Nanoco Group (LSE:NANO) — Interim Results

0:02 Good morning and welcome to the NANOCO GROUP PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be in mode. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can view your questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Brian Tennis, CEO. Good morning to you, sir.

0:33 Thanks very much, and good morning, everyone. Welcome to this webinar on our interim results presentation for the six months ended January 31, 2024. My name is Brian Tenner. I'm the CEO of NANOCO, and I'm joined today by Liam Gray, our CFO. And just as an introductory comment, because we actually recorded this entire presentation last Wednesday morning, and it is available on our website, today, what we're going to do, because there have been a significant number of questions submitted in advance, we're just going to take you through the introduction to NANOCO in the presentation pack, particularly for, those who are new to the story, but also as a refresher, for people who already know us. And then we'll talk about the highlights and the summary in both the, operational part of the business and in the financial part of the business, and that will allow us to spend, more time than we, normally are able on questions and answers.

1:37 They're helping as I said, they're helping a significant number of questions submitted in advance, and the answers to a number of them are actually quite long and involved. So we do want to spend time on that. So without further ado, we'll turn to page five in the, presentation, which is part of the, introduction to NANOCO. So just a a reminder of, who we are and what we actually do. Excuse me. We were founded in 2001 by doctor Nigel Pickett, who's still our CTO today, and professor Paul O'Brien. The company was a spinout from Manchester, University. We are a material science company, and I can't emphasize that enough. We make materials that are suspended in solution.

2:26 You know, whether it's advanced materials or a chemical company, that's who who we are and what we are. We're not a device company. We're not a TV company. We're not a phone company. We are a material science company. We are the leader in the r and d scale up manufacturing and licensing of high performing semiconductor nanoparticles. We have a very large IP portfolio, and that was recently validated by The US, patent trial and appeal board, which is part of the US patent office. Our headquarters and production facility is in Runcorn in The UK. Today, we have around 50 staff, 30% of whom have PhDs, and we employ people from eight different nationalities. And we make quantum dots that are cadmium free and hence non toxic. And you can see an image on the bottom right there of some of the quantum dots that we can make for use in display applications.

3:23 So you then can ask yourself legitimately, well, what is a quantum dot? Quantum dot is a fluorescent, semiconducting nanoparticle, typically one to 10 nanometers in size. Now, again, one to 10 nanometers, those are not measurements that people normally use in their everyday life. So what does that actually mean in terms of scale? Well, one way to look at it is, typically, a quantum dot can be 100,000 times thinner than a human hair. So that's looking at a very, very small scale. If you want to think of something big that was reduced to the nano scale well, if you took the planet Earth and you reduced it to the nano scale, it would actually fit inside that sort of golf ball sized, golf ball shaped red, quantum dot image on the top left of this slide.

4:13 So the simple, thing to say about them is they are tiny, and there are many billions, if not trillions, in a, kilogram of, material. Okay. So that's what a quantum dot is, but what does it actually do? Well, a quantum dot, has size determined optical and electronic properties. What that means is just by changing the size of the quantum dot, so not necessarily making it from different, chemicals, different compounds, just by changing the size, you can get it to perform in different ways. So the most obvious example of that on the right hand side of this slide, a quantum dot that's only two nanometers wide when stimulated with energy. That energy can be electricity.

5:02 It can be light, the photons in the light. But the two nanometer quantum dot, when excited in that way, will, emit blue light. A five nanometer quantum dot made of exactly the same material will emit green light, and a 10 nanometer quantum dot will emit red light. So in summary, again, slightly technical language, the quantum dots are very efficient absorbers. That's what broadband means. They absorb across a wide range of energy types, but they're also very narrow band emitters. What that means is that when they emit those three colors of light, what you get is a very, very specific wavelength of light, which gives you very high definition, very good color gamut, and very, very crystal clear colors.

5:52 So that's that's what a quantum dot does. It emits and it absorbs. And depending on the application you're looking at, you may be trying to optimize one or both of those characteristics. So next question is having established, well, what are they? What do they do? Where are they used? Here at NANOCO, we have a dot only strategy. That means we focus on the quantum dots themselves. We don't focus on, the ways to get them into, final devices. We don't

6:25 stretch our capabilities, further away from our core competence of the actual quantum dots. And in that strategy, and that's why we've set out displays and sensors here, We focus on where we believe the nearest term value opportunities are. So the two opportunities you can see here are in displays of any kind, whether it's a TV, a watch, a phone, any industrial control system, etcetera, any kind of display, focused on the visible light. And that's where we, create those quantum dots I mentioned above, for emitting blue, green, and red light. The other place you can then or that we're focusing on using, quantum dots is on sensors.

7:12 Sensors were actually exploiting the absorptive, characteristics of the quantum dot. And there, typically, what they're absorbing is an infrared light usually generated by an infrared laser, and that then outputs an electrical signal, which can be interpreted by a silicon chip or a relayed integrated circuit and turned into, an an image or a picture, a dynamic image, etcetera. So that's the other type of material or or application that we're focused on at the moment. So that's a very brief summary of who, NANOCO are, what we do, and what a quantum dot is, and the sorts of areas that it can be used. As I mentioned earlier, the fuller presentation, and this entire slide deck, I just won't be running through it all, is available on our website, will be available on the IMC website so people can, digest that at their leisure.

8:08 If I turn now to slide number eight, and it's just a summary of what we've achieved in the last six months or the six months to January 24. So first thing is, for the first time in our history, we're we received and fulfilled two commercial production orders. And when I say two, it was for two different materials for for one customer.

8:33 Those were low volume, orders, relatively low value, but they are the difference between us being an aspirational r and d company and actually now transitioning into an actual production company. We do expect the, demand and volume, from those first two orders to ramp up, over time. The other thing then that we did during the last six months, we signed two, joint development agreements with two global customers. Apologies. I'm about to say two again, but each of those agreements involves two different second generation, nano materials for use in infrared sensing. The second generation materials will typically be higher performing, have different, operating parameters, and in particular, we'll be able to operate consistently at higher temperatures, and that actually opens up new potential applications for the materials.

9:32 Both those agreements are two years long, and I'll say a little bit more about them in relation to a question that's been asked about what we'll get from them. During the last six months and indeed since then, we've delivered all JDA milestones both in those new agreements and in the agreements, that we've been operating, under with those two global customers in the period, before that. At the end of the six month period, we received the final litigation proceeds from, Samsung. So that was $75,000,000 gross less withholding tax to give us 71.75, million dollars. That was converted into sterling after the period end. Given the successful outcome to the Samsung litigation, given that we'd spent four or five years just fighting for survival and it really trimmed back on investments, in a number of areas, we have been able to start, spending a little bit more, on the business.

10:34 And one area that I'd like to call out for that is that we are have added roughly 50% to our, floor space here at Runcor, and we are building a new, wafer device, fab. That's an r and d scale or a lab scale, device fab, and it will give us capabilities of depositing our materials onto a silicon wafer that will also have, top and bottom electrodes. We have, you know, laser etching, lithography, etcetera, etcetera. So we'll actually be able to create a pilot scale devices. The reason that's important is that, two things. One is that we'll be able to talk to, semiconductor, customers about what they actually will get if they put our materials onto a device because we'll be able to show them. Rather than today, we say, well, here's some material. Why don't you experiment with it and see what you get?

11:29 The second thing is it will significantly accelerate our development cycles. So currently, with our two customers, we, two global customers, We make material, with a new recipe, say. We, test it ourselves, but as a chemical, it then goes to them for testing. Sometimes it can go to two or three different sites in those customers. So, basically, by the time the learning cycle is complete, it can be two to three months later.

11:56 If you want to maximize the speed at which you develop new products and the chances of success, you need to increase the number of, reaction cycles, the number of, recipes that you're experimenting with. The best way to do that is to shorten that time period. And by bringing that device capability here into Runcorn, we should be able to save anywhere between 3040%, if not more, of the normal development time. And that, device fab and all the equipment in it is is now being, commissioned. And then the last thing I want to say, just about the highlights of the first half of the year is that the return of value is underway. Folk will be aware that we're doing a tender, for up to 30,000,000, pounds, to be followed by an on market buyback of the £3,000,000.

12:46 I can say a little bit about more about those later, again, when we get to the questions. So in summary, NANOCO in the last six months has become, fully funded commercial business with commercial traction for actual products in the market, which I guess is the initial or interim target for every single, high-tech business that's bringing a new product to the market. I'll now hand over to Liam, who will take you through the financial highlights and summary, and then I'll come back just to summarize. Thanks, Brian. I'll just skip ahead to Slide 22, which is the financial highlights slide for the period ended 01/31/2024.

13:34 So as it says on here, revenue was up 150% on the comparative prior period, and this is driven by the license and agreements, which has contributed 3,000,000 to 4,000,000 of revenue. If we exclude this license revenue, income from products and services is down 9,600,000, and that's used to the gap between completing previous r and d contracts and sign up the new agreements, one with the Asian chemical customer in November 23 and the other with ST Microelectronics in January 24. Our adjusted EBITDA is 9,700,000, which compares with a loss in the prior period of 1,100,000 and the move to choose the high revenue figure, the majority of which has no significant associated costs. As we've mentioned previously, we have been investing in our capabilities, and we have taken on additional space at our site in Nunkhorn to facilitate our new device lab. We have also increased our headcount to support this expansion.

14:26 This means our cash cost base has increased from around 500,000 per month to around 600,000. This is worth noting that it's still significantly below where the group has been previously, and any significance, any investments, sorry, are carefully assessed to make sure they will deliver commercial and operational value. The hedge we took out on receivable from Samsung was worth a positive 2,500,000 at the period end, and this was realized in February when we transferred the cash from USD into GBP. At the period end, we had cash of 59,300,000, and the cash we're retaining in the business will support our continuing operations through to cash flow breakeven. These investments will also improve our commercial operational capabilities. Finally, and this is a particularly important point, our cash position now proves we are a robust supplier in a complex supply chain, and we can and will continue to deliver for our customers without a question existing around our short term viability.

15:21 So if we quickly move on to the outlook and summary slide, we still expect services and material revenue to be in line with f y twenty three, whilst h one of f y twenty four is behind the prior period. Are looking to make up this shortfall in h two. The Samsung IP license income will generate 6,000,000 per annum for around eight years, but this has been prepaid, so no future associated cash inflows. Our cash cost base has increased to 7,000,000, and this reflects our investment on footprint to create our device lab, investments in our equipment to improve our product offerings, both existing and new customers, and our investment in people to be able to operate the lab and support the operations. All investments are discussed internally to ensure we are utilizing the resources we have to the fullest extent. On cash, our net monthly cash burn is around 0.3 to 400,000, and we're planning spending around 2,000,000 in capital projects in f y twenty four, around half of which has already been spent in h one.

16:16 And finally, as Brian mentioned, the process to return up to 33,000,000 shareholders is currently underway. And with that, I'll pass you back to Brian. So now moving to, slide number 29, to talk about the outlook and what our priorities are for the rest of this calendar year. We're we're looking to, deliver steady growth, on a firm foundation. We do expect more low volume production orders during, calendar year '24, And we've been notified and told to expect some, and we just haven't been told when as yet. We are working to add new material development contracts to our portfolio. So if you think back in 2019, we had one customer, one product, one application.

17:07 And actually, when that project came to an end, right at the start of 2020, we actually had zero, customers. So that has gone increased to one global customer that then increased to a second global customer, and we are aiming to add a third global customer to our portfolio in the next six months or so. We're also, working to finish the commissioning of our wafer device fab. I've already talked about the benefits that will bring. So the sooner that can be brought up to speed, the better. It is a very significant capital project. We've managed to do that at a very discounted price because we do have customers who actually want us to provide services with that equipment.

17:58 And in the next month or so, we will complete, the return of value in the form of the tender. The on market buyback, it it's hard to say how long that will will last. It will really depend what's happening on the prices, what's happening happening with, liquidity, of the stock after the the tender completes. We also announced, previously, and it was reiterated in the detailed interim results statement, which you can find on our website, that, the chair, doctor Christopher Richards, after, nine years with NANOCO, or he will have completed nine years, in NANOCO at the end of this calendar year, so around November, December, He's indicated he's going to stand down at the next AGM, which is either gonna be at the end of November or early December.

18:49 That chair succession process, will be run by, doctor Allison Fielding, our senior independent director, and we'll be starting, soon. And then lastly, I've often said in a number of, meetings and presentations that for the last four or five years, we effectively were hiding under a stone, in that given the uncertainty around the IP resolved by the litigation, working out in our favor, given uncertainty about the, products getting into commercial production, again, result in our favor. We're much, when it comes to, media, social media, and, trumpeting our achievements, unlike many others, actually wanted some concrete achievements to talk about. So, therefore, we will be making some small, modest, increases in raising our profile in the markets, that we, participate in.

19:50 So, in terms of, you know, summarizing the outlook, and as I said, at the very start, we now are a fully funded business with commercial traction and a lot to build upon. I'll hand you over to our host who will just remind people how to answer questions, and then it will be coming back to Liam and myself to actually go through submitted questions and any new ones that are coming in, while we're speaking. Perfect. Brian, Liam, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just for the company to take a few moments to review those questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

20:37 As you can see, we have received a number of questions both pre event and throughout today's presentation. I'd just like to thank all the investors for submitting those. Brian, Liam, at this point, if I could just hand back to you just to read out those questions and get responses where it's appropriate to do so, I'll pick up from you at the end. Okay. That's great. Thank you. So, we'll adopt the usual format that the person answering the question will read the question out. I would point out just before we start going through these, you will see that I refer to in a number of answers to other, previous announcements and publications by, NANOCO. That's not to scold people for not having read all of those, but it's just a reminder that, a lot of this information is already available.

21:24 And if you want more detail on it referring back to those original announcements, you will see more detail if I don't, repeat them word for word here. So question number one. It's not clear when you expect the second generation materials to go into volume production. Is it at the end of the two year framework agreements with the Asian customer, and ST Micro, I e, in 2026, or is it likely to be later? So, I'd refer back to two previous RNs', 01/12/2024 with ST Micro and 11/07/2023 with the Asian customer. The ST Micro, RNS says the JDA is a two year program to optimize the performance of a second generation, material.

22:11 The, new JDA will include revenue for services, and that's the device lab that I was talking about. It then says if all of the technical milestones in the two years of the JDA are achieved, the next step in the process will be to scale the new material into an industrialized process capable of supporting high volume applications. Those of you who are familiar with our presentations that we've given over the last few years and indeed in the current presentation know that our typical product development cycle has a development phase, an optimization phase, then a scale up phase, final validation, of our process, and the material with the customer, and then production.

22:57 So the simple answer for both of those JDAs is they, will complete the optimization phase. They may deliver some of the scale up phase because while you're optimizing, you will be looking at scale up. They will not immediately they'll lead to commercial production. So there will be some scale up work to be done after that and some validation work that could last up to twelve months. It could potentially be shorter, but it really depends on the customer and their application. So the simple answer is those two development agreements will get us to an optimized material, but it will not get us to a material that is actually immediately ready for commercial production.

23:44 Question number two, long term loyal shareholder here with an average weighted buying price of 24.7p. How is selling back my shares at a loss or retaining my shares with a very possible dip after your buyback consistent with returning value to shareholders? Well, I guess the the very obvious statement is everybody's got a different purchase price. We did it when we announced the tender, and the only thing we can really refer to is the actual current market price because that's telling us what the the market believes the shares are worth. When we announced the tender in the March 11, we the 24p price was a 25% premium to the closing mid market price on the March 8, and it was a 20 percent premium to the sixty day VWAP.

24:34 That clearly is of benefit to shareholders compared to the market price, and it's really the only benchmark we can use. It's also worth noting that over 93% of those voting at the general meeting voted in favor of the, tender exercise and giving the the the board the authority to to do that tender exercise. And then lastly, I guess, and again, this, goes without saying individual shareholders now have a choice. They can decide to sell their shares or retain their shares or do other some kind of strategy, with their holding based on their own personal circumstances, but also based on their expectations and belief in in in the company and its and its future.

25:21 Next question. Question number three. To what extent is the expectation of being cash flow breakeven in calendar year '25 a result of guidance from ST Micro or is it a purely internal estimate?

25:35 Simple answer is it's an internal estimate based on a number of sources of information, including indications from customers on their expectations for their products. But it as I was saying earlier about the next purchase orders, it is not based on a firm committed, ramp up in, demand, but rather the expectation of ourselves and our customers of ramp up in demand, whether from their end customers or a growing number of customers. It also, to a certain extent, incorporates market forecasts. So outside of, customer views, but actually independent forecasters' views of, when product sales will ramp up. Question number four, is NANOCO looking to litigate against any infringement in 2024?

26:27 If yes, what might be the size of the claim? Question mark. Something like Samsung? Question mark. I know we didn't cover it today, but it is available on the website. So I'd refer you to, slide number 19 in the, presentation deck. As we've said a number of times before, outside of Samsung, the market for devices, containing cadmium free quantum dots is currently very small. And that's supported by our own review and teardowns of a number of products in the market, some of which claim quantum technology. But when you look at the device, they don't actually contain any types of quantum dots. So I guess that's part of the warning about, advertising, speak.

27:13 And the truth is a small market is not an attractive, target for litigation because the the cost vastly outweigh the possible returns. And, again, I'm emphasizing the market today. So as the market grows over time, that position and stance will change. Eventually, it will become economically sensible, to consider litigation. Something just to remind folk of, and, again, as long term holders will be aware, Samsung actually launched their QDTV in 2015, and we filed suit in 2020. And we settled on the court house steps in January 2023. So that was an eight year process from start to finish. Before we filed suit, there were, two to three years of quite

27:59 detailed interactions in terms of understanding both our own position and, trying to persuade the other side to come to some kind of arrangement that would avoid litigation. So the the the simple statement is it is a long process. And the short answer to this question is, no. You should not expect,

28:19 litigation in 2024. That's not never say never, but you should not expect, litigation in 2024. It also goes without saying, given that Samsung is 90% or somewhere between 8090% of the quantum dot TV market, and the other 10 to 20% is dominated by cadmium quantum dots that any claim against another infringing partner couldn't get close to, matching the scale of the the Samsung outcome in today's market size. We'd like to emphasize though that this is not the same as saying that we are doing nothing in 2024. We're not just sitting here waiting for the market to grow.

29:06 Litigation is an expensive last rule of the dice. And as we've said many times before, our primary goal as a commercial production company, and again, I I said it a couple of times last week, we're not an IP licensing company. Our primary goal is to generate value from development, production, and sale of nano materials, and we're actively leveraging our our IP to that end today. But equally, that is not the same again, just to remind focus saying that we're not doing anything with our IP. If we can't get commercial production agreements, if we can't get development agreements, then with certain third parties, we would consider licensing, the IP, but clearly not to our competitors. Question number five, which use case does NANOCO see as the one driving maximum adoption of its technology?

29:57 I think the simple answer to that is adoption of this technology in a mobile phone or multiple mobile phones would drive very high, levels of adoption. The adoption in a phone could be on either or both of the face facing side of the the phone and also the world facing side of the phone. If it was on both sides of the phone, that would mean two devices in each phone, so a 100,000,000 phones. If it was two devices, we give you 200,000,000 units, not not 100,000,000 units. The reason that a mobile phone stands out so strongly as the single biggest driver for maximum adoption of the technology is that it's actually very hard to think of a company around the world that sells 100,000,000 units of an individual item of one model of, what they make.

30:53 And mobile phones, as I say, are the thing that stand out. Question number six, why was the share buyback offered rather than a special dividend given to all shareholders from the Samsung proceeds? So the board obviously have, excuse me, evaluated, tender, special dividend, and and different options. The reason we came down on on the tender, there's a number of reasons for that. Firstly, the tender treats everyone equally, and it also gives, shareholders a choice. Special dividend would treat everyone equally, but we give people no choice. We did consult with, just under 40 of our total shareholders, and the vast majority, favored a tender, I'd say, in excess of 90%.

31:46 Again, the vote at the general meeting, with more than 93% of shareholders, voting in favor of the tender, again, supports, the board's conclusion that, the tender was the right way forward. Shareholders could have rejected that.

32:02 Coming back to the dividend point, forcing shareholders to take a dividend, as I said, while treating everybody equally would mean some shareholders received a dividend they didn't want and might actually have to pay income tax on that rather than capital gains tax. And you can imagine, if we're actually giving 40%, or or, you know, get giving back the the equivalent of, 10p a share or so, in dividend, If someone then has to pay 40 percent tax on that, they're, you know, losing a very significant portion of it. The board also felt that a special dividend would have a larger and longer term, more detrimental impact on the share price and, hence, shareholder value for remaining shares and for, well, I guess everyone would be participating.

32:53 And what I mean by that is a special dividend would likely have led to a penny for penny, reduction in share price. So and, potentially a net zero, or or worse for shareholders. So on balance, combining the freedom of choice, the premium to the market price, and the long term impact tipped the, the board to prefer a a tender exercise. Last point on this, we did consider trying to give shareholders a choice. As we said, we would try, but changes in HMRC rules mean that even if shareholders are given a choice of dividend or capital return, inland revenue actually default to considering it income. So it it's it would not be a real choice. You would end up with a, the distribution being treated as a taxable income event.

33:51 Moving to question seven. With the recent announcement of the Netalens Samsung partnership and their polarized sensor targeted at face ID, does NANOCO think that this technology will impact potential demand for QD based sensors and handset face ID or other technologies. And simple answer to that is image sensors and cameras use lenses, and we see the technology as complementary. I'd also point out that ST Micro themselves, who we've worked with for a number of years and continue to work in long term development programs, actually announced their own collaboration with Meta Lens back in 2021. So the two are obviously not mutually exclusive. And frankly, the more devices that need high performance image centers sensors, the better the likelihood of a sustainable ecosystem developing around this kind of technology.

34:49 Question number eight. The introduction of commercial supply is most welcome, but do you think that the lack of detail on what is being used what it is being used in is harming confidence in the company prospects going forward? This is a really good question. However, I think it partly reflects our position in the supply chain, which may in itself be an issue for confidence. So let me explain. As I said earlier, we are a materials company. Our nano materials are used by semiconductor companies, and that's who we sell them to. We don't sell our materials to film companies, to car companies, to white good companies, to building companies. We sell them to semiconductor companies. So if I take you back to 2018 when I joined NANOCO, we were in the highly unusual position that we were working directly with the end user OEM for a large scale consumer electronics device, namely The US, company.

35:48 Can't emphasize enough that's highly unusual that a company right at the end of a supply chain actually has control and oversight of every step through the supply chain. It's not a normal situation. So, we, at that time, working with the end customer, were also working closely with the direct customer for our material, I. The semiconductor company. So because of that, back in 2018, 2019, that we were aware of the proposed final, product for the use of our materials. But, again, just to emphasize, that is not a normal situation. Whereas today, the supply chain is now organized in a more typical way. So a reminder, our technology is a platform technology. That means instead of each material being applicable to only one application in one device for one customer, as was the original application with The US customer, it is applicable to a wide range of applications in a wide range of devices for a wide range of our customers' customers. And we have pointed out that our customers, directly or indirectly have, you know, over 200,000 customers each.

37:00 What all that means is, if a silicon wafer is being used to make sensors and includes NANOCO's materials, depending on the size of the dies cut from the wafer, those sensors are equally applicable to a huge range of end users and customers without any further customization. To say, the only thing that would change from a 300 millimeter wafer for the end use would be the size of the die that you cut out, and that's obviously linked to the size of the end device. So a large device might use a physically large device can use a larger sensor, whereas a device without much real estate, you know, a pair of glasses or whatever, would have to be a much smaller sensor.

37:47 So the positive thing is that we no longer have single end use customer concentration risk. I've already said our, direct customers, hundreds of thousands of customers. And simply by changing the size of the die, they can be used in a phone, a watch, a house, a robot, an industrial control system, a wearable, a security camera. In fact, anything at all that needs to see in inverted commas. The downside to that, lack of concentration risk is that we do not have visibility of the actual intended end use application when our customer places production orders on us. This is no different from when a semiconductor company orders unprocessed silicon wafers from a wafer company. They are not going to know the end application because the opportunities are so diverse.

38:36 But coming back to the positives of this situation for NANOCO, we do know that our customers over 200,000 customers of their own. We know that, our other customer is working with the world's largest, sensing company. We also know that new large semiconductor company gets into a new product with the goal of selling a few million units a year. The economics just do not work. If I give you a a parallel example, it would be like using a $500,000,000 oil rig to drill for $1,000,000 of oil. You would just never do it. We know that our customers targeting a wide range of different applications to generate those high volumes. They publish papers to this effect and have, you know, mentioned a huge range of different, devices and applications.

39:23 And we also know that we shipped our first commercial production orders in November 23. So while I can understand people would like to know what is the name of the company that's using the end device and exactly exactly what is the application. Because of the diverse, uses for our product at this stage, we do not know the the actual end device. But instead, we have a huge range of opportunities because of the, platform nature of our technology. Next question. In the analyst meeting, the CEO expressed some doubt that the product was presently on the market. Will the components be in a product for sale to consumers or used in r and d programs for undisclosed OEMs?

40:10 So, our customers already published papers freely available via, Internet and Google stating that engineering samples were available to product engineers back in the start of twenty twenty two or even earlier. And I presume that's what's meant in the question by r and d programs. So the end users, OEMs, have had lots of time to explore the sensor functionality and possible use cases. And we have obviously been filling the needs, material needs for those engineering samples throughout the development programs of the last two to three years. The point about the product being for sale in the market when I when I made that comment, last week is simply simply this. We fulfilled our commercial orders in November 2023. And depending on the processing time at our customers, module assembly time, integration time, and stock build, four months from our shipping date is highly unlikely to be enough time to get a product into the market.

41:11 Each individual product may literally undergo thousands of processing steps. There are a number of places you can, find information on semiconductor and and chip manufacture and how long it takes. A device fab can take one to one and a half days to put down a single layer on a wafer, and some wafers have 60 or more layers. And that's just the wafer point. Regarding the consumer point, I think I've explained the same sensors with NANOCO materials can be used in all sorts of devices, including consumer, industrial, health care, agriculture, security, surveillance, quality control, Internet of things, smart buildings, etcetera, etcetera. Moving on to the next question, which I think has just been edited since it was submitted. So I'm gonna read this from the screen rather than where I printed it off.

42:09 Will smaller companies offering competing quantum dot sensors sorry, quantum dot sensor IP, such as Quantum Science Limited and Curve negatively impact NANOCO's future market share? Assuming they can move toward volume production, will the expiration of an important molecular seeding patent in 2025 allow them to produce materials without infringing. So you can never be complacent, and I won't comment on the two specific companies mentioned. However, I would point out that in a world of social media, it's very easy for private companies to appear more threatening than they are and to make claims about their technology. It's also, fortunately, in a number of territories, very simple to look at those company accounts that are freely available from various international company registrars to put any potential threat into context.

43:06 It's also relatively straightforward to identify if they actually have any IP of their own. And consequence of that is it's also easy to find out if any of the unique or world first claims that they make are actually true. I made the point earlier that we were going to increase our, profile in the market on the basis of hard, concrete, significant achievements, whether that was invalidating our IP, which was validated by the US patent office. And I should say, produced the largest ever payment for access to the IP of any QD company in the world. I'd also point out the ongoing strength of our balance sheet gives us a huge competitive edge when we're being looked at as a potential supplier. So I'd ask you the question.

43:55 As someone who's investing 200,000,000,300,000,000,500,000,000 in a plant to make this technology? Are you going to invest in a company that, spends and loses a couple of million quid a year, has no IP, has no production facility? So the extended part of this question, assuming they can move towards volume production, the size of that assumption is off the scale, because they have no way to move to, volume production unless someone, is prepared to spend those sorts of money with them, which seems unlikely. The bit about the expiration of an important molecular seeding patent, think we've pointed out, and you can see it in the annual report, we had a significant number of patents both in the, litigation, and the last of those expires in 2028.

44:50 So 2025 on its own doesn't unlock anything. And we also have a significant number of other patents with much longer lives that are also relevant to this. So I'm not going to be complacent. We welcome the competition, but equally, we're not going to jump at at shadows. So moving on to the next question. Could you give more color around when end users release products onto the market and on what stage they have to inform you? Is this when it is partial or complete worldwide? Well, I'll break that down into, a number of different pieces, but the truth is an end user never has to tell NANOCO our products in the market. There's no reason why they should, especially since they're often a number of steps away from us in the supply chain with no direct contractual relationship with NANOCO.

45:46 Yeah. Going back to my oil analogy, it'd be like an oil company announcing that someone had just launched a new brand of soap using the oil that they've extracted from under the North Sea. If there is a direct relationship with the end customer as we did have with The US customer in the past, then we would have more insight, and we'd have to weigh up public disclosure obligations with customer commercial confidentiality. Now I know everybody wants to know who's the customer, what's the device, etcetera, but I'm sure it's obvious that shareholders would rather that we had customers with confidentiality clauses than no confidentiality, closes, but no customers. And that's a reality of the sorts of markets that we're we're working in. In terms of the timeline, I'd refer back to the answer above.

46:34 So meaning the length of the production process of the actual wafers, then the device integration, module testing, packaging, all that kind of stuff takes a very significant length of time. Obviously, a contrast to this is that in software industry, once a, piece of software is ready to go, it can be launched immediately. Once it's ready and immediately distributed, the NANOCO is part of the hardware process, and that process is much longer. Next question. Do you have more initiatives and work than you can deal with or spare capacity? How do you rank your projects? So, again, I'll break this down into different parts. Spare capacity for commercial production, I. E, can we do more production volume in what we're already delivering?

47:23 So on staffing, yes, our current staff resourcing is more than adequate to produce volumes of material that would see us, profitable and cash generative. And, again, for the avoidance of doubt, what that means is revenue of excluding the license income, which is prepaid revenue of around, 8 to £9,000,000 or so. And so we can we we our current capacity is more than enough to to do that. And on the equipment side, as we've said before, we already have installed capacity to deliver up to a 100,000,000 of sensing revenue and twenty to thirty million pounds of display revenue. Next quest or other subpart of that question, spare capacity for development or service revenue.

48:13 R and d services are limited to the number of staff, I guess, like any, professional services company. Today, we have enough technical staff to deliver all of the projects in our pipeline and also enough to be able to self fund some additional development work where we see, opportunities. So for instance, our work on indium antimonide, we're self funding that. In the short term, if an attractive customer funded project came along, we could allocate those internally allocated staff to work on they're currently working on self funded projects to do that fee earning project, and then we could backfill them, with other staff. For the last four or five years, we've been closely managing our staff levels and bench strength since I joined the company, to balance our ability to take on more work against the cost of maintaining that resource.

49:03 And the truth is today, with the retain from from Samsung, it's a little bit easier to maintain that that balance. In terms of ranking of pro of projects, again, without, dismissing the question, it is a fairly standard business school approach, I guess, to ranking of projects, and it involves criteria such as customer viability and ability to pay, end market size, the investment that we might have to make, competitive landscape, the technical feasibility. Again, you'll see in our main presentation, that's one reason that we're not doing a lot of work on electroluminescence, I. E, the next fourth generation of display because as a concept, that's been five years away probably for the last ten to fifteen years, and it's very, very challenging.

49:53 In evaluating projects, we also look at operational feasibility, health and safety, environmental issues, risks, and also we look at, well, what's the downside if we don't do this project? So it's a fairly standard approach to evaluating projects. Next question. Has the company scanned the market or done any teardowns of products to try and determine if NANOCO's materials are present in them? As Brian Tenner stated, they would in the 2023 presentation. So I'd refer you back to the slide deck that we issued at the time of the general meeting last August and also the preliminary results presentation that we gave in August last year. Both presentations have got the results of market reviews for potential infringement, and that work, continues as new products come to market. I should say that, those two presentations focused very much around, display, but we would take a similar, approach if, we sell QD sensing, products in the market.

50:51 And question 13, why were only large shareholders given an opinion on what form they wanted the return of cash to take where the company had previously stated they wanted all shareholders to have a choice between capital and dividend return? And I've already mentioned the changes in certainly UK tax legislation meant that if a shareholder has a choice, then it's not a choice because it's automatically treated as income. As I said before, a dividend would have treated all shareholders equally but give no choice, whereas the tender also treats everyone equally but actually gives a choice. And, again, referencing back to 93% of votes cast, at the recent general men meeting to approve the tender suggests that it was the overwhelmingly preferred choice even if, unfortunately, it wasn't necessarily everyone's, first choice.

51:44 Question 14, what will the new directors bring to the company that existing directors did not? Again, as we said out in last year's results statement and in the RNS' appointing doctor Jalal Baghearli and Dieter May to the board, both of them have now joined the board. The primary skills that we sought in looking for those nonexecutive directors was experience in commercializing new technology in semiconductor supply chains with a bias towards consumer electronics applications. The existing directors, just to remind folk, already have significant experience of corporate governance, operations, specialty chemicals, early stage technology, corporate finance, and high-tech industries. Question 15, how will the increased publicity, brackets from Sky News appearances and newspaper articles, etcetera, brackets help a company that makes a very niche product?

52:38 After all, it is unlikely that the people who see these videos articles will decide they want to buy some quantum dots off the back of them. So, yes, our products are very specialized. As however, as explained earlier, our products have the potential to be included in, millions of devices every year. If the question meant not targeted at a consumer audience, that might make more sense. Market presence and customer awareness of NANOCO is clearly important. We have in the past received inquiries from potential customers on the back of positive, publicity. And, again, as I've mentioned earlier, while we were struggling for financial survival and awaiting validation of our products and IP through commercialization, and also the US patent office, it seemed prudent to keep our powder dry and wait until we had something concrete, to speak about.

53:31 Now that we do have major concrete achievements to speak about, we've consciously decided to increase our market presence in a relatively low cost way to leverage our success and make clear that NANOCO is the real success story amongst all the independent quantum dot companies. And the truth is, again, researchers, supply chain guys, procurement guys who are go looking for quantum dots and sources of nanomaterials, that sort of, positive publicity, around Sky, newspaper articles, etcetera, etcetera, they're all good ways to make sure that we are, channeling, that research and inquiries towards, NANOCO. Liam, one for you. Thanks.

54:18 Given the threefold increase in OpEx monthly cash burn around 300 ks to 400 ks, equivalent to 4,000,000 plus per year, why has the monthly cash burn troubled and does this place at risk reaching cash breakeven during calendar year '25? So as we have stated, our net monthly cash burn has increased following our investments in our commercial operational capabilities, and we obviously aren't immune to inflation increases either. And so our gross monthly cash pay has increased, whilst our income generating revenue is still at a similar level to prior years. But just to clarify, whilst this may appear that the net cash cost base has treble, if we had revenue of 8,000,000 and our cash cost base increased from 8.1 to 8,400,000, you could argue that our net cash consumption quadrupled. We are starting from a low base, and it's probably worth stating the comparative prior period also includes the receipt of the r and d tax credit, which obviously we aren't entitled to in FY twenty three as we made a progress during that year.

55:11 Our current forecast, which see us getting to cash flow breakeven during calendar year '25, are based on our current projected cost base, which includes a number of assumptions such inflationary increases. The main risk included in those projections is the ramp up in revenue. Back to you, Brian. Okey dokey. Next question. When is it expected that the first material commercial order will be signed this year? By materiality, I'm assuming any long term commercial deal which could ramp up in time to larger orders. I'm slightly confused by that because the second part of the sentence, materiality means any long term commercial deal which could ramp up in time to larger orders. We've already done that, and the orders that we shipped in November could ramp up in time to larger orders.

56:01 Long term commercial deals, with respect to the ordering of materials, I think you'll find that those typically are not long term. They're normally run on the basis of purchase orders with firm commitments and longer term indications, which aren't actually contractually committed. Anyone who worked during the financial crisis manufacturing in two thousand and nine, ten, will will will understand that. When will I taking the first part of the question, when is it expected the first material commercial order will be signed this year? As I mentioned earlier, our customers said we should expect orders, but they haven't told us when. So, I can't answer that question, because we don't know. Next question.

56:51 Iris scanning has been one of the applications listed for QD enhanced infrared sensors. Does the board believe that safe, effective, and affordable iris scanning can be achieved for consumer devices using non QD based sensors. So the simple answer is that iris scanning already exists as a technology. Those things you see on the movies where someone leans in against a scanner, you know, that wraps around their eyes and it it reads their iris, That already exists. The degree of safety, I don't know how safe it is. I'd like to think it's if it's been approved for sale, it's obviously safe. But the further you go out into the infrared, the more eye safety is increased. So because our products take sensors much further out into, the infrared, even if the sensors today are already eye safe, then the degree of safety, increases.

57:49 Talks about affordable iris scanning. Well, currently, and, again, this is freely available on Google. Currently, an iris scanner, and I do just mean the, you know, the chipboard and the, the the scanner part. I don't mean the whole device. Costs anywhere between a £150 and £400 £400, sorry, for people listening overseas. Whereas the target price for a QD enhanced CMOS sensor is, you know, maybe $10. So so we get $10 rather than 400 pounds. So, so, yes, the technology exists. Yes. You should never be complacent, but, it seems that today, that technology is operating at shorter wavelengths if it's using silicon, because it can't do anything else, than than operated at shorter wavelength.

58:39 And, equally, they seem to be prohibitively expensive for mass market adoption inside a mobile phone. But that's not to say if those, couldn't be brought down to, $10 rather than 400 pounds. And if they couldn't have their wavelengths extended out, you know, hundreds of nanometers into the infrared, that, they wouldn't be a a competitive threat. And next question. So these are live ones coming in today. Are all directors currently meeting their obligations for direct equity shareholding? If not, why not? And the director's obligations for, direct equity holdings, our policy is that people have to build up over a period of time. To that, you're not required to do it on day one.

59:25 And if you receive any shares from either bonus deferred bonuses or from long term incentives, then long term incentives, you actually have to keep it all until you actually hit the sharehold required shareholding level and on deferred bonuses. I think you have to keep 50% of it. So so we are meeting our obligations. We haven't yet got to the targets post tender. And for those who are not participating in the tender, that will do no change. And obviously, again, that's partly dependent on the share price. And if the share price rises, then, those direct equity shareholdings may achieve the targets.

1:00:11 And equally, if the share price falls, they may not. So all of our board have invested significant amounts of personal money in buying, shares. So, yeah, I think that policy is consistent with most other PLCs. Next question. Why have you chosen such a low price for share buybacks and not a higher price for a smaller percentage? I think many are unhappy with this. If I put the question turn the question slightly on its head, if I went into the market, say, and bought shares for a pound today, would that be a good use of shareholder money? Because the truth is the market is telling us which, you know, we can buy shares today at twenty or twenty one pence.

1:00:58 I wouldn't buy any other asset for way over its market price. So so I can understand the rationale behind the question, but, equally, you know, if somebody bought their shares, say, at six p in 2019, they'll be laughing all the way to the bank if we went out and offered a a higher price of a pound. Clearly, though, anyone who bought shares at 1.65 in 2013 or 2014, at a pound a share, still making a significant loss. So I think the only reference price you can actually logically use is the market price. And as I say, the 20% premium to the market price is actually at the top end of the range of we looked at a sample of 20 different companies, and we've recently done buybacks. And some of those were at a discount to the market price, believe it or not, but the average was in the low teens.

1:01:49 So 25% premium to the day, last trading day and 20% to the sixty day VWAP is actually quite a generous, premium. Because, again, the market is telling us that, that's what the market, will accept as a price for those shares. Next question. Can you please comment more on the 19 potential IP infringers? How's that number grown? Who at NANOCO is leading the effort to monetize value lost to IP infringers. Well, I mentioned earlier again about the size of the market. So the value of that, infringement market today is low. And we have a hybrid team of internal experts who obviously accumulated significant expertise through the Samsung litigation and external experts, both from the point of view of legal advisers and also strategic advice.

1:02:50 Commenting more on the 19 potential IP infringers. I mean, I could make general comments. Some of those infringers may well be competitors. Anyone who understands these markets would understand there is no point seeing a chemical company because their piece of the value chain is tiny. If you were going to litigate, you would be litigating against the OEM. And so those potential infringers include people throughout the supply chain. The number of dollars change. It grows. It can shrink if we can do enough work on analyzing what it is they're actually doing. So so at this point, there isn't a whole lot to add around this. And as I said, I think the key message I want people to understand is driving value from your IP. Our primary goal is around commercial orders or development contracts.

1:03:45 If we have potential customers who don't want either of those, but they want to license our IP, then we will discuss it with them. Starting to litigate is the last rule of the dice equally because we wanna generate real value, some IP licensing companies, I refer to them as shakedown merchants, they basically turn up and say, look. It's gonna cost you 2,000,000 to litigate. Give me 2,000,000. I'll go away. That's not who we are, not what we're about. We wanna generate meaningful value from our IP. Next question, can the withholding tax on litigation award be recovered? And if so Yeah. So I'll take this one. In short, yes. It will be recovered. With holding tax paid has been recognized as an asset and will be amortized over the same period over which the licensing comes recognized.

1:04:33 So this will have the impact of reducing the profits charged with corporation tax, which will ultimately either reduce the corporation tax payable or reduce the historical losses utilized to avoid a cash tax payable position. I'll see no go due to its historic status loss being an entity has significant historical losses, which can be used to offset paying cash tax charges in the future. Back to you, Brian. So next question. What quality skill set do you think the incoming chair will need for this moment in time in NANOCO's progression? And, well, there are a whole bunch of different dimensions to that, and our senior independent director will no doubt be consulting with, various members of the board on what they see as what's needed at this point in time.

1:05:20 Clearly, PLC, UK PLC experience, is going to be needed, because we are a we have a premium listing on the main market of London Stock Exchange, so we need that. And some familiarity with high-tech industries would be, very useful. I think the two new non execs we added cover off and commercializing IP in, or sorry, commercializing new technology in, semiconductor supply chains. I think it needs to be an inclusive chair, a chair who obviously, as current chair, listens to all shareholders. So other than that, it's a watch this space for announcements on this process.

1:06:09 Next question. NANOCO is financially secure, has cash, good IP portfolio, and obviously good products. If quantum dots become even more established on the market, NANOCO would be a good takeover target for many large players in the market, especially due to the current market cap. Why doesn't the NANOCO hold back more of the shares it receives through the tender offer as treasury to prevent a hostile takeover? And interesting one, I think the normally in a tender, the expectation is that, shares will be canceled. We are holding some back because we do have obligations to all members of staff with regard to deferred bonus plans.

1:06:55 I think you can see across The UK stock market, small cap companies, are at risk of takeover. So, I think we've always said that our goal, as a company is to obviously generate shareholder value. And if someone comes along with really deep pockets who who wants to pay that value, then, you know, that will be for shareholders to decide. I'm not certain that, I think legally as well, I'm not certain that shares that are held in treasury, can actually be voted. We'd need to check on that. But if the shares held in treasury can't be voted, then it can't do anything to stop a, hostile takeover other than, they would have to be, they would be included in the assets of the company that was was being being bought.

1:07:55 Keith oh, sorry. I shouldn't be saying people's names. I'm sorry. Although, I guess there's no harm in it. Our names are known to, people's old names aren't on here. In your opinion, which semiconductor companies are leading the market and looking at potential applications for quantum dots and chip technology? The answer is very, very clear. Sony, who are the biggest sensor company in the world by some distance, are looking at QDs as our STMicro are direct customer that we're working on those second generation materials with. I say the answer to that's obvious. Again, Googling it on any number of market reports will tell you those are the two companies that are looking significantly at it. There might be other tiny semiconductor companies. We know one, company, tiny revenues that actually makes a very specialist type of of camera, and we've dealt with them in the past.

1:08:54 But other than that so simple answer, the semiconductor companies, it's those two. It's Sony and SD Micro. This next one looks like a statement rather than a question. The tender was my favorite choice, but the buyback price is what I take coverage with. As I said, if we picked a significantly higher price, we'd still have generated losses for some people. We'd have generated more gains for other. We might have tipped some people from, loss into profit. But, equally, you go back to the if I was a shareholder who's not participating in the tender, I'd be asking management, why did you pay so much to buy shares that you could have bought in the market at $20.20 p or 21 p? You know, why did you pay 30 p or 50 p or or or whatever?

1:09:46 Next question. If a mobile device uses NANOCO's QDs, how much would the leap in technology force other handsets to use the technology to prevent them losing market share? Well, I think what you see is, most mobile phones actually copy each other and certainly depending on the identity of the person who goes first, if it's groundbreaking technology, you could expect then others to follow. I know that, one of our customers is represented in half the mobile phones in the world, with various devices, that are sold every year, and that's 750,000,000 phones out of the 1,500,000,000 a year mobile phone market. So, yes, the expectation is that whether it's a mobile device, a watch, a TV, you know, smart building, whatever, If it's a technology breakthrough, you would expect other people who want to follow. And that's where our production capability, which very few others have, protected by our IP, means that the natural company, the natural supplier for anyone to come to, for that technology would be NANOCO and not one of those other, you know, small startups that people were talking about earlier who don't have any production capability.

1:11:05 Next question. Why do you think the current share price represents only cash and not IP, real estate, equipment, etcetera, etcetera? So I think our current market cap is probably £70,000,000, I wanna say, and our net cash, so after allowing for debt, is 55 or so. So around some, people are saying the enterprise value of the business is £15,000,000. So there is value there. I think when we were down at 16 p, it might have been cash only. And so there is some value there, but, clearly, not as much as we think there should be for IP. Real estate, we don't own any real estate. We're in leasehold facilities. Equipment, again, Focal No secondhand, scientific equipment is is relatively, inexpensive.

1:11:56 I think what's more important actually is those, two very large customer relationships and contracts we have. But, of course, those are valuable if they turn into commercial orders. So so I think that, you know, we validated our IP. We have validated our products with commercial orders. But I guess the market's always asking, what are you gonna do next? So a ramp up in demand, finding out what an end device is or an end application is, those are the kind of things that people are are waiting to see. But, again, I I think what the question draws out is it's a stark contrast In February 2020, just before we filed our lawsuit, we were valued at £65,000,000 or so, on the market, '21 p again.

1:12:43 And we had new customers. We had new cash. Our IP had not been validated. We had less equipment than we have now, and we didn't have those two big anchor long term agreements. So I guess that's the market for you that despite everything that's been achieved, the price is where it is. And and I go back to what I was saying earlier about UK small cap is a pretty turret place to be on the market at the moment. It's it's it's across all all sectors. And next, question. With the current cash balances, it envisaged that any further litigation could be commenced without involvement of litigation financiers. So simple answer is yes. It could be.

1:13:30 Clearly, involving third parties and starting litigation, whether it's, you know, lawyers, etcetera, you have more option to, generate skin in the game, I. E. They work at a discount if the price is bigger. It is possible that if if we wanted to start litigation without large commercial prices at the end, you know, for strategic or tactical reasons, you might have to pay full whack to lawyers. And so, yes, some of the money could be used for that. However, I know some shareholders in the past have very strongly said, look. You can lose litigation. You can win low. You can win middle. You can win high. You can go on for years and years and years. Why would you tie up shareholder money in that even if you then give away 40% of the proceeds? And, again, as I said before, when you win litigation, litigation finance looks expensive. When you lose, it's free. It's cheap as chips. So and so there is a choice. We have that option. I think Liam mentioned the quality of our balance sheet with respect to very large customers. Quality of our balance sheet is obviously a a message to people that we're engaging with, ideally on production or supply agreements or licensing agreements, and then if if those are unproductive with, you know, potential for litigation.

1:14:53 That appears to be, excuse me, the end of the questions. Apologies that we've run over fifteen minutes. I'll just hand you back, to our operator for any last comments. Perfect. Brian, Liam, thank you very much for answering all of those questions from investors. You've been very generous with your time. And, course, the company can review all the questions submitted today. Will publish those responses out on the investor meet company platform. But just before redirecting investors, provide you with their feedback, which I know is particularly important to you both, Brian, could I just ask you for a few closing comments? Thanks for that. Yeah. So just to remind people, you know, in some ways, this coming year, you know, the next six, twelve months, business as usual, steady growth on a on a firm foundation.

1:15:42 It's something of a relief, I guess, for for staff and and should be for shareholders that we no longer have those big binary events of what's gonna happen to your IP, what's gonna happen on the litigation, are you gonna get into production. Now what we're looking at is adding more customers, adding more development contracts, receiving more low volume production orders as a ramp up increases, being able to offer more services both to existing customers and new customers through our wafer device and completing that that return of value. But as I say, what I think shareholders in the NANOCO have today, which is a very, very rare bird, for for this high-tech small small cap company, fully funded with commercial traction.

1:16:27 Thanks very much. Perfect. And thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of NANOCO GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.