terms.
Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the policy in place at the time
of appointment.
External appointments
The Company recognises that Executive Directors may be invited to become non-executive directors of other companies and
that this can help broaden the skills and experience of a Director. Subject to the approval of the Board, Executive Directors are
normally permitted to accept external appointments and may retain fees for such appointments where no significant actual
or potential conflict of interest arises and provided that the Director is able to maintain his time commitment to the Company.
Payment for loss of office
The Company’s policy is that Executive Directors’ service contracts should be capable of termination on not more than twelve
months’ notice. The principles on which the determination of payments for loss of office will be approached are set out below:
Element
Policy
Payment in lieu
of notice
The Company has discretion to make a payment in lieu of notice which would include base salary and
benefits for the unexpired period of notice, up to a maximum of twelve months’ notice.
Annual bonus
At the Committee’s discretion, on an individual basis, any annual bonus award will be dependent on a
number of factors, such as the circumstances of departure and their contribution to the business during
the period. Any bonus will normally be pro-rated for time and will be paid at the usual time (although the
Committee retains discretion to pay the annual bonus award earlier in appropriate circumstances). Any such
bonus can, at the discretion of the Committee, be paid wholly in cash.
DBP
Determined in accordance with the rules of the DBP.
Unvested awards will normally lapse on cessation of employment. However, at the Committee’s discretion,
if a participant is deemed to be a “good leaver” (such as leaving due to death, ill health, injury, disability,
redundancy or the sale of his employer), the Committee shall determine whether any unvested award will vest
at cessation or at the normal vesting date. In either case, the extent of vesting will be determined by the
Committee, taking into account, unless the Committee determines otherwise, the period of time elapsed from
the date of grant to the date of cessation relative to the deferral period. Awards may then be exercised
during such period as the Committee determines.
Awards (in the form of nil-cost options) which have vested but remain unexercised at the date of cessation
may be exercised if a participant is a good leaver at the discretion of the Committee. Awards may then be
exercised for such period as the Committee determines.
064
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Directors’ remuneration policy continued
Payment for loss of office continued
Element
LTIP
Policy
Determined in accordance with the rules of the shareholder approved LTIP.
Unvested awards will normally lapse on cessation of employment. However, if a participant is deemed to be a
good leaver, the Committee shall determine whether the award is released on the normal release date or the
date of cessation (or on some other date). The extent of vesting will be determined by the Committee taking
into account the extent to which the performance condition is satisfied and, unless the Committee
determines otherwise, the period of time elapsed from the date of grant to the date of cessation relative to
the performance period. Awards may then be exercised during such period as the Committee determines.
If a participant leaves for any reason (other than summary dismissal) after an award has vested but before it
has been released (i.e. during the holding period), his award will ordinarily continue to the normal release date
when it will be released to the extent it vested. The Committee retains discretion to release awards when the
participant leaves. If the participant is summarily dismissed, their award will lapse. Awards (in the form of
nil-cost options) which have vested and been released but remain unexercised at the date of cessation may
be exercised if a participant is deemed to be a good leaver. Awards may then be exercised for such period
as the Committee determines.
Mitigation
The Committee’s practice is that if an Executive Director’s employment is terminated any compensation
payment will be calculated in accordance with normal legal principles including the application of mitigation
to the extent appropriate to the circumstances of the termination.
Other payments
In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement and
legal fees.
Where a buyout award had been made, the leaver provisions would be determined at the time of the award.
The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge
of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise
of any claim arising in connection with the termination of a Director’s office or employment.
Where the Committee retains discretion it will be used to provide flexibility in certain situations, taking into account the particular
circumstances of the Director’s departure and performance.
There is no entitlement to any compensation in the event of Non-Executive Directors’ fixed-term agreements not being renewed
or the agreement terminating earlier.
Consideration of employees’ pay
The Committee generally considers pay and employment conditions elsewhere in the Company when considering the Directors’
remuneration. When considering base salary increases, the Committee reviews overall levels of base pay increases offered to
other employees. Employees are not actively consulted on Directors’ remuneration. Employee share ownership is fundamental
to the Company’s culture and is reflected in the wide participation in our share incentive plans.
Existing contractual arrangements
The Committee retains discretion to make any remuneration payment and/or payment for loss of office outside the policy in this report:
where the terms of the payment were agreed before the policy came into effect provided that, in the case of any payment
agreed on or after 13 December 2019, they are in line with the Directors’ remuneration policy approved at the 2018 AGM;
where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Company
and, in the opinion of the Committee, the payment was not in consideration of the individual becoming a Director of the
Company; and
to satisfy contractual commitments under legacy remuneration arrangements.
For these purposes, “payments” includes the satisfaction of awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are agreed at the time the award is granted.
Consultation with shareholders
The Committee considers shareholder feedback received on remuneration matters, as well as any additional comments received
during any other meetings with shareholders. The Committee consulted with major shareholders in respect of the changes to the
remuneration policy that was proposed and agreed at the 2018 AGM.
Nanoco Group plc – Annual Report and Accounts 2020 065
Directors’ remuneration report continued
Annual report on remuneration
This report sets out details of the amounts earned during 2020 and provides details as to how the Committee intends to
implement the policy during 2021. This part of the report will be subject to an advisory shareholder vote at the 2020 AGM.
This report contains unaudited information except where stated that it is audited.
Remuneration Committee
The Committee comprises Dr Alison Fielding, who is Chair of the Committee, Chris Batterham and Dr Christopher Richards,
each of whom is considered to be independent. The Committee may invite anyone it deems appropriate to attend and
advise at meetings, including the Chief Executive Officer, although no Director is present when their own remuneration is being
discussed. The Committee is responsible for establishing a formal and transparent procedure for developing policy on executive
remuneration and for setting the remuneration of the Directors and certain senior management, as well as reviewing the
performance of the Executive Directors of the Company. The terms of reference of the Remuneration Committee can be found
in the Investor section of the Group’s website.
The Committee met three times during the year; its meetings are minuted and its recommendations are presented to the Board.
Policy on other appointments
The Board believes that Directors should be able to accept other appointments where no significant actual or potential
conflicts of interest arise and provided that the Director is able to maintain his time commitment to the Company. These other
appointments enable Directors to accrue further skills and experience from which the Company benefits. This policy is reviewed
annually. None of the Executive Directors had any other external appointments during the year ended 31 July 2020.
Advisers to the Committee
The Chief Executive Officer is consulted on the remuneration of those who report directly to him and also of other senior
executives. No Executive Director or employee is present or takes part in discussions in respect of matters relating directly
to their own remuneration. During the year, the Committee was assisted in its work by the following external consultants:
Adviser
Details of appointment
Services provided by the adviser
Fees paid for remuneration advice
Other services in FY20
Deloitte LLP
(“Deloitte”)
Appointed by the
Remuneration
Committee in June 2015.
Various advice on executive
remuneration.
Advice to management
in relation to the Directors’
remuneration report.
The fees for advice provided
to the Committee during the
financial year were £13,500
(2019: £10,600).
Charged on a time/cost
basis or fixed fee depending
on project.
Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under its Code of Conduct in
relation to executive remuneration consulting in the UK. The Remuneration Committee took into account the Code of Conduct
when reviewing the appointment of Deloitte. The Committee is satisfied that the remuneration advice provided by Deloitte is
objective and independent.
066
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Annual report on remuneration continued
Single total figure of remuneration for 2020 – Executive Directors (audited information)
The remuneration of the Directors who served on the Board of Nanoco Group plc during the year to 31 July 2020 is as follows
(footnotes for both tables are below the second table):
Base
salary
and fees 1
£’000
Benefits
in kind 2
£’000
Annual
bonus
in cash
£’000
Annual
bonus
in shares
£’000
Long-term
incentives
£’000
Pension 3
£’000
Total 2020
£’000
Total
fixed
remuneration
Total
variable
remuneration
Executive Directors
Dr Nigel Pickett
Brian Tenner
Total Executive Directors
Former Executive Directors
Dr Michael Edelman4
Non-Executive Directors
Dr Christopher Richards
Dr Alison Fielding
Christopher Batterham
Total Non-Executive Directors
Total
186
208
394
307
88
41
41
170
871
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10
11
21
16
—
—
—
—
37
196
219
415
196
219
415
323
323
88
41
41
170
908
88
41
41
170
908
—
—
—
—
—
—
—
—
—
The remuneration of the Directors who served on the Board of Nanoco Group plc during the year to 31 July 2019 was as follows:
Base
salary
and fees 1
£’000
Benefits
in kind 2
£’000
Annual
bonus
in cash
£’000
Annual
bonus
in shares
£’000
Long-term
incentives
£’000
Pension 3
£’000
Total 2019
£’000
Total
fixed
remuneration
Total
variable
remuneration
Executive Directors
Dr Nigel Pickett
Brian Tenner5
Total Executive Directors
Former Executive Directors
Dr Michael Edelman4
David Blain6
Keith Wiggins7
Total Former Executive Directors
Non-Executive Directors
Dr Christopher Richards
Dr Alison Fielding
Chris Batterham8
Brendan Cummins9
Total Non-Executive Directors
Total
190
205
395
322
146
80
548
90
41
15
29
175
1,118
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100
119
219
167
—
—
167
—
—
—
—
—
386
—
—
—
—
—
—
—
—
—
—
—
—
10
10
20
16
—
4
20
—
—
—
—
—
300
334
634
505
146
84
735
90
41
15
29
175
200
215
415
338
146
84
568
90
41
15
29
175
100
119
219
167
—
—
167
—
—
—
—
—
40
1,544
1,158
386
1
If less than a year was served, salary or fees are from the date of appointment or to the date of retirement. The Executive Directors’ salaries shown
include the impact of the temporary 20% salary reduction that took effect on 1 April 2020 and are shown before any salary sacrifice pension
contributions. The Non-Executive Directors’ salaries shown include the impact of the temporary 35% salary reduction that took effect on 1 April 2020.
2 Benefits in kind are shown at the taxable value of benefits received in the year. The life cover provided to Executive Directors is contained within a policy
covering all employees and it is not possible to identify the proportion of the premium in respect of either Directors individually or as a whole.
3 The pension figure represents the cash value of Company pension contributions and/or cash in lieu of pension contributions. This does not include the
amount of the salary sacrifice paid as a pension but does include the employer National Insurance saved that is paid into a private pension scheme.
4 Dr Michael Edelman stepped down from the Board and his role as CEO on 1 September 2020. His remuneration is paid in US Dollars but reported in
Sterling for the purpose of this table. The exchange rate used for this purpose varied throughout the year. The rates used were in the range of 1.215
to 1.336 in FY20 and 1.3042 to 1.4195 in FY19. Information on payments for loss of office and other payments to be made are set out below.
5 Brian Tenner was appointed to the Board on 20 August 2018.
Nanoco Group plc – Annual Report and Accounts 2020 067
Directors’ remuneration report continued
Annual report on remuneration continued
Single total figure of remuneration for 2020 – Executive Directors (audited information) continued
6 David Blain resigned from the Board on 20 August 2018 and left employment on 15 October 2018 after an orderly handover to Brian Tenner. Information in
relation to payments made in respect of loss of office is set out in 2019’s Annual Report and Accounts. David Blain’s LTIP award granted in December 2017
lapsed as a result of the performance targets not being achieved, as referred to on page 69.
7 Keith Wiggins resigned on 10 June 2018. The single total figure of remuneration above details remuneration earned by Keith Wiggins in the financial year
to the end of his employment on 31 December 2018. Information on payments for loss of office and other payments made is set out in 2018’s Annual
Report and Accounts.
8 Christopher Batterham was appointed to the Board on 1 April 2019.
9 Brendan Cummins resigned from the Board on 19 April 2019. As a Non-Executive Director he received no payments in respect of loss of office.
Individual elements of remuneration for the year ended 31 July 2020
Base salary
Base salaries (before 20% pay reductions) were increased in line with other staff by 3% in the year ended 31 July 2020.
Annual bonus
For the year ended 31 July 2020, the maximum bonus for Dr Michael Edelman, Dr Nigel Pickett and Brian Tenner was 100%
of salary. The annual bonuses comprise two elements: financial corporate objectives (80% of salary) and personal objectives
(20% of salary). Bonuses for personal objectives are only payable if financial corporate objectives are achieved.
Financial targets were not achieved during the year and hence no bonuses were payable in respect of personal targets either.
Performance against financial and personal targets is shown in the table below with the financial and corporate measures and
their weighting as a percentage of salary for the year ended 31 July 2020:
Measure and weighting as a percentage
of salary
Threshold performance level Maximum performance level
Performance achieved
Bonus earned as a
percentage of salary
Revenue and other operating
income (60%)
£6.7m
£10.0m
£4.0m
Adjusted LBITDA (20%)
Loss of £2.2m
Loss of £0.3m
Loss of £3.0m
Nil
Nil
The personal objectives and amounts payable in respect of them are set out in the table below.
Specific bonus targets have not been disclosed by the Committee where they are considered to be commercially sensitive.
The current stage of the Group’s development means certain retrospective information could still give competitors insight into
the strategic plans of the business, which is not in the interest of shareholders.
Director
Measure
Dr Michael Edelman
Financial and corporate measures
Personal objectives
Execute all activities for the Formal Sales Process
Deliver new JDA contract
Deliver one additional major new customer
Dr Nigel Pickett
Financial and corporate measures
Personal objectives
Execute all activities for the Formal Sales Process
Execute new JDA contract
Deliver new scalable materials (sensing and display)
Brian Tenner
Financial and corporate measures
Personal objectives
Weighting
(% of maximum
bonus opportunity)
80
20
80
20
80
20
Achievement
(% of salary)
Nil
Nil
Partially achieved
Not achieved
Partially achieved
Nil
Nil
Partially achieved
Not achieved
Achieved
Nil
Nil
Execute all activities for the Formal Sales Process
Partially achieved
Improve support functions’ performance
Prepare Runcorn for scale manufacturing
Achieved
Achieved
068
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Annual report on remuneration continued
Long-term incentives vesting in respect of the year ended 31 July 2020
No long-term incentives vested during the year ended 31 July 2020. The LTIP awards granted in December 2017 were subject to
performance conditions assessed over the three financial years ended 31 July 2020. The threshold targets were not achieved and
consequently all of the awards have lapsed:
Three-year revenue
Share price
LTIP awards granted in 2020
Threshold
target
Maximum
target
Outcome
£28.0m
£58.0m
No awards vest
£1.05
£1.60
No awards vest
No LTIP awards were made to the Executive Directors in the year ending 31 July 2020. This reflects the Formal Sales Process which
was underway for much of the year and effectively prevented the issue of new LTIPs.
Statement of Directors’ shareholding and share interests (audited information)
Directors’ interests in share options to acquire ordinary shares of 10 pence in the Company as at 31 July 2020 (or, if earlier, the
date on which they stepped down from the Board) were, including Deferred Bonus Plan:
Share options
Dr Michael Edelman
Dr Nigel Pickett
Brian Tenner
Date granted
Exercise
price
At
1 August 2019
25 Nov 2011
50.00p 500,000 1
22 Oct 2012
57.00p 1,000,000 1
6 Dec 2017
7 Nov 2018
1 Nov 2019 4
10 Dec 2019 4
Nil
Nil
Nil
Nil
1,149,106 2
923,824 3
—
—
25 Nov 2011
50.00p 500,000 1
22 Oct 2012
57.00p
750,000 1
22 Nov 2016 4
6 Dec 2017
7 Nov 2018
1 Nov 2019 4
10 Dec 2019 4
7 Nov 2018
1 Nov 2019 4
10 Dec 2019 4
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
66,576
653,137 2
549,398 3
—
—
1,021,086 3
—
—
Exercised
during
the year
—
—
Granted
during
the year 5
At
31 July
2020
— 500,000
— 1,000,000
Lapsed
—
—
— (1,149,106)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(653,137)
—
—
—
—
—
—
— 923,824
731,151
731,151
731,151
731,151
— 500,000
— 750,000
—
—
—
66,576
—
549,398
437,681
437,681
437,681
437,681
— 1,021,086
521,634
521,634
521,634
521,634
1 Vested but unexercised share options.
2 Lapsed at the year end as vesting conditions not met.
3 Unvested share options still subject to performance conditions.
4 Deferred Bonus Plan awards.
5 As described in the 2019 Directors’ remuneration report, the Directors’ remuneration policy was amended at the 2019 AGM to allow 100% of any annual bonus
to be paid in shares under the Deferred Bonus Plan. 50% of the annual bonus earned for 2019 was awarded in the form of a Deferred Bonus Plan award granted
on 1 November 2019, with the remaining 50% granted on 10 December 2019 following shareholder approval of the amendment at the 2019 AGM.
Nanoco Group plc – Annual Report and Accounts 2020 069
Directors’ remuneration report continued
Annual report on remuneration continued
Director shareholdings
In order to align the interests of Executive Directors with those of shareholders and to demonstrate the Executive Directors’
ongoing personal financial commitment to the business, Executive Directors will be expected to build up a shareholding. Under
the policy approved by shareholders at the 2019 AGM, the required holding was standardised at 200% of salary for all Executive
Directors. Executive Directors are expected to retain 50% of any post-tax shares that vest under any share incentive plans until
this shareholding is reached.
Dr Nigel Pickett holds shares substantially in excess of the shareholding guideline (c.950% of salary using the three-month
average closing share price to the end of July 2020). Mr Brian Tenner, having joined the Company in August 2018, is building
up a holding which currently stands at 44% of salary (122% including the minimum 50% Deferred Bonus Plan awards that must
be retained until the minimum shareholding is achieved). Dr Michael Edelman holds shares equivalent to 72% of salary on the
same basis (150% including the minimum Deferred Bonus Plan awards that must be retained). The value of his holding previously
exceeded the 200% minimum threshold but has fallen below that level due to adverse movements in the share price.
Non-Executive Directors are not subject to the shareholding requirement.
Directors’ interests in the shares of the Company, including family and beneficial interests, at 31 July 2020 (or, if earlier, the date
on which they stepped down from the Board) were:
Current Directors
Dr Christopher Richards
Dr Nigel Pickett
Brian Tenner
Dr Alison Fielding
Christopher Batterham
Total for current Directors
Former Directors
Dr Michael Edelman
Total for former Directors
Ordinary shares of 10p each
31 July
2020
Number
31 July
2020
%
31 July
2019
Number
31 July
2019
%
628,730
0.21
571,587
11,245,548
3.68
11,074,119
592,375
239,157
153,571
0.19
0.08
0.05
535,232
210,586
125,000
12,859,381
4.21 12,516,524
1,330,448
0.44 1,324,734
1,330,448
0.44 1,324,734
0.20
3.87
0.19
0.07
0.04
4.37
0.46
0.46
Dr Michael Edelman stepped down from the Board as CEO on 1 September 2020. See page 71 for more details.
None of the Directors in office as at 31 July 2020 had any interests at that date in shares of any other Group company.
There were no changes in Directors’ shareholdings between 31 July 2020 and the publishing date of these accounts.
The market price for Nanoco shares as at 31 July 2020 was 16.54 pence per share; the highest and lowest prices during the year
were 29.0 pence and 7.0 pence respectively.
Details of share options are set out in note 25 to the financial statements.
Dilution
The Company complies with the relevant institutional investor guidelines on employee share plans which state that in any
ten-calendar-year period the Company may not issue more than 10% of the issued ordinary share capital of the Company under
the LTIP or any other employee share plan adopted by the Company. Including only option grants post admission to AIM and
excluding any awards that have lapsed, the current dilution is 4.8%.
070
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Annual report on remuneration continued
Payments to past Directors and payments for loss of office (audited information)
Dr Michael Edelman (stepped down from the Board and CEO role on 1 September 2020)
Having stood down from the Board and his role as CEO, Dr Michael Edelman remains an employee of the Group. It is intended
that when his current notice period expires, or sooner by mutual agreement, he will take up a part-time employment contract
with the Group based on an estimated time commitment of around two days per month. This part-time role will focus specifically
on him being a Special Adviser to the Litigation Sub-Committee that the Group has established to monitor the Samsung
litigation. The Litigation Sub-Committee is chaired by the Chairman and the other members are Dr Alison Fielding and Brian
Tenner with Dr Michael Edelman in attendance as an adviser. It is envisaged that the Special Adviser role will continue until the
litigation is resolved and is terminable on six months’ notice.
The Committee determined the remuneration arrangements and, in particular, the treatment of historical LTIP awards, having
regard to Dr Edelman’s contribution to the Company and his future support to the Litigation Sub-Committee. Details of the
remuneration payments made or to be made to Dr Michael Edelman are set out below:
Base salary
Dr Michael Edelman will continue to receive his base salary, reduced by 20% in line with the Executives, through to the end of his
notice period on 29 March 2021. During the period to 29 March 2021, Dr Michael Edelman’s notice period has been shortened to
three months with the earliest release date being 1 December 2020. From 1 April 2021, in his role as Special Adviser, he will receive
$35,000 per annum (approximately £26,600) and the notice period will be six months.
Pension
Dr Michael Edelman will continue to receive his 5% Company pension contribution through to the end of his notice period on
29 March 2021, calculated on his unreduced base salary (in line with all staff and Executives on reduced salaries). No pension
contributions are payable during the Special Adviser role.
Annual bonus
No annual bonus is payable in respect of the year ending 31 July 2020 and none shall be payable for the year ending 31 July 2021.
The Special Adviser role attracts no annual bonus.
Benefits
Dr Michael Edelman will continue to benefit from the Company life assurance scheme throughout his employment, with any
benefit linked to the salary being paid at the relevant time.
LTIPs
Since he remains an employee, all of Dr Michael Edelman’s existing LTIPs and DBP options will continue in place (disclosed in the
relevant tables in this report). It is anticipated that Dr Michael Edelman will receive an LTIP award equal to approximately 150% of
his pro-rated salary for the year ending 31 July 2021. This award will be made as Dr Michael Edelman will have an important role
to play as Special Adviser to the Litigation Sub-Committee where a successful outcome to the litigation could have a material
impact on shareholder value.
Nanoco Group plc – Annual Report and Accounts 2020 071
Directors’ remuneration report continued
Annual report on remuneration continued
Unaudited information
Historical comparative TSR performance graph
The performance graph below shows the Company’s total shareholder return (“TSR”) against the FTSE SmallCap over the period
from 1 August 2010 to 31 July 2020. In the opinion of the Board, the FTSE SmallCap is the most appropriate index against which
the TSR of the Company should be measured because it represents a broad equity market index of which the Company is
a constituent member.
Total shareholder return
The graph shows the percentage return of an investment in the Company’s shares on 1 August 2010 compared with the
percentage return of an investment notionally invested in the FTSE SmallCap index.
300%
250%
200%
150%
100%
50%
0%
-50%
-100%
01/08/2012
01/08/2013
01/08/2014
01/08/2015
01/08/2016
01/08/2017
01/08/2018
01/08/2019
01/08/2020
Nanoco
FTSE SmallCap
Ten-year view of CEO remuneration
CEO remuneration
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total remuneration
(£’000)1
Annual bonus
(% of max vesting)
LTIP (% of max
vesting)
175
33
—
182
707
293
635
406
327
312
505
323
25
—
73
—
56
—
56
100
40
—
—
—
—
—
52
—
—
—
1
Dr Michael Edelman’s remuneration is paid in US Dollars but reported in Sterling in this table. The exchange rate used for this purpose varied during the year.
072
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Annual report on remuneration continued
Unaudited information continued
Percentage change in the remuneration of the Board
The table below shows the percentage change in each Director’s salary, benefits and annual bonus between the current and
previous financial year, and the average percentage change in the same remuneration over the same period in respect of the
employees of the Company on a full-time equivalent basis. The average employee change has been calculated by reference
to the mean of employee pay.
Salary/fees2
Taxable benefits
Annual bonus
Average
employee
Brian
Tenner 1
Dr Nigel
Pickett
Dr Christopher
Richards
Dr Alison
Fielding
Christopher
Batterham 1
4%
N/A
34%
(6%)
N/A
(5%)
N/A
(100%)
(100%)
(16%)
N/A
N/A
2%
N/A
N/A
2%
N/A
N/A
1
Brian Tenner and Christopher Batterham were appointed to the Board during the 2019 financial year. To enable comparison and to provide meaningful
reflection of the annual percentage change, their remuneration for that year has been annualised.
2 As noted on page 56, the Executive Directors’ salaries were reduced by 20% and the Non-Executive Directors’ fees by 35% with effect from 1 April 2020.
Relative importance of spend on pay
The following table sets out the percentage change in dividends and the overall expenditure on pay (across the whole Company).
Dividends
Overall expenditure on pay
Average headcount
Year ended
31 July 2020
£’000
Year ended
31 July 2019
£’000
% change
—
4,164
72
—
—
5,729
(27.3%)
92
(22.0%)
The headcount data is included as the average pay rise for all staff in the prior year was 3.0% whereas the overall expenditure
on pay decreased by 27.3%. The difference between the two is largely explained by changes in the average headcount during
each year.
Implementation of policy for the year commencing 1 August 2020
Base salary
Base salaries are reviewed annually with effect from 1 August. For the year commencing 1 August 2020 Executive Directors will have
their base salary frozen at the same level as last year which is the same position as the wider workforce as shown in the table below.
A temporary 20% pay reduction was applied to the Executive Directors’ base salaries on 1 April 2020 and it remains in effect.
Chief Executive Officer – Brian Tenner
Chief Technical Officer – Dr Nigel Pickett
Changes to Non-Executive Directors’ fees
Temporary
80% of salary
2021
2020
% change
£221,450
£177,160 £221,450
£195,700 £156,560 £195,700
Nil
Nil
The Non-Executive Directors’ fees have also been frozen at the same level as last year. A temporary 35% pay reduction was
applied to the Non-Executive Directors’ fees on 1 April 2020 and it remains in effect.
Chairman fee
NED base fee
Chair of Committee fee
2021
(contracted)
Temporary
65% of fee
2020
£100,000
£65,000 £100,000
£41,000
£26,650
£41,000
£5,000
£3,250
£5,000
Nanoco Group plc – Annual Report and Accounts 2020 073
Directors’ remuneration report continued
Annual report on remuneration continued
Unaudited information continued
Implementation of policy for the year commencing 1 August 2020 continued
Pension
The Company operates a salary sacrifice pension arrangement. For the year commencing 1 August 2020, employer pension
contributions above the amount of any salary sacrifice (and the associated employer National Insurance contribution savings)
will remain capped at 5% of salary.
Annual bonus
For the year ending 31 July 2021, the maximum annual bonus potential will be 100% of base salary for Executive Directors.
Up to 100% of any such bonus earned can be paid as deferred shares under the DBP vesting after two years with any balance
paid in cash. This reflects our stakeholder philosophy, provides a longer-term retention mechanism and provides alignment
with shareholders.
Consistent with the 2020 annual bonus, performance will be assessed on the basis of a balanced scorecard approach in respect
of performance measures. The balance between corporate financial objectives (80%) and personal objectives (20%) will be
unchanged. The corporate financial measures for FY21 will include annual revenue and LBITDA weighted 60%:20% respectively.
Any bonus is only payable if the financial targets are achieved. The Committee will disclose the metrics and performance against
these on a retrospective basis to the extent that these are not commercially sensitive.
Clawback will apply to any cash bonus paid and malus provisions to any unvested deferred bonus award.
LTIP
The Committee intends to make awards of approximately 200% and 150% of salary to the CEO and the CTO respectively after the
announcement of the Group’s full year results for the year ending 31 July 2020 (subject to market conditions at the time of award).
The Committee considers that the new responsibilities for Brian Tenner, with no corresponding increase in salary, and the ongoing
20% reduction in salary for both Executive Directors, merit awards exceeding the usual level of 100% of salary. The Committee will
agree targets if and when any LTIP awards are made during FY21. All awards will continue to be in line with the approved
remuneration policy. This will include a performance underpin and a two-year post vesting holding period.
Statement of voting
The Company is committed to ongoing dialogue with its shareholders and takes an active interest in trying to ensure that as
many shareholders as possible submit their votes in time for any shareholder meetings. The following table sets out the actual
voting in respect of the resolutions to approve the Directors’ remuneration report and the Directors’ remuneration policy at the
Company’s Annual General Meeting held on 5 December 2019.
Resolution
Votes
for
% for
Votes
against
% against
Votes
withheld
To approve the Directors’ remuneration report
To approve the Directors’ remuneration policy amendment
78,238,132
80,041,102
99.8%
164,580
0.2% 1,811,370
99.8%
155,767
0.2%
17,213
074
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Annual report on remuneration continued
Unaudited information continued
Directors’ contracts
Executive Directors
It is the Group’s policy that Executive Directors should have contracts with an indefinite term, providing for one year’s notice.
Dr Michael Edelman1
Dr Nigel Pickett1
Brian Tenner
Date of contract
Date of appointment Notice from the Company
Notice from Director
27 June 2006
27 June 2006
27 June 2006
27 June 2006
30 July 2018
30 July 2018
12 months
12 months
6 months
12 months
12 months
6 months
1 Dr Michel Edelman and Dr Nigel Pickett had their notices served on 1 April 2020 as a precautionary measure to preserve the Group’s cash position.
Other than Dr Michael Edelman, who has stepped down from the Board, all Directors will offer themselves for re-election at each
AGM in accordance with the UK Corporate Governance Code. Service contracts are available for inspection at the registered
office of the Company.
Dr Christopher Richards (Chairman)
Dr Alison Fielding
Christopher Batterham
Non-Executive Directors
Date of letter of
appointment
Date of appointment
Unexpired term of
contract on 31 July 2020
28 October 2015
11 November 2015
20 March 2017
20 April 2017
12 March 2019
1 April 2019
4 months
9 months
1.67 years
All Non-Executive Directors are appointed for an initial three-year term and then on a rolling annual term. Non-Executive
Directors’ appointments may be terminated on not less than three months’ notice from either party.
On behalf of the Board
Dr Alison Fielding
Remuneration Committee Chair
13 October 2020
Nanoco Group plc – Annual Report and Accounts 2020 075
Directors’ report
The Directors present their report
and the audited financial
statements for the Group and
Parent Company for the year
ended 31 July 2020.
Disclosures reported elsewhere in the Annual Report
The strategic review of the business of the Company and its subsidiaries is given on
pages 6 to 35. Certain information required for disclosure in this report is provided in
other appropriate sections of this Annual Report. These are set out in the table below:
Financial instruments
Details of the Group’s financial risk
management objectives and policies
are disclosed in note 3 to the
financial statements.
Disclosure requirement
Financial results and dividends
Board and Committee meetings and Directors’ attendance
Directors’ biographical details and date of appointment
Corporate governance
Approach to risk management and principal risks
Research and development activities
Research and development
Directors’ remuneration
Pages
85 to 115
39
36 and 37
38 to 46
25 to 27
2 and 19
59 to 75
30 to 35
79
79
5 and 15
29
The principal activity of the Group is
research and development, a review of
which is included in the Chairman’s and
Chief Executive Officer’s statements on
pages 6 to 8 and 9 to 11 respectively.
Total research and development spend
was £3.1 million (2019: £4.0 million). No
development expenditure was capitalised
in the period (2019: £nil) for the reasons
provided in note 3(h) to the accounts.
Dividends
The Directors do not recommend payment
of an ordinary dividend (2019: £nil).
Greenhouse gas emissions, employee engagement, disability, gender and human rights
Statement on disclosure to the external auditors
Statement of Directors’ responsibilities
Future developments
Going concern statement
Disclosures on financial instruments (note 28 to the consolidated financial statements)
111 to 114
The disclosures are, accordingly, incorporated into this report by reference.
Requirements of the Listing Rules
The following table provides references to where the information required
by the Listing Rule 9.8.4R is disclosed:
Listing Rule requirement
Location
Information required in relation to the publication
of unaudited financial information
Not applicable
Details of any long-term incentive schemes
Remuneration report
Directors who held office during the year and their
interests in shares and share options in the Group
Remuneration report
Arrangements where a Director has waived historical
or future emoluments from the Company
Remuneration report
on Chairman’s fees
Details of business relationships with suppliers,
customers and others
Strategic report
Details of any non-pre-emptive issues of equity
for cash
Not applicable
Details of any non-pre-emptive issues of equity
for cash by any unlisted major subsidiary
Details of UK Parent participation in a placing by
a listed subsidiary
No such share allotments
No such share participations
Details of any contract of significance in which
a Director is or was materially interested
No such contracts
Details of rules regarding the appointment and
replacement of Directors
Remuneration report
Contracts of significance between the Company
(or a subsidiary) and a controlling shareholder
No such contracts
Details of a waiver of dividends by a shareholder
No such waivers
Board statement in respect of relationship agreement
with the controlling shareholder
No such agreements
076
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Acquisition of the Company’s
own shares
The Company made no purchases of its
own shares in the period under review. As
at 31 July 2020 the authority given by the
shareholders at the 2019 Annual General
Meeting is for the Company to make
market purchases of up to £2,862,212 of
the nominal value of its ordinary shares
at a price per share of not less than 10
pence, and not more than 5% above the
average of the middle market quotations
for ordinary shares of the Company for
the five business days immediately
preceding the day of purchase. This
authority is being proposed for renewal
at the 2020 Annual General Meeting.
Directors and their interests
The Directors who held office throughout the year and their interests are shown
in the Remuneration report. As at 31 July 2020, none of the Directors had any
interests in shares of any other Group company.
No Director had an interest in any contract that was significant in relation to the
Group’s business at any time during the period.
Directors are formally subject to re-election at intervals of not more than three years
but voluntarily submit themselves for re-election each year.
Directors’ indemnity insurance
The Group has maintained insurance in the form of a qualifying third party indemnity
provision throughout the year for its Directors and officers against the consequences
of actions brought against them in relation to their duties for the Group. This provision
was in force through the financial year and remains in force as at the date of
approval of the financial statements.
Share capital and funding
Substantial shareholders
As at 31 July 2020 share capital
comprised 305.7 million ordinary shares
of 10 pence each (2019: £286.2 million).
There is only one class of share and all
shares are fully paid. Full details of the
Group’s and Company’s share capital
movements during the period are given
in note 24 to the financial statements.
Pursuant to the general provisions
of the Articles of Association and
prevailing legislation, there are no
specific restrictions on the size of a
holding. The Directors are not aware
of any restrictions on the transfer of
ordinary shares in the Company other
than certain restrictions which may from
time to time be imposed by law and
regulations, e.g. insider trading laws,
and pursuant to the Listing Rules of the
Financial Conduct Authority whereby
certain employees of the Company
require prior approval from the Company
to deal in the Company’s securities.
The Company is not aware of any
agreements between shareholders
that may result in restrictions on voting
rights and the transfer of securities.
Details of shares under option
are provided in note 25 to the
financial statements.
The Company is aware that the following had an interest in 3% or more of the issued
ordinary share capital of the Company at 31 July 2020:
Substantial shareholders
Lombard Odier
Hargreaves Lansdown Asset Management
Mr Richard I Griffiths
Interactive Investor
Dr Nigel Pickett
HSDL
Barclays Smart Investor
Number
of ordinary
shares at
31 July 2020
69,840,776
42,326,574
32,931,890
17,592,296
11,245,548
10,568,457
9,595,019
% of
issued
share
capital
22.85
13.85
10.77
5.75
3.68
3.46
3.14
By 12 October 2020 the following parties had notified the Company that their
shareholdings had changed since 31 July 2020 – Lombard Odier (23.0%) and Richard
I Griffiths (8.8%). Apart from the foregoing, there were no other notified significant
changes in the holdings between 31 July 2020 and the date the Annual Report and
Accounts were signed.
Donations
No political donations were made in the year (2019: £nil). Charitable donations of £nil
were made in the year (2019: £nil).
Nanoco Group plc – Annual Report and Accounts 2020 077
Directors’ report continued
Additional information
for shareholders
With regard to the appointment and
replacement of Directors, the Company
is governed by its Articles of Association,
the UK Corporate Governance Code
2018, the Companies Act 2006 and
related legislation.
The Articles themselves may be
amended by special resolution of the
shareholders. The Articles provide that
Directors may be appointed by an
ordinary resolution of the Company’s
members or by a resolution of the
Directors, provided that, in the latter
instance, a Director appointed in this
way retires and stands for election
at the first Annual General Meeting
following his appointment.
The Articles also provide that at every
Annual General Meeting at least one-
third of the Directors retire by rotation
and set out the circumstances in
which and how they may be re-elected.
The Company’s members may remove
a Director by passing an ordinary
resolution of which special notice has
been given. The office of a Director
shall be vacated in any of the following
events: (a) if (but in the case of a Director
holding any executive office subject
to the terms of any contract of service
between him and the Company)
notification in writing, signed by the
Director or otherwise authenticated in
such manner as the other Directors may
accept, is received by the Company from
the Director that he is resigning or retiring
from office as a Director, and such
resignation or retirement has taken effect
in accordance with its terms, or if he shall
in writing offer to resign or retire and the
Directors shall resolve to accept such
offer; (b) if he becomes bankrupt or has
a receiving order made against him or
makes any arrangement or composition
with his creditors generally in satisfaction
of his debts or shall apply to the court for
an interim order under section 253 of the
Insolvency Act 1986; (c) if a registered
medical practitioner who is treating the
Director gives a written opinion to the
Company stating that he has become
physically or mentally incapable of
acting as a Director and may remain so
for more than three months; (d) if he is
absent from meetings of the Directors for
six successive months without leave, and
his alternate Director (if any) shall not
during such period have attended in
his stead, and the Directors resolve
that his office be vacated; (e) if he shall
be removed from office by notice in
writing served upon him signed by all
his co-Directors, but so that if he holds
an appointment to an executive office
which automatically determines, as a
result, such removal shall be deemed
an act of the Company and shall have
effect without prejudice to any claim for
damages for breach of any contract of
service between him and the Company;
or (f) if he ceases to be a Director by
virtue of any provision of the Companies
Act or becomes prohibited by law from
being a Director.
The powers of the Directors are
determined by applicable legislation and
the Company’s Articles of Association.
As provided in those Articles, the Directors
may exercise all the Company’s powers
provided that the Articles or applicable
legislation do not stipulate that any
such powers must be exercised by
the Company’s members. The Directors
have been authorised to issue and allot
ordinary shares, pursuant to the Articles,
and have authority to make market
purchases of shares. These powers are
referred to shareholders at each Annual
General Meeting for renewal. Any shares
purchased may be cancelled or held
as treasury shares.
Employment policies
The Group is committed to ensuring the
health and safety of its employees in the
workplace. This includes the provision of
regular medical checks.
The Group supports the employment of
disabled people where possible through
recruitment, by retention of those who
become disabled and generally through
training, career development and promotion.
The Group is committed to keeping
employees as fully informed as possible
with regard to the Group’s performance
and prospects and seeks their views,
wherever possible, on matters which
affect them as employees.
Compliance with the UK Corporate
Governance Code
The statements of compliance with
the principles of the UK Corporate
Governance Code published by the
FRC in 2018 are set out on page 40.
Foreign branches
The Group has just one foreign location,
a subsidiary in the United States, which
provides management services to the
UK business.
Independent Auditors
PwC LLP held office during the year
following an external tender process
in 2018. PwC LLP have indicated their
willingness to continue in office.
Ordinary resolutions to re-appoint PwC
LLP as auditors and to authorise the
Directors to agree their audit fee will
be proposed at the forthcoming Annual
General Meeting.
Annual General Meeting notice
The Annual General Meeting of the
Company will be held on 3 December 2020
at 11.00am, at the Company’s headquarters
at 46 Grafton Street, Manchester M13 9NT.
The notice convening the AGM, together
with an explanation of the resolutions
to be proposed at the meeting, will be
sent to shareholders separately from
this document.
On behalf of the Board
Brian Tenner
Chief Executive Officer
13 October 2020
078
Nanoco Group plc – Annual Report and Accounts 2020
Corporate governance Statement of Directors’ responsibilities
The directors are responsible
for preparing the Annual Report
and the financial statements in
accordance with applicable
law and regulation.
Company law requires the directors
to prepare financial statements for
each financial year. Under that law
the directors have prepared the group
financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by
the European Union and company
financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union. Under company law the
directors must not approve the financial
statements unless they are satisfied that
they give a true and fair view of the state
of affairs of the group and company and
of the profit or loss of the group and
company for that period. In preparing
the financial statements, the directors
are required to:
select suitable accounting policies
and then apply them consistently;
state whether applicable IFRSs as
adopted by the European Union have
been followed for the group financial
statements and IFRSs as adopted
by the European Union have been
followed for the company financial
statements, subject to any material
departures disclosed and explained
in the financial statements;
make judgements and accounting
estimates that are reasonable and
prudent; and
prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
group and company will continue
in business.
the group financial statements, which
have been prepared in accordance
with IFRSs as adopted by the European
Union, give a true and fair view of the
assets, liabilities, financial position
and loss of the group; and
the Directors’ Report includes a fair
review of the development and
performance of the business and the
position of the group and company,
together with a description of the
principal risks and uncertainties that
it faces.
In the case of each director in office
at the date the Directors’ Report
is approved:
so far as the director is aware, there
is no relevant audit information of
which the group and company’s
auditors are unaware; and
they have taken all the steps that
they ought to have taken as a director
in order to make themselves aware
of any relevant audit information
and to establish that the group
and company’s auditors are aware
of that information.
By order of the Board
Brian Tenner
Chief Executive Officer
13 October 2020
The directors are also responsible for
safeguarding the assets of the group
and company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the group
and company’s transactions and
disclose with reasonable accuracy
at any time the financial position of the
group and company and enable them
to ensure that the financial statements
and the Directors’ Remuneration Report
comply with the Companies Act 2006
and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The directors are responsible for the
maintenance and integrity of the
company’s website. Legislation in
the United Kingdom governing the
preparation and dissemination
of financial statements may differ
from legislation in other jurisdictions.
Directors’ confirmations
The directors consider that the annual
report and accounts, taken as a whole,
is fair, balanced and understandable
and provides the information necessary
for shareholders to assess the group and
company’s position and performance,
business model and strategy.
Each of the directors, whose names
and functions are listed in the Corporate
governance report confirm that, to the
best of their knowledge:
the company financial statements,
which have been prepared in
accordance with IFRSs as adopted
by the European Union, give a true
and fair view of the assets, liabilities,
financial position and loss of
the company;
Nanoco Group plc – Annual Report and Accounts 2020 079
Independent auditors’ report to the members of Nanoco Group plc
Independence
We remained independent of the
group in accordance with the ethical
requirements that are relevant to our
audit of the financial statements in the
UK, which includes the FRC’s Ethical
Standard, as applicable to listed public
interest entities, and we have fulfilled
our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and
belief, we declare that non-audit
services prohibited by the FRC’s Ethical
Standard were not provided to the
group or the company.
Other than those disclosed in note
6 to the financial statements, we have
provided no non-audit services to
the group or the company in the period
from 1 August 2019 to 31 July 2020.
Report on the audit of the
financial statements
Opinion
In our opinion, Nanoco Group plc’s
group financial statements and
company financial statements
(the “financial statements”):
give a true and fair view of the state
of the group’s and of the company’s
affairs as at 31 July 2020 and of the
group’s loss and the group’s and the
company’s cash flows for the year
then ended;
have been properly prepared in
accordance with International
Financial Reporting Standards (IFRSs)
as adopted by the European Union
and, as regards the company’s
financial statements, as applied in
accordance with the provisions of
the Companies Act 2006; and
have been prepared in accordance
with the requirements of the
Companies Act 2006 and, as regards
the group financial statements, Article
4 of the IAS Regulation.
We have audited the financial
statements, included within the Annual
Report and Accounts 2020 (the “Annual
Report”), which comprise: the group and
company statements of financial position
as at 31 July 2020; the consolidated
statement of comprehensive income,
the group and company cash flow
statements, the consolidated statement
of changes in equity and the company
statement of changes in equity for the
year then ended; and the notes to the
financial statements, which include
a description of the significant
accounting policies.
Our opinion is consistent with our
reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities
for the audit of the financial statements
section of our report. We believe that
the audit evidence we have obtained is
sufficient and appropriate to provide
a basis for our opinion.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
Overall group materiality: £91,160 (2019: £116,000), based on 1% of total expenses pre exceptional costs.
Overall company materiality: £81,127 (2019: £81,000), based on 1% of total assets capped at 89% of group materiality.
Full scope audit of Nanoco Technologies Limited plus procedures over certain balances within three other
Group companies.
Going Concern and the Impact of Covid-19 (Group and Company).
Recoverability of intangible assets (Group).
Recoverability of investments (Company).
The scope of our audit
As part of designing our audit, we
determined materiality and assessed the
risks of material misstatement in the
financial statements.
Capability of the audit in detecting
irregularities, including fraud
Based on our understanding of the
group and industry, we identified that the
principal risks of non-compliance with laws
and regulations related to breaches of
health and safety laws and infringement of
intellectual property laws, and we considered
the extent to which non-compliance might
have a material effect on the financial
statements. We also considered those laws
and regulations that have a direct impact
on the preparation of the financial
statements such as the Companies Act
2006 and tax legislation. We evaluated
management’s incentives and opportunities
for fraudulent manipulation of the financial
statements (including the risk of override of
controls), and determined that the principal
risks were related to posting inappropriate
journal entries to increase revenue or reduce
expenditure, and management bias in
accounting estimates. Audit procedures
performed included:
Discussions with management including
consideration of known or suspected
instances of non-compliance with
laws and regulation and fraud;
Understanding and evaluation of the
operating effectiveness of management’s
entity level controls designed to
prevent and detect irregularities;
Challenging assumptions and
judgements made by management
in their significant accounting
estimates, in particular in relation
to recoverability of intangible assets
(see related key audit matter below);
080
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements Report on the audit of the
financial statements continued
Our audit approach continued
Capability of the audit in detecting
irregularities, including fraud continued
Review of the compliance with VAT
and PAYE requirements; and
Review of corporation tax disclosures
in compliance with the accounting
and legal requirements.
There are inherent limitations in the audit
procedures described above and the
further removed non-compliance with
laws and regulations is from the events
and transactions reflected in the
financial statements, the less likely we
would become aware of it. Also, the risk
of not detecting a material misstatement
due to fraud is higher than the risk of not
detecting one resulting from error, as
fraud may involve deliberate concealment
by, for example, forgery or intentional
misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that,
in the auditors’ professional judgement,
were of most significance in the audit of
the financial statements of the current
period and include the most significant
assessed risks of material misstatement
(whether or not due to fraud) identified
by the auditors, including those which
had the greatest effect on: the overall
audit strategy; the allocation of
resources in the audit; and directing the
efforts of the engagement team. These
matters, and any comments we make
on the results of our procedures thereon,
were addressed in the context of our
audit of the financial statements as
a whole, and in forming our opinion
thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks
identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Going Concern and the Impact of Covid-19 (Group and Company)
Refer to note 2(c) of the financial statements.
Going concern is a continual area of focus for the directors,
given the current cash resources, the contracted revenue for
FY21 and expected business activities. A share issue took place
in July 2020 which raised additional cash of £3.2m (net of fees).
Management performed a base case and severe but plausible
downside assessment, which showed a positive cash runway
to at least the end of Dec 2022.
The ongoing and evolving Covid-19 pandemic, and the related
government response to this crisis, has not had a significant
impact on the performance of the group and company. The
directors considered the potential impact to the group of the
ongoing Covid-19 pandemic in the assessment of going
concern and the carrying value of the group’s assets and
disclosures included in the financial statements.
In relation to the group’s going concern assessment, the
directors have not included an explicit downside specifically
due to Covid-19 given that the business does not have
significant revenues and has not been severely impacted by
Covid-19. In the severe but plausible downside scenario, there
is no new revenue assumed past the current contracted
revenue up to December 2020 and a course of cost cutting
actions will be taken as a result.
Management concluded that the group and company expect
to trade solvently under these scenarios for at least twelve
months from the date of this report and cash flow forecasts
support the group’s and company’s going concern status. The
directors have therefore prepared the financial statements on
a going concern basis.
Management concluded that there is no material impact
on the financial statements from Covid-19, including in
respect of the impairment of certain assets, or on provisions
or estimates made.
We re-evaluated our risk assessment in particular in relation
to the appropriateness of the going concern basis of
preparation of the financial statements, and concluded
it was a significant risk.
In assessing the models produced by management for their
going concern assessment, and the potential impact of
Covid-19, we undertook the following procedures:
we obtained management’s assessment that supports the
directors’ conclusions with respect to the disclosures provided
around going concern;
we discussed with management the assumptions applied
in their going concern assessment so we could understand
the rationale for those assumptions;
we challenged the rationale for those assumptions, using
our knowledge of the business and the sector;
we verified the current cash balances of the group;
we verified the contracted revenue included in the models;
we tested the mathematical accuracy of the models produced;
we performed a sensitivity analysis to assess the impact
of a reduction in cash inflows;
we evaluated management’s downside case scenario
and challenged the appropriateness of the underlying
assumptions; and
we considered the potential impact of Covid-19 on other
areas of the financial statements, specifically around
impairment of the investment held by the company and
concluded that there were no indicators of a material impact
on amounts included in the company financial statements.
The outcome of our assessment is shown in the Going Concern
section below.
Nanoco Group plc – Annual Report and Accounts 2020 081
Independent auditors’ report to the members of Nanoco Group plc continued
Report on the audit of the financial statements continued
Our audit approach continued
Key audit matters continued
Key audit matter
Recoverability of intangible assets (Group)
Refer to notes 2(e), 3(m) and 14 of the Financial Statements.
The intangible assets balance of £3,742k as at 31 July 2020
was assessed for impairment during the year.
We focused on this area because the assessment of impairment
indicators involved judgements that could have a material
impact on the amounts recognised in the financial statements.
The main judgement that is made by management is whether
the patent still has a use in their current technologies or not.
The directors 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.
From this assessment it was established that £0.1m of patents
were impaired as a result of no longer being of use to the business.
Recoverability of investments (Company)
Refer to notes 2, 3 and 15 of the Financial Statements.
As at 31 July 2020, the company had an investment in subsidiaries
of £39,607k, which is required to be considered for indicators
of impairment on an annual basis.
An indicator of impairment was not considered to exist at the
balance sheet date. The Directors consider the fair value to
be market value less costs to sell. As the market value was in
excess of the book value, management did not propose any
further impairment.
There is judgement involved in the determination of the
recoverable amount of the investment.
How we tailored the audit scope
How our audit addressed the key audit matter
To evaluate management’s assessment of the recoverability
of intangible assets, we performed the following:
We assessed the reasonableness of management’s
assumption regarding recoverable values.
Regarding patents, we assessed whether management’s
assessment of indicators of impairment was appropriate.
We challenged management on their assessment
of the potential sales value of their intangible assets
when compared to transactions involving similar
technology portfolios.
Based on our work, we did not identify any further
impairments required.
To assess that there were no impairment indicators identified by
the directors, we performed the following:
We considered management’s conclusion that it was more
appropriate to consider the fair value than value in use model.
We tested the key inputs into management’s fair value
calculation, including number of shares in issue and share price.
We evaluated the disclosure in the financial statements to
ensure it was complete and accurate.
Based on the work performed, we did not find any issues relating
to the recoverability of the investments balance.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls,
and the industry in which they operate. This included a full scope audit of Nanoco Technologies Limited plus procedures over
certain balances within three other group companies. All work was performed by the group engagement team.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£91,160 (2019: £116,000).
£81,127 (2019: £81,000).
Group financial statements
Company financial statements
How we determined it
1% of total expenses pre exceptional costs.
1% of total assets capped at 89% of group
materiality.
Rationale for
benchmark applied
Total expenses pre exceptional costs
represents a measure of the rate at which
the group is using its cash resources, is
considered to be more appropriate than a
revenue or a profit based measure, and is a
generally accepted auditing benchmark.
Total assets is considered to be appropriate as
it is not a profit oriented Company. The Company
holds investments in subsidiaries and therefore total
assets is deemed a generally accepted auditing
benchmark. Overall materiality has been capped
to 89% of Group materiality.
082
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements Report on the audit of the
financial statements continued
Our audit approach continued
Materiality continued
For each component in the scope of our
group audit, we allocated a materiality
that is less than our overall group
materiality. The range of materiality
allocated across components was
£81,000 and £87,000.
(Company audit) (2019: £6,000) as well
as misstatements below those amounts
that, in our view, warranted reporting for
qualitative reasons.
We agreed with the Audit Committee that
we would report to them misstatements
identified during our audit above £4,558
(Group audit) (2019: £6,000) and £4,056
Going concern
In accordance with ISAs (UK) we report
as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to
add or draw attention to in respect of the directors’ statement
in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis
of accounting in preparing the financial statements and the
directors’ identification of any material uncertainties to the
group’s and the company’s ability to continue as a going
concern over a period of at least twelve months from the
date of approval of the financial statements.
We are required to report if the directors’ statement relating
to Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the group’s
and company’s ability to continue as a going concern.
We have nothing to report.
Reporting on other information
The other information comprises all of
the information in the Annual Report
other than the financial statements
and our auditors’ report thereon. The
directors are responsible for the other
information. Our opinion on the financial
statements does not cover the other
information and, accordingly, we do not
express an audit opinion or, except to the
extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the
financial statements, our responsibility
is to read the other information and, in
doing so, consider whether the other
information is materially inconsistent
with the financial statements or our
knowledge obtained in the audit, or
otherwise appears to be materially
misstated. If we identify an apparent
material inconsistency or material
misstatement, we are required to perform
procedures to conclude whether there is
a material misstatement of the financial
statements or a material misstatement
of the other information. If, based on the
work we have performed, we conclude
that there is a material misstatement of
this other information, we are required
to report that fact. We have nothing to
report based on these responsibilities.
With respect to the Strategic Report and
Directors’ Report, we also considered
whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on the responsibilities described
above and our work undertaken in the
course of the audit, the Companies Act
2006 (CA06), ISAs (UK) and the Listing Rules
of the Financial Conduct Authority (FCA)
require us also to report certain opinions
and matters as described below (required
by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work
undertaken in the course of the audit, the
information given in the Strategic Report
and Directors’ Report for the year
ended 31 July 2020 is consistent with
the financial statements and has been
prepared in accordance with applicable
legal requirements. (CA06)
In light of the knowledge and
understanding of the group and
company and their environment
obtained in the course of the audit,
we did not identify any material
misstatements in the Strategic Report
and Directors’ Report. (CA06)
The directors’ assessment of the
prospects of the group and of the
principal risks that would threaten the
solvency or liquidity of the group
We have nothing material to add or draw
attention to regarding:
The directors’ confirmation on page 79
of the Annual Report that they have
carried out a robust assessment of
the principal risks facing the group,
including those that would threaten
its business model, future performance,
solvency or liquidity.
The disclosures in the Annual Report
that describe those risks and explain
how they are being managed or
mitigated.
The directors’ explanation on page 28
of the Annual Report as to how they
have assessed the prospects of the
group, over what period they have
done so and why they consider that
period to be appropriate, and their
statement as to whether they have a
reasonable expectation that the
group will be able to continue in
operation and meet its liabilities as
they fall due over the period of their
assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
We have nothing to report having
performed a review of the directors’
statement that they have carried out
a robust assessment of the principal
risks facing the group and statement
in relation to the longer-term viability of
the group. Our review was substantially
less in scope than an audit and only
consisted of making inquiries and
considering the directors’ process
supporting their statements; checking
that the statements are in alignment
with the relevant provisions of the UK
Corporate Governance Code (the
“Code”); and considering whether the
statements are consistent with the
knowledge and understanding of
the group and company and their
environment obtained in the course
of the audit. (Listing Rules)
Nanoco Group plc – Annual Report and Accounts 2020 083
Independent auditors’ report to the members of Nanoco Group plc continued
In preparing the financial statements,
the directors are responsible for assessing
the group’s and the company’s ability
to continue as a going concern,
disclosing, as applicable, matters related
to going concern and using the going
concern basis of accounting unless the
directors either intend to liquidate the
group or the company or to cease
operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditors’
report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in
the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis
of these financial statements.
A further description of our
responsibilities for the audit of the
financial statements is located on the
FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions,
has been prepared for and only for
the company’s members as a body in
accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no
other purpose. We do not, in giving these
opinions, accept or assume responsibility
for any other purpose or to any other
person to whom this report is shown or
into whose hands it may come save
where expressly agreed by our prior
consent in writing.
Other required reporting
Companies Act 2006 exception
reporting
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
we have not received all the
information and explanations we
require for our audit; or
adequate accounting records have
not been kept by the company, or
returns adequate for our audit have
not been received from branches not
visited by us; or
certain disclosures of directors’
remuneration specified by law are not
made; or
the company financial statements
and the part of the Directors’
Remuneration Report to be audited
are not in agreement with the
accounting records and returns.
We have no exceptions to report arising
from this responsibility.
Appointment
Following the recommendation of the
audit committee, we were appointed by
the directors on 24 January 2019 to audit
the financial statements for the year
ended 31 July 2019 and subsequent
financial periods. The period of total
uninterrupted engagement is 2 years,
covering the years ended 31 July 2019
to 31 July 2020.
Jonathan Studholme
(Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and
Statutory Auditors
Manchester
13 October 2020
Report on the audit of the
financial statements
continued
Reporting on other information
continued
Other Code Provisions
We have nothing to report in respect
of our responsibility to report when:
The statement given by the directors,
on page 79, that they consider the
Annual Report taken as a whole to be
fair, balanced and understandable,
and provides the information
necessary for the members to assess
the group’s and company’s position
and performance, business model
and strategy is materially inconsistent
with our knowledge of the group and
company obtained in the course of
performing our audit.
The section of the Annual Report
on page 52 and 53 describing the
work of the Audit Committee does
not appropriately address matters
communicated by us to the
Audit Committee.
The directors’ statement relating to
the company’s compliance with the
Code does not properly disclose a
departure from a relevant provision of
the Code specified, under the Listing
Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
with the Companies Act 2006. (CA06)
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the
financial statements
As explained more fully in the Statement
of Directors’ Responsibilities, the directors
are responsible for the preparation of the
financial statements in accordance with
the applicable framework and for being
satisfied that they give a true and fair
view. The directors are also responsible
for such internal control as they
determine is necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error.
084
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements Consolidated statement of comprehensive income
for the year ended 31 July 2020
Revenue
Cost of sales
Gross profit
Other operating income
Operating expenses
Research and development expenses
Administrative expenses
Operating loss
- before exceptional items and share-based payments
- share-based payments
- net exceptional costs
Finance income
Finance expense
Loss before taxation
Taxation
Loss after taxation
Other comprehensive income/(loss)
Gain on exchange rate translations
Total comprehensive loss for the year
Loss per share
Basic and diluted loss for the year
Notes
4
5
2020
£’000
3,856
(345)
3,511
101
2019
£’000
7,123
(665)
6,458
204
(3,143)
(6,350)
(4,385)
(7,760)
6
(5,881)
(5,483)
(4,783)
(4,985)
25
7
9
9
10
(376)
(722)
8
(87)
(232)
(266)
12
(38)
(5,960)
(5,509)
893
1,151
(5,067)
(4,358)
3
14
(5,064)
(4,344)
11
(1.76)p
(1.52)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.
The notes on pages 89 to 115 form an integral part of these financial statements.
Nanoco Group plc – Annual Report and Accounts 2020 085
Consolidated statement of changes in equity
for the year ended 31 July 2020
Group
At 1 August 2018
Loss for the year
Other comprehensive income
Total comprehensive loss
Issue of share capital on exercise of options
Share-based payments
At 31 July 2019
Loss for the year
Other comprehensive income
Total comprehensive loss
Issue of share capital on placing
Share-based payments
At 31 July 2020
Issued
equity
capital
£’000
Reverse
acquisition
reserve
£'000
Share-based
payment
reserve
£’000
Merger
reserve
£’000
Accumulated
losses
£’000
Total
£’000
144,426
(77,868)
3,214
(1,242)
(55,895)
12,635
—
—
—
27
—
—
—
—
—
—
—
—
—
(27)
232
—
—
—
—
—
(4,358)
(4,358)
14
14
(4,344)
(4,344)
—
—
—
232
144,453
(77,868)
3,419
(1,242)
(60,239)
8,523
—
—
—
3,409
—
—
—
—
—
—
—
—
—
—
376
—
—
—
—
—
(5,067)
(5,067)
3
3
(5,064)
(5,064)
—
—
3,409
376
147,862
(77,868)
3,795
(1,242)
(65,303)
7,244
Company statement of changes in equity
for the year ended 31 July 2020
Company
At 1 August 2018
Loss for the year and total comprehensive loss for the year
Issue of share capital on exercise of options
Share-based payments
At 31 July 2019
Loss for the year and total comprehensive loss for the year
Issue of share capital on placing
Share-based payments
At 31 July 2020
Issued
equity
capital
£’000
Share-based
payment
reserve
£’000
Capital
redemption
reserve
£’000
Accumulated
losses
£’000
Total
£’000
144,426
3,214
4,402
(75,120)
76,922
—
27
—
—
(27)
232
—
—
—
(38,278)
(38,278)
—
—
—
232
144,453
3,419
4,402
(113,398)
38,876
—
3,409
—
—
—
376
—
—
—
(64)
—
—
(64)
3,409
376
147,862
3,795
4,402
(113,462)
42,597
086
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements Group and Company statements of financial position
at 31 July 2020
Assets
Non-current assets
Tangible fixed assets
Right of use assets
Intangible assets
Investment in subsidiaries
Current assets
Inventories
Trade and other receivables
Income tax asset
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Provisions
Deferred revenue
Non-current liabilities
Financial liabilities
Lease liabilities
Deferred revenue
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
Reverse acquisition reserve
Share-based payment reserve
Merger reserve
Capital redemption reserve
Accumulated losses
Total equity
Registered no. 05067291
31 July
2020
Group
£’000
31 July
2020
Company
£’000
31 July
2019
Group
£’000
31 July
2019
Company
£’000
Notes
12
13
14
15
16
17
18
19
23
20
22
21
23
22
24
24
24
25
26
26
27
263
612
3,742
—
—
—
747
—
3,897
—
—
—
—
39,607
—
39,229
4,617
39,607
4,644
39,229
140
1,018
910
5,170
7,238
—
—
—
3,440
3,440
11,855
43,047
(2,113)
(642)
—
(603)
(3,358)
(462)
(542)
(249)
(1,253)
(4,611)
—
—
—
—
—
(450)
—
—
(450)
(450)
226
1,117
1,129
7,005
9,477
14,121
(2,553)
—
(797)
(1,462)
(4,812)
(433)
—
(353)
(786)
(5,598)
—
—
—
97
97
39,326
—
—
—
—
—
(450)
—
—
(450)
(450)
7,244
42,597
8,523
38,876
30,570
30,570
117,292
117,292
28,622
115,831
(77,868)
3,795
(1,242)
—
(77,868)
3,795
—
3,419
(1,242)
28,622
115,831
—
3,419
—
—
4,402
—
4,402
(65,303)
(113,462)
(60,239)
(113,398)
7,244
42,597
8,523
38,876
The Parent Company’s result for the period ended 31 July 2020 was a loss of £64,000 (2019: loss of £38,278,000). There was
no other comprehensive income in either the current or prior year.
The notes on pages 89 to 115 form an integral part of these financial statements.
The financial statements on pages 85 to 88 were approved by the Board of Directors on 13 October and signed on its behalf by:
Dr Christopher Richards
Chairman
13 October 2020
Brian Tenner
Director
13 October 2020
Nanoco Group plc – Annual Report and Accounts 2020 087
Group and Company cash flow statements
for the year ended 31 July 2020
Loss before tax
Adjustments for:
Net finance expense
(Profit)/Loss on exchange rate translations
Depreciation of tangible fixed assets
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of intangible assets
Impairment of Company investment
Impairment of inter-company receivable
Share-based payments
Exceptional items
Changes in working capital:
Decrease/(increase) in inventories
Decrease in trade and other receivables
Decrease in trade and other payables
(Decrease)/increase in provisions
(Decrease)/increase in deferred revenue
Cash outflow from operating activities
Research and development tax credit received
Overseas corporation tax paid
Net cash outflow from operating activities
Cash flow from investing activities
Purchases of tangible fixed assets
Purchases of intangible fixed assets
Inter-company receipt
Interest received
Net cash (outflow)/inflow from investing activities
Cash flow from financing activities
Proceeds from placing of ordinary share capital
Costs of placing
Payment of lease liabilities
Net cash inflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
31 July
2020
Group
£’000
31 July
2020
Company
£’000
31 July
2019
Group
£’000
31 July
2019
Company
£’000
Notes
(5,960)
(64)
(5,509)
(38,278)
9
12
13
14
14
15
17
25
7
12
14
(79)
(87)
590
505
633
120
—
—
376
722
221
99
(30)
(797)
(963)
(4,650)
1,111
—
(3,539)
(106)
(598)
—
8
(696)
—
—
—
—
—
—
—
—
—
64
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,409
3,409
(26)
14
613
—
552
26
—
—
232
266
(9)
298
(1,515)
797
2,226
(2,035)
1,423
—
(612)
(2,081)
(1,043)
—
12
(3,112)
—
—
—
—
(3,724)
10,729
—
—
—
—
—
—
24,006
14,272
—
—
—
—
—
—
—
—
—
—
—
—
—
54
—
54
—
—
—
—
54
43
97
(64)
—
3,343
3,343
97
(237)
(772)
2,400
(1,835)
7,005
5,170
3,440
7,005
Cash and cash equivalents at the end of the year
18
The notes on pages 89 to 115 form an integral part of these financial statements.
088
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements Notes to the financial statements
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. The Company is registered in England.
These Group financial statements 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 2020.
The financial statements of Nanoco Group plc and its subsidiaries (the “Group”) for the year ended 31 July 2020 were authorised
for issue by the Board of Directors on 13 October 2020 and the statements of financial position were signed on the Board’s behalf
by Dr Christopher Richards and Brian Tenner.
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 financial statements have been prepared in accordance with the Companies Act 2006 as
applicable to companies using International Financial Reporting Standards as adopted by the European Union (“IFRS”) and IFRS
Interpretations Committee (“IFRS IC”) interpretations as they apply to the financial statements of the Group for the year ended
31 July 2020.
(b) Basis of measurement
The Parent Company and Group financial statements have been prepared on the historical cost basis.
(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 are set out on pages 16 to 19. The principal risks and uncertainties are shown on
pages 25 to 27 while the Group’s financial position is described in the Financial review on pages 22 to 24. Furthermore, note 28
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 2020 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, and builds on the fundraise of £3.2 million (net of costs) completed in July 2020. The key
assumptions underpinning the base case are:
new commercial contracts are entered into based on existing pipeline of opportunities;
the Groups’ variable costs remain in line with manufacturing activities; and
the overhead cost base benefits from the restructuring exercise in September 2020.
The base case produces a cash flow forecast that demonstrates that the Group has cash resources to December 2022.
However, the Board acknowledges that the base case includes an element of risk that some or all of these non-contracted
projects may not convert to sales during the forecast period. Accordingly, the Board has considered the downside scenario
in which no revenue, except that already contracted or under contractual negotiation, was achieved during the period. In this
scenario, management has identified a series of mitigating actions, including cost savings and a reorganisation of its operations,
that could be undertaken in the event additional sales contracts do not materialise. These actions would be adequate to
preserve funding for the two years of the viability assessment and the twelve months of the going concern assessment.
Covid-19 may have an impact on our business - the full impact on the Group will depend on the duration of the crisis, and how
it affects the economy. The Group currently has plans in place to mitigate the risk to the operational business. However, there is
a continued risk that revenue opportunities reduce due to the wider economic impact. We will continue to evaluate the potential
impacts as the situation develops further.
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
financial statements. The financial statements 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 financial statements 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.
Nanoco Group plc – Annual Report and Accounts 2020 089
Notes to the financial statements continued
2. Basis of preparation continued
(e) Use of estimates and judgements
The preparation of financial statements 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 financial statements 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 financial statements.
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 financial statements.
Estimates
Equity-settled share-based payments
The Group has historically issued LTIPs to incentivise employees. 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 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 £0.1 million (2019: £26,000) have been fully impaired in these financial statements. 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 Company investment and inter-company receivable at each reporting date.
Accounting standards (IAS 36 Impairment of Assets) require investments in subsidiary undertakings (equity and loans) to be
carried at the lower of cost or recoverable value. Recoverable value is defined as the higher of fair value less costs of disposal
(effectively net sale proceeds) and value in use. Indicators of potential impairment noted in IAS 36 (para 12) include, but are not
limited to, situations where the carrying amount of the net assets of the entity is more than its market value and where significant
changes with an adverse effect on the entity have taken place during the period.
The Directors consider the fair value to be market value less costs to sell. As the market value was in excess of the book value,
no further impairment is proposed.
Judgements
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).
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.
090
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 2. Basis of preparation continued
(e) Use of estimates and judgements continued
Judgements continued
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 23). The Group based its
assumptions and estimates on parameters available when the consolidated financial statements 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 financial statements consolidate the financial statements 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 of 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 financial statements, 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.
Nanoco Group plc – Annual Report and Accounts 2020 091
Notes to the financial statements continued
3. Significant accounting policies continued
(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.
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.
IFRS 15 requires the identification of deliverables in contracts with customers that qualify as performance obligations. For any
contracts in the year, we have used the five-step process identified by IFRS 15 and applied this.
(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, does 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 13).
092
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 3. Significant accounting policies continued
(i) 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.
(j) 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 financial statements 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.
(k) 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.
Nanoco Group plc – Annual Report and Accounts 2020 093
Notes to the financial statements continued
3. Significant accounting policies continued
(k) Property, plant and equipment continued
Assets under construction, which principally relate to leasehold improvements and plant and machinery, are not depreciated until
such time as they are available for use. If there are indications of impairment in the carrying value, then the recoverable amount
is estimated and compared to the carrying amount. The recoverable amount is determined as the value that will ultimately be
capitalised as an asset, based upon IAS 16 recognition and capitalisation criteria.
(l) 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
(m) 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.
Impairment charges have been posted during the year in relation to intangible assets. See the relevant note for more information.
(n) Investments in subsidiaries
Investments in subsidiaries are stated in the Company statement of financial position at cost less provision for any impairment.
(o) 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.
094
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 3. Significant accounting policies continued
(p) 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:
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.
(q) Share capital
Proceeds on issue of shares are included in shareholders’ equity, net of transaction costs. The carrying amount is not remeasured
in subsequent years.
(r) 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 financial statements as an increase in the value of the investment with a corresponding increase in equity
via the share-based payment reserve.
Nanoco Group plc – Annual Report and Accounts 2020 095
Notes to the financial statements continued
3. Significant accounting policies continued
(s) 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.
(t) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Provision is not made for future operating losses. Provisions are
discounted where the impact is deemed to be material.
(u) Exceptional items
Items of income and expenditure which are material and non-recurring are presented separately in the consolidated statement
of comprehensive income. The separate reporting of exceptional items helps to provide an indication of the underlying
performance of the Group and hence allows the user of the accounts a fuller understanding of that performance.
(v) New accounting standards and interpretations
The following amendments to IFRSs 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 2019:
IFRS 16 Leases
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and
the lessor. It eliminates the lease clarification of leases as either operating leases or financial leases and introduces a single lease
accounting model requiring lessees to recognise a lease liability reflecting the future lease payments and a right of use asset
for lease contracts.
The Group has applied the modified retrospective transition approach, with recognition of transitional adjustments on the date
of initial application (1 August 2019), without restatement of comparative figures.
On transition to IFRS 16, the Group elected to apply the following practical expedients on a lease by lease basis as allowed
by the standard:
to apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
to rely upon previous assessments of onerous leases; and
apply the short-term and low value exemptions.
All of these leases relate to property. None of these are sub-let. Lease payments for low value or short-term leases where the
Group has elected not to recognise a right of use asset and lease liability are charged as an expense on a straight-line basis.
At the date of commencement of property leases the Group determines the lease term to be the full term of the lease, assuming
that any option to break or extend is not likely to be exercised. Leases are regularly reviewed and will be revalued if it becomes
likely that a break clause or option to extend will be exercised. The weighted average incremental borrowing rate applied at the
date of transition was 3.75%.
The Group recognises a right of use asset at the lease commencement date. The right of use asset is measured at its carrying
amount as if IFRS 16 has been applied since the commencement date, discounted using the lessee’s incremental rate at the date
of initial application. Subsequent to measurement, right of use assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset if assessed to be shorter.
The lease liabilities are measured at the present value of the remaining lease payments, discounted using the Group’s
incremental borrowing rate as at 1 August 2019. The Group’s incremental borrowing rate is the rate at which a similar borrowing
could be obtained over a similar term in a similar economic environment. Judgement is required to determine an approximation
with consideration given to the Bank of England base rates adjusted by an indicative credit premium and lease specific
adjustment. Subsequently, the lease liability is increased by the interest cost on the lease liability and decreased by the lease
payments made. It is remeasured if there is a modification, a change in lease term or a change in the fixed lease payment.
The impact on the balance sheet on transition is summarised below:
As at 31 July 2019
Right of use assets (leased property)
Lease liabilities
Trade and other payables
Onerous lease liabilities
096
Nanoco Group plc – Annual Report and Accounts 2020
As at
31 July 2019
£’000
IFRS 16
adjustment
£’000
As at
1 August 2019
£’000
—
—
(2,553)
(663)
981
(1,769)
125
663
981
(1,769)
(2,428)
—
Financial statements 3. Significant accounting policies continued
(v) New accounting standards and interpretations continued
During the year, the movements on the right of use assets and lease liabilities are as follows:
Right of use assets
Opening net book value at 1 August 2019
Additions
Depreciation
Closing net book value at 31 July 2020
Lease liabilities
Opening liabilities at 1 August 2019
Additions
Lease payments
Interest charge
Closing net book value at 31 July 2020
£’000
981
136
(505)
612
£’000
(1,769)
(136)
772
(51)
(1,184)
The reconciliation of operating lease commitments disclosed at 31 July 2019 to lease liabilities recognised at 1 August 2019 is as follows:
Operating lease commitments disclosed as at 31 July 2019
Short-term and low value leases recognised as an expense on a straight-line basis
Effect of discounting under the Group’s incremental borrowing rate
Total lease liabilities recognised at 1 August 2019
If the prior year the income statement was presented under IFRS 16, Adjusted LBITDA would be presented as follows:
Adjusted LBITDA as presented
Reclassification of operating lease costs as depreciation
Revised LBITDA
The following standards have been issued but have not been applied by the Group in these financial statements.
These amendments to standards and interpretations had no significant impact on the financial statements:
£’000
1,954
(14)
(171)
1,769
2019
£ million
(3.8)
0.7
(3.1)
IFRIC 23 “Uncertainty over Income Tax Treatments”
Amendments to IFRS 4 “Insurance Contracts”
Amendments to IFRS 9 “Financial Instruments”
Amendments to IAS 28 “Investments in Associates and Joint Ventures”
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”
The following standards and amendments to standards have been issued but are not effective for the financial year beginning
1 August 2019 and have not been early adopted:
Amendments to IFRS 3 “Definition of a Business”
Amendments to IAS 1 and IAS 8 “Definition of Material”
IFRS 17 “Insurance Contracts”
Amendment to IAS 1 “Classification of Liabilities as Current or Non-Current”
Amendments to IFRS 9, IAS 39 and IFRS 17 “Interest Rate Benchmark Reform”
Various standards Amendments to References to the Conceptual Framework in IFRS Standards
The amendments to standards and interpretations noted above are expected to have no significant impact on the
financial statements.
Nanoco Group plc – Annual Report and Accounts 2020 097
Notes to the financial statements continued
4. Segmental information
Operating segments
At 31 July 2020 and 2019 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 Board) 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.
Analysis of revenue
Products sold
Rendering of services
Royalties and licences
31 July
2020
£’000
448
2,981
427
3,856
31 July
2019
£’000
186
6,488
449
7,123
There was a material customer who generated revenue of £2,475,000 (2019: one material customer amounting to £6,461,000).
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:
Revenue
UK
Europe (excluding UK)
Asia
USA
31 July
2020
£’000
17
1,111
228
2,500
3,856
31 July
2019
£’000
1
485
141
6,496
7,123
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 £5,960,000 (2019: £5,509,000).
5. Other operating income
Government grants
6. Operating loss
Operating loss is stated after charging:
Depreciation of tangible fixed assets (see note 12)
Depreciation of right of use assets
Amortisation of intangible assets (see note 13)
Impairment of tangible fixed assets (see note 12)
Impairment of intangible assets (see note 13)
Staff costs (see note 8)
Foreign exchange losses
Research and development expense1
Share-based payments
31 July
2020
£’000
101
31 July
2019
£’000
204
31 July
2020
£’000
590
505
633
—
120
4,164
80
3,143
376
31 July
2019
£’000
613
—
552
3,325
26
5,596
63
4,385
232
1
Included within research and development expense are staff costs totalling £2,477,000 (2019: £3,552,000) also included in note 8.
098
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 6. Operating loss continued
Auditors’ remuneration
Audit services:
– Fees payable to Company auditors for the audit of the Parent and the consolidated accounts
– Auditing the accounts of subsidiaries pursuant to legislation
Fees payable to Company auditors for other services:
– Assurance services in connection with the review of interim results
Total auditors’ remuneration
7. Exceptional items
31 July
2020
£’000
31 July
2019
£’000
72
33
15
120
50
26
15
91
During the financial year, the Group incurred a number of charges which are considered to be exceptional in nature. These have
been aggregated and disclosed separately in the consolidated statement of comprehensive income.
(Charge)/income
Formal Sales Process (legal fees)
Fundraise (adviser and commitment fees)
IP litigation (prior to litigation funding agreement)
Customer contract liability waived
Financial impairment of production facility
Onerous lease provision
Provision for contract specific stock
Other US Customer contract liabilities
Restructuring cost
Total net exceptional items
31 July
2020
£’000
(293)
(237)
(64)
—
—
—
—
—
(128)
(722)
31 July
2019
£’000
—
—
—
4,245
(3,325)
(663)
(261)
(134)
(128)
(266)
During the year, as part of the Strategic Review, the Group entered into a Formal Sale Process that was subsequently terminated
after the start of the Covid pandemic. In July 2020, the Group carried out a fundraising exercise, raising £3.2 million net of costs.
Also during the year, the Group initiated a significant law suit against Samsung for wilful infringement of its IP. All three activities
incurred adviser costs for processes that are considered corporate in nature and hence do not form part of the underlying business
of the Group. They are therefore classified as exceptional to allow the reader a better understanding of underlying performance.
During the prior year, the US Customer confirmed that the project would not continue beyond the current contract which
completed in December 2019. As a result, the following financial adjustments were posted:
an outstanding contract liability owed by Nanoco Group to the US Customer was waived, resulting in an exceptional credit
of £4.2 million;
given the lack of any signed or near-term commercial prospects for the new production facility, a tangible asset impairment
was posted of £3.3 million;
linked to the above, an onerous lease provision was recognised in relation to the new production facility from the end
of the existing contract with the US Customer to the expiry of the lease; and
other liabilities or costs incurred in the period relating to the US Customer were a provision against stock purchased
specifically for the US Customer and existing non-cancellable purchase commitments.
Further to the US Customer items above, following the resource pivot in our display business in the second quarter, a restructuring
exercise reflecting our “dot only” focus in display activities was implemented. This exercise completed in the fourth quarter.
Nanoco Group plc – Annual Report and Accounts 2020 099
Notes to the financial statements continued
8. Staff costs
The Group’s costs for employees, including Directors, during the year were as follows:
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Directors’ remuneration (including benefits in kind) included in the aggregate remuneration above comprised:
Emoluments for qualifying services
31 July
2020
£’000
3,652
346
166
376
31 July
2019
£’000
5,030
433
133
232
4,540
5,828
908
1,158
Emoluments for Directors of the Group (excluding social security costs and long-term incentives, but including benefits in kind)
disclosed above include £323,000 paid to the highest paid Director (2019: £505,000). Details of the compensation of key
management personnel are described in note 29.
The Group made contributions to money purchase pension schemes for three current Directors (2019: three).
Aggregate gains made by Directors during the year following the exercise of share options were £nil (2019: £89,000).
Not included in the costs reported above are share awards to be made to Directors under the Deferred Bonus Plan amounting to
£nil (2019: £386,000) 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 monthly average number of employees during the year (including Directors) was as follows:
31 July
2020
Number
31 July
2019
Number
6
66
72
7
85
92
31 July
2020
£’000
31 July
2019
£’000
8
12
(29)
(51)
(7)
(79)
(28)
(10)
(26)
Group
Directors
Laboratory and administrative staff
9. Finance income and expense
Group
Finance income
Interest receivable
Finance expense
Loan note interest
Unwinding interest on lease liabilities
Other interest payable
100
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 10. Taxation
The tax credit is made up as follows:
Group
Current income tax
Research and development income tax credit receivable
Adjustment in respect of prior years
Deferred tax
Charge for the year
Total income tax credit
31 July
2020
£’000
31 July
2019
£’000
(909)
16
(893)
(1,128)
(23)
(1,151)
—
—
(893)
(1,151)
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 2019 was submitted in December 2019 and the repayment was received in January 2020.
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:
Group
Loss before taxation
Tax at standard rate of 19% (2019: 19%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Additional deduction for research and development expenditure
Surrender of research and development relief for repayable tax credit
Research and development tax credit receivable
Share options exercised (CTA 2009 Pt 12 deduction)
Losses and share-based payment charges carried forward not recognised in deferred tax
Adjustment in respect of prior years
Tax credit in income statement
31 July
2020
£’000
31 July
2019
£’000
(5,960)
(5,509)
(1,132)
(1,047)
55
16
(660)
1,216
(904)
—
500
16
16
243
(1,022)
1,446
(1,128)
(26)
390
(23)
(893)
(1,151)
The Group has accumulated losses available to carry forward against future trading profits of £34,5 million (2019: £32.6 million).
Deferred tax liabilities/(assets) provided/(recognised) at a standard rate of 19% (2019: 17%) are as follows:
Accelerated capital allowances
Tax losses
31 July
2020
£’000
—
—
—
31 July
2019
£’000
480
(480)
—
The Group also has deferred tax assets, measured at a standard rate of 19% (2019: 17%), in respect of share-based payments of
£221,000 (2019: £8,000) and tax losses of £6,552,000 (2019: £5,486,000) 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.
Nanoco Group plc – Annual Report and Accounts 2020
101
Notes to the financial statements continued
11. Earnings per share
Group
Loss for the financial year attributable to equity shareholders
Share-based payments
Loss for the financial year before share-based payments
Weighted average number of shares
Ordinary shares in issue
Adjusted loss per share before share-based payments (pence)
Basic loss per share (pence)
31 July
2020
£’000
31 July
2019
£’000
(5,064)
(4,344)
376
(4,688)
232
(4,112)
287,070,824 286,025,561
(1.63)
(1.76)
(1.44)
(1.52)
Diluted loss per share has not been presented above as the effect of share options issued is anti-dilutive.
12. Tangible fixed assets
Group
Cost
At 1 August 2018
Additions
Transfers
At 31 July 2019
Additions
At 31 July 2020
Accumulated depreciation
At 1 August 2018
Charged during the year
Impairment
At 31 July 2019
Charged during the year
At 31 July 2020
Net book value
At 31 July 2020
At 31 July 2019
Assets under
construction
£’000
Laboratory
infrastructure
£’000
Office
equipment,
fixtures
and fittings
£’000
Plant and
machinery
£’000
Total
£’000
1,391
1,882
(3,273)
—
—
—
—
—
—
—
—
—
—
—
3,403
—
—
3,403
—
3,403
2,626
82
664
3,372
13
3,385
18
31
439
113
—
552
3
555
329
77
—
406
70
476
79
146
5,005
10,238
86
2,081
3,273
8,364
103
—
12,319
106
8,467
12,425
4,679
454
2,661
7,794
507
7,634
613
3,325
11,572
590
8,301
12,162
166
570
263
747
The aggregate original cost of tangible assets now fully depreciated but considered to be still in use is £9,193,000
(2019: £7,777,000).
During the prior year, the Group posted an impairment charge against the new facility in Runcorn due to the lack of firm
customer orders (2019: £3,325,000). No impairment charge was posted in the current year.
Capital commitments
At 31 July 2020, the Group had capital commitments amounting to £nil in respect of orders placed for capital expenditure
(2019: £nil).
102
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 13. Right of use assets
Group
Cost
At 1 August 2019
Additions
At 31 July 2020
Accumulated depreciation
At 1 August 2019
Charged during the year
At 31 July 2020
Net book value
At 31 July 2020
At 1 August 2019
14. Intangible assets
Group
Cost
At 1 August 2018
Additions
At 31 July 2019
Additions
At 31 July 2020
Accumulated amortisation
At 1 August 2018
Charged during the year
Impairment charge
At 31 July 2019
Charged during the year
Impairment charge
At 31 July 2020
Net book value
At 31 July 2020
At 31 July 2019
Total
£’000
981
136
1,117
—
(505)
(505)
612
981
Patents
£’000
5,670
1,043
6,713
598
7,311
2,238
552
26
2,816
633
120
3,569
3,742
3,897
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.
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 £788,000 (2019: £556,000).
During the year an extensive review was undertaken to identify patents which are deemed to be of no further value to Nanoco
and should be allowed to lapse. As a consequence, patents with a value of £120,000 (2019: £26,000) have been fully impaired
in these financial statements. The impairment charge is recognised within administrative expenses.
Nanoco Group plc – Annual Report and Accounts 2020 103
Notes to the financial statements continued
15. Investment in subsidiaries
Company
At 1 August 2018
Increase in respect of share-based payments
Cash transfer
Impairment
At 31 July 2019
Increase in respect of share-based payments
Cash transfer
At 31 July 2020
By subsidiary
Nanoco Tech Limited
Nanoco Life Sciences Limited
Nanoco Technologies Limited
At 31 July 2020
Shares
£’000
63,235
—
—
—
Share
impairment
£’000
Loans
£’000
Loan
impairment
£’000
Total
£’000
—
—
—
(24,006)
23,872
(20,286)
66,821
232
71
—
—
—
232
71
(3,889)
(27,895)
63,235
(24,006)
24,175
(24,175)
39,229
—
—
—
—
376
2
—
—
376
2
63,235
(24,006)
24,553
(24,175)
39,607
63,235
(24,006)
—
—
39,229
—
—
—
—
20,286
(20,286)
4,267
(3,889)
—
378
63,235
(24,006)
24,553
(24,175)
39,607
Accounting standards (IAS 36 Impairment of Assets) require investments in subsidiary undertakings (equity and loans) to be carried
at the lower of cost or recoverable value. Recoverable value is defined as the higher of fair value less costs of disposal (effectively
net sale proceeds) and value in use. Indicators of potential impairment noted in IAS 36 (para 12) include, but are not limited to,
situations where the carrying amount of the net assets of the entity is more than its market capitalisation (as was the case at the
prior year end and continues to be so at the date of these financial statements) and where significant changes with an adverse
effect on the entity have taken place during the period (the decision by the US Customer not to extend the current contract).
As set out in the viability statement, the Board has considered a number of scenarios, being base and downside cases. Given
the uncertainty and risk over future income streams, and the associated potential impact on the discount rate to be used in the
discounted cash flow, the Board has concluded that the appropriate valuation basis to use at this time for the total investments
by Nanoco plc in Nanoco Technologies Limited (loans and equity as disclosed above and the short-term loan as disclosed in
note 16) should be fair value rather than value in use. For the avoidance of doubt, in the base case set out in the viability
statement there would be no impairment required to the assets above.
Consistent with IAS 36 and the indicator of impairment noted above in respect of net assets exceeding market capitalisation,
the Directors have used the Company’s market capitalisation as at 31 July 2020 as its fair value less costs of disposal. While this
is higher than in the prior year, the Directors do not believe that a sufficiently robust period of share price appreciation has
occurred as yet to merit an upwards revision in the value of the investment, which has therefore been left unchanged.
The Directors do, however, consider that the current share price is still at a significant discount to the value of its IP, by reference
to similar businesses operating in the same markets and with smaller IP portfolios than Nanoco.
Loans to subsidiary undertakings carry no interest and are repayable on demand. Further information in relation to these loans
is given in note 28.
Subsidiary undertakings
Country of incorporation
Principal activity
Nanoco Life Sciences Limited
England and Wales
Research and development
Nanoco Tech Limited
England and Wales
Holding company
Nanoco Technologies Limited1
England and Wales
Manufacture and development of nanoparticles
Nanoco 2D Materials Limited
England and Wales
Research and development
Nanoco US Inc.2
USA
Management services
Share of issued
ordinary share capital
31 July
2020
100%
100%
100%
100%
100%
31 July
2019
100%
100%
100%
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.
1 Share capital is owned by Nanoco Tech Limited.
2 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.
104
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 16. Inventories
Raw materials, finished goods and consumables
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
140
—
226
—
A total of £290,000 (2019: £316,000) was included in cost of sales with respect to the cost of inventory expensed during the year.
17. Trade and other receivables
.
Trade receivables
Prepayments and accrued income
Inter-company short-term loan to subsidiary
Less impairment provision
Other receivables
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
489
397
—
—
132
1,018
—
—
60,383
(60,383)
—
—
202
383
—
—
532
1,117
—
—
60,383
(60,383)
—
—
The impairment of the short-term loan is explained in note 15. 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 (2019: £nil).
Trade receivables are denominated in the following currency:
US Dollars
Euros
Sterling
At 31 July the ageing analysis of trade receivables was as follows:
2020
2019
18. Cash and cash equivalents
Cash and cash equivalents
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
156
88
245
489
—
—
—
—
158
—
44
202
Not
yet due
£’000
442
133
Past due
90 days to
120 days
£’000
—
—
Due
£’000
47
69
Past due
> 120
£’000
—
—
—
—
—
—
Total
£’000
489
202
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
5,170
3,440
7,005
97
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 2020 (2019: same).
An analysis of cash, cash equivalents and deposits by denominated currency is given in note 28.
Nanoco Group plc – Annual Report and Accounts 2020 105
Notes to the financial statements continued
19. Trade and other payables
Current
Trade payables
Other payables
Accruals
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
1,304
71
738
2,113
—
—
—
—
1,764
101
688
2,553
—
—
—
—
The Directors consider that the carrying amount of trade and other payables approximates to their fair value. The average credit
period taken is 51 days (2019: 38 days).
20. Provisions
Current
Onerous lease provision
Other commitments
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
—
—
—
—
—
—
663
134
797
—
—
—
Provisions related to the contract with the US Customer. The onerous lease provision was reversed following the adoption of IFRS
16. Details are included in note 7.
21. Financial liabilities
Non-current
Long-term loan from subsidiary
Convertible Series A Loan note 2028
Accrued interest
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
—
400
62
462
450
—
—
450
—
400
33
433
450
—
—
450
The loan note issued by Nanoco 2D Materials Limited is unsecured, bears a fixed interest at 6.5% p.a. 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 (2019: no interest).
There have been no changes in liabilities arising from financing activities other than described in this note.
106
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 22. Deferred revenue
Current
Upfront licence fees
Milestone payments
Non-current
Upfront licence fees
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
103
500
603
249
852
—
—
—
—
—
103
1,359
1,462
353
1,815
—
—
—
—
—
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.
23. Lease liabilities
Current
Property leases
Non-current
Property leases
24. Issued equity capital
31 July 2020
Group
£’000
31 July 2020
Company
£’000
31 July 2019
Group
£’000
31 July 2019
Company
£’000
642
542
—
—
—
—
—
—
Group
Allotted, called up and fully paid ordinary shares of 10p
At 1 August 2018
Shares issued on exercise of options
At 31 July 2019
Shares issued on placement
At 31 July 2020
Share
capital
£’000
Share
premium
£’000
Reverse
acquisition
reserve
£’000
Total
£’000
Number
285,947,149
28,595
115,831
(77,868)
66,558
272,097
27
—
—
27
286,219,246
28,622
115,831
(77,868)
66,585
19,479,856
1,948
1,461
—
3,409
305,699,102
30,570
117,292
(77,868)
69,994
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 financial statements 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 financial statements 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.
Nanoco Group plc – Annual Report and Accounts 2020
107
Notes to the financial statements continued
24. Issued equity capital continued
Shares issued on placing
On 15 July 2020, 19,479,856 shares were issued at 17.5 pence each.
Company
Allotted, called up and fully paid ordinary shares of 10p
At 1 August 2018
Shares issued on exercise of options
At 31 July 2019
Shares issued on placement
At 31 July 2020
25. Share-based payment reserve
Group and Company
At 1 August 2018
Issue of share capital on exercise of share options
Share-based payments
At 31 July 2019
Share-based payments
At 31 July 2020
Share
capital
£’000
Share
premium
£’000
Total
£’000
Number
285,947,149
28,595
115,831
144,426
272,097
27
—
27
286,219,246
28,622
115,831
144,453
19,479,856
1,948
1,461
3,409
305,699,102
30,570
117,292
147,862
£’000
3,214
(27)
232
3,419
376
3,795
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 £376,000 has been recognised in the statement of comprehensive income for the year (2019: charge of £232,000).
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.
108
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 25. Share-based payment reserve continued
Share option schemes continued
Nanoco Group plc Long Term Incentive Plan (“LTIP”) continued
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 financial statements. 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”)
Grants in December 2015, April 2016, November 2017 and November 2018
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
(as detailed in the Directors’ remuneration report on page 69) and are exercisable after a two-year holding period until the tenth
anniversary of the award. All subsequent awards are valued in the same way and also have three-year performance criteria
followed by a two-year holding period for awards which vest.
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.
Deferred Bonus Plan (“DBP”)
On 22 November 2016, awards in the form of nil-cost options were granted to the Executive Directors in respect of 50% of their
bonuses for the year ended 31 July 2016 which are delivered in the form of a share award under the Deferred Bonus Plan. The
awards vested during FY19, after the required two-year holding period.
On 31 October 2019 and 10 December 2019, awards in the form of nil-cost options were granted to the Executive Directors in
respect of 100% of their bonuses for the year ended 31 July 2019 which are delivered in the form of a share award under the
Deferred Bonus Plan. The awards vest in FY22, after the required two-year holding period.
The following tables illustrate the number and weighted average exercise prices of, and movements in, share options during the year.
Group and Company
Outstanding at 1 August
Granted during the year
Exercised during the year
Forfeited/cancelled/lapsed
Outstanding at 31 July
Exercisable at 31 July
2020 total
Number
2019 total
Number
18,150,305
17,253,479
3,380,932
4,693,566
—
(274,096)
(3,849,690)
(3,522,644)
17,681,547
18,150,305
7,887,247
7,647,247
Nanoco Group plc – Annual Report and Accounts 2020 109
Notes to the financial statements continued
25. Share-based payment reserve continued
Weighted average exercise price of options
Group and Company
Outstanding at 1 August
Granted during the year
Exercised during the year
Forfeited/cancelled
Outstanding at 31 July
2020
Pence
24.5
—
—
26.8
37.5
2019
Pence
35.9
—
—
—
24.5
The weighted average exercise price of options granted during the year to 31 July 2020 was nil (2019: nil). The range of exercise
prices for options outstanding at the end of the year was nil–100.75 pence (2019: nil–110.00 pence).
For the share options outstanding as at 31 July 2020, the weighted average remaining contractual life is 4.91 years (2019: 5.83
years). The aggregate fair value of options issued in the year was £0.4 million (2019: £0.9 million).
The following table lists the inputs to the models used for the years ended 31 July 2020 and 31 July 2019.
Group and Company
Expected volatility
Risk-free interest rate
Expected life of options (years average)
Weighted average exercise price
Weighted average share price at date of grant
Model used
Market
performance-linked grants
Non-market
performance-linked grants
2020
N/A
N/A
N/A
N/A
N/A
N/A
2019
63%
0.82%
3
Nil
44p
2020
103%
0.43%
2
Nil
14p
Stochastic
Finnerty
2019
N/A
N/A
N/A
N/A
N/A
N/A
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.
26. Merger reserve and capital redemption reserve
Merger reserve
Group
At 1 August 2018, 31 July 2019 and 31 July 2020
£’000
(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
At 1 August 2018, 31 July 2019 and 31 July 2020
£’000
(4,402)
The capital redemption reserve arises from the off-market purchase of deferred shares on 4 May 2005 and their subsequent cancellation.
110
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 27. Movement in accumulated losses
Group
At 1 August 2018
Loss for the year
Other comprehensive income
At 31 July 2019
Loss for the year
Other comprehensive income
At 31 July 2020
Profit
and
loss
£’000
Foreign
currency
translation
reserve
£’000
Treasury
shares
£’000
Total
accumulated
losses
£’000
(55,862)
(4,358)
—
(60,220)
(5,067)
—
(65,287)
(13)
(20)
(55,895)
—
14
1
—
3
4
—
—
(4,358)
14
(20)
(60,239)
—
—
(5,067)
3
(20)
(65,303)
Profit and 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 2020 no shares in the Company were
held by the EBT (2019: nil). In addition there are 12,222 (2019: 12,222) treasury shares not held by the EBT.
Company
At 1 August 2018
Loss for the year
At 31 July 2019
Loss for the year
At 31 July 2020
28. Financial risk management
Overview
Retained
deficit
£’000
(75,100)
(38,278)
(113,378)
Treasury
shares
£’000
Total
accumulated
losses
£’000
(20)
(75,120)
—
(38,278)
(20)
(113,398)
(66)
—
(66)
(113,444)
(20)
(113,464)
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 22 to 25 and in the Group statement of changes in equity. At 31 July 2020
total equity was £7,244,000 (2019: £8,523,000).
The Company is not subject to externally imposed capital requirements.
Nanoco Group plc – Annual Report and Accounts 2020
111
Notes to the financial statements continued
28. Financial risk management continued
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 at
amortised
cost
£’000
Receivables
£’000
Group
£’000
Receivables
Company
£’000
489
527
—
—
—
—
—
—
—
202
915
—
—
—
—
—
—
—
—
—
—
489
527
—
—
—
—
60,383
(60,383)
(2,113)
(2,113)
—
(1,184)
(462)
—
—
(1,184)
(462)
—
—
—
—
—
(450)
(450)
1,016
(3,759)
(2,343)
Financial
liabilities at
amortised
cost
£’000
Receivables
£’000
Group
£’000
Receivables
Company
£’000
—
—
—
—
202
915
—
—
—
—
60,383
(60,383)
(2,553)
(2,553)
(797)
(433)
—
(797)
(433)
—
1,117
(3,783)
(2,666)
—
—
—
(450)
(450)
Financial assets/(liabilities)
31 July 2020
Trade receivables
Other receivables
Inter-company short-term loan to subsidiary
Less impairment provision
Trade and other payables
Provisions
Lease liabilities
Loan notes and accrued interest
Inter-company long-term loan from subsidiary
Financial assets/(liabilities)
31 July 2019
Trade receivables
Other receivables
Inter-company short-term loan to subsidiary
Less impairment provision
Trade and other payables
Provisions
Loan notes and accrued interest
Inter-company long-term loan from subsidiary
112
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 28. Financial risk management continued
Categorisation of financial instruments continued
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 2020 or at 31 July 2019.
The split of Group assets between Sterling and other currencies at the year end is analysed as follows (Company assets are all
in Sterling):
Group
Cash and cash equivalents
Trade receivables
Trade payables
31 July 2020
31 July 2019
GBP
£’000
4,644
245
(1,157)
3,732
EUR
£’000
407
88
(10)
485
USD
£’000
119
156
Total
£’000
5,170
489
(137)
(1,304)
GBP
£’000
6,552
44
(887)
EUR
£’000
342
—
(3)
138
4,355
5,709
339
USD
£’000
111
158
(874)
(605)
Total
£’000
7,005
202
(1,764)
5,443
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.
Increase/(decrease)
10%
5%
(5%)
(10%)
Impact
on loss
before tax
and Group
equity
2020
£’000
Impact
on loss
before tax
and Group
equity
2019
£’000
85
40
(37)
(70)
(47)
(22)
20
39
Nanoco Group plc – Annual Report and Accounts 2020
113
Notes to the financial statements continued
28. Financial risk management continued
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:
Total
£’000
7,005
(400)
97
Total
£’000
2,113
1,184
462
3,759
Total
£’000
2,553
433
2,986
Group
Cash and cash equivalents
Loan notes
Company
31 July 2020
Fixed
rate
£’000
Floating
rate
£’000
—
5,170
Total
£’000
5,170
31 July 2019
Floating
rate
£’000
Fixed
rate
£’000
—
7,005
(400)
—
(400)
(400)
—
97
Cash and cash equivalents
—
3,440
3,440
—
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 2020 and 31 July 2019 based on contractual
undiscounted payments, including contractual interest.
2020
Financial liabilities
Trade and other payables
Lease liabilities
Convertible loan (including contractual interest)
2019
Financial liabilities
Trade and other payables
Convertible loan (including contractual interest)
Less than
one year
£’000
One to
five
years
£’000
Greater
than five
years
£’000
2,113
642
—
2,755
—
542
—
—
Less than
one year
£’000
One to five
years
£’000
2,553
—
2,553
—
—
—
—
—
462
462
Greater
than five
years
£’000
—
433
433
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.
114
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements 29. 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:
Long-term loans owed to Nanoco Group plc by
Nanoco Life Sciences Limited
Nanoco Technologies Limited1
Less provision against debt owed by Nanoco Life Sciences Limited
Short-term loan owed to Nanoco Group plc by
Nanoco Technologies Limited2
Less impairment provision
Long-term loan owed by Nanoco Group plc to
Nanoco Tech Limited
Notes
31 July 2020
£’000
31 July 2019
£’000
20,286
20,286
4,265
24,551
3,889
24,175
(24,175)
(24,175)
376
—
60,383
60,383
(60,383)
(60,383)
—
—
15
15
17
17
21
(450)
(450)
1 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.
2 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.
30. Compensation of key management personnel (including Directors)
Short-term employee benefits
Pension costs
Benefits in kind
Share-based payments
2020
£’000
1,314
46
—
334
1,694
2019
£’000
1,771
53
—
201
2,025
The key management team comprises the Directors and three members of staff (2019: four) who are not Directors of the
Company. The staff members of the team are the UK Finance Director, the HR Business Partner and the Production and Process
Research Manager.
Nanoco Group plc – Annual Report and Accounts 2020
115
Investor information
Directors
Independent auditors
Dr Christopher Richards Non-Executive Chairman
PricewaterhouseCoopers LLP
Brian Tenner
Chief Executive Officer
Dr Nigel Pickett
Chief Technology Officer
1 Hardman St
Manchester M3 3EB
Chris Batterham
Non-Executive Director
Dr Alison Fielding
Senior Independent
Non-Executive Director
Secretary
Liam Gray
Registered office
46 Grafton Street
Manchester
England M13 9NT
Website
www.nanocotechnologies.com
Legal adviser
Reed Smith LLP
The Broadgate Tower
20 Primrose Street
London EC2A 2RS
Investor relations
MHP Communications
6 Agar Street
London WC2N 4HN
Broker
Peel Hunt LLP
120 London Wall
London EC2Y 5ET
PR consultants
Tier One Partners LLC
80 Burlington Street
Lexington
MA 02420
Registrar
Neville Registrars
Neville House
Steelpark Road
Halesowen B62 8HD
116
Nanoco Group plc – Annual Report and Accounts 2020
Financial statements
CBP004694
The Group’s commitment to environmental issues is reflected in this Annual
Report, which has been printed on Image Indigo, an FSC® certified material.
This document was printed by Pureprint Group using its environmental print
technology, with 99% of dry waste diverted from landfill, minimising the
impact of printing on the environment. The printer is a CarbonNeutral®
company. Both the printer and the paper mill are registered to ISO 14001.
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