Preliminary Results
|
For immediate release |
18 October 2010
|
NANOCO GROUP PLC
("Nanoco" or "the Company")
Preliminary Results for the year ended 31 July 2010
Nanoco Group plc(AIM: NANO), a world leader in the development and manufacture of quantum dots, solar inks and other nanomaterials, is pleased to announce its preliminary results for the year ended 31 July 2010.
Highlights
· Joint development agreement signed with major Japanese electronics company for LED backlighting of televisions
· Joint development agreement signed with Tokyo Electron for a photovoltaic film, marking our first agreement in the solar power sector
· Achievement of milestone payments in all our agreements, including a US$2 million payment from a Japanese LED producer
· Significant progress towards mass production with new scale-up reactors commissioned in Manchester producing quality material
· Procurement of a new production facility in Runcorn, Cheshire
· Colin White appointed as new Chief Financial Officer
· Cash, cash equivalents and deposits of £5.68 million at 31 July 2010 (31 July 2009: £6.59 million)
Commenting on the results, Dr Peter Rowley, Nanoco's Chairman, said:
"The rapid progress at Nanoco since joining AIM in May 2009 has continued into the current year, which has started well. We are making substantial progress in developing our business, particularly in our manufacturing scale-up and in delivering on our commercial contracts. We expect to continue to meet key milestones and are moving close to achieving our first kilogram delivery of quantum dots. We therefore view the future with confidence."
For further information please contact:
|
Nanoco Group plc |
Tel: +44 (0) 161 603 7900 |
|
Michael Edelman, Chief Executive Officer |
|
|
Colin White, Chief Financial Officer |
|
|
|
|
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Bank of America Merrill Lynch - Corporate Broker |
Tel: + 44 (0) 20 7996 2490 |
|
Will Smith |
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|
|
Zeus Capital - Nominated Adviser |
Tel: +44 (0) 161 831 1512 |
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Alex Clarkson |
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Nick Cowles |
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Buchanan Communications |
Tel: +44 (0) 20 7466 5000 |
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Mark Court / Christian Goodbody |
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Notes for editors:
About Nanoco Group plc
Nanoco is a world leader in the development and manufacture of commercial quantities of quantum dots for use in multiple applications including lighting, solar cells and biological imaging. Nanoco's quantum dots, which are free of heavy metals and comply with RoHS legislation, can be combined into a wide range of materials including liquids, polymers and glass. Nanoco forms strategic partnerships with major end users across a range of applications.
Nanoco was founded in 2001 and is based in Manchester, UK. Nanoco began trading on the AIM market of the London Stock Exchange in May 2009 under the ticker symbol NANO.
For further information, please visit www.nanocotechnologies.com
Chairman's Statement
I am delighted to report that Nanoco's first full year as a publicly quoted company has been one of excellent progress across our business. It was a year during which we made significant headway in our commercial collaborations, in our manufacturing scale-up and in strengthening our management team.
Nanoco's key asset is its world-class patent-protected technology for the design, development and commercial manufacture of quantum dots and other nanomaterials, avoiding the use of heavy metals. Our intellectual property position has continued to strengthen during the year, with multiple patent filings to protect our core technology, innovative new materials and novel devices.
During the year we signed our first agreement in the solar power sector, with the major Japanese semi-conductor production equipment supplier Tokyo Electron. Under this agreement we are using our nanomaterial technology to develop a highly efficient solar ink which will be printed to create a photovoltaic nanomaterial film.
Light-emitting diodes (LEDs), for use in televisions and in general lighting, remain the first market from which we expect commercial revenues. The television backlighting market moved significantly in our favour during the year. All of the major television manufacturers are now focusing on LEDs for television backlighting, in part because of the decision by California - the world's eighth largest economy - to introduce legislation demanding that television makers reduce the power consumption of televisions by 49% by 2013. LEDs with our quantum dots have the potential to achieve this target.
During the year we announced a second agreement, with another major Japanese company, in the LED sector and this has progressed very well with significant milestones already achieved. Good progress was also made with the first LED agreement signed in November 2008, with further milestones reached and we are on track to deliver our first commercial quantities early next calendar year. In parallel with the progress in our commercial collaborations we are pressing forward with scaling-up our production capability, both in Manchester and in a new facility in Runcorn.
Financials
Our revenues in the year to 31 July 2010 were £2.94 million (2009: £1.99 million). Our loss before tax was £1.37 million (2009: £0.78 million). Cash, cash equivalents and deposits at the year-end were £5.68 million (31 July 2009: £6.59 million).
People
The Nanoco team, most of whom are highly qualified scientists, grew to 49 people at the year end, reflecting the increased activity with existing and potential commercial partners and progress in manufacturing scale-up. The Board was strengthened with the appointment of Anthony Clinch, a highly experienced industrialist and financier, as a Non-Executive*. Andrew Gooda, an experienced production engineer, was appointed as Manufacturing Director. Post the year end, we welcomed Colin White to the full-time role of Chief Financial Officer and, at the same time, Michael Bretherton, formerly part-time Chief Financial Officer, became a Non-Executive Director.
I would like to offer sincere thanks to all at Nanoco for their dedication and commitment throughout the year and to all our commercial partners for their contribution to the development of the Company.
Outlook
The rapid progress at Nanoco since joining AIM in May 2009 has continued into the current year, which has started well. We are making substantial progress in developing our business, particularly in our manufacturing scale-up and in delivering on our commercial contracts. We expect to continue to meet key milestones and are moving close to achieving our first kilogram delivery of quantum dots. We therefore view the future with confidence.
Peter Rowley
Non-Executive Chairman
15 October 2010
* Anthony Clinch is the representative of St Gabrielle LLP, Non-Executive Director.
CEO's Review of Operations
Our primary focus at Nanoco is to commercialise our world-class technology, but before reviewing the significant progress made towards achieving this goal I would like to provide a brief overview of the Company.
Our key asset is our patent-protected technology for the design, development and mass manufacture of quantum dots and other nanomaterials, which have highly attractive commercial characteristics. The robustness of our intellectual property is underlined by the recent issuing of patent number 7,803,423, one of Nanoco's fundamental manufacturing patents, by the United States Patent and Trademark Office.
Quantum dots are nano-sized semiconductor particles with the ability to emit intense light of a specific colour dependent on the size of the dots, which range from 10 to 100 atoms in width. These dots, which Nanoco makes without toxic heavy metals, such as cadmium, have multiple commercial applications in many industrial and consumer markets, delivering significant benefits including reduced power consumption and increased performance. Our technology allows the manufacture of other nanomaterials including solar inks, harnessing the ability of nanoparticulate semiconductors to absorb light to create highly efficient solar panels.
Owing to the scale of the commercial opportunity presented to us, we have focused initially on a small number of high value target markets, working in collaboration with customers and potential customers who have the ability to bring products to market incorporating our nanomaterials.
Critical to success is our ability to design and develop quantum dots to bespoke specifications for our customers' particular end use. Once this design and development is successful, a material supply and licence agreement is signed under which Nanoco receives payments for the supply of material and royalties on sales of the customer's end product.
Manufacturing in-house is central to our business model owing to the value that control of the supply chain can bring to the Company. We have made major progress in the scale-up of our manufacturing and remain confident that we will be able to deliver large quantities of quantum dots in the foreseeable future. Although this has never been done before, Nanoco's solution-based chemistry uses equipment similar to other industries, significantly reducing risk.
We are currently focused on four target markets: LED lighting for backlighting of liquid crystal display (LCD) televisions and for general lighting; solar power; electroluminescent displays; and bio-imaging.
Creating white light from blue LEDs through the use of red and green quantum dots brings significant benefits compared with the currently used phosphor technology. These benefits include reduced power consumption and superior colour performance. Quantum dot LEDs are ideally suited for the backlighting of television and other displays, such as computer screens.
In addition to their ability to emit light, nanoparticulate semiconductors are able to absorb light across a very broad spectrum, bringing the potential for highly efficient solar cells to reduce the cost per watt of solar energy. Nanoco has developed photovoltaic nanomaterial inks which can be printed by conventional low-cost printing techniques to create thin films for use as solar panels.
Nanoco's development work in electroluminescent displays - the future generation of displays for consumer goods including mobile phones, computers and televisions - exploits the ability of quantum dots to be used as pixels. Such displays would be very thin and have no requirement for a backlight, bringing benefits including low power consumption, high colour quality and ease of manufacture.
Nanoco's ability to make quantum dots free of heavy metals creates the opportunity for in vivo imaging, which has attracted considerable interest from the life science industry. The development cycle is substantially longer in this sector owing to the regulatory framework but presents a significant medium term opportunity.
Commercial agreements
During the year we signed our first agreement in the solar power sector with Tokyo Electron, a major Japanese semiconductor and flat panel display production equipment supplier. We also signed a new agreement in the LED lighting market and made significant progress with our other LED lighting activities.
Under the agreement with Tokyo Electron, we are developing solar inks for printing into a nanomaterial film, which will form the solar-active component of a new photovoltaic panel. Nanoco received an upfront payment and will receive milestone payments during the contract, which began in June 2010 and is progressing well.
In September 2009 we signed a new agreement with a major Japanese electronics company for the bespoke design of quantum dots for use in the LED backlighting of televisions. This collaboration is progressing well and we have achieved the required milestones, triggering a payment of US$600,000 in July 2010 and bringing the total paid to Nanoco from the agreement to US$1.8 million.
We received a milestone payment of US$2 million from our first supply and licence agreement signed in November 2008 with a major Japanese corporation for red and green quantum dots for LEDs. It was subsequently agreed with this partner that the second technical milestone would be amended in the light of more demanding market requirements, particularly with regard to the lifetimes in service of the LEDs, which have now been set at 50,000 hours. It is pleasing to note that our quantum dots have met the key technical criteria to date except for the final extended lifetime tests which are expected to be completed successfully in the near future. Our partner has already made partial payment for these revised intermediate milestones in recognition of the successful progress. We are therefore pressing ahead to deliver our first 1kg of red quantum dots to the Japanese corporation early in the next calendar year, which will trigger a further US$2 million milestone payment. It is expected that the green 1kg delivery will follow later in the first half of 2011, triggering a further US$2 million payment.
Once the products under this agreement are commercialised, a royalty will be paid to Nanoco on the net sales of the corporation's products, which will comprise an LED chip, quantum dots and an encapsulant. The packaged LEDs will be sold by the corporation to LCD television and display makers and to solid state lighting manufacturers.
During the year, we have seen increasing interest from potential customers in the use of our quantum dots for use with LEDs in general lighting, where Nanoco's technology has the potential to provide lighting with a high colour rendering index. Current methods for producing white light from blue LEDs tend to be relatively weak in the red wavelengths, with the result that the light can lack warmth and fail to show true colours; the use of Nanoco's quantum dots can correct these failings.
We continue in discussions with potential partners across a range of applications.
Manufacturing / operations
Since joining AIM in May 2009, we have been focused on scaling up from the production of very small quantities of quantum dots to mass production so that customers can supply major end-use markets. We made significant progress during the year in achieving this goal, including the appointment of Andrew Gooda as Manufacturing Director in January 2010. He has since developed a clear pathway to take us through the steps to mass production.
During the year, we have added a series of scale-up reactors in our Manchester headquarters. These reactors are critical in the progression of the quantum dots from very small scale manufacture in the laboratory to mass production.
Today we announced that we have taken a lease on a 3000 square foot facility at The Heath, a technology park in Runcorn, Cheshire. This facility, which will involve an initial investment of £1.3 million, will be our first commercial production plant and we expect it to be commissioned later this calendar year. This sixty acre site provides ample room for Nanoco's future expansion requirements.
Our customers are global corporations who expect suppliers to perform to accepted international standards. We are committed to exceeding the expected quality assurance standards, and health, safety and environmental legislation, both at Runcorn and in Manchester. We have recruited skilled staff who are currently developing and implementing the systems needed to ensure that all of our operations meet the highest standards.
Summary
Our first full year as a quoted company has been one of rapid progress. The Company has delivered against customer contracts and against manufacturing scale-up targets whilst keeping tight control over our cash to ensure we have adequate funds to build the Company successfully.
In the current year we will continue to focus on delivery of our commercial contracts, our manufacturing scale-up and on securing new commercial agreements across our target markets.
Michael Edelman
Chief Executive Officer
15 October 2010
Financial Review
Results
Revenue increased by 47% to £2,937,000 (2009: £1,994,000). The Company's revenue is earned primarily through joint development agreements, with revenue being recognised as agreed performance milestones are achieved, and also from a material supply and licence agreement. Of this total £2,771,000 (2009: £1,761,000) was earned in US Dollars and mostly originated from customers in the Far East.
Underlying* operating loss for the year ending 31 July 2010 was £1,262,000 (2009: underlying* operating loss of £545,000). Total staffing costs increased by £679,000 to £2,093,000 (2009: £1,414,000) and average staffing numbers increased by 13 heads from an average of 26 heads in 2009 to 39 in 2010. Total research and development ("R&D") spend, which primarily includes the employment costs of technical staff, increased by £591,000 to £1,850,000 (2009: £1,259,000), reflecting the increase in technical staff in support of the expansion in the number of product development programmes.
Investment in scale-up manufacturing plant and equipment over the last year has increased the level of the depreciation charge by £195,000 to £428,000 (2009: £233,000).
The Company aims to incentivise and retain key staff through the use of equity-settled share schemes. During the year the Company also introduced a long term incentive share option plan in which all staff can participate. The IFRS2 (share-based payment) charge in respect of share schemes totalled £166,000 (2009: £72,000). The total number of share options in issue as at 31 July 2010 were 11.0m (31 July 2009: 8.4m). In addition a further 3.8m (31 July 2009: 3.8m) of shares are jointly owned by the Company's Employee Benefit Trust ("EBT") and certain senior management through a Jointly Owned Agreement ("JOE"). Under the JOE the employee beneficiaries have the option to acquire the trustees' share at an agreed option price subject to meeting certain performance criteria. No options were capable of being exercised during the year. Share options and JOE shares that had been issued under the Nanoco Tech Share incentive Plan (prior to the reverse take-over in 2009), which total 12.2m share options and JOE shares, are capable of being exercised from 1 August 2010 until 31 August 2016. Details on the various share schemes are provided in note 19 to the accounts.
The loss before tax was £1,371,000 (2009: loss of £780,000), after deducting the share-based payment charge and after crediting net interest income of £57,000 (2009: £32,000) and, in 2009, after deducting the cost of the reverse acquisition of £195,000.
Taxation
The tax credit for the year is £288,000 (2009: £240,000). The R&D tax credit to be claimed in respect of R&D spend is £433,000 (2009: £254,000), and this is partially offset in the Income Statement by a deferred tax charge for accelerated capital allowances of £129,000 (2009: nil) and an adjustment in respect of the prior year R&D tax credit of £16,000 (2009: £14,000).
Earnings per share
Underlying* basic earnings per share ("EPS") was a loss of (0.51) pence (2009: underlying* loss of (0.16) pence). Basic EPS was a loss of (0.60) pence (2009: loss of (0.31) pence).
No dividend has been proposed (2009: nil) in order to retain cash within the business to fund future investment.
Cash flow and balance sheet
During the year cash, cash equivalents and deposits reduced by £907,000 from £6,589,000 at 31 July 2009 to £5,682,000 at 31 July 2010. Purchases of capital equipment in the year, primarily in connection with scale-up manufacturing apparatus and equipment for the new Runcorn facility totalled £1,136,000. Of this total £615,000 was paid for during the year, and the balance, associated with equipment for the Runcorn manufacturing facility which was still in the process of construction at 31 July 2010, was paid for after the year end. Expenditure incurred in registering patents totalled £300,000 during the year. This is capitalised and depreciated over ten years in line with the Company's accounting policy.
At the year-end current liabilities included £539,000 of deferred income which is recognised in the Income Statement, as revenue, as performance milestones are achieved.
Treasury activities and policies
The Group carries a significant cash sum which is managed prudently. In order to minimise risk to the Group's capital the funds are invested across a number of financial institutions with strong credit ratings. The deposits range from instant access to 12 month term deposits and are regularly reviewed by the Board. Cash forecasts are updated monthly to ensure that there is sufficient cash available for foreseeable requirements.
Credit risk
The Company only trades with recognised, creditworthy third parties. Receivable balances are monitored on an on-going 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 Company invoices most of its revenues in US Dollars. The Company is therefore exposed to movements in the US Dollar relative to Sterling. Foreign currency balances in excess of forecast amounts required to fund projected outgoings have been converted during the year at spot rate. No foreign currency hedging instruments are currently used due to the lack of forward visibility on foreign currency receipts. This policy will remain under review and may change if the Company is generating predictable levels of non-Sterling income.
At the year end the Group had £1,260,000 (2009: £40,000) in US Dollar cash or debtor balances. The Group's net profit and its equity are exposed to movements in the value of Sterling relative to the US Dollar. The estimated impact of movements in the Sterling exchange rate on profits and equity are summarised in note 24 to the Financial Statements. Based on the balances at the year end, a 10% strengthening in Sterling against the US Dollar would reduce Group pre-tax profit and equity by £115,000 and a 10% strengthening in the US Dollar relative to Sterling would increase pre-tax profit and equity by £140,000. As US Dollar revenues increase so the exposure of the Group's Income Statement and equity to movements in the Sterling/US Dollar exchange rate will increase as well.
Colin White
Chief Financial Officer
15 October 2010
* Underlying figures are before the share-based payment charge and before the cost of the reverse acquisition in 2009.
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2010
|
|
|
2010 |
2009 |
|
|
Notes |
£000 |
£000 |
|
|
|
|
|
|
Revenue |
4 |
2,937 |
1,994 |
|
Cost of sales |
|
(495) |
(161) |
|
Gross profit |
|
2,442 |
1,833 |
|
Administrative expenses |
|
(3,870) |
(2,450) |
|
Cost of reverse acquisition |
23 |
- |
(195) |
|
Operating loss |
|
|
|
|
- Before share-based payment and cost of reverse acquisition |
|
(1,262) |
(545) |
|
- Cost of reverse acquisition |
|
- |
(195) |
|
- Share-based payment |
19 |
(166) |
(72) |
|
|
5 |
(1,428) |
(812) |
|
Finance income |
7 |
68 |
57 |
|
Finance costs |
7 |
(11) |
(25) |
|
Loss on ordinary activities before taxation |
|
(1,371) |
(780) |
|
Tax |
8 |
288 |
240 |
|
Loss for the year and total comprehensive loss for the year |
|
(1,083) |
(540) |
|
Loss per share: |
|
|
|
|
Basic loss for the year |
9 |
(0.60)p |
(0.31)p |
|
Diluted loss for the year |
9 |
(0.56)p |
(0.31)p |
The loss for the year arises from the Group's continuing operations.
There were no other items of comprehensive income for the year (2009: nil) and therefore the loss for the year is also the total comprehensive loss for the year.
Statements of Changes in Equity
for the year ended 31 July 2010
|
The Group |
Attributable to equity holders |
||||
|
|
|
Share- |
|
|
|
|
|
Issued |
Based |
|
|
|
|
|
equity |
Payment |
Merger |
Revenue |
|
|
|
capital |
reserve |
reserve |
reserve |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
At 1 August 2008 |
6,544 |
95 |
(1,242) |
(1,965) |
3,432 |
|
Loss for the year and total comprehensive loss for the year |
- |
- |
- |
(540) |
(540) |
|
Exercise of warrant |
108 |
- |
- |
- |
108 |
|
Share-based payments |
- |
72 |
- |
- |
72 |
|
Reallocation of reserves on reverse acquisition |
6,154 |
- |
- |
- |
6,154 |
|
Expenses on issue of shares |
(455) |
- |
- |
- |
(455) |
|
At 31 July 2009 |
12,351 |
167 |
(1,242) |
(2,505) |
8,771 |
|
Loss for the year and total comprehensive loss for the year |
- |
- |
- |
(1,083) |
(1,083) |
|
Share-based payments |
- |
166 |
- |
- |
166 |
|
At 31 July 2010 |
12,351 |
333 |
(1,242) |
(3,588) |
7,854 |
|
The Company |
Attributable to equity holders |
||||
|
|
|
Share- |
|
|
|
|
|
Issued |
Based |
|
|
|
|
|
equity |
Payment |
Merger |
Revenue |
|
|
|
capital |
reserve |
reserve |
reserve |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
At 31 December 2008 |
27,037 |
- |
4,804 |
(26,050) |
5,791 |
|
Profit for the period and total comprehensive profit for the year |
- |
- |
- |
287 |
287 |
|
Treasury shares reclassified to EBT |
(20) |
- |
- |
20 |
- |
|
Share-based payments |
- |
167 |
- |
- |
167 |
|
Shares issued on acquisition of Nanoco Tech Limited (see note 18) |
63,255 |
- |
- |
- |
63,255 |
|
Expenses on issue of shares |
(455) |
- |
- |
- |
(455) |
|
At 31 July 2009 |
89,817 |
167 |
4,804 |
(25,743) |
69,045 |
|
Profit for the year and total comprehensive profit for the year |
- |
- |
- |
68 |
68 |
|
Share-based payments |
- |
166 |
- |
- |
166 |
|
At 31 July 2010 |
89,817 |
333 |
4,804 |
(25,675) |
69,279 |
Statements of Financial Position
at 31 July 2010
|
|
|
31 July |
31 July |
31 July |
31 July |
|
|
|
2010 |
2010 |
2009 |
2009 |
|
|
|
Group |
Company |
Group |
Company |
|
|
Notes |
£000 |
£000 |
£000 |
£000 |
|
Assets |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
Plant and equipment |
10 |
2,803 |
- |
2,127 |
- |
|
Intangible assets |
11 |
616 |
- |
376 |
- |
|
Investment in subsidiary |
12 |
- |
63,588 |
- |
63,422 |
|
|
|
3,419 |
63,588 |
2,503 |
63,422 |
|
Current assets |
|
|
|
|
|
|
Inventories |
13 |
18 |
- |
17 |
- |
|
Trade and other receivables |
14 |
584 |
5,175 |
378 |
- |
|
Income tax asset |
|
501 |
- |
135 |
- |
|
Short term investments and deposits |
15 |
2,000 |
- |
- |
- |
|
Cash and cash equivalents |
15 |
3,682 |
516 |
6,589 |
5,939 |
|
|
|
6,785 |
5,691 |
7,119 |
- |
|
Total assets |
|
10,204 |
69,279 |
9,622 |
69,361 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
16 |
1,810 |
- |
376 |
- |
|
Financial liabilities |
17 |
63 |
- |
63 |
- |
|
|
|
1,873 |
- |
439 |
- |
|
Non-current liabilities |
|
|
|
|
|
|
Financial liabilities |
17 |
348 |
- |
412 |
316 |
|
Deferred tax liability |
8 |
129 |
- |
- |
- |
|
|
|
477 |
- |
412 |
316 |
|
Total liabilities |
|
2,350 |
- |
851 |
316 |
|
Net assets |
|
7,854 |
69,279 |
8,771 |
69,045 |
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
Issued equity capital |
18 |
12,351 |
89,817 |
12,351 |
89,817 |
|
Share-based payment reserve |
19 |
333 |
333 |
167 |
167 |
|
Merger reserve |
20 |
(1,242) |
- |
(1,242) |
- |
|
Capital redemption reserve |
20 |
- |
4,804 |
- |
4,804 |
|
Revenue reserve |
21 |
(3,588) |
(25,675) |
(2,505) |
(25,743) |
|
Total equity |
|
7,854 |
69,279 |
8,771 |
69,045 |
Approved by the Board and authorised for issue on 15 October 2010.
Colin White
Director
15 October 2010
Cash Flow Statements
for the year ended 31 July 2010
|
|
|
31 July |
31 July |
31 July |
31 July |
|
|
|
2010 |
2010 |
2009 |
2009 |
|
|
|
Group |
Company |
Group |
Company |
|
|
Notes |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
(Loss)/ profit before interest and tax |
|
(1,428) |
65 |
(812) |
287 |
|
Adjustments for: |
|
|
|
|
|
|
Depreciation |
10 |
428 |
- |
233 |
- |
|
Amortisation of intangible assets |
11 |
60 |
- |
39 |
- |
|
Cost of reverse acquisition |
23 |
- |
- |
195 |
- |
|
Share-based payment |
19 |
166 |
- |
72 |
- |
|
Impairment of investment in subsidiary |
12 |
- |
- |
- |
5,338 |
|
Net reversal of provision for non-recovery of loan to subsidiary |
12 |
- |
- |
- |
(5,744) |
|
Changes in working capital: |
|
|
|
|
|
|
Increase in inventories |
|
(1) |
- |
(8) |
- |
|
(Increase)/decrease in trade and other receivables |
|
(206) |
- |
162 |
- |
|
Increase/(decrease) in trade and other payables |
|
913 |
- |
(124) |
312 |
|
|
|
|
|
|
|
|
Cash inflow/(outflow) from operating activities |
|
(68) |
65 |
(243) |
193 |
|
Interest paid |
7 |
(11) |
- |
(25) |
- |
|
Research and development tax credit received |
|
51 |
- |
136 |
- |
|
Net cash inflow/(outflow) from operating activities |
|
(28) |
65 |
(132) |
193 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchases of plant and equipment |
|
(615) |
- |
(1,242) |
- |
|
Related grant received |
10 |
32 |
- |
32 |
- |
|
Net purchase of plant and equipment |
|
(583) |
- |
(1,210) |
- |
|
Purchases of intellectual property |
11 |
(300) |
- |
(136) |
- |
|
Cash advance to / (receipts of repayment of loan from) subsidiary |
14,17 |
- |
(5,491) |
- |
6,197 |
|
Increase in cash placed on deposit |
15 |
(2,000) |
- |
- |
- |
|
Interest received |
7 |
68 |
3 |
57 |
4 |
|
Net cash (outflow)/inflow from investing activities |
|
(2,815) |
(5,488) |
(1,289) |
6,201 |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Cash acquired on reverse acquisition |
23 |
- |
- |
5,892 |
- |
|
Proceeds from issues of ordinary share capital |
|
- |
- |
108 |
- |
|
Expenses on issue of shares |
18 |
- |
- |
(455) |
(455) |
|
Loan repayment |
|
(64) |
- |
(63) |
- |
|
Net cash (outflow)/inflow from financing activities |
|
(64) |
- |
5,482 |
(455) |
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and equivalents |
|
(2,907) |
(5,423) |
4,061 |
5,939 |
|
Cash and cash equivalents at the start of the year |
|
6,589 |
5,939 |
2,528 |
- |
|
Cash and cash equivalents |
|
3,682 |
516 |
6,589 |
5,939 |
|
Monies placed on deposit |
|
2,000 |
- |
- |
- |
|
Cash, cash equivalents and deposits at the end of the year |
15 |
5,682 |
516 |
6,589 |
5,939 |
Notes to the Financial Statements
for the year ending 31 July 2010
1. Authorisation of financial statements and statement of compliance with IFRSs
The financial statements of Nanoco Group PLC and its subsidiaries (the "Group") for the year ended 31 July 2010 were authorised for issue by the Board of Directors on 15 October 2010 and the Statement of Financial Position was signed on the board's behalf by Mr Colin White.
Nanoco Group PLC ("the Company") is an AIM listed company incorporated and domiciled in the UK.
The Company's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and International Financial Reporting Committee ("IFRIC") interpretations as they apply to the financial statements of the Group for the period ended 31 July 2010.
The financial statements do not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006. A copy of the financial statements for the year ended 31 July 2010 has not been delivered to the Registrar of Companies. The Auditors' opinion on those financial statements was unqualified, did not draw attention to any matters by way of an emphasis of matter paragraph, and it contained no statement under section 498(2) or section 498(3) of the Companies Act 2006.
The principal accounting policies adopted by the Group are set out in note 2.
2. Accounting policies
Basis of preparation
These financial statements have been prepared in accordance with IFRS and IFRIC interpretations as they apply to the financial statements of the Group for the year ended 31 July 2010 and applied in accordance with the Companies Act 2006.
The accounting policies adopted are consistent with those of the previous financial year except as described below.
The following new and amended IFRS and IFRIC interpretations were mandatory as of 1 January 2009 unless otherwise stated.
• Amendment to IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
• IFRS 8 Operating Segments
• IAS 1 (Revised) Presentation of Financial Statements
• Amendments to IAS 23 Borrowing Costs
• IAS 39 and IFRS 7: Reclassification of Financial Assets effective 1 July 2008
• Improvements to IFRSs (issued May 2008)
For each of the new or amended IFRS and IFRIC interpretations adopted in the period the impact on the financial statements or performance of the Group is described below:
Amendment to IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
The amendment to IFRS 2 clarifies the definition of vesting conditions and prescribes the treatment for an award that is cancelled. This amendment did not have an impact on the financial position or performance of the Group.
IFRS 8 Operating Segments
IFRS 8 replaces IAS 14 Segment reporting. The Group concluded that its operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14. IFRS 8 disclosures are shown in note 4.
IAS 1 (revised) Presentation of Financial Statements
The revised Standard has required the reconciliation of movements in equity, previously disclosed in the notes, to be presented as a primary statement entitled "Consolidated Statement of Changes on Equity". In addition, the Consolidated Statement of Recognised Income and Expense has been replaced with the Consolidated Statement of Comprehensive Income. The revised standard requires this statement to present all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present one statement.
Amendments to IAS 23 Borrowing Costs
The revised IAS 23 requires capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. This amendment did not have an impact on the financial position or performance of the Group
Improvements to IFRS's (issued May 2008)
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each amendment. The adoption of the amendments resulted in no significant changes to the financial statements or performance of the Group.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year.
The financial statements are prepared under the historical cost convention, except where otherwise stated.
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 parent company's result for the period ended 31 July 2010 was a profit of £68,000 (31 July 2009: profit of £287,000).
The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds except where otherwise indicated.
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.
Reverse acquisition of Evolutec Group PLC in year ending 31 July 2009
On 30 April 2009, Evolutec Group PLC completed the acquisition of Nanoco Tech Limited (formerly Nanoco Tech PLC) in a share for share consideration exchange as detailed in note 23, at which time the Company also changed its name to Nanoco Group PLC.
The combination was accounted for as a reverse acquisition equity transaction as if Nanoco Tech Limited had issued new shares in exchange for Evolutec Group PLC's cash and other assets.
The following accounting treatment was applied in respect of the transaction and is reflected in the prior year comparative figures.
Acquisition of Nanoco Tech Limited by Evolutec Group PLC
• 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 transaction, and the consolidated results for the period from 1 August 2008 to the date of the transaction 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 ("the reverse acquisition reserve"), see note 18.
• The fair value of the shares issued by Nanoco Group PLC has been determined from the perspective of Nanoco Tech Limited on the basis set out in note 23.
• The Company's comparative financial results and related notes are for the legal parent for the period from 1 January 2009 to 31 July 2009.
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than half of the voting rights. The existence and effects of potential voting rights are considered when assessing whether the Group controls the entity. Subsidiaries are fully consolidated from the date control passes.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group before 31 July 2009. 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 of the cost of acquisition below the fair value of identifiable net assets acquired (ie, discount on acquisition) is recognised directly in the Income Statement.
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. All financial statements are made up to 31 July 2010.
Foreign currency translation
Items included in the financial statements of each entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Sterling, being the Group's presentational currency.
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 are retranslated at the functional currency rate of exchange ruling at the Statement of Financial Position date. All differences are taken to the Income Statement.
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.
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.
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or services, excluding discounts, rebates, VAT and other sales taxes or duties.
The Group's revenues to date comprise amounts earned under joint development agreements and individual project development programmes, material supply and licence agreements, revenue from the sale of quantum dot products and grant income recognised.
Revenues from development programmes are recognised as development work is performed during the contractual term, as measured by performance milestones. Revenue is not recognised where there is uncertainty regarding the achievement of such milestones.
Royalties are recognised when goods are supplied by customers under licence agreements. Royalties received in advance under material supply and licence agreements are recognised as revenue when goods are supplied or contractual rights for the customer to recoup such payments have lapsed.
Grant income is recognised as earned based on contractual conditions, generally as expenses are incurred.
Revenue from the sale of products is recognised at the point of transfer of risks and rewards of ownership which is generally on shipment of product.
Interest income
Interest income is recognised as interest accrues using the effective interest rate method.
Research and development
Research costs are charged against the Income Statement as they are incurred. Certain development costs will be capitalised as intangible assets when it is probable that future economic benefits will flow to the Company. 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 are reviewed for impairment at each Statement of Financial Position date. Other development costs are charged against income as incurred since the criteria for their recognition as an asset are not met.
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.
The costs of an internally generated intangible asset comprise all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on technical development, testing and certification, materials consumed and any relevant third party cost. The costs of internally generated developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired intangible assets. However, until completion of the development project, the assets are subject to impairment testing only. 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 and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each Statement of Financial Position 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.
No development costs to date have been capitalised as intangible assets.
Leases
Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and rewards of the underlying asset, are charged in the Income Statement on a straight line basis over the expected lease term.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and 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.
The expense relating to any provision is presented in the Income Statement, net of any expected reimbursement, but only where recoverability of such reimbursement is virtually certain.
Provisions are discounted using a current pre tax rate that reflects, where appropriate, the risk specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Financial assets and liabilities
Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to them and are classified as financial assets at fair value through the Income Statement. The Group determines the classification of its financial assets and liabilities at initial recognition and re-evaluates this designation at each financial year end.
At the year end, the Group had no financial assets or liabilities designated as at fair value through the Income Statement (2009: £nil).
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
Taxation
Current income tax
Current income tax assets 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 Statement of Financial Position date.
Deferred income tax
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 nor 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 substantially enacted by the Statement of Financial Position 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 or economic benefits in the future is uncertain.
Investments in subsidiaries
Investments in subsidiaries are stated in the Company Statement of Financial Position at cost less provision for any impairment.
Plant and equipment
Plant and equipment is 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 cost 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 ten years |
|
Plant and machinery, fixtures and fittings |
- |
straight line over five years |
|
Office equipment |
- |
straight line over three years |
The carrying values of plant and equipment are reviewed for impairment if events or changes in circumstances indicate 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.
An item of plant and equipment 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 income statement in the period of derecognition.
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 registering patents in respect of intellectual property rights.
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:
|
Patent |
- |
straight line over ten years |
Impairment of assets
At each reporting date the Group reviews the carrying value of its plant, equipment and intangible assets to determine whether there is an indication that these assets have suffered an impairment loss. If any such indication exists, or when annual impairment testing for an asset is required, the company makes an assessment of the asset's recoverable amount.
An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators. Impairment losses on continuing operations are recognised in the Income Statement in those expense categories consistent with the function of the impaired assets.
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 Income Statement unless the asset is carried at 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.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost 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.
Trade and other receivables
Trade receivables, which generally have 30 to 60 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. The time value of money is not material.
Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Significant financial difficulties faced by the customer, probability that the customer will enter bankruptcy or financial reorganisation and default in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying value of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Income Statement within administrative expenses.
When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.
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 deferred and recognised in the Income Statement in line with the terms of the underlying grant agreement.
Government grants relating to capital expenditure are deducted in arriving at the carrying amount of the asset.
Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and deposits with an original term not greater than three months.
Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method.
Borrowings
Borrowings are recognised when the Group becomes party to the related contracts and are measured initially at fair value, net of directly attributable transaction costs incurred. After initial recognition, borrowings are stated at amortised cost.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the Statement of Financial Position date.
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.
Shares held by Employee Benefit Trust
The Employee Benefit Trust is consolidated in the financial statements and the shares reported as treasury shares in the group's statement of financial position. Shares are treated as though they had been cancelled when calculating earnings per share until such time that the shares are exercised.
The Employee Benefit Trust is treated as a separate legal entity in the separate financial statements of the parent company.
Share-based payments
The Company undertakes equity-settled share-based payment transactions with certain employees.
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 the Black-Scholes model in the case of valuation of options with non-market based conditions and a Binomial model in the case of valuation of options with market based conditions. Where options include a range of target share prices a Monte-Carlo simulation model has been used.
At each Statement of Financial Position 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 Statement of Financial Position date is recognised in the Income Statement, 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 as "share-based payment reserve".
Accounting standards and interpretations not applied
At the date of authorisation of these financial statements, the following Standards and Interpretations relevant to the operations of the Group that have not been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated)
Accounting standards and interpretations not applied (continued)
The effective dates stated here are those given in the original IASB standards and interpretations. As the Group prepares its financial statements in accordance with IFRS, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards.
The following standards and interpretations have an effective date after the date of these financial statements:
|
|
|
Effective Date |
|
IFRS 1 |
First-time Adoption of International Financial Reporting Standards - Additional Exemptions for First-time Adopters (Amendments) |
1 January 2010 |
|
IFRS 1 |
First-time Adoption of International Financial Reporting Standards - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters |
1 July 2010 |
|
IFRS 2 |
Group Cash-settled Share-based Payment Transactions |
1 January 2010 |
|
IFRS 9 |
Financial Instruments: Classification & Measurement |
1 January 2013 |
|
IAS 24 |
Related Party Disclosures (Revised) |
1 January 2011 |
|
IAS 27 |
Consolidated and Separate Financial Statements (revised January 2008) |
1 July 2009 |
|
IAS 32 |
Financial Instruments: Presentation - Classification of Rights Issues |
1 February 2010 |
|
IFRIC 14 |
Prepayments of an Immediate Funding Requirement (Amendment) |
1 January 2011 |
|
IFRIC 19 |
Extinguishing Financial Liabilities with Equity Instruments |
1 July 2010 |
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.
3. Judgements and key sources of estimation uncertainty
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the Statement of Financial Position 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 assumptions 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 assumptions are reasonable, by their nature they are uncertain and, as such, changes in estimates and assumptions may have a material impact on the financial statements.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
Fair value of shares issued in reverse acquisition of Evolutec Group PLC
As described in note 23, the shares that were deemed to have been issued as consideration for the assets of Evolutec Group PLC have been recorded at the directors' estimate of fair value at 30 April 2009. In estimating fair value, the directors concluded that the quoted market price of the Evolutec Group PLC shares at 30 April 2009 was not a reliable basis of measurement due to limited liquidity in the market for such shares. The directors have based their estimate of fair value on forecast financial information, supported by the terms on which the reverse acquisition was agreed with Evolutec Group PLC and approved by the Nanoco Tech shareholders.
Equity-settled share-based payments
The estimation 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 the estimation of the number of awards that will ultimately vest. Inputs required for this arise from judgements relating to the future volatility of the share price of 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.
Taxation
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. The carrying value of the deferred tax losses at 31 July 2010 was £343,000 (2009: £270,000). The value of deferred tax asset not recognized at the year-end is £nil, as measured at a standard tax rate of 27%.
4. Segmental information
Operating segments
At 31 July 2010 the Group operated as one segment, being the provision of high performance nano particles for research and development purposes. This is the level at which operating results are reviewed by the chief operating decision maker (i.e. the CEO) 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 2010 |
31 July 2009 |
|
|
£000 |
£000 |
|
Analysis of revenue |
|
|
|
Products sold |
82 |
114 |
|
Rendering of services |
1,220 |
372 |
|
Royalties and licences |
1,586 |
1,340 |
|
Grant income |
49 |
168 |
|
|
2,937 |
1,994 |
Included within rendering of services and royalties and licences is revenue from two material customers amounting to £839,000 and £1,586,000 respectively.
Geographical information
The Group operates in four main geographic areas, although all are managed in the UK. The Group's revenue per geographical segment is as follows:
|
|
31 July 2010 |
31 July 2009 |
|
|
£000 |
£000 |
|
Revenue |
|
|
|
UK |
49 |
170 |
|
Europe (excluding UK) |
117 |
63 |
|
Asia |
2,754 |
1,697 |
|
USA |
17 |
64 |
|
|
2,937 |
1,994 |
All the Group's assets are held in the UK and all of its capital expenditure arises in the UK.
5. Operating loss
|
|
31 July 2010 |
31 July 2009 |
|
|
|
Restated |
|
The Group |
£000 |
£000 |
|
Operating loss is stated after charging/(crediting) : |
|
|
|
Depreciation on plant and equipment (see note 10) |
428 |
233 |
|
Amortisation of intangible assets (see note 11) |
60 |
39 |
|
Cost of reverse acquisition (see note 23) |
- |
195 |
|
Staff costs (see note 6) |
2,093 |
1,414 |
|
Foreign exchange gains/(losses) |
44 |
(4) |
|
Grants receivable |
(48) |
(168) |
|
Research and development expense** |
1,850 |
1,259 |
|
Cost of inventories recognised as an expense (included in cost of sales) |
148 |
11 |
|
Operating lease rentals (see note 22): |
|
|
|
Land and buildings |
140 |
122 |
|
Auditors' remuneration: |
|
|
|
Audit services |
|
|
|
- Fees payable to company auditor for the audit of the parent and the consolidated accounts |
10 |
11 |
|
Fees payable to company auditor for other services |
|
|
|
- Auditing the accounts of subsidiaries pursuant to legislation |
13 |
14 |
|
- Other services* |
27 |
28 |
|
Total auditors' remuneration |
50 |
53 |
* In the year to 31 July 2009 additional fees of £65,000 were payable to the company auditors in relation to their services in respect of the Company's re-admission to AIM. These fees were treated as part of the cost of acquisition and were charged to the Statement of Financial Position.
** Included within research and development expense are staff costs totalling £1,429,000 (2009:£1,114,000).
6. Staff costs
The average number of employees during the year (including directors), was as follows:
|
|
31 July 2010 |
31 July 2009 |
|
The Group |
Number |
Number |
|
Directors |
5 |
2 |
|
Laboratory and administrative staff |
34 |
24 |
|
|
39 |
26 |
|
|
31 July 2010 |
31 July 2009 |
|
|
|
Restated |
|
|
£000 |
£000 |
|
Wages and salaries |
1,775 |
1,224 |
|
Social security costs |
152 |
118 |
|
Share based payments |
166 |
72 |
|
|
2,093 |
1,414 |
|
|
|
|
|
Directors' remuneration included in the aggregate remuneration above comprised: |
|
|
|
Emoluments for qualifying services |
287 |
370 |
Directors' emoluments (excluding social security costs) disclosed above include £129,000 paid to the highest paid director (2009: £192,000).
7. Finance income/(cost)
|
|
31 July 2010 |
31 July 2009 |
|
The Group |
£000 |
£000 |
|
Finance income: |
|
|
|
Bank interest receivable |
68 |
57 |
|
Finance cost: |
|
|
|
Loan interest payable |
(11) |
(25) |
8. Taxation
The tax credit is made up as follows:
|
|
31 July 2010 |
31 July 2009 |
|
The Group |
£000 |
£000 |
|
Current income tax: |
|
|
|
UK corporation tax losses in the year |
- |
- |
|
Research and development income tax credit receivable |
(433) |
(254) |
|
Prior year adjustment |
16 |
14 |
|
Total current income tax |
(417) |
(240) |
|
Deferred tax: Origination and reversal of temporary differences |
129 |
- |
|
Total deferred tax |
129 |
- |
|
Total tax credit in the income statement |
(288) |
(240) |
|
Factors affecting tax charge for the year: |
31 July 2010 |
31 July 2009 |
|
The Group |
£000 |
£000 |
|
The tax assessed for the year varies from the standard rate of corporation tax as explained below:
Loss on ordinary activities before taxation |
(1,371) |
(780) |
|
Tax at standard rate of 28% (2009: 28%) |
(384) |
(218) |
|
|
|
|
|
Effects of: |
|
|
|
Expenses not deductible for tax purposes |
48 |
75 |
|
Capital allowances in excess of depreciation |
(133) |
(47) |
|
Additional reduction for research and development expenditure |
(379) |
(190) |
|
Surrender of research and development relief for repayable tax credit |
867 |
380 |
|
Research and development tax credit receivable |
(433) |
(254) |
|
Deferred tax provided at 27% |
129 |
- |
|
Utilisation of brought forward losses |
(19) |
- |
|
Prior year adjustment |
16 |
14 |
|
Tax credit in income statement |
(288) |
(240) |
The Group has accumulated losses available to carry forward against future trading profits. The estimated
value of the deferred tax asset, measured at a standard rate of 27% (2009: 28%) is £343,000 (2009: £270,000).
The Group also has accelerated capital allowances for which the tax, measured at a standard rate of 27% (2009: 28%) is £472,000 (2009: £258,000). The excess of accelerated capital allowances over accumulated losses has been provided for as a deferred tax liability.
9. Earnings per share
|
|
31 July 2010 |
31 July 2009 |
|
The Group |
£000 |
£000 |
|
Loss for the financial year attributable to equity shareholders |
(1083) |
(540) |
|
Share-based payments |
166 |
72 |
|
Cost of reverse acquisition |
- |
195 |
|
Loss for the financial year before share-based payments |
(917) |
(273) |
|
Weighted average number of shares: |
|
|
|
Ordinary shares in issue |
180,397,031 |
171,646,252 |
|
Issuable on vesting of share options |
13,489,244 |
4,370,927 |
|
Diluted weighted average number of shares |
193,886,275 |
176,017,179 |
|
Adjusted earnings per share before share-based payments and cost of reverse acquisition in 2009 (pence) |
(0.51) |
(0.16) |
|
Basic earnings per share (pence) |
(0.60) |
(0.31) |
|
Diluted earnings per share (pence) |
(0.56) |
(0.31) |
Weighted average number of shares in issue exclude those held by the Employee Benefit Trust.
The weighted average number of shares for the year ended 31 July 2009 is based on the number of shares issued by Nanoco Group PLC to acquire Nanoco Tech Limited for the period up to acquisition (adjusted for the impact of shares issued by Nanoco Tech Limited in the year) and the weighted average number of shares in issue for the period since the acquisition.
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume conversion of the weighted average of all share options so as to derive the dilutive potential ordinary shares.
10. Fixed assets
|
|
Laboratory infrastructure |
Office equipment, fixtures and fittings |
Plant and machinery |
Total |
|
The Group |
£000 |
£000 |
£000 |
£000 |
|
Cost: |
|
|
|
|
|
At 1 August 2008 |
855 |
200 |
316 |
1,371 |
|
Additions |
837 |
65 |
340 |
1,242 |
|
Grant received |
(32) |
- |
- |
(32) |
|
Reclassification |
- |
(106) |
106 |
- |
|
At 31 July 2009 |
1,660 |
159 |
762 |
2,581 |
|
Additions |
24 |
30 |
1,082 |
1,136 |
|
Grant received |
(32) |
- |
- |
(32) |
|
At 31 July 2010 |
1,652 |
189 |
1,844 |
3,685 |
|
Depreciation: |
|
|
|
|
|
At 1 August 2008 |
120 |
41 |
60 |
221 |
|
Provided during the year |
94 |
68 |
71 |
233 |
|
Reclassification |
- |
(41) |
41 |
- |
|
At 31 July 2009 |
214 |
68 |
172 |
454 |
|
Provided during the year |
185 |
47 |
196 |
428 |
|
At 31 July 2010 |
399 |
115 |
368 |
882 |
|
Net book value: |
|
|
|
|
|
At 31 July 2010 |
1,253 |
74 |
1,476 |
2,803 |
|
At 31 July 2009 |
1,446 |
91 |
590 |
2,127 |
Fixed asset additions for the year ended 31 July 2010 include £521,000 of equipment that was in the process of construction at 31 July 2010 and was paid for after the year end.
11. Intangible assets
|
|
Patents |
|
The Group |
£000 |
|
Cost: |
|
|
At 1 August 2008 |
323 |
|
Additions |
136 |
|
At 31 July 2009 |
459 |
|
Additions |
300 |
|
At 31 July 2010 |
759 |
|
Amortisation: |
|
|
At 1 August 2008 |
44 |
|
Provided during the year |
39 |
|
At 31 July 2009 |
83 |
|
Provided during the year |
60 |
|
At 31 July 2010 |
143 |
|
Net book value: |
|
|
At 31 July 2010 |
616 |
|
At 31 July 2009 |
376 |
12. Investment in subsidiaries
|
|
Shares |
Loans |
Loan Provision |
Total |
|
The Company |
£000 |
£000 |
£000 |
£000 |
|
At 31 December 2008
|
5,338 |
26,483 |
(26,030) |
5,791 |
|
Increase in respect of share-based payments |
- |
167 |
- |
167 |
|
Impairment |
(5,338) |
- |
- |
(5,338) |
|
Repayment of loan |
- |
(6,197) |
6,197 |
- |
|
Increase in loan provision |
- |
- |
(453) |
(453) |
|
Acquisition of subsidiary |
63,255 |
- |
- |
63,255 |
|
At 31 July 2009 |
63,255 |
20,453 |
(20,286) |
63,422 |
|
Increase in respect of share-based payments |
- |
166 |
- |
166 |
|
At 31 July 2010 |
63,255 |
20,619 |
(20,286) |
63,588 |
On 30 April 2009 the Company acquired 100 per cent. of the issued share capital of Nanoco Tech Limited for a consideration satisfied by the issue of 158,138,036 ordinary shares of 10p each credited as fully paid at 40p each, being the quoted market price of the Company's shares on completion of the acquisition and re-admission to AIM (see note 23).
The impairment of the investment in shares in 2009 relates to the Company's investment in Nanoco Life Sciences Limited (formerly Evolutec Life Sciences Limited). The Directors have concluded that the investment's recoverable amount was £nil.
Loans to subsidiary undertakings carry no interest and are repayable on demand. Further information in relation to these loans is given in note 25.
|
|
|
|
Share of issued ordinary share capital |
|
|
Subsidiary undertakings |
Country of incorporation |
Principal Activity |
31 July 2010 |
31 July 2009 |
|
Nanoco Life Sciences Limited (formerly Evolutec Limited) |
England and Wales |
Research and development |
100% |
100% |
|
Nanoco Tech Limited |
England and Wales |
Holding company |
100% |
100% |
|
Nanoco Technologies Limited* |
England and Wales |
Research and develop nano particles |
100% |
100% |
* Share capital is owned by Nanoco Tech Limited. All other shareholdings are owned by Nanoco Group PLC.
13. Inventories
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
Raw materials and consumables |
18 |
- |
17 |
- |
14. Trade and other receivables
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
Trade receivables |
334 |
- |
101 |
- |
|
Less: provision for doubtful debts |
- |
- |
- |
- |
|
Net trade receivables |
334 |
- |
101 |
- |
|
Prepayments |
156 |
- |
118 |
- |
|
Inter-company loan to subsidiary |
- |
5,175 |
- |
- |
|
Other receivables |
94 |
- |
159 |
- |
|
|
584 |
5,175 |
378 |
- |
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Trade receivables are denominated in the following currencies:
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
Sterling |
- |
- |
84 |
- |
|
US dollars |
334 |
- |
17 |
- |
|
|
334 |
- |
101 |
- |
At 31 July the analysis of trade receivables that were past due but not impaired was as follows:
|
|
Total |
Neither past due or impaired |
<30 days |
Past due but not impaired 30 to 60 days |
|
|
£000 |
£000 |
£000 |
£000 |
|
2010 |
334 |
334 |
- |
- |
|
2009 |
101 |
101 |
- |
- |
Movements in the provision for doubtful debts were as follows:
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
At beginning of year |
- |
- |
5 |
- |
|
Amounts written off |
- |
- |
- |
- |
|
Unused amounts reversed |
- |
- |
(5) |
- |
|
At end of year |
- |
- |
- |
- |
15. Cash, cash equivalents and deposits
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
Short term investments |
2,000 |
- |
- |
- |
|
Cash and cash equivalents |
3,682 |
516 |
6,589 |
5,939 |
|
|
5,682 |
516 |
6,589 |
5,939 |
Under IFRS 7, cash held on long term deposits that cannot readily be converted into cash has been classified as a short term investment. The maturity on this investment was twelve months from the date of investment.
Cash and cash equivalents at 31 July 2010 include deposits with original maturity of 3 months or less of £3,682,000 (2009: £6,589,000).
An analysis of cash, cash equivalents and deposits by denominated currency is given in note 24.
16. Trade and other payables
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
Trade payables |
933 |
- |
144 |
- |
|
Other payables |
584 |
- |
72 |
- |
|
Accruals |
293 |
- |
160 |
- |
|
|
1,810 |
- |
376 |
- |
Other payables includes £539,000 of deferred revenue.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Trade payables include £521,000 of equipment additions that were still in the process of construction at 31 July 2010 and for which payment was made after the year end.
17. Financial liabilities
|
|
31 July 2010 |
31 July 2010 |
31 July 2009 |
31 December 2009 |
|
|
Group |
Company |
Group |
Company |
|
|
£000 |
£000 |
£000 |
£000 |
|
Non-current |
|
|
|
|
|
Other loan |
348 |
- |
412 |
- |
|
Loan from subsidiary |
- |
- |
- |
316 |
|
Current |
|
|
|
|
|
Other loan |
63 |
- |
63 |
- |
|
|
411 |
- |
475 |
316 |
The Directors consider that the carrying amount of financial liabilities approximate to their fair value.
Loans from subsidiaries bear no interest and have no formal terms of repayment in place, see note 25 for further details.
The other loan is unsecured, bears interest at 2 per cent. above base rate and is repayable in quarterly instalments.
18. Issued equity capital
|
|
|
Share capital |
Share premium |
Reverse acquisition reserve |
Total |
|
The Group |
Number |
£000 |
£000 |
£000 |
£000 |
|
Authorised ordinary shares of 10p: |
|
|
|
|
|
|
As at 1 August 2008 |
77,000,000 |
7,700 |
- |
- |
7,700 |
|
Increase in authorised share capital |
173,000,000 |
17,300 |
- |
- |
17,300 |
|
At 31 July 2010 & 31 July 2009 |
250,000,000 |
25,000 |
- |
- |
25,000 |
|
Allotted, issued and fully paid ordinary shares of 10p: |
|
|
|
|
|
|
As at 1 August 2008 |
25,949,996 |
2,595 |
24,442 |
- |
27,037 |
|
Share premium on treasury shares reclassified to EBT (see note 21) |
- |
- |
(20) |
- |
(20) |
|
Shares issued to acquire Nanoco Tech Limited (see note 12) |
158,138,036 |
15,814 |
47,441 |
- |
63,255 |
|
Arising on reverse acquisition of Nanoco Tech Limited |
- |
- |
- |
(77,466) |
(77,466) |
|
Expenses of issue of shares |
- |
- |
(455) |
- |
(455) |
|
Other movement |
68,250 |
7 |
(8) |
1 |
- |
|
As at 31 July 2009 |
184,156,282 |
18,416 |
71,400 |
(77,465) |
12,351 |
|
As at 31 July 2010 |
184,156,282 |
18,416 |
71,400 |
(77,465) |
12,351 |
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 10 pence ordinary shares.
As outlined in note 2, 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. The consolidated results for the period from 1 August 2008 to the date of the acquisition by Nanoco Group PLC 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.
On 30 April 2009 the authorised share capital was increased from £7,700,000 to £25,000,000 by the creation of 173,000,000 ordinary shares of 10p each. On 30 April 2009 the Company issued 158,138,036 ordinary shares of 10p each as consideration for the acquisition of Nanoco Tech Limited.
|
|
|
Share Capital |
Share Premium |
Total |
|
The Company |
Number |
£000 |
£000 |
£000 |
|
Authorised ordinary shares of 10p: |
|
|
|
|
|
As at 1 August 2008 |
77,000,000 |
7,700 |
- |
7,700 |
|
Increase in authorised share capital |
173,000,000 |
17,300 |
- |
17,300 |
|
At 31 July 2010 & 31 July 2009 |
250,000,000 |
25,000 |
- |
25,000 |
|
Allotted, issued and fully paid ordinary shares of 10p: |
|
|
|
|
|
As at 1 August 2008 |
25,949,996 |
2,595 |
24,442 |
27,037 |
|
Share premium on treasury shares reclassified to EBT (see note 21) |
- |
- |
(20) |
(20) |
|
Shares issued to acquire Nanoco Tech Limited (see note 12) |
158,138,036 |
15,814 |
47,441 |
63,255 |
|
Expenses of issue of shares |
- |
- |
(455) |
(455) |
|
Other movement |
68,250 |
7 |
(7) |
- |
|
As at 31 July 2009 |
184,156,282 |
18,416 |
71,401 |
89,817 |
|
As at 31 July 2010 |
184,156,282 |
18,416 |
71,401 |
89,817 |
19. Share-based payments
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 Statement of Changes in Equity.
A charge of £166,000 has been recognised in the Income Statement for the year (2009: £72,000).
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 Tech Share Incentive Plan
Share options issued under the Nanoco Tech Share Incentive Plan had been issued to staff who were employed by Nanoco Tech Limited in the period from 1 September 2006 up to the date of the reverse take-over on 1 May 2009. These options were conditional on achievement of share price performance criteria and either a sale or listing of the Company. All of the relevant vesting conditions have been successfully met and options are capable of being exercised, following a lock in period, at any time from 1 August 2010 to 31 August 2016. Following the reverse take-over the number of share options in issue were increased in line with the terms of the reverse acquisition by a factor of 4.55 times and the exercise price decreased by 4.55 times. This was reflected as a reverse acquisition adjustment in the 2009 accounts. The fair value benefit is measured using a Black-Scholes valuation model, taking into account the terms and conditions upon which the share options were issued.
• Nanoco Group PLC Long Term Incentive Plan ("LTIP")
Share options were granted to management and staff on 27 November 2009 under the terms of the Nanoco Group PLC long term incentive plan and will be exercisable subject to performance conditions being met based on: share price following publication of the 2012 results and EPS targets relating to financial year ended 31 July 2012. The exercise price was set at 40 pence for all staff apart from Michael Edelman and Nigel Pickett, for whom the exercise price was set at 78 pence. The average market price of the Company's shares on the date of issue of the LTIP award was 69 pence. The fair value benefit is measured using a Monte-Carlo model, taking into account the terms and conditions upon which the share options were issued.
The key performance target criteria governing the exercise of the share options are summarised as follows:
|
% of award |
Performance conditions |
Targets |
% shares vesting |
|
||
|
|
|
Min. |
Stretch |
Min. |
Stretch |
Notes |
|
50% |
EPS |
2p |
4p< |
0% |
100% |
(1) |
|
50% |
Share price |
£1.20 |
£1.60 |
50% |
100% |
(2) |
(1) To the extent that EPS is greater than the EPS minimum threshold but less than the EPS stretch award, the number of options that will become exercisable will be calculated pro-rata on a straight line basis
(2) To the extent that the share price is greater than the minimum target but less than the stretch target, the number of options that will become exercisable will be calculated pro-rata on a straight line basis.
• Nanoco Group Share Incentive Plan
Share options are awarded to management and key staff on joining the Company, as a mechanism for attracting and retaining key members of staff. The options are issued at either market price on the day of joining, or in the event of abnormal price movements on the day of joining, at an average market price for the week preceding start date. These options are exercisable any time after the third anniversary of the award and prior to the tenth anniversary of the award. Exercise of the award is subject to the employee remaining a full-time member of staff at the point of exercise. The fair value benefit is measured using a Binomial valuation model, taking into account the terms and conditions upon which the share options were issued.
Shares held in the Employee Benefit Trust ("EBT")
The Group also operates a jointly owned EBT share scheme for senior management under which the trustee of the Group sponsored EBT has acquired shares in the Company jointly with a number of employees. The shares were acquired pursuant to certain conditions set out in Jointly Owned Agreements ("JOE's"). Subject to meeting the performance criteria conditions set out in the JOE's the employees are able to exercise an option to acquire the trustee's interests in the jointly owned EBT shares at the option price. All of the relevant conditions have been successfully met in respect of options held within the EBT, and options are capable of being exercised, following a lock in period, at any time from 1 August 2010 to 31 August 2016. Following the reverse take-over the number of share options in issue were increased in line with the terms of the reverse acquisition by a factor of 4.55 times and the exercise price decreased by 4.55 times. This was reflected as a reverse acquisition adjustment in the 2009 accounts. The fair value benefit is measured using a Black-Scholes valuation model, taking into account the terms and conditions upon which the jointly owned shares were purchased.
The following tables illustrate the number and weighted average exercise prices of, and movements in, share options and jointly owned EBT shares during the year.
|
|
2010 |
2009 |
|||
|
|
EMI |
EBT |
Unapproved |
Total |
Total |
|
The Group and Company |
Number |
Number |
Number |
Number |
Number |
|
Outstanding at 1 August |
8,044,400 |
3,759,251 |
386,750 |
12,190,401 |
2,521,209 |
|
Granted during the year |
1,771,799 |
- |
825,886 |
2,597,685 |
173,000 |
|
Exercised during the year |
- |
- |
- |
- |
(15,000) |
|
Adjustment on reverse acquisition |
- |
- |
- |
- |
9,511,192 |
|
Outstanding at 31 July |
9,816,199 |
3,759,251 |
1,212,636 |
14,788,086 |
12,190,401 |
|
Exercisable at 31 July |
- |
- |
- |
- |
- |
Weighted average exercise price of options
|
|
2010 |
2009 |
|
The Group and Company |
pence |
pence |
|
Outstanding at 1 August |
5.2 |
4.6 |
|
Granted during the year |
54.7 |
14.5 |
|
Exercised during the year |
- |
14.5 |
|
Outstanding at 31 July |
14.0 |
5.2 |
The weighted average fair value of options granted during the year to 31 July 2010 was 54.7p (2009: 14.5p) (66p pre adjustment on reverse acquisition). The range of exercise prices for options and jointly owned EBT shares outstanding at the end of the year was 3.5p -87.5p, (2009 : 3.52p -14.5p) (16p to 66p pre adjustment in reverse acquisition).
For the share options outstanding as at 31 July 2010, the weighted average remaining contractual life is 148 days (2009 : 170 days).
The weighted average share price at the date of exercise for those share options exercised in the year ended 31 July 2009 was 66p.
The following table lists the inputs to the models used for the years ended 31 July 2010 and 31 July 2009
|
|
Share options granted in year to 31 July |
|||||
|
|
Nanoco Tech |
Nanoco Group |
Nanoco Group |
|||
|
The Group and Company |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
|
Dividend yield |
- |
- |
- |
- |
- |
- |
|
Expected volatility(%) |
- |
50% |
40% |
- |
40% |
- |
|
Risk free interest rate(%) |
- |
4.5% |
0.9% |
- |
0.9% |
- |
|
Expected vesting life of options (years average) |
- |
3.0 |
3.0 |
- |
3.0 |
- |
|
Weighted average exercise price (pence) |
- |
14.5p |
49p |
- |
86p |
- |
|
Weighted average share price at date of grant (pence) |
- |
14.5p |
69p |
- |
86p |
- |
|
Model used |
- |
Black-Scholes |
Monte-Carlo |
- |
Binomial model |
- |
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.
No other features of options granted were incorporated into the measurement of fair value.
20. Merger reserve and capital redemption reserve
Merger reserve
|
The Group |
£000 |
|
At 31 July 2008, 31 July 2009 and 31 July 2010 |
(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 re-organisation on 27 June 2007.
|
Capital redemption reserve The Company |
£000 |
|
At 31 December 2008, 31 July 2009 and 31 July 2010 |
4,804 |
The capital redemption reserve arises from the off-market purchase of deferred shares on 4 May 2005 and their subsequent cancellation.
21. Movement in revenue reserve and treasury shares
|
The Group |
|
|
Total |
|
|
£000 |
£000 |
£000 |
|
Ordinary shares of 10p: |
|
|
|
|
As at 1 August 2008 |
(1,420) |
(545) |
(1,965) |
|
Loss for the year |
(540) |
- |
(540) |
|
Arising on reverse acquisition of Nanoco Tech Limited |
20 |
(20) |
- |
|
As at 31 July 2009 |
(1,940) |
(565) |
(2,505) |
|
Loss for the year |
(1,083) |
- |
(1,083) |
|
As at 31 July 2010 |
(3,023) |
(565) |
(3,588) |
Retained deficit represents the cumulative loss attributable to the equity holders of the parent company.
Treasury shares represent the cost of Nanoco Group PLC shares purchased in the market and held by the Nanoco Group Sponsored Employee Benefit Trust ("EBT") jointly with a number of the Group's employees. At 31 July 2010 and 31 July 2009 3,771,473 shares in the Company were held by the EBT.
|
|
Retained deficit |
Treasury shares |
Total |
|
The Company |
£000 |
£000 |
£000 |
|
Ordinary shares of 10p: |
|
|
|
|
As at 31 December 2008 |
(26,030) |
(20) |
(26,050) |
|
Treasury shares reclassified to EBT (see note 18) |
- |
20 |
20 |
|
Profit for the period |
287 |
- |
287 |
|
At 31 July 2009 |
(25,743) |
- |
(25,743) |
|
Profit for the year |
68 |
- |
68 |
|
At 31 July 2010 |
(25,675) |
|
(25,675) |
22. Commitments
Operating lease commitments
The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and service charge payments under non-cancellable operating leases are as follows:
|
|
31 July 2010 |
31 July 2009 |
|
|
Group |
Group |
|
|
£000 |
£000 |
|
Land and buildings: |
|
|
|
Not later than one year |
157 |
134 |
|
After one year but not more than five years |
494 |
400 |
|
After five years |
267 |
367 |
|
|
918 |
901 |
23. Acquisition of subsidiary undertaking in 2009
On 30 April 2009 the Company acquired 100 per cent. of the issued share capital of Nanoco Tech Limited
("Nanoco Tech") for consideration satisfied by the issue of 158,138,036 ordinary shares of 10 pence each. The directly attributable costs of the transaction amounted to £455,000.
As described in note 2, the transaction has been accounted for as a reverse acquisition equity transaction as if Nanoco Tech Limited had issued new shares in exchange for Evolutec Group PLC's cash and other assets. The substance of the transaction is that of a share issue fund raising under which Nanoco Tech received cash and bank balances of £5,892,000 representing 98.9 per cent. of the value of the net assets of Evolutec Group PLC and the associated costs of the transaction have therefore been charged directly against equity share capital.
The fair value of the shares issued has been determined from the perspective of Nanoco Tech. The directors of Nanoco Tech negotiated the acquisition terms on the basis that Nanoco Tech had a total fair value worth of £37.5 million and that its shareholders would be diluted to 14.1 per cent. in the enlarged Group. This gives an implied fair value of shares issued of £6,154,000 which is £195,000 higher than the value of the net assets deemed acquired as set out below:
|
|
Evolutec Group PLC |
|
|
£000 |
|
Net assets acquired: |
|
|
Bank and cash |
5,892 |
|
Trade and other receivables |
308 |
|
Trade and other payables |
(241) |
|
|
5,959 |
|
Cost of reverse acquisition |
195 |
|
Fair value of reverse acquisition |
6,154 |
The difference between the fair value of the transaction and the net assets acquired has been recorded as a cost of reverse acquisition in the Income Statement.
The fair value of the assets deemed to have been acquired has been assessed as the book value on the acquisition date.
As described in note 2, the results of Evolutec Group PLC have been included in the consolidated financial statements from 30 April 2009. Evolutec Group PLC and its subsidiary, Evolutec Limited, did not contribute any material revenues or profits /losses since the date of acquisition. If Evolutec Group PLC had been a member of the Group from 1 August 2008 it would have likewise not contributed any material revenues or profits/losses.
Evolutec Group PLC changed its name to Nanoco Group PLC on completion of the acquisition on 30 April 2009 and was re-admitted to AIM on 1 May 2009.
24. Financial instruments
Capital risk management
The Company reviews its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in notes 18, 20 and 21 and in the Group Statement of Changes in Equity. Total equity was £7,983,000 at 31 July 2010 (£8,771,000 at 31 July 2009).
The Group does not currently enter into derivative transactions such as interest rate swaps and forward currency contracts.
Categorisation of financial instruments
|
|
Loans and receivables |
Financial liabilities at amortised cost |
Total |
|
Financial assets/liabilities |
£000 |
£000 |
£000 |
|
31 July 2010 |
|
|
|
|
Trade and other receivables |
334 |
- |
334 |
|
Cash and cash equivalents and deposits |
5,682 |
- |
5,682 |
|
Trade and other payables |
- |
(1,810) |
(1,810) |
|
Financial liabilities |
- |
(411) |
(411) |
|
|
6,016 |
(2,221) |
(3,795) |
|
31 July 2009 |
|
|
|
|
Trade and other receivables |
101 |
- |
101 |
|
Cash and cash equivalents and deposits |
6,589 |
- |
6,589 |
|
Trade and other payables |
- |
(376) |
(376) |
|
Financial liabilities |
- |
(475) |
(475) |
|
|
6,690 |
(851) |
5,839 |
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.
Other loans (note 17) are subject to interest at base rate plus 2 per cent., however as the Group's cash deposits which attract interest at floating rates, are of a greater amount, any increase in base rate and thus interest payable would be more than offset by higher interest income.
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 high credit ratings.
The company trades only with recognised, creditworthy third parties. Receivable balances are monitored on an on-going 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 14.
At 31 July 2010 there was a single material receivable balance which was paid in full within one month.
Foreign currency risk
The company has transactional as well as translational currency exposures. Such exposure arises from sales or purchases in currencies other than the functional currency. The split of assets between Sterling and other currencies at the year end is analysed as follows:
|
|
31 July 2010 |
31 July 2009 |
||||
|
|
GBP |
USD |
Total |
GBP |
USD |
Total |
|
The Group |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Cash, cash equivalents and deposits |
4,756 |
926 |
5,682 |
6,566 |
23 |
6,589 |
|
Trade receivables |
- |
334 |
334 |
84 |
17 |
101 |
|
|
4,756 |
1,260 |
6,016 |
6,650 |
40 |
6,690 |
The following table demonstrates the sensitivity to a reasonably possible change in Sterling against the US Dollar exchange rate with all other variables held constant, on the Group's profit before tax (due to foreign exchange translation of monetary assets and liabilities) and the Group's equity.
|
Increase/(decrease) in Sterling vs. US Dollar rate |
Impact on profit before tax |
Impact on Equity |
|
£000 |
£000 |
£000 |
|
|
|
|
|
10% |
(115) |
(115) |
|
5% |
(60) |
(60) |
|
(5%) |
66 |
66 |
|
(10%) |
140 |
140 |
There was no material impact on loss before tax or equity arising from the re-translation of foreign currency assets as at 31 July 2009 due to potential changes in the US Dollar/Sterling rate.
Interest rate risk
As the Group has no significant borrowings the risk is limited to the reduction of interest received on cash surpluses held at bank which receive a floating rate of interest. The principal impact to the Group is the result of interest-bearing cash and cash equivalent balances held as set out below:
|
|
31 July 2010 |
31 July 2009 |
||||
|
|
Fixed rate |
Floating rate |
Total |
Fixed rate |
Floating rate |
Total |
|
The Group |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Cash, cash equivalents and deposits |
4,004 |
1,678 |
5,682 |
5,896 |
693 |
6,589 |
Interest rate risk (continued)
As the majority of cash and cash equivalents are held on fixed deposit the exposure to interest rate movements is immaterial.
Maturity profile
Set out below is the maturity profile of the Group's financial liabilities at 31 July 2010 based on contractual undiscounted payments including contractual interest.
|
|
Less than 1 year |
1 to 5 years |
Greater than 5 years |
Total |
|
2010 |
£000 |
£000 |
£000 |
£000 |
|
Financial liabilities |
|
|
|
|
|
Trade and other payables |
1,271 |
- |
- |
1,271 |
|
Other loans |
78 |
288 |
100 |
466 |
|
|
1,349 |
288 |
100 |
1,737 |
|
|
Less than 1 year |
1 to 5 years |
Greater than 5 years |
Total |
|
2009 |
£000 |
£000 |
£000 |
£000 |
|
Financial liabilities |
|
|
|
|
|
Trade and other payables |
376 |
- |
- |
376 |
|
Other loans |
81 |
298 |
168 |
547 |
|
|
457 |
298 |
168 |
923 |
The Directors consider that the carrying amount of the financial liabilities approximate to their fair value.
The Group's policies in respect of managing liquidity risk are set out in the Financial Review.
As all financial assets are expected to mature within the next twelve months an aged analysis of financial assets has not been presented.
25. 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:
|
|
Note |
31 July 2010 |
31 July 2009 |
|
|
|
£000 |
£000 |
|
Loans owed to Nanoco Group PLC by: |
|
|
|
|
Nanoco Life Sciences Ltd |
|
20,286 |
20,286 |
|
Nanoco Technologies Ltd* |
|
237 |
71 |
|
Nanoco Tech Ltd |
|
96 |
96 |
|
|
12 |
20,619 |
20,453 |
|
Less provision against debt owed by Nanoco Life Sciences Ltd |
|
(20,286) |
(20,286) |
|
|
|
333 |
167 |
|
|
|
|
|
|
Loan owed to/(from) Nanoco Group PLC by: |
|
|
|
|
Nanoco Technologies Ltd** |
14 |
5,175 |
(316) |
* The movement in the loan due from Nanoco Technologies Ltd relates to the transfer of obligation in respect of the charge for share-based payments for staff working for Nanoco Technologies Ltd, and is included in investments.
** The movement in the loan due from Nanoco Technologies Ltd relates to transfers of cash balances between the entities for the purposes of investing short term funds.
There are no formal terms of repayment in place for these loans and it has been confirmed by the directors that the loans will not be recalled within the next twelve months.
None of the loans are interest bearing.
26. Compensation of key management personnel (including Directors)
|
|
2010 |
2009 |
|
|
£000 |
£000 |
|
|
|
|
|
Short term employee benefits |
297 |
296 |
|
Share-based payments |
25 |
39 |
|
|
322 |
335 |
This information is provided by RNS
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