Nanoco Group plc (GXG.DU) Earnings Call Transcript & Summary

Good day, and welcome to the Nanoco Group plc Preliminary Results Conference Call. At this time, I would like to turn the conference over to CEO, Brian Tenner. Please go ahead, sir.

Good morning, everybody, and thank you very much, Saskia. Welcome to Nanoco's final results presentation for the year ended 31st of July 2021. With me in the room here in Manchester is Liam Gray, our U.K. Finance Director and Company Secretary. We will be taking questions at the end of the presentation. I will hand the call back to Saskia, so if you do have questions, you can either hold them until then or submit them via the web feed. And so without further ado, let's look at the highlights of the year, if we turn to Slide 3 in the presentation. So you can say it's been a busy year for the team here at Nanoco. Looking first at operational highlights. Our major sensing customer is now nearing commercial production in the short to medium term. And we'll say more about that later on. In parallel with that, we have significantly expanded our range of sensing materials and also significantly increased the number of active customer engagements on that sensing portfolio. We completed a restructuring during the year, and importantly, have retained our 3 core capabilities of R&D, scale up and production. And finally, from an operational point of view, the lawsuit against Samsung for the infringement of our IP is proceeding well. And in particular, we had a strong outcome to the Markman or the claim construction case, where we won 4 out of 5 of the constructions. And in terms of the 5 patents in the case, that means we actually won outright on the constructions on 4 of those patents. And on the fifth patent, we won one construction and Samsung won 1 construction as well. Turning now to the financial highlights. Revenue for the year was in line with expectations as we delivered all milestones and all product that customers requested. We also delivered further sustainable cost savings during the year, as I mentioned, partly in response to that restructuring that was completed. And our cash cost base is now stable at around GBP 400,000 per month, with potential for further savings during the year ahead. In July just past, we issued a non-dilutive debt facility that raised a net GBP 3 million. And the reason that we went for a debt facility rather than an equity raise is the Board's strong opinion that our equity is currently significantly undervalued and that the dilution that would have arisen from an equity raise would not have been in the best interest to shareholders, which is why we did the debt raise. And so as a result of that debt raise, we've now extended the organic cash runway for the business through to the second half of 2022. And we do have contingency plans that if our organic activities were slow or didn't come to fruition, that contingency plan can actually extend the cash runway into 2023. If we turn the page now to Page 4. What we have here is a few reminders of the key sources of value that you see in Nanoco today. If you look at the top left to start with, it's an organic source of value in our sensing business, where I've already mentioned the progress we've made with that important European electronics customer. We've added an Asian customer, Asian chemical company to the mix. And we now expect to have a potential production order visibility in the second half of next calendar year, so in the second half of 2022. If you then look at the bubble in the middle at the bottom, this is a nonorganic source of value from our litigation against Samsung. Again, that litigation has got some critical milestones coming up in 2022. So 2022 is going to be a very important year for Nanoco, particularly for these 2 opportunities. The first milestone that's important on the litigation is the results of the PTAB or the IPRs, the inter-partes reviews of the patents, and their validity. That will happen in May 2022. And we then expect the trial to be rescheduled for the second half of 2022. So both those milestones being delivered or achieved in 2022. And then linking from litigation, because there is a direct feedback from the litigation because the litigation is about our IP, around cadmium-free quantum dots and for use in displays. The same IP actually is relevant to sensing, but specifically, it links into displays. And in the display part of the business, while it's had less focus than sensing, we have moved some small-scale development projects forward and deliver those in the year for a number of customers. If we move on to Slide 5, what I'll be doing in the following slides is just going into a bit more detail on each of those 3 potential sources of value. So looking at Slide 5 first, the IR sensing opportunities. So just to remind you of the background to what the market problem or the market issue is that our material addresses. There are an awful lot of silicon-based sensors in use today. Those silicon sensor have got very poor efficiency in the infrared. And actually, once you go past 900, 1,000 nanometers, silicon effectively becomes blind. I can't actually see infrared. A shorter wave, a shorter-range infrared, silicon only picks up 6% or 7% to the available data or signal that is present. Silicon sensors today also suffer from interference from natural light. They're impacted by adverse atmospheric conditions. If you look at some of the pictures below, whether it's sand in the air, whether it's fog, whether it's rain, whether it's snow, you can imagine, whether it's just dark. Those are the sorts of atmospheric conditions that can impact the performance of a pure silicon sensor. Today, to overcome some of those issues, sensors are often paired with higher-powered lasers, which in a mobile device is not great because you're increasing the battery drain, and therefore shortening the life of the mobile device. And the final problem on the list here that's addressed by Nanoco solution is that the alternative to a CMOS sensor and InGaAs sensor is incredibly expensive. So why would you use quantum dots or how the quantum dots solve these problems? Well, the first thing to say is if you code quantum dots on top of the silicon-based sensor, you extend its visible range from -- I think I mentioned 1,000 nanometers, out to 2,000 nanometers or potentially beyond. And not only do you extend the range, sort of can see at those longer wavelengths, but actually you significantly increase the efficiency. And you can see on the top right there that we've got proven data capture efficiency metrics of up to 10x. So instead of capturing 6% or 7% of the available data from a signal, a CMOS sensor coded with Nanoco's quantum dots can be capturing 60% or 70% of the available data. If you code the CMOS sensor with quantum dots, this will also help overcome sunlight issues or issues arising from natural sunlight. It also penetrates atmospheric conditions. Again, you can see in the couple of pictures there, that's the same image taken one with a quantum dot coated CMOS sensor and one without. So you can see it's pretty stark, the impact that the quantum dots will have. Once you've got more sensitivity and you're capturing more data, you can part on the laser, which will then have a consequent benefit to reduce the power usage. And finally, and not to be underestimated in any way, shape or form, a CMOS sensor, so a silicon sensor, coated with quantum dots can be a factor of 100x cheaper, which is why InGaAs today tends to be used in niche applications for the military or in space. I believe there's sending gas sensors up there on Mars even as we speak. And in terms of Nanoco's differentiation, I've already mentioned the data capture efficiency. We have a very large production capability in place, working to 3 full shifts. At current market prices, we could deliver anywhere up to GBP 100 million of revenue if we have the commercial orders on our Runcorn facility. We also have a wide range of materials. So they're made of different chemicals depending on the use case. We also have multiple tunable wavelengths, so we can produce quantum dots that can pick up 900 nanometers, 940, 1,100, 1,350, 1,500, 1,800, et cetera, et cetera. All of which is resting on our IP protected platform technology, whether that's the actual registered patents, our business new high or our trade secrets. And I won't go through all the examples below. You can see the sorts of enhancement you get from coating a silicon sensor with quantum dots, whether it's the ability to penetrate through an opaque surface, such as that plastic bottle on the top left, seeing the bruising on the apples. The longer wavelength will go deeper into skin, so you can actually have additional health care benefits through wearable health care, and also the probably well-known one, face and iris recognition. But just to emphasize, these are only a sample of use cases. There are many, many more, whether it's in other wearable devices, augmented reality, agricultural applications, Internet of Things. The list goes on and on. If we now go over the page, I'll say a little bit more about the development of our sensing portfolio of materials and customers. If you look at the top left-hand side, the little table, you can see back in early [indiscernible] U.S. customer. We basically had one customer, and we were looking at one product that was less than 1,000 nanometers. In the 2 or 3 years since then, you can see that we've significantly expanded that portfolio from -- for sensing for one customer and one product to 5 customers and 8 products. If you're asking why there are 9 dots on that chart below, it's because 2 customers in one case are actually using the same product raw material. And again, you can also see, in terms of the development cycle of those materials, back in 2018, we were right at the start of developing that 940-nanometer material. That material is now ready. And actually, during the project with the U.S. customer, got all the way through ready for validation. Validation could be very quick in that product. If there were commercial orders, could go into production in a very, very short period of time. You're talking about quarters rather than years. If you look at other products on there, you can see that for that customer 1, there is now a second product at a slightly longer wavelength. And that's a product we've talked about many times over the last couple of years. It's at an optimization stage. It's very, very close to being ready for validation. And just one thing to clarify. Customer 1 in the top table is not the same as customer 1 in the bottom table. As folks are aware, the collaboration with the U.S. customer did come to an end. So what you can see on this slide, basically in that simple chart or graphic, is significant growth in customer engagement. We've also added, as we announced early in the year, a major Asian chemical company. And I emphasize it is a chemical company, it's not a device manufacturer, to our customer pipeline. And we now have 2 customers with strategic scale potential. And what I mean is those 2 customers are large enough that the sorts of applications they're looking at, if they went into commercial production would almost immediately are -- or very quickly move the group towards and beyond a self-financing basis, coupled with the production capability that we've got in Runcorn. Again, you can see that we're delivering multiple materials at various wavelengths. If you're wondering why there's a column C on that bottom table that doesn't have anything in it, it's because internally, using our own resources, we are developing other materials to add to the mix so that we can offer a full range of materials and full range of wavelengths and performance characteristics to that expanding customer portfolio. We know that customers have published their own production road maps, and those are what give us confidence because those maps -- road maps effectively imply commercial production in 2023, which is why we're hoping or expecting to have some visibility at the back end of 2022 on potential commercial production. The debt issue that we made in July allows us to keep expanding this portfolio in a focused and measured way. We are being careful with our resources. But it also allows us to add to our IP portfolio and build out further IP defense and assets in the sensing side of the business in parallel with what we already have on the display side of the business. And one thing just to remember is that it is typically a 3 to 4 years from development to production. So many of those blue Ds or blue dots with the Ds in them, you can say, we don't expect them to be in production in the next 6 to 12 months. You are talking 3 to 4 years, with the potential to accelerate, but that will depend on either our customer or their end customers' appetite. And so our overall objective actually on the sensing portfolio by 2023 is that we would like -- our goal is to have at least one material in commercial production and a second material validated and ready for commercial production once we get a go ahead from a customer. If we then go over the page to Slide #7, say a little bit about the display opportunities. I'm -- if you look at the number of QD TVs being sold today, Samsung's market share has now fallen below 90%. So you can see the number of units that we estimate is being sold on the bottom right of this chart. The fact that you've now got more than 10% of quantum dot TVs being sold by other players is providing some positive momentum in the market. You are seeing a broader adoption of film-based systems. And again, we know that there are significant investments going into second-generation quantum dot TVs. Those are the positive signal in Europe that the EU has received the recommendation to implement the ban on cadmium. Unfortunately, we are still waiting for the legislation to do that. But again, both in the EU and other countries around the world, China, the United States, various states, they all have their own versions of RoHS, many of which have got cadmium restrictions. So that will, again, help the move towards quantum dot TVs and quantum dot TVs and having to be cadmium free. Because while today, more than 10% of the market is with people outside of Samsung, many of those TVs actually still contain cadmium. So there will be some positive momentum in that area. I won't go through the benefits of CFQD quantum dots in terms of colors and display. Those are well rehashed. But basically, you get a much, much better picture and a much more better viewer experience when you've got quantum dots in the TV. In terms of a differentiation, again, as we've always said, we are cadmium-free, which is -- will help capture some of that regulatory momentum in the market. Again, just with a nod to COP26, the efficiency that you'll get out of an LCD TV equipped with quantum dots, et cetera, should encourage the move towards quantum dots. Our materials are relevant to all generations of TVs. And again, as I mentioned, there are already significant developments going into the next generation or second generation quantum Dot TVs, which will based on QD Inks rather than on film and resin systems. So then turn the page to Page 8. What you have here linked to our CFQDs is just a couple of adjacent applications, and I'll just quickly update on those. On life sciences, exploiting the fact that our CFQDs are cadmium-free and nontoxic. We have created a platform called VIVODOTS, which has various uses that we've talked about in the past, whether it's on cancer targeting, whether it's on image-guided surgery, specifically on the work we're doing at the moment, funded by U.K. innovation grant on a rapid diagnostic test for COVID. We've made good progress on that. Proof of concept has been completed and we are now partnering on device mechanics. Now clearly, the market for COVID tests is hugely saturated. And there are hundreds of tests available out there. But we believe that quantum dots do have some advantages in the market in terms of their ability to be retasked to other pathogens, et cetera. So that's something that we will push through to the end of the groundwork and see where we are in May 2022, sizing a bit like the blue dots on the sensing chart that these help -- or life sciences applications are still at a very early or developmental stage of their progress. And then just quickly on the right-hand side, quantum dots. We have talked about lighting in the past. There are other quantum dot applications in horticulture that we're exploring with a couple of customers at the moment, whether they're about films, whether they're about actually energy generation in a greenhouse environment. And again, just using the ability of the dots to be tuned to enhance the growth rates and the yield on agricultural products. So then moving over to the page again. We've got a couple of slides starting on Page 9 with. So in terms of where we are, Samsung litigation, we've made good progress to date. The Markman hearing, as I mentioned earlier, was very positive for Nanoco. As a reminder, we have 5 patents in this case, and there are 47 claims across those patents relating to Nanoco's unique QD capabilities. Those are the 5 patents we chose to prosecute in this case. It doesn't mean that there aren't other patents that are being potentially infringed by a number of different parties. And that's something that we'll review going forward. Again, as another reminder, to win in this lawsuit, we need 1 claim out of those 47 to survive the pit and review process and to be find to have been infringed in the court case. Once that happens, you then have a discussion about damages. It may -- from a jury perspective, they may -- it may be helpful if you win more claims than that. But basically, you only need to win 1 claim out of the 47. In terms of what that will then translate into in terms of damages, I think we do not talk specifically about potential outcomes. But just to put it in context the U.S. litigation is only dealing with sales of QD TVs by Samsung in the United States. And we estimate that's 1/3 of Samsung's global sales, give or take. This lawsuit also only focuses on the historical sales. Future sales are likely to be larger because the rate of sale of QD TVs is growing. And you then may have the kick on benefit of generation 2 QD TVs. So while the judge in the case can give a future royalty rate, it doesn't have to. So it is possible that we can win the case and still only get a verdict or a damages award based on historical sales. And then we'd have to have a discussion either about a license or royalty agreement or start some more litigation. And finally, the jury will decide if willfulness has been found. And what that means is, did Samsung knowingly and deliberately infringe our IP? Our view is that they did, which is why we're alleging that it was willful. And the reason that's relevant is that, if willfulness is find, damage multipliers can be up to 3x the initial number from the jury. Now I should point out that the historical practice in the Eastern Texas is actually more like a 1.5x multiplier. But again, it is relevant to what comes out of that lawsuit. And one last comment on that. We have talked in the past about modest outcome to the lawsuit. Well, our view is that if it was only U.S. sales and only historical sales and there was no willfulness, that's what we would call a modest outcome. Expanding that beyond U.S. sales, including non-U.S. sales, including future sales and any element of willfulness, we believe, would move you significantly away from that modest and inverted outcome and towards that us retaining those sort of 80% of larger awards. That's what we were talking about. One final technical point is any award will be subject to U.K. corporation tax, and we do have GBP 36 million of U.K. losses available for offset. So a summary on the litigation is, it is absolutely potentially transformative for both Nanoco's future prospects for the business. linking back to what I was saying about display and licensing deals, et cetera, and also for shareholder value. If we turn over the page quickly to Page 10, I'll just give a very short summary of the time line on the lawsuit. So the 2 processes that you see in front of you, the top one and the second one, they are in parallel. And they do have some interconnection, which I'll try to explain. So the patent trial and the board process, otherwise known as PTAB, that's what's dealing with the inter-partes, reviews or the IPRs. The PTAB has one question to answer, are those patents on the claims in them valid? They will decide if they are valid or not. Any which are valid can then be taken back into the court process. It's worth noting that in its submissions and in order to get the trial stayed, so the Texas trial stayed, and to get the IPRs underway with the PTAB, Samsung have effectively conceded that whatever PTAB cite on the validity of patents has to be accepted in court. So there are very, very few, if any, ways in which they can then challenge validity in court. Because in court, we have to be able to prove that the patents are valid, that Samsung infringed them. And if the answer to those is yes, then you have the damages discussion that I mentioned when I was referencing the previous slide. Once the PTAB make their decision in May 2022, we then expect that the Texas judge will reschedule the trial. And just to emphasize, we do not expect the Texas Court to wait for the PTAB appeals process, which could take up to another year. Now Samsung may well challenge that. They may well petition the Texas Court to wait until the appeals are over, but we will vigorously oppose that. And again, the practice in Texas and in a number of U.S. states appears to be once you have an initial ruling from the PTAB, there is almost an assumption that, okay, that's valid, so we can now go to court. Again, just to remind folk, the trial in Texas, it lasts one week. So whether we had to deal with validity or not, it's one week. It's not a case of that we had to deal with validity, it could be a 2- or 3-week trial. So having validity pre-settled means that the trial in Texas can absolutely focus on the question of, the valid patents that are in front of us, have they been infringed? And if they have been infringed, what's the appropriate damages model to apply to that? And at the end of the trial, you get a verdict from the jury. They will come out with a damages number. They will also make a decision on willfulness. They won't put a multiplier on it. That comes in the judge's final opinion, which will come after the trial. You could expect that to take a few months before the judge's formal opinion will be issued. And the judge's formal opinion will also potentially include a decision on a future royalty rate. So it is possible that the damages, if you like, that are being encapsulated in the verdict of the jury gets bigger because the judge adds a willfulness multiplier if willfulness has been find and also adds a future royalty rate. The one thing the U.S. judge cannot do is obviously make this ruling applicable in other territories around the world. And it is also then worth reminding folk that the appeals process after the judge has issued his opinion could go on for a number of years. However, it is worth noting that if you've won in the IPRs, if we've won at PTAB, if we've won a trial, if we've won in the verdict, if we've won in a number of the claims or a number of patents, the pressure, if you like, on the defendants on Samsung is growing. They will have run out of some of their opportunities to have those case thrown out. That doesn't necessarily mean that they want to come to a settlement. They may still want to drag the appeals process out for a couple of years. But it is worth noting that the commercial pressure, if you like, increases in favor of whoever has won at PTAB or whoever has won at trial on the strength of the win. And a final point because I know folk have asked this question. The litigation, the PTAB process and the associated appeals process are all covered by the litigation funding agreement, because I know some people are worried that if there were extensive appeals that they weren't funded. Those are funded. And so that's it on the litigation. I'll now hand over to Liam, who will take you through the financial summary of the year.

Thank you, Brian, and good morning, everyone. So if we move on to the first slide, which shows some of our financial highlights for the year ended 31st July 2021, which is Slide 12. Firstly, our adjusted operating loss has fallen year-on-year from GBP 4.8. million in the prior year to GBP 4.6 million in the current year. This in spite of the GBP 1.7 million reduction in revenue and other operating income. That's been achieved through careful cost management in the business ensuring we focus our resource on areas of commercial opportunity, development and by crossing trading of stock. As Brian mentioned, our monthly gross cash burn is stable at around GBP 0.4 million a month. And we will save an additional GBP 0.6 million per year from April '22 when we vacate one of our floors in our Manchester head office. The reduced cost base ensures our year-end cash position provide us with an organic cash flow way through to 2022, and our new business wins will help maintain this. Move on to next slide, please. So this here is our summary income statement for the year. As mentioned previously, our revenue and other operating income has fallen by GBP 1.7 million compared to the prior year. And this was a result of completing the contract with the U.S. customer in H1 of 2020. However, this reduction was more than offset by cost reductions, resulting in adjusted EBITDA in line with the prior year, GBP 2.9 million, and improved operating loss of GBP 5.1 million compared with GBP 6 million in the prior year. Our R&D tax claim this year will be lower than prior year as a result of our reduce cost base, but we still anticipate receiving around GBP 0.7 million, and this should be received in H1 of 2022. And the final point on here is around depreciation and amortization. We expect this to fall just over GBP 1 million in FY '22. Move on the next slide, please. Our revenue and billings continued to be heavily weighted towards our sensing customers and opportunities. New customer wins in the sensing sector have partially offset the loss of revenue from the end of the contract with the U.S. customer. And we do continue to work with display customers, and you can see they still generate some revenue for the business. Billings in FY '21 largely followed the revenue profile. However, as you can see in FY '20, billings were considerably lower as a result of invoice in advance in FY '19. This [indiscernible] on the current year. And we don't anticipate any material differences between revenue and billings going forward. If we move on to the next slide, please. So this is our bridge for our movements in net loss compared with the prior year. As mentioned earlier, the reduction in net revenue of GBP 1.7 million has been offset by savings in our R&D activities of GBP 0.9 million, admin expenses of GBP 0.7 million. And last year, we also incurred additional exceptional costs of GBP 0.8 million, which went release of GBP 0.4 million in FY '21. So if we move on to Slide 16, which is our bridge of our movements in cash. We started the financial year with GBP 5.2 million. And our adjusted EBITDA was GBP 2.9 million in FY '21. We then received R&D tax credit of GBP 0.9 million in Jan 2021. And then we had some adverse deferred income and working capital movements, which totaled GBP 1.3 million. If you then take off our operating lease charge of GBP 0.7 million and our CapEx is GBP 0.4 million, you get back to our closing consumption during the year of GBP 4.4 million. Obviously, during the year, in July 2021, we did do our net debt raise, which raised GBP 0.3 million net of costs, which moves us to our closing position of GBP 3.8 million at the end of the year. Moving to the next slide, Slide 17, which is just a short financial summary. In regards to the expectations for FY '22, we anticipate a similar level of revenue to FY '21, which is currently supported by an open contractual order book of around GBP 1 million. As I mentioned on our costs, it's a stable around GBP 0.4 million. And we anticipate a sales as well, such as the GBP 0.6 million per year from vacating the premises in Manchester. This will be realized from April 2022 onwards. In spite of our cost reductions, we retain a core work force, a highly competent, adaptable and flexible. And this means we have capability to boost services and production revenue. As Brian mentioned earlier, we do have full operational capacity and capabilities in R&D, scale up and production. Whilst our display production facility in Runcorn remains mothballed, we can be mothballed at short notice. And there's also the option to adapt this to provide increased capacity for sensing materials should the need arise. On our cash position, taking to come already R&D tax claim in our forecasted revenue. We are estimating to burn around GBP 0.2 million per month during the year. We do retain the option to go down to an IP shell to protect the losses, which will reduce our monthly cash burn further. But that's something we'd only pursue if our short- to medium-term commercial opportunities came to an end. But just to clarify, both of these paths, being the commercial business and the IP shell, deliver a cash runway beyond key litigation milestones and visibility on commercial production orders, which are both due in the calendar year 2022. With that, I'd like to pass you back to Brian to provide a brief summary.

Thanks, Liam. So we're now looking at Slide 14 for a summary of what we've been talking about in this year's performance. So in terms of value in the business, there is absolutely transformative potential in the Samsung litigation. And as I mentioned earlier, the PTAB decision in May 2022, and the trial expected in the second half of '22, possibly the fourth quarter, those will give very clear signals on how we're doing. We win a significant number of claims in PTAB if we win the jury trial. As I've already said, that starts to move the pressure in any negotiations or discussions or in the process actually more firmly on to Samsung's shoulders. In terms of the organic business, we are also expecting though in the second half of 2022 to get some visibility on potential production revenue for one of those products in our sensing portfolio for production in 2023, again, obviously contingent on us completing all the milestones in the development programs, but also on end user customer adoption of the technology that our customer is offering to the market. And just to emphasize that management focus today for me and my whole team is actually on generating value from the organic business. The task of supporting and prosecuting the Samsung litigation just falls on the shoulders of a couple of us in the business. This is a -- we're focused on ensuring that the organic business generates value. In terms of the opportunities, we still retained our critical R&D scale-up and significant production capacity. You can't underestimate the revenue opportunity that, that production capacity in Runcorn creates for the business. We have on the display side of the business also had some developments during the year, although it must be noted that these are in smaller CFQD opportunities. But it is worth saying that success in either of those sectors, whether it's sensing or display given the size of those markets, and these are markets with tens of millions, if not hundreds of millions of units being shipped and sold every year, success in either of those for Nanoco can deliver our self-financing goal that we're hoping to achieve in the medium term. And then finally, just talking a little bit about the cash runway. Liam has already covered this, but our cost base has been significantly reduced. It's still being closely managed and there are more savings to come over the course of the next 12 months, which all helps to lower that breakeven point in the amount of revenue that we need in order to be self-financing. Importantly, the organic cash runway, the cash runway for the extending the display, the production capability business extends now beyond the value milestones I noted above. So extends beyond when we should have visibility on organic production and when we should have visibility on the outcome of PTAB. And if it happens in the second half of 2022, the outcome of the trial itself, those will be very important milestones which I think will significantly change investor perception of the business. And clearly, any new business wins that we add to that, whether it's a new material, a new customer or expanding the demand with existing customers, that can all extend the organic cash runway. And again, as Liam has mentioned, we do have contingency plans in place to protect the value in the lawsuit and the value in our IP. So the key message I'd like to leave you with is that we have 2 very good, very strong short-term value creation opportunities in sensing and in the Samsung litigation. And we also have a backup plan to protect the value inherent in the IP and in the Samsung litigation if the organic pathway is either unsuccessful or it's slower to develop than we would like. And so with that, I'll now hand you back to Saskia, where I believe we'll be taking live questions and then after that dealing with questions that have been submitted by the web. Over to you, Saskia.

[Operator Instructions] There appears to be no audio questions at this time. I would like to hand back over to you, Mr. Tenner, to go to questions from the webcast.

Okay. So -- and some of these questions are quite long. First one is extremely long so I will try to synthesize it. And someone is questioning whether or not the Samsung litigation value opportunity is clear and compelling if the litigation is successful. And they're asking for some more clarity on the upside in the litigation and also elaborate on the range of damages, depending on the number of patents on which we're successful. And they also want to know about potential damages and the costs. So there's quite a lot of questions in there. I will say that some of that information you requested is unfortunately commercially sensitive and just we'll not disclose it because it wouldn't be helpful for the company or its shareholders or investors or actually for the lawsuit itself. So -- but there are some things that we can say. As I mentioned earlier, we only need one claim in one patent to be find have been infringed to be in a damages discussion. And if that one claim in one patent is find to underpin the entire technology platform, then you're into a very interesting damages discussion. Just to expand on that. And there are multiple damages models. So at the top end, if you were able to prove that your IP fundamentally enabled the entire device and the market, and that is indeed Nanoco's contention, that you would be arguing any damages model should be based on the value of the entire display, the entire TV. Something similar to that is that you could actually look at the components and have an allocation of value to those components. So for example, if you were talking about a car, you might say, well, the engine, even though it's only 10% of the cost, it might be 30% of the value, that sort of conversation. Again, that would create an attractive damages model that come for Nanoco. Because clearly, when you buy a QD TV, what are you looking for? You're looking for a high-quality, excellent picture. So again, that's a damages model that we would be pushing. There are other damages models. If you go to the opposite end, there is a damages model that would be based on the smallest individual separable component, i.e., you might just look at the value inherent in the QD film. When we talk about a modest outcome, we -- as I mentioned earlier, U.S. only historically only, but a modest outcome for us would also be using the worst case damages model, i.e., just looking at the individual components. If the jury were persuaded that actually know this technology fundamentally enabled the device and went for one of those other 2 higher-value models, then you would be moving significantly up from that. In terms of numbers, the only thing I'd like to point out is, in the United States, there's probably been more than 10 million of these TVs sold. Each TV average retail price was around $2,000, $2,500. a QD TV on average is around, it might be slightly less than this, but $1,000 more expensive than a non-QD TV. So whatever way you cut it, the market and the value that your -- this lawsuit about -- is about -- is extremely large. So the question is, what is the right royalty rate or damages rate to apply to each TV or each component, et cetera, et cetera? And that, to a certain extent, is in the hands of the jury. When we talk about potentially transformative, given what I've said about the size of that market, transformative, if you look at Nanoco share price today, you are talking about multiples of our current market cap. So even in a modest outcome, you are talking about multiples. So I think that's all I'm going to say about that damages point. There is more information in previous publications, again, that people can look at. But it's an enormous market. And as I say, our case is that the entire market has been enabled by our technology. Looking at the next question, it's -- I'll let Liam read it out. It's finance question. I get to shut up for a minute.

Thanks, Brian. So there's 3 elements to this question. The first one is, why is depreciation so much lower year-on-year? The second is, what was the impairment of intangible assets relate to? And the third is, what does the decrease in trade and other payables relate to? So basically, the depreciation. And to clarify, this is on tangible fixed assets. In prior year, as a result of the completion of the contract with the U.S. customer and the lack of visibility around mutual production orders in our IRQD facility in Runcorn, we took the decision to accelerate depreciation of this facility, which is relatively new to the business. So this incurred an additional cost of around GBP 0.5 million. Going forward, we expect our depreciation intangible fixed assets to be around GBP 0.1 million per year. The second question, around impairment of intangible assets. So during the year, we've taken a very proactive approach to carefully rationalizing our IP portfolio. So you'll see that our IP patent numbers, granted and pending, have dropped from 731 to 559 during the year. And this is in part -- as also our cost reduction, trying to manage our cash like closer. How these decisions were made? We reviewed our patent portfolio. And where we believe that there was limited commercial value in a patent filing or we might struggle to litigate, we let these patent laps during the year. That applies to both pending patents and patents which granted. It's probably in any patents which we obviously see as key to our current or future commercial opportunities we ensure we carry on payable. And the third element was, what does the decrease in trade of the payables relate to? So prior year, our cost base was much higher. So the reduction in cost base of GBP 1.6 million a year will have an impact on the reduction in trade creditors. Another element of this is that, in prior year, July 2020, we had our fund raise, which incurred about GBP 0.25 million of exceptional costs, which also sat in our trade credit balance at year-end. These are all paid post year-end. The debt facility was done in July 2021. They were all paid per year-end. And I'll pass you back to Brian for any other comments.

Okey-dokey. No. That's fine on that one. Then the next question, any sign of demand for validated material moving to production? Or is the optimized material more likely to move to production first? It's kind of a $1 million or multimillion dollar question. The truth is we've got 2 products, very, very close to being ready to go into production. The actual decision on which will go first will really just depend on where the market goes and which of our customers, end customers goes for adoption of this technology first. So right now, we do not know which of those will be first. So it's not the case that the product that's already validated or at the validation stage will necessarily go first. It could be second. The optimization product could go first. So we just have to wait and see. You'll be aware, certainly from previous conversations about the U.S. customer, is that these markets are quite -- they try to be opaque in what they're doing and what their applications are, et cetera. And it's fair to say we do not actually know the end application or the end customers in many cases. So yes. So we'll wait and see where the customers take us. Then moving on. There's a question about LG starting to use quantum dots. Are you able to make any comments at that? At least, it seems positive for the QD industry. Yes, and Andrew, you're right. So the more people that are using quantum dots, the more pressure there is for them to be non-toxic. I think one thing that's interesting, I know a number of shareholders have picked up, is there is an awful lot of litigation going on right now featuring -- not just featuring ourselves against Samsung. But people will be aware that some of our competitors, so Nanosys and then Crystal or then Labs, sorry, always mix them up, there's litigation going on there. So it's interesting. And one of the things we're doing is mapping out the, if you like, the battlefield of IP and which parts of which processes are under controlled by different parties. But it is interesting seeing that some previous statements by competitors that they own or control IP in certain areas being completely and flatly rejected by the PTAB. That's interesting. And it's all helpful. But I do have to emphasize, today, 90% of the QD display market is still Samsung or just under 90%. Other people moving there is helpful. And there aren't many people who've got large-scale production capacity. I suspect that people with large-scale production capacity are Hansel who supply Samsung, Nanosys who've got a number of customers and ourselves. So demand growth will always be helpful. Moving on to the next question. How will we manage financially if there is a long appeal process? Are there some commercial ways? So there's a couple of things. One is, I've already mentioned, we hope to have some visibility on commercial production in the second half of 2022. Ideally, we would like our business, the organic business to be self-financing. If that is the case, given that the appeals process is funded by the third-party, if Nanoco gets itself to a self-financing position, then that's how we would move forward. If the organic pathway is a bit slower, or ultimately, if it doesn't come to fruition, then yes, there are other commercial ways to deal with an appeal process. There are a range of options the Board would consider. It doesn't necessarily mean that we would have to go back to shareholders. Obviously, there are other forms of that. But equally, there are various insurance products that are out there or products being offered by investment banks and the hedge funds around effectively financing a verdict, once you've got a verdict or even financing once you've got a PTAB outcome, et cetera. Those are all obviously risk adjusted. They've all got rates of return, et cetera, et cetera. But there are other ways to deal with any funding burden for the business itself, not for the lawsuit, but for the business itself. I must say, primarily, our focus is to get the organic business self-financing. If we move on, question from Hans. He's made the point that we've been listening to commercialization of Nanoco products for a number of years, and nothing has worked out so far, apart from the U.S. customer pulled out at the end. The question is, what gives you security this time that one of the projects will materialize? And when? So what I would say is, with the exception of the U.S. customer, who ultimately, the end of that project was about a design change in their device. It wasn't about the technology. The opportunities we have in front of us today are as solid, if not more solid, more robust and higher confidence than we've ever had in the history of the company, so going back 17 years. So that European electronics customer has made its own very significant investments in this technology. They've spent a lot of money with Nanoco since we stopped working with the U.S. customer on that project. The Asian chemical company that we're dealing with, its end customers are, again, multibillion-dollar massive global customers. So again, if this technology is adopted -- and unlike the QD TVs that had to be launched for the first time in 2015, CMOS sensors, there are already billions of CMOS sensors out there in the world today. The process of inserting quantum dots on to them is not particularly disruptive for those supply chains. It's not an expensive addition to an individual sensor. And looking at those use cases that we're seeing earlier, the value that it adds is potentially significant. So this should not be a conversation about costs. Obviously, costs is relevant. But there is a real value-add application here. Ultimately, it does depend on customers deciding to do it. So if you're reassured by significant investment by our customers, the fact that there already is a market for CMOS sensors out there, the fact that -- whether it's the Internet of Things, whether it's smart devices, you name it, there's a significantly increase in demand for sensors, think of automotive, et cetera, in itself. Those things can give you confidence, and I believe higher confidence than we would have had at any time in the past other than when we were right in the depth of that U.S. customer project. And that's why we are confident. But there are still no guarantees, there are no absolute certainties. And that's why we've got those contingency plans if these opportunities don't come to fruition. And then moving on. There's a question from Lauren. So a recent report claimed that QD sensor market is worth 200 million today, rising to 540 million by 2030. Is that accurate in your view? And how much of that could you target? And I honestly don't know which QD sensors he's talking about. I mean it's theoretically possible that an InGaAs sensor could be described as a QD sensor. So actually, I can't say too much about the technicalities around that. We're not -- so looking at QD CMOS sensors, we're not around -- we're not aware of that sort of level of demand today. And certainly, the 540 million demand figure by 2030, that seems to be wildly understated given that CMOS sensors today are already -- I mean, if any of you are sitting looking at your smartphones today, there are 1.5 billion smartphones sold a year. And a significant proportion already has CMOS sensors in them, performing one or other activity. So I guess I'm just looking at that 540 million number, and it looks very small. Now that might be talking about the QD component in there, but even then, yes, I guess that's 5x Nanoco's maximum capacity. So that's a larger number. So Lauren, unless you want to maybe send through that report, and we can have a look at it in a future presentation, company come up with a response on that. But certainly, there's, again, the number -- the amount of money that are being invested around these sorts of sensors, actually those sorts of revenue numbers wouldn't justify the paybacks. So yes, so I think the picture is likely to be rosier than that. And as we've said, running 24/7 out of our Runcorn facility, we can do GBP 100 million. So I guess that's $130 million. So you're looking at 25% of total global demand. And actually, as I say, the today figure, I don't really recognize. I need to understand what it's actually talking about. Okay? And so that's -- we've had 7 questions submitted there online. There haven't been any more. So thank you for your time. Thank you for listening. As I mentioned earlier, I think the takeaway is -- a key takeaway message is that the business today, strong as we've had in the past, or stronger than we've ever had in the past, with the possible exception of the U.S. customer. 2 really good strong short-term value creation opportunities, with the visibility on potential production orders on the organic sensing business in the second half of 2022. And those 2 very important milestones in the lawsuit in May '22 and then in the second half of 2022. Thank you for listening, and goodbye.