Nanoco Group (LSE:NANO) — Interim results for the period ended 31 January 2022

0:01 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 submitted at any time by the q and a tab situated on the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Brian Tennis, CEO, Liam Gray, finance director. Good morning to you both. Good morning, and thanks very much for that introduction. Welcome to the second presentation of our interim results. Today, we really want to focus on questions that have been pre submitted in advance, so we will rattle quite quickly through the presentation that you can see on your screens.

0:53 If you want the longer version of that presentation, you will shortly be able to see the presentation on our website, the recording of yesterday's presentation, I should say, where we spend a little bit more time on the content of the slide deck. My name is Brian Tenner. I'm the CEO of NANOCO, and with me, I've got Liam Gray, our CFO. And if you do have questions that arise while I'm talking or while I'm answering other questions, please do submit them via the interface. Again, you can see it on your screens in front of you. So just moving on then very quickly to the highlights of the year on slide three in our presentation. We've said that in November last year, the 2022 calendar year was gonna be a big year for NANOCO, and that is exactly how things are shaping up. Our confidence is growing significantly in a number of different fronts, and that confidence and growth in confidence is driven because we continue to deliver our technical milestones and material deliveries for a number of key customers, but also good progress has continued on the litigation front.

2:02 So our confidence is, say, it is growing, and we are getting closer to a number of value inflection points. So turning to the specific highlights of the first half of this financial year. We have a great number of additional work packages with our major European customer. That's where our our products are closest to the point of production. We've also expanded the range of infrared sensing materials that we make and advanced some of them through the stages of development, whether it's going from development to optimization or optimization to scale up, etcetera. We're also preparing our run current production facility for scale up and production. We've already announced that. And as I've already mentioned, litigation is progressing well, and the first significant value inflection point will be in May 2022.

2:51 So it's only four or five weeks away, and that's when we'll know if the validity of our patents is being confirmed by the US patent office, by the patent trial and the payment board. In terms of financial highlights, our revenue and other operating income increased 21% year on year. Our cost base has been relatively stable at around £400,000 per month, and we will see that reducing in the second half of this financial year. So actually, from this month, April. And it will reduce further then in the first half of financial 2023, so at the back end of this year around December, January time. Our cash at the half year was 1,800,000. That was, on a like for like basis, actually artificially low because our tax rebate came in slightly late compared to last year.

3:42 And if we that's evidenced by the fact that our cash had risen to 2,600,000 by the end of February. You wouldn't normally expect us to see us generating $800,000,000 of cash in the month of February. Take all that together with that growing confidence in some of the short term deliverables and our, we've extended our our organic cash runway to the first half of calendar year 2023, I. E, into the effectively, second half of financial year 2023. We just go over the page then, and, again, a reminder here, and I don't mind going into a little bit more detail on these. There are three key sources of value in the business today that we are focused on. The first of those is our organic business in sensing.

4:30 And there, our confidence, as I mentioned earlier, is actually growing in the prospects there. We still expect production order visibility in the second half of this calendar year, so before December 22. Just to be clear, that's production order visibility. So we may have received an order without actually being in production. Again, our customer published road maps actually imply or suggest or require actual production during 2023. But we expect some visibility, the advanced notice of it, in the second half of this calendar year. If you look at the gray bubble on the bottom of the chart in the middle, That's the second source of value that we're focusing on at the minute, which is around litigation.

5:15 And as we said before, the numbers involved are significant enough to refer to the opportunity as transformative, for the company's prospects and also for shareholder value. The two big milestones that we will see in the next nine months, the IPR decision. I've already said that's in the next five weeks. And our expectation is that even if there are appeals on those IPR decisions, that the court case will restart and will be rescheduled for the second half of this year. So we're saying around October, November time. That's not guaranteed, but given the nature of the the stay that was granted in Texas, the fact that the judge said he didn't actually want to grant a stay but was only granting it because both parties agreed to it and because Samsung agreed that they would be agreed to be bound by any reasonable validity ground raised in the IPR process. That's why we are confident that the the the trial will be rescheduled for the second half of this year.

6:15 So winning an IPR is winning a trial to very significant value inflection points for the litigation process. And then linked to litigation is coming full circle back to the organic business, but here for the display side of the organic business. If we're successful, potentially just with IPRs, we don't even have to wait for the the trial. You know, that will be a strategic or tactical decision that we'll look at. But being successful, having our IP validated will give us some leverage and potential to start pushing more aggressively with other potential customers around the world and also other companies who may need to take a license over our IP. In terms of actual organic activity on display, we are still engaging with a number of small scale development projects with a number of customers, but they are slightly further back in in their development cycle than than where we are with the major European customer on the sensing side. But those are the three key areas of value with, I have to say, at the moment, a very, very clear focus on the sensing part of the business and also on the litigation opportunity.

7:25 If we go over the page, this is one of those pages. You can hear more narrative when you go to our website where that presentation will be available shortly from yesterday. But this is just reminding people about what's the problem that's in the market for silicon sensors, and how is that problem solved by quantum dots, and what's NANOCO's differentiation and all that. I think the one thing I'd want to draw out is the last time we spoke, I think we had four different use cases and market applications for shortwave infrared sensing. We've added four more here. You can see them on the bottom, whether it's agriculture, driver monitoring, surveillance, and security. And just to highlight one of those, a number of folks may be interested in it, but in the next few years, compulsory monitoring of the driver inside a car or a truck is gonna be part of European regulation.

8:17 So you can expect to see compulsory installation of sensors inside a car, And that's when you then bring in all those benefits that we believe a quantum dot enabled silicon sensor can bring to that operating environment. If we go over the page then, just to highlight two things. I've said that we expanded and have developed our portfolio of materials. The two changes on here to look at, the red circle with an s in the middle of it, that used to be a gray circle with an o. And there, we're just flagging up the fact, as we said, in a recent r and s. Our work package with a European customer has now moved beyond the optimization. There's still some optimization going on, but we're now actually scaling up the process.

9:03 And, again, just so folks that can understand, you will not scale up a recipe or a process until you're happy with it. So even though you might then tweak it slightly while you're doing scale up, you will only move to scale up once you're actually happy with the process. So the fact that we're passing through optimization tells you that, you know, we're we've delivered customer parameters, and we're not looking at how do we make that product at at a larger scale. The other change on this chart is the other dotted dotted line box against customer four. It's a brand new material with a brand new wavelength. We haven't made it before. We're we're now developing that material for a customer. And again, just as a reminder, because there's been some speculation on how quickly things move through this process, particularly around the the Asian customer.

9:52 The the the cycle from development to production, so if you like, going from a a blue dot with a d in it to a green dot with a p in it, it's typically three to four years. It's not twelve to eighteen months. The the nature of these markets, the requirement for absolute consistency, avoidance of product recalls, etcetera, etcetera, it is a long process. So those d's on there that you can see in that chart, our goal would be get them towards a yellow v or or a green p, but over a three year three to four year time line from from when they first appear as a development project. But we still have the overall unchanged goal. All in 2023, we wanna have one material in actual commercial production for a customer and have a second validated.

10:42 So if you like, for this chart to to have one product that's gone past the green p, which is ready for production into actual production, and and a second one, either a b or or a PIE being ready for production. Then turn the page again just very quickly. If you want to hear the longer version of this around display opportunities, listen to that presentation. It's gonna be on the website. The one thing I really wanna draw out on here is if you look at the bottom right, what you can see is quantum dots are now being included in more devices. Go back a couple of years, and they're really just in TVs, maybe the occasional computer monitor. Now they're actually going into tablets, phablets, mobile phones, public signage, new advertising holdings, you know, the kind of things you see all over various undergrounds and bus stops, basically, in any public place.

11:33 And what that all means is if you got more devices using quantum dots, that means there's more demand for more quantum dots. That means it's a more attractive market, whether that's being served by Samsung, who we're dealing with by the litigation, or through other display companies. And we are still dealing with, as as I mentioned, some some small scale inquiries and for other companies who are looking at other devices who may ultimately want NANOCO to manufacture quantum dots for them because we still retain that production capability. Just going over the page again, then I won't say anything around these two things. We've still got some activity, but it is very, very small scale going on in our life sciences, also in our lighting and also for cultural lighting. So, again, if they want to hear more about that, listen to the presentation that's going to be on the website.

12:22 If we then move on, so now I've moved away from the organic business and now looking at, the litigation side of things. The litigation picture is complex. It is relatively long, so there are a number of reminders on this slide. It's it's fundamentally unchanged from the last time that we spoke. But these key points are still valid, which is why, we've got them here as a reminder. So there are five patents, excuse me, in this case that we're, litigating against Samsung. Within those patents, there are 47, individual claims. In order to win a trial and actually be entitled to some damages, at least one claim needs to survive IPR and be fine to have been infringed in the court process. Now, clearly, we'd like to win all 47 in the IPRs.

13:13 But as I've said before, you cannot take 47 claims to a one week trial. You know, we will have twelve hours to present our case. If we try to litigate on 47 claims in court, just not possible in terms of time. But, clearly, if we win 47 claims in IPRs, then we can take the clearest, the easiest to explain, the clearest infringement case, so we can pick and choose our best bullets, if you like, that we then take in into the trial. Already mentioned that the PTAB will decide on the limiting in the next four or five weeks. If you read the transcript of the hearing, we believe that went well. It's a subjective judgment. It's as much based on who got more questions and who got more difficult questions.

13:59 Both sides had challenges to deal with. But on balance, we think we had a a better oral hearing than Samsung did, I'm gonna look forward to hearing the actual results in four or five weeks. Assuming then that the PTAB actually upholds some of the claims, there's a hearing in Texas in June to decide whether or not to continue to delay the trial. Mhmm. We will be pushing for that delay to be lifted and for the trial to be rescheduled in the second half of the year. Just to remind people, this lawsuit is about The United States only. It's about historical sales only. So if we have a trial in October 22, it will be on sales of TVs up to October 22. And the jury will also be asked with to answer the question of was this done deliberately or was it willful?

14:47 The reason that's relevant is that if it was done deliberately or willfully, then you can expect the damages to be multiplied. Legally, it can be up to three times, but, again, the history and practice of the Texas courts is normally to inflict damages by around 1.5 times. That actual multiplier is decided by the judge after the jury have made a finding of of willfulness. In terms of what the damages should be, we think they are technology is fundamentally enabling for these TVs, and therefore, that they are damages model, if you like, should reflect a value or a share of the value of the entire TV. There are other models, and some people might argue, you know, that they might say, well, this is just one component of the TV, and it wasn't the most important component.

15:38 Therefore, you should only look at the value of the component and damages models being calculated according. Again, we've explained before, if any successful award is granted to us, we'll retain around 50% of a modest award, rising quite quickly towards 80% of a more significant award. So as the award gets bigger in absolute terms, our percentage share grows as well as the absolute number, obviously, growing. Again, just a reminder, income from a from a either from a a damages case or from a settlement, both will be treated as income for tax purposes in The UK and would therefore be subject to UK corporation tax. Again, we do have £36,000,000 of losses, accumulated losses in The UK that could offset some of those gains.

16:28 So again, just to reiterate, the this lawsuit in The United States on its own is absolutely potentially transformative, not just for NANOCO's future prospects in the organic business, but also for shareholder value. Going over the page again very quickly. The only change on this chart in terms of timeline is the oral hearing has now been in Gong. And as I say, our reading of the transcript suggests it went really well for NANOCO, and we look forward to the decision from PTAB in four to five weeks. But it is fair to say, you know, we don't know what the outcome of that decision will be. Once PCAP have made their decision, they both sides are entitled to appeal. Unless Samsung win all 47 claims, we do expect them to appeal. They may even appeal even if they were no 47. You never know.

17:20 Again, that appeal process can take between twelve and eighteen months. They there is a fast track appeal process in the p tab, but it doesn't actually apply to IPRs. It applies when people apply for their initial patent filing. So that fast track process that can be a couple of months long does not apply to this situation. So you should expect if there are appeals that last twelve to eighteen months. But as I've already said, because we were so close to being ready for trial, because the judge didn't in Texas did not want to grant the stay, and we did it because both sides agreed to, We expect that once we've got the IPR decision, even if it's appealed, that the judge will go ahead, treat that as a final decision, and reschedule the trial for for Texas, which, as I've said, we expect in the second half of the year.

18:14 Once the jury come up with a verdict of, you know, effectively guilty or not guilty of infringing, the jury come up with a damages number, you know, the baseline number, for the historical TV sales, and they decide if it was willful. Subsequently, the judge will issue a formal written opinion. That could be in one month. It could take six months. It depends on how busy the judge is and how much information needs to go into that opinion. But the judge's opinion will confirm the formal decision. He then, if there's willfulness signed, will apply a damages multiplier, and he will also make a decision on whether or not to grant a future royalty, I. E, if you can calculate a per t d basis of the damages, he may mandate that that is also identified for future sales after the court case, but he doesn't have to.

19:05 If that wasn't the case, then we may end up having to have a a second piece of litigation. Clearly, then once the judge has published his opinion, both sides can appeal that decision. Unlike the IPRs where it's a relatively tightly controlled time frame for appeals of twelve to eighteen months, the judicial appeal process could take, you know, two years or longer. Some cases have been up for appeal, sent back to Texas, then gone to appeal again, then sent back again up and down. So that can be a very long long winded process. And it's a sort of process that we would look strategically or tactically at other options to see if we can apply pressure to the other side. Assuming we're successful in the trial, to actually encourage them not to draw it out to make it drawing the process out and doing lots of appeals a more painful option than actually just agreeing to a settlement.

19:59 And then the final reminder is currently all that activity, as we said before, is is underwritten by a third party funder. Let's go over one more page, and it's my my last comment on the litigation beforehand over to Liam. We've just drawn this map of the world to show you the different litigation value opportunities across the world. If you look at the the the figures in in red, you can see the North American market, which on this chart includes Canada, which is why it's different from the previous 33% for The United States. Roughly, our estimate is 35% of Samsung's QDTV sales around the world are in North America. We estimate and this is based on, you know, independently published market research, but it's not based on Samsung's numbers. We don't know what those are.

20:47 That the Western European markets is around 27% of Samsung sales. You can see China and Taiwan around 10%, and out in Korea and Japan, another 10%. And the the charts, the bar charts underneath are just showing you how many patents in total we have in those territories, either granted patents or pending patents. I should say the reason we picked these four territories is the five patents we've got in The United States. Effectively, we have the same or similar patents granted in those other three regions, I. E, Western Europe, China, Taiwan, and also Korea, Japan. Now, again, we've talked about Western Europe on on here. There is no such thing as a European patent. There is no such thing as a global patent. Each patent is individually filed in the territory.

21:37 If only because there are language translations, each patent office, each national patent office may actually allow the filing of different claims, more claims, less claims, etcetera. But we've highlighted those because fundamentally, we believe that the five patents in North America are effectively represented in those other three territories. Those other territories have obviously got, you know, high growth rates as well. China in particular is growing, And it's also relevant. Again, people may have seen the press that Samsung is now talking about selling its second generation QDU led TVs to other large OEMs, you know, who supply TVs, all of which just adds to the number of infringing models. But it also gives us potentially some other leverage that if we are successful in the IPRs, we can start pointing out to some of these other customers of Samsung around the world. You're actually in you know, our IPRs our our our IP, our patents are valid.

22:36 We believe we're gonna be successful in trial. If we're successful in trial, then guess who we're coming for next. So it all adds some pressure in into the process. So successful litigation, whether it's after IPRs or waiting till the court cases are out of the way as well, we don't have to, but we can't. It unlocks more than just the damages award in The USA. And the one in particular I wanna highlight is in The US, it is very difficult to get an injunction unless you're a direct competitor against the person you're suing. We don't make TVs. If we were a TV manufacturer, we would have a better chance of getting an injunction in The United States. But even in that situation, the preference in The US is monetary compensation. That statement is not true, fundamentally not true, in some other territories around the world. And if you take some of the Western European territories, there are countries in Western Europe where I wouldn't say that an injunction is almost guaranteed, but that it is much, much more likely to be granted. And clearly, an injunction against someone selling two days is gonna have a significant impact on that person's tactical strategic thinking and considering whether or not they would agree to settlement rather than risk, that injunction continuing, etcetera.

23:55 And, again, you know, injunctions can be granted pending appeals. Sometimes if it's more borderline, people might wait till after the appeal before the injunction's granted. But it's all part of the mix of what, like, what could be done. So it'd be open to NANOCO. If we're successful at IPRs or a trial to look at starting to litigate in other territories around the world, either because there's a large economic market or because the process is quick or because it's cheap or because there are chances of injunctions. So that's it for me on the presentation. I'll just hand over to Liam to do a quick run through on the financials. Thank you, Brian, and good morning, everyone. We begin with our financial highlights slide for the period ended 01/31/2022. To start with our top line, our revenue growth of operating income is 21% ahead of the prior year at 1,300,000 compared to 1,100,000.

24:45 This is a flow through to our bottom line with additional cost savings contributing to our adjusted operating loss, reducing by 27%. Looking at our costs, our headcount is largely stable. As an operational business, we do have some organic staff attrition. And where this happens, we also replace staff as and when needed. This ensures we can continue to support our customers and support in both the sensing and display sectors. Excuse me. So we continue to focus on reducing our headcount. And, sorry, continuing to focus on reducing our costs. We recently announced the closure of the Ground Floor facility in Manchester. This follows on from the previously announced closure of the 1st Floor in Manchester, which we fully exited in March of this year. In spite of some additional costs as a result of moving all our operations to Brumcorn, we're anticipating seeing some of the financial benefits these moves in the current financial year.

25:37 On our cash, our runway tends to be a key management focus and currently extends to h one calendar year twenty three. Monthly gross cash costs, so before the benefit of revenue or r and d tax claim, are around £1,400,000 per month, which I've mentioned previously, which is a fair amount for Manchester premises that both exit the fall. And our business model needs that a strong cash conversion on any commercial wins for services work, which further extends our cash runway. We move on to our next slide. Here, have our summary income statement. So as mentioned previously, our revenue and overall operating income has increased by 21%. This is due to both an increase in our commercial revenues of $100,000 and additional grant income of $100,000 compared to the same period in the prior year. This, coupled with smaller R and D investment costs, resulted in adjusted EBITDA, which has reduced from 1,500,000 in the prior year to $1,100,000 in the current year.

26:32 Our share based payment charge is slightly higher in the current period due to bonuses for staff in the prior year being deferred in the form of options, and therefore, we carry charge to our share based payment line. There's been a reduction in depreciation and amortization charge in the period of 300,000, which reflects a lower IP amortization and impairment charge in the than in the prior period. Depreciation is expected to fall further in future periods as a result of the closure of the Manchester premises. And whilst our r and d tax claim appears to be nil, this is due to the finance cost of the loan notes we issued in July 21 offsetting the r and tax claim. It means overall, there's been a reduction in our loss after tax from 2,300,000 to 2,100,000. Move on to the next slide. This slide reconciles the movements in net loss between the current period and the same period in the prior year.

27:21 On the chart, movements are positive for the company as they show a deep a decrease in the net loss. Starting with the prior period net loss of 2,300,000, the additional revenue and other operating income has very few additional costs. And we also have our cost savings of naught 200,000, reducing our loss down to 1.7. We then have a few other bits and pieces in there, our share based payments as mentioned previously, and some other costs take our loss back to 2.1. Just to reiterate, our current gross monthly cash costs remain stable, not before million, fully impacted revenue, excluding the VAT FDRV tax receipt. So let's move on to our next slide. Here, we show the movements in cash. Start with the closing position in FY 'twenty one, 3,800,000.

28:10 We just sell the dollar of 1,100,000, which is 52.7. We have some adverse working capital and deferred income movements, totaling 500,000. The operating lease cash outflow of 300,000, which announced you're outside of EBITDA due to IFRS 16, gets us to our reported cash balance of what we take million at the end of Jan twenty two. As Brian mentioned briefly, it also creates a like for like comparison. We then add back the R and D tax credit, 700,000, which we received in February this year. And we also have significant customer payments, which we received late, 4,300,000. So like for like, our cash balance is 2,800,000, which shows a net underlying cash outflow per period of 1,000,000. This compares to a 2,300,000 underlying cash consumption in the prior period. And then just moving on to our financial summary slide.

29:00 The guidance of current commercial pipeline and opportunities underpin the current year revenue being at least in line with FY 'twenty one. Our gross cash cost remains stable at $400,000 per month, and we'll see the benefits disclosed with Manchester properties from Q3 of the current financial year. This is stable with good commercial prospects and a steady headcount. On capabilities, these largely align with our previous years. The team are highly flexible and seem to work on both services and products for our customers in both sensing and display. In spite of the number of redundancy rounds in the past few years, we continue to retain our core capabilities, and we anticipate all operations being transferred to Runcorn by June 22. And finally, our cash, consolidation in Runcorn will further reach our cost base. With an average net monthly cash spend of north of 2,000,000 in the period, And with the current order book and commission opportunities, our runway extends to h one of calendar '23.

29:52 Any new commission opportunities will further extend this, obviously, depending on their scale and composition and cost. As always, we do retain contingency plans to protect the business and they must see the lawsuit through to fruition. And with that, I'll pass you back to Brian to summarize. Okay. That'd be thanks, Liam. So final comments from me before I start going through the, questions that have been presubmitted and the questions that are coming in online while we're talking. So just to reemphasize, we said 2022 is going to be a big year for NANOCO. It's going to be an important year for value generation. On the litigation, you've got those two big value inflection points, winning the IPRs in May and then potentially winning the trial in October, November.

30:38 I've highlighted there are still the tables, but those two events, if you like, plant a marker firmly in the sand, will tell us whether or not we're we're we're in a winning position or we're in a losing position. So those two key value inflection points coming up this year, and we're very confident on the direction of travel on both of those. In terms of organic revenue, still, as we've said before, expect to see, visibility on potential production revenue for sensing materials in the second half of this year. So, each wide calendar year '22 for visibility and then expect actual production, next year in 2023, And that's supported by road maps that are being published by our our key European customer.

31:23 And, again, just to emphasize that the management team are focused on generating value from both of those sources right now rather than just favoring one exclusively at the cost of the other. In terms of our cash runway, because that has been a perennial issue for the business, our cost base, we expect it to reduce by around 20% over the next twelve months on an annualized basis, dropping from around 5,000,000 to around 4,000,000, which will lower the breakeven point, I. The point of the amount of revenue that we need to actually be self sustaining from a financing or cash point of view. Because of the achievements, we've already delivered an extra business with customers. We've extended our organic cash runway to the first half of calendar year 2023.

32:11 Remember, what we mean by organic cash runway is the organic business of r and d, scale up, and production as opposed to the situation if we had to book contingency plans and become an IP shell. Any new business that we win can extend that cash runway further. So in terms of the opportunity for NANOCO and its shareholders, consolidation in RuneCorn is gonna reduce our cost base, and it will actually improve our the organic platform for the business by co locating all of our activities in one place, meaning transfers between different stages of development are easier and better integrated working. And Samsung litigation is successful. Let's say, even if it's just at the stage of IPRs, even before trial, we'll potentially promote new licensing opportunities.

33:03 And fundamentally, success in our organic business will deliver our medium term goal of the company being self financing. So a final comment is our confidence is growing and continues to grow, and we expect to deliver significant organic and litigation value inflection points during 2022. So that's it all on the presentation. We've left just about half an hour to start running through, questions that have been presubmitted and coming in online. I'll read them out, and then, just speed things up, move straight into an answer. Here we go. So the first question was, what's the situation of expected production orders for sensors for the European customer? We've already answered this with the we expect visibility of production orders in the second half twenty twenty two, so before December 2022, I want to be specific.

33:55 We don't know what size those orders will be because it will very much depend on the application. And just to, you know, give an example, say, for example, the first application was in automotive. Well, if it was on a 200 miles per hour supercar, you know, the company might sell 50 of those a year. So demand for our sensors wouldn't be very high. Whereas if it was for a Ford Fiesta that sells, you know, 5,000,000 units a year, then demand would be very high. And sitting here where we are in the supply chain, we do not know who the first end customer will be. We know who our customer is, but we don't know who the first end customer will be, and we don't know the application. But I would like to say from an NANOCO point of view, even if it was a small scale application with modest demand in the first year or so, that would be a huge substantive achievement for the company because it would be our first ever commercial product in our nineteen year history.

34:48 And once we've got into a commercial market, you would expect then the ecosystem to grow, to expand the use cases, and the size of each application to grow as well. So that's where we are on expected production orders. We expect visibility in the second half of this year. Similar question, when can we expect commercial contracts to be signed and manufacturing to commence? So it's very much the same question. Second half of this calendar year, we expect visibility, and we then expect actual production in 2023. But, again, I should caution, ultimately, all of this is dependent on end users actually agreeing to adopt the technology in their end applications.

35:36 Next question is about property. Has moving out of one Manchester floor gone to plan? Also, is there an option to move out of Manchester altogether and relocate to Runcor? I think this question presupposes some of the things that we've we've recently just announced. So the exit from the 1st Floor in Manchester is complete, we have announced the intention to exit the remaining Ground Floor in Manchester and relocate all of our operations and all of our activities to Runcorn. We expect to be fully operational in Runcorn in the third quarter of this calendar year, so sometime between June and September. And we expect the final exit from the growing floor to Manchester to be complete at the latest by early twenty twenty three.

36:23 Our reasons for moving are that we actually have more space than we needed. We used to have a 140 people and effectively four facilities or four four pieces of property. You know, we now have less than 40 people, so we just didn't need that excess space. In addition, by exiting Manchester on a net basis, we expect to save around £700,000 a year once complete. And it is the case that Manchester was a more expensive facility than than Roncord. But probably the most important thing about this, NANOCO, is we absolutely did not want to give up our production capability. So if we were going to exit one site, it was always going to be Manchester because you can relocate R and D and scale up to Runcorn. You could not have relocated production from Runcorn to Manchester.

37:12 The next question, question four. The last time you talked, you said you were the most optimistic you'd ever been for the company. What's your position now? Well, the simple answer is actually more optimistic than it was, you know, in November last time last year. I mean, I do want to have that, you know, just that reminder that the company has been taken to the altar twice. Back in 2015 when we were really close to what we thought was gonna be production with Samsung and Diode. Then in 2019, when we were ready for production with The US customer so we know we've had false storms before. But all that aside, our confidence today is bigger than I think it was either at either of those times Because, you know, a customer published road map, we, you know, have got expectations for what's going to happen, etcetera.

38:02 So so I'm more optimistic today than I was in November 21 while still acknowledging that we're not over the finishing line, and certain things still have to to fall into place. And the next question, do you retain enough staff to carry out r and d, scale up, and production? Why are you recruiting now? As Liam said, we retain all three of our capabilities today. So we've got our r and d capability, our scale up capability, and our production capability. It is worth noting as an advanced materials business, our business is not particularly labor intensive, particularly on the production side. R and d is more labor intensive, but production is not. I would put can be significantly increased just by increasing how many the size of the recipe. Imagine if you've got a big mixing bowl, you know, you can choose to add one egg, two egg, five eggs, 10 eggs.

38:53 So we have the equipment and the facility in place that can produce very significant levels of revenue depending on the actual demand from the customers. And in terms of why are we recruiting now, again, the answer is a very boring one. It's just dealing with normal staff turnover. So, you know, one member of staff has decided that the commute to to Runcorn is is too far for them from given where they are in Manchester. So we need to replace that person. And a number of members of staff, you know, who's decided they want to spend a bit of time with with their family. So, yeah, it's just normal staff turnover. It's not indicative of something happening on an impending basis. Next question. There's a few here about the litigation. So how did the oral hearing go for the IPRs? Already said, we think it went very well.

39:42 They say both sides could ask some challenging questions. But on balance, if you can take the weight of the questions as it's indicative of where the PTAB were leaning, we think we we did better than the other side on the IPRs. So we're looking forward to the actual results of the IPRs in in May. Next question, again, litigation related. Have Samsung admitted infringements? So their only defense is that patents are not valid. I have to say an emphatic no to that. That is absolutely not correct. Challenging validity is definitely not admitting infringement. It's just a first line of attack. So, basically, you know, a defendant will first argue that the patents are invalid. If they lose that, they'll then say, well, it doesn't matter if they're valid because we weren't infringing them anyway.

40:31 And if they lose that, they'll then say, well, the fact that they're valid and we're infringing, that doesn't really matter because the damages were really, really low. So you can see it doesn't matter who you're up against. They will go through all those three lines of defense. You can have a view on which of those they've got better chances on. You know, some people might say maybe Samsung are betting more on IPR. Some people might say they're betting more on infringement, but they will go through all three. So it is not the case that they have admitted infringement by chat by going after validity and IPRs as their first line of attack. And just to remind folks, we have to be successful in all three to win. We have to prove the. We have to prove imprintment, and then we have to prove, you know, a good, or a reasonable damages, model.

41:20 So the next question, have Samsung said they would agree to be bound by PTAB and hence given up the right to appeal the findings of PTAB? This is actually two slightly different questions. So the first question, have they agreed to be bound by PTAB? Yes. They agreed that as part of getting the trial delayed in Texas, that, and I'll read you the formal words, they will not challenge any ground raised or that could reasonably have been raised in the IPR process. Now you can see from that language is that if there's a ground that could not have been reasonably raised, then it's still open for them to be able to challenge validity. But we effectively believe that they almost conceded that whatever I whatever the PTAB decide, they're going to agree to be bound by even though there are some other technical things they they might attack validity on.

42:09 However, they are still allowed to appeal PTAB. So what they basically said is they've agreed to be bound by a final decision of PTAB. That comes after appeal processes. So they do have the right to appeal whatever comes out in in the next four to five weeks. Next question. When do the patents expire, and how does that impact any potential damages models? The last of the the core QD patents so there are four core QD patents. The last of those expires in early twenty twenty eight. Those score patents have about 46 claims attached to the model 47. The o six eight patent or the film patent, it has one claim, and that patent expires in 2035. So it's an extra seven years. And in really simple language, the longer the patent, the more the potential future damages, assuming that more actual TVs or displays or phones are sold.

43:04 This is particularly relevant in a high growth market. So you can imagine some markets are growing so quickly that, you know a hypothetical example, you can imagine that in the fourth year of product sales, the sales in that year could actually be higher than the first three years combined. So the the life of the patents is is relevant to the amount of damages, again, particularly in the high high growth market. Question. In how many countries around the world does NANOCO have the same or similar patents registered? I think I covered that in the in the presentation. But in terms of individual countries, we've got The UK, Germany, France, Netherlands, Japan, Korea, China. There are more. And as I mentioned, there isn't a global patent system. These are separate distinct filings, not just because of language, but because individual patent offices may agree to certain claims that another country doesn't, etcetera, etcetera. So if you wanted to litigate even after a successful outcome in The US, you would have to go through litigation again unless you come to a global negotiated settlement with with Samsung.

44:08 So we estimate that our combined patent coverage in terms of TV sales for for Samsung is actually bigger outside The USA than The USA itself. So whether you're doubling it or tripling it for the whole world, it's that order of magnitude. Next question is, again, litigation. We we've we've got a couple more on these. If NANOCO win at IPR and in Texas, will Samsung have to stop selling TVs in The US? Unfortunately, no. This is absolutely not correct. A a previous u US Supreme Court, and I think we actually cite the the court case in the formal interims document. You can look it up there. It actually settled that patent infringement cases should be settled by economic compensation, not by an injunction.

44:55 If we were a direct competitor, I think I mentioned that we made TVs, we'd have more chance in The US of getting an injunction. But even then, it would be hard because of this supreme court view that says, no. You you just get financial compensation. However, again, I think I mentioned in a number of European or other global territories around the world who take a different take on these matters, it is possible to seek an injunction, and it's they're they're more often granted. Again, they're not guaranteed, and they could be before or after appeals, etcetera, but there are other territories where there's a much stronger chance of getting an injunction. And I should emphasize this all sounds even though when we sued Samsung, we did apply for an injunction, it's it's almost standard. You just include it. You say we want economic relief and injunctive relief, etcetera, etcetera, even if your chances of getting it are are quite low. So it wasn't a mistake to ask for it, but it's just acknowledging the reality that they're they're rarely granted.

45:55 So if we are successful in Texas and in the IPRs, we will look at next territories, next steps to potentially start litigating against Samsung. Next question. Would the company agree to a settlement offer from Samsung? So, again, the answer to this is straightforward. The board has been absolutely consistent throughout the litigation that our goal is to deliver fair value to our shareholders for IP assets with the cost of developing those assets for the many years of of of work that have been done. And fair value basically means, you know, fair value for the life of the patents for the whole world. So as long as there's fair value being achieved, it will be easier and faster through a settlement. But if we have to go down the the legal process of the appeals, etcetera, then that's what we'll do. And clearly, there's a trade off of a negotiation.

46:50 But, again, you have to start with the what's the fair value of of this lawsuit and then have your conversations about potential settlements. There's next question. Can you remind us the different damages models and the dollar amounts that they might translate into? I think, again, I I covered this. There's the high value where you talk about the total value of the TV. There's a there's other a mid value where it's alternative but similar approach where you value the individual contributing components or on the low end where you really just break the TV down into its, you know, 400 constituent parts and you just focus on the individual component of quantum dots. Again, I just have to reiterate, we have never given a dollar value for this other than to say we think it's potentially transformative for shareholder value in the business.

47:43 And you may need to look at the numbers of TVs, the values of the TVs, the values of the markets, and even ascribing relatively low royalty rates to those. You get to, in the noble terms, very significant sums sums of money. Yeah. There's more over there. Yeah. Yeah. So just quick play, there's a couple more presubmitted, and then we'll get to the ones that are live. So this one so changing away from litigation, someone's asked a question about how can you change the timing of your different results announcements. The answer to this, again, again, a bit like the recruitment thing is is very boring. So in the real world, we have customer visits, customer and supplier deliverables, tender exercises, board schedules move around, etcetera. People at school holidays, different parts of the country have different holidays, people get sick, all those things.

48:40 And we're very much focused on delivering value. And while, obviously, results dates, etcetera, it's important to get them out, etcetera, to get those updates out there, I think we tend to prioritize the value adding activities, the the sorts of things that I've just mentioned. So to be clear, our results dates really are driven just by the administrative tasks and the logistics of actually producing them and publishing them. Again, I should just emphasize, if the company today is in possession of any inside information, it's got a matter of hours to publish that. You can't hold on to it because you want to link it to an announcement date or whatever. So so as I say, I know it can be frustrating. I know some companies basically religiously go with the the same date every year or every time for their results. But with NANOCO being small company with less resources, there's a much harder commitments for us to make, so we do have to to flex things a little, but as I say, I wouldn't read much into the timing of of those results.

49:41 And next question was how long does the latest work package last with European customer? Again, it's in the RMS. It says that all the income's gonna be earned in the third quarter of this financial year, so between the months of February and April. So in the month we're in now. And there's another question sort of linked to that. Find it difficult to work out the size of your new work package for the European customer. Can you explain more? And then this is just very simple general reminders, but, you know, companies and with NANOCO, because we're small and our numbers are small, the rule of small numbers kicks in, but companies typically tend to work to a five to 10% rule of thumb as a cognitive measure of when you need to update markets or make an announcement about a work package.

50:28 You know? So so for us, a five to 10% movement in revenue. In absolute terms, it's small, but using that rule of thumb, you know, some people may think, well, a 10% increase, that's big enough to be talking about. But just to be clear, there is no such actual rule. It is a rule of thumb. The other thing is if you're trying to work out the size of a work package, you look for the qualifiers. If we say we're going to beat expectations, then you might be thinking around the five to 10%. If it's gonna be much higher than that, then you might be talking about significantly outperform or 25% higher or almost double, etcetera. But we do try to make sure that each RNS has got enough information, if you read it carefully, to answer all those sorts of questions. Returning now to the questions that have come in online.

51:16 So the first question, and I'll paraphrase, but it says there have been you previously mentioned about minimum quantities of material in the contract with the European customer. Can you give some idea of the quantities and those that apply to other customers? And simple answer is that's commercially sensitive, and obviously, I wouldn't give out details of the the the actual financial implications of those contracts. I will say the the minimum quantity is quite small, so it wouldn't automatically get NANOCO to a breakeven position. It would be a relatively low level of revenue, but it's one of those hooks In the same way that, you know, that there's a minimum purchase requirement for the customer, we also are guaranteed a minimum share of customer demand in some of our contracts. So those are sort of protections that we put in place to make sure that we don't do all the work and then find out that another bigger company gets 90% of the demand, and we get 5% or 10%.

52:15 We have much stronger protections than that. The next question was, you're clearly preparing Runcor for production. When do you expect the first commercial contract being officially announced? Is it one to two months from now, the next six months or longer? And can you tell us already any number of possible revenue annually? Again, I think I've covered this. So we expect visibility before the end of the year. So that's visibility in the next six, seven months. We'll be ready for production in the third quarter of this year, but here's the that does not mean there will be production, but we'll be ready. We'll finish the Manchester moves. And, again, the the the size really depends on that first application and the size of the application. You know, the car example is a good one. If it was sensors for a supercar, it'll be a little bit of a demand for us. If it was demand for sensors in a in a ubiquitous family type car, then it would be much bigger demand.

53:15 In consumer electronics terms, if it was demand to go on a major handset for a major telephone company, you know, one of the big boys around the world, that would immediately be a full shift of operations coming out of Runcorn. And one full shift out of Runcorn can do around 15 to 20,000,000 of revenue. Conversely, if it was a much more niche application, if it was a wearable, if it was, you know, something in a pair of glasses or a or a headset or, you know, one of these other devices that's coming out, the demand would be much lower. And, actually, on a device like that, no levels of demand again, we wouldn't it would not automatically take us to a breakeven point. But I think the critical thing for us would be, as I said earlier, be the very first time we've ever been on an actual commercial product.

54:01 Next question. You mentioned you could also sue for IP in other markets. Will this be the same financing model as Samsung lawsuit, I. E, third party financing and a cooperation with Mintz as a partner law firm? The simple answer is it really depends. So we are evaluating the cost of litigation in other territories. The United States is by far the most expensive. It is possible that the company's either organic business or, you know, financial circumstances might be that we could self fund litigation in the European territory where it's at a much lower cost. Equally, we could get third party financing. We could try to extend the work with the existing funding partner. We could look for a new third party, and we could go to shareholders and say, actually, we need a few million quid to sue the European territory, and it means that then the upside is all kept for shareholders. So so there are different options available.

55:00 Cooperation with Mints in the same question. Mints have done a staggeringly good job. They're thoroughly professional, and the guys we work with are really, really good. So we would like that to continue, whether it's directly through Linz Mintz them coordinating with associated law firms, etcetera. But we look to keep that that in place. Next question was, could you give a bit more insight on the move to Runcorn? Will all staff be retained and able to make the move? Operational benefits of operating the company. What encourage you is to make the leap. As I said, we have four facilities that could cope with a 150, a 160 staff, we basically had too much space. On top of that, we absolutely wanted to keep production, which meant we had to keep. Manchester scale up and r and d activities were more affordable.

55:49 Will all staff be retained? That's what we've set out to achieve. But, you know, the simple practicalities are that, you know, there are individuals who say, well, you know, a two or three hour commute to work each day is actually just too long. You know, six hours in the car, it's just too long. But we have put in place a number of staff benefits, whether it's petrol alliances, etcetera, for a period of time, actually giving some members of staff loans on learning to drive, etcetera, to facilitate the move because we absolutely did not need to reduce our head count as a result of this move. And as I mentioned earlier, that's one of the reasons why we're actually recruiting some staff. In terms of operational benefits, having everyone in one place, on one site, transferring between optimization, development scale up, etcetera, it's just much easier.

56:41 And the Rumcorn site, frankly, it's set up for large scale production, large scale deliveries. It's an old ICI r and d environment. And Manchester's is I would say it's less production friendly. It's more very light touch, very light r and d. So that covers that one. The next question, a lot of historic r and d work on infrared sensor development focused on cadmium selenide and calcium cadmium sulfide. And so what gives company confidence that its customers published roadmaps intend to launch commercial production in '23 would use NANOCO nanomaterials instead, not based on cadmium. We knew what's in the customers' materials that they're running through pilot lines, including onto wafers and and building prototype sensors.

57:36 They're absolutely not based on cad selenide or cal cad sulfide. Apologies if I got those wrong, but I think that's what it's saying because I'm not a chemist. And yeah. So there's absolutely no reason to assume that they're not going to use our materials because they are focused on one type of material. And, again, because we work really closely with our customers' r and d teams, We know what materials they're using. Could, in theory, have, like, a black lab, a secret lab somewhere working on a completely different material, but we've seen no evidence of that. So so I'm that wouldn't I wouldn't lose any sleep whatsoever over that question or issue. You know, the only real alternative to quantum dots on CMOS is in gas, and in gas is unbelievably expensive.

58:24 You know, I've said a 100 times more expensive. It can be a thousand times more expensive. Next quest question. Do the lower damages awards as reported by Edison apply to the current litigation territory, US only, or to worldwide? I know so Edison worked out their number themselves. Know, they obviously do talk to us. We talk to them about, well, if it's 10,000,000 TVs and if a TV is, you know, $1,500 more expensive, etcetera, yada yada yada. They came up with their own royalty rate to apply to that. So that's their estimate of lost revenue based, I guess, on a on a low interpretation of damages models or a medium possibly. Yes. It is US only, and, yes, it is history only. So, again, if you're using that as a baseline number, you have to apply those multipliers for the future and the rest of the world.

59:15 Next question with the PTAB. Has there been any dialogue for you to answer further questions after the oral hearing? No. It doesn't work that way. You're right, Andrew. It is really good silence. Oral hearing's complete. We now wait for the for the outcome from PTAB. I should warn folk, the PTAB will publish. We may get thirty minutes notice before everyone else, before you guys, but it's not one of these, you know, where the prime minister gets a report three weeks in advance and we get to think about it. So when they publish, you guys will know very shortly thereafter, if not actually at the same time as us. I noticed there was a slight delay with the trade receivable. Is there anything to worry about? I think Liam mentioned it.

1:00:02 Our very big customer, you all know, they run really huge, enormous, inflexible ERP systems. And if, you know, there's a spelling mistake in a purchase order, it can mean that you have to go back to the start of the payment process. So absolutely nothing to worry about. That money did come in in February, and we are talking to our larger customers just reminding them that we're a small company, and, actually, that kind of interruption to cash flow isn't helpful. They are engaging very strongly and positively with us to try and make sure that doesn't happen again. Question, what would you class as a modest payment to a larger payment? Again, this is digging into the what size we think the numbers are. We're we're not going to answer that question other than to say, even at the low end of things, we think a modest outcome in The United States only on historical damages would be transformative for shareholder value, however you measure that, whether it's in terms of our market cap today or whatever.

1:01:03 Clearly, there could be a a we could lose and get nothing. Clearly, you could because the jury is deciding this. They're not technical experts. They could pick a lower number, but our view is on our assessment, the damage is at the low end. It's still transformative for shareholder value. There's a question. I know NANOCO came close to display sales with the Taiwanese customer. Are you able to say what happened there, and is that opportunity still live? I'm not certain who the specific one is. This may be about, when I just joined the company, gaming monitors, where we thought we might only be a few months away. That opportunity effectively went away, and we still talk to those customers. But I think we still have this hurdle that Samsung not only, you know, tipped them off monopoly on CFQD market, but they're such a big base that they're actually making it difficult for us to to get in with other companies even though we still got some small inquiries. So so I wouldn't hold out any hope for a, you know, a short term movement on on that Taiwanese customer.

1:02:08 Next one, you mentioned last time the current stock price doesn't reflect the value of the company. Its share price has risen enormously since March. How do you see the value of the company now? Does the share price affect the company's value? Do you still see NANOCO as undervalued? And we're on two grounds. If you go back to when the organic business was ready for production with The US customer, and, again, we thought that was gonna be around the handset. But, you know, the company was valued around $50.55 p a share. We haven't sued Samsung, so you could almost take that as the market saying, that's what you were worth when we thought you were about to go into production. So from an organic point of view, that sort of number or bigger to me would seem sensible given where we are with the European customer, then stick the lawsuits on top of that.

1:02:55 So and if you decide the lawsuit is a pump and it is worth anything, you won't add anything to that. If you decide you think it's actually worth the same value as the company today, then you'll add, you know, today's 30 p two, whatever. But yeah. So I think the board still believes there's a lot more value to be generated for shareholders and for the company. Next question. There's only two left. Apologies. We've overrun three minutes, but does the company intend to distribute any part of future litigation award as a special dividend? Again, hopefully, you won't be surprised. Obviously, the board won't tie themselves to any particular strategy, but it will really depend on the size of that, on business need. If we have got an enormous opportunity that costs a lot of money, but we think it's a better use of funds than distributing it, we will.

1:03:46 Equally, if we decide this award is so big that some of it can go back to shareholders, whether it's a dividend, share buyback, some other form of distribution, etcetera, etcetera, then again, that is a consideration. But it really will depend on the business need at at the time. But if I remind you that we already, with our Runcorn facility, have the capability of doing over 100,000,000 of revenue, you know, the need for a state of the brand new state of the art factory. At this point in time, we look low. But if we're really successful and really fast in a rollout of products with our sensing customers and even some display orders came in, then we might actually need to look at an expansion and potentially a capital investment. But it will really come back down to the the size of any award.

1:04:40 Last question. If Samsung have infringed, then Dai will have lost out as well. Would they have any means to recompense? Dai aren't connected to our IP, so they don't have a a recompense there. Clearly, Dai, an enormous company. They already have multiple commercial relationships with Samsung. I'd be speculating if I said, you know, I don't know if they've already negotiated you a better price on product a because they lost out on product b, etcetera. But I've done I'm part of this lawsuit. They're not joined to this lawsuit. I don't believe they were deposed or by either side in respect to the lawsuit. So they've certainly lost out, but they've got and have had other ways of making money, obviously, still supplying Samsung with various materials, etcetera.

1:05:28 But other than that, I I can't really speculate on on, you know, what they would want to do, etcetera. So that brings it to the end of the questions that were submitted online. Thank you. Thank you very much for that. You've been very generous with your time, and you actually managed to address all those questions from investors. And, of course, the company will review your questions submitted today, and we'll publish those responses 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? Okay. Thank you. So just to to reiterate what I said a couple of times, 2022 is gonna be a big year for the company from an organic business perspective because we believe we're going to get that visibility in production orders. But, also, you've got those two big set piece events on the litigation. One locked in for the IPR decision in May, and then our expectation that the trial and the verdict will happen in the second half of the year.

1:06:27 And as I said, our confidence in both of those, because we continue to deliver, because, you know, we and our adviser, you know, on the litigation are making good progress, We expect all of those things to create further positive momentum for us, the organic business, and for the litigation over the over the next eight to twelve months. And we look forward to updating you on those events, you know, later in the year on individual announcement basis, and also, obviously, when we get our full year results, which will be announced sometime around September, October. Okay. Brian, Liam, thank you very much for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

1:07:14 This will only take a few minutes to complete, and 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.