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

[Audio Gap] I would just like to mention a few housekeeping points. There are no safety drills planned, so any alarm will be genuine Fire escapes are indicated by the recognizable being fans and can all present, please turn off their mobile phones for the duration of the meeting. I'd like to welcome shareholders, both in person and virtually to this Annual General Meeting of the company today. I am Dr. Alison Fielding, and I am operating in the capacity chairperson of the company today. Our appointed share person, Dr. Christopher Richards, cannot attend in person today due to illness, but has joined virtually. I'm joined here today by Brian Tenner, Chief Executive; Dr. Nigel Pickett, the Chief Technology Officer; Liam Gray, the Chief Financial Officer and Company Secretary and non-Executive -- sorry, Chief Financial Officer and Company Secretary; and Non-Executive Director, Christopher Batterham. Our other Non-Executive Director, Henry Turken, has also joined virtually due to illness. With your agreement, we shall take the notice convening the meeting as read. It is now 11:00, and as there is a quorum present, I declare the meeting open, and we shall proceed to the business of the meeting. This meeting has been convened for the purpose of considering and, if thought fit, approving certain resolutions set out in detail in the circular dated 28th October 2021. Before starting the formal proceedings, I should like to provide you with a general trading update. The text of the trading update that I'm about to read to you was released via our regulated information service at 7:00 a.m. this morning. Operational and trading update. Financial performance in the period has been in line with the Board's expectations. We continue to deliver R&D services under a number of contracted development programs with different customers in the sensing market, which include the additional work package for our European customer announced on the 5th November. Good progress has been made on these projects during the period, and discussions on potential next steps are underway. Samsung litigation update. As outlined in the group's preliminary results on the 3rd of November, the litigation against Samsung in the Eastern District of Texas is currently on hold while the U.S. patent office conducts inter-parties reviews IPRs to establish the validity of the patents relevant to the case. The Board is very pleased with the progress of the court process and the IPR process to date. We look forward to the conclusion of the IPR process, which is due in May 2022. The Board remains confident of an outcome to the litigation that will be potentially transformational for the group's prospects and shareholder value. That concludes the trading update. Shareholders were invited to send in questions by e-mail in advance of the meeting. We have not received any questions by e-mail in advance. However, we will be taking questions at the end of the formal business. To more accurately reflect the views of shareholders of the company, I declare as Chairman that voting today will be carried out by way of a poll on each of the resolutions put to the meeting in accordance with Article 10, 11 of the company's articles. This is seen as best practice as it gives all shareholders the opportunity to participate in the decision-making of the company and have their votes recorded even if they are unable to attend the meeting in person. I am appointing Neville registrars to the company's registrars to act to scrutineers. As it will take some time to complete the poll procedure, the final results of the voting, including the proxy votes on each of the resolutions will be announced through our regulatory information service and published on our website as soon as reasonably practical following the close of the meeting. Voting on the resolutions proposed at today's meeting will be conducted after all 18 resolutions have been proposed to the meeting. If required, you will be giving a poll card which the shareholders and proxies present at the meeting should complete and sign as indicated. In the case of corporate shareholders, the poll card should be completed by their authorized representatives present at the meeting or by their proxy. If a vote is both a shareholder and a proxy for another shareholder or if you are attending as a proxy or representative of more than 1 shareholding, please use separate poll cards. On your poll cards, there are 3 options for each resolution. You can vote for the proposed resolution, against the proposed resolution or you may withhold your vote. A vote withhold withheld is not a vote in law and will not be counted in the calculation of the proportion of the votes for or against the resolution. Every member has 1 vote in respect of each share held by him. If you are a shareholder entitled to more than 1 vote, you need not use all your votes for cast all your votes in the same way. If you wish to cast all your votes in the same way, please leave the box and the poll card request and confirmation of the number of shares to be voted blank. Alternatively, if you wish to divide up the shares you hold so as to use them to vote in more than 1 way or simply not to vote all your shares, please use separate poll cards and/or indicate the number of shares you wish to vote in the box provided in respect of each poll card used. Will you please complete your poll card by ticking the appropriate box next to the relevant resolution, depending on how you wish to cast your vote. Once all votes have been cast, please would you sign the poll card and hand it to the representative of Neville's who will be sitting at the back of the room. Should you require any further assistance, our registrars or Liam Gray, the Company Secretary, will be hacked to assist. As set out in the notice, shareholders have been encouraged to submit their proxy votes due to the ongoing uncertainty caused by the COVID-19 pandemic. I can confirm I have been appointed proxy in respect of approximately 140 million shares. Ladies and gentlemen, we will now proceed to vote on the resolutions, which I will formally propose to the meeting. The full text of each of the resolutions is set out in the notice, a copy of which you have already received. Resolutions 1 to 14 are proposed as ordinary resolutions and require a simple majority to be passed. Resolutions 15 to 18 are proposed special resolutions which to be passed, require a majority of 75% to vote in favor of the resolution. The business that will be conducted at this meeting reflects the ordinary business and related ordinary and special resolutions that are put to the Annual General Meeting of the company on this and each subsequent year. Resolution 1. The first resolution, an ordinary resolution is to receive and approve the annual report and accounts in respect of the year ended 31st July 2021. I now propose that the annual report and accounts in respect of the year ended 31st July 2021 be approved. I ask Brian Tenner to second the resolution.

Seconded.

I will now put the resolution to the vote. Resolution 2. Resolution #2 is an ordinary resolution. The Board is recommending that PricewaterhouseCoopers LLP be reappointed as auditors for a further year. This appointment, if approved, will be effective until the conclusion of the next AGM of the company. I ask Nigel Pickett to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 3 is an ordinary resolution to grant the directors authority to agree the remuneration of the company's auditors. I ask Liam Gray to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 4 seeks to authorize the reelection of Dr. Chris Richards as a Director of the company. Chris retires in accordance with the recommendations of the U.K. Corporate Governance Code and being eligible, he is offering himself a reelection at this AGM. I ask Brian Tenner to second the resolution.

Seconded.

I will now put the resolution to the vote. Resolution 5 is an ordinary resolution to authorize the reelection of Brian Tenner as a Director of the company. Brian retires in accordance with the recommendations of the U.K. Corporate Governance Code and being eligible, he is offering himself for reelection at this Annual General Meeting. I ask Nigel Pickett it to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 6 is an ordinary resolution to authorize the reelection of Dr. Nigel Pickett as a Director of the company. Nigel retires in accordance with the recommendations of the U.K. Corporate Governance Code and being eligible, he is offering himself for reelection at this AGM. I ask Chris Batterham to second the resolution.

I second the resolution.

I will now put this resolution to the vote. Resolution 7 deals with my own reelection, and as such, I shall briefly vacate the chair and hand over to Chris Batterham.

Resolution 7 is an ordinary resolution to authorize the reelection of Dr. Alison Fielding as a Director of the company. Alison retires in accordance with the recommendations of the U.K. Corporate Governance Code and being eligible, she's offering a self-election at this Annual General Meeting. I ask Brian Tenner to second the resolution.

Seconded.

I will now put the resolution to the vote. I now hand the chair back to Alison Fielding.

Resolution 8. Resolution 8 seeks to authorize the reelection of Chris Batterham as a Director of the company. Chris retires in accordance with the recommendations of the U.K. corporate governance code and being eligible, he is offering himself a reelection at this AGM. I ask Nigel Pickett to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 9 seeks to authorize the election of Henry Turcan as a Director of the company. I ask Liam Gray to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 10. The next resolution is to seek approval of the report on directors' remuneration contained within the annual report and accounts for the year ended 31st July 2021, and I now propose that resolution #10 be proposed as an ordinary resolution. I ask Chris Batterham to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 11, Pursuant to Resolution 11, shareholders will be asked to approve the company's revised director's remuneration policy. If approved, the remuneration policy will take effect immediately after the conclusion of this meeting, and will replace the existing policy that was approved by shareholders in 2018 and amended by shareholders in 2019. I now propose that resolution #11 be proposed as an ordinary resolution. I ask Brian Tenner to second the resolution.

Seconded.

I will now put the resolution to the vote. Resolution 12. Pursuant to Resolution 2, Shareholders will be asked to approve an amendment to the company's long-term incentive plan. The company's current long-term incentive plan was originally approved by the shareholders at the Annual General Meeting in 2015. It provides that directors can receive up to 100% of their annual salary as share options through the long-term incentive plan. As described in the Directors' Remuneration Report for this year ended 31st July 2021, the company's remuneration committee has recommended that this increased to 150% of annual salary. Resolution 12 accordingly seeks approval for the allowance to issue long-term incentives equal to a maximum of 150% of annual salary. I propose that resolution #12 be proposed as an ordinary resolution. I ask Nigel Pickett it to second the resolution.

I second the resolution.

I will now put that resolution to the vote. Resolution 13. I now propose that resolution that #13 be proposed as an ordinary resolution. The Companies Act 2006 requires companies to obtain shareholder approval before making political donations of any -- to any political parties, other political organizations or independent election candidates or before incurring political expenditure. Because the definitions contained in the legislation are capable of wide interpretation, although the company does not intend to make any political donations as the term is commonly understood, the Board has decided to put forward this resolution to ensure that the company avoids any possible contravention of the company's Act 2006 when carrying out its normal business activities. A more detailed explanation can be found in the explanatory notes to the Annual General meeting notice. As you will see from the accounts, the company has not made any political donations or incurred any political expenditure during the last financial year. Resolution 13, therefore, seeks to authorize the company making political donations provided the aggregate amount does not exceed GBP 50,000. This authority, if approved, will be effective until the conclusion of the next AGM of the company to be held after the passing of the resolution or if earlier, 15 months from the date of the passing of this resolution. I ask Liam Gray to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 14. I now propose that resolution #14 be proposed an ordinary resolution. Resolution 14 relates to the authority of the directors to issue shares. Before directors are able to issue shares, they must first be authorized by shareholders to do so. And keeping with market practice and the guidelines established by organizations representing institutional shareholders, the maximum number of ordinary shares that may be allotted under this authority is limited to 1/3 of the present issued share capital. In addition to the above limit and only in relation to our rights issue, a further maximum number of ordinary shares may be allotted under this authority and this is limited to 2/3 of the present issued share capital. This authority if approved, will be effective until the conclusion of the next Annual General Meeting of the company to be held after the passing of this resolution or if earlier, 15 months from the date of the passing of this resolution. I ask Chris Batterham to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 15. I propose that resolution #15 be proposed as a special resolution. Subject to the passing of Resolution 14, this resolution will give the directors general authority to allot shares for cash, without first offering them to existing shareholders in proportion to their existing holding of shares in keeping with market practice and institutional guidelines. The number of shares to which this proposed authority relates is limited to the maximum nominal amount stated in the notice being approximately 5% of the current issued share capital. This general authority, if approved, will be effective until the conclusion of the next AGM of the company to be held after the passing of this resolution or if earlier, 15 months from the date of the passing of this resolution. I asked Brian Tenner to second the resolution.

Seconded.

I will now put the resolution to the vote. Resolution 16. I propose that resolution #16 be proposed as a special resolution. Resolution 16, if approved, will give the directors authority subject to the passing of Resolution 14 and in addition to the authority granted by Resolution 15 to allot shares for cash, without first offering them to existing shareholders with that allotment is in connection with an acquisition or specified capital investment. The number of shares to which this proposed Specific authority release is limited to the additional maximum nominal amount stated in the notice, been approximately 5% of the current issued share capital. This authority, if approved, will be effective until the conclusion of the next AGM of the meeting of the company or to be held after the passing of this resolution or if earlier, 15 months from the date of the passing of this resolution. I ask Nigel Pickett it to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Resolution 17. I now propose that resolution #17 be proposed as a special resolution. The purpose of this resolution is to authorize the company to purchase some of its own ordinary shares on such terms and in such manner as the directors may from time to time determine. The authority thought limits the number -- the maximum number of shares purchased to ordinary shares up to the maximum nominal amount and that the minimum and maximum price is stated in the notice. This authority if approved, will be effective until the conclusion of the next AGM of the company to be held after the passing of this resolution or if earlier, 15 months from the date of the passing of this resolution. I ask Liam Gray to second the resolution to the vote.

Seconded.

Resolution 18. Finally, Resolution 18 is a special resolution to seek authority to call general meetings other than annual general meetings on 14 days' notice. The notice period for general meetings of a traded company is 21 days, but this notice period may be reduced to 14 days other than for Annual General Meeting, subject to 2 conditions. The first condition is that the company offers a facility to shareholders to vote by electronic means, and this can be satisfied by providing that shareholders can appoint a proxy by means of a website which we already do. The second condition is that there is an annual resolution of the shareholders approving the reduction of the notice period from 21 days to 14 days. This authority of approved will be effective until the conclusion of the next Annual General Meeting of the company to be held after the passing of this resolution or if earlier, 15 months before the date of the passing of this resolution. I ask Chris Batterham to second the resolution.

I second the resolution.

I will now put the resolution to the vote. Poll. I now hand over to Gervase Cox from Neville registrars, the company's share registrars, who will explain the poll process and answer any questions you may have.

Ladies and gentlemen, good morning. My name is Gervase Cox. I'm here from Neville Registrars Limited, the company's registrars, and I'm entrusted this morning with the task of conducting the poll on ordinary resolutions #1 to 14, and special resolutions 15 to 18 and certifying the results of the vote to the chair of the meeting. Proxy cards were dispatched to all shareholders prior to the meeting. Many of you have already completed and returned them, thereby appointing either the Chair of the meeting or your appointed proxy to cast your vote for you. I have here a summary of the scores from the proxy cards received prior to the meeting which indicates what the outcome of the poll would be if no additional votes were to be cast, and I will use this as the starting point for counting the votes. Please note that if you have previously completed and returned your proxy card and do not wish to change your vote, there is no need for you to take any further action on this poll as your vote has already been counted. I'm available to answer any questions which any of you may have regarding the completion of poll cards. Please raise your hand if you would like a poll card.

That concludes the formal business of this meeting. I thank you all for your interest in attendance in person and virtually. And as I said at the start, we're now going to open up for any questions in the room that shareholders may have.

Morning.

[indiscernible]

People virtually may not have heard the question. And the gentleman said that the shareholders' sense is that the company is currently undervalued and the directors buying shares in the open market would be a really positive signal to the market that we had faced in what we were doing. Brian, do you want to make any comment on that?

As you noted Chris, we have got a significant -- sorry, coming closer to the mic. Yes, Chris, as we chatted earlier, a number of the directors do already have significant holdings and actually all of the executives are obliged to build up 20% shareholding over time, which we are working towards doing. So I think the point is very well made, but I do believe that the holdings that the Board have got are good. And yes, if they grow, that would be would be better. Still I agree the commentary positively and how is that seen in the market.

Any further questions?

[indiscernible]

So for people virtually, John is making the point that he feels there's a lack of information flow from the company and that we could be much more sharing of developments with businesses and be better at communication with shareholders. You must take that.

Thanks for that, John. So I understand the frustration, but I think if you're wondering what else we're working on, we are working on other things. But do bear in mind, the company today is 1/4 of the size that it was 3, 4 years ago. So 75% of our activity has ceased. We did spend a lot of money in the past looking at multiple opportunities, whether it was solar, various different types of lighting, et cetera. We haven't had the resources to pursue those. It's fair to say that if you looked at the two single biggest sources of potential value in the company today. They are the lawsuit and what we're doing in the sensing space. Now you can tell by the fact that I've picked those 2, you'll ask the question, well, Nanoco for 15 years is all about display. The truth is 90% of the display market is Samsung, and they got it by stealing our technology. And the best job we can do for all shareholders is actually prosecuting that lawsuit and getting the display value there. That then unlocks the rest of the display market, but it is worth saying that the display market today outside of Samsung is a very small market. Almost nobody else makes QD TVs. A lot of them have got cadmium in them. Now there is a market. We're still trying to get into it.

[indiscernible]

Correct. Correct. But today, and you can walk into Costco, and Oxford to buy a Cadmium TV. And the only people that we're aware of selling Cadmium free TVs in any volume, as I say, are Samsung. So -- So there is undoubtedly less activity going on. We're not being deliberately obscure about contracts. We genuinely have -- everyone knows we refer to the U.S. customer. They specified that we could refer to them as the U.S. customer. multimillion dollar fines, if you refer to them as anything other than the U.S. customer, our Asian electronics customer specified, you shall refer to, et cetera. So we're not being deliberately coy. These are huge names, actually, these companies. And in the fight between them and our silver what they get to be cold, they invariably win because they are the customer. But as I say, I'd go back to that main point, we are still focused on the lawsuit and most of our operations, 90% of our operational activity is focused on sensing. So display, it's still there. It's small, but the biggest impediment to going anywhere in the display business is the lawsuit. The sensing market is there. There are multiple sensors out there that we think our technology is rapidly applicable to -- But again, it needs an end customer to say, I'm putting this into a device, whether it's a phone, whether it's a TV, whether it's a fridge, whether it's a drone, whether it's smart watch, whatever it happens to be. So we're actively pushing that with the limited resources and the smaller number of people we've got. I think as well, this year's annual report, you'll see that 2 years ago, I think I made this point in the results presentation. If you go back 3 years, we had in sensing, we had 1 customer with 1 material. So that was it. We were betting everything on that 1 customer. If you fast forward to today, we've gone about 5 or 6 customers in that space. with 8 different materials. So there's a lot of development work led by Nigel and his team in the background to trying to expand our portfolio to access more customers. Some of those are very small. I was saying to Chris earlier, the development cycle when it comes to big electronics applications, you're talking about 5 years. So even if you start with a customer, you start with a small amount of R&D, et cetera, et cetera. And I guess I'd say our effort now is -- the team are quietly focused on getting the job done maybe rather than choosing some of the higher profile but ultimately perhaps nonproductive big names or whatever are saying that we're associated with pick any of the big tech companies, but it's not producing revenue or real opportunities as well, it's just PR. But we take the feedback on board, we will we're always trying to do more.

[indiscernible]

Yes.

[indiscernible]

Absolutely.

[indiscernible].

Yes, and that we're not having to ask shareholders to come any further. And there are statistics, but as our lawyers are always telling us, if you got a 1 in a 100 chance of winning, and it's not 1 in a 100. But if you've got a 1 in 100, the real question is, are you the 1 or are you 1 of the 99? Because otherwise, it's just statistics. Yes. So -- but only 1 in 20 cases gets to court, that's a statistic. But if you're the 1 that goes to court, you're going to court. If you're 1 of the 99, you're not. Samsung, I think the statistics are 2/3 of the cases taken against Samsung are settled before they get to court. And some they win, some they lose. So again, there are a lot of statistics out there. But I think 1 thing we can say and we've reiterated a number of announcements. We're very happy with how things are going. A lot of the court documents are public. We know that some third parties have studied those documents and independently said, yes, will we agree with your analysis that your case is strong rather than weak. But ultimately, there are 12 people in Texas who are going to decide that jury in that 1-week trial are going to decide are Samsung Sampson guilty or not? Are they infringing on our technology? And if they are, what's the number? And they will pick the number. The jury. So it's -- and that should be happening in the second half of next year. So again, I think my final comment on this was -- we have said 2022 is going to be a big year for the business, both from a litigation point of view because the patent review comes out in the trial, are both going to be held. You have appeals after that. But if you've won the home leg, you've won the way leg and you're going into the third round and you've got 2 wins under your belt, you'll feel stronger. Or as you've lost there are those, you're knocked out of the competition. And then on the -- on the organic business, we've said we expect or hope to see visibility on potential production orders at the back end of 2022. So the next 12, 13, 14 months are going to be very important in the company's evolution. And we will attempt to keep everybody well informed.

[indiscernible].

Yes. So the question is what the patent review is in May. So for the court case, we have to establish 2 things that we've got a valid patent and that Samsung has infringed it. Once you've done that, then the questions, what size is the damages. The patent review only examines the question of validity i.e., is this a real patent. Should it have been granted? Is it a fair patent? Is it tightly enough worded so that it is patentable technology. So that decision by the patent Review Board is coming in May to say, yes, Nanoco, your 5 patents are valid. No, they're not valid or 3 are valid, 2 aren't, et cetera, et cetera. So that's the first decision point. If they said all 5 were invalid, we can appeal that, but you're off to a bad start. If they said all 5 are valid, we're in a good start, Samsung would no doubt a pallet, but it's an important first step because it establishes that first test are they valid patents.

[indiscernible].

That was something different. That was literally interpreting the words in the patent. So literally, what is an emulsion. Literally, that was 1 of the debates. We defined an emulsion in certain terms. You should get Nigel to describe this, not me, our CTO. We described it in certain terms. Samsung said, no, we prefer this definition. We won that argument. It can be helpful because you're then arguing about, well, the definition of this term is x. We say this is an example of x so therefore, we should win. But equally, on the other side, we'll have arguments to say, well, even if it is x, then there are arguments against that.

[indiscernible].

Yes, our funders spends literally multibillion dollars only on litigation funding, and this is what they do. They've got more lawyers than our lawyers, more IP specialists.

[indiscernible].

Well, we still have 550. We've still got that lady. It might not be the same one, but lady who's been working with us now for 10-plus years that it's been around on the litigation. We're not patenting as fast as we were before because it's incredibly expensive. If you're putting in a couple of hundred every year. So we're being more selective and because we're working on fewer areas. But yes, you've still got that patent portfolio of 550 patents, 5 of which were in court with from Texas.

[indiscernible].

The value comes from either commercializing the material, so actually making something and selling it or from enforcing it. And if you like, I think right at the start of the litigation, we said we're suing Samsung because to prove that there's value in our patents, we have to prove that they're enforceable and that Samsung are breaching them. Because if you've got a patent and you never enforce it and people ignore it all the time, and actually, it's worthless. So you have to take a strong approach to that.

Thanks very much.

Okay. No problem.

Okay. So that concludes the business of the meeting. For those of you in the room, if not you've already done so, please remember to leave your poll cards with our registrar. The final results of the meeting will be announced to the markets through the regulatory information service and posted on our website as soon as practical. I now declare the meeting closed.