Nanoco Group plc (NNOCF) Q4 2022 Earnings Call Transcript

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Nanoco Group plc (OTCPK:NNOCF) Q4 2022 Earnings Conference Call October 21, 2022 5:00 AM ET

Company Participants

Brian Tenner – CEO

Liam Gray – CFO

Conference Call Participants

Operator

Welcome to the Nanoco Group plc Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and could be submitted at any time via the Q&A tab that’s just situated on the right-hand corner of your screen. Please 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 of the questions that are submitted today and publish responses where it is appropriate to do so.

Before we begin, I’d like to submit the following poll (ph) and if you give that your kind attention, I’m sure the company would be most grateful.

And now, I’d like to hand you over to CEO, Brian Tenner. Good morning, sir.

Brian Tenner

Thanks very much, Jake, and good morning to everyone who’s listening. So this is Brian Tenner, CEO of Nanoco. With me, I have Liam Gray, our CFO. We’re going to run you through the highlights or the main points coming out of the analyst presentation that we gave yesterday. We won’t cover everything because there have been quite a lot of questions and a lot of detailed questions submitted today.

So I want to use as much of our time as possible answering those questions. So if folk want to have a more detailed run through of the presentation deck that we’re using today, the best advice would be to go to our websites and listen in on yesterday’s presentation where we turned every page. Whereas today, we’ll be really drawing out those highlights.

So without further ado, I’m turning to Slide 3 in our deck. Just looking at the highlights of what we’ve done over the last 12 months. And from an operational point of view, all of this is basically added momentum so that we’re now generating longer term commercial visibility. So just looking at what we’ve done. We signed a major full-year contract with a European customer working in the sensing applications.

Previously, we’ve been working on three months, six months type rolling contracts. So it was gratifying to get a full year contract extension in that full year and three of the deliverables. The first-two are to get two different materials to a fully validated for production readiness stage before the end of the contract. Contract ends in May ‘23, but we expect to be ready ahead of with those two products.

And the third deliverable is actually developing a brand new material-based on a brand new material set for that customer, all of which is evidence of their long term commitment to this aspect and these types of sensors. You’ll see later on, I’ll talk about what we’ve actually done in detail in the sensing area and we’ve significantly expanded both the number of customers that we’re dealing with, but also in the number of materials and material wavelength combinations and you’ll see that later on.

From a litigation point of view, back in May, the Patent Trial and Appeal Board validated all five of the patents that we had brought in this case and all 47 of their associated claims. And basically, the story of this year from a litigation point of view is, we’ve successfully cleared every single hurdle in front of us and cleared them by quite some margin. Obviously, there’s still hurdles ahead, but having not already fallen, we’re in a good position to take the last few hurdles.

And then finally, again from an operational point of view, we’re almost completely out of our Manchester facility and the last shutdown and dilapidations of that will happen just before the end of this calendar year. Our operations are already up and running in Runcorn and we’re just recommissioning a couple of more processes and that process will complete to save us around 700,000 tons a year once the consolidation is complete.

Just very quickly on the financial highlights. Twice during the year, we raised revenue expectations and each time we achieved those expectations. We also delivered further savings during the year and those will then add to the extra savings we’re expecting from the Manchester exit. But it basically means that our cash costs which were around are just above GBP400,000 a month. They’re now actually below GBP400,000 a month.

Then in June, we had an equity issue that was very significantly oversubscribed and we took the opportunity to raise or issue the full 5% allowed to issue under our AGM resolutions. And that raised GBP5.4 million net for the company. So the combination of that improving commercial outlook that fundraise and the reduction in costs and expected further reduction in our costs means that our organic cash runway stands comfortably opt into calendar year 2025.

And that is actually beyond the point in time at which we expect to be self-financing. So actually, assuming we achieved that target of being self-financing before calendar year ‘25, then our cash runway actually will extend indefinitely as long as we can maintain that position of actually being a self-financing business. So those are the highlights for the year.

Just going over the Page, just a very simple summary. We’ve got three key sources of value in the business, two of them are organic, one of them is litigation. The two organic sources, one is in sensing market, sensing applications, That’s a lot of stuff I was just talking about in the highlights. And there, we are, as I mentioned, getting closer to production and our customer has still got published road maps, it says they are going to be in commercial production in calendar year ‘23. So that’s why we are confident that we will be in commercial production in calendar year ‘23 as well.

And the other organic side of the business is display. It had been very, very quiet for the last couple of years. Almost all of our organic activity was focused on sensing, but it’s been pleasing again this year that actually interest in both Cadmium Free Quantum Dots solutions, but also specifically in Nanoco has been growing. And we have reengaged at an early stage under the small scale with a number of potential display customers.

And of course, people all know the display market, most of the players are very large and a bit like the sensing market. If you can get designed into a product, if you can get into an application, then it almost immediately presents you with significant volumes. And when I say significant, what I mean is the sort of volumes even at a small scale that would get us to that self-financing level of income in the business. And again, just as a reminder, we estimate today our breakeven revenue figures around 5 million tons a year.

And lastly on the litigation. Again, I mentioned we cleared over hurdle, [indiscernible] about it later. There’s a couple of detailed slides on it. But again, we want all our IPRs the nature of the decision by the PTAB in rejecting Samsung’s applications for those IPRs gives us confidence actually that even though Samsung are appealing those. We’re in a good position to resist those appeals and actually win them and have our IP fully validated thereafter.

I’m just going to now skip a slide. You’ll see Slide 6, there’s a little bit about market, market opportunities, that’s the kind of thing, if you want a more detailed picture and just listen to yesterday’s webcasts, some of the information in there, it repeats from previous years.

So what I’m focusing on is Slide 7. So this is what’s explaining the things that we have done and the things we’ve achieved in the last 12 months, with regard to our sensing product portfolio. Again, you all have seen a similar graphical analysis before and what this is emphasizing back in early 2018, we were a one product, one customer company. The numbers inside the circles you see here are the number of customers that we’re dealing with either on that material or on that wavelength or whatever it happens to be.

And again, you can see from the legend, product started development, they moved through optimization, they go to scale up, they then go to production validation and finally, and the ultimate goal obviously is to be in production itself. And again, just to clarify, because [indiscernible] asked about what does validation mean? You actually have to validate your materials at every step of the way. So if you develop a brand new material, then you have to validate it. What does that mean? It means that you can replicate it and you can make it consistent recently inside these parameters.

Then when you optimize it for an application, you need to validate it again because it needs to stay locked, it needs to stay stable. Then once you put it through a standard scale up process, again, you need to validate it. And if you’re like, the big ticket validation is right at the end, when everything’s locked, everything’s stable, and you’re saying you’re now, it’s like in [indiscernible], you’re ready to launch, you really are ready to go into commercial production. So when we talk about end product validation, that’s what we mean. But just remember, there are various validation steps along the way.

And the last point to highlight on this chart is the where you’ve got the little black boxes outlining some of those circles below that’s where there’s been change or progress during the last 12 months. So that’s where we’ve increased the number of customer engagements. So for example, if you look at one of those boxes, now I’ve got five customers looking at a new material set B, we deliberately did not define those material sets A, B, C, and because some of the chemistry and some of what’s in them is confidential, if not trade secret.

And again, you can see that there are two products that are significantly further than all of the other customer product combinations. And that’s a near infrared application that’s already at the validation stage and has been for a while. But that’s the thing that, again, the validation for that should complete during the remainder of the — one year contract with the European electronics customer.

And you can see the second product that’s moved from optimization into scale up and that will also go through validation before the end of the current contract with the European customer. So it still remains our goal during 2023 calendar year to actually have one product in production and a second product validated for production.

And then going to go over the page again, I’ll skip the page on the market opportunity for display. Again, if you want to know more about that, just listen into yesterday’s webcast. So now, I’m just looking at what have we done during display or what have we seen as changes during display during the year. So I mentioned that we’ve had a lot more inbound inquiries and lot more interest and specifically in the Nanoco’s CFQD quantum dots for use and displays. That’s been driven by a number of factors. We’re saying that there’s increased awareness of RoHS, so Restriction of Hazardous Substances around the world.

There are a lot of TVs out there that still got cadmium in them and they’re still being made and they’re still being sold. We’re also aware that with increasing awareness among, the big name brands, certainly, and the big name Western brands about the implications of ESG, the environment, et cetera, but they are not waiting. They do not want to wait until RoHS becomes legislation and they’re obliged to change their ways a lot of them and I talking about trying to get ahead of the curve and get into more environmentally for CFQD type solutions for displays before they’re forced there by RoHS.

We also think that getting our core IT validated by U.S. PTAB and that’s actually raised risks in the minds of a number of players in the market. So we’re aware of competitors who regularly threaten people with their IP. But that IP that they’re threatening people which has never actually really been tested in court, whereas ours has. And so, particularly if we win the first run trial with Samsung, I think there are a number of market players, whether manufacturers or quantum dots, or consumers’ quantum dots in TVs and displays that can expect a polite letter from the Nanoco just pointing out our IP, the quality of that IP, and that it’s already validated in a IPR and in a court process.

You’ll also see that there are more devices that are talking about adopting as quantum dots into display. So whether that’s tablets, tablets phones, advertising boards, et cetera, et cetera. So that’s why there are appears to be some refreshing, reenergized new interest in cadmium-free quantum dots. So in terms of what that means for our actual activities, we’ve restarted small scale sampling for some potential customers. We’re discussing potential technical development agreements.

Again, the thing to remember about display is we already had fully validated from our perspective quantum dots for use in display. Unlike sensing where we’re actually starting with the materials where the development and so if I was referring back — referring to display in the same ways that we talk about and the sensing materials have to go from, development through optimization, et cetera. For the display dots, they’re already through development, they’re already through optimization. Number of generations are already successfully through scale up. And actually, from our perspective, they’re ready for final production validation.

So if a customer did decide to go for the Nanoco CFQD solution, you would not be looking at a two, three, four year development cycle that you see in Samsung. It could be anywhere between, 12, maybe 15 months just to get into the final device. So it’s encouraging. The one thing to emphasize, it’s still early days. And we’ll see where it goes from here.

Just turning over the page then. You will find — if you go to this deck on the website, there’s a recap of some key points about the litigation and the appendices. I’m not going to go through all that today just in the interest of time or yesterday for that matter. So key events in FY ’22, all I already mentioned about PTAB validating the Nanoco’s IP, all five patents, all 47 claims. We know that Samsung have launched Nanoco’s to appeal those. The appeals are expected to be filed in November 22, we knew that because they got, Samsung asked for an extension to the deadline to file those appeals, and that three month extension was granted. So November 22 for their actual appeals, around the end of ‘23, maybe early ‘24 of the outcome of those appeals.

As I mentioned earlier, the way in which Samsung’s original claims were rejected makes us confident. But purely from a statistical point of view, and again, just to emphasize that we’ve always told people, if 90% of people win and 10% of people lose, that’s interesting statistically until you find out whether or not you are in the 90% or you’re in the 10%. But purely from a statistical point of view, more than 70% of all PTAB appeals, the person — the opponents case is actually rejected in full, and it’s less than 10% were being accepted in full. The remaining 20% some of their case is accepted, some is rejected. So basically, you’re saying in 90% of the cases, the person with the patents. In this case, Nanoco comes out either with everything or at least with some of their patents intact.

The other big event in FY ’22 was a pre-trial conference. Again, Samsung were trying to have all of our experts struck out. They were trying to have all of our damages, models struck out. They were trying to have all of our damages, models, experts, struck out, and they were also seeking summary judgment to have the whole case thrown, like, i.e. for the judge to say there is no case to answer. It is over. And every single one of those was rejected. I’ll answer it now because it’s a question that has been submitted. Someone asks the question about the red dots.

Yes, we actually believe we do have an infringement read on Samsung in the red dots, but as we’ve explained before, the 12 hours of a trial, if you have to explain two different processes, two different ways of infringing, et cetera, et cetera., do cross examinations, do everything else, cover your damages, we were always going to narrow our case. So the fact that Samsung won that [Technical Difficulty] red dots were — we didn’t actually argue against it. So that tells you what we think about that.

And again, it was important, we didn’t think it was a serious or significant risk, but it clearly was a risk that there was a motion for summary judgment to have the whole thing thrown out. We haven’t talked about it at much because we only really talk about what we think are material risks but it was a real risk and the judge dismissed that motion. And that by dismissing that motion, the judge was basically saying, right, this thing is now ready to go trial. And that’s why I use the phrase, we are going to trial because the judge said we work because he threw out the motion to dismiss.

But all of this is in allied, those who are watching the case closely allowed us to focus our case much more narrower down to just a couple of patents and a handful of claims we’ve also reduced the number of damages models we’re going into courts. And again, that is just simply a reflection of the fact to emphasizing that we’ve got 12 hours cover everything, present everything, cross examination. Those trial typically starts on a Monday, doesn’t have to, but there are five days long and it ends on the Friday with a verdict. And everything that goes with that, which I’ll come into just over the page.

Again, we’ve been bumped a couple of times from the trial scheduling and undoubtedly from the court and the judge’s perspective, there is a logic to what’s going on. Unfortunately, we’re not privy to that. So, we went from being second in the schedule to being six in the schedule. We understand now we’re forcing the schedule and that doesn’t mean you are going. It doesn’t mean you’re not going.

And the worst case scenario, we are advised by local consul, the worst they’ve ever seen or the hardest to deal with is being told on the day of the trial when you’re there expecting and you’re sitting outside the courtroom and being told it’s not happening, see you in a month. So, normally, the court is conscious of people’s time and money, and they do try to give people advance notice, but they can’t always do that.

So usually, you find out a week or so in advance whether you were scheduled, second, fifth, sixth, do you either get released or you get told you are number one and you’re going? And wait until the markets that when we are confident that we are going, that’s when we’ll do our next up did rather than just comment on being in a schedule because it doesn’t really add up too much. And the last thing we did during the years, we filed suit in Germany. And again, as we said, we’re reviewing options in other territories.

Just going over the page then, the litigation timetable. And this is an indicative timetable, some of these processes are more tightly controlled by statute and regulations. Some of them are subject to so many different moving parts and decisions to appeal and then extensions for appeal, et cetera, et cetera. But just in real summary, the IPR process, so the validity process, the Patent Trial and Appeal Board process, that is a more controlled, more tightly controlled regulated process.

So as I mentioned earlier, we’re expecting the actual appeals by Samsung to be filed in November of 2022. We’re expecting then the answer between 12 and 15 months later. So around the end of ‘23, early ‘24. And I’ve already talked about, statistics and confidence and likelihoods, et cetera, around the PTAB process.

If you then turn to the trial and the potential appeal timeline. And so jury verdict, we are estimating that could be before the end of this year. We know there are two more trial dates for the end of this year. One is 31st of October and one is 5th of December and we then know that there are two more trial dates in January, two in February, and one or two in March.

Again, just to be clear, only one case can be heard each week because there’s only one judge dealing with IP cases in the Eastern District of Texas or rather we’ve only got one judge. We can’t go to a second judge or a third judge. So our judge can only hear one case whenever he sits and clearly he’s got other stuff to do between trials. So it could be before the end of this year, which would be nice. But equally, it could spill into the first half of next year.

You shouldn’t read anything into scheduling. There isn’t anything to be read into scheduling. It is just a thing. So you will then get a jury verdict. And if that verdict is successful, there will be a damages awards, so the jury will specify a number. They will specify if it was deliberate or if it was willful. And they will specify if that covers all damages or just the past. Immediately after the trial, there’ll be a whole bunch of post-trial motions. So these aren’t appeals. These are just procedural objections. It’s just try and get things redone or throw an eye to or start it again or whatever it happens to be. They’re the normal part of the hurly-burly, and they’re normally a lot of them because people don’t want the judge writing certain things in his final reports, so he’ll be looking to have things struck out, et cetera. So it’s extremely tactical.

Whether it’s three months or six months later after the verdict, then the judge will issue their formal written opinion. So if there’s been a finding of willfulness, the judge will decide on the multiplier. Again, we’ve explained that can be up to 3 times, but in Texas, it’s typically around 1.5 times multiplier. If the jury have also said that their damages number only applies to the past, then the judge will work out what he thinks. is an appropriate running royalty.

That running royalty could be based on the verdict for past damages. It could be bigger than the verdict for past damages. It could be smaller than the verdict for past damages. There are a whole host of ways of calculating that number. It just has to be done reasonably. And unfortunately, that’s all the guidance we can give. Some people say running royalties, shooting [indiscernible] on this multipliers because any future infringement is obviously deliberate, if you’ve been fined guilty of infringing.

Other people saying, no, that’s a special one off because you didn’t know up and until that point, so you should be penalized for the same basis going forward or whatever it is. So there are arguments both ways. So again, you can’t automatically assume that the any running royalty will be bigger or the work or the same and you just know that there will be one.

After the judge’s issued his formal opinion, then, so again, around Q2, Q3’ 23, that’s when both parties can submit their formal appeals. This is a piece of the process that then I won’t take how long to piece of string, but it can go on for some time. Now, again, we’ve got an advantage. We’re in Texas. Things move relatively fast compared to some other territories. But those appeals could at last, the hopeful appeal process could take up to three to four years.

Why could it take so long? Well, when I come up in the appeal is a retrial, go back, start again. You want a jury to give you a decision on a very verdict, decision on both on this, a decision on damages, et cetera, et cetera. You could have an appeal that says, actually, we’re happy with the verdict. We’re happy with — with on this, but just we don’t like the damages to go back and have a damages trial lonely. And if you look at the trial that we were bumped for, but in the early September PNC against GSAA, that was a trial just by damages. So that’s why that process could take a long time.

And all of that I have to emphasize presupposes that there is no early settlement. But, of course, any settlement, any early settlement, it’s going to be up to Samsung if they’re prepared to engage on meaningful discussions about fair value that reflects the global nature of our patents and the lifetimes of our patents. So that one to a large extent is outside of the Nanoco’s control.

The reason that we’ve highlighted the German injunction on here is that when faced with an injunction, most companies, certainly in Germany, will very rapidly enter settlement negotiations because nobody wants to be banned from selling their product. Now this process isn’t without risk. The potential German injunction could be awarded in 2024, but the actual validity decision won’t necessarily be taken for another six months.

So if we impose the injunction in March ‘24, we might have to put up a bond for loss of profits for Samsung, which would clearly be a significant amount of money, whereas we’d have the option to wait another six months and if deliberately was confirmed, you’ve not got injunction. You’ve not got oh, sorry, you’ve not got infringement. You’ve not got validity. Yes, there’d be appeals processes, but it’d be a much lower risk to put in a bond there if you wanted to reinforce that injunction.

And again, all of these things and the extra lawsuits around the world, they’re all designed to put pressure on Samsung to be reasonable and actually engage in some sort of sensible settlement discussions.

So that’s it from me. And I’ll just hand over to Liam, who’s going to do a quick run through on financial highlights.

Liam Gray

Thank you, Brian, and good morning, everyone. So a lot of the financial highlights for the year ended 31st July 2022. We’ll start with the top line. Our revenue and other operating income has increased by 24% from the prior year. The operational leverage in the business along with the cost savings we’ve implemented previously. [indiscernible] has had significant impact on improving the Adjusted LBITDA by 26%. And then as we communicated previously, looking forward, we expect our revenue for FY ’23 to increase by about 20% on FY ’22 with a very similar cost base this year.

If we look at our cost base, in early calendar year ‘22, we decided to consolidate our operations into the Runcorn site and close the Manchester site. The closure of the first floor in Manchester was completed in FY ’22 and we anticipate the completion of the exit of the ground floor in Q2 or FY ’23. Given the tight cost control over previous years, we are investing more money in our staff and have had the companywide pay rise in addition to other benefits and intend to continue to invest in both our people and the office environment in Runcorn.

And then coming to cash, the fundraise we completed in June ‘22 raised GBP5.4 million net of fees and takes our cash runway up to calendar year ‘25, which has passed our expected breakeven point.

Moving on to the income statement for the year. This shows our FY ’22 income statements compared to FY ’21. As mentioned, the revenue increased GBP0.4 million to GBP2.5 million in the year. This increase has been driven by the work we are doing with the European electronic customer, with increase in both services revenue and the products sold. In addition, there are a number of other projects in both Sensing and Display that have contributed to this increase.

Other operating income increased year-on-year due to the completion of the grants relating to the development of a COVID-19 diagnostic test. Other cost of total fallen in the year, reflecting our reduced cost base.

Moving down the table, our based payments and associated charge have increased, due to the increase in the company’s share price year-on-year. And then we have depreciation and amortization, which largely in line with prior year, but these will fall next year due to the closure of Manchester site.

And finally, we have our R&D tax credit of GBP0.5 million been offset by the full year impact of interest on the low notes taken out in July ‘21. But a key metric for us here is the adjusted LBITDA, which has fallen GBP0.7 million from GBP2.8 million in the prior year to GBP2.1 million in the current year.

So the next slide, shows our revenue and billings. And we’re going to skip through this one and next couple and just get to the summary so that Brian can do the Q&A at the end. A financial summary. Regarding FY ’23, we opened the year with a contracted order book of GBP2.1 million which is more than double the opening order book for FY ’22. Based on our current pipeline of work, we anticipate revenue being approximately 20% higher than that of FY ’22.

Our cash cost base remains similar with some savings from the reduction in property costs being offset by increased elsewhere such as payroll. That doesn’t mean our breakeven revenue point is now around GBP5 million. Non capabilities, we now have all staff waiting on one site, which provides with operational and financial benefits. All staff are working on revenue generating work and the production facility in Runcorn when operating the full capacity generates around GBP130 million of revenue.

And then on cash, our average net monthly cash burn is now below GBP0.2 million. As mentioned before, the business has strong operational leverage. So any further commercial wins will have significant impact on both LBITDA and cash. And finally, we believe our current cash resources are [Technical Difficulty] expected breakeven point. And apology if you have a fire assist. [Technical Difficulty]

Apologies for that to interlude, but I think that was me finished on finance. So with that, I’ll pass you back Brian to summarize, and then we’ll move on to Q&A.

Brian Tenner

Okay. Thanks, Liam. So just a summary of the year on what Lim has been alluding to in respect of FY ’23 as well. So we are still saying, we are participating in the global markets for both Sensing and Display. And the sensing market are constantly getting bigger, more players are coming in, more players are looking applying quantum dots into their solution stacks. And say, it’s gratifying that on display, things certainly from Nanoco’s perspective seem to be reenergizing with a number of new engagements.

By keeping the open our Runcorn facility, we have retained our capability for large scale production in both markets who in sensing and in display. In sensing, that extends to many hundreds and millions of units or the equivalent hundreds and millions of sensors from our material. And on the display side, it’s handfuls and millions of TVs. But when you consider that the entire market out of some outside of Samsung for CFQD TVs is less than a million. We could actually service the entire market if we needed to from the production so we do have and it could be expanded relatively simply at relatively low cost.

I just want to emphasize success in either of those markets those get us to that breakeven point clearly and that’s just the first goal. We want to get into commercial production, then we want to get to breakeven, but the revenue generating capacity of our facilities is such that we should be able to push on strongly into much higher levels of revenue and profitability heading in that medium to longer term.

In terms of outlook, we are expecting this year, say, the incremental revenue growth as we move into production. You’ll see in our actual detailed preliminary results and in our annual report that we have assumed that we have a very small — actual commercial production starting at the back end of this financial year. So around summer, around June, July 2023. That’s consistent with our expectation of being in commercial production. Again, we’re being conservative.

We’re assuming that is a low volume used case, that it won’t involve a mobile phone handset. It’s more likely to be, an application in whether it’s headset, glasses, agriculture. Just something not significant volume, but from a substantive and qualitative point of view, absolutely transformational for Nanoco and that it will be our first actual commercial product being serviced on a global level since the company started up back in 2023.

We already mentioned our organic cash runway extends out to calendar year ‘25, which is beyond the point at which we expect to be breakeven. So it’ll be nice not to have to just constantly be worried about running out of money. What over the last few years is felt like every six to twelve months. And both display and sensing market opportunities to our mind is part of our strategy. They’re both a clear path to breakeven in the short to medium term. And as I’ve said, short to medium term means at the latest by calendar year ‘25, if not before.

So in terms of the value in the business, there’s still the transformational potential in the Samsung litigation. We are expecting that trial relatively soon. Still expect visibility in late 2022 on potential sensing production revenue in 2023. Just to be clear, visibility does not mean an actual PO. It does not mean actually in production, it could. But it means more just confidence that actually, yes, we’re in the final stages of product validation and then just awaiting customer orders.

And so effectively, we’ve got two twin tracks to significant shareholder value growth in the short to medium-term. One is the organic business, whether it’s free display or sensing, and the other is the sensing business.

And that brings me to the end of the presentation. I’ll hand you back to Jake for just a second where we gather our sales for the questions that we’re going to be going through.

Question-and-Answer Session

Operator

Brian and Liam, that’s great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that’s situated on the top right-hand corner of your screen. Just while the team take a few moments to review those questions that were submitted already, I would like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard.

Liam, Brian we did obviously receive a number of pre-submitted questions ahead of today’s event as well as, as you can see in the Q&A tab itself, a number of questions have made their way through during today’s presentation. So thank you to all of those on the call for taking the time to submit their question. And if I could just hand back to you to address those where it’s appropriate to do so, and then I’ll pick up from you at the end. Thank you.

Brian Tenner

Okay. Thanks, Jake. All right. So I am going to have to talk faster than normal. And apologies, if the Irish accent gets in the way, but I think we’ve got more than thirty questions that we need to answer and we will kick off immediately. So question one, could we seek an injunction against Samsung to stop them selling products with Nanoco’s technology as opposed to merely trying to recover damages as that might bring them to the table to negotiate the settlement or agreement if successful?

Simple answer is, it really depends on the jurisdiction. So in the United States, I think we’ve already explained, if we were a direct a competitor, i.e. if we need TVs, then you’ve got a chance of getting an injunction, but the truth is the U.S. preferred model is financial compensation. So no, you will not get an injunction in the U.S. And I say that even though our claim asks for one. You always ask for one, and you’ll never get it. Okay? So — and so that’s the U.S.

Whereas in Germany, actually, the only remedy that you seek is an injunction. Damages comes afterwards. If you get an injunction, then you can have a negotiation about money and financial compensation, et cetera. But the standard remedy in Germany is an injunction. Other territories the simple answer is it depends. There’s a whole range. Some of them, it’s almost impossible getting injunction. Some of them like Germany. That’s what they give you.

Others at somewhere in between, others you could get those. So it really does depend. But we’re absolutely conscious of the fact that a potentially injunction in Germany we persuade Samsung, potentially to change their stance in any discussions or appeals processes going on in other territories such as the United States.

Question two. On reading the court papers in the public domain, Samsung appeared to have reasonable grounds to question Nanoco’s patents on validity, on sufficient patents deliberately on sufficiency. And there’s an unresolved argument between experts regarding the appropriate level of [indiscernible]. Please can you provide investors with more comfort on these points?

Okay. The really, really high level answer is, and I think we made this clear at the start of this whole process is, we are only going to comment on material risks and issues. And if I give you an example, if every time I talked about production coming out of Runcorn, I had to talk about the fact that there’s a risk of the facility being hit by a plane or going on fire or burning to the ground. Yeah. It’d be a very, very long winded process.

So on the specifics of these two, yes, theoretically, they are open issues but does the company feel any need whatsoever to make any comments on them? No. We get. So like the factory point, yes, is a fire risk a real risk? Yes, it is. Of course it is. But do we feel any need to comment on it? Every time we talk about production? Absolutely not. Clearly, you know that we’ve got some of the best lawyers in the world working on this, and we do follow the advice. Do we think that these are material risks that we need to comment on? No.

And the last point that I’d ask you all to consider is, in the same way, Nanoco only have 12 hours in this upcoming case, so to Samsung. And if they want to look at, theoretical, highly technical arguments to persuade a jury of laypeople of a point, Well, that’s their choice if they want to do that.

And next question, can you provide guidance on the time line of the German funded lawsuit? I think I may have already covered this that expect an infringement decision in March 24. And if we win, we can impose an injunction. If we deposit a bond for lost profits. Alternatively, we could wait until October 24, which is roughly when you get the decision on validity of the patents. So then you’ve got validity and infringement. So, again, you could still go for an injunction, obviously, much lower risk there or you can wait for the appeals processes.

And if you win the appeals processes, assuming there are some, then actually, you can go and impose the injunction. And obviously, you don’t need a bond because it’s being fully resolved in your favor. So that’s the timeline of the German litigation, and you can see that it does interweave with the U.S. litigation. And clearly, if we bring actions in any other territories, or any of the other territories we’re evaluating. One of the factors to consider will be whether or not that positively interweaves with some of those other processes to bring extra pressure there in the process.

And question four, and looks like it’s got about five or six embedded questions in it. And question one, I saw the note that Samsung litigation will proceed with focus on Samsung’s use of IP for green dots only? Can you say whether we think they infringed on red?

So red and green have got different processes. Yes, we do think we have an infringement read on the red dot, but as we’ve explained previously, we had the narrower case. And again, having to explain two different processes, two different infringements, bunch of different evidence, expert testimony, et cetera. We were always going to drop down to focusing the case more narrowly. And it’s also worth bearing in mind there are 4 times more green dots than a red dot in the TV, and it’s much, much harder to make a green dot than it is to make a red dot.

So if you’re talking about the relative value of green or red, you would much rather have an infringing green dot than an infringing red dot just because there’s 4 times as many and just because one’s a lot harder to make meaning, actually, the person who’s adopting the technology has taken even more shortcuts if they’ve actually copied the really hard method rather than copying the most simple one. And as we’ve said before, the time that we’ve got to actually present to our case just means that we can’t cover everything. So that’s why we’ve narrowed the case.

Next question. How does winning all of the patent challenges affect the strength of your position in sensing? So the very, very simple answer is that on material set A, so the products that we’re hoping to go into commercial production in calendar year ’23, these patterns have no connection whatsoever. Yeah. The sensing material set A is not a CFQD. It is completely different. So the idea if there’s any connection between those two materials and the IP sitting behind them, get that out of your head, there is no connection.

However, material set B and C, and when it comes to D and E, are actually very closely related to CFQD not commercially, they’re further away from us. All of those products are in the development stage. But the simple answer is the patent wins in the U.S. they’re on CFQD. They’re relevant for display. They’re relevant for lighting, et cetera., but they’re not relevant for the immediate sensing opportunity, but they are relevant for future sensing opportunities, and material sets, B and C. So hopefully that answers that part of that question.

If your sensor customers were to bring in a second supplier in the case of high demand, that second supplier need to license the IP from you. So the truth is, if they were using any Nanoco IP, no higher trade secrets, then yes, they would have to have a license. However, as we’ve explained in the past, on material set A, we do not have as much IP there as we do on B and C and this is a more broadly known and understood process. So it’s theoretically possible that someone could find a way make the identical product, but in a different way that wasn’t infringing our IP.

And whether or not that’s easy or likely, I don’t know. But certainly, our agreement with our customer specifically says if a second supplier is being brought in, then that second supplier, if they’re going to use any of our IP, they have to take out a license. And it’s also worth noting that our contracts with our big customer specify are minimum share of any future volume, which therefore limits the participation of second sources. But of course, these supply chains are important enough that there has to be a second source. And so inevitably, there will be a second source. Well, of course, it’s always possible for the customer themselves to be the second source and have an in-house fallback second source.

Next question, should we definitely expect a trial now? Has the window for a negotiated settlement closed? I think you can see in the court papers that have been submitted, they’re publicly available that actually there was an open window before this case even started. You know, we were talking to Samsung for a number of years before Valentine’s Day back in 2022, when we actually first filed this suit. The truth is the window is always open, and I mean, always open.

The question is whether or not there any messages passing through it. That’s another question. But the truth is the window never closes. Again, to give you a real life example, and one of our advisers had a case that settled while the jury had retired and were considering their verdict. So, there were settlement discussions going on during the first four and a half days of the trial and while the jury was out a settlement was reached. So there is no cutoff. There is no point of time at which a settlement becomes impossible. It’s all just down to whether or not the parties can actually get close enough together to actually make it likely that there will be a settlement.

But one thing to remember is, people know, I think they’re familiar with only one in 20 cases gets the trial. Well, the ones that do go to trial and then there’s this successful verdict or a verdict one way or the other. Only a tiny proportion of those actually end up with a legally enforced judgment. The rest, settle in some way, shape, or form at some point after that. So, statistically, it wouldn’t surprise me if more than 99% of all cases settle, whether it’s before trial, during trial, after trial, and it’s only a tiny, tiny percentage where you end up with all the appeals exhausted and the U.S. Supreme Court’s basically telling someone pay up.

Next question. I’ve seen some positive comments recently here around the promise of compound semiconductors for infrared sensing? Are we able to comment? Well, effectively, that is what we are working on, a CMOS sensor with quantum dots attached to it. That’s putting quantum dot on to a compound semiconductor. CMOS sensors complementary metal oxide semiconductor. And there might be more technical aspect to this question that my law degree is furthering (ph).

If there is, he ever submitted this one, feel free to write to the company, and we can explain in more detail. But basically, this is what we’re about and a CMOS sensor with quantum dots. Again, if you look in the pack we presented today and yesterday, there are significant advantages over naked silicone (ph). And also the main advantage against in gas sensors is the fact that they’re between one hundred and a thousand times cheaper. And for a CMOS sense of quantum dots than to go the in gas solution. So fundamentally, that is what we’re about applying quantum dots to combine semiconductors for sensing applications.

And next question, what does Nanoco learn most from its ongoing litigation with Samsung? And sort of question that inspires either rude or cold live answers. So I’ll avoid all of that. I think the thing to be clear about is every single piece of confidential information from Samsung’s perspective, Nanoco has never seen. Our lawyers are allowed to say it. But, if I ask our lawyer, so how does Samsung meet their quantum dots?

They just look at me and say, well, I can’t tell you that because it’s confidential. So if someone was thinking that we were learning their secrets through this process. And the theme applies in reverse. Anything that we marked as secret or confidential, Samsung won’t have learned it’s a moot point whether or not Samsung did all their learning during the seven years that we worked together. But the whole point is in saying that we haven’t learned much if anything, about Samsung and its process during the ongoing litigation.

I think one thing that we can say is that our confidence that Samsung and infringing has grown, and that’s why we carried on with this process, not just goes to success at PTAB and another litigation points. But, yeah, we are confident through the process, and our advisors are confident through the process that, we have got a strong case.

We’ve also grown in confidence that anyone making CFQD is likely to be infringing our patents. And when they say anyone we mean, anyone, making cadmium-free quantum dots, because we don’t think there is a an easy way or a way to actually make them at mass scales and infringe on some of our core seating patents, et cetera. I guess the other thing we’ve learned is that, about the U.S. litigation process, but we’d hopefully. Well, you never know, we may have to go down this route again with another company, but we’ll see. So we we’ve learned a lot but certainly nothing that would be confidential with commercial from a Samsung perspective.

And question six, if Samsung wins its lawsuit. Sorry, if Nanoco wins, its lawsuit against Samsung. Then Nanoco expects Samsung and its current display customers to the end source from Nanoco? And simple answer is no. The typical solution in the United States, whether negotiated or imposed, produces a license so and a licensed payment. That license is a licensed to make or have made. So it is almost inevitable that if when this and case against Samsung, the U.S. ends that Samsung will be able to legitimately and legally carry on using their current supplier and so as a source of quantum dots.

And as I said before in the U.S. this is not an injunction territory. So we get financial compensation. It’s possible that you could try to negotiate being a supplier. But, equally, Samsung could turn on and say, we’ve got a well-established supply chain, and we’re happy with call it, these standards, et cetera, et cetera, we do want to interrupt that. So therefore, we want to stay with the current suppliers. So the simple answer is no. We don’t expect an Samsung or its current display customers to have to source from Nanoco.

Next question was, so what sales volume is anticipated? Well, the same answer, if we’re not going to be supplying Nanoco with quantum – sorry, Samsung with quantum dot then there wouldn’t be sales volume.

What leverage — next question, what leverage will Nanoco have to force current customers if there’s still an IP to make future purchases from Nanoco? Well, again, it’s the same point. If Samsung have a license to make or have made, then they will be able to carry on selling to the other customers that they’ve announced that they’re selling their QD panels too. The reason that we don’t lose sight because of that is those QD panels will be subject to royalty payments that the same so if Samsung are selling the TV directly, we’ll have a royalty. If they’re selling it to another bigger OEM, we get a royalty. So we are being compensated for all sales of the infringing units.

And then the question was what options are available for accommodating this increased production? What would it say on the back of the Samsung decision? There won’t be. But as I mentioned earlier, when we’re running through the presentation, we have production capacity in our Runcorn facility for between 2 million and 3 million TVs, which is more than 100% to the non-Samsung CFQD TV market today. So it’s more than adequate for us to get a tool hold, whether it’s with the number two, number three, number four company in the quantum dot TV markets because their shares are only a couple of percentage points.

Question seven, please. Can you give us your anticipated time lines on the German litigation? I think we’ve already talked about that. Will there be a patent review in Germany before the court case? Absolutely not. I think, we said the German first decision will be next — did I say November 23. We’re expecting the court case, and whether it’s, the end of Q4 this year or Q1 next year.

Next question, are we currently proceeding with litigation in UK and China? And do you have the time scales for these, please? I mentioned in the past, and we named those two markets as markets were evaluating. And clearly, if we had — if we were litigating in those territories, that would be material news, and we would announce it. And we haven’t announced it. So you can take it that we are not litigating in those right now. That does not mean that we are not evaluating it or that we’re not taking steps to consider it or to start it, it just means we have not started.

And question eight, is the delayed court case likely to have an impact on the anticipated placing of commercial order for sense and quantum dots for the fourth quarter 2022? Absolutely not. As I mentioned, there’s no technology or material connection between the court case and material set A or generation one sensing material. So that’s from our perspective. Our customer might have a different view. Customer might be waiting to see what happens, but we don’t believe that’s the case because they’re wholly unconnected.

And question nine or any or all of the five patents for the PTAB decision used in the sensor technology. I’ve already said, not material set A, but yes, in sets B and C.

Question 10, are there any separate patents to the sensor technology? And if so, to what extent are they critical to the sensor application i.e. other ways people get around Nanoco and get to the same results with, like, licenses, et cetera. Again, this is similar to what I’ve said before. For material set A, and that material has been around for decades. Yes. We’ve perfected it. Yes. We’ve got some trade secrets. Yes. We’ve got some new high.

They don’t have much, if you like, filed patents on material set A, but we do in in the other material sets. And so simply on material set A, other people could try to make that, but we know it’s very difficult. It’s very challenging. We learned a lot working with the U.S. customer and not on the same product with the European customer. So we think we’ve got technological lead based on no high preparedness, the existence of a production facility, et cetera.

And next question, Nanoco have gone to court on three of the five patent groups. How does this lead the remaining two? For example, could these be taken to court separately? And the ones that we dropped, almost all of them were dropped without prejudice, meaning we can bring them back anytime we want. The only exception to that is in this case, I’m assuming in this case because Samsung actually had red dots excluded with prejudice and their motion, and we didn’t oppose that. We couldn’t come back on red against Samsung. But on everything else, it was dismissed or dropped without prejudice, so we could bring it back from the red.

Additional litigation action has been taken in Germany? Is this likely to be decided before the case in America? Well, I think when you see the timelines, you’ll see, we’re likely to have a verdict in the U.S. before we get an infringement decision in Germany. However, we’re not likely to have an outcome to a final appeal process in America before Germany. So some parts of Germany are ahead. Some parts are behind. But in general, more of the German decisions are earlier with the exception of the actual initial verdict, because it’s say end of this year, early next year.

Question 13, what determines where the court action is taken in other countries? At one time, for example, Japan was made to it. I mean, the — so the markets that we look at, A, Samsung need to be selling a lot of TVs there and B, we need to have IP coverage there. I think we’ve explained in the past and that we think we cover roughly by volume 80% or 90% of Samsung’s global TV sales with our patents.

I’ve already talked about you will take legal action, if you think it’s going to be fast, if you think it’s going to be cheap, if you think, it’s a patent called a friendly territory et cetera. So there’s a whole bunch of different tactical and strategic factors that decide whether toward action is going to be taken. I would like to think we do not have to see Samsung in every territory around the world. I would like to think whether it’s two, three, or four, key territories and that’s enough pressure in the mixer.

Next question, question 14. And mobile phones can be listened in to by third-parties. People can be located via their use. There’s potential for a substantial award to Nanoco, so the stakes are high. What steps are being taken to ensure the jury is not being noble. And so besides our normal, our own normal level of security around our own networks, et cetera. I mean, I think this question, if Samsung actually — I mean, this question almost isn’t worth answering. The idea that someone’s going to train noble and jury is a whole different level of criminality, that is just — it’s a it’d be unconscionable.

So I would put that in the yeah. It’s theoretically possible, but the idea that it’s going to happen call me naive but anyone engaging in that, the repercussion for them would be enormous. So I don’t really see that as a real risk. But, obviously, we’re careful with our information, with our communication, with our networks. We do get our offices swept for bugs, et cetera., on an infrequent basis to make sure that, our networks aren’t uncompromised or tactics in our approach are not being compromised.

Excuse me. Next question from the statement you released with the results. Are you noticing that the U.S. court case is not likely to go ahead until H1 2023. No. Not saying not at all. There are two more dates for Christmas. There are those six I mentioned after Christmas. We don’t know. What I can say is when we are told, and firmly told that we are going first. We have to announce that to the market immediately. Again, it’s something we had noticed in some of communications.

The bad old day of companies being able to hold on to information for a couple of days to coincide it with the results announcement or I want to do it tomorrow morning at 7 o’clock. Those are longer, the market abuse regulations you will have seen. We will announce contracts, 2 in the afternoon or 4 in the afternoon and people will ask, why didn’t you do it at 7? Simple answer is market abuse regulation. So you have to do it as soon as humanly possible, which means, sometimes you got 30 minutes or in our turn on these things.

If the markets are closed, you can probably wait till the next day. But, yes, as soon as we know that we are going to court, and we’re fair number, number one, then we will tell the markets. And clear, if the judge got sick on the day of the trial, it would all be off again. That’s another of those risks like the one earlier about sufficiency, et cetera. We won’t necessarily comment on those. But no so we’re not saying it’s going to be H1 ‘23. We’re just saying it should be H1 ’23 and I guess I’m saying Q1 ‘23 and if it’s not Q4.

Next question, are you aware — this one was submitted directly to the company, actually. So this has come from our website. Are you aware of any other CFQD manufacturers that are potentially infringing Nanoco patent that I pay? I think I mentioned earlier, we do not think it is possible to make CFQDs in any volumes unless you’re infringing our IP. Now there aren’t many companies around the world at Nick (ph) and CFQD in any sizable volumes. You’ve obviously got our sales. You’ve got Hansel, who we know we’re supplying Samsung. And there is one, maybe, two others, but that’s it.

Next question. Are you aware of anyone that is able to legitimately manufacture CFQD that doesn’t infringe a thing? That’s — yeah. That is the answer to the previous question. No is the simple answer. And we don’t think you can manufacture CFQD at scale without infringing. our technology. And rolling through, so that was all the pre-submitted ones.

Jake, you’ll have to show to me if we’re supposed to cut it off, but I’m going to try and answer as many of these as we can. Should there be a settlement with Samsung when the shareholders being informed via an RNS about the total amount of the settlement or about the amount Nanoco receives after deducting the percentage of the fund, or I assume that Nanoco has to inform the shareholders of their mind or is there a scenario where shareholders do not have to be informed? And this one could just goes back to the simple and very clear rules about market abuse and the release of inside information. There is new world whatsoever in which we could settle this case and not tell shareholders what it means.

Now, that does not mean that if the agreement rules of 55 inch TV’s got a 0.75% royalty and a 65 inch TV’s got a 1.1% royalty. You would never see that level of detail. But it’s absolutely the case that we would as company have to evaluate what we thought that settlement meant, including if there was a payment over five years, we would have to discount it. We’d have to pick a discount rate, but the market would have to be told this is what we think this means because that’s the legal obligation in any RNS.

We have to tell you all of them important information, all the material information, all the inside information, but not all the commercially sensitive information. So there is new — again, I’ve seen the same question as would we then just find out the next set of results. No. You’d have to — you would find out what — we might take 24 hours to talk to advisers particularly if it was over the weekend. But we’ve got new choice but to inform the market and what it means. You might not get all the detail that you want, but you would get enough to be able to make an informed decision.

And if Nanoco wins the legal action against Samsung or a settlement is agreed, will the financial details? Oh, it’s the same question. So, no, you will not have to wait and see it in the accounts, and you’ll be told, it’s an X million dollar lump sum and it’s what we estimate is going be Y billion a year for a Z number of years. And it’s going to be that level of information. If there are any material risks to it.

So for example, if it was a Y million a year dependent on the number of sales, then we would estimate without putting it into commercially sensitive numbers. What we think that amounts to, but we, bluntly, as I say, any announcement has to include enough information to the reader of that information can actually figure out what it means.

Next question. You’re more or less assuming that we should see visibility of a commercial order in H1 FY ‘23 by January 31 probably start production in the H2 FY ‘23. I’m assuming you have a good idea of what the product is and what the size of the order is? You don’t have to give an exact figure, but can you give us an idea of what kind of revenue we’re talking about less than half a million, half a million a year, et cetera.

So the simple answer is, we know what our product is. We do not know what the customers product is. The reason for that is we know that our customer is exploring and they said it themselves and they’re active in a whole host of end markets. All of whom currently use CMOS sensors today, and it really is going to be about those end customers. And again, you can imagine when we were dealing with the U.S. customer. They actually keep some of that information relatively taped to their chest.

They do not want, the tail wagging the dog, i.e., the idea that Nanoco are going to announce that some global OEM is about to launch a product and because we’re a public company and have to make statements that aren’t going to happen. And the way that happens is that we didn’t know what the actual product is going to be. And that’s why we’ve said it could be a headset. So it could be a couple of million units a year. It could be something in automotive. You’re in the tens of millions a year. It could be in consumer goods. If it gets into a mobile phone handset, then you’re into the hundreds and millions of units a year.

But our assumption, and again, you’ll see it in the accounts and the preliminary announcement is that it’s a low volume case. And by low volume case, I mean, a few million pounds worth a year of production for that first order. If it ends up being bigger, great. We will inform people that it it’s a bigger order. But as I said before, actually getting into production means you’ll then grow in that ecosystem. You get into more products. You’ll get into more applications. And so it will be a key event whether or not it’s a small volume order or big volume order and say, we’ve got the capacity to respond to large volume orders but equally you can also service small volume orders.

It’s also worth noting that the smaller the volume, the higher the price obviously given that you’re recovering a fixed cost base over a smaller number of units. And we, as I think I said earlier, even a low volume initial use case with just one application in a short period of time would get us to a breakeven point. As I mentioned, breakeven revenue for us and I think Liam reiterated breakeven revenues around GBP5 million. So whether that’s a combination of the low volume production plus some continued R&D income, that’s what you’re talking about as conservative low volume initial use case assumption.

Next question, please. Can you clarify if the German injunction requires an IPR in Germany or if the validity of Nanoco’s IP can be approved by the USP tab outcome. Every territory is completely different. Unfortunately, you cannot add or any conclusions from winning in America. The German patent is actually written in Germany. No one’s going to be surprised for that. I don’t need to be glad. But the German words, the language, the statements, et cetera, they have to be tested in Germany.

So you might feel confident if you win in one territory, but it doesn’t actually have a direct legal implication. The German court doesn’t have to pay attention to what’s in the U.S. In Germany, you file an infringement claim a bit like America. Samsung, if they want, can invoke the equivalent of an IPR. And that’s why I was saying we could end up with an infringement decision before validity in Germany, which would be the reverse of what we got in America.

Next question. In the past, we have heard very often that this time there will actually be commercial orders unfortunately, investors have been disappointed in this regard. What makes you more confident this time that Nanoco will get its first commercial order in FY ‘23 on a scale of one to 10, where 10 is a 100% sure. And so freely admit, I think we referred to it as we’ve been to the Ultra before. So back in 2015, we were at the Ultra though. We were at the Ultra with Samsung and we got tilted. So I know there’s an in house joke that actually we have commercialized our technology. Unfortunately, it’s branded Samsung, and that’s why we’ve got the lawsuit.

We then have the U.S. customer. And again, we’ve made clear. They changed the design of their end use device, which is why we and we’re tilted that they Ultra that time. Nothing today with us. Nothing today with the product or its capability. It was just the end user changing the design of their device. This time around, I make confidence. So and the basis for those confidence, so it’s definitely more than five. Yeah. There is no way I’d put it up at 10 because I haven’t been jolted twice before and I was only here for one of those. Things can always change. You do not know what is going to happen.

But if you take the fact that our customer just signed up for a full year contract, they’ve already scheduled in the design of materials set B, which is part of the product life cycle i.e. A will go into production and B will one day replace that. So they’re taking a very long term view of this. They’re a huge significant player in the market. And I’ve already mentioned all of his other commercial customers that we’re dealing with on a sensing perspective. So, yes, some — you’re asking me to put numbers on this. So whether it’s a six, whether it’s a seven, whether it’s an eight, I don’t think I’d go to nine or 10 because I’m a conservative sort of person.

But I’d say on balance of probabilities, for me, it feels like a yes, it’s going to happen. But, of course, yeah. — there are all those risks out there, so it doesn’t have to happen. But we’re working very hard, diversifying away from one customer, one product that’s why we’ve got, seven or eight distinct customers, 12 distinct products and reengaging on display. So we’ve got a lot more arrows or a lot more bullets, whatever you want to call it, to shoot at the target. So that’s why I’d be more confident or hopeful that something will hit. But obviously, no guarantees until you’re actually in production.

Next question. Will you be working with companies that are developing compound semiconductors, IE, IQE, PLC (ph)? So again, there might be a technical aspect to this question. There’s a bit about compliance semiconductors. IQE believe, make pixel lasers. Pixel lasers tend to be paired up with sensors because laser emits and the sensor absorbs, et cetera. Again, we work directly with the sensor companies

So depending on our European customer, in fact, yes, three or four of the companies that we’re working with, I would describe this compound semiconductor companies. So the European customer is a compound semiconductor company. We’re also working with our Asian customer is not a compound semiconductor company. They’re a material science or chemical company. But we know their customer is the largest semiconductor company in the world. So hopefully, that answers that question, but no direct read across to IQE.

And if Nanoco think other players are infringing their IP, why not notify them immediately? Why we are until the court case completes. I’m good [indiscernible] here, and I’m somewhat wary of this, because in the past, whether metaphors get misconstrued or whatever, but you don’t want to fight too many wars and too many fronts all at the same time. A, you stretch your chain, B, you stretch your advisors and B, it costs a lot of money. Actually, notifying people, again, you can do that. We may well have done it. In some cases, we’ll be drawn on that at the moment.

But, of course, if you put the dragon or the tiger and the tiger decides to stand up and bite back, then you’ve got on your fight on your hands whether you wanted one or not. So declaring more on all fronts at the same time, it would be A strategy, some companies do that. Clearly, Nanoco with our resources, we’ve much, however, have a focused approach to get the win. And frankly, as we’ve explained before, Samsung is 90% to the QD TV market. So the others financially, particularly in the U.S. Well, the money might not even be worth it and get an injunction to stop someone selling 50,000 TVs and, I don’t know, South Africa wouldn’t be worth even trying to do. So that’s our strategy. Get the win on the single biggest target there is by far.

And then once you’ve got that because, frankly, if you go to other people and you say, hey, my IP is valid. You need to stop infringing. They’ll say, well, prove it because you haven’t actually had a court case yet and your IPRs are up for appeal. So why should we pay any attention to you? So we will get to them in time. Yeah. The idea, like, companies, you win Samsung and actually everybody else then up volunteers to surrender before you even have to fire a shot, which is a plausible outcome as well.

Next question. Does DIVE still have a working CFQD factory in Korea? And they still have a facility? And our understanding is it’s been multiple for some time, so I don’t know how quickly if it could be turned on. Multiple factories, they have a way of deteriorating equally to sometimes get cannibalized for parts. But our understanding is, and certainly, our agreement with DIVE (ph) is still in place. And that, yes, they still have a facility. But whether or not they’re splitting out to any CFQDs in another sample size, I couldn’t comment on that.

Excuse me. And focus on the organic business seems to be to get to breakeven. What’s the size of the revenue opportunity a few years out? I think the reason we target breakeven is and there’s almost three steps here. So step one is get into commercial which if you didn’t have any R&D or anything else and it was a low use case, might not, on its own, get you to breakeven. So job number one, our job number two after you’re in commercial production get to breakeven.

The reason that we highlight that is that that’s not our goal. That’s not where we want to end up, but given the funding challenges the businesses had over the last number of years and the fact that we still are loss making, we still run out of money, that’s a big, again, qualitative milestone or threshold to achieve. After that, then you can start focusing on more aggressively pushing out the volume.

And again, I think we’ve explained that working a single shift in our Runcorn Sensing facility can deliver anywhere between GBP15 million and GBP20 million a year of revenue with roughly 25% material cost gross margins year on 40%, 50% and healthy EBITDA numbers. If you can get to that sort of 15 million, 20 million euros revenue number on a single shift.

If you run Runcorn Sensing 24/7, you’re closer to $100 million — GBP100 million of income. And then on the display side, it’s smaller. It’s about a quarter of that size. It’s full volume loaded. So if it is running 24/7, you might be able to generate GBP20 million, GBP25 million of revenue. So clearly, there is a lot of upside after you get to that GBP5 million breakeven number. We haven’t set any targets after that, you know, what would be a useful three or five year target.

I think once we get into commercial production and certainly once we’re getting closer to that breakeven revenue figure, that’s when we’ll be revising targets because it would be easier to plan forward, plan further, right, and set what we would see as a sensible goal for a three year revenue figure after we’ve got to break even. But clearly, no one would be satisfied just with getting to breakeven. The job then would be to push on and go further into the ecosystem, more devices, more customers.

Simon (ph), I think we’ve already addressed this, when there will be legal arguments or validity in the test and trailers, this all being addressed at the PTAB? So yes, theoretically, it is possible that there could be arguments of validity at the test and trial, but I think there’s a, I don’t think I could have been cleaner. We only comment on risks that we think are material or that people need to know about, and we haven’t chosen to comment on those validity risks. So draw your own conclusions from that on whether or not you think you should pay attention to it or consider it if we’re not feeling the need to talk about a bit length.

Next, question. Will there be an RNS from Nanoco when there’s visibility of production only when there’s an official commercial order? I think that is going to be the latter and official commercial order. And, without necessarily just hiding behind the rules, inside information has to be sufficiently precise. I should tell you an attention to history, but we actually had a contract signed by us with the U.S. customer three years ago for another product. If we, the non-status visibility order people would have got awfully excited. But the truth is six weeks later, the U.S. customer decided, no, I don’t want to push forward, so I’m not going to sign it.

So it’s always a judgment when is something sufficiently firm because I don’t think anyone would thank me for saying, yes, I’m really confident. I might sound like, obviously, there was no other companies, saying, oh, yes. This time tomorrow, we’re all going to be millionaires or, next month, we’ll be production. Next month, we’ll be production. That’s why, we’re using conservative or careful language around visibility of production. But when we get an actual commercial order, even if it’s a relatively small one because of the substantive importance or qualitative importance of us actually being in commercial production, I think it’s reasonable to assume that there would be an RNS. We wouldn’t be able to do in the commercial production and not tell people.

And [indiscernible] hasn’t been any further progress on the COVID test, and simple answer is not really. Again, we are focusing our efforts and resources So we got through to a fully functioning prototype. We actually tested it against other pathogens. But again, if that one’s going to move forward, A, if we had more financial resources and we might consider it B, it’s definitely going to require partners to go forward in that area because you’re starting to move away from our core competencies around, electronics uses and applications for our CFQDs.

Then the next question, this might be the last one, and I apologize for running with people and simplistic I know, but if you don’t know how some manufacture their dots, how can you know they are infringing your eye? Okay. You have to differentiate between us and our lawyers and between the Nanoco and our lawyers between Nanoco lawyers and our expert witnesses. The information inside each of their heads is different. So we can use all the available public information, and I’ll give you an example.

Samsung in their external presentations refer to something as a magic cluster, okay? And that’s one of their key parts of making a cadmium-free quantum dot. We in our patents refer to something called a molecular cluster compound. Now everyone can say the use of the word cluster, hang on. What exactly does that mean? So you can actually interrogate some of the publicly available information because no one actually publicly announces their full actual production processes. But you can get enough clues, you can get enough hints, you can get enough evidence in what they’re saying publicly. That’s actually, you could legitimately infer that magic cluster actually just is a molecular cluster component, but by a different name.

And, you know that will be one of the debates that will happen in front of the jury. But so I think that’s answering your question. Clearly, you can’t be absolutely sure. But, by now, if Samsung had a recipe that meant that it was clear they were not infringing our IP, that would have been submitted. And actually, if we look at and say, it’s obviously, they’re not there. You know, they’re making CFQDs using marshmallows and sugar.

Then you drop your pierce pretty quickly because you know you’re going to lose. So the fact that none of that has come right through discovery and that we’re still confidence in the merits of our case and our advisors’ confidence in the merits of our case that, we’ll go in front of the jury and ultimately , the jury will make the final decision on whether they have or they haven’t. So I understand the rationale behind the question and hopefully, there was answers or comments I’ve made, explain it rather than to make it more complex or murky.

So that, I think, is the end.

Operator

Brian, yeah. Absolutely. Thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, if any more questions do come through, we’ll make these available to you immediately after the presentation has ended future review. And then add any additional responses where it’s appropriate to do so. Brian, perhaps, before redirecting those on the call to provide you with their feedback, which I know is particularly important yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that’d be great.

Brian Tenner

Okay, Jake. So I think just to close, financial year 2022, it was a big year for us. We knew we were going to have the PTAB outcome here. Everything could have ended on the litigation there, which would have had serious implications for the value of our IP, the value of our display business and for the company itself. And so that was a big deal getting through those IPRs and getting the outcome that we got. It was a big deal. They pre-trial conference. It was also a big deal on the organic business, getting that full year contract extension from a customer.

And again, if people are looking for signs of confidence, that’s their confidence. So one that if they’re confident, we can be confident. So FY ‘22 was definitely a big year, a lockup delivered. And FY ‘23 we’ve got even more to look forward to the jury trial when it happens by the end of this year, early next year, that is, it’s not the last hurdle. You still got appeals. There’s still stuff to happen.

As I mentioned here, this could drag on for a while, but that’s going to be a big, big deal. And obviously, the further on you are in the motor success as you gather as you go along. Your position, negotiating position, if you want to call it that, just get stronger as you go. The fact that we are expecting certainly our products to be production ready, where it’s still expecting to be in commercial production even if it’s low volume initial use case before the end of this financial year.

So FY ‘23, if you’re like, FY ’22 was a big year. FY ‘23 is going to be a bigger year again and our whole team is working hard to deliver in both of those, not just for, the team itself, our internal stakeholder holders, but also for all of our shareholders. Thank you very much for your time today and all those questions that have been submitted.

Operator

Brian, that’s great. And Liam as well, thank you once again for taking the time to update investors today. Could I please ask investors not to close this session as you’ll now be automatically redirected for the opportunity to provide your feedback in all that the management team can better understand your views and expectations. This won’t take a few moments to complete, but I’m sure we’ll be greatly valued by the company.

On behalf of the management team of Nanoco Group PLC, we would like to thank you for attending today’s presentation. That now concludes today’s sessions.



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