Annual Report
and Accounts 2022
possibilities
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
B
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.
Platform technology
We can design and
create nanomaterials
for a host of different
applications
more on p5
IP portfolio
Our IP portfolio protects our
unique production process
and materials, with significant
process know-how
more on p18
Volume production
Our unique production
process allows
controllable manufacture
on a large scale
more on p20
Experienced team
Our R&D team has
many years of specialist
experience creating novel
nanomaterials
more on p34
Strong foundations in our technology platform
Nanoco Group plc – Annual Report and Accounts 2022
001
Strategic report
Our year in brief 001
Nanoco at a glance 002
About our nanomaterial
platform technology 005
Chairman’s statement 006
Chief Executive Officer’s statement 009
Revenue streams 014
Section 172(1) statement 016
Our business model 018
Our strategy 020
Our key performance indicators 022
Financial review 024
Principal risks and uncertainties 027
TCFD disclosure 2022 030
Viability statement 032
Sustainability 034
Corporate governance
Board of Directors 040
Corporate governance statement 042
Nominations Committee report 052
Audit Committee report 055
Remuneration Committee report 061
Directors’ remuneration report 064
Directors’ report 080
Statement of Directors’ responsibilities
in respect of the financial statements 083
Financial statements
Independent auditors’ report to the
members of Nanoco Group plc 084
Consolidated statement
of comprehensive income 089
Consolidated statement of changes
in equity 090
Company statement of changes
in equity 090
Group and Company statements
of financial position 091
Group and Company
cash flow statements 092
Notes to the financial statements 093
Investor information 120
For more on Nanoco, visit our new website:
www.nanocotechnologies.com
Growth in revenue reflects
incremental growth in
income from key customers
for services and materials
Mix still concentrated
on sensing income with
modest display sales
Operating leverage of
revenue growth enhanced
by further cost savings
Annualised property savings
delivering £0.7 million net
from December 2022
Opening order book for
FY23 of £2.1 million, more
than double the PY
Organic cash runway
extended to CY25 –
excluding any potential
litigation receipts
Monthly gross cash burn
trending below £0.4 million,
before revenue and
tax credits
Cash runway extends
beyond expected
breakeven point
Revenue
£2.5m
+18%
Adjusted LBITDA
(£2.1m)
+26%
Billings
£2.7m
+55%
Cash
£6.8m
+77%
Our year in brief
Strategic report
Contents
2022 was successful year with a number of significant achievements
Signed major contract extension to deliver
final product validation of two materials for
sensing applications.
Delivered all technical milestones for our important
European electronics and Asian chemical customers.
Continued expansion of our range of materials
for use in infra-red sensing applications.
Co-located R&D and scale up activities in Runcorn
production facility with no loss of capability.
All five patents and all 47 associated claims
in the litigation with Samsung were upheld
by the Patent Trial and Appeal Board (‘PTAB’).
Jury trial in Texas expected in the short term.
Equity issue raised net £5.4m, cash runway
extended to CY25, beyond expected organic
business cash breakeven point.
Nanoco at a glance
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
002
We design, develop, scale up and manufacture
novel nanomaterials for use in a wide range of
potential applications
Our core competencies
We custom design new
nanomaterials to exploit
emission, absorption and
other properties
Our materials can be used
in a wide variety of
commercial applications
Continuous expansion of
our portfolio of materials
Our IP protected processes
allow high quality control
of manufacturing on
a large scale
Significant amount of
know-how and business
secrets
World-class talent
At 1 October 2022,
36 employees, of whom
9 are inventors
14 staff with PhDs
7 nationalities of staff:
American, British, German,
Indian, Italian, Lithuanian
and Portuguese
Respected globally
International partnerships
with global players from
US to Europe to Asia
Co-located R&D, scale up
and twin production
facilities in Runcorn, UK
Customers operate in
$multi-billion markets with
wide range of applications
Why invest in Nanoco?
Platform technology gives access
to a wide range of large and rapidly
growing end markets such as
consumer electronics, Internet of
Things, automotive, multiple display
devices, specialist lighting and
medical, to name but a few
IP backed
nanomaterial
platform
technology
Market opportunity
for QD materials
$17.5bn
1
by 2022
Diverse channel
partners
Large and
defensible IP
portfolio
503
patents granted
or pending
Highly innovative
employees
9
listed inventors
Continuing
investment
in R&D
£1.8m
invested in FY22
Significant
manufacturing scale
£130m
revenue capacity
1 Source – management estimate based on multiple independent market reports.
Nanoco Group plc – Annual Report and Accounts 2022
003
Large and growing
addressable markets
Three major industries served
Two licensees
Two major development agreements
A number of commercial research
and development opportunities
in progress or under discussion
Nanomaterial
technology
platform
Infra-red
sensing
CFQD
®
film
Internet
of Things
Horticultural
lighting
Electro-
luminescence
Autonomous
vehicles
Security
and
detection
QD on
microLED
Solar farm
combinations
Display
$1.0bn
1
addressable market
c.2022
Lighting
$8.5bn
1
addressable market
c.2022
Sensing
$8.0bn
1
addressable market
c.2022
1 Source – management estimate based on multiple independent market reports.
Dual capabilities at our Runcorn manufacturing facility
Based at Runcorn, UK, an area with extensive chemical industry expertise
and associated supply chains
Production footprint of 22,000ft
2
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
Nanoco Group plc – Annual Report and Accounts 2022
004
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.
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. Ecient 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, a highly toxic
heavy metal used by many competitors, delivering clear environmental
benefits, including improving energy eciency.
5nm
10nm
2nm
Infinite possibilities
Nanoco Group plc – Annual Report and Accounts 2022
005
Strategic report
Our technology has a wide range
of applications and we have the
expertise and knowledge to exploit it
About our nanomaterial platform technology
Absorb and emit light
in precisely controlled
wavelengths
Absorption and emission
wavelength of quantum dots
can be tuned to nanometre
resolution, thereby improving
efficiency and effectiveness.
Narrow focus sensing
materials for very specific
laser wavelengths
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
Improved energy
eciency reduces
power consumption
Quantum dots’ nanometre
precision and narrow width
of absorption and emission
improve efficiency and
energy needs.
Enhanced absorption
efficiency allows use of
lower power lasers
Less light lost to subpixel
colour filters in high colour
gamut displays
No emission loss to
non-visible near infra-red
wavelengths in high
colour rendering general
lighting fixtures
Lower loss of output
gives the ability to reduce
energy input
Nanosecond lifetime
enables increased
modulation
Emission lifetimes 1,000 times
faster than conventional
phosphors open up
applications requiring high
light modulation speeds.
Rapid response times
in sensing applications
Improved screen refresh
rates on displays for
gaming and virtual reality
Opportunities to integrate
LiFi into conventional
light fittings for secure
data connections
Reduces production
challenges, cost and
complexity
Wide excitation absorbance
band and flexibility in product
form factors allow CFQD
®
quantum dots to be easily
integrated into applications.
Ink jet and spin coat
processing allow for low
cost manufacture of next
generation sensing and
LED and OLED/QD
hybrid devices
Sheet form factor allows for
simple drop-in integration
to current electronics,
eliminating retooling costs
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
006
Chairman’s statement
Strategy and business activity
This calendar year was always going
to be a critical year for Nanoco. Our
challenge was to deliver key value
inflection milestones, in both the organic
business and in the IP litigation against
Samsung. By the end of the financial
year we had successfully delivered in
both areas.
The significant contract extension with our
important European electronics customer
underpins final product validation in the
sensor market. It also provides new
material research service income in
advance of potential commercial
production orders. We aim to have
validated our materials and to have
visibility of commercial production from
the customer around the end of H1 FY23.
We have continued to build on our success
in expanding our range of nanomaterials
for use in sensing applications and to grow
the number of active engagements with
customers. This incremental approach to
business development ensures that we
balance the Company’s financial
resources against the need to continue to
expand our product and customer reach.
Commercial success with materials in
production will be the ultimate test for the
success or failure of the business in the
medium to long term. In the background,
a small subset of the Nanoco team has
driven the Samsung litigation forward
enabling the commercial team to focus
fully on the organic business.
Summary
Major contract extension agreed
with important European
customer, underpinning scale-up
and final production validation.
Development agreement
progressing with a major Asian
chemical company that supplies
global electronics markets.
Continued expansion of our range
of different materials, customer
engagements, and applications
for sensing materials.
Growing expressions of interest
in display materials following
validation of Nanoco IP by PTAB
and global RoHS developments.
Confidence in the merits of our
case against Samsung for the wilful
infringement of the group’s IP in the
USA further reinforced by PTAB
decision to confirm validity of all of
our patents; currently awaiting a
firm trial date.
Operations transferred
successfully from Manchester
to Runcorn delivering net £0.7
million annualised savings from
CY23.
Over-subscribed equity issue of
£5.4 million (net) secured cash
runway to CY25 – beyond the
point when the group expects to
be self-financing in its organic
operations.
Strategic report
DR CHRISTOPHER RICHARDS
Chairman
Steady delivery of critical,
value enhancing milestones
Business performance
The organic business has enjoyed a
number of notable successes during
the year. A new one-year contract
with our important European electronics
customer creates a much more stable
planning and operating environment
for the Nanoco team. We expect to
continue the expansion of our portfolio
of materials and customers focused
around infra-red sensing as we expand
our IP in this area. We are also starting
to see additional inbound enquiries for
our display materials as markets take
notice of our IP victories at PTAB.
The operations team completed a
number of important change projects
during the year, not least of which were
the exits from the first and ground floors
of our Manchester facility. We expect a
number of operational benefits from
having the whole team in one location
as we look forward to visibility of our first
commercial production orders around
the end of H1 FY23. The operational
benefits will be supplemented by just
under £0.7 million of net annualised cash
savings once the exits are complete
towards the end of CY22.
The successful and significantly over-
subscribed fundraise of £5.4 million (net)
in June 2022 creates a solid foundation
for the business by extending our cash
runway out to CY25. This is expected to
be beyond the resolution of any PTAB
appeals and also potentially beyond
the point when we expect the organic
business to become self-financing.
No dividend is proposed for the year
(2021: none).
Nanoco Group plc – Annual Report and Accounts 2022
007
Samsung litigation
It was extremely gratifying earlier in the
year when the Patent Trial and Appeal
Board (“PTAB”) emphatically rejected all
of Samsung’s objections to the 47 claims
in the five patents in the case. This is a
clear vindication of the quality, strength
and value of Nanoco’s IP portfolio, which
is now attracting new commercial
interest from other market participants.
At the time of writing, we are still awaiting
a firm date for the Jury trial in Texas. It is
important to emphasise that Samsung is
likely to appeal any verdict that favours
Nanoco in this trial. As a result, we do not
expect a conclusion of the US litigation
until the appeals process is exhausted,
which could take some years. Samsung
has already lodged notices that it
intends to appeal all of the PTAB findings,
a process which is expected to be
resolved over the next twelve to eighteen
months.
So, even if we are successful at trial there
will still be much work to be done before
this matter is finally settled. Our resolve
remains strong to achieve fair value in
this matter for all of our stakeholders,
whether through negotiated settlement
or final enforced judicial outcome.
We have also recently taken steps to
defend our IP in Germany, a major market
for Samsung. Other venues for litigation
are also being evaluated. The costs of
the legal process in Germany are lower
than the US, the speed of resolution is
faster, and, importantly, injunctions
preventing the sale of infringing units are
more commonly granted. Our third party
funding partner continues to support all
aspects of these lawsuits, including the
appeals processes.
Finally, the Board continues to review
options for litigation against other
potentially infringing entities, including
third parties who may be purchasing
infringing display units from Samsung.
Governance and Board
This has been another busy year for the
Board, with active engagement from all
members. Close monitoring of the IP
litigation, as well the operational aspects
of the business, has kept Board members
busy. We have also pursued continuous
improvement in our governance
processes.
Non-Executive Director salary deferrals
remained in place throughout the year
as the Board continued to show
leadership on cash and cost control.
Following the improved outlook for the
organic business and the successful
fundraise in June 2022, it was decided
to cease the 35% deferral of NED
salaries with effect from 1 July 2022.
During the year, we benefited from the
services of Henry Turcan as a Non-Executive
Director, representing our largest
shareholder, Lombard Odier Asset
Management (“LOAM”). His contribution
and perspectives on the capital markets
in particular were immediately valuable.
After the year end, with the business
on a much more secure financial and
commercial footing, Henry stepped down
from the Board and LOAM has chosen
not to nominate a replacement NED
at this time.
“ Extending our
cash runway
beyond expected
key litigation
milestones
and potential
production order
visibility in H1 FY23
was an important
step. Both the
organic business
and the litigation
create potentially
transformative
changes in
shareholder value
in the short to
medium term.”
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
008
Employees and shareholders
Our staff responded admirably to the
welcome challenges of an increasing
workload across all aspects of the
business. We continue our efforts to
provide staff with a supportive working
environment and have made special
provision during the relocation from
Manchester to Runcorn. We are pleased
that the vast majority of staff agreed to
make the transition from Manchester to
Runcorn. We have moved swiftly to
ensure that the business is staffed
appropriately in the run-up to potential
commercial production orders in the
near term.
Following a number of challenging years,
we are pleased that we have been able
to award a Company-wide pay rise for
the first time since August 2019, whilst
enhancing the overall Nanoco reward
package to retain and motivate our high
calibre team.
The Board is very grateful for the hard
work of our staff, who have brought us to
this exciting point in our evolution.
Capturing the short-term opportunities
we see in front of us will secure not just
the Company’s future but also the
futures of our dedicated Nanoco team,
whilst becoming a significant success
story for the north west of England.
I would also like to thank our
shareholders for their continuing support.
The successful fundraise emphasises the
strength of backing from existing and
new shareholders. We hope to repay
that support with significant growth
in shareholder value in the short term
that then endures for the long term.
I look forward to engaging with as many
shareholders as possible at our AGM
to be held on 20 December 2022.
Outlook
We continue to develop our product
offering and to deliver technical
milestones for our significant customers,
as we move towards commercial
production in the short term. This is a
critical milestone in our aim to become
a self-financing organic business with
a broad range of diversified customers
and products.
We expect that our confidence in the
merits of our case against Samsung for
infringement of our IP will be vindicated
when the trial takes place in Texas in the
near term. While undoubtedly there will be
appeals and further delaying tactics
deployed by Samsung, we will be able to
manage those with full confidence and
from a position of strength without ruling
out our willingness to entertain a fair value
early settlement proposal from Samsung.
Our focus remains to build a self-sustaining
organic business as the best way to
deliver enduring shareholder value. We
will also work to protect and realise any
value that is delivered by a trial verdict,
and to ensure that it reflects not just the
USA and the past, but the rest of the
world and the future lives of our patents.
Achieving both goals will deliver the
Nanoco for which we have been striving
for many years and a significant increase
in value for all stakeholders.
Dr Christopher Richards
Chairman
28 October 2022
Chairman’s statement continued
Nanoco Group plc – Annual Report and Accounts 2022
009
Chief Executive Ocer’s statement
ABOVE:
Laboratories at Nanoco.
T
his year has been all about
delivery. We have delivered
or exceeded almost all of the
targets we set at the start of
the year. We outperformed our revenue
target for the year while doubling the size
of our opening order book for the coming
FY23. We delivered all of the challenging
technical milestones set by our customers
for our high performing nanomaterials.
We have almost completed the
consolidation of our Manchester R&D
and scale up activities into our Runcorn
facility. This was accomplished despite
a lower headcount that required us to
call up all of our bench strength to ensure
customer service was maintained while we
made operational changes to the business.
These changes will bring long-term
operational benefits as well as welcome
financial savings of around £0.7 million
(net) per annum from January 2023.
Last, but not least, we have moved
confidently through the various stages
of the litigation against Samsung and
cleared each of the hurdles in front of us.
The trial in Texas is anticipated soon and
we expect to build on all of the successful
steps taken so far to deliver a favourable
outcome. Our team of witnesses, experts
and advisers remain ready for a trial at
short notice.
BRIAN TENNER
Chief Executive Ocer
Strong delivery of
commercial, technical,
operational and
litigation milestones
Given Samsung’s appeals in the IPRs
and the expected appeal of any verdict
favourable to Nanoco, the litigation is still
very likely to have a long way to go. With
a favourable outcome to the trial, we will
be able to approach the next steps from
a position of strength. We have
presented further facts, background
information and possible forward
timelines on the lawsuit on pages 12
and 13.
The year finished with a significantly
over-subscribed equity issue and we
took advantage of that appetite for
investment by issuing the maximum 5%
equity allowed under our AGM resolutions.
Net proceeds of £5.4 million, combined
with modest revenue growth in FY23 and
a low volume use case for commercial
production orders in H2 FY23, will fund
the group beyond the point at which
we expect the organic business to
be self-financing.
Business performance
Electronics
We continued our on-time delivery of
all development milestones for our major
European electronics customer. The new
full year contract that runs until the end
of April 2023 covers the scale up and
final validation of two of our materials
and also adds a third novel material
set to our R&D efforts. While at a less
advanced stage and at a smaller scale,
promising progress continues to be
made with our major Asian chemical
company customer. That relationship
has the potential to equal in scale the
revenue generation we earn today from
the European customer. Both the European
and Asian customers participate in very
large global markets wherein final customer
adoption of QD sensing technology would
lead to significant revenue for Nanoco. We
also continued to seek out new customer
relationships throughout the year with
encouraging initial progress.
Success with sensing materials allowed
us to turn an opening order book of just
under £1.0 million into a full year revenue
figure almost two and a half times higher
at £2.5 million, alongside delivering a
closing order book double the opening
position. This larger closing order book
gives a robust underpin to revenue
expectations for FY23.
As shown in the infographic on page 21,
our offering of nanomaterials for use in
sensing applications has moved from a
single customer/single product in early
2018 to a position today where we are
engaged with seven customers and are
working with twelve distinct materials/
wavelength combinations. The infographic
also shows the advancing position of
a number of materials as they move
through the steps from development
towards final validation – the last step
before commercial production orders
are placed.
The mega-trends seen in electronics,
automation, automotive and the Internet
of Things more generally continue to be
very favourable, supporting our strategy
of adding our nanomaterials to silicon-
based sensors to significantly enhance
their performance and overcome a
number of current challenges faced
by those devices.
Given the scale of these sectors and the
other market participants, we will
typically to be part of an extensive
supply chain. This does mean that we are
subject to events and decisions outside
of our control – as happened with the US
customer in 2019 – but it also means the
potential is very high to deliver significant
value if our materials make it into
commercial production.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
010
Business performance continued
Electronics continued
As previously announced, already
published customer product launch
plans suggest we should have good
visibility of potential commercial
production around the end of calendar
year 2022, though, as always, the final
decision to adopt the technology lies
with the customers of our customer
and this cannot be taken for granted.
Our task is to ensure that our materials
consistently perform as required by
our customer so that we are scaled
up and ready for those potential
production orders.
Our small scale allows us to be much
more agile and responsive to our customers’
needs than many other players in
electronics supply chains. The in-depth
nature of our technological insight also
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. Conversely, our
small scale does present challenges for
customers in terms of supply chain risks
and we therefore work proactively to
agree commercial solutions to the issue
of supply chain security.
Display (CFQD® quantum dots)
Display remains an important target
market for Nanoco. We have maintained
our focus on our “dot only” strategy
where we aim to provide the highest
performing CFQD
®
quantum dots.
Activity and inbound enquiries about
display materials have begun to grow
again during the year. We believe this
reflects a combination of our success
with our patents at PTAB, the continued
reduction in Samsung’s market share in
QD TV markets and associated entrance
of new participants, and the increasing
profile of Restriction of Hazardous
Substances (“RoHS”) and equivalent
regulations around the world that limit
the use of cadmium thus playing to our
cadmium free offering. We have also
seen increasing interest in the use
of quantum dots in LEDs for both
lighting and display applications.
We continue to seek out new
relationships and a number of these
are moving forward at a small scale,
having delivered a number of small
material samples were delivered to new
customers during the year.
We are still awaiting the EU legislation to
implement the final decision to end the
RoHS cadmium exemption for film-based
displays. This will provide fresh impetus to
display panel manufacturers to embrace
the benefits of our CFQD
®
quantum dots.
We note that a number of OEMs are
investigating environmentally friendly
options rather than waiting for the EU
legislation. European markets currently
have sales of cadmium-based QD
televisions and a move to cadmium-free
solutions will provide a helpful tailwind.
We retain our core capabilities to deliver
display R&D services, scale up and
commercial production of material from
our Runcorn facility. We are therefore well
positioned to take advantage of any
broadening in the adoption of non-toxic
quantum dots by global display
manufacturers when the opportunity arises.
A successful verdict in the litigation with
Samsung will also positively affect our
ability to derive income from our
capabilities in display, whether in
production, further robust defence of our
existing IP portfolio, or the future licensing
of our technology.
We will continue to adopt a dual
approach to commercial exploitation of
our display materials. We are still ready
to license our technology to different
channel partners but also retain our
own manufacturing capability.
Life Sciences
In November 2020, the Life Sciences
team secured a grant from Innovate UK,
the UK’s innovation agency, for a life
sciences project to develop a quantum
dot testing kit for the accurate and rapid
visual detection of Covid-19. This project
builds on Nanoco’s existing capabilities
in utilising quantum dots conjugated with
antibodies as a diagnostic tool in the
detection of cancer (VIVODOTS
®
nanoparticles). The project specifically
focuses on antibodies for Covid-19.
However, as is the case with our other
materials, our goal is to create a platform
technology that is applicable to other
pathogens and potential future variants
of Covid-19. The project therefore remains
relevant despite many other tests now
being available on the market for Covid-19.
The project completed successfully
and on time in May 2022 with a working
prototype. We also had time to assess
the test against other pathogens, clearly
demonstrating the multiple use cases
for our VIVODOTS
®
. We have now stood
the team down following the move to
Runcorn and our residual efforts relate
to identifying potential exploitation
avenues for the technology. Further
progress and any value implications
are likely to require the engagement
of a partner organisation specialising
in this field.
Operations
We completed the exit from the first floor
of our Manchester facility early in the
second half of FY22. We then took the
decision to exit the ground floor and
co-locate our entire suite of operations
into our Runcorn facility. The display
facility in Runcorn has been taken out of
mothball and now hosts the R&D teams
as well as our production capability for
CFQD
®
quantum dots. The co-location
will create a number of operational and
team benefits while also reducing our
annualised installed cost base by around
£0.7 million (net) once decommissioning
and dilapidations are complete in
Manchester towards the end of CY22.
Our resulting team now numbers
approximately 36 operational staff.
We have delivered a striking reduction
in our installed cash cost base from over
£12.0 million in FY19 to around £4.0 million
for FY23 while retaining our core capabilities.
We have achieved this by focusing on
our “dot only” strategy that plays to our
core quantum dot expertise.
We continue to cross train our flexible
production team to be able to operate
both facilities to maximise our capability
while minimising costs in the short term,
allowing us to maintain our significant
production revenue-generating
capacity. In FY23, following a successful
pilot in FY22, we plan on rolling out initial
LEAN Six Sigma training (“LEAN”) to every
single member of staff whether in R&D,
scale up or production. The behavioural
and analytical benefits of LEAN will be
a great boost for team performance.
Responding to Covid-19
We remain vigilant in the aftermath of
the Covid-19 pandemic. We continue to
emphasise good housekeeping practice
such as hand hygiene and self-testing
if symptoms occur followed by staying
home if a test is positive. Many staff
are able to work remotely if required to
isolate and a number regular mix working
from the labs and home with little impact
on activity or effectiveness. We encourage
staff to attend the office as much as
possible as the working environment and
relationships formed there are enhanced
by this interaction.
Chief Executive Ocer’s statement continued
Nanoco Group plc – Annual Report and Accounts 2022
011
Intellectual property
We continue to proactively manage
our IP portfolio to maximise value and
protect our core competencies. During
the year, we focused the group’s IP
portfolio on to a core of 503 (2021: 559)
patents and patent applications with
the most promising commercial potential.
This net reduction reflected 24 new
applications and 80 that were eliminated
in territories or potential applications
no longer felt worthwhile.
We continue to preserve trade secrets
and have targeted our financial resources
on strategic areas such as infra-red
sensing where there is a strong overlap
with our core IP. These are also areas with
clear future commercial opportunities
and benefits to be had from holding
high quality patents.
Environment/Restriction of
Hazardous Substances (“RoHS”)
We reported last year that the European
Commission (“EC”) had received
recommendations that:
the exemption to allow cadmium
(>100ppm) in QD films for display is
no longer justified and should be
phased out by 31 October 2021; and
a new exemption is granted to allow
cadmium-based quantum dots
applied directly onto LED chips for
displays and high CRI lighting for
a period of five years.
Progress in implementing legislation to
enforce this recommendation has been
slow. It therefore seems likely that European
consumers will continue to be exposed for
some time to the known hazards of
cadmium in televisions that exceed the
limits shown above. Ahead of nations
passing the required legislation, a number
of display manufacturers appear to be
anticipating the changes and Nanoco has
received inbound enquiries in this field.
People
Our employees continue to provide great
service to our customers in delivering high
quality materials on time and achieving
often stretching milestones and deliverables.
It is welcome that the vast majority of
staff have embraced the move to the
Runcorn facility.
Retaining and incentivising our highly
skilled team are key to delivering organic
value from the business. We were therefore
pleased to be able to propose a very
reasonable pay award for the coming
year. We also undertook a review of
comparative salaries against national
benchmarks (excluding London).
Following that exercise, we were also
able to offer structural pay rises for
almost a third of our highly skilled
workforce to remove everyone from the
lower decile of comparator pay. Our
goal for staff (excluding Executives)
is to be a median payer with upside
potential from our annual performance
linked bonus scheme and Company-wide
participation in the same Long Term
Incentive Plan that the Directors enjoy.
Finally, reflecting staff feedback on their
preferred benefits in addition to basic
salaries, we have now increased the
Company pension contributions to our
medium-term target of 7.5%, an increase
of 1.5%. We will review other benefits
options and further potential
improvements to pension contributions
as our financial situation improves and
when the Company becomes self-
financing in its organic operations.
Outlook
We have created strong foundations
for the group to rebuild our value
proposition. We expect visibility of
commercial production orders for sensing
materials around the end of H1 FY23. We
also expect to complete our
preparations for production readiness in
H1 FY23. In parallel we continue to
expand our material offering to other
customers and other materials in sensing
markets.
We have also seen growing interest
in CFQD
®
quantum dots for use in the
display industry and are engaging
cautiously with market players other than
Samsung which already participate in or
are seeking to enter in the QD TV market.
This extends to interest in Gen 2 QD
displays as well as displays utilising LEDs.
The recent fundraise has allowed us to
plan or make a small number of tactical
new hires in the business. These new hires
range from income-generating customer
facing roles, to scale up and production
readiness roles, as well as front line and
back office support staff. These will allow
us to gradually grow our top line revenue
and also position us for commercial
production orders.
As ever, the main unknown is the actual
timing and size of the initial use case
for sensing materials. However, the
significant investment by our customers
in Nanoco materials and their own
production and marketing efforts,
emphasise that it is more a question
of “when” and not “if”. In any event,
Nanoco has the flexibility, capability
and capacity to meet small or large
scale production orders in parallel
with continued revenue generation
from R&D services.
Most of our team is primarily focused on
our organic business. However, a small
group of staff is also focused on the
Samsung litigation and realising value
from our IP portfolio. It is likely that it will
be some time before the financial
benefits of any favourable verdict are
enjoyed by Nanoco. However, we will
continually seek to apply pressure to
Samsung in various forms and
jurisdictions with a view to settlement
before the final exhaustion of every legal
step. Our goal remains to deliver fair
value that reflects the global nature
and remaining lives of our patents
while acknowledging there are risks for
Nanoco in the continuing litigation, not
least of which is the time value of money.
We continue to adopt a conservative
stance with regards to future financial
forecasts. We expect to achieve at least
20% revenue growth in FY23 based on
a stronger opening order book, an
increasing range of R&D services being
offered to a broader base of customers,
and an assumed low volume use case
for commercial production orders
commencing in H2 FY23. A larger or
earlier use case for sensing materials
would clearly improve the outlook.
I remain confident that we can deliver
value for all of our stakeholders in the
short to medium term with the potential
for additional transformative value
in the Samsung litigation.
Brian Tenner
Chief Executive Officer
28 October 2022
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
012
Chief Executive Ocer’s statement continued
Q&A
Q: What is the thinking behind the reduced emphasis
on “cash runways” and “contingency plans”?
Before I joined Nanoco, I shared with one of our current
Non-Executive Directors a vision of an Annual Report that
was not dominated by extensive narrative disclosures of ever
dwindling cash and a visible runway for organic operations
that was measured in months, not years. The whole team
has been living for a number of years with the threat
of downsizing.
This year feels different. Yes, there are still many risks to be
eliminated or mitigated. Yes, we need to keep delivering
excellent service to our customers. And yes, we are still
dependent on customers adopting our technology in end
use devices to trigger those long sought-after commercial
production orders. But, with a growing pipeline of customer
engagements, a much reduced cost base, a relatively
healthy cash balance and a strategy focused on our core
competency of “dots only”, we are now able to plan further
ahead than the next twelve months.
Q: What are the next steps on the litigation front?
We are prepared for a long litigation road ahead. We will
oppose the appeals which Samsung has already notified
the PTAB that it intends to file. We will oppose any expected
appeals if and when we achieve a favourable verdict in
the trial in Texas. We will also press on with the recently
announced litigation in Germany that, ultimately, could lead
to an injunction against Samsung selling certain displays in
Germany. Si vis pacem, para bellum.
Of course, it remains open to Samsung to take another path.
We have made clear that we are prepared to speak to
Samsung if they can offer fair value for our investment in
creating our IP, for the global nature of that IP, and for the
remaining lives of the patents which formed the basis of us
instigating the litigation in the first place. This alternative
road forward will depend on Samsung’s willingness to
engage in meaningful dialogue.
An overview of the Samsung litigation
To win an IP lawsuit the plaintiff
(Nanoco) must prove the following
three things:
Validity: Nanoco must prove that the
patents are valid. Samsung is arguing
that the patents are invalid. If the
patents are invalid, then the
subsequent questions of infringement
and damages do not arise.
Infringement: Nanoco must prove that
Samsung is infringing a patent once
it is accepted as a valid patent.
Samsung must prove that its method
of producing cadmium-free quantum
dots does not use any of the methods
protected by Nanoco’s patents.
Damages: Once a patent has been
proven to be valid and that it is being
infringed, Nanoco must propose a
damages model that reflects the value
lost or the benefit gained by Samsung
in breaching the patents. Different
approaches exist which range from a
high value based on the IP in question
being an enabling technology that
underpins the entire final product, to a
lower value which could, for example,
be based on the value of each
individually separable component.
A separate parallel process is available
in the USA for the defendant to request
that the Patent Trial and Appeal Board
(“PTAB”) reviews whether the patents
are valid in a process known as an inter
partes review (“IPR”). The PTAB initiated
a review of all five patents in the case
in May 2021. One year later the PTAB
confirmed the validity of all 47 claims
in the five patents on all grounds raised
in the IPRs. A residual, and highly
speculative and technical invalidity
ground is still open for Samsung to raise
at the trial but the material validity risks
were all dealt with in the IPRs. It remains
to be seen if Samsung will even raise this
additional invalidity ground in court.
Success at PTAB will allow Nanoco to
focus our efforts at the trial on the
questions of infringement and damages.
This was extremely helpful given that the
trial will have a fixed five-day duration in
which both sides have to present their
cases, deliver testimony from their expert
witnesses, cross examine the other side,
and still allow time for the Judge to direct
the jury and the jury to consider and
reach a verdict.
In its verdict, the jury will decide if
infringement has occurred, if it was wilful,
award a damages number and state if
that damages award is for the past only
or if it also includes future sales in the USA.
Following the verdict, the judge is
expected to issue his formal report
including a decision on any damages
multiplier for any finding of wilfulness. If
the damages award is for the past only,
the judge will also propose a reasonable
royalty rate to be applied to future sales
of TVs in the USA. There is no fixed time
period for when the judge will issue their
formal opinion and Samsung can be
expected to lodge various appeals once
the opinion is published. Samsung has
already lodged notice of appeal of the
written opinions of the PTAB and the results
can be expected twelve to eighteen
months after November 2022. Appeals of
the court verdict and judge’s opinion can
be a much longer matter, taking anywhere
up to four years or more to resolve if, for
example, a re-trial is mandated.
Funding, adviser fees and Nanoco’s
share of any successful outcome
The funder and Nanoco’s advisers will all
share in any successful outcome. The
funder and our strategic adviser receive no
return unless there is a successful outcome.
Various legal counsel are working on
reduced fee rates (which are being paid by
the funder) and will be made whole with a
share of upside if the case is successful.
The third party funding does not
terminate until there is a final resolution of
the litigation. The quantum of committed
funding was increased during the year to
fund additional litigation activity. The
terms of the funding maintain Nanoco
control of any decision to settle.
The Board estimates that in all reasonable
outcomes, even at what the Board would
regard as a modest outcome, the mechanics
of the fee arrangements are such that
Nanoco will retain the majority of any award.
As the size of any final award rises, Nanoco’s
Nanoco Group plc – Annual Report and Accounts 2022
013
proportionate and absolute share increases
since some of the parties’ returns are based
on fixed multiples of invested capital.
Any financial result will be taxable at 10%
within Nanoco when the cash is received
using the UK Patent Box regime. The
Company also has accumulated losses
which can partly offset any final outcome.
Management comment
Even if we achieve a favourable verdict in the
trial, this will not be the end of the process.
Further delaying tactics are expected in
the form of appeals from Samsung.
Furthermore, the value of any verdict
cannot be taken for granted. Any final
outcome, potentially negotiated, will
leverage the value of any verdict:
Factors potentially reducing
the value of the verdict:
risk of losing any of the multiple appeals;
risk of a re-trial; and
time value of money.
Factors potentially increasing
the value of the verdict:
the finding of wilfulness;
future royalties in the USA;
sales of other devices besides TVs
and monitors; and
sales of infringing TVs in other territories
around the world which are estimated
to be around double those in the USA
We estimate that Nanoco IP coverage
outside the US relates to roughly twice
the value of the US market itself for sales
of Samsung TVs and monitors.
Hence, there remains a significant degree
of uncertainty regarding both the probability
of a final and successful outcome and the
scale of such an outcome. The judge’s
report is also not due to be published for a
number of months after the trial itself, and
we expect that Samsung will appeal any
verdict in Nanoco’s favour.
It should also be noted that almost all
countries run independent patent and
patent infringement systems. This means
that success in one territory does not
create any legal basis for confidence of
wining in a second territory. Such a success
could, however, create commercial
confidence of success in a second
jurisdiction that might also add pressure
in any potential settlement discussions.
While the Board believes firmly that the
preponderance of risks are now with
Samsung, it is also true that Samsung only
needs to win one appeal whereas Nanoco
needs to win most if not all of the appeals
if we are to prevail. The risks to Nanoco
therefore remain substantial.
It would be premature to speculate on
any use of funds at this time given the
potentially extended time frame before
the receipt of any final outcome.
Litigation outside the USA
As announced on 23 August 2022, we have
commenced further funded legal action
against Samsung in Germany, a large
sales territory for Samsung but also one
where the legal process is faster and less
costly to pursue than in the USA. The
standard legal remedy in Germany is
injunction and product recall to remove
infringing products from sale. The threat
of injunction is such that, before it can be
enforced, the vast majority of losing
defendants will reach a financial
settlement with the plaintiffs. If an
injunction is to be enforced before the
legal process is exhausted, the plaintiff
must deposit a bond to cover lost profits
of the defendant in the event that the
injunction is overturned.
The Board continues to review other
jurisdictions to start further litigation
and is also reviewing the position of
other companies that are suspected of
infringing Nanoco IP (potentially including
Samsung OEM customers).
Samsung has the opportunity to halt
the litigation process at any time by
engaging with the Board to agree a
fair value settlement for a global
perpetual licence.
Timeline for three major threads of the current litigation in the USA and Germany
Texas trial process
~ Q4 CY22 ~up to 6 months ~ June 2023 ~3-4 years or longer
Jury verdict
Judge issues final
written opinion
Samsung appeal
based on judge’s final
opinion
Various appeals to the
Federal Circuit, and the
Supreme Court, and risk
of retrial, etc.
German legal process
August 2022 ~ September 2023 ~ February 2024 ~ September 2024
Initial filing
Preliminary validity
finding
Trial of infringement;
Decision in March 2024
Trial of validity
Patent office process
May 2022 May 2022 ~November 2023
PTAB decision on IPRs settles all
material validity points
Samsung lodge notice of intent to
appeal all IPR decisions – actual
appeal expected to be filed
November 2022
Final outcome of the IPRs
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
014
We have significant potential
capacity for revenue generation
from our multiple revenue streams
Revenue streams
Products
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 attractive, and benefiting
strongly from operational leverage if
extra shifts and volumes are added.
Revenue potential: HIGH.
Royalties
As well as the ability to make and sell
materials directly to our customers, the
agreements with our channel partners
(Dow and Wah Hong) allow them to
manufacture or distribute our materials
themselves and then pay a royalty on
the value of their sales to their customers.
This revenue stream has the potential for
high leverage since it is not constrained
by manufacturing scale and also has
minimal costs associated with
incremental sales via this channel.
Success in the Samsung litigation would
increase the potential of this income
stream. Revenue potential: HIGH.
Services
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: LOW.
Licences
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. Success in
the Samsung litigation would increase
the potential of this income stream.
Revenue potential: LOW–MEDIUM.
Products
Our revenueServices Royalties
Licences
Nanoco Group plc – Annual Report and Accounts 2022
015
Tuning near-infra-red absorption with HEATWAVE™
quantum dot technology
Progress has been made in expanding the absorption range, processability and
performance metrics of our HEATWAVE™ nanoparticles for infra-red silicon sensing
applications. For our customers, this has increased the potential range of products for which
our materials can be used. We are continuing to extend our portfolio of infra-red-absorbing
materials available to customers, to target novel applications, from consumer electronics to
machine vision and medical imaging.
What this all means…
Ultimately, QD-based silicon sensors oer the
potential to lead to more sensitive, thinner, lower
power sensors than silicon devices over a wider
spectral range, providing an inexpensive alternative
to InGaAs technology.
700
0
0.2
0.4
0.6
Absorbance (a.u.)
0.8
1.0
1.2
1.4
900 1,100 1,300 1,500 1,700 1,900 2,100
Wavelength (nm)
Infinite possibilities
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
016
Strategic report
Section 172(1) statement
Why we engage How we engage and respond Impact of engagement Engagement during the year
Employees
To ensure employees feel valued
for their contribution
To empower our employees
To enhance our employees through training
and progression
We communicate key decisions and
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 more valued and
aligned to the business
We improve as our employees improve
We ran our second engagement survey to solicit employee feedback.
This gave useful pointers as we continue to build on FY22 initiatives
We held a number of all-Company days to build team morale
We consulted on the impact of relocating to Runcorn and devised
mitigating benefits packages, although some employees still left
the business as a result of the relocation
Customers
To ensure we can provide the best service and
products possible, to meet the customers’ needs
To protect our customers’ technology
To ensure we are complying with
regulatory requirements
We ensure open and constant communication
with customers, to ensure our products and
services are world leading
We welcome feedback from customers, and work
collaboratively to achieve our customers’ goals
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
Through the year, we actively engaged in weekly technical updates
to aid development and collaboration
We discussed openly any logistical challenges due to import/export
regulations, helping customers with their own compliance goals
Suppliers
To develop long-term, collaborative
partnerships for key, difficult to source
R&D components
To mitigate the risk of not being able
to succeed commercially
To comply with regulatory requirements
We create close collaborative working
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
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
We performed audits on suppliers to ensure their compliance with legislation
We engaged with a number of suppliers on the qualities of our raw
materials, and considered their impact on our products for our customers
We maintained dialogue on availability of raw materials, and took action
when there was a risk this could be compromised
Some supply chain issues have been experienced, but the impact of
these has been mitigated through close collaboration with suppliers
Regulators
To ensure compliance with
regulatory requirements
To protect our staff and communities
To ensure best practice
We review our operations periodically
to ensure compliance with regulations
We actively maintain standards through
external reviews (e.g. ISO 9001 accreditation)
Compliance with regulatory requirements
enables the business to operate in a safe
manner, protecting our employees and
the wider communities
Post year end, we completed our ISO recertification
We constantly reviewed operating procedures to ensure best practice
Continued engagement with European RoHS regulators to remove
exposure to toxic cadmium from EU customers
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
We aim to create long-term investor value,
through growing from an R&D services
business to a commercially viable niche
production company
We engaged openly with shareholders through analyst briefings
and subsequent Q&A sessions
We expanded engagement in Investor Meet Company presentations
We engaged with many existing and new shareholders leading to the
successful equity issue and fundraise in June 2022
Section 172(1) report
I
n 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 27 to 29 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 30 and 31 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 do the right thing. The Company also has
well-embedded policies in place which assist with ensuring high
Nanoco Group plc – Annual Report and Accounts 2022
017
Why we engage How we engage and respond Impact of engagement Engagement during the year
Employees
To ensure employees feel valued
for their contribution
To empower our employees
To enhance our employees through training
and progression
We communicate key decisions and
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 more valued and
aligned to the business
We improve as our employees improve
We ran our second engagement survey to solicit employee feedback.
This gave useful pointers as we continue to build on FY22 initiatives
We held a number of all-Company days to build team morale
We consulted on the impact of relocating to Runcorn and devised
mitigating benefits packages, although some employees still left
the business as a result of the relocation
Customers
To ensure we can provide the best service and
products possible, to meet the customers’ needs
To protect our customers’ technology
To ensure we are complying with
regulatory requirements
We ensure open and constant communication
with customers, to ensure our products and
services are world leading
We welcome feedback from customers, and work
collaboratively to achieve our customers’ goals
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
Through the year, we actively engaged in weekly technical updates
to aid development and collaboration
We discussed openly any logistical challenges due to import/export
regulations, helping customers with their own compliance goals
Suppliers
To develop long-term, collaborative
partnerships for key, difficult to source
R&D components
To mitigate the risk of not being able
to succeed commercially
To comply with regulatory requirements
We create close collaborative working
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
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
We performed audits on suppliers to ensure their compliance with legislation
We engaged with a number of suppliers on the qualities of our raw
materials, and considered their impact on our products for our customers
We maintained dialogue on availability of raw materials, and took action
when there was a risk this could be compromised
Some supply chain issues have been experienced, but the impact of
these has been mitigated through close collaboration with suppliers
Regulators
To ensure compliance with
regulatory requirements
To protect our staff and communities
To ensure best practice
We review our operations periodically
to ensure compliance with regulations
We actively maintain standards through
external reviews (e.g. ISO 9001 accreditation)
Compliance with regulatory requirements
enables the business to operate in a safe
manner, protecting our employees and
the wider communities
Post year end, we completed our ISO recertification
We constantly reviewed operating procedures to ensure best practice
Continued engagement with European RoHS regulators to remove
exposure to toxic cadmium from EU customers
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
We aim to create long-term investor value,
through growing from an R&D services
business to a commercially viable niche
production company
We engaged openly with shareholders through analyst briefings
and subsequent Q&A sessions
We expanded engagement in Investor Meet Company presentations
We engaged with many existing and new shareholders leading to the
successful equity issue and fundraise in June 2022
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 32 to 37, 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.
This provides easy access to RNS announcements and reports
and publications. 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 regulations, 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.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
018
We are focused on bringing our platform
technology to market for our partners and
customers through innovation and research
Our business model
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G
Y
O
P
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R
A
T
I
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N
S
E
M
P
L
O
Y
E
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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 partners
Major channel partners
with global reach to multiple
markets and applications
Employees
Highly skilled staff with
extensive technical knowledge
and flexible skill set
Operations
Installed asset base capable
of generating significant
revenue in multiple markets
A
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Nanoco Group plc – Annual Report and Accounts 2022
019
About our business model
O
ur 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. We continue to
strengthen our IP position by patenting
technology we believe will have real
commercial value in the future.
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
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).
Licence partners
Licence partners can create an
opportunity for the group to access very
larger global markets that our own scale
might make difficult. Our partners have
scale and reach beyond our own 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 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 processes
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.
We further invest in our employees
through funding training to ensure they
are developing their capabilities further.
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, and we continue to
identify ways to improve our efficiencies.
Operator assessing the performance of test devices manufactured
with Nanoco Heatwave™ material designed for use in infra-red sensors.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
020
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
Our strategy
KPIs
Year-end cash and cash
burn rate
Investment in R&D
Portfolio of patents
and patents pending
Risks
Strategic
Compliance
KPIs
Investment in R&D
Portfolio of patents
and patents pending
Risks
Strategic
Objective
To maintain our
competitive advantage
Objective
To bring significant extra
capacity and resources
to address expected
market growth
How
Continue to create
and patent new IP
Continue to develop
in-house manufacturing
capabilities
How
Assisting licensees
in maximising their
opportunities in
manufacturing
Working with licensees
to create routes to market
for our products
Future focus
Continuing to invest in
R&D in order to remain
at the forefront of
this technology
Exploring ways to open up
new market opportunities
Future focus
Continuing to support
our licensing partners
to maximise the benefit
to all parties
Giving partners the best
performing dots
Investment LicensingGrowth
KPIs
Revenue
LBITDA
Total billings
Risks
Strategic
Operational
Financial
Objective
To become self-sustaining
financially
To continue to invest in
R&D for future products
How
Own manufacture and
direct supply to customers
Non-exclusive technology
licensing
Professional services
Royalty income
Future focus
Converting current
opportunities into
revenues with a strong
emphasis on nanomaterials
Exploring opportunities
with a number of potential
customers
2 31
Strategic
objectives
Early 2018
NIR SWIR
Wavelength (<1.0 m) (1.0-1.3 m) (1.3-1.5 m) (>1.5 m)
Material A B C A B C A B C A B C
Development
1
June 2022
NIR SWIR
Wavelength (<1.0 m) (1.0-1.3 m) (1.3-1.5 m) (>1.5 m)
Material A B C A B C A B C A B C
Development
1 2 2 2 5 1 2 1
Optimisation
Scale up
1
Validation
1
Production
Sensing goals: one material in production 2023, a second validated
Development – material at R&D scale
Optimisation – application optimisation
Scale up – scaling up at Runcorn
Validation – material ready for validation
Production – ready for production: goal
Change/progress in Period
Strong progress
expanding wavelengths
and base materials
Nanoco Group plc – Annual Report and Accounts 2022
021
Strategy in action
Investment in new material sets this year has increased our customer
reach for new applications leading to new R&D service income
Infinite possibilities
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
022
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 eort
Our key performance indicators
Measurement
Reconciled bank balances including
committed but not yet cleared
receipts and payments.
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.
Measurement
The value of goods and services
recognised as income in accordance
with IFRS 15 Revenue Recognition.
Grant income is also important
and included under Other
Operating Income.
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.
Measurement
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 is a very good
proxy for its organic cash flows and
shows how close the group is to
being self-financing.
1 Calculation provided on page 25.
Strategy link
1 2
Strategy link
1
Strategy link
1
Year-end cash
£ million
Revenue
£ million
Adjusted LBITDA
£ million
6.82.5
(2.1)
7.0
5.2
3.8
3.9
2.1
(2.9)
(2.8)
7.1
(3.8)
10.7
3.3
(6.2)
2018
2022
2022
2020
2021
2022
2020
2021
2020
2021
2019
2019
2019
2018
2018
£6.8m
+77%
£2.5m
+18%
(£2.1m)
1
+26%
Nanoco Group plc – Annual Report and Accounts 2022
023
2.5
1.7
3.1
2.2
2020
2021
2020
2021
Measurement
The value of invoices raised during
the year for goods and services
delivered or to be delivered to
customers (excluding VAT).
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 increased year on year
reflecting the growth in revenue and
management efforts to improve the
match in working capital cycles.
Measurement
The sum of all costs incurred in
research and development activities.
This includes salary costs and other
direct R&D costs.
Why it is important
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.
Measurement
The group’s IP lawyers report
monthly on patents granted
or filed in the respective patent
offices in various countries.
Why it is important
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 proactively 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 Strategy link
3
Billings
£ million
Investment in R&D
£ million
Portfolio of patents
and patents pending
Number of patents
2.7
1.8
503
9.6
4.4
745
731
559
6.5
4.0
654
2022
2022
2022
2019
2019
2019
2020
2021
2018
2018
2018
£2.7m
+55%
£1.8m
(18%)
503
(10%)
1
2
3
Growth
Strategy link
Investment
Licensing
Key
2 3 2
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
024
Financial review
R
evenue and other operating
income increased by £0.5 million
to £2.8 million (2021: £2.3 million).
The increase is due to the
ongoing contract with the European
electronics customer and the grant
for the development of a Covid-19
diagnostic testing kit, which was
completed during the year.
Revenue from the sale of products and
services rendered accounted for 96%
(2021: 95%) of revenues with the balance
being royalty and licence income.
Revenue from services has increased
from £1.3 million to £1.5 million due to
the continued work with the European
electronics customer. Revenue from the
sale of development products was
£0.8 million (2021: £0.7 million).
Billings have increased by £1.0 million
to £2.7 million (2021: £1.7 million), which
is in line with revenue.
Total operating expenses, excluding
Share Based Payments (“SBP”) and
associated costs, depreciation,
amortisation and exceptional items,
reduced in the year by £0.9 million to
a total of £4.5 million (2021: £5.4 million).
This reduction was primarily due to
the fall in payroll costs to £2.6 million
(2021: £3.3 million) and other cost
savings identified.
During the prior year, our headcount was
decreased from c.46 full time employees
to c.39 employees. In the current year, this
has fallen further to 36 employees. We
have made these changes whilst retaining
full operational and commercial viability.
In March 2022, we exited the first floor
of our Manchester premises, and at year
end, we were in the process of vacating
the ground floor, with the lease set to
expire in November 2022. The closure of
the Manchester site, and consolidation
into Runcorn, will save c. £0.7 million (net)
per year.
During the year, we completed an
over-subscribed fundraise, resulting in
net proceeds of c.£5.4 million. This
extended the group’s cash runway to
calendar year 2025, beyond the point
when we expect the group’s organic
operations to be self-financing.
Summary
Revenue and other operating
income increased by 24% to
£2.8 million (2021: £2.3 million).
Adjusted LBITDA has reduced
to £2.1 million (2021: £2.8 million),
reflecting the increase in revenue
and operating income, and the
continued focus on reducing the
cost base.
The consolidation of operations in
Runcorn, and subsequent closure
of the Manchester site, has further
reduced our cash cost base.
Cash remains a key focus – the
fundraising completed in the year
takes the cash runway out to CY25.
Highlights
2022
£ million
2021
£ million % change
Revenue 2.5 2.1 18%
Other operating income 0.4 0.2 97%
Adjusted operating loss (4.2) (4.6) (10%)
Adjusted LBITDA (2.1) (2.8) (26%)
Net loss (4.7) (4.4) (7%)
Loss per share (p) 1.52 (1.44) 6%
Billings 2.7 1.7 55%
Cash and cash equivalents 6.8 3.8 77%
LIAM GRAY
Chief Financial Ocer
Creating a stable cost
base from which to
grow organically
Nanoco Group plc – Annual Report and Accounts 2022
025
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. The calculation of both
non-GAAP measures is shown in the
table below:
2022
£ million
2021
£ million
Operating loss (4.8) (5.0)
Share Based
Payments 0.6 0.4
Employers NI on
SBP 0.3 0.1
Depreciation 0.5 0.5
Amortisation
1
1.3 1.2
Adjusted LBITDA (2.1) (2.8)
1 Includes impairment of intangible assets.
The loss before tax was £5.2 million
(2021: £5.1 million), with the increase driven
by non-cash SBP charges arising from
the growth in the share price and a first
full year of accrued interest on the loan
notes issued in June 2021, offset by cost
savings during the year.
Taxation
The tax credit for the year was £0.5 million
(2021: £0.7 million). The tax credit to be
claimed, in respect of R&D spend, is
£0.5 million (2021: £0.7 million). Overseas
corporation tax was £nil during the year
(2021: £nil). There was no deferred tax
credit or charge (2021: £nil).
In the financial year, the Company
entered the patent box regime
retrospectively, which should provide
an advantageous tax rate of 10% on
revenues or litigation proceeds arising
from the group’s IP portfolio. At the year
end, the Company had £40.5 million of
accumulated losses to offset against
any potential future profits.
Cash flow and balance sheet
During the year cash, cash equivalents,
deposits and short-term investments
increased to £6.8 million (2021: £3.8 million).
The net cash outflow, excluding the benefits
of the equity fundraise of £5.4 million in
June 2022 (net of costs), was £2.4 million
(2021: £4.4 million outflow). The decrease
in cash outflows reflects increased
revenue, a reduction in the cost base
and some favourable movements in
working capital compared to FY21,
with a reduction in deferred revenue
year on year. Tax credits of £0.7 million
(2021: £0.9 million) were received
during the year.
Expenditure incurred in registering patents
totalled £0.1 million (2021: £0.4 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.
During the year, an impairment charge of
£0.9m was posted against the net book
value of the group’s IP. This reflects the
continued rationalisation of the patent
portfolio to ensure the remaining patents
are commercially viable in the short to
medium term.
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 27 to
the financial statements.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
026
“ The group
continues
to monitor
cash carefully,
with targeted
investments
to support
strategic goals.”
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.
Foreign exchange management
The group invoices most of its revenues
in US Dollars. The group is therefore
exposed to movements 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.
There were no open forward contracts as
at 31 July 2022 (2021: 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 27
to the financial statements and was
based on the year-end position.
Brexit
The Board continues to monitor the
ongoing developments. 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-UK countries where the Government
either already has or hopes to have in
place equivalent trading arrangements
as existed prior to Brexit.
Although there were some logistical
challenges on trade with EU countries,
this has largely been mitigated with little
to no ongoing disruption.
Going concern
The equity fundraising in June 2022 raised
£5.4 million net of costs. This extended the
group’s cash runway to 2025. 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. We do not currently expect
significant financial downsides though this is
clearly dependent on changes in regulations
and the scale of any further lockdowns,
both in the UK and the wider world.
Macroeconomic factors
We continue to see inflationary pressures
on raw materials. We attempt to mitigate
these by reviewing suppliers and achieving
volume breaks. In addition, with the ongoing
cost of living crisis, we are cognisant of the
impact on our staff, and have implemented
a company-wide 6% inflationary wage
increase from August 2022. We will continue
to review market conditions and assess the
impact on all stakeholders.
Summary
This year has been one of steady operational
delivery and consolidation of our cost
base. The closure of the Manchester site
and relocation of operations to Runcorn,
although producing some challenges,
provides the group with a central base
from which to grow – one where R&D
and production can operate in close
proximity and improved collaboration.
Work has progressed very well with our
customers, and we anticipate having
visibility of commercial orders by the
end of H1 FY23.
We are confident that the group has
a solid foundation from which to grow,
to provide value to shareholders
in the medium term.
Liam Gray
Chief Financial Officer
28 October 2022
6.8
0.1
0.7
2.5
5.4
3.8
0.4
0.9
4.2
2022
2022
2022
2022
2022
2021
2021
2021
2021
Cash and cash equivalents
£ million
Net decrease in cash explained by:
Financial review continued
Investment in intellectual property
£ million
R&D tax credit received
£ million
Cash outflow from operating activities
£ million
Results of equity issue (net)
£ million
Managed rationalisation of the
patents has resulted in a decrease
in patents granted and patents
pending from 559 to 503.
Our continued emphasis on R&D has
resulted in a tax claim of £0.7 million
(2021: £0.9 million) being repaid in
the year.
Cash outflow from operating
activities has decreased due to
the reduction in adjusted EBITDA
and favourable working capital.
Gross fundraise of £5.7 million
offset by £0.3 million of costs.
Nanoco Group plc – Annual Report and Accounts 2022
027
I
n 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.
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 initially by
the leadership team, and then reviewed
by the Board during the financial year
ended 31 July 2022. 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
Managing risk in a dynamic business environment
Principal risks and uncertainties
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 very significantly
mitigated in the short term by the recent
equity fundraise which has extended the
group’s organic cash runway to CY25. This
date is beyond a number of key litigation
milestones which could trigger a
significant inflow of funds to the group.
More importantly, it is also beyond the
point when the group aims to be self-
funding in its organic business activities,
subject to final adoption of the technology
by our customers and their end customers.
The Board now considers that a plausible
downside scenario no longer includes the
risk or need for a major restructuring in the
short term. Instead, the plausible
downside scenario is based on delays in
customer orders and a slower ramp-up in
demand once those orders begin.
Likelihood and impact
of principal risks
Low IMPACT IF RISK CRYSTALLISES High
PROBABILITY OF
RISK CRYSTALLISING
Low
High
E
C
D
A
B
F
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.
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.
Additional continuing principal risk
identified in FY20 (A)
In February 2020, the group initiated
litigation against Samsung for wilful
infringement of its IP. In May 2022 the
Patent Trial and Appeal Board (“PTAB”)
confirmed the validity of all 47 of
Nanoco’s claims in the five patents
relevant to the lawsuit. The Company
expects a jury trial in Texas to be held
in Q4 CY22 or shortly after.
Samsung has lodged a number of
appeals against the decision of the PTAB
and is likely to appeal against any trial
verdict that favours Nanoco. It is likely
that it will also appeal the judge’s final
written decision when it is published.
The group therefore remains exposed
to both positive and negative aspects
of the litigation.
Successfully overcoming the appeals by
Samsung will crystallise any contingent
asset inherent in a favourable verdict,
though the value of that contingent asset
may change. Conversely, if Samsung is
successful in its appeals, any contingent
asset could become worthless.
Both outcomes will have significant
implications for the value of the group’s
IP portfolio, for potential licensing or royalty
income, and for the prospects regarding
the sale of CFQD
®
quantum dots.
The balance of risk and reward has
undoubtedly swung in Nanoco’s favour
but given the appeals processes it is, as
yet, by no means certain that Nanoco
will benefit from any contingent asset
that arises from a potential favourable
verdict and damages award.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
028
Risk description Potential causes and impact Mitigation Change
Link to
strategy
Strategic
A
Outcome of
Samsung Litigation
Responsibility:
CEO
The final resolution of the Samsung
litigation will have a significant impact
on the group. If successful, there is likely
to be a significant financial return to
Nanoco. Conversely, if the outcome is
negative, this could undermine the
value of Nanoco’s IP.
Nanoco’s legal team and strategic
adviser have significant experience
in technology IP litigation.
Our advisers and funder performed
extensive due diligence on the
strength of our case before they
agreed to act for Nanoco.
Nanoco has signed a litigation
funding agreement with a very
large US litigation finance specialist.
This reduces the cash flow risk of the
litigation to Nanoco. It also reduces
the risk that delays to the conclusion
of the litigation could occur.
The Board is included in ongoing
discussions with our lawyers to
ensure Nanoco is up to date
with proceedings.
Winning all 47 claims in the IPR’s
and a number of favourable
decisions in the pre-trial
conference as well as a largely
favourable outcome to the
Markman hearing swung the
balance of risks in Nanoco’s favour.
Nanoco has also commenced
further funded litigation in
Germany which applies further
pressure on Samsung.
1
3
B
Lack of market
adoption of
technology
Responsibility:
CEO
Market fails to commercially adopt
technology incorporating the group’s
nanomaterials.
The group targets a wide range
of potential applications.
Working with industry leaders
to differentiate products from
current offerings.
Making products commercially
competitive.
Sensing projects moving closer
to commercialisation.
Expanded customer portfolio.
Expanded range of materials
addressing more potential
market applications.
1
C
Customer
concentration risk
Responsibility:
CEO/CTO
Reliance on a small number of key
customers exposes the group to risk of
delays in the customers’ own supply
chains over which the group can exert
limited influence (one customer was
85% of revenue in FY22). These delays
can then have a knock-on adverse
effect on the group’s expected
revenue streams.
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.
In the past financial year, we
have signed up a number of
different customers.
Customer concentration continues
to decrease with more active
customer engagements.
1
3
1
2
3
Growth
Strategy
Investment
Licensing
Up
Risk change
Neutral
Down
Key
Principal risks and uncertainties continued
Nanoco Group plc – Annual Report and Accounts 2022
029
Risk description Potential causes and impact Mitigation Change
Link to
strategy
Operational
D
Loss of key
personnel
Responsibility:
CEO
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.
Runcorn relocation led to a small
number of staff exits. However, the
team is now settled. Review of
reward packages has reduced
financial incentives to leave. The
extended cash runway creates a
more stable environment for staff
and career development.
1
2
Financial
E
Lack of adequate
resources to sustain
the group until it
becomes self-
sustaining
Responsibility:
CEO
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.
Recent equity raise and revenue
growth extends cash runway
significantly (to CY25) and beyond
the point when the group expects
to be self-financing.
1
2
Compliance
F
Major
environmental,
health and safety
(“EHS”) issue
Responsibility:
CEO
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.
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.
1
2
The Executive team manages a greater number of more detailed risks on an ongoing basis, none of which are considered
of strategic importance to the group. The Board reviews the detailed risk register annually to ensure that all strategic risks are
being appropriately considered at the Board level while business as usual (“BAU”) risks are actively managed by management.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
030
TCFD disclosure 2022
Introduction
N
anoco acknowledges the serious challenges
presented by the climate crisis to governments,
businesses and communities around the globe.
Our direct exposure to climate-related risks is limited,
but the group is nonetheless committed to playing its part
to mitigate the environmental impacts of our activities and
to enhance our resilience to the uncertainties posed by
climate change.
As a premium-listed organisation, Nanoco is obliged to make
climate-related financial disclosures consistent with the TCFD
framework in line with Listing Rule 9.8.6R(8). As a small organisation
with only 36 employees and turnover of c.£2.5 million, the
business has experienced challenges in achieving full
alignment due to limited resources and constrained internal
capabilities and capacity and our current strategic focus on
protecting the group’s operational and R&D capabilities. The
disclosures that follow are therefore not fully aligned with the
TCFD recommendations at this time and the group is only
partially compliant, with a strategy and metrics yet to be fully
developed. However, the group is taking progressive steps
towards building climate knowledge and capacity, as outlined
by the 2023 planned actions described in this statement which
we will endeavour to complete within the next reporting cycle.
Governance
The Board takes responsibility for the oversight of all strategic
risks facing the business. ESG issues, including the risks associated
with climate change, currently fall within the remit of the Audit
Committee. The CEO takes responsibility for reporting any
relevant environmental or climate-related risks to the Board
and its Committees, and the Company Secretary keeps the
Board abreast of developments in reporting and performance
requirements. ESG related matters will be included on the
Board agenda every 6 months.
The Board’s members have relevant capabilities related
to climate risks and opportunities, including experience
navigating sustainable energy markets. The Board acknowledges
it can improve upon its broader ESG skill set and knowledge
base, which will be considered by the Nomination Committee.
As the Board continues to monitor Nanoco’s exposure to
climate-related risks, it will review whether a sub-committee
dedicated specifically to climate risk is appropriate at the
Board level. Read more about the Board’s roles and
responsibilities on page 45.
The leadership team is responsible for the day-to-day
management of operational risks. To support oversight of
operational risks, the leadership team maintains a risk register
of identifiable risks to the business. Within this register, the
potential impact of climate change is currently highlighted as
a macroeconomic risk factor. Read more about our approach
to governing and managing ESG risks on page 34.
2023 planned actions to enhance alignment with TCFD
governance recommendations:
Establish a climate change committee involving all
levels of staff to support the management team with
the identification and monitoring of climate-related
issues and to formalise processes for informing the
Board on climate-related risks;
Explore training opportunities for the Board and wider
staff to enhance understanding of climate-related
risks; and
Embed climate-related issues into updates provided
on staff days and within employee surveys to enhance
engagement across the business on the topic of
climate risk.
Nanoco Group plc – Annual Report and Accounts 2022
031
Strategy
Nanoco acknowledges the need to conduct more comprehensive
identification and assessment of climate-related risks and
opportunities, as well as the potential impacts of those risks
and opportunities on the business model and the organisation’s
strategic resilience over various timeframes. We outline our
initial consideration of climate-related risks within this section,
with a focus on transition risks as the area where Nanoco
has the most exposure.
Nanoco’s products are inputs into consumer goods, and
macroeconomic pressures driven by climate-related hazards
could impact the future revenues of the business. The group
also acknowledges the potential reputational consequences
of failing to meet the climate expectations of stakeholders as
the world transitions to a low carbon economy. In effect, the
group’s climate-related risks are indirect, suggesting that
climate change is not a principal risk to the business.
In addition to enhancing our understanding of the climate-related
risks that could impact our business, the group actively seeks
to mitigate its impacts on the climate. Our LEAN project teams
are continually searching for more energy efficient and less
wasteful ways of getting our products to market. The group
promotes low carbon working patterns, including car sharing
and cycle-to-work schemes, as well as an electric vehicle (“EV”)
salary sacrifice scheme. Where possible, we use video
conferencing instead of face-to-face meetings, reducing
travel-related costs and emissions.
In consideration of climate-related opportunities, Nanoco’s
product portfolio has potential to support the energy transition.
For example, highly absorptive dots can be used in solar
energy applications, and the group’s display and lighting
technologies can support the energy efficiency objectives
of our customers. Nanoco’s products are also notably free
of toxic cadmium, which likely reduces emissions associated
with managing the disposal of toxic waste.
Read more about the group’s initiatives to promote low carbon
practices in its operations on page 36.
2023 planned actions to enhance alignment with TCFD
strategy recommendations:
The climate change committee will explore
opportunities to further mitigate Nanoco’s impact on
the climate and conduct a deeper assessment of
climate-related risks, including the potential impact
of risks on capital expenditure plans, future strategy
and financial planning; and
Explore how the group might conduct qualitative
climate scenario analysis in the future
Risk management
As part of the group risk management process, all potential
risks are assessed according to the probability of the risk
occurring and the potential impact should the risk be realised.
In respect to climate change, the group has concluded
through initial qualitative assessment and discussion that the
business has relatively low exposure to climate-related risks.
However, the group acknowledges that the growing attention
on ESG and the widespread consequences of the climate crisis
will leave no business untouched. In light of these transformations
and following an annual review of the group risk register,
Nanoco expects to add ESG-related risks to the register in the
next financial year, which will include more robust assessment
of the group’s exposure to climate-related risks. The integration
of this risk into the register will activate a review of the controls
and action plans associated with the management process.
Read more about the group’s approach to risk management
on page 27.
2023 planned actions to enhance alignment with TCFD
risk management recommendations:
Establish new identification and assessment
processes to support the monitoring of ESG associated
risks with the support and input of the new climate
change committee; and
Embed consideration for potential climate impacts
in the controls and action plans related to the
management of risk.
Metrics and targets
The group does not currently monitor any additional
climate-related metrics, and therefore has not set any
climate-related targets. As the group continues to assess the
materiality of climate-related risks and opportunities, we will
consider whether new data should be collected and whether
relevant targets should be set.
Nanoco does monitor and report environmental performance
indicators including waste and energy efficiency metrics.
The group’s greenhouse gas emissions, including its scope 3
emissions related to business travel, can be viewed on page 35.
2023 planned actions to enhance alignment with TCFD
metrics and targets recommendations:
Revisit the materiality of scope 3 categories to
determine whether additional data is needed to
understand the full climate impacts and exposure
of the group;
Evaluate whether meaningful metrics and targets
can be introduced to communicate the energy saving
potential of our products to customers; and
Work with our landlords to devise strategies to reduce
our on-site energy consumption.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
032
The Directors have a reasonable expectation
that the group has access to adequate
resources to continue in operational
existence for the foreseeable future
Viability statement
I
n 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 and the group’s
early stage of commercial development.
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 and the group’s
current strategy and principal risks as
described in this Strategic report.
Brexit risks are minimal for the group,
subject to no significant adverse
changes to any trading arrangements
that could be a consequence of other
geopolitical issues. The group has also
demonstrated a strong ability to
maintain operations through the
Covid-19 pandemic and these
protections should be applicable in the
event of a resurgence in Covid-19 or a
new similar pandemic.
Inflationary pressures are mitigated
these by reviewing suppliers and achieving
volume breaks. In addition, given the
ongoing cost of living crisis, we continue
to review market conditions and assess
the impact on all stakeholders.
Changes during the year
In the fourth quarter of FY22, we
announced a full year contract extension
with our important European electronics
customer. This demonstrates the
commitment of the customer to the
technology and also cements Nanoco’s
place as its “go to” R&D partner for
quantum dot based materials. Previous
extensions have been measured in
months or quarters and hence the new
contract is a significant positive change.
It also extends beyond the point when
the group expects to have visibility of
commercial production orders. Finally,
the new contract has favourable working
capital terms that allow Nanoco to put in
place buffer stocks of important raw
materials in the run-up to potential
production orders.
As noted above, while the adoption of
quantum dot technology is in its relative
infancy, positive momentum is now being
seen in display markets where more
companies are entering the market for
quantum dot-based TVs. Samsung
previously dominated with close to 100%
market share but its share is now estimated
to be below 90%. RoHS regulations and
their international equivalents are also
encouraging new market entrants to
abandon cadmium- based solutions
and to switch to cadmium-free systems.
Nanoco’s extensive IP in this area, and
the emphatic acceptance of the validity
of these patents by the US Patent Trial
and Appeal Board, will also support the
group’s proactive business development
in the display field.
In the field of sensing, we continue
to expand our range of materials on
offer and also to increase the number of
active customer engagements, with the
aim of lowering the risk around customer
concentration as well as increasing
revenue prospects. Two important grants
were won around the end of the financial
year from Innovate UK that will also
support our drive to expand our material
sets and potential applications.
Cost control has continued throughout
the year. By exiting our Manchester facility
and co-locating all of our activities on
our Runcorn site, we will be able to
exploit not just operational benefits but
also see annualised savings of around
£0.7 million (net) per annum from
December 2022 when the final exit
is complete. This should reduce our
annualised cash cost base to just over
£4.0 million which in turn lowers our
breakeven revenue figure to around £5.0
million, depending on the mix of goods
and services in that revenue. We have
maintained all of our core capabilities
while executing the co-location project
which in turn maintains our range of
future potential revenue streams.
In June 2022, we announced a
significantly over-subscribed equity issue
that raised net proceeds of £5.4 million.
This extends our organic business cash
runway by a relatively long way and into
CY25, which is beyond the point when
we expect the organic business to be
self-financing and also beyond many key
dates in the Samsung litigation process.
The viability assessment process
In assessing the viability of the group, the
Directors have utilised their forecasts for
the period to 31 October 2024 which take
into account the group’s current and
expected business activities and
commercial opportunity pipeline, the
current cash resources (£6.8 million as
at 31 July 2022), the contracted revenue
for FY23, and the principal risks and
uncertainties faced, including the loan
notes which fall due in June 2024. These
inputs form the basis of a conservative
base case with the main assumptions
shown below in the section on going
concern.
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 initial
outcome of the Samsung lawsuit could
be known in this timeframe.
The assumptions above were then
flexed to create a “severe but plausible”
downside stress test. This includes the
assumption that commercial production
Nanoco Group plc – Annual Report and Accounts 2022
033
is delayed by a year and that a number
of current active development
engagements end with no further service
work or material demand. The group
remains viable in this scenario. Modelling
of an extreme downside for the going
concern assessment still shows the group
remains viable even if no further
commercial wins are achieved beyond
those which are already contracted
and where the group retreats to become
an “IP shell” while the Samsung lawsuit
continues. In both scenarios, there is a
risk that the loan notes cannot be
satisfied as they fall due in June 2024.
Management are confident that, as and
when the loan notes fall due, suitable
actions can be performed, such as an
equity fundraise, or the conversion of the
loan notes to equity, which would see
these repaid at that time.
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 1 to 26.
The principal risks and uncertainties
are shown on pages 27 to 29.
The group’s financial position is
described in the Financial review
on pages 24 to 26.
Note 27 to the accounts summarises
the group’s financial risk management
objectives, policies and processes.
For the purposes of their going concern
assessment and the basis for the
preparation of the 2022 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 above, with the going concern
assessment covering the period to
November 2023. The same base case
and downside sensitivities were also
used with the addition of an extreme
downside where no uncontracted
revenue was included and the group
contracted to become an IP shell.
The base case represents the Board’s
current expectations. Assumptions in the
base case are:
minimal sales of nanomaterials
beyond current contracts-commercial
services contracts are based on the
existing pipeline of opportunities or
agreements already in place;
modest demand for commercial
production materials in CY23 with a
subsequent slow ramp-up in demand;
a further extension to the services
and supply contract with the
European electronics customer;
no revenue is assumed from other
business lines though some small
scale commercial deals are currently
under discussion;
consolidation of activities on one
site in Runcorn to reduce costs with
modest staff increases in key areas;
small expansion of our self-funded
research activities and continued
maintenance costs to support our
IP portfolio;
Board, plc and other costs reflect
the current inflationary environment;
group remains a going concern
and 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 downside case then flexes those
assumptions as follows:
a full year delay in small scale
commercial production revenues (into
CY24); and
no new business from other customers
once existing active engagements end.
The extreme downside case then flexes
those assumptions further as follows:
the engagement with the European
electronics customer comes to an end
without any commercial production;
no revenues other than those already
contracted; and
the group contracts to become an IP
shell to protect the value in the
Samsung lawsuit.
All three cases above produce cash flow
statements that demonstrate that the
group has sufficient cash throughout the
period of the forecast, being a period to
November 2023.
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, the Directors 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.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
034
Nanoco recognises that providing a safe,
secure and healthy working environment
is essential and contributes to productivity
and improved performance
Sustainability
T
he 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.
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) reporting all incidents (including near
misses) with appropriate ownership,
root cause analysis and action
tracking systems;
ii) 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;
v) 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.
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.
The group’s robust environment, health
and safety control environment is
evidenced by there being only one
externally reportable incident in any
category in the last six years.
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.
Nanoco Group plc – Annual Report and Accounts 2022
035
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”) has now made a ruling on the
appeal submitted by three companies
that the exemption allowing the use of
cadmium-based quantum dots in
display films should continue. The EC
was also considering an appeal for a
five-year exemption to allow cadmium-
based QDs to be applied directly onto
LED chips for displays and lighting.
The EC has received a recommendation
that:
the exemption to allow cadmium
(>100ppm) in QD films for display is no
longer justified and should be phased
out by 31 October 2021; and
a new exemption is granted to allow
cadmium-based QDs applied directly
onto LED chips for displays and high
CRI lighting for a period of five years.
Both of the above recommendations are
subject to the EC adopting the
delegated act. It should also be noted
that for film-based displays there is not
an outright ban which could allow
displays with cadmium content below
the limits above to continue to be sold.
As at the time of writing, the EC has not
yet passed the legislation to implement
the decisions above and the legal status
of the exemption which was due to expire
in October 2021 is unclear.
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.
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.
The exit from the first floor of our
Manchester facility has reduced our
related emissions to nil. The exit from
the remainder of the Manchester site
will effectively eliminate it as a source
of emissions for Nanoco with only a small
increase in Runcorn emissions from the
co-location of our activities to one site.
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.
Following the decision to surrender
the group’s US office space, Nanoco
emissions in that location have reduced
to nil. Our emissions, based on appropriate
conversion factors published by the
Department for Business, Energy &
Industrial Strategy, for the current year
are shown in the charts above.
2022 tCO
2
e
Electricity
Natural gas
Air travel
Total
2021 tCO
2
e
Change
(20%)
72%
100%
6%
Scope 2
Scope 3
Whole portfolio carbon generation (energy use)
2022
2021
11.8 10.2
Change
16%
Intensity (tCO
2
e/average number
of employees)
2022
2021
2,500 2,314
Change
8%
Energy consumption used
to calculate emissions (MWh)
Data notes
Reporting period 1 August 2021 to 31 July 2022
Boundary Operational control
Reporting method 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
3 0
220 128
499 471
276 343
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
036
Environment continued
Waste
During the year, the group generated
9.3 tonnes of waste (2021: 7.6 tonnes) and
recycled 3.8 tonnes of this (2021: 2.9
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. Lessons learned from continuing
operations during the Covid-19 pandemic
have continued to be adopted.
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 36 employees at 31 July
2022, 22% had over ten years’ length of
service and a further 28% 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.
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.
Employee
length
of service
22%
50%
28%
0-4 years
5-10 years
> 10 years
Key
Sustainability continued
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.
Covid-19
Whilst essential work carried on at Nanoco through the
lockdown period, staffing levels were reduced at various
times in line with Government guidance. 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:
risk assessments for both sites;
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
return to work assessments for all employees.
Nanoco Group plc – Annual Report and Accounts 2022
037
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.
Nanoco currently employs one person
with a disability with a series of
reasonable adjustments in place to
support this important member of staff.
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.
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.
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. We have
therefore started an exercise to roll out
LEAN training to all members of staff and
the first cohort completed their initial
training in the fourth quarter of the
financial year.
To improve our employee engagement,
in 2019 we established the Employee
Voice Committee, which gives employee
representatives a forum to raise
concerns and communicate directly
with Board members.
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
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.
Strategic report
Nanoco Group plc – Annual Report and Accounts 2022
038
Equality and diversity
Racial and geographical diversity
The group’s employees are from many
different backgrounds, including seven
different nationalities: American, British,
German, Indian, Italian, Lithuanian
and Portuguese.
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 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.
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.
Gender diversity at Nanoco (at 31 July 2022)
All
employees
21%
79%
Board of
Directors
14%
86%
Senior
team
36%
Female
Male
Key
Sustainability continued
64%
Nationalities represented
by our employees
7
Nanoco Group plc – Annual Report and Accounts 2022
039
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 July 2022. 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 31 July 2022,
Nanoco employed 36 employees (2021:
39) in the UK, of whom 21% were female
(2021: 18%). 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.
The median gender pay gap for all
Nanoco employees excluding Directors is
(12%) (2021: (6%)). This means that for every
£1 the median man earns at Nanoco, the
median woman earns £1.12. The national
average pay gap in 2021 for all UK
employees is 14.9%
1
in favour of men
compared to Nanoco’s 12.4% gap in
favour of women.
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
28 October 2022
Female
Male
Key
13%
22%
22%
22%
87%
78%
78%
78%
Upper quartile
Lower middle quartile
Lower quartile
Upper middle quartile
Proportion of males and females in each income quartile Gender pay gap
Mean hourly earnings
Median hourly earnings
£22.32
Total
1
£21.69
Male
1
£24.55
Female
1
£21.70
Total
1
£20.41
Male
1
£23.30
Female
1
1 Excluding Directors.
Strategic report approval
The Strategic report on pages 6
to 39 incorporates:
Chairman’s statement
Chief Executive Officer’s statement
Our business model
Our strategy
Key performance indicators
Principal risks and uncertainties
Viability statement
TCFD disclosure
Sustainability
Brian Tenner
Chief Executive Officer
28 October 2022
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
040
Our refocused Board comprises
experienced and talented people from
scientific, chemical, industrial, commercial
and financial markets backgrounds
Board of Directors
A
N
R
Audit Committee
Nominations Committee
Remuneration Committee
Chair
Key
Dr Christopher Richards
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 Ocer 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 non-executive
roles at quoted and private businesses. He is the
Chairman of Plant Health Care plc (AIM: PHC) and
a Non-Executive Director of Origin Enterprises plc
(AIM: OGN).
Committees
RN
Brian Tenner
Chief Executive Ocer
Appointed
Brian was appointed Chief Executive Ocer in
September 2020. He originally joined the Board
as Chief Operating Ocer and Chief Financial
Ocer 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.
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 from 2003 to 2007 (hi-tech chemicals and
large-scale decommissioning projects). 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 Ocer
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 for 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.
Nanoco Group plc – Annual Report and Accounts 2022
041
Liam Gray
Chief Financial Ocer and Company Secretary
Appointed
Liam was appointed to the Board in November 2021. He originally joined the
Company as Group Financial Controller in March 2019, before becoming
Finance Director and then subsequently joining the Board.
Skills and experience
Liam started his career at KPMG LLP, where he qualified as a Chartered
Accountant working primarily in audit on both large and medium-sized
public and private companies. After six years at KPMG LLP he moved to
Renold plc (LSE: RNO), initially as Group Financial Controller before moving
into the European division as Commercial Finance Manager. He holds an
Accountancy degree from the University of Liverpool.
Other roles
None.
Dr Alison Fielding
Non-Executive Senior Independent 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.
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.
Other roles
Alison is currently a Non-Executive Director of Maven Income and Growth
VCT PLC, a Non-Executive Director of Thomas Swan & Co. Limited, and a
Non-Executive Director of Zotefoams plc.
Committees
RNA
Chris Batterham
Non-Executive Director
Appointed
Chris 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.
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
Chris is currently a Non-Executive Director of NCC Group plc.
Committees
RNA
Henry Turcan
Non-Executive Director
Appointed
Henry was appointed to the Board in September 2021 and stepped down
in August 2022 as the group’s financial position was significantly improved.
Skills and experience
Henry has worked in financial services since 1996, with a focus on equity
capital markets. Having spent the first part of his career advising growth
companies within investment banking, he joined the Volantis team at
Henderson Global Investors in 2015 which subsequently transferred to
Lombard Odier Investment Management in 2017, becoming known as 1798
Volantis. Henry graduated with an MA (Hons) in Modern Languages from
Edinburgh University. Henry is a representative of the funds managed or
sub-advised by Lombard Odier Asset Management group entities,
collectively the group’s largest shareholder.
Other roles
Henry is currently a Non-Executive Director of Arena Events Plc, Woodbois
Limited and Minds + Machines Group Limited.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
042
Corporate governance statement
Good governance is of particular
importance in times of uncertainty
and business change due to the
additional challenges that arise
DR CHRISTOPHER RICHARDS
Chairman
I
am pleased to present the Corporate
governance report for the year ended
31 July 2022. This section of the Annual
Report describes our corporate
governance structures and processes
and their application throughout the
year ended 31 July 2022.
The Board’s view 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 is more
likely to be successful and that this is all
the more important in times of
significant uncertainty.
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 40 and 41.
This was bolstered during the year by the
appointment of Liam Gray as CFO and
Henry Turcan from Lombard Odier as a
Non-Executive Director. The 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. Over the last two years, the
Company has broadened the focus of
development beyond CFQD
®
cadmium-
free quantum dots into a range of
dot-based nanomaterials for sensing.
We are pleased to report that the
Company has made great strides in
expanding the portfolio of products in
development and expanding the
customers with whom we are working.
Monitoring the lawsuit against Samsung
The Board felt compelled to act to
defend the group against what we
believe is Samsung’s wilful infringement
of our IP portfolio in a number of areas.
Given the potential value of this action,
the Board established a Litigation
Sub-Committee to work with the
Executive team to oversee the litigation
strategy. This Sub-Committee includes
the Board Chairman and the Senior
Independent Director, together with the
CEO, CTO and Litigation Special Advisor,
and meets monthly.
Strategic
priorities
Strong
corporate
governance
Learn and
improve
Allocate
resources
Monitor
performance
Nanoco Group plc – Annual Report and Accounts 2022
043
Board focus during the year
continued
Fundraising and restructuring
The Board remains mindful of the group’s
cash position and limited financial
resources. It is important that the group
retains its operational capabilities whilst
working with customers with a view to
commercial production of a product. It
was therefore encouraging for the Board
and the group that during the financial
year there was a successful and
significantly over-subscribed fundraise,
which resulted in a net cash inflow of
£5.4 million. This extends the group’s
cash runway to CY25.
Overall management of risk and change
within the group
The rapidly evolving challenges
brought about by Brexit, the Covid-19
pandemic, the Ukraine crisis, the cost of
living crisis and other macroeconomic
factors, against a background of
Executive changes, have required
active real-time engagement between
all members of the Board.
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.
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 June 2022
meeting is shown below:
minutes and matters arising from
previous meetings (standing item);
CEO report on business performance
(standing item);
CEO report on progress and customer
deliverables (standing item);
4
2
1
43
Executives Non-Executives
0-5 5-10 >10
Board
composition
Tenure
(years)
Attendance Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
Number of meetings 11 4 3 6
Executive Directors
Brian Tenner
3
1,3
1
1,3
Dr Nigel Pickett — — —
1
Liam Gray
2
1
— —
1
Non-Executive Directors
Dr Christopher Richards
Dr Alison Fielding
Chris Batterham
Henry Turcan
2
— — —
The Non-Executive Directors met three times during the year without any Executive Directors present.
1 Executive Directors attended these meetings by invitation and are not members of these Committees.
2 Liam Gray and Henry Turcan joined the Board part way through the year.
3 Brian Tenner missed a series of meetings due to being absent on company business.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
044
Corporate governance statement continued
A typical Board agenda continued
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);
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)
(standing 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.
My role as Chairman
The structure of the Board, its Committees
and their respective responsibilities are
summarised on pages 45 and 46. 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 again felt that an
external performance review would not
be as value adding as it would be in
future with a more established 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, such as
composition and strategy, 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. The
group maintained 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 32 and 33.
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 2022 in all material areas.
With the changes in the Board in the
financial year, which at year end
comprised the Non-Executive Chairman,
three independent Non-Executive
Directors and three Executive Directors,
the Board considers that the size and
composition of the Board is appropriate
for the group’s current stage of
development and has sufficient depth
and breadth of experience amongst its
current Board members.
Dr Christopher Richards
Chairman
28 October 2022
Nanoco Group plc – Annual Report and Accounts 2022
045
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;
monitoring the performance of the different
divisions of the Company against the plan;
carrying out a formal risk review process;
reviewing the Company’s policies and procedures;
prioritisation and allocation of resources; and
overseeing the day-to-day running of the Company.
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.
Nominations
Committee
Responsible for considering the
Board’s structure, size, composition
and succession planning.
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.
Chief Executive
Has responsibility for managing
the business and overseeing the
implementation of the strategy
agreed by the Board.
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.
Board
The Board provides leadership
and is responsible for the overall
management of Nanoco, its strategy,
governance, 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.
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.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
046
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)
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.
Chief Executive Ocer
(Brian Tenner)
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, CFO and Production Manager).
Chief Financial Ocer
(Liam Gray)
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 oce functions. Includes responsibility for all financial
matters including costings and plant eciencies as well as commercial margins.
Chief Technical Ocer
(Dr Nigel Pickett)
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.
Senior Independent Director
(Dr Alison Fielding)
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.
Other Non-Executive Directors
(Chris Batterham, Henry Turcan)
Maintains an ongoing dialogue with the Executive Directors which includes constructive challenge
of performance and the group’s strategy.
Company Secretary
(Liam Gray)
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.
Name
Strategy
development Chemical
Human
resources
Corporate
governance
Financial
management M&A ESG
Dr Christopher Richards
— —
Dr Nigel Pickett
— — — — —
Brian Tenner
—
Liam Gray — —
Dr Alison Fielding —
Chris Batterham — — —
Henry Turcan
— — — —
Dr Christopher Richards
Chairman
28 October 2022
Corporate governance statement continued
Nanoco Group plc – Annual Report and Accounts 2022
047
Compliance with the UK Corporate Governance Code 2018
The below provides a guide to the most relevant explanations for how the Company has complied with each Principle.
Board leadership and Company purpose Page reference
A. An eective and entrepreneurial Board promotes the long-term sustainable success of the Company, generating
value for shareholders and contributing to wider society.
B. Purpose, values and strategy are set and align with culture, which is promoted by the Board.
C. Resources allow the Company to meet its objectives and measure performance. A framework of controls enables
assessment and management of risk.
D. Engagement with shareholders and stakeholders is eective and encourages their participation.
E. Oversight of workforce policies and practices ensures consistency with values and supports long-term sustainable
success. The workforce is able to raise matters of concern.
F. The diversity policy applied to the issuer’s administrative, management and supervisory bodies with regard to aspects
such as, for instance, age, gender, or educational and professional backgrounds.
P34-39
P40-44
P22-23, P27-29, P55-60
P16-17
P16-17, P3 4-39
P34-39
Division of responsibilities Page reference
G. The Chair is objective and leads an eective Board with constructive relations.
H. The Board comprises an appropriate combination of Non-Executive and Executive Directors, with a clear division
of responsibilities.
I. Non-Executive Directors commit appropriate time in line with their role.
J. The Company Secretary and the correct policies, processes, information, time and resources support Board functioning.
P40-41, P42-51
P40-41
P40-41, P42-51, P52-63
P42-51
Composition, succession and evaluation Page reference
K. There is a procedure for Board appointments and succession plans for Board and senior management which
recognise merit and promote diversity.
L. There is a combination of skills, experience and knowledge across the Board and its Committees. Tenure and
membership are regularly considered.
M. Annual evaluation of the Board and Directors considers overall composition, diversity, eectiveness and contribution.
P52-54
P40-41, P43, P46
P44
Audit, risk and internal control Page reference
N. Policies and procedures ensure the independence and eectiveness of internal and external audit functions. The
Board satisfies itself of the integrity of financial and narrative statements.
O. A fair, balanced and understandable assessment of the Company’s position and prospects is presented.
P. Procedures manage and oversee risk, the internal control framework and the extent of principal risks the Company
is willing to take to achieve its long-term strategic objectives.
P55-60
P32-33
P20-21, P27-29, P32-33
Remuneration Page reference
Q. Remuneration policies and practices are designed to support strategy and promote long-term sustainable
success, with Executive remuneration aligned to Company purpose, values and strategic delivery.
R. A transparent and formal procedure is used to develop policy and agree Executive and senior
management remuneration.
S. Independent judgement and discretion is exercised over remuneration outcomes taking account of the relevant
wider context.
P61-79
P61-79
P61-79
The Code is published by the Financial Reporting Council, a full copy of which can be viewed on its website, www.frc.org.uk.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
048
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 https://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 83 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 45 and 46 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 or charitable 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.
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.
Corporate governance statement continued
Nanoco Group plc – Annual Report and Accounts 2022
049
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 Independent 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 75 to 76.
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
standalone 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 1
Conference calls 10
Group meetings 4
Investor conferences 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.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
050
Shareholder analysis
Shareholders at 31 July 2022 are analysed as follows:
Territory Shares %
UK 287,467,836 89.2%
Europe (ex UK) 18,006,045 5.6%
North America 11,481,660 3.6%
Asia 4,474,194 1.4%
Rest of World 1,003,787 0.3%
Total 322,433,522 100%
Type of holder Shares %
Retail investors 195,270,769 60.6%
Hedge funds 54,951,935 17.0%
Pension funds 24,552,310 7.6%
Trading 20,447,657 6.3%
Directors 13,170,472 4.1%
Other 14,040,379 4.4%
Total 322,433,522 100%
Investment style Shares %
Retail 187,262,771 58.1%
Hybrid 82,613,567 25.6%
Trading 20,477,857 6.4%
Directors 13,170,472 4.1%
Value and growth 10,770,432 3.3%
Other 8,138,423 2.5%
Total 322,433,522 100%
89%
11%
UK shares
(%)
61%
39%
Retail
shares
(%)
96%
4%
Directors’
shares
(%)
Corporate governance statement continued
Nanoco Group plc – Annual Report and Accounts 2022
051
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 AGM 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 2021 AGM,
the proportions of possible votes that
were cast and the proportions in favour of
and against each resolution (resolutions 1
to 11 were passed as ordinary resolutions
and resolutions 12 to 15 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 be
proposed at the 2021 AGM and that
policy will be effective for three years
(until 31 July 2024).
Votes for Votes against Votes withheld
No. Resolution Votes
% of total
votes cast
% of total
voting rights
2
Votes
% of total
votes cast
% of total
voting rights
2
Votes
% of total
voting rights
2
1 To receive the Annual Report
and Accounts 139,897,553 100.0% 45.8% 10,917 0.0% 0.0% 29,113 0.0%
2 To re-appoint the auditors 139,850,364 100.0% 45.7% 42,843 0.0% 0.0% 44,376 0.0%
3 Authority to agree the auditors’ fee 139,851,034 100.0% 45.7% 30,679 0.0% 0.0% 55,870 0.0%
4 To re-elect Dr Christopher Richards 135,859,066 97.2% 44.4% 3,977,060 2.8% 1.3% 101,457 0.0%
5 To re-elect Brian Tenner 136,963,927 97.9% 44.8% 2,869,980 2.1% 0.9% 103,676 0.0%
6 To re-elect Dr Nigel Pickett 137,078,681 98.0% 44.8% 2,757,445 2.0% 0.9% 101,457 0.0%
7 To re-elect Dr Alison Fielding 139,810,930 100.0% 45.7% 25,196 0.0% 0.0% 101,457 0.0%
8 To re-elect Christopher Batterham 139,684,199 99.9% 45.7% 137,731 0.1% 0.0% 115,653 0.0%
9 To elect Henry Turcan 139,948,112 97.9% 44.8% 2,870,795 2.1% 0.9% 118,676 0.0%
10 Approval of Directors’
remuneration report 138,346,965 99.0% 45.3% 1,420,624 1.0% 0.5% 169,994 0.0%
11 Approval of Directors’
remuneration policy 138,307,164 99.0% 45.2% 1,451,931 1.0% 0.5% 178,488 0.0%
12 Approval of amendment to Nanoco
2015 Long Term Incentive Plan 138,187,637 98.9% 45.2% 1,571,616 1.1% 0.5% 178,330 0.0%
13 Approval for political donations 139,296,954 99.6% 45.6% 602,065 0.4% 0.2% 38,564 0.0%
14 Authority to issue and allot new
ordinary shares 139,583,412 99.8% 45.7% 325,857 0.2% 0.1% 28,314 0.0%
15
1
Disapplication of pre-emption rights 139,499,134 99.8% 45.6% 263,354 0.2% 0.1% 175,095 0.0%
16
1
Disapplication of pre-emption
rights for specific investment
purposes 139,534,520 99.8% 45.6% 230,222 0.2% 0.1% 173,111 0.0%
17
1
Authority to purchase own shares 139,852,258 100.0% 45.8% 26,431 0.0% 0.0% 58,894 0.0%
18
1
Reduced notice of general meetings 139,787,823 99.9% 45.7% 111,580 0.1% 0.0% 38,180 0.0%
1 Proposed as special resolutions.
2 Excluding treasury shares.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
052
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
T
he Board believes deeply that
strong, responsible and balanced
leadership with an appropriate
mix of skills for the challenges
the group faces is critical to creating
long-term shareholder value and
business success. The Committee
met twice 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 evaluates the balance of skills,
knowledge and experience and the size,
structure and composition of the Board
and Committees of the Board. This
extends to reviewing appointments of
additional and replacement Directors
and Committee members by making
appropriate recommendations to the
Board on such matters. In its review, it
reviews the parameters set out below:
Board mix
of skills and
experience
Supporting
value creation
Recruitment
to Board and
Committees
Diversity of
Board and
employees
Good
governance
Members
Dr Christopher Richards (Chair)
Dr Alison Fielding
Chris Batterham
Performance evaluation
Succession planning
Board and Committee composition
10%
50%
40%
Allocation
of time
1
1 Estimated.
Nanoco Group plc – Annual Report and Accounts 2022
053
Governance
The responsibilities of the Committee
include a focus on governance. In order
to enhance the group’s improvement
plans for governance issues. The
Committee’s terms of reference
therefore include:
reviewing and considering the
Company’s procedures and controls
for ensuring compliance with:
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;
recommending any proposed
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, determining whether
such transactions are appropriate
for the Company to undertake and
advising the Board accordingly.
Committee membership
In accordance with the UK Corporate
Governance Code the Nominations
Committee consists of Non-Executive
Directors. It has been 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 Chris Batterham.
All members of the Committee are
considered to have experience and
competence relevant to the duties and
responsibilities of the Committee.
Summary biographies of all members of the
Committee are detailed on pages 40 and 41.
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 three times during the
financial year and was attended as
shown in the table below:
Committee member
Meetings/
attended
Dr Christopher Richards (Chair) 3/3
Chris Batterham 3/3
Dr Alison Fielding 3/3
As well as the members of the Committee,
the Chief Executive Officer may be invited
to attend, 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 on an ad hoc basis,
for example during a recruitment process.
The Committee Chair provides the Board
with a full briefing on all relevant matters.
The Chairman would not chair this
committee should it consider the
appointment of a new chair.
Board structure and activities during
the year
During previous years, the Board has
reduced in size, with a focus on cost
saving and governance. However, with
the commercial operations advancing,
and the ongoing litigation, it was
decided that the Board needed further
representation from both an Executive
Director and a Non-Executive Director.
In light of that consideration, two
appointments to the Board were
recommended during the year.
The Nominations Committee was pleased
to recommend unanimously to the Board
the appointment of Liam Gray as CFO.
Liam has been with the business since
2019 and has experience with both public
and private companies.
In addition, the Committee unanimously
recommended the appointment of Henry
Turcan to the Board as a Non-Executive
Director. Henry is as a representative of
the major shareholder Lombard Odier
Asset Management. Further key activities
are set out in more detail below.
The addition of an extra Executive Director
and an extra Non-Executive Director has
maintained the group’s governance goal
of having the majority of members of the
Board as Non-Executive Directors. In FY23,
the Committee will consider whether to
appoint a replacement for Henry Turcan
who stepped down from the Board after
the year end.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
054
Meeting frequency and
attendance continued
Employee engagement
The Employee Voice Committee (“EVC”)
was established in 2020 as an employee
representative body which would aim to
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). The Voice Committee met
very effectively during the year, with a
focus on meetings and open question
and answer sessions during challenging
times within the business, such as the
site relocation.
Diversity
The group has always aimed to
employ the right person for the right
job, irrespective of sex, gender, race or
disability. 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
or employees. This reflects a market
for industry skills that unfortunately still
attracts more male candidates than
female. 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 Sustainability
section on pages 34 to 39.
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
28 October 2022
Nominations Committee report continued
Nanoco Group plc – Annual Report and Accounts 2022
055
Audit Committee report
Maintaining a robust internal control
and risk management framework will
support the group’s development
and growth
CHRIS BATTERHAM
Audit Committee Chair
T
he 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 40
and 41.
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 Chief Financial Officer. 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
Meetings/
attended
Chris Batterham (Chair) 4/4
Dr Alison Fielding 4/4
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.
Members
Chris Batterham (Chair)
Dr Alison Fielding
Performance evaluation
Succession planning
Accounting matters
Risk management
Internal controls
5%
5%
15%
35%
Allocation
of time
1
Financial reporting
15%
25%
1 Estimated.
In addition to the scheduled Committee
meetings, the members of the Committee
meet and discuss emerging issues for the
business with the CEO and CFO to ensure
that the work of the Committee remains
appropriately focused on the risks and
needs of the business.
Continuous improvements in the quality,
relevance and timeliness of information
being provided to the Committee and
the Board as a whole ensure that similar
gains are also made in the quality review,
challenge and scrutiny by the Committee.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
056
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.
Financial reporting
The primary objective 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;
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, are fair, balanced
and understandable. In simple terms
this means that shareholders receive
adequate information to assess the
group’s strategy, business model
and risks, 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. During
the year, the group decided to replace
PriceWaterhouseCoopers LLP with
Mazars LLP. This decision was taken as
the fees quoted by Mazars LLP were
more in line with the group’s stage of
development whilst offering the same
quality of service for Nanoco.
Further 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 their
independence.
Internal control and risk
management
Our internal control and risk management
processes are a fundamental part of the
overarching 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’ scale.
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 learnt 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;
continual focus on cash and cash
forecasting;
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.
Audit
Committee
Internal control
and risk
management
External
audit
Financial
reporting
Audit Committee report continued
Nanoco Group plc – Annual Report and Accounts 2022
057
Financial reporting
Our approach to materiality
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
sufficiently specific and have a large
enough real or potential impact that
they would 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 and also by reference
to an individual component of the
financial statements. 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).
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.
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:
continuing appropriateness of the
group’s accounting policies;
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); and
considering if the financial statements,
when taken as a whole, is fair,
balanced and understandable.
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.
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.
The project with the European electronics
customer (and subsequent extensions)
was the most material source of revenue
in the year. This project was ongoing at
31 July 2022. Deliverables were all
accounted for on the basis noted above
regarding sales of materials or service
revenue in line with the requirements
of IFRS 15.
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.
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, if relevant, 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 carrying value of
£1.6 million (2021: £2.9 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 £0.9 million
impairment of a number of individual
assets was required in the current year,
with the majority related to technology
areas that the group is no longer
pursuing or territories where prosecution
of IP rights is more difficult.
Any assets which have been impaired are
treated as being of disposed during the
year. This totalled £3.0 million in the
current financial 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.
Key Item Judgement or estimate? Materiality Uncertainty
Revenue recognition Judgement Medium Low
Carrying value of intangible assets Estimate Medium Medium
Going concern Judgement and estimate Medium Low
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
058
Significant accounting matters
and areas of significant
management judgement
continued
Going concern (recurring item)
continued
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
remains appropriate for the preparation
of the financial statements. 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
27 to 29.
The Committee concluded that the
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 32 to 33.
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 performance reported
therein was consistent with the Committee’s
knowledge gained from regular reviews
of 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
Committee determined that the Annual
Report and Accounts is fair, balanced
and understandable and this finding was
confirmed by the Board.
External audit
External audit plan
The Committee reviewed the proposed
audit plan. The Committee was satisfied
that the areas of audit risk highlighted by
Mazars were appropriate and included
all material matters. The Committee
subsequently reviewed the actual audit
report by Mazars 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.
As announced during the financial year,
the group decided to change auditors
from PwC to Mazars following a
competitive tender exercise. With the
change in auditors, the external audit firm
and the current lead engagement partner
are in their first 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.
For the current year, the Committee has
concluded that the external auditors
remain independent and objective for
the purposes of their role.
Audit Committee report continued
Nanoco Group plc – Annual Report and Accounts 2022
059
External audit continued
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 are
permissible and 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.
No fees were paid for non-audit services
during the year. Separate external firms
are engaged for taxation and Directors’
remuneration 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 27 to 29.
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
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 27 to 29.
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;
(v) expenditure approval limits and
approval processes are in place
to cover all major commitments;
“ The Board
determined that the
Annual Report and
Accounts are fair,
balanced and
understandable.”
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
060
Internal controls and risk
management continued
Internal controls continued
(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. No reports of whistleblowing
were received during the year. 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
Committee continues to believe that
the system is effective in safeguarding
shareholders’ interests and the
group’s assets. The Board agreed
with this conclusion.
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 ongoing performance
of the new CFO following the transition
of the previous CFO into the role of CEO
in the prior year. We remain very satisfied
with the progress made. 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.
Chris Batterham
Audit Committee Chair
28 October 2022
Audit Committee report continued
Nanoco Group plc – Annual Report and Accounts 2022
061
Remuneration Committee report
Designing reward packages to
retain and incentivise management
progress in achieving our short and
medium-term strategic goals
DR ALISON FIELDING
Remuneration Committee Chair
Dear shareholder
A
s the Chair of Nanoco’s
Remuneration Committee
(the “Committee”), I am pleased
to present our Directors’
remuneration report for the year ended
31 July 2022. 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 including
prospective matters for the new year
ending 31 July 2023;
(2) the Directors’ remuneration policy
setting out the framework approved
by shareholders at the AGM in
December 2021; and
(3) the Annual report on remuneration,
which sets out the actual Executive
remuneration over the year ended
31 July 2022.
Our remuneration policy is designed
to attract, incentivise and retain our
Executives whilst ensuring a focus on
performance related pay that drives our
transformation from R&D to commercial
production and provides a clear
emphasis on the long-term success
of the business. 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 2022 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
Henry Turcan joined the Board on
19 August 2021 as a Non-Executive
Director and representative of the
group’s largest shareholder, Lombard
Odier Asset Management. Henry received
no fees for his role with a monitoring fee
paid directly to Lombard. Liam Gray was
appointed to the Board of Directors on
8 November 2021 in the role of Chief
Financial Officer and continues his role
as Company Secretary. A summary of
his remuneration arrangements from
appointment is detailed in the FY22
remuneration decisions section on
the following pages.
There were no other changes to the
Board during the year.
Relating remuneration to current
business performance
The Committee has always shown
leadership in restraint of Executive and
Board remuneration at a time when the
group was in a weaker financial position
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 and the group’s financial
position is stronger than it was last year,
the Remuneration Committee remains
conscious of the need to structure
reward and incentives around the
continuing issues of affordability and
conservation of cash. This focus on
non-cash incentives helps to maintain a
strong alignment with shareholder value.
Members
Dr Alison Fielding (Chair)
Chris Batterham
Dr Christopher Richards
Performance evaluation
Succession planning
Employee engagement
Diversity
Governance
5%
Allocation
of time
1
Reward and targets
25%
15%
10%
5%
40%
1 Estimated.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
062
Directors’ remuneration policy
Our remuneration policy was approved at the 2021 Annual General Meeting, with 99% of all votes cast in favour. This policy was
implemented during the year ended 31 July 2022, as described in the Annual report on remuneration and as summarised below.
Element Implementation in the year ended 31 July 2021
Base salary The increase in pay for Brian Tenner on taking up the role of CEO was made in two tranches: the first
increase to £250,000 occurred in FY22 eleven months after taking up the role, and the second, to £275,000,
commences in FY23. There were no other proposed changes to base salaries.
Benefits Life insurance is the only benefit currently provided.
Retirement benefits Contributions remained at 6% of salary in line with all staff (a policy limit of 10%).
Annual bonus At the AGM in November 2021, shareholders approved an increase in the maximum annual bonus to 125%
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. Personal bonus elements are only payable if at least one financial target is achieved.
The Committee retains discretion to apply different weightings in relevant circumstances, and to override
formulaic outturns where circumstances require.
LTIP At the AGM in November 2021, shareholders approved an increase in the maximum annual LTIP award
(in normal circumstances) to 150% of salary (up to 250% in exceptional circumstances). The Committee
retains discretion to override formulaic outturns where circumstances require.
Shareholding
guideline
All Executive Directors to acquire and retain shares with a value equal to 200% of salary.
Post-employment
shareholding
requirement
Executive Directors, upon ceasing employment with the Company, are required to retain their shareholdings,
up to 200% of salary, for one year post employment. This reduces to 100% of salary in the second year post
employment. Shares will be subject to this requirement only if they are acquired from employee share plan
awards granted on or after 1 August 2021.
Other changes Malus and clawback provisions are in place.
The Committee aims to provide total remuneration that retains and incentivises our Executives, whilst reflecting our constrained
financial position. The Committee concluded higher variable elements of annual bonus and LTIP were necessary and appropriate
to retain and incentivise Executives, as well as strongly aligning their interests with those of shareholders. Shareholders voted to
approve an increase in the maximum annual bonus and the maximum annual LTIP award (in normal circumstances) to 125% and
150% of salary respectively. In addition, the annual bonus targets are very stretching and are effectively self-financing since the
additional profit exceeds the additional bonus earned. Since the annual bonus can be paid in deferred shares, the Company’s
cash reserves are protected.
Engaging with shareholders
Before submitting the new remuneration policy to a shareholder vote at the AGM in November 2021, the Committee consulted with
major shareholders. I would like to take this opportunity to thank shareholders for their time spent engaging with us and providing
commentary on the proposed changes to our Directors’ remuneration policy, all of which were subsequently approved at the AGM.
Remuneration Committee report continued
Nanoco Group plc – Annual Report and Accounts 2022
063
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 2022
and how the Directors’ remuneration
policy will be operated for the year
commencing 1 August 2022. This section
of the report will be subject to an
advisory vote at the 2022 AGM.
Remuneration decisions in respect
of the year ended 31 July 2022
As referred to in the 2021 Directors’
remuneration report, Brian Tenner’s
salary was increased to £250,000 with
effect from 1 August 2021 following his
assumption of the CEO role eleven
months before in September 2020.
Liam Gray was appointed to the Board
as Chief Financial Officer with effect
from 8 November 2021. Liam previously
served as the UK Finance Director and
Company Secretary. He was appointed
on a base salary of £120,000 with the
same benefits and incentives as the
other Executive Directors in line with
the remuneration policy.
The 2022 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 both of the corporate
financial targets’ thresholds were achieved.
As a result, bonuses were therefore
payable in respect of performance
against the Executive Directors’ personal
targets. The Remuneration Committee
determined that a number of personal
objectives had been achieved in part or in
full by the Executive Directors, in addition
to the threshold attainment of the financial
targets. Further information is set out
on page 73.
No long-term incentive awards vested
during the year. All the options under the
Deferred Bonus Plan that were granted in
October 2019 and December 2019 vested
during the year. These options had been
awarded in respect of the annual
bonuses earned in FY19.
Long-term incentive awards were
granted in the year under the LTIP and
further information is set out on page 74.
No other long-term incentive awards
were issued.
The Non-Executive Directors continued
with their 35% pay deferral in the year
ended 31 July 2022. Their full pay was
reinstated on 1 July 2022, and the
deferred sums were paid in July 2022,
following the successful fundraise in June
2022. During the year, the Chairman
continued to defer the second increase
in his fees that had been agreed in 2020
and this deferral will continue in FY23.
Remuneration in the year
commencing 1 August 2022
The Directors’ remuneration policy
approved at the 2021 AGM will be
applied as follows in the year
commencing 1 August 2022:
The Board agreed to implement the
second, deferred tranche, in Brian
Tenner’s base salary that had been
agreed in the prior year. In addition,
Brian Tenner (and the other Executive
Directors) will receive the same 6%
cost of living increase being awarded
to all other staff (excluding Non-
Executive Directors). In combination,
this raises his salary to £291,500
effective from 1 August 2022.
The Board also approved an increase
in salary for the CFO, Liam Gray,
raising his salary to £148,400 effective
from 1 August 2022. This reflects strong
development progress made in the
year by Liam and is made up of an
increase of £20,000 in base salary,
plus a 6% cost of living increase as
detailed above.
The CTO, Nigel Pickett, has received a
6% cost of living increase as detailed
above, raising his salary to £207,442
effective from 1 August 2022.
For the year commencing 1 August 2022,
employer pension contributions for all
staff, including the Executive Directors,
above the amount of any salary
sacrifice (and the associated employer
National Insurance contribution
savings) will be increased by 1.5%
of salary to the group’s medium-term
target of 7.5% of salary.
The annual bonus opportunity for
Executive Directors will be 125% of
salary in line with the approved policy,
subject to the achievement of
stretching performance conditions.
The details of the proposed targets,
to the extent they are not disclosed
on page 79, will be disclosed in next
year’s Directors’ remuneration report
when they are no longer
commercially sensitive.
LTIP awards for the year commencing
1 August 2022 will be set in line with
the approved policy which specifies
an award level of 150% (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 policy also allows for the Board
to vary this timing at its discretion.
The intended awards to be made to
the Executive Directors in October 2022
are set out in the relevant sections of
this report. The targets and weightings
for any award in FY23 will be announced
if and when any such awards are made.
Non-Executive Director fees will
remain at their previous levels and will
now be paid in full in cash. The second
increase in the Chairman’s underlying
fees that was agreed in 2019 will
remain on hold.
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
28 October 2022
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
064
Directors’ remuneration report
Directors’ remuneration policy
T
his 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 30 November 2021 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 and applied
from 1 August (can be varied).
Consideration is given to the following:
the role, responsibility and
experience of the individual;
corporate and individual
performance;
market comparators by size
and complexity; and
other Nanoco salary increases.
No maximum. Annual increase normally
in line with the wider workforce. Potential
further increases:
on promotion or changes in scope
or responsibility;
an individual’s performance in a role;
where there has been a change
in market practice; or
if there is a change in the size and/or
complexity of the business.
N/A
Benefits
Provide a market-competitive
benefits package and promote
the wellbeing of employees.
The Company provides life assurance of
eight times salary, for all Executives.
Directors are reimbursed for out-of-
pocket expenses incurred wholly and
necessarily on Company business.
Benefits are reviewed periodically,
taking individual circumstances into
consideration. Benefits provided may
include, for example, medical insurance,
relocation expenses, expatriate
allowances and travel expenses.
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.
N/A
Retirement benefits
Provide market-competitive
post-employment benefits to
recruit and retain Directors of the
calibre required for the business.
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 other appropriate
pension plan). In circumstances where
the lifetime allowance is protected,
Executive Directors are permitted
to take an equal cash supplement
(not counted towards bonus or
LTIP opportunity).
For the year commencing 1 August 2022,
employer pension contributions above
the amount of any salary sacrifice
and employer NIC saved will be set
at 7.5% (2021: 6.0%) of salary in line
with all employees.
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.
N/A
Nanoco Group plc – Annual Report and Accounts 2022
065
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.
Performance targets are set annually and pay-
out levels are determined after the year end
following the Committee’s assessment of
actual performance against set targets.
Up to 100% of any bonus earned can be paid in
deferred shares or options under the Deferred
Bonus Plan (“DBP”) that will vest after two years.
Deferred share option awards may incorporate
the right to receive (in cash or shares) the value
of the dividends that would have been paid on
vested shares; this may assume the
reinvestment of dividends into shares on such
terms as the Committee determines.
Personal bonus element only payable if at
least one financial target is achieved.
Maximum annual bonus opportunity
is 125% of salary.
The percentage of maximum bonus
payable for the different levels of
performance would be no greater than:
Below threshold 0%
Threshold 25%
On-target 60%
Maximum 100%
On-target performance pays out at
60% (and not 50%) as the Committee
includes an element of stretch when
setting targets.
Stretching performance
targets are set each year,
reflecting the group strategy.
Ordinarily, at least 80% 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, and to
override formulaic outturns
where circumstances require.
Long Term Incentive Plan
(“LTIP”)
To reflect stakeholder
philosophy, provide a
longer-term retention
mechanism and provide
alignment with shareholders.
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.
There will be no retesting of performance
after the end of the performance period.
Vested awards are normally 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.
The maximum value of shares over
which an individual can be granted an
award in respect of a financial year is
normally 150% 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 0%
Threshold 25%
On-target 60%
Maximum 100%
On-target performance pays out at
60% (and not 50%) as the Committee
includes an element of stretch when
setting targets.
Vesting of LTIP awards is
subject to meeting
performance targets set
by the Committee.
Performance targets are
reviewed regularly to ensure
relevance and will be based
on financial measures which
link 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.
The Committee retains
discretion to override
formulaic outturns where
circumstances require.
Shareholding requirement
To align Directors to
shareholder interests.
In service requirement
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.
N/A N/A
Post-employment
shareholding requirement
To further align Directors
to shareholder interests.
Executive Directors’ upon ceasing employment
with the Company, are required to retain their
shareholdings, up to 200% of salary, for one
year post employment. This reduces to 100%
of salary in the second year post employment.
Shares will be subject to this requirement only
if they are acquired from employee share plan
awards granted on or after 1 August 2021.
N/A N/A
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
066
Directors’ remuneration policy continued
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, material misconduct
on the part of the participant, a material corporate failure as determined by the Board, a material failure of risk management by the
group, or in the event of serious reputational damage (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).
The same provisions apply to awards under the 2015 LTIP Plan at any time prior to the end of the holding period for LTIP awards.
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
Ordinarily, at least 80% of the potential maximum annual bonus will be subject to achievement of a combination of financial and
corporate measures, with the remainder 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. The personal bonus
element is only payable if at least one financial target is achieved.
LTIP
The Committee has now opted for any potential LTIP award in financial year 2023 to be based on a combination of revenue
targets and share price growth. Both metrics are closely aligned to long-term shareholder interests in that revenue growth will
lead to a valuable self-financing organic business and share price growth is a direct measure of increases in shareholder value. It is
the Committee’s view that these metrics are the most appropriate performance measure at present for determining LTIP vesting for
the awards for the reason given above. At this time as a ‘pre-profit’ business, the Committee considers that a profit based metric
would not be appropriate as this could be subject to the risk of potential undeserved reward or penalty, particularly given the
small absolute values involved. 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 outcome or development in the Samsung litigation,
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. These include 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. The Committee can determine that an
alternative basis should apply but this 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 page 70, 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.
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.
Directors’ remuneration report continued
Nanoco Group plc – Annual Report and Accounts 2022
067
Directors’ remuneration policy continued
Remuneration outcomes in different performance scenarios
The charts below set out an illustration of the remuneration policy for FY23. 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 pay-out
No vesting under the LTIP
Threshold performance Fixed remuneration
25% annual bonus pay-out (31.25% of salary)
25% vesting under the LTIP (37.5% of salary)
Target performance Fixed remuneration
60% annual bonus pay-out (75% of salary)
60% vesting under the LTIP (90% of salary)
Maximum performance Fixed remuneration
100% annual bonus pay-out (125% of salary)
100% vesting under the LTIP (150% of salary)
Maximum + 50% share
price increase
Fixed remuneration
100% annual bonus pay-out (125% of salary)
100% vesting under the LTIP (150% of salary) plus an assumed 50% increase in share price from grant date
93%
£313,362
57%
18%
21%
£513,768
37%
28%
33%
£794,337
26%
33%
39%
£1,114,987
22%
7% 4% 3% 2% 2%
27%
49%
£1,333,612
Brian Tenner
Below
threshold
performance
Target
performance
Maximum
performance
Maximum +
50% share
price increase
Total remuneration
1,500,000
1,200,000
900,000
600,000
300,000
0
PensionFixed pay
Annual bonus
LTIP
PensionFixed pay
Annual bonus
LTIP
Threshold
performance
93%
£223,000
57%
18%
21%
£365,616
37%
28%
33%
£565,279
26%
33%
39%
£793,466
22%
7% 4% 3% 2% 2%
27%
49%
£949,047
Dr Nigel Pickett
Below
threshold
performance
Target
performance
Maximum
performance
Maximum +
50% share
price increase
Total remuneration
Threshold
performance
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
93%
£159,530
57%
18%
21%
£261,555
37%
28%
33%
£404,390
26%
33%
39%
£567,630
22%
7% 4% 3% 2% 2%
27%
49%
£678,930
Liam Gray
Below
threshold
performance
Target
performance
Maximum
performance
Maximum +
50% share
price increase
Total remuneration
800,000
600,000
400,000
200,000
0
PensionFixed pay
Annual bonus
LTIP
Threshold
performance
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
068
Directors’ remuneration policy continued
Remuneration outcomes in different performance scenarios continued
Fixed pay currently comprises the following elements from 1 August 2022:
Current
base salary Benefits
1
Pension
2
Total
Chief Executive Officer – Brian Tenner £291,500 — £21,862 £313,362
Chief Technical Officer – Dr Nigel Pickett £207,442 — £15,558 £223,000
Chief Financial Officer – Liam Gray £148,400 — £11,130 £159,530
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.
2 Based on 7.5% employer pension contribution/cash supplement in lieu of pension which applies for the year ended 31 July 2023 (2022: 6.0%).
With the exception of the final scenario (which assumes a 50% increase in share price from grant date of LTIPs), 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;
Directors’ remuneration report continued
Nanoco Group plc – Annual Report and Accounts 2022
069
Directors’ remuneration policy continued
Remuneration policy on recruitment continued
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 375%
of salary, in line with the policy set out on pages 64 and 65.
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 six
months’ notice. This policy was implemented during FY21 with notice periods being shortened by agreement with the continuing
Executives. The duration of Directors’ service contracts is disclosed on page 79. 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 six 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.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
070
Element Policy
LTIP 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 has 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 universal participation in at least one of 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 they are in line with the
Directors’ remuneration policy approved at the 2021 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 approved at the 2021 AGM.
Directors’ remuneration report continued
Directors’ remuneration policy continued
Payment for loss of office continued
Nanoco Group plc – Annual Report and Accounts 2022
071
Annual report on remuneration
This report sets out details of the amounts earned during FY22 and provides details as to how the Committee intends to
implement the policy during FY23. This part of the report will be subject to an advisory shareholder vote at the 2022 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, Chief Financial Officer and the Chief Technology 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 Investors section of the group’s website.
The Committee met six times during the year; its meetings are minuted and its recommendations are presented to the Board.
Other appointments
None of the Executive Directors had any other external appointments during the year ended 31 July 2022.
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 FY21
Deloitte LLP
(“Deloitte”)
Appointed by the
Remuneration
Committee in
June 2015.
Various advice on
Executive remuneration.
The fees for advice provided to
the Committee during the financial
year were £nil (2021: £7,125).
Charged on a time/cost basis or
fixed fee depending on project.
Advice to management in
relation to the Directors’
remuneration report.
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.
Single total figure of remuneration for 2022 – Executive Directors (audited information)
The remuneration of the Directors who served on the Board of Nanoco Group plc during the year to 31 July 2022 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 2022
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
Executive Directors
Brian Tenner 250 — — 238 — 15 503 265 238
Dr Nigel Pickett 196 — — 184 — 12 392 208 184
Liam Gray
4
87 — — 85 — 5 177 92 85
Total Executive Directors 533 — — 507 — 32 1,072 565 507
Non-Executive Directors
Dr Christopher Richards 100 — — — — — 100 100 —
Dr Alison Fielding 46 — — — — — 46 46 —
Chris Batterham 46 — — — — — 46 46 —
Henry Turcan
5
40 — — — — — 40 40 —
Total Non-Executive
Directors 232 — — — — — 232 232 —
Total 765 — — 507 — 32 1,304 797 507
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
072
Annual report on remuneration continued
Single total figure of remuneration for 2022 – Executive Directors (audited information) continued
The remuneration of the Directors who served on the Board of Nanoco Group plc during the year to 31 July 2021 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 2021
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
Executive Directors
Brian Tenner 192 — — 95 — 11 298 203 95
Dr Nigel Pickett 169 — — 84 — 10 263 179 84
Total Executive Directors 361 — — 179 — 21 561 382 179
Former Executive
Directors
Dr Michael Edelman
6
180 — — — — — 180 180 —
Non-Executive Directors
Dr Christopher Richards 77 — — — — — 77 77 —
Dr Alison Fielding 35 — — — — — 35 35 —
Chris Batterham 35 — — — — — 35 35 —
Total Non-Executive
Directors 147 — — — — — 147 147 —
Total 688 — — 179 — 21 888 709 179
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 in between 1 April 2020 and 31 March 2021 and are shown before any salary sacrifice pension
contributions. The Non-Executive Directors’ salaries shown include the impact of the 35% salary reduction that took effect between 1 April 2020 and the
31 March 2021, the 35% salary deferral that took effect from 1 April 2021 and the repayment of the 35% deferral in July 2022. The FY21 single figure table
has been restated to reflect this repayment, as previously the single figure table showed the reduced values.
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 Liam Gray was appointed to the Board on 8 November 2021 on an annualised salary of £120,000. The figure above discloses his salary between the date
of his appointment and 31 July 2022.
5 Henry Turcan is a representative of the shareholder Lombard Odier Asset Management, and Nanoco pays £40,000 annually for these services direct
to Lombard Odier Asset Management.
6 Dr Michael Edelman stepped down from the Board and his role as CEO on 1 September 2020 with his salary and benefits as CEO payable until the end
of his notice period on 31 March 2021. The above discloses his salary through to 31 March 2021. 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 1.3125 in 2021.
7 In the financial year ended 31 July 2021, the 3 Non-Executive Directors pay was stated net of deferral. That deferral was paid in July 2022, and so the prior
year numbers have been restated.
Directors’ remuneration report continued
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073
Annual report on remuneration continued
Individual elements of remuneration for the year ended 31 July 2022
Base salary
Brian Tenner received an increase from £221,450 to £250,000 on 1 August 2021. This was in recognition of his change in position
from COO and CFO to CEO in September 2020 with the mutually agreed eleven month delay reflecting the Company’s financial
condition at that time. All other base salaries were frozen in line with other staff in the year ended 31 July 2022.
Annual bonus
For the year ended 31 July 2022, the maximum bonus for Dr Nigel Pickett, Brian Tenner and Liam Gray was 125% of salary with Liam
Gray’s bonus potential being pro-rated to reflect the date of his appointment. The annual bonuses comprise two elements:
financial corporate objectives (100% of salary) and personal objectives (25% of salary). Bonuses for personal objectives are only
payable if financial corporate objectives are achieved.
Threshold financial targets were achieved during the year and hence bonuses were also payable in respect of personal targets.
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 2022:
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 (75%) £2.2m £3.5m £2.8m 52.6%
Adjusted LBITDA (25%) Loss of £2.7m Loss of £2.1m Loss of £2.1m 25.0%
The personal objectives and amounts payable in respect of Brian Tenner, Dr Nigel Pickett and Liam Gray 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.
It is the Board’s intention that awards of deferred share options in respect of bonuses will be settled in shares and not cash,
to conserve the cash resources of the business.
Director Measure
Weighting
(% of maximum
bonus opportunity)
Achievement
(% of salary)
Brian Tenner Financial and corporate measures 80 62.1%
Personal objectives 20 14%
Confidential commercial objective Not achieved (0%)
Secure additional JDA with existing customer Achieved (5%)
Drive all Samsung litigation activities Achieved (5%)
Improve employee engagement Partial (4%)
Dr Nigel Pickett Financial and corporate measures 80 62.1%
Personal objectives 20 13%
Deliver all critical technical milestones for JDA 1 Achieved (4%)
Deliver all critical technical milestones for JDA 2 Achieved (4%)
Focused expansion of IP portfolio Partial (1%)
Support all Samsung litigation activities Achieved (4%)
Confidential commercial objective Not achieved (0%)
Liam Gray Financial and corporate measures 80 62.1%
Personal objectives 20 16%
Effective transition to CFO Partial (4%)
Development of support services Partial (2%)
Support development of new commercial opportunities Achieved (5%)
Outperform FY22 overhead and cash targets Achieved (5%)
DBPs granted in respect of the FY19 annual bonus plan vested in full during the year. No long-term incentives vested during the
year ended 31 July 2022.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
074
Annual report on remuneration continued
LTIP awards granted in FY22
Awards to the Executive Directors made on 9 November 2021 were as follows:
Director Type of award
Percentage
of salary
1
% Number of shares
Face value at
grant date
1
£’000
Face value at grant
less exercise price
£’000
Performance period
Years
Brian Tenner Share award 100% 1,184,834 250 250 3
Nigel Pickett Share award 100% 927,488 196 196 3
Liam Gray Share award 100% 533,175 112 112 3
Awards to the Executive Directors made on 1 December 2021 following shareholder approval at the AGM:
Director Type of award
Percentage
of salary
1
% Number of shares
Face value at
grant date
1
£’000
Face value at grant
less exercise price
£’000
Performance period
Years
Brian Tenner Share award 50% 592,417 125 125 3
Nigel Pickett Share award 50% 463,744 98 98 3
Liam Gray Share award 50% 266,588 56 56 3
LTIP granted 9 November 2021 and 1 December 2021 Threshold target Maximum target
Share price £0.35 £0.55
Vesting ratio 25% 100%
1 The face value of the awards is calculated based on a share price of £0.211, being the three-day average share price to 5 November 2021 used to
determine the number of shares under award as referred to in the announcement on 9 November 2021.
Payments made to former Directors and payments for loss of office during the year (audited information)
No payments for loss of office were made during the year. Michael Edelman, the former CEO, was employed during the year
as a special advisor, on an annual salary of $35,000.
Directors’ remuneration report continued
Nanoco Group plc – Annual Report and Accounts 2022
075
Annual report on remuneration continued
Statement of Directors’ shareholding and share interests (audited information)
Directors’ interests in share options to acquire ordinary shares of 10 pence in the Company, including options held under
the Deferred Bonus Plan, were as follows:
Share options Date granted
Exercise
price
At
1 August 2021
Exercised
during
the year Lapsed
Granted
during
the year
At
31 July
2022
Dr Nigel Pickett 25 Nov 2011 50.00p 500,000 — (500,000) — —
22 Oct 2012 57.00p 750,000 — — — 750,000
22 Nov 2016
1,3
Nil 66,576 — — — 66,576
1 Nov 2019
1,3
Nil 437,681 — — — 437,681
10 Dec 2019
1,3
Nil 437,681 — — — 437,681
21 Oct 2020
2
Nil 1,647,668 — — — 1,647,668
9 Nov 2021
3
Nil — — — 399,929 399,929
9 Nov 2021
2
Nil — — — 927,488 927,488
1 Dec 2021
2
Nil — — — 463,744 463,744
Brian Tenner 1 Nov 2019
1,3
Nil 521,634 — — — 521,634
10 Dec 2019
1,3
Nil 521,634 — — — 521,634
21 Oct 2020
2
Nil 2,485,956 — — — 2,485,956
9 Nov 2021 Nil — — — 452,555 452,555
9 Nov 2021
2
Nil — — — 1,184,834 1,184,834
1 Dec 2021
2
Nil
—
— — 592,417 592,417
Liam Gray 21 Oct 2020
2
Nil
543,891
— — — 543,891
9 Nov 2021
3
Nil — — — 35,157 35,157
9 Nov 2021
2
Nil — — — 533,175 533,175
1 Dec 2021
2
Nil — — — 266,588 266,588
1 Vested but unexercised share options.
2 Unvested share options still subject to performance conditions.
3 Deferred Bonus Plan awards.
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 2021 AGM, the required holding was standardised at 200% of salary for all Executive
Directors. Executive Directors are required to retain at least 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. 2,072% of salary using the three-month
average closing share price to the end of July 2022). Brian Tenner, having joined the Company in August 2018, is building up
a holding which currently stands at 87% of salary (or 195% assuming 50% of Deferred Bonus Plan awards are retained until the
minimum shareholding is achieved). Liam Gray, having joined the Board in November 2021, is building up a holding which currently
stands at 15% of salary (20% assuming 50% of all Deferred Bonus Plan awards are retained until the minimum shareholding
is achieved). Non-Executive Directors are not subject to the shareholding requirement.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
076
Annual report on remuneration continued
Director shareholdings continued
Directors’ interests in the shares of the Company, including family and beneficial interests, at 31 July 2022 were:
Ordinary shares of 10p each
31 July
2022
Number
31 July
2022
%
31 July
2021
Number
31 July
2021
%
Current Directors
Dr Christopher Richards 769,270 0.24 728,730 0.24
Dr Nigel Pickett 11,272,575 3.50 11,245,548 3.68
Brian Tenner 605,888 0.19 592,375 0.19
Liam Gray 48,931 0.02 — —
Dr Alison Fielding 279,697 0.09 239,157 0.08
Chris Batterham 194,111 0.06 153,571 0.05
Henry Turcan — — — —
Total for current Directors 13,170,472 4.10 12,959,381 4.24
1 Henry Turcan is a representative of LOAM, and holds no shares directly.
None of the Directors in office as at 31 July 2022 had any interests at that date in shares of any other group company.
There were no changes in Directors’ shareholdings between 31 July 2022 and the publishing date of these accounts.
The market price for Nanoco shares as at 31 July 2022 was 37.0 pence per share; the highest and lowest prices during the year
were 46.0 pence and 17.1 pence respectively.
Details of share options are set out in note 24 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 8.04%.
Directors’ remuneration report continued
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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 2012 to 31 July 2022. 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 again a
constituent member.
Total shareholder return
The graph shows the percentage return of an investment in the Company’s shares on 1 August 2012 compared with the
percentage return of an investment notionally invested in the FTSE SmallCap index.
01/08/2012 01/08/2013 01/08/2014
350
%
300
%
25
0%
20
0%
150%
100%
50%
0%
Nanoco
FTSE SmallCap
01/08/2015 01/08/2016 01/08/2017 01/08/2018 01/08/2020 31/07/202201/08/202101/08/2019
Ten-year view of CEO remuneration
CEO remuneration 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total remuneration
(£’000)
1
707 293 635 406 327 312 505 323 298
2
503
Annual bonus
(% of max vesting) 73 56 56 40 — — 52 — 43 75
LTIP (% of max
vesting) — — 100 — — — — — — —
1 The previous CEO’s (Dr Michael Edelman) remuneration was paid in US Dollars but reported in Sterling in this table for the years 2013 to 2020. The exchange
rate used for this purpose varied during the year.
2 Brian Tenner was appointed CEO on 1 September 2020, having previously been CFO and COO. There was no change in Brian Tenner’s remuneration at
that time to reflect the change in position with the proposed increase being made in two deferred tranches on 1 August 2021 and 1 August 2022. Having
regard to the proportion of 2021 for which Brian Tenner was CEO, his remuneration as a Director for the full year is included for that year, and the
remuneration of Dr Michael Edelman for the part of the year when he was CEO is not included.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
078
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. Liam Gray and Henry Turcan were appointed during the year ended 31 July 2022 and, accordingly,
have been excluded from the table below.
Average
employee
Brian
Tenner
Dr Nigel
Pickett
Dr Christopher
Richards
Dr Alison
Fielding
Christopher
Batterham
Salary/fees
1
FY22 4% 31% 16% 30% 30% 30%
FY21 7% (8%) (9%) (13%) (13%) (13%)
FY20 1% 1% (2%) (2%) (1%) (1%)
Taxable benefits FY22 N/A N/A N/A N/A N/A N/A
FY21 N/A N/A N/A N/A N/A N/A
FY20 N/A N/A N/A N/A N/A N/A
Annual bonus FY22 0% 100% 100% N/A N/A N/A
FY21 100% 0% 0% N/A N/A N/A
FY20 0% (100%) (100%) N/A N/A N/A
1 As noted on page 63, the Non-Executive Directors’ fees were reduced by 35% between 1 April 2020 and 31 March 2021, and deferred by 35% with effect
from 1 April 2021. This deferral was repaid in July 2022.
The data above is distorted by a number of factors including joining dates, changes in roles and salary and by pay cuts taken by
Directors as part of Company actions to manage the Covid-19 Pandemic. Some but not all staff had 20% pay cuts for six months.
Executive Directors and other members of the Leadership Team had 20% pay cuts for a full twelve months. The increases in
Executive pay in FY22 are therefore primarily or wholly the result of the end of the temporary Covid-19 Pandemic pay cut.
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 group).
Year ended
31 July 2022
£’000
Year ended
31 July 2021
£’000 % change
Dividends — — —
Overall expenditure on pay 2,827 3,150 (10%)
Average headcount 40 51 (22%)
Implementation of policy for the year commencing 1 August 2022
Base salary
Base salaries are reviewed annually with effect from 1 August. For the year commencing 1 August 2022, the second deferred tranche of the
increase in Brian Tenner’s salary as CEO is being implemented. In addition, Liam Gray’s pay has also increased to reflect his progress in his
role as CFO and Company Secretary on the Board. Other Executive Directors have had an increase of 6% in line with the wider workforce.
2022 2021 % change
Chief Executive Officer – Brian Tenner £291,500 £250,000 17%
Chief Technical Officer – Dr Nigel Pickett £207,442 £195,700 6%
Chief Financial Officer – Liam Gray £148,400 £120,000 24%
Changes to Non-Executive Directors’ fees
The Non-Executive Directors’ fees have been frozen at the same level as last year. A temporary 35% pay deferral was reversed
in July 2022.
2022
(contracted)
2021
(paid)
2021
(contracted)
Chairman fee £100,000 £76,667 £100,000
NED base fee £41,000 £31,433 £41,000
Chair of Committee fee £5,000 £3,833 £5,000
Directors’ remuneration report continued
Nanoco Group plc – Annual Report and Accounts 2022
079
Annual report on remuneration continued
Unaudited information continued
Implementation of policy for the year commencing 1 August 2022 continued
Pension
The Company operates a salary sacrifice pension arrangement. For the year commencing 1 August 2022, employer pension
contributions above the amount of any salary sacrifice (and the associated employer National Insurance contribution savings)
have increased to 7.5% of salary for the whole workforce, including the Executive Directors.
Annual bonus
For the year ending 31 July 2023, the maximum annual bonus potential will be 125% of base salary for Executive Directors. Up to the full
amount 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 2022 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 FY23 will include annual revenue and LBITDA weighted 60%:20% respectively.
Any personal bonus is only payable if at least one of the financial targets is 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 150% of salary to the CEO, CTO and CFO after the announcement of
the group’s full year results for the year ended 31 July 2022 (subject to market conditions at the time of award). The Committee will
agree targets if and when any LTIP awards are made during FY23. All awards will continue to be in line with the approved
remuneration policy. This will include 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 in respect of Director remuneration at the Company’s Annual General Meeting held on 30 November 2021.
Resolution
Votes
for % for
Votes
against % against
Votes
withheld
To approve the Directors’ remuneration report 138,346,965 99.0% 1,420,624 1.0% 169,994
To approve the Directors’ remuneration policy 138,307,164 99.0% 1,451,931 1.0% 178,488
Directors’ contracts
It is the group’s policy that Executive Directors should have contracts with an indefinite term, providing for six months’ notice.
Date of contract Date of appointment Notice from the Company Notice from Director
Brian Tenner 30 July 2018 30 July 2018 6 months 6 months
Dr Nigel Pickett 27 June 2006 27 June 2006 6 months 6 months
Liam Gray 8 November 2022 8 November 2022 6 months 6 months
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.
Date of letter of appointment Date of appointment Unexpired term of contract on 31 July 2022
Dr Christopher Richards (Chairman) 28 October 2015 11 November 2015 ~ 4 months
Dr Alison Fielding 20 March 2017 20 April 2017 ~ 9 months
Chris Batterham 12 March 2019 1 April 2019 ~ 8 months
Henry Turcan 1 September 2021 1 September 2021 ~ 25 months
1 Henry Turcan stepped down from the Board with immediate effect from 12 September 2022.
Non-Executive Directors
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
28 October 2022
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
080
Directors’ report
T
he Directors present their report
and the audited financial
statements for the group and
Parent Company for the year
ended 31 July 2022.
Financial instruments
Details of the group’s financial risk
management objectives and policies
are disclosed in note 3 to the
financial statements.
Research and development
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 9 and 9 to 16 respectively.
Total research and development spend
was £2.1 million (2021: £2.2 million). No
development expenditure was capitalised
in the year (2021: £nil) for the reasons
provided in note 3(h) to the accounts.
Dividends
The Directors do not recommend
payment of an ordinary dividend (2021: £nil).
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 40. 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:
Disclosure requirement Pages
Financial results and dividends 24 to 26
Board and Committee meetings and Directors’ attendance 43
Directors’ biographical details and date of appointment 40 and 41
Corporate governance 42 to 49
Approach to risk management and principal risks 27 to 29
Research and development activities 2 and 23
Directors’ remuneration 61 to 79
Greenhouse gas emissions, employee engagement, disability, gender and human rights 34 to 39
Statement on disclosure to the external auditors 83
Statement of Directors’ responsibilities 83
Future developments 8 and 11
Going concern statement 32
Disclosures on financial instruments (note 27 to the consolidated financial statements) 115 to 118
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 No such share allotments
Details of UK Parent participation in a placing by
a listed subsidiary 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
Nanoco Group plc – Annual Report and Accounts 2022
081
Acquisition of the Company’s
own shares
The Company made no purchases of its
own shares in the year under review. As
at 31 July 2022 the authority given by the
shareholders at the 2021 Annual General
Meeting is for the Company to make
market purchases of up to £3,056,869 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 2022 Annual General Meeting.
Share capital and funding
As at 31 July 2022 share capital
comprised 322.4 million ordinary shares
of 10 pence each (2021: 305.7 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 year are given
in note 22 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 24 to the financial
statements.
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 2022, 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 year.
Directors are formally subject to re-election at intervals of not more than three years
but voluntarily submit themselves for re-election each year.
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.
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.
Substantial shareholders
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 2022:
Substantial shareholders
Number
of ordinary
shares at
31 July 2022
% of
issued
share
capital
Lombard Odier Asset Management 77,014,050 23.89
Hargreaves Lansdown Asset Management 49,256,899 15.28
Interactive Investor 28,006,786 8.69
Dr Nigel Pickett 11,272,575 3.50
Tariq Hamoodi 10,866,006 3.37
Barclays Smart Investor 10,220,589 3.17
HSDL, stockbrokers 9,912,359 3.07
There were no notified significant changes in the holdings between 31 July 2022
and the date the Annual Report and Accounts was signed.
Donations
No political donations were made in the year (2021: £nil). Charitable donations of £nil
were made in the year (2021: £nil).
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 47.
Foreign branches
The group has just one foreign location,
a subsidiary in the United States, which
provides management services to the
UK business.
Corporate governance
Nanoco Group plc – Annual Report and Accounts 2022
082
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.
Independent auditors
Mazars LLP were appointed during
the year following an external tender
process. Mazars LLP have indicated
their willingness to continue in office.
Ordinary resolutions to re-appoint
Mazars 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 20 December
2022 at 11.00am, at the Company’s
headquarters at The Conference Centre,
The Heath Business and Technical Park,
Runcorn, WA7 4QX. Shareholders will
have the option to attend in person or
through teleconference, with the
teleconference details to be provided.
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.
Post Balance Sheet Events
Henry Turcan stepped down from the
Board of Directors on 12 September 2022.
On behalf of the Board
Brian Tenner
Chief Executive Officer
28 October 2022
Directors’ report continued
Nanoco Group plc – Annual Report and Accounts 2022
083
Statement of directors’ responsibilities in respect of the financial statements
T
he directors are responsible for
preparing the Annual Report and
Accounts 2022 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 and
the company financial statements in
accordance with international
accounting standards in conformity with
the requirements of the Companies Act
2006. Additionally, the Financial Conduct
Authority’s Disclosure Guidance and
Transparency Rules require the directors
to prepare the group financial
statements in accordance with
international financial reporting
standards adopted pursuant to
Regulation (EC) No 1606/2002 as it
applies in the European Union.
The company has also prepared
financial statements in accordance with
and international financial reporting
standards adopted pursuant to
Regulation (EC) No 1606/2002 as it
applies in the European Union.
Under company law, 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 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 international
accounting standards in conformity
with the requirements of the
Companies Act 2006 and
international financial reporting
standards adopted pursuant to
Regulation (EC) No 1606/2002 as it
applies in the European Union have
been followed, 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 directors are 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 also responsible for
keeping adequate accounting records
that are sufficient to show and explain
the group’s 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.
Directors’ confirmations
The directors consider that the Annual
Report and Accounts 2022 and
accounts, taken as a whole, is fair,
balanced and understandable and
provides the information necessary for
shareholders to assess the group’s 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 group and company financial
statements, which have been
prepared in accordance with
international accounting standards
in conformity with the requirements
of the Companies Act 2006 and
international financial reporting
standards adopted pursuant to
Regulation (EC) No 1606/2002 as it
applies in the European Union, give
a true and fair view of the assets,
liabilities and financial position of the
group and company, and of the 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.
By order of the Board
Brian Tenner
Chief Executive Officer
28 October 2022
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
084
Opinion
We have audited the financial statements
of Nanoco Group plc (the ‘parent
company’) and its subsidiaries (the ‘group’)
for the year ended 31 July 2022 which
comprise the Consolidated Statement of
Comprehensive Income, the Consolidated
Statement of Financial Position, the
Consolidated Statement of Changes in
Equity, the Consolidated Statement of Cash
Flow, the Company Statement of Financial
Position, the Company Statement of
Changes in Equity; and the Notes to the
Consolidated Financial Statements and the
Notes to the Company Financial
Statements including a summary of
significant accounting policies.
The financial reporting framework that
has been applied in their preparation
is applicable law and UK-adopted
international accounting standards and,
as regards the parent company financial
statements, as applied in accordance
with the provisions of the Companies
Act 2006.
give a true and fair view of the state
of the group’s and of the parent
company’s affairs as at 31 July 2022
and of the group’s loss for the year
then ended;
have been properly prepared in
accordance with UK-adopted
international accounting standards
and, as regards the parent company
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.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards
are further described in the “Auditor’s
responsibilities for the audit of the financial
statements” section of our report. We are
independent of the group and the parent
company in accordance with the ethical
requirements that are relevant to our
audit of the financial statements in the
UK, including the FRC’s Ethical Standard
as applied to listed entities and public
interest entities and we have fulfilled our
other ethical responsibilities in accordance
with these requirements. We believe that
the audit evidence we have obtained is
sufficient and appropriate to provide a
basis for our opinion.
Conclusions relating to going
concern
In auditing the financial statements, we
have concluded that the directors’ use of
the going concern basis of accounting in
the preparation of the financial
statements is appropriate.
Our audit procedures to evaluate the
directors’ assessment of the group’s and
the parent company’s ability to continue
to adopt the going concern basis of
accounting included but were not
limited to:
Undertaking an initial assessment at the
planning stage of the audit to identify
events or conditions that may cast
significant doubt on the group’s and the
parent company’s ability to continue as
a going concern;
Obtaining an understanding of the
relevant controls relating to the directors’
going concern assessment;
Making enquiries of the directors to
understand the period of assessment
considered by them, the assumptions
they considered and the implication
of those when assessing the group’s
and the parent company’s future
financial performance;
Challenging the appropriateness of
the directors’ key assumptions in their
cash flow forecasts, as described in
note 2c, by reviewing supporting and
contradictory evidence in relation to
these key assumptions and assessing
the directors’ consideration of severe
but plausible scenarios. This included
assessing the viability of mitigating
actions within the directors’ control;
Testing the accuracy and functionality
of the model used to prepare the
directors’ forecasts;
Assessing the historical accuracy of
forecasts prepared by the directors;
Engaging in regular discussions with
the directors regarding the status of
negotiations in respect of new
financing options;
Assessing and challenging any key
assumptions and mitigating actions put
in place in response to Covid-19;
Considering the consistency of the
directors’ forecasts with other areas
of the financial statements and our
audit; and
Evaluating the appropriateness of the
directors’ disclosures in the financial
statements on going concern.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events or
conditions that, individually or collectively,
may cast significant doubt on the group’s
and the parent company’s ability to
continue as a going concern for a period
of at least twelve months from when
the financial statements are authorised
for issue.
Our responsibilities and the
responsibilities of the directors with
respect to going concern are described
in the relevant sections of this report.
In relation to the group’s reporting on
how it has applied the UK Corporate
Governance Code, we have nothing
material to add or draw attention to in
relation to the directors’ statement in
the financial statements about whether
the director’s considered it appropriate
to adopt the going concern basis
of accounting.
Key audit matters
Key audit matters are those matters that,
in our professional judgement, were of
most significance in our 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) we
identified, 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 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.
We summarise below the key audit
matters in forming our opinion above,
together with an overview of the
principal audit procedures performed to
address each matter and our key
observations arising from those
procedures.
These matters, together with our findings,
were communicated to those charged
with governance through our Audit
Completion Report.
Independent auditors’ report to the members of Nanoco Group plc
Nanoco Group plc – Annual Report and Accounts 2022
085
Key audit matters continued
Key Audit Matter How our scope addressed this matter
Recoverability of intangible assets (Relevant to the group and all Subsidiaries)
The carrying value of group intangible assets as
at 31 July 2022 amounted to £1,616k. During the
year, the group recognised an impairment
charge of £859k.
As disclosed in note 2(e) to the financial
statements, the recoverability of the intangible
assets, the value of which is driven by the
patent portfolio held at any reporting date,
involves judgement as to whether the carrying
value of each patent is higher than its
recoverable amount.
The judgements and estimates used in
determining the impairment assessment can
have a material impact on the amounts
recognised in the financial statements.
Refer to the accounting policies included within
note 3(m) to the financial statements and the
disclosures included within note 13.
Our audit procedures over the impairment of intangible assets included an
evaluation of the methodology adopted and the related controls, in addition to
substantive testing:
Our evaluation procedures included, but were not limited to:
review of the methodology applied for the impairment review, and
consideration of the review and approval processes adopted.
Substantive procedures included, but were not limited to:
We inspected a sample of patents held by the group to confirm the
validity of the patents to external sources to assess whether there is
an indication of impairment;
We evaluated whether there is adequate support for the assumptions
underlying management’s assessment of impairment, including their
assessment around the market value of the group as a proxy for the value
of the patent portfolio. We evaluated whether management’s assumptions
were realistic, achievable and consistent with the external and/or internal
environment and other matters identified during the audit; and
We considered whether appropriate disclosure of the sensitivity of the key
judgements have been included in the financial statements.
Our observations
Based on the results of audit work performed we consider the methodologies
and assumptions used by management to determine the recoverability of the
intangible asset portfolio under IAS 36 to be reasonable.
Impairment of Investment in subsidiaries (Relevant to Parent company only)
As at 31 July 2022, the carrying value of investment
held in subsidiaries included in the company
balance sheet amounted to £40,747k.
Investment in subsidiaries is recorded at cost less
any provision for impairment. Impairment risks arise
when the subsidiary assets suffer depreciation in
market value.
Management estimations and judgements are
involved in determining the recoverable amount of
investments. Given the loss-making position of the
subsidiaries at 31 July 2022, management have
performed an assessment of impairment using a
fair value model based on the market
capitalisation of the group.
Refer to the accounting policies included within
note 3(m) to the financial statements and the
disclosures included within note 14.
Our audit procedures over the impairment of investment in subsidiaries
included an evaluation of the methodology adopted. We addressed this risk by
performance of following procedures:
We assessed with management the potential indicators of impairment and
challenged their approach to assessing any indicators of impairment.
We evaluated the appropriateness of the key assumptions used (the
use of fair value rather than a value -in-use model) in their assessment,
including understanding the basis on which these assumptions were
determined by management;
We performed procedures to assess whether any evidence of management
bias exists in the valuation of investment balances with no indicators of
management bias identified; and
We reviewed the key inputs into management’s fair value calculation,
including assessing the number of shares in issues and the share price used.
Our observations
Based on the results of audit work performed we consider the methodologies
and assumptions used by management to determine whether there were any
indicators of impairment in subsidiaries under IAS 36 to be reasonable.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
086
Key audit matters continued
Key Audit Matter How our scope addressed this matter
Valuation of Share Based Payments (relevant to Parent company only)
During the year to 31 July 2022, the group
recognised a charge of £619k relating to the Long
Term Incentive and Deferred Bonus plans for
employees of the group
There is a risk that the share based payment
schemes are not correctly recognised in
accordance with IFRS 2 and that the vesting
conditions are not accurately reflected.
The valuation of share based payments is
complex and is subject to significant
management estimates and judgement. There is
an inherent risk of management bias in fair value
calculations. This risk is increased due to the
complexity of share based payment valuation.
Refer to the accounting policies included within
note 3(r) to the financial statements and the
disclosures included within note 24.
Our audit procedures over valuation of the share based payments recognised in
the year included an evaluation of the methodology adopted. We addressed
this risk by performance of following procedures:
Inspected management’s estimation of the share options expected to vest
in the future and challenged the logic behind this estimation accordingly.
Engaged a valuation expert to evaluate the reasonableness of the
assumptions used in the fair value computation of the options.
Challenged management on the source and support for the assumptions,
and the mathematical accuracy of the calculation.
We assessed the appropriateness and completeness of the disclosure of
share-based payments in the financial statements.
Our observations
Based on the results of audit work performed we consider the methodologies
and assumptions used by management in the valuation of the share based
payment plans under IFRS 2 to be reasonable.
Our application of materiality and an overview of the scope of our audit
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 on the financial statements as a whole. Based on our professional judgement, we
determined materiality for the financial statements as a whole as follows:
Group materiality Parent company materiality
Overall materiality £108,000 £65,000
How we determined it We determined overall materiality for the group
using a benchmark of 1% of total assets.
Overall materiality has been determined with
reference to a benchmark of total assets, of which it
represents 1% capped at 60% of group materiality.
Rationale for
benchmark applied
We have considered the value of total assets to
be the critical component for determining
materiality given the group’s focus on continued
growth through its intangible asset portfolio,
therefore this is considered most relevant
measure of the underlying position of the group.
We have considered the value of total assets to be the
critical component for determining materiality given the
parent company’s focus on continued growth of the
group through its investment in subsidiaries, therefore this
is considered most relevant measure of the underlying
position of the group.
Performance
materiality
Performance materiality is set to reduce to an
appropriately low level the probability that the
aggregate of uncorrected and undetected
misstatements in the financial statements exceeds
materiality for the financial statements as a whole.
On the basis of our risk assessments, together
with our assessment of the group’s overall
control environment, we set performance
materiality at approximately 55% of our overall
materiality, being £59,000.
Performance materiality is set to reduce to an
appropriately low level the probability that the
aggregate of uncorrected and undetected
misstatements in the financial statements exceeds
materiality for the financial statements as a whole.
On the basis of our risk assessments, together with our
assessment of the company’s overall control
environment, we set performance materiality at
approximately 55% of our overall materiality, being
£36,000.
Reporting threshold We agreed with the Audit Committee that we
would report to them misstatements identified
during our audit above £3,000 as well as
misstatements below that amount 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 £2,000 as well as misstatements below
that amount that, in our view, warranted reporting for
qualitative reasons.
As part of designing our audit, we assessed the risk of material misstatement in the financial statements, whether due to fraud or
error, and then designed and performed audit procedures responsive to those risks. In particular we looked at where the directors
made subjective judgements, such as assumptions on significant accounting estimates.
Independent auditors’ report to the members of Nanoco Group plc continued
Nanoco Group plc – Annual Report and Accounts 2022
087
Our application of materiality and
an overview of the scope of our
audit continued
We tailored the scope of our audit to
ensure that we performed sufficient work
to be able to give an opinion on the
financial statements as a whole. We
used the outputs of our risk assessment,
our understanding of the group and the
parent company, their environment,
controls, and critical business processes,
to consider qualitative factors to ensure
that we obtained sufficient coverage
across all financial statement line items.
Our group audit scope included an audit
of the group and the parent company
financial statements. Based on our risk
assessment, Nanoco Group plc, Nanoco
Technologies Limited and Nanoco 2D
Limited were subject to full scope audit
performed by the group audit team.
At the parent company level, the group
audit team also tested the consolidation
process and carried out analytical
procedures to confirm our conclusion
that there were no significant risks of
material misstatement of the
aggregated financial information.
Other information
The other information comprises the
information included in the annual report,
other than the financial statements and
our auditor’s report thereon. The directors
are responsible for the other information.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in our report, we do not express
any form of assurance conclusion thereon.
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 course
of audit or otherwise appears to be
materially misstated. If we identify such
material inconsistencies or apparent
material misstatements, we are required
to determine whether this gives rise to a
material misstatement in the financial
statements themselves. 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 in this regard.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
the information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements and
those reports have been prepared
in accordance with applicable
legal requirements;
the information about internal control
and risk management systems in
relation to financial reporting processes
and about share capital structures,
given in compliance with rules 7.2.5 and
7.2.6 in the Disclosure Guidance and
Transparency Rules sourcebook made
by the Financial Conduct Authority (the
FCA Rules), is consistent with the
financial statements and has been
prepared in accordance with
applicable legal requirements; and
information about the parent
company’s corporate governance
code and practices and about its
administrative, management and
supervisory bodies and their
committees complies with rules 7.2.2,
7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required
to report by exception
In light of the knowledge and understanding
of the group and the parent company and
their environment obtained in the course of
the audit, we have not identified material
misstatements in the:
strategic report or the directors’ report; or
information about internal control and
risk management systems in relation
to financial reporting processes and
about share capital structures, given
in compliance with rules 7.2.5 and 7.2.6
of the FCA Rules.
We have nothing to report in respect of
the following matters in relation to which
the Companies Act 2006 requires us to
report to you if, in our opinion:
adequate accounting records have
not been kept by the parent company,
or returns adequate for our audit have
not been received from branches not
visited by us; or
the parent company financial
statements and the part of the
directors’ remuneration report to be
audited are not in agreement with the
accounting records and returns; or
certain disclosures of directors’
remuneration specified by law are not
made; or
we have not received all the
information and explanations we
require for our audit; or
a corporate governance statement
has not been prepared by the
parent company.
Corporate governance statement
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that
part of the Corporate Governance
Statement relating to the group’s
compliance with the provisions of the UK
Corporate Governance Statement
specified for our review.
Based on the work undertaken as part of
our audit, we have concluded that each
of the following elements of the Corporate
Governance Statement is materially
consistent with the financial statements or
our knowledge obtained during the audit:
Directors’ statement with regards the
appropriateness of adopting the going
concern basis of accounting and any
material uncertainties identified;
Directors’ explanation as to its
assessment of the entity’s prospects,
the period this assessment covers and
why they period is appropriate;
Directors’ statement on fair, balanced
and understandable;
Board’s confirmation that it has
carried out a robust assessment of the
emerging and principal risks;
The section of the annual report that
describes the review of effectiveness
of risk management and internal
control systems, and;
The section describing the work of the
audit committee.
Responsibilities of Directors
As explained more fully in the directors’
responsibilities statement set out on
page 83, the directors are responsible for
the preparation of the financial statements
and for being satisfied that they give a
true and fair view, and for such internal
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
088
Responsibilities of Directors
continued
control as the directors determine is
necessary to enable the preparation of
financial statements that are free from
material misstatement, whether due to
fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group’s and the parent 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
parent company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s 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 auditor’s
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.
The extent to which our procedures are
capable of detecting irregularities,
including fraud is detailed below.
Irregularities, including fraud, are instances
of non-compliance with laws and
regulations. We design procedures in line
with our responsibilities, outlined above, to
detect material misstatements in respect
of irregularities, including fraud.
Based on our understanding of the group
and the parent company and their industry,
we considered that non-compliance with
the following laws and regulations might
have a material effect on the financial
statements: employment regulations, health
and safety regulations, anti-money
laundering regulations, compliance with the
Data Protection Act, Patent regulations and
compliance with London Stock Exchange
rules for premium listed companies.
To help us identify instances of non-
compliance with these laws and regulations,
and in identifying and assessing the risks of
material misstatement in respect to
non-compliance, our procedures included,
but were not limited to:
Gaining an understanding of the legal
and regulatory framework applicable
to the group and the parent company,
the industry in which they operate,
and the structure of the group, and
considering the risk of acts by the
group and the parent company which
were contrary to the applicable laws
and regulations, including fraud;
Inquiring of the directors,
management and, where appropriate,
those charged with governance, as to
whether the group and the parent
company is in compliance with laws
and regulations, and discussing their
policies and procedures regarding
compliance with laws and regulations;
Inspecting correspondence with relevant
licensing or regulatory authorities
including Patent regulations within
countries in which the group operates;
Reviewing minutes of directors’
meetings in the year; and
Discussing amongst the engagement
team the laws and regulations listed
above, and remaining alert to any
indications of non-compliance.
We also considered those laws and
regulations that have a direct effect on
the preparation of the financial statements,
such as tax legislation, pension
legislation, the Companies Act 2006.
In addition, we evaluated the directors’ and
management’s incentives and opportunities
for fraudulent manipulation of the financial
statements, including the risk of
management override of controls, and
determined that the principal risks related to
posting manual journal entries to manipulate
financial performance, management bias
through judgements and assumptions in
significant accounting estimates, in
particular in relation to revenue recognition
(which we pinpointed to the occurrence
assertion), impairment of investments,
recovery of intangible assets, and significant
one-off or unusual transactions.
Our procedures in relation to fraud
included but were not limited to:
Making enquiries of the directors and
management on whether they had
knowledge of any actual, suspected
or alleged fraud;
Gaining an understanding of the
internal controls established to
mitigate risks related to fraud;
Discussing amongst the engagement
team the risks of fraud; and
Addressing the risks of fraud through
management override of controls by
performing journal entry testing.
The primary responsibility for the prevention
and detection of irregularities, including
fraud, rests with both those charged with
governance and management. As with any
audit, there remained a risk of non-
detection of irregularities, as these may
involve collusion, forgery, intentional
omissions, misrepresentations or the
override of internal controls.
The risks of material misstatement that
had the greatest effect on our audit are
discussed in the “Key audit matters”
section of this report.
A further description of our responsibilities
is available on the Financial Reporting
Council’s website. This description forms
part of our auditor’s report.
Other matters which we are
required to address
Following the recommendation of the
audit committee, we were appointed by
the board of directors on 21 June 2022
to audit the financial statements for
the year ending 31 July 2022. The period
of total uninterrupted engagement is
1 year.
The non-audit services prohibited by the
FRC’s Ethical Standard were not provided to
the group or the parent company and we
remain independent of the group and the
parent company in conducting our audit.
Our audit opinion is consistent with our
additional report to the audit committee.
Use of the audit report
This report is made solely to the company’s
members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body for our audit work, for this report,
or for the opinions we have formed.
Valerie Levi (Senior Statutory Auditor) for
and on behalf of Mazars LLP
Chartered Accountants and Statutory
Auditor
One St Peter’s Square
Manchester
M2 3DE
28 October 2022
Independent auditors’ report to the members of Nanoco Group plc continued
Nanoco Group plc – Annual Report and Accounts 2022
089
Notes
2022
£’000
2021
Restated
£’000
Revenue 4 2 , 4 67 2, 091
Cost of sales
(420 ) (343 )
Gross profit 2 ,0 47 1 , 74 8
Other operating income 5 3 61 183
Operating expenses
Research and development expenses (1,770 ) (2 ,1 5 0 )
Administrative expenses (5 , 40 9 ) (4,790 )
Operating loss 6 (4,7 71 ) (5, 0 09 )
- before share-based payments (4 ,1 5 2 ) (4 , 59 2 )
- share-based payments 24 (619 ) (41 7 )
Finance income 8 — —
Finance expense 8 (4 5 0 ) (7 1 )
Loss before taxation (5, 221 ) (5, 08 0 )
Taxation 9 524 685
Loss after taxation (4 ,6 97 ) (4 , 395 )
Other comprehensive income/(loss)
Gain on exchange rate translations — —
Total comprehensive loss for the year (4 ,6 97 ) (4 , 395 )
Loss per share
Basic and diluted loss for the year 11 (1 . 5 2 1.44
1 The comparative balances for Cost of Sales and Administrative expenses have been restated for the year ended 31 July 2021. Refer to note 2b of
the accounting policies for more information.
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 93 to 119 form an integral part of these financial statements.
Consolidated statement of comprehensive income
for the year ended 31 July 2022
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
090
Group
Share
capital
£’000
Share
premium
£’000
Reverse
acquisition
reserve
£'000
Share-based
payment
reserve
£’000
Merger
reserve
£’000
Accumulated
losses
£’000
Total
£’000
At 1 August 2020 3 0, 5 70 1 1 7, 2 9 2 (77 ,868 ) 3 ,9 0 1 (1 , 242 ) (6 5 , 623 ) 7, 0 3 0
Loss for the year — — — — — (4 , 395 ) (4 , 39 5 )
Other comprehensive income — — — — — — —
Total comprehensive loss — — — — — (4 , 395 ) (4 , 39 5 )
Share-based payments — — — 41 7 — — 41 7
At 31 July 2021 3 0, 5 70 1 1 7, 2 9 2 (77 ,868 ) 4, 318 (1 , 242 ) (70, 01 8 ) 3,052
Loss for the year — — — — — (4, 6 97 ) (4, 69 7 )
Other comprehensive income — — — — — — —
Total comprehensive loss — — — — — (4, 6 97 ) (4, 69 7 )
Issue of share capital on placing 1, 528 4 ,1 27 — — — — 5,655
Costs of share placing — (2 74 ) — — — — (2 74 )
Issue of share capital on exercise of options 146 — — (21 ) — — 125
Share-based payments — — — 61 9 — — 61 9
At 31 July 2022 32, 24 4 12 1 ,1 4 5 (77 ,868 ) 4 ,9 1 6 (1 ,2 42 ) (74 ,7 1 5 ) 4,480
Company statement of changes in equity
for the year ended 31 July 2022
Company
Share
capital
£’000
Share
premium
£’000
Share-based
payment
reserve
£’000
Capital
redemption
reserve
£’000
Accumulated
losses
£’000
Total
£’000
At 1 August 2020 30,570 117,292 3,901 4,402 (113,462) 42,703
Loss for the year and total comprehensive loss
for the year — — — — (6,516) (6,516)
Share-based payments — — 417 — — 417
At 31 July 2021 30,570 117,292 4,318 4,402 (119,978) 36,604
Loss for the year and total comprehensive loss
for the year — — — — (340) (340)
Issue of share capital on placing 1,528 4,127 — — — 5,655
Costs of share placing — (274) — — — (274)
Issue of share capital on exercise of options 146 — (21) — — 125
Share-based payments — — 619 — — 619
At 31 July 2022 32,244 121,145 4,916 4,402 (120,318) 42,389
Consolidated statement of changes in equity
for the year ended 31 July 2022
Nanoco Group plc – Annual Report and Accounts 2022
091
Notes
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Assets
Non-current assets
Tangible fixed assets 11 98 — 199 —
Right of use assets 12 56 — 340 —
Intangible assets 13 1, 61 6 — 2, 85 8 —
Investment in subsidiaries 14 — 40,747 — 40,128
Current assets
Inventories 15 1 74 — 11 0 —
Trade and other receivables 16 1,664 175 1, 2 27 —
Income tax asset 9 524 — 686 —
Cash and cash equivalents 17 6 , 76 2 5,497 3, 813 1
Total assets 10, 8 94 46,419 9, 2 3 3 40,129
Liabilities
Current liabilities
Trade and other payables 18 (1, 510 ) (638) (1 , 61 7 ) (80)
Lease liabilities 21 (153 ) — (545 ) —
Provisions 23 (1 72 ) — — —
Deferred revenue 20 (5 60 ) — (25 3 ) —
(2, 395 ) (638) (2, 41 5 ) (80)
Non-current liabilities
Financial liabilities 19 (3, 919 ) (3,392) (3, 4 87 ) (3,445)
Lease liabilities 21 (16 ) — (133 ) —
Provisions 23 (4 0 ) — — —
Deferred revenue 20 (4 4 ) — (14 6 ) —
(4 ,01 9 ) (3,392) (3 ,766 ) (3,445)
Total liabilities (6 , 41 4 ) (4,030) (6 ,1 8 1 ) (3,525)
Net assets 4,480 42,389 3 ,052 36,604
Capital and reserves
Share capital 22 32, 24 4 32,244 30, 5 70 30,570
Share premium 22 1 2 1 ,1 4 5 121,145 11 7, 2 9 2 117,292
Reverse acquisition reserve 22 (77 ,868 ) — (77 ,868 ) —
Share-based payment reserve 24 4 ,9 1 6 4,916 4, 318 4,318
Merger reserve 25 (1, 24 2 ) — (1, 242 ) —
Capital redemption reserve 25 — 4,402 — 4,402
Accumulated losses 26 (74 ,7 1 5 ) (120,318) (70, 01 8 ) (119,978)
Total equity 4,480 42,389 3 ,052 36,604
The Parent Company’s result for the year ended 31 July 2022 was a loss of £340,000 (2021: loss of £6,516,000). There was no other
comprehensive income in either the current or prior year.
The notes on pages 93 to 119 form an integral part of these financial statements.
The financial statements on pages 89 to 119 were approved by the Board of Directors on 28 October 2022 and signed on its behalf
by:
Dr Christopher Richards Brian Tenner
Chairman Chief Executive Officer
28 October 2022 28 October 2022
Group and Company statements of financial position
at 31 July 2022
Registered no. 05067291
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
092
Notes
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Loss before tax (5, 221 ) (340) (5,0 8 0 ) (6,516)
Adjustments for:
Net finance expense 8 450 396 71 6
(Profit)/loss on exchange rate translations (211 ) 19 17 2
Depreciation of tangible fixed assets 11 105 — 99 —
Depreciation of right of use assets 12 366 — 408 —
Amortisation of intangible assets 13 498 — 618 —
Impairment of intangible assets 13 858 — 623 —
Reversal of impairment — (76) — —
Share-based payments 24 61 9 — 41 7 —
Gain on disposal of tangible fixed assets 6 (36 ) — (4 8 ) —
Changes in working capital:
(Increase)/decrease in inventories (64 ) — 30 —
(Increase) in trade and other receivables (141 ) — (2 09 ) —
Increase/(decrease) in trade and other payables (10 5 ) 116 (75 7 ) 80
Increase in provisions 212 — — —
Decrease/(Increase) in deferred revenue 205 — (4 5 3 ) —
Cash (outflow)/inflow from operating activities (2 ,4 65 ) 115 (4 , 26 4 ) (6,428)
Research and development tax credit received 688 — 908 —
Net cash (outflow)/inflow from operating activities (1,77 7 ) 115 (3 , 35 6 ) (6,428)
Cash flow from investing activities
Purchases of tangible fixed assets 11 (4 ) — (35 ) —
Purchases of intangible fixed assets 12 (114 ) — (3 57 ) —
Proceeds from sale of tangible fixed assets 6 36 — 48 —
Interest received — — — —
Net cash outflow from investing activities (82 ) — (3 4 4 ) —
Cash flow from financing activities
Proceeds from placing of ordinary share capital 5,655 5,655 — —
Proceeds from issue of loan notes — — 3,150 3,150
Costs of financing/placing (274 ) (274) (1 61 ) (161)
Payment of lease liabilities (capital) (5 06 ) — (6 4 2 ) —
Payment of lease liabilities (interest) (83 ) — (30 ) —
Interest paid (3 ) — (4 ) —
Net cash inflow from financing activities 4,789 5,381 2,3 13 2,989
Increase/(decrease) in cash and cash equivalents 2 ,93 0 5,496 (1, 3 87 ) (3,439)
Cash and cash equivalents at the start of the year 3 ,813 1 5 ,1 70 3,440
Effects of exchange rate changes 19 — 30 —
Cash and cash equivalents at the end of the year 17 6 , 76 2 5,497 3, 813 1
The notes on pages 93 to 119 form an integral part of these financial statements.
Group and Company cash flow statements
for the year ended 31 July 2022
Nanoco Group plc – Annual Report and Accounts 2022
093
1. Reporting entity
The Company is incorporated and domiciled in England, UK
office is Science Centre, The Heath Business and Technical Park, Runcorn, WA7 4QX . 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 2022.
The financial statements of Nanoco Group plc and its subsidiaries (the “group”) for the year ended 31 July 2022 were authorised
for issue by the Board of Directors on 28 October 2022 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 international accounting
standards in conformity with the requirements of the Companies Act 2006 and UK adopted IFRSs as issued by the International
Accounting Standards Board for the year ended 31 July 2022.
(b) Basis of measurement
The Parent Company and group financial statements have been prepared on the historical cost basis, except for the revaluation
of financial assets classified as “fair value through other comprehensive income” or “fair value through profit or loss”, which are
reported in accordance with the accounting policies below.
In order to more fairly represent the cost of sales of the group we have reclassified certain costs from administrative expenses to
cost of sales for the comparative period. Total impact of the reclassification is an increase to cost of sales of £124,000 (2021: £134,000).
There is no impact on reported loss or net assets of this reclassification.
(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 18 to 21. The principal risks and uncertainties are shown on pages
27 to 29 while the group’s financial position is described in the Financial review on pages 24 to 26. Furthermore, note 27
summarises the group’s financial risk management objectives, policies and processes. The group funds its day-to-day cash
requirements from existing cash reserves.
For the purposes of their going concern assessment and the basis for the preparation of the financial statements, the Directors
have reviewed the same trading and cash flow forecasts and sensitivity analyses that were used by the group in the viability
assessment, which cover the period to November 2023. The same base case and downside (severe but plausible) sensitivities
were also used.
The base case represents the Board’s current expectations. Assumptions in the base case are:
minimal sales of nanomaterials beyond current contracts - commercial services contracts are based on the existing pipeline
of opportunities or agreements already in place;
modest demand for commercial production materials in CY23 with a subsequent slow ramp-up;
a further extension to the services and supply contract with the European electronics customer;
no revenue is assumed from other business lines though some small scale commercial deals are currently under discussion;
consolidation of activities on one site in Runcorn to reduce costs with modest staff increases in key areas;
small expansion of our self-funded research activities and continued maintenance costs to support our IP portfolio;
loan notes are repaid as they fall due in June 2024 through either an equity fundraise or improved commercial opportunities;
Board, plc and other costs reflect the current inflationary environment;
the group remains a going concern and hence 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 downside case then flexes those assumptions as follows:
a full year delay in small scale commercial production revenues (into CY24); and
no new business from other customers once existing active engagements end.
Notes to the financial statements
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
094
2. Basis of preparation continued
(c) Going concern continued
The extreme downside case then flexes those assumptions further as follows:
the engagement with the European electronics customer comes to an end without any commercial production;
no revenues other than those already contracted; and
the group contracts to become an IP shell to protect the value in the Samsung lawsuit.
All three cases above (base, downside and extreme downside) produce cash flow statements that demonstrate that the group has
sufficient cash throughout the period of the forecast to November 2023. 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.
(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.
(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.
Judgements
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 (paragraph 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 year.
The Directors consider the fair value of the group to be market value (calculated as market capitalisation at year end) less costs
to sell. Given the main trading entity is Nanoco Technologies Limited (owned by Nanoco Tech Limited), this holds the majority of
the value. As the group market value was in excess of the book value, no further impairment is proposed.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
095
2. Basis of preparation continued
(e) Use of estimates and judgements continued
Judgements continued
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).
Impairment of intellectual property
As the group has not made a profit to date, 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 potential
value in use. The value in use calculation uses market assumptions and the potential share the Nanoco technology could unlock. 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 uncertain to be of value to Nanoco and should be allowed to lapse. As a consequence,
patents with a value of £0.9 million (2021: £0.6 million) 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.
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.
Deferred tax
The Company recognises deferred tax assets only to the extent that it is probable that future taxable profits, feasible tax
planning strategies and deferred tax liabilities will be available against which the tax losses can be utilised. Estimation of the
level of future taxable profits is therefore required in order to determine the appropriate carrying value of the deferred tax asset.
Given the Company’s past losses, plans to continue research and development and uncertainty of its ability to generate future
taxable profit, management does not believe that it is more probable than not that the Company can realise its deferred tax
assets and, therefore, it has not recognised any amount in the consolidated statements of financial position. Additional
information is included in note 9.
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.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
096
3. Significant accounting policies continued
(a) Basis of consolidation continued
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.
(d) Revenue recognition
Revenue comprises the fair value of the sale of products and services to external customers, net of value added tax or other
sales taxes or duties, rebates, discounts and returns. Revenue is recognised according to the five-step model set out in IFRS 15 as
follows:
1. Identify the contract(s) with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognise revenue when (or as) the entity satisfied a performance obligation
Products sold
Revenue from the sale of products is recognised at the point of transfer of control, which is generally on shipment or delivery of
the product. This is dependent on the delivery terms agreed with the customer. At this stage the group has completed its
performance obligations. The supply and delivery of products are not deemed to be separable performance obligations as the
customer is obliged to make use of the group’s delivery arrangements in most cases.
Rendering of Services
Revenues from development programmes are recognised over time on a cost to cost method whereby cost is used to measure
progress and costs are incurred evenly throughout the period.
Royalties and licenses
Licenses grant customers access to the group’s technology over a set length of time. Therefore revenue related to the granting of
a license is recognised over the same period of time. The length of time to which the license, and therefore the revenue relates,
varies by customer and agreement.
(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 of an expense nature are recognised as a credit to administrative expenses in the
consolidated statement of comprehensive income.
Government grants relating to capital expenditure are deducted in arriving at the carrying amount of the asset.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
097
3. Significant accounting policies continued
(f) Cost of sales
Cost of sales comprises the materials, duty and freight incurred in the generation of revenue from products sold.
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) Deferred revenue
Deferred revenue represents advanced consideration received from customers, for which revenue is recognised over time.
(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 intellectual property as these are considered to generate probable future economic
benefits and are capitalised as intangible assets (see note 13).
(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.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
098
3. Significant accounting policies continued
(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.
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 group review the potential markets for the asset, and
consider the possibility of short to medium term commercial success being derived from 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.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
099
3. Significant accounting policies continued
(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.
(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 amortised cost and subsequently measured at 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.
For trade receivables and contract assets, the group applies the IFRS 9 simplified approach in calculating ECLs. Therefore, the
group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting
date. The group has established a provision matrix that is based on shared credit risk characteristics, its historical credit loss
experience and days past due, adjusted for forward-looking factors specific to the debtors and the economic environment. The
amount of the provision is recognised in the balance sheet within trade receivables. Movements in the provision are recognised in
the profit and loss account in administrative expenses.
(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 amortised cost. 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 amortised cost. 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.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
100
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 costs
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) Contingent assets and liabilities
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events not wholly within the control of the group. Contingent assets are not
recognised but are disclosed in the notes to the financial statements when an inflow of economic benefits is probable.
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the
occurrence of one or more uncertain future events not wholly within the control of Nanoco. Additionally, contingent liabilities may be
present obligations that arise from past events but which are not recognised because it is not probable that an outflow of resources
will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. Contingent
liabilities are not recognised in the consolidated statement of financial position but are disclosed and explained in the notes.
(w) 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.
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%. For new leases entered into in the year ended 31 June 2022, the weighted average incremental
borrowing rate applied was 4.25%.
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 had 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.
(x) New accounting standards and interpretations
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:
IFRS amendments effective from 1 January 2022 (UK adopted and EU endorsed)
IAS 16 Amendment: Property, Plant and Equipment: Proceeds Before Intended Use
IAS 37 Amendment: Onerous Contracts: Cost of Fulfilling a Contract
IFRS 3 Amendment: Reference to the Conceptual Framework
Annual Improvements Cycle 2018 to 2020
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
101
3. Significant accounting policies continued
(x) New accounting standards and interpretations continued
FRS 101 amendments effective from 1 January 2022:
FRS 101 Amendment: 2020/21 Cycle – Disclosure Exemption from IAS 16
The following standards and amendments to standards have been issued but are not effective for the financial year beginning
1 August 2021 and have not been early adopted:
IFRS standards effective from 1 January 2023 (EU endorsed and UK adopted)
• IFRS 17 Insurance Contracts and IFRS 17 Amendment: Amendments to IFRS 17
IFRS standards effective from 1 January 2023 (EU endorsed, not UK adopted)
• IAS 1 Amendment: Disclosure of Accounting Policies
• IAS 8 Amendment: Definition of Accounting Estimates
IFRS standards effective from 1 January 2023 (not UK adopted, nor EU endorsed)
• IAS 1 Amendment: Classification of Liabilities as Current or Non-current
• IAS 12 Amendment: Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction
• IFRS 17 Amendment: Initial Application of IFRS 17 and IFRS 9 – Comparative Information
FRS 101 amendments effective from 1 January 2023:
• FRS 101 Reduced Disclosure Framework: Prohibiting Insurers to Apply FRS 101 when IFRS 17 Becomes Effective
The amendments to standards and interpretations noted above are expected to have no significant impact on the financial statements.
4. Segmental information
Operating segments
At 31 July 2022 and 2021 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.
31 July
2022
£’000
31 July
2021
£’000
Analysis of revenue
Products sold 782 685
Rendering of services 1,582 1,303
Royalties and licences 103 103
2,467 2,091
There was one material customer who generated revenue of £2,089,000 (2021: one material customer amounting to £1,590,000).
Revenue from the provision of services transferred over time totalled £1,685,000 (2021: £1,406,000). Revenue from the sale of
goods transferred at a point in time amounted to £782,000 (2021: £685,000).
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:
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
102
4. Segmental information continued
Operating segments continued
31 July
2022
£’000
31 July
2021
£’000
Revenue
USA 27 20
Japan 244 80
UK 1 27
Singapore 3 —
Holland 1,474 1,031
France 348 372
Taiwan 351 291
Canada 19 15
Saudi Arabia — 255
2,467 2,091
All of 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 £5,221,000 (2021: £5,080,000).
5. Other operating income
31 July
2022
£’000
31 July
2021
£’000
Government grants 361 183
Grants of £361,000 (2021: £183,000) are included in Other Operating Income. There are no unfulfilled conditions or other
contingencies attached to these grants.
6. Operating loss
31 July
2022
£’000
31 July
2021
£’000
Operating loss is stated after charging/(crediting):
Depreciation of tangible fixed assets (see note 11) 105 99
Depreciation of right of use assets (see note 12) 349 408
(Profit) on disposal of assets (36) (48)
Amortisation of intangible assets (see note 13) 498 618
Impairment of intangible assets (see note 13) 859 623
Lease costs of low value/short life lease obligations 11 10
Staff costs (see note 7) 2,816 3,150
Government aid (Coronavirus Job Retention Scheme) — (285)
Foreign exchange (gains)/losses (192) 47
Research and development expense 1,770 2,150
Share-based payments 619 417
Employers tax on Share-based payments 264 75
1 Included within research and development expense are staff costs totalling £1,439,000 (2021: £1,700,000) also included in note 7.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
103
6. Operating loss continued
Auditors’ remuneration
31 July
2022
£’000
31 July
2021
£’000
Audit services:
– Fees payable to Company auditors for the audit of the Parent and the consolidated accounts 41 135
– Auditing the accounts of subsidiaries pursuant to legislation 44 35
Total auditors’ remuneration 85 170
7. Staff costs
The group’s costs for employees, including Directors, during the year were as follows:
31 July
2022
£’000
31 July
2021
£’000
Wages and salaries 2,241 2,705
Social security costs 490 329
Other pension costs 85 116
2,816 3,150
Share-based payments 619 417
Government aid (Coronavirus Job Retention Scheme) — (285)
3,435 3,282
Directors’ remuneration (including benefits in kind) included in the aggregate remuneration above comprised:
Emoluments for qualifying services 797 708
Emoluments for Directors of the group (excluding social security costs and long-term incentives, but including benefits in kind)
disclosed above include £265,000 paid to the highest paid Director (2021: £298,000). Details of the compensation of key
management personnel are described in note 29.
The group made contributions to money purchase pension schemes for two current Directors (2021: two).
Aggregate gains made by Directors during the year following the exercise of share options were £nil (2021: £nil).
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:
Group
31 July
2022
Number
31 July
2021
Number
Directors 7 5
Laboratory and administrative staff 35 46
42 51
8. Finance income and expense
Group
31 July
2022
£’000
31 July
2021
£’000
Finance income
Interest receivable — —
Finance expense
Loan note interest (433) (36)
Unwinding interest on lease liabilities (14) (31)
Other interest payable (3) (4)
(450) (71)
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
104
9. Taxation
The tax credit is made up as follows:
Group
31 July
2022
£’000
31 July
2021
£’000
Current income tax
Research and development income tax credit receivable (524) (689)
Adjustment in respect of prior years - 3
(524) (686)
Deferred tax
Charge for the year - —
Total income tax credit (524) (686)
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
31 July
2022
£’000
31 July
2021
£’000
Loss before taxation (5,221) (5,080)
Tax at standard rate of 19% (2021: 19%) (992) (965)
Effects of:
Expenses not deductible for tax purposes (15) —
Capital allowances in excess of depreciation 16 16
Additional deduction for research and development expenditure (365) (514)
Surrender of research and development relief for repayable tax credit 640 875
Research and development tax credit receivable (524) (684)
Share options exercised (CTA 2009 Pt 12 deduction) — —
Losses and share-based payment charges carried forward not recognised in deferred tax 716 583
Adjustment in respect of prior years - 3
Tax credit in income statement (524) (686)
The group has accumulated losses available to carry forward against future trading profits of £40.5 million (2021: £37.4 million).
Deferred tax liabilities/(assets) provided/(recognised) at a standard rate of 19% (2021: 19%) are as follows:
31 July
2022
£’000
31 July
2021
£’000
Accelerated capital allowances — —
Tax losses — —
— —
The group also has deferred tax assets, measured at a standard rate of 25% (2021: 19%), in respect of share-based payments and
tax losses of £10,246,000 (2021: £7,105,000 loss) 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.
Following the Chancellor’s budget announcement on 23 September 2022, the planned increase in the corporation tax rate to 25%
is not scheduled to go ahead. Given that this change had not been substantially enacted at the balance sheet date, deferred
tax has not been updated and remains in line with the above.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
105
10. Earnings per share
Group
31 July
2022
£’000
31 July
2021
£’000
Loss for the financial year attributable to equity shareholders (4,697) (4,395)
Share-based payments 619 417
Loss for the financial year before share-based payments (4,078) (3,978)
Weighted average number of shares
Ordinary shares in issue 308,610,928 305,699,102
Adjusted loss per share before share-based payments (pence) (1.32) (1.30)
Basic loss per share (pence) (1.52) (1.44)
Diluted loss per share has not been presented above as the effect of share options issued is anti-dilutive.
11. Tangible fixed assets
Group
Laboratory
infrastructure
£’000
Office equipment,
fixtures and
fittings
£’000
Plant and
machinery
£’000
Total
£’000
Cost
At 1 August 2020 3,403 555 8,467 12,425
Additions — — 35 35
Disposals (7) (89) (498) (594)
Transfers (16) — 16 —
At 31 July 2021 3,380 466 8,020 11,866
Additions — — 4 4
Disposals (42) (67) (796) (905)
At 31 July 2022 3,338 399 7,228 10,965
Accumulated depreciation
At 1 August 2020 3,385 476 8,301 12,162
Charged during the year 2 45 52 99
Disposals (7) (89) (498) (594)
At 31 July 2021 3,380 432 7,855 11,667
Charged during the year — 23 82 105
Disposals (42) (67) (796) (905)
At 31 July 2022 3,338 388 7,141 10,867
Net book value
At 31 July 2022 — 11 87 98
At 31 July 2021 — 34 165 199
The aggregate original cost of tangible assets now fully depreciated but considered to be still in use is £10,668,000 (2021: £11,282,000).
Capital commitments
At 31 July 2022, the group had capital commitments amounting to £nil in respect of orders placed for capital expenditure (2021: £nil).
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
106
12. Right of use assets
Right of use assets
Total
£’000
Cost
At 1 August 2021 1,253
Additions 65
Remeasurement 18
Disposals (443)
At 31 July 2022 893
Accumulated depreciation
At 1 August 2021 913
Charged during the year 349
Remeasurement 18
Disposals (443)
At 31 July 2022 837
Net book value
At 31 July 2022 56
At 1 August 2021 340
Lease liabilities
Total
£’000
Opening liabilities at 1 August 2021 (678)
Additions (65)
Lease payments 587
Interest charge (13)
Closing liabilities at 31 July 2022 (169)
The group has several lease contracts that include extension and termination options. These options are negotiated by management
to provide flexibility in managing the leased-asset portfolio and align with the group’s business needs. Management exercises
significant judgement in determining whether these extension and termination options are reasonably certain to be exercised.
Set out below are the undiscounted potential future rental payments related to periods following the exercise date of extension
and termination options that are not included in the lease term:
31 July 2022
Within
five years
£’000
More than
five years
£’000
Total
£’000
Termination options expected to be exercised 17 — 17
Termination options expected not to be exercised 2,493 — 2,493
Total 2,510 — 2,510
31 July 2021
Within
five years
£’000
More than
five years
£’000
Total
£’000
Termination options expected to be exercised 137 — 137
Termination options expected not to be exercised 429 — 429
Total 566 — 566
Capital commitments
At 31 July 2022, the group had capital commitments amounting to £2,119,000 in respect of new leases (2021: £nil).
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
107
13. Intangible assets
Group
Patents
£’000
Cost
At 1 August 2020 7,311
Additions 357
At 31 July 2021 7,668
Additions 115
Disposals (3,004)
At 31 July 2022 4,779
Accumulated amortisation
At 1 August 2020 3,569
Charged during the year 618
Impairment charge 623
At 31 July 2021 4,810
Charged during the year 498
Impairment charge 859
Disposals (3,004)
At 31 July 2022 3,163
Net book value
At 31 July 2022 1,616
At 31 July 2021 2,858
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 £1,988,000 (2021: £1,026,000).
The group continues to undertake annual reviews to identify patents which are deemed insufficiently certain to recover their
carrying value and should therefore be allowed to lapse. As a consequence, patents with a value of £859,000 (2021: £623,000)
have been fully impaired in these financial statements. The impairment charge is recognised within administrative expenses.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
108
14. Investment in subsidiaries
Company
Shares
£’000
Share
impairment
£’000
Loans
£’000
Loan
impairment
£’000
Total
£’000
At 1 August 2020 63,235 (24,006) 24,659 (24,175) 39,713
Increase in respect of share-based payments — — 417 — 417
Cash transfer — — (2) — (2)
At 31 July 2021 63,235 (24,006) 25,074 (24,175) 40,128
Increase in respect of share-based payments — — 619 — 619
At 31 July 2022 63,235 (24,006) 25,693 (24,175) 40,747
By subsidiary
Nanoco Tech Limited 63,235 (24,006) — — 39,229
Nanoco Life Sciences Limited — — 20,286 (20,286) —
Nanoco Technologies Limited — — 5,407 (3,889) 1,518
At 31 July 2022 63,235 (24,006) 25,693 (24,175) 40,747
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.
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 19) should be fair value rather than value in use.
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 2022 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 investment balance with Nanoco Technologies Limited arises due to the recharge for share-based payments. There is no
immediate intention for this to be repaid.
Loans to subsidiary undertakings carry no interest. Further information in relation to these loans is given in note 27.
Share of issued
ordinary share capital
Subsidiary undertakings Country of incorporation Principal activity
31 July
2022
31 July
2021
Nanoco Life Sciences Limited England and Wales Research and development 100% 100%
Nanoco Tech Limited England and Wales Holding company 100% 100%
Nanoco Technologies Limited
1
England and Wales Manufacture and development of nanoparticles 100% 100%
Nanoco 2D Materials Limited England and Wales Research and development 100% 100%
Nanoco US Inc.
2
USA Management services 100% 100%
All subsidiaries incorporated in England and Wales are registered at Science Centre, The Heath Business and Technical Park,
Runcorn, WA7 4QX. 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.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
109
15. Inventories
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Raw materials and consumables 174 — 110 —
A total of £296,000 (2021: £204,000) was included in cost of sales with respect to the cost of inventory expensed during the year.
Inventories are stated net of an allowance of £126,000 (2021: £136,000) in respect of excess or slow-moving items. Movement in
the allowance was due to utilisation in the year.
16. Trade and other receivables
.
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Trade receivables 975 — 858 —
Prepayments and accrued income 391 29 212 —
Inter-company short-term loan to subsidiary — 66,813 — 66,889
Less impairment provision — (66,813) — (66,889)
Other receivables 298 146 157 —
1,664 175 1,227 —
The impairment of the short-term loan is explained in note 14. 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. However, an expected credit loss of £10,000
(2021: £nil) has been recognised at the year end.
Other receivables include an amount of £146,000 (2021: £nil) relating to consideration due on shares awarded as part of the
deferred bonus plan.
Trade receivables are denominated in the following currency:
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
US Dollars 963 — 782 —
Sterling
12 —
76 —
975 — 858 —
At 31 July the ageing analysis of trade receivables was as follows:
Not
yet due
£’000
Due
£’000
Past due
90 days to
120 days
£’000
Past due
> 120
£’000
Total
£’000
2022 497 477 1 — 975
2021 253 605 — — 858
17. Cash and cash equivalents
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Cash and cash equivalents 6,762 5,497 3,813 1
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 2022 (2021: none).
An analysis of cash, cash equivalents and deposits by denominated currency is given in note 27.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
110
18. Trade and other payables
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Current
Trade payables 622 — 677 —
Other payables 113 — 63 —
Accruals 775 — 877 80
Intercompany payable — 638 - -
1,510 638 1,617 80
The Directors consider that the carrying amount of trade and other payables approximates to their fair value. The average credit
period taken is 46 days (2021: 39 days). The intercompany balance of £450,000 has been reclassified from non-current to current
in the year, reflecting the fact it is repayable on demand. Interest is not charged on inter-company loans (2021: no interest).
19. Financial liabilities
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Non-current
Long-term loan from subsidiary — — — 450
Convertible Series A loan note 2028 400 — 400 —
Accrued interest 127 — 92 —
Loan notes (net of costs) 2,989 2,989 2,989 2,989
Accrued interest on loan notes 403 403 6 6
3,919 3,392 3,487 3,445
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.
During the prior year, there was a non-dilutive loan note subscription with our two major shareholders, raising net proceeds
before fees (£161,000) of £3.15 million on a loan note price of £4.50 million. The loan notes are unsecured and have a nominal value
of £1 each, and an arrangement fee of 1.4% of the nominal amount and are repayable three years from completion, which was 26
July 2021. The subscription price of 70 pence represents a discount to the nominal value of £1 equivalent to 12% interest per
annum. The Company may redeem the loan notes at any time prior to their maturity at 80% of nominal value during the first year
of the term, 90% at any time in year two, and 100% at any time in year three. In the event of a successful outcome to the Samsung
litigation or a change of control of the Company, the loan note holders are entitled to a success bonus of 105% of the nominal
value of the loan notes subscribed. There have been no changes in liabilities arising from financing activities other than described
in this note.
Group
£’000
Company
£’000
Movement in loans
At 1 August 2020 462 450
New loan notes issued (net of fees) 2,989 2,989
Accrued interest on loan note 6 6
Interest on convertible loan 30 —
At 31 July 2021 3,487 3,445
Accrued interest on loan note 396 396
Reclassification to current liabilities — (450)
Interest on convertible loan 36 —
At 31 July 2022 3,919 3,392
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
111
20. Deferred revenue
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Current
Upfront licence fees 103 — 103 —
Milestone payments 457 — 150 —
560 — 253 —
Non-current
Upfront licence fees 44 — 146 —
604 — 399 —
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.
2022
£’000
2021
£’000
Opening deferred revenue 399 852
Revenue booked current year (1,620) (1,415)
Revenue deferred 1,825 962
Closing deferred revenue 604 399
21. Lease liabilities
31 July 2022
Group
£’000
31 July 2022
Company
£’000
31 July 2021
Group
£’000
31 July 2021
Company
£’000
Current
Property leases 153 — 545 —
Non-current
Property leases 16 — 133 —
22. Issued equity capital
On 13 June 2022, 15,284,340 shares were issued at 37.0 pence each.
Group Number
Share
capital
£’000
Share
premium
£’000
Reverse
acquisition
reserve
£’000
Total
£’000
Allotted, called up and fully paid ordinary shares of 10p
At 1 August 2020 305,699,102 30,570 117,292 (77,868) 69,994
At 31 July 2021 305,699,102 30,570 117,292 (77,868) 69,994
Shares issued on placement 15,284,340 1,528 3,853 — 5,381
Shares issued on exercise of options 1,462,302 146 — — 146
At 31 July 2022 322,445,744 32,244 121,145 (77,868) 75,521
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.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
112
23. Provisions
Property
dilapidations
£’000
Total
£’000
At 1 August 2021 — —
Transfer from accruals 242 242
Provided during the period 58 58
Utilised during the period (88) (88)
At 31 July 2022 212 212
During the year, the group has undertaken a review of their accounting policies and transferred £242,000 in respect of future
property dilapidation costs from accruals to provisions. The prior year figure has not been restated as management conclude
that the quantum of the transfer is not material to the users of the financial statements and note that both provisions and
accruals are presented within current liabilities.
The provision relates to the potential dilapidation costs from the exit of all it’s premises. Because of the long term nature of the
liability, there is uncertainty in estimating the provision. The extent and cost of potential dilapidation costs represent a best
estimate applied across the group’s lease portfolio based on past experience, the extent of remediation work required and the
expected timing of activity, for which there is a high level of uncertainty.
During the year, part of the provision was utilised against the exit of the Manchester premises.
24. Share-based payment reserve
Group and Company £’000
At 1 August 2020 3,901
Share-based payments 417
At 31 July 2021 4,318
Share-based payments 619
Exercise of share options (21)
At 31 July 2022 4,916
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 £619,000 has been recognised in the statement of comprehensive income for the year (2021: charge of £417,000).
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 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.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
113
24. 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 three days 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 vested at the end of three
years from the date of grant and are exercisable until the tenth anniversary of the award. The awards were not subject to
performance conditions. Vesting of the award was subject to the employees remaining full-time members of staff at the point of
vesting. No options were granted to Executive Directors.
Grant in October 2014
Share options were granted to a member of staff on 14 October 2014. The exercise price was set at 56.5 pence, being the
average closing share price on the days 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 vested at
the end of three years from the date of grant and are exercisable until the tenth anniversary of the award. The awards were not
subject to performance conditions. Vesting of the award was subject to the employees remaining full-time members of staff at
the point of vesting. 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 (fully lapsed), April 2016 (fully lapsed), November 2017 (fully lapsed), November 2018 (fully lapsed), October
2020, October 2021 and November 2022
Following approval of the new scheme at the 2015 AGM, share options have been granted to Executive Directors and key staff on
a number of occasions at nil cost, and have an exercise price of nil. The fair value benefit is measured using a stochastic model,
taking into account the terms and conditions upon which the share options are issued. In each case, 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) in each reporting period and are exercisable after a two-year holding period until the tenth anniversary of the award.
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 DBP. 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 were delivered in the form of a share award under the DBP.
The awards vested during FY22, after the required two-year holding period.
On 9 November 2021, 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 2021 which are delivered in the form of a share award under the DBP. The awards will vest in
FY23, 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
2022 total
Number
2021 total
Number
Outstanding at 1 August 20,580,246 17,681,547
Granted during the year 6,806,783 8,462,165
Exercised during the year (1,462,302) —
Forfeited during the year (260,466) (236,529)
Expired during the year (1,921,403) (1,299,404)
Lapsed during the year (3,922,506) (4,027,533)
Outstanding at 31 July 2022 19,820,352 20,580,246
Exercisable at 31 July 2022 5,048,399 7,582,097
1 The total number of expired options for 2021 has been updated to 1,299,404 from 445,000 to appropriately reflect the movement in the total number of
share options for the comparative year. This has no impact on the charge recognised in the current or comparative year.
2 For the share options exercised during the year, the exercise price payable is at the nominal value of shares issued of 10p.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
114
24. Share-based payment reserve continued
Weighted average exercise price of options
Group and Company
2022
Pence
2021
Pence
Outstanding at 1 August 28.8 37.5
Granted during the year — —
Exercised during the year — —
Expired during the year 50.0 66.8
Lapsed during the year 60.3 —
Outstanding at 31 July 2022 8.9 28.8
The weighted average exercise price of options granted during the year to 31 July 2022 was nil (2021: nil). The range of exercise
prices for options outstanding at the end of the year was nil-89 pence (2021: nil–110.00 pence). The weighted average exercise
price of options exercisable at the 31 July 2022 was 35 pence (2021: 112 pence).
For the share options outstanding as at 31 July 2022, the weighted average remaining contractual life is 6.59 years (2021: 6.42 years).
The aggregate fair value of options issued in the year was £1,009,000 (2021: £330,000).
The following table lists the inputs to the models used for the years ended 31 July 2022 and 31 July 2021.
Market
performance-linked grants
Non-market
performance-linked grants
Group and Company 2022 2021 2022 2021
Expected volatility 112.3% 110.6% N/A N/A
Risk-free interest rate 0.50% 0.00% N/A N/A
Expected life of options (years average) 3 3 2 N/A
Weighted average exercise price £nil £nil £nil N/A
Weighted average share price at date of grant 22.30p 9.67p 22.30p N/A
Expected dividends — — — N/A
Model used Stochastic Stochastic
Black-
Scholes 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.
25. Merger reserve and capital redemption reserve
Merger reserve
Group £’000
At 1 August 2020, 31 July 2021 and 31 July 2022 (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 £’000
At 1 August 2020, 31 July 2021 and 31 July 2022 (4,402)
The capital redemption reserve arises from the off-market purchase of deferred shares on 4 May 2005 and their
subsequent cancellation.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
115
26. Movement in accumulated losses
Group
Profit
and
loss
£’000
Foreign
currency
translation
reserve
£’000
Treasury
shares
£’000
Total
accumulated
losses
£’000
At 1 August 2020 (65,607) 4 (20) (65,623)
Loss for the year (4,395) — — (4,395)
Other comprehensive income — — — —
At 31 July 2021 (70,002) 4 (20) (70,018)
Loss for the year (4,697) — — (4,697)
Other comprehensive income — — — —
At 31 July 2022 (74,699) 4 (20) (74,715)
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 2022 no shares in the Company
were held by the EBT (2021: nil). In addition there are 12,222 (2021: 12,222) treasury shares not held by the EBT.
Company
Accumulated
losses
£’000
Treasury
shares
£’000
Total
accumulated
losses
£’000
At 1 August 2020 (113,442) (20) (113,462)
Loss for the year (6,516) — (6,516)
At 31 July 2021 (119,958) (20) (119,978)
Loss for the year (340) — (340)
At 31 July 2022 (120,298) (20) (120,318)
27. Financial risk management
Overview
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 accumulated losses as disclosed in notes 22 to 26 and in the group statement of changes in equity. At 31 July 2022
total equity was £4,334,000 (2021: £3,052,000).
The Company is not subject to externally imposed capital requirements.
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.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
116
27. Financial risk management continued
Categorisation of financial instruments
Financial
assets at
amortised
cost
Financial
liabilities at
amortised
cost
Financial assets
and liabilities at
amortised cost
Group Company
Financial assets/(liabilities) £’000 £’000 £’000 £’000
31 July 2022
Cash and cash equivalents 6,762 — 6,762 5,497
Trade receivables 975 — 975 —
Other receivables 298 — 298 146
Inter-company short-term loan to subsidiary — — — 66,813
Less impairment provision — — — (66,813)
Trade and other payables — (1,510) (1,510) (188)
Lease liabilities — (169) (169) —
Loan notes and accrued interest — (3,919) (3,919) (3,392)
Inter-company payable — — — (450)
8,035 (5,598) (2,437) 1,613
Financial
assets at
amortised
cost
Financial
liabilities at
amortised
cost
Financial assets
and liabilities at
amortised cost
Group Company
Financial assets/(liabilities) £’000 £’000 £’000 £’000
31 July 2021
Cash and cash equivalents 3,813 — 3,813 1
Trade receivables 858 — 858 —
Other receivables 157 — 157 —
Inter-company short-term loan to subsidiary — — — 66,889
Less impairment provision — — — (66,889)
Trade and other payables — (1,617) (1,617) (80)
Lease liabilities — (678) (678) —
Loan notes and accrued interest — (3,487) (3,487) (2,995)
Inter-company long-term loan from subsidiary — — — (450)
4,828 (5,782) (954) (3,524)
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 CFO and are
managed on a day-to-day basis by the UK finance 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.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
117
27. Financial risk management continued
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 flows 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 2022 or at 31 July 2021.
The split of group assets between Sterling and other currencies at the year end is analysed as follows (Company assets are
all in Sterling):
31 July 2022 31 July 2021
Group
GBP
£’000
EUR
£’000
USD
£’000
Total
£’000
GBP
£’000
EUR
£’000
USD
£’000
Total
£’000
Cash and cash equivalents 6,547 30 185 6,762 3,255 65 493 3,813
Trade receivables 12 — 963 975 76 — 782 858
Trade payables (614) (1) (7) (622) (669) (1) (7) (677)
5,945 29 1,141 7,115 2,662 64 1,268 3,994
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)
Impact
on loss
before tax
and group
equity
2022
£’000
Impact
on loss
before tax
and group
equity
2021
£’000
10% 132 150
5% 62 71
(5%) (56) (64)
(10%) (108) (123)
Interest rate risk
As the group’s borrowing is in the form of loan notes with a fixed rate of return, interest rate 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:
31 July 2022 31 July 2021
Group
Fixed
rate
£’000
Floating
rate
£’000
Total
£’000
Fixed
rate
£’000
Floating
rate
£’000
Total
£’000
Cash and cash equivalents — 6,762 6,762 — 3,813 3,813
Loan notes (3,919) — (3,919) (3,389) — (3,389)
Company
Cash and cash equivalents — 5,497 5,497 — 1 1
Loan notes (3,392) — (3,392) (2,989) — (2,989)
The exposure to interest rate movements is immaterial.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
118
27. Financial risk management continued
Maturity profile
Set out below is the maturity profile of the group’s financial liabilities at 31 July 2022 and 31 July 2021 based on contractual
undiscounted payments, including contractual interest.
2022
Less than
one year
£’000
One to
five
years
£’000
Greater
than five
years
£’000
Total
£’000
Financial liabilities
Trade and other payables 1,728 — — 1,728
Lease liabilities 41 128 — 169
Loans (including contractual interest) — 3,392 527 3,919
1,769 3,520 527 5,816
2021
Less than
one year
£’000
One to
five
years
£’000
Greater
than five
years
£’000
Total
£’000
Financial liabilities
Trade and other payables 1,617 — — 1,617
Lease liabilities 545 133 — 678
Convertible loan (including contractual interest) — 4,150 751 4,901
2,162 4,283 751 7,196
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.
Notes to the financial statements continued
Nanoco Group plc – Annual Report and Accounts 2022
119
28. 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:
Notes
31 July 2022
£’000
31 July 2021
£’000
Long-term loans owed to Nanoco Group plc by
Nanoco Life Sciences Limited 20,286 20,286
Nanoco Technologies Limited
1
5,407 4,788
25,693 25,074
Less provision against debt owed by Nanoco Life Sciences Limited 14 (20,286) (20,286)
Less provision against debt owed by Nanoco Technologies Limited 14 (3,889) (3,889)
1,518 899
Short-term loan owed to Nanoco Group plc by
Nanoco Technologies Limited
2
16 66,813 66,889
Less impairment provision 16 (66,813) (66,889)
— —
Intercompany payable by Nanoco Group plc to
Nanoco Tech Limited 18 (450) (450)
Nanoco US Inc 18 (188) —
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.
There is no controlling party of the group or Company.
29. Compensation of key management personnel (including Directors)
2022
£’000
2021
£’000
Short-term employee benefits 644 710
Pension costs 39 20
Share-based payments 624 189
1,307 919
The key management team comprises the Executive Directors and one member of staff (2021: two) who are not Directors of the
Company. The staff member of the team is the Operations Director.
Financial statements
Nanoco Group plc – Annual Report and Accounts 2022
120
Investor information
Directors
Dr Christopher Richards Non-Executive Chairman
Brian Tenner Chief Executive Officer
Dr Nigel Pickett Chief Technology Officer
Liam Gray Chief Financial Officer
Dr Alison Fielding Senior Independent and
Non-Executive Director
Chris Batterham Non-Executive Director
Secretary
Liam Gray
Registered office
Science Centre
The Heath Business and Technical Park
Heath Road South
Runcorn WA7 4QE
Website
www.nanocotechnologies.com
Independent auditors
Mazars LLP
1 St Peter’s Square
Manchester M2 3DE
Legal adviser
Reed Smith LLP
The Broadgate Tower
20 Primrose Street
London EC2A 2RS
Investor relations
MHP Communications
6 Agar Street
London WC2N 4HN
Joint Corporate Brokers
Peel Hunt LLP
120 London Wall
London EC2Y 5ET
Turner Pope Investments
8 Frederick’s Place
London EC2R 8AB
Registrar
Neville Registrars
Neville House
Steelpark Road
Halesowen B62 8HD
Nanoco Group plc’s commitment to environmental issues is reflected in
this Annual Report, which has been printed on Arena Smooth Extra White,
an FSC
®
certified material. This document was printed by Pureprint Group
using its environmental print technology, with 99% of dry waste diverted from
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Nanoco Group plc
The Science Centre
The Heath Business and
Technical Park
Runcorn
WA7 4QX