Nanoco Group major work package for European customer

Nanoco Group plc

Nanoco Group plc (LON:NANO), a world leader in the development and manufacture of cadmium-free quantum dots and other nanomaterials emanating from its technology platform, has today announced that it has signed a major work package with its important European electronics customer. This follows on from the previous four work packages for the Customer that were successfully delivered over the last two years.

The Work Package commenced on 1 May 2022 and is for one year. The contract delivers a monthly revenue run rate equivalent to that delivered in H1 FY22 and further underpins our cash runway to H1 CY23. Additionally, the working capital arrangements in the contract support Nanoco establishing a more robust supply chain of raw materials. As a result, the Board now expects to exceed its recently increased revenue expectations for FY22.

Brian Tenner, Nanoco Group CEO, commented:

“This is a very important step for Nanoco. It creates a significantly more stable financial environment for operations and business planning compared to the previous series of short, quarterly, work packages. The addition of new materials to the development pipeline emphasises the long-term nature of our relationship with our customer.

“Furthermore, the support for working capital will enhance our readiness for visibility of potential commercial production orders in the second half of CY22. Any production orders received will be in addition to this work package. We continue our efforts to consolidate our R&D and scale up activities in our Runcorn production facility ahead of final product validation and potential commercial orders.

“While we take nothing for granted with regard to commercial orders, we remain focused on our short to medium term goal of commercialising Nanoco’s nanomaterials with meaningful production volumes, subject to final customer adoption of the technology in end use devices.”

Nanoco also announced today a trading update and a placing and subscription in respect of, in aggregate, 6,081,081 new ordinary shares of 10.0 pence each in the Company, at a price of 37 pence per New Ordinary Share, to raise £2.25 million before expenses.  A Broker Option (as defined below) has been put in place to allow new and existing shareholders who are qualifying investors to participate on the same terms as the Placing and the Subscription. Further details of the Placing, the Subscription and the Broker Option are set out below. The total Fundraise will not exceed the equivalent of approximately 5.0% of the Company’s issued share capital immediately prior to the Fundraise.

Overview

·              Significant trading progress has been made in terms of order book growth, new contract momentum and cost management.

·              The Board remains very confident in the strength of the Company’s case in the litigation against Samsung and in an outcome that is transformational for Nanoco’s prospects and shareholder value.

·              The net proceeds of the Fundraise will extend the Company’s cash runway into CY24 – past the key strategic milestones which are expected to be delivered in the short term, namely visibility of commercial production orders and the outcome of the Samsung litigation trial in Texas. The Fundraise will also support Nanoco’s core IP assets and its ongoing business operations.

Trading Update

New contract with existing major European electronics customer underpins revenue expectations for FY22 and FY23

·              Today’s separate announcement of a full year service contract with our major European electronics customer (the ‘New Contract’) more than doubles the Group’s order book year-on-year.

·              As a result of the New Contract, the Board now expects revenue for FY22 to be ahead of its previous expectations.

·              The New Contract:

▪    underpins FY23 revenue at least in line with FY22 as well as creating favourable working capital terms to fund a raw material stock build ahead of potential production order visibility in H2 CY22;

▪    adds an additional new material to the Group’s range and emphasises the long term nature of the Group’s development and production relationship with this significant customer; and

▪    covers a period of one year to May 2023 during which the Company expects to have visibility of commercial production orders.

Continued progress in organic business and growth

·              New orders in Q3 FY22 from the major Asian electronics customer for additional development material, with additional development work packages, are at an advanced stage of discussion.

·              Tight cost management and agreement of terms to exit the surplus facility in Manchester will reduce the Company’s annualised cash cost base by around 15% by January 2023 compared to expectations for FY22, from around £4.8 million to around £4.0 million, resulting in a cash break even revenue figure of around £5.0 million.

·              With the benefit of the Fundraise and the firm cash flows in the New Contract, the Company’s cash runway will now extend past the key strategic milestones of production order visibility and the outcome of the Samsung litigation trial – both expected in H2 CY2022 or shortly thereafter.

·              The Company expects revenue in FY23 to exceed expectations for FY22. Depending on the size of the initial use case for sensing materials, the Company expects to achieve the cash breakeven levels of revenue noted above in FY24 or FY25. A high volume initial use case such as a mobile handset would result in the earlier date.

Litigation Update (as announced on 17 May 2022)

Significant progress towards and confidence in an outcome that is transformational for Nanoco’s prospects and shareholder value.

·              In the litigation against Samsung, the Patent Trial and Appeal Board (PTAB) validated all 47 claims in the five patents at issue in the lawsuit in the Eastern District of Texas. As fully expected, Samsung has lodged notices to appeal the outcomes but the Board notes the robustness of the PTAB opinions in dismissing all grounds asserted by Samsung in its claims. While the outcome of any appeal by Samsung is by its nature uncertain, the Board believes that the PTAB opinions appear to limit both the scope of any appeal and the chances of success.

·              The Board will now press for, and is hopeful of achieving, a lifting of the stay in the case in the very near term. This is expected to lead to a rescheduled trial in Q4 CY22 where the jury will consider the questions of infringement, wilfulness and damages, with the PTAB having settled the issue of validity.

·              The Board is very confident in the strength of the Company’s case and in an outcome that is transformational for Nanoco’s prospects and shareholder value.

Placing of, and Subscription for, New Ordinary Shares and Broker Option

Proceeds extend cash runway into CY24 and beyond key value inflection points

·              The Company has raised £2.25 million through the Placing and Subscription, which involves the issue of 6,081,081 New Ordinary Shares at the Issue Price.

·              In addition, the Company has implemented a Broker Option to enable new and existing shareholders who are qualifying investors to participate in the equity fundraise on the same terms as the Placing and the Subscription. The total Fundraise will not exceed 5% of the Company’s issued share capital immediately prior to the Fundraise.

·              Six directors of the Company (“Directors”) and/or persons closely associated with them have agreed to subscribe for new Ordinary Shares at the Issue Price with a total value of £65,000 as shown in the Additional Information section of this announcement. Henry Turcan (Non-Executive Director), as a representative of Lombard Odier Asset Management, is unable to participate.

·              The net proceeds of the Fundraise will extend the Company’s cash runway into CY24 and beyond key value inflection points for the organic business and for the Samsung litigation as well as supporting its core IP assets and its business operations during the ongoing lawsuit against Samsung.

Brian Tenner, CEO of Nanoco Group said:

“This Fundraise will enable Nanoco to plan confidently for the future of the organic business and to position us in the strongest possible way for the next stages of the litigation.  It creates a cash runway that extends comfortably past both of the expected H2 value inflection points noted above and potentially through to the point when the organic business may become self-financing.

“We are at a very exciting moment in Nanoco’s evolution. This calendar year was set up for four major value inflection points; two in our organic business development and two more in our litigation against Samsung; two have now been successfully delivered, with the next two anticipated in our second half.

“The first of those organic value inflection points has now been delivered in the New Contract with our important European Electronics Customer. It creates a significantly more stable financial environment for Nanoco’s operations and business planning and allows us to prepare better for potential commercial production orders in the short term.

“The first of the two significant hurdles in our litigation against Samsung was also recently successfully delivered. On 16 May 2022, the PTAB ruled emphatically in favour of Nanoco on all 47 claims in the five patents in the lawsuit. We will now be pressing for a lifting of the stay in the trial and are hopeful of a rescheduled trial date in Q4 CY22.

“We look forward to the second half of CY22 when we aim to deliver the other two significant value inflection points: production order visibility in the organic business and a successful outcome to the litigation trial.  In particular, commercial production orders will be the first in our history and would quickly establish Nanoco as a fully-fledged and self-financing operating business with significant upside value to be earned in the many large and growing international markets that our materials can serve.

ADDITIONAL INFORMATION

Background to the Fundraise

The Company announced its Interim Results for the six months ended 31 January 2022 (“H1 FY22”, the “Period”) on 12 April 2022. During the Period, Nanoco delivered Revenues of £1.1 million, Other Operating Income of £0.2 million and an Adjusted EBITDA Loss of £1.1 million, being a 27% improvement on the first half of FY21.  The first half included the successful delivery of all milestones for two large customers, the important European Electronics Customer and the significant Asian chemical company. H1 FY22 also included material deliveries to a number of other customers and further work packages for the two larger customers.

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Shortly after the end of the Period, the Group completed the exit from the first floor of its Manchester facility and announced the exit from the ground floor by Q3 FY23. These two changes are expected to reduce the Group’s annualised cash cost base to approximately £4.0 million.

The Company’s cash balance was £1.8 million as at 31 January 2022 and this had risen to £2.6 million by the end of February 2022. This was sufficient to create a cash runway into H1 CY23, subject to customer demand being in line with expectations.

The third-party funder continues to finance the Company’s litigation against Samsung for the alleged wilful infringement of the Group’s IP. This third party funding prevents a drain on the Group’s cash position for a number of years. The third-party funder will only receive a return of their capital in the event of a successful outcome to the lawsuit.  The recent favourable decision by the PTAB in respect of the Group’s patents in the law suit has increased the Board’s confidence in a successful outcome to the litigation which is still expected to have a potentially transformational impact on the Group’s prospects and shareholder value.

The Fundraise, combined with recent commercial wins, will ensure that the Group has adequate funding to retain operational capabilities of R&D, scale-up and production in its Sensing and Display product lines for a number of years and, subject to initial use cases for its materials, potentially to a point when the organic business is self-financing.

Use of proceeds of the Fundraise

The Company is raising gross proceeds of £2.25 million from the Placing and the Subscription. The net proceeds (after deducting the costs and expenses of the Fundraise, which are expected to be £0.2 million), along with the Company’s existing cash resources, will be used to:

(i)     support the Group’s R&D, scale-up and production capabilities of novel nanomaterials for use in infra-red sensing and CFQD® display applications with short to medium term prospects for self-financing commercial production revenues;

(ii)    protect its IP and Company operations during the ongoing litigation against Samsung, which is being funded by a third-party;

(iii)    strengthen the Group’s balance sheet opposite Samsung during the litigation process to reduce the attractiveness of potential delaying tactics designed to weaken Nanoco;

(iv)   improve the Group’s position as a reliable supplier in the very large electronics supply chains in which it operates; and

(v)    retain key skilled personnel and attract new staff as the business rebuilds itself.

The Company intends to use any net proceeds from the Broker Option to further extend the Company’s cash runway, maintain a reasonable balance sheet and to support business development activity with a number of new potential customers and opportunities in a range of applications.

Details of the Placing and the Subscription

In total, 6,081,081 New Ordinary Shares are proposed to be allotted and issued pursuant to the Placing and the Subscription, at an Issue Price of 37 pence per New Ordinary Share to raise gross proceeds of £2.25 million.

The New Ordinary Shares to be issued pursuant to the Placing have been conditionally placed by Turner Pope Investments (TPI) Ltd (“TPI”), acting as agent and broker of the Company, with certain new and existing institutional and other investors pursuant to a Placing Agreement, as detailed below.

New Ordinary Shares have also been subscribed for directly with the Company, pursuant to the Subscription, by subscribers pursuant to direct subscription agreements.

The New Ordinary Shares (and the Broker Option Shares (as defined below)) will be issued pursuant to the Company’s existing share allotment authorities which were granted at the Company’s annual general meeting held on 30 November 2021. The New Ordinary Shares and the Broker Option Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares of the Company.

Broker Option

The Company has also granted an option to TPI under the Placing Agreement in order to deal with additional demand for New Ordinary Shares in the event that requests from new or existing shareholders who are qualifying investors to participate in the Fundraise during the period following the release of this announcement and up to 5:00 pm on Tuesday 7 June 2022 (the “Broker Option”). To participate in the Broker Option, qualifying investors should communicate their interest to TPI via their independent financial adviser, stockbroker or other firm authorised by the Financial Conduct Authority (all of whom will be required to confirm to TPI whether their client is a new or existing shareholder), as TPI cannot take direct orders from individual private investors. TPI should be contacted by telephone on (020) 3657 0050 or by email at info@turnerpope.com.

TPI may choose not to accept bids and/or to accept bids, either in whole or in part, on the basis of allocations determined at their discretion (after consultation with the Company) and may scale down any bids for this purpose on such basis as TPI may determine. A separate announcement will be made regarding the results of the Broker Option.

Any Ordinary Shares issued pursuant to the exercise of the Broker Option (“Broker Option Shares”) will be issued on the same terms and conditions as the New Ordinary Shares. The Broker Option may be exercised by TPI, following consultation with the Company, but there is no obligation on TPI to exercise the Broker Option or to seek to procure subscribers for Broker Option Shares pursuant to the Broker Option. The maximum number of Broker Option Shares that may be issued pursuant to the exercise of the Broker Option will be limited to ensure that the total Fundraise does not exceed 5.0% of the Company’s issued share capital immediately prior to the Fundraise. The maximum aggregate number of new Ordinary Shares (including both the New Ordinary Shares and Broker Option Shares) that may be issued pursuant to the Fundraise is therefore 15,284,340.

The Broker Option Shares are being made available only to new and existing shareholders who are qualifying investors and not to the public, and none of the Broker Option Shares are being offered or sold in any jurisdiction where it would be unlawful to do so. No prospectus will be issued in connection with the Broker Option.

Placing Agreement

Under the terms of a Placing Agreement between the Company and TPI, TPI will, conditional upon Admission, receive a corporate finance fee from the Company and commission relating to the New Ordinary Shares and Broker Option Shares.  The Company will give customary warranties and undertakings to TPI in relation, inter alia, to its business and the performance of its duties. In addition, the Company has agreed to indemnify TPI in relation to certain liabilities that it may incur in undertaking the Placing. TPI has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event that there has been, inter alia, a material breach of any of the warranties. No part of the Placing, the Subscription or the Broker Option is being underwritten.

Appointment of Joint Broker

The Company also confirms that it has appointed TPI as its joint broker with immediate effect.

Details of the Directors’ participation

The Directors have agreed to subscribe for new Ordinary Shares pursuant to the Subscription as shown in the table below:

DirectorCurrent shareholding New Ordinary Shares Resulting shareholding* 
 No.%No.Value (£)No.%
Chris Richards728,7300.24%40,54015,000769,2700.24%
Alison Fielding239,1570.08%40,54015,000279,6970.09%
Chris Batterham153,5710.05%40,54015,000194,1110.06%
Nigel Pickett11,245,5483.66%27,02710,00011,272,5753.50%
Brian Tenner592,3750.19%13,5135,000605,8880.19%
Liam Gray35,4180.01%13,5135,00048,9310.02%
Total12,994,7994.23%175,67365,00013,170,4724.08%

*Director subscriptions shall not be subject to scaling back in the event that the Fundraise is oversubscribed. The resulting shareholding percentage assumes that the maximum number of Ordinary Shares (being 15,284,340 new Ordinary Shares) will be issued. The actual position will be announced with the results of the total Fundraise, being the combined Placing, Subscription and Broker Option.

The Directors are considered to be related parties for the purposes of chapter 11 of the Listing Rules of the Financial Conduct Authority (“FCA”). However, the Directors’ participation in the Fundraise is exempt from the requirements of LR11.1.7R to LR11.1.10R by virtue of paragraph 1 of LR11 Annex 1 (small transactions).

Application for admission to trading

Application will be made to the FCA for admission of the New Ordinary Shares and the Broker Option Shares to listing on the Official List and to the London Stock Exchange for admission of the New Ordinary Shares and the Broker Option Shares to trading on its main market for listed securities (“Admission”).

It is expected that Admission will take place no later than 8:00am on 10 June 2022 and that dealings in the New Ordinary Shares and the Broker Option Shares will commence at the same time.

Total voting rights

Following Admission and assuming that the maximum number of 15,284,340 new Ordinary Shares are issued, the Company’s total issued share capital will consist of 322,445,744 Ordinary Shares, with one voting right per share. The Company currently holds 12,222 Ordinary Shares in treasury. Therefore, the total number of Ordinary Shares in the Company will be 322,445,744 and the total number of voting rights will be 322,433,522 from Admission.  This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their holdings of, Ordinary Shares pursuant to the FCA’s Disclosure Guidance and Transparency Rules.

Expected Timetable of Principal Events

Launch of the FundraiseAs of the time of this announcement
Broker Option open fromImmediately after this announcement
Broker Option closed at5:00pm on 7 June 2022
Announcement of the result of the Broker Option7:00am on 8 June 2022
Admission of New Ordinary Shares and Broker Option Shares to trading and commencement of dealings8:00am on 10 June 2022
CREST accounts to be credited for New Ordinary Shares and Broker Option Shares to be held in uncertificated form8:00am on 10 June 2022
Dispatch of definitive share certificates for New Ordinary Shares and Broker Option Shares to be held in certificated formby 15 June 2022

All references to time in this document are to London time, unless otherwise stated.

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