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Edited Transcript of NANO.L earnings conference call or presentation 16-Oct-19 7:30am GMT

Full Year 2019 Nanoco Group PLC Earnings Call

Reading Oct 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Nanoco Group PLC earnings conference call or presentation Wednesday, October 16, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Thomas Tenner

Nanoco Group plc - COO, CFO, Company Secretary & Director

* Michael A. Edelman

Nanoco Group plc - CEO & Executive Director

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Conference Call Participants

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* Anne Margaret Crow

Edison Investment Research Limited - Analyst

* Damindu Jayaweera

Peel Hunt LLP, Research Division - Analyst

* James Lockyer

Peel Hunt LLP, Research Division - Analyst

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Presentation

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [1]

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Welcome everyone to the 2019 Nanoco results. Welcome in the room, and welcome to the people on the call.

2019 can be described as a year of ups and downs. From an operational point of view, highlights include completing all the milestones for the U.S. customer, Runcorn facility complete, final validation is underway. The performance of our CFQD red, green dots for display have been significantly enhanced, and the IP portfolio, which is critical to the company has grown to just over 750 patents.

On the downside, our U.S. customer made the decision not to move forward with the specific program. And back on the upside, it was the best financial performance in the company's history, with revenue more than doubling to GBP 7.1 million, EBITDA loss shrinking to GBP 3.8 million, contracted orders for this current financial year, FY '20, currently sit at GBP 3.5 million and cash increased since the last period to GBP 7 million.

Many of you know Nanoco, so I'm not going to focus in detail on this slide, but just to remind you that the company remains highly relevant in the growing QD industry. The ability to produce high volumes of quantum dots and other nanomaterials is hugely significant. We are a pioneer in cadmium-free quantum dots, and we've opened up a whole new area in the infrared QD space.

We work across a large and diverse range of markets. Our main focus has been display and increasingly infrared sensing. We've opened up this infrared sensing market in a big way over the last 2 years with our range of IRQDs. So Nanoco is now working, if we think of the electromagnetic spectrum, from the UV range about 400 nanometers through the visible where we are mainly focused on red and green dots for display, now well out to 2,000 nanometers in the infrared region.

The 2 main areas of focus are IR sensing and display. In sensing, our IRQD film technology expands the spectral range of silicon.

In display, it's all about enhanced color and energy efficiency, and this industry is starting to grow, really led by Samsung. Further off, lighting and life sciences remain very, very attractive businesses for Nanoco.

Our core technology remains highly relevant, backed by over 750 patents and patents applications. The molecular seeding technology, which is what drives the ability to scale from small quantities to large, is critical for both sensing and display technology opportunities.

Turning now to the electronics market, which is the IRQD market or infrared sensing market. IRQDs are a new area of growth for the company. The current problem is that silicon has poor efficiency in the infrared area, really north of 900 nanometers silicon sufficiency drops right off. Our technology dramatically enhances the performance of silicon and allows silicon to extend its useful absorption range with dramatically increased efficiency. This market is forecasted to grow rapidly. And you see that growth happening in all the devices, whether it's how we interact with our phones, whether it's autonomous vehicles, LiDAR systems, Internet of Things. So how humans interact with machines and how machines interact with each other, it's all based on infrared sensing technology.

Our IRQDs and the IRQD film is evolutionary, really helping silicon extend its re-useful working range. It's highly tunable. So different applications requiring different absorption wavelengths can be achieved. Just like with display where we tune red and green, now in the infrared, we've opened up this whole area where we're tuning out of the absorption, the IR capability. So whether it's LiDAR at 850 nanometers or 1,550, whether it's consumer electronics at 940, whether it's military targeted systems at 1,050, we're able to tune those dots, coat them onto silicon CMOS sensors and extend that range of silicon.

Turning now to summary of the U.S. customer. We first signed this contract in February 2018 and over the -- just under a 2-year period or by the end of this year, we'll be couple of months shy of 2 years, the contract valued in Nanoco is worth GBP 16.5 million. All the technology milestones have been delivered. The Runcorn facility was designed, built, commissioned and currently going through the final commissioning stage.

Really, the reason they came to Nanoco was our core capability in scaling up nanoparticles. They tried a number of other companies, very, very large organizations who couldn't do it and Nanoco could, and we solved that problem, and we retained that unique capability of solving that problem. The specific program -- unfortunately, the specific program that incorporated our IRQDs into a module is not proceeding, this is for reasons wholly unconnected with Nanoco. We've delivered everything. And it's for other reasons dealing with the final customer.

The GBP 4.2 million, GBP 4.3 million CapEx loan to build out that Runcorn facility has been fully written off. We're currently evaluating other use applications with this customer. But Nanoco is free and clear to pursue opportunities outside the U.S. customer. So we have a facility now that's been built, which has capacity and there's a huge amount of interest in what we're doing here, which is really very, very exciting.

Looking a little at display, really after a slow start, quantum dot display is now beginning to pick up momentum, largely driven by its dissemination down from high-end TVs, that small sector of the TV market, now which represents about 3% of the 240 million TVs to the midrange, and we're now seeing other companies besides Samsung, launching products. In addition, we see the next generation, the QD-OLED hybrid system, which uses red, green quantum dots on top of the blue OLED system coming in. Samsung is planning to launch this sometime in 2021.

And those of you who are Samsung followers, may have seen the news over the last couple of weeks where they've announced $11 billion in spending on converting their Gen. 8.5 Fabs in Korea from current LCD to OLED-QD hybrid systems. This new system uses 5 to 10x the quantity of quantum dots compared to the current film based system.

The technology road map. To remind you, we start with film, where we incorporate red and green dots into a resin system and then coating that on to a film and that film is incorporated into the backlight of the LCD TV. That's the current technology that's out there.

It's moving to the OLED-QD hybrid system or OLED or QD micro LED hybrid system. We're using blue micro LEDs, blue OLEDs as a backlight driving red and green quantum dots. And this Gen 2 is what's been driven by Samsung and other players, as well as a whole host of micro LED companies. Quantities here are 5 to 10x the current film quantities.

And then further out, we look at the electroluminescent QDs, where you're directly injecting charge and electrically exciting those red, green, blue quantum dots into a very thin printable display.

If we look at the model, Nanoco's hybrid business model allows maximum flexibility as quantum dot technology is adopted successfully. Over the period, we have pivoted pretty aggressively to a dot only strategy. Previously, we had spent a lot of time. We had a very big team working on resin systems and film systems. As the industry has become established and supply chain has become established, we've pulled back from that and really focused on us developing, scaling up and supplying highest quality dots to the market. And that's been very effective. And that pivoting strategy and refocus on the dots, we've seen dramatic improvements in their optical performance. That's enabled us to reduce the headcount of people focused on the resin and film area, which we've done over the period. However, we've retained all key R&D and maintained a very flexible manufacturing group, who're able to work across both fabs. We have 2 manufacturing fabs, one for CFQD, one for IRQD, and we have a team that can work across both.

Looking at lighting, which is a little bit longer term, still a big opportunity for us, but a little further out. Main focus on horticultural lighting, specifically vertical farming. The technology works very, very well at tuning wavelengths to match specific plant growth needs. And our activity today is all about finding lighting partners who will take this technology, integrate into their lighting systems and get it out into the market.

Equally interesting but still a little further off is life sciences. Key developments during the period have been the completion of a Covance, which is the large global CRO toxicology study showing that the Vivodots, they're quantum -- Nanoco quantum dots, cadmium-free quantum dots are nontoxic. This opens up the pathway to the in-vivo market, specifically in tumor demarcation, image guided surgery and early stage detection of cancer. And this whole package of IP and technology we believe has tremendous and shows tremendous promise, which we're very excited about. I'll hand over now to Brian, who'll go through the financials.

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Brian Thomas Tenner, Nanoco Group plc - COO, CFO, Company Secretary & Director [2]

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Good morning, everyone. Thanks very much, Michael. And just quick financial highlights of the year, hello, again. Michael in his opening comments pointing out that it is the best set of financial results that we've had, kind of summarizes all of it certainly from an historical perspective. But just a recap. Billings, billings this year went up significantly compared to last year and revenue this year more than doubled last year. And then at the back end of the financial year, the decision by the U.S. customer, which had a number of accounting impacts on our numbers and results, which I will explain more as we go through these slides.

In terms of our cost base, as Michael said, we've created highly flexible workforce. So our staff in Runcorn can work in both of our production facilities. And you'll see, I'll mention later on a number of times, the concept of operating leverage, when you've got a flexible workforce that can address multiple markets. If you add revenue to that, you can get very interesting incremental margins. And we did reduce our cost base in the second half and that was to reflect the fact that we were focusing on what we do well. We are very good at making the best dots in the world, we're less good at resin systems, we're less good at film, and we've withdrawn from those areas, and that's why we're able to make some cost savings in the second half of the year.

But summarizing where we are today on our costs, our overhead costs, so this excludes depreciation and amortization, so think of these as cash installed cost base is around GBP 9 million per annum. Then in terms of cash, it's still a key management focus for the business as you won't be surprised to hear. And after the changes, I've noted above in terms of restructuring, et cetera, our monthly cash costs, including discretionary CapEx are around GBP 800,000 per month. So any income that we're generating is offsetting that GBP 800,000 cost base.

Again, as Michael said, we expect to have around GBP 6 million in the bank at the end of December. At the end of January, we had GBP 6.2 million, so you can see it went up a little, GBP 800,000 in the second half of the financial year, first half of the calendar year and that will then fall back again in the second half of this calendar year to around that GBP 6 million figure.

And there's a summary income statement in front of you on Slide 21, just drawing out a couple of key points on there. The revenue, as we said, it doubled compared to last year. All of that growth came from the electronics industry, it was primarily driven by the U.S. customer. You can see the gross margins there are getting close to around 90%, and that partly reflects that services type income has got very low material costs in it, which is why you're getting that 90% margin.

But even if you include then the increases in our R&D investments and our other overhead costs, you're still getting around in to 60% incremental benefit from each pound of revenue dropping through to the EBITDA line. You can see on there some exceptional items and share based payments. Again, that's a net figure, the gross sums are much bigger, and there's a slide explaining those in some more detail a little later on.

Just going over the page. Revenue and billings, just very quickly, we said last year that we expected the next 2 years to be dominated by U.S. customer in the electronics sector, that's exactly what you can see on these 2 charts. If you're looking at revenue on the left-hand side and billings on the right-hand side, the movie pinky sort of color, GBP 6.6 million of revenue this year, GBP 9.2 million of billings this year, that's driven by the U.S. customer and by the electronics market sector.

The light gray bars, you can see in those charts, those are actually coming from royalties and license payments from existing license partners.

The reason that the billings figure is higher than the revenue figure, we've alluded to this, the U.S. customer pre-funded the completion of the Runcorn new production facility. So included in the GBP 9.6 million of billings is some capital that was billed to the U.S. customer. That's why the billings figure this year is so much higher than the revenue.

If you then go over the page, just walking you through a quick waterfall or bridge chart of the movement in net loss from last year to this year. You will see last year, we lost GBP 6 million. The single biggest improvement on that -- this year was that additional revenue that we've already talked about, the GBP 3.8 million increase in revenue. And again, the 2 little green columns to the right of that -- or bars to the right of that, you can see, the cost of sales and the extra R&D cost on that GBP 3.8 million was very, very modest. Hence, back to that point about demonstrating extremely strong operating leverage.

The increase in overheads, there are 2 things noted up there, one was slightly higher average headcount in the year just passed and also some higher one-off professional fees across a number of different areas, but actually the single biggest thing was some variable project costs around GBP 800,000 in there. And when I say variable project cost, what I mean is, if the project wasn't there, then the variable costs wouldn't be there and that GBP 800,000 would come out. And that's how you bridge back to the figure I was quoting earlier, the GBP 9 million of that installed fixed cost base.

And the reorganization we did in Q4, primarily focused around some of our resin and film foot, but it also made some reductions in some of our support functions and that will save us or is already saving us from period 1 of the current financial year, the equivalent GBP 600,000 a year. And again, just for information, that if you didn't see it in one of Michael's earlier slides, our headcount today for the rest of this year is around the 76 level, that compares to the average you can see for the last financial year of 92. So that tells you we roughly restructured 16 people from the business.

Just returning then to those adjusting or exceptional items, I mentioned earlier. You can see GBP 4.2 million, that's the single biggest item on there, that's exceptional income or a credit arising because the U.S. customer has foregone or legally waived their entitlement to be repaid the advanced funding on the Runcorn facility. Originally, that would have been repaid through small discount on each unit of material shipped, that's now have been waived in its entire and hence it's recognized now as an exceptional credit.

Then look at the second row on there, and I've deliberately put the word financial impairment of the production facility, just to emphasize the production facility is built, it's finished, it's brand spanking new, it works and it's currently in final validation. So it can be used to sell material and we're unencumbered in terms of selling material to other customers who need material for infrared sensing.

But from an accounting perspective because there aren't any contracted orders on that plant, we had to impair it to almost on to a nil book value. The items then that follow on there over the next 3 onerous lease, they're contract-specific stock and some other U.S. customer contract liabilities, all linked directly to that decision by the U.S. customer that when the contract -- current contract finishes in December, it will not continue. And that's why those provisions have been booked.

I should emphasize every single one of those, the GBP 4.2 million, the GBP 3.3 million and GBP 0.7 million, GBP 0.3 million and GBP 0.1 million, all of them are accounting, none have got any cash behind them, okay.

And then the final line on there, that restructuring that we talked about, the resource pivot in display from resin and film, that cost just over GBP 100,000 and that's the final item to get you to that net exceptional items. And again the share based payments, most of you will be familiar that they're typically excluded in arriving at adjusted EBITDA figures.

And then just going on similar summary or bridge chart, as the chart on the EBITDA or the loss in the year. This one is about the movement in cash. We started the year with GBP 10.7 million in the bank. You can see that the single biggest item on there was the actual loss before -- or the adjusted EBITDA loss in the year, GBP 3.8 million, and deferred income GBP 2.3 million, that's primarily the U.S. customer who waiving the obligation to repay that capital funding. It's actually got a direct offset inside the GBP 3.1 million bar, you can see there, which was CapEx. That GBP 3.1 million bar actually includes GBP 1.9 million of finishing the Runcorn facility. So there's almost a direct offset between those 2.

And the other large item you can see on there, the R&D tax credit, that was received very early in 2019, and we're expecting a similar, possibly slightly smaller GBP 1.2 million tax credit in respect of FY '19, but we're actually expecting to receive it in calendar '19 rather than having to wait into January, February next year.

And then -- so, just summarizing, we still expect to have approximately GBP 6 million of cash on hand when we get to the end of December.

It's been a quick counter but just to get back into financial summary and the billings, as I said, increased significantly on last year and that's what has helped build the contracted order book of GBP 3.5 million for the current financial year. Of that GBP 3.5 million that's contracted for this year if you assume that around GBP 3 million comes in the first half roughly and GBP 0.5 million is coming in the second half, again, you'll be able to work out that the majority of that already contracted income is in respect of the project for the U.S. customer that runs through to December. And behind all of that, again, as Michael said a couple of times, both in display and in electronics or infrared sensing, we are currently exploring a number of new opportunities, which are well aimed at either replicating or even exceeding the income potential from the U.S. customer.

We then move on to terms of capability. I think the most important thing is despite having to watch our cost base closely and having had to restructure the business, we've actually managed to retain highly flexible workforce. So we've got full production capability in both of our display and our IR sensing facilities. We've also managed to retain and in fact actually enhance and drive forward our R&D capability, which is why we're seeing improved performance in our dots and in developing some new material sets as well, both in display and in IR sensing. And the last point on there, we have that major new production facility, which is going through final validation, even as we speak.

And so retaining all that capability, while still keeping careful eye on cost and cash was very important and so we haven't really cut into -- we haven't cut into the muscle where, I guess, the point is I'm making.

In terms of cash, already said that we expect to be broadly neutral through to December, that's mainly measured from January '19 at the GBP 6.2 million through to GBP 6 million in December. Our cash burn thereafter is around GBP 800,000 a month, less some of that GBP 0.5 million of contracted income that we've got. But what we think both of those things together represent GBP 6 million of cash and that cash burn figure is, they both give us a reasonable cash runway to either implement contingency plans if they're needed or actually plan A is deliver some of those commercial opportunities that we're currently working on. And with that, I'll hand you back to Michael.

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [3]

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Great. Thanks, Brian. Thank you, Brian. So just quickly to summarize, Nanoco remains highly relevant as a leader in nanomaterials technology. We have a highly experienced and dedicated team, committed to driving this business forward. As Brian mentioned, we have a really very active and very encouraging customer pipeline with a lot of opportunity. Our IP portfolio is one of the largest in the industry. And is highly relevant for this platform technology. Remind you that as we've said today, but it's really important that the new IRQD facility that was built that we're free and clear, has revenue capacity 4x greater than our display -- our CFQD display facility. So we have these 2 with huge revenue capability. It's really the -- we come a way, although, as I mentioned at the beginning, it's been a year of ups and downs, the possibilities are really endless. And we really believe strongly in this business and its future potential.

Thank you very much. I'll open up for questions. Yes.

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Questions and Answers

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James Lockyer, Peel Hunt LLP, Research Division - Analyst [1]

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James Lockyer from Peel Hunt. I have 3 questions on vertical farming, if you don't mind? Firstly, you mentioned you think it's more of a longer-term potential. But I just wondered if this is purely because the industry itself is at early stages or because you believe you've got a bit more to go in terms of your investment before you can go to market with that one?

Second question is the biggest cost, obviously, within vertical farming is trying to replicate the power of the sun. So it'd be good to understand what do you think your efficiencies are with your technology versus some of the other common ones out there that are doing sort of similar lighting concepts? And if finally anything around potential economics would be quite interesting.

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [2]

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Okay. So I think first one -- first part of the 3-part question was, is the technology ready. The answer is yes. And the technology is using the same supply chain that we use for display film, but we just take the specific quantum dots needed for whatever species of plant we're trying to grow, incorporate that film, that film is produced with our supply chain partners in Taiwan, slit and cut and assembled into a lighting fixture.

So there is no further development. What I believe I mentioned that we need is a credible lighting partner, who will take this on and move it forward. So we've built the components. We however do not want to be a lighting company. And it was a little bit like what we talked about with display and over the year pivoting back to the dot only strategy. To get display going, we had a team of 15 people working on resin systems, film systems. It's not our expertise. We're dot folks.

So we pivot back to dots, we've improved the dots with vertical farming the same. We've got the dots that work, we have them into a component that works, and we now are talking to a number of different lighting companies to integrate that component which we would like to sell into their lights and then have them sell on.

And in terms of replicating the sun, you're actually not trying to replicate full sunshine. The easiest example I can give you is the color green, which is in sunlight. Those plants that we're looking at outside hate green. That's why you see it because they're reflecting the green color. And what we're giving the plant is exactly what they want. So for example, in its simplest form, blue and red. So we dial in the blue and red frequencies that they want, which enhances and speeds up, and we're seeing almost double growth capabilities. So -- which, if you're a farmer and you're getting your crops out that much faster, that's real money. And then in terms of cost, we believe we're competitive. And then when you start factoring in total cost of ownership, the crop generation, it becomes really, very, very competitive.

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [3]

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It's Damindu from Peel Hunt. Could you remind us on the sensing side, why there's economics advantage for IRQDs versus InGaAs. I know it's really silicon but it'll be nice to be reminded.

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [4]

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Sure, it's a great question. So as I think you probably know that once you get past 900 nanometer silicon efficiency, absorption efficiency really drops off dramatically. So the alternative is compound semiconductor, indium gallium arsenide, InGaAs, which is hugely -- has a couple of problems. One, it's very expensive. Well, let's talk about the benefits first. It's highly efficient. So InGaAs sensors are really good, but they're tremendously expensive. And the volume, or the industry's capability to produce large scaling InGaAs is not there issue one -- issue 2. Issue 3 is each InGaAs sensor or pixel needs to be individually addressed. So it's very difficult to shrink those InGaAs sensors down into a small pixelated form where you would get very, very high resolution that you'd need for infrared optical, sensing applications where you're trying to get a good picture.

So the value proposition is quite simple with the IRQD film, which is we take the existing silicon CMOS infrastructure, where you're already building. There's a big industry building 300-millimeter seamless wafers, and we're taking those and we're coating those with an IRQD in a solution, it's the pretty standard process used in the semiconductor industry, baking that into a film and then basically that QD layer is able to absorb whatever frequency of light they're tuned to, anything from, say, 900 or 800 nanometers well out, today we're working out to 1,900, 2,000 nanometers. And that dramatically expands silicon's useful range. And if we look at -- I'll give you an example of one of the big wavelengths that we've been working on for the consumer electronics, close to 1,000 nanometers. Silicon in current devices is sub-10% in terms of what we call EQE or external quantum efficiency ability to convert a light signal into an electrical inputs.

And devices with our materials are now running north of 60%. So that's a huge efficiency gain. And with IR sensing, it's all about data collection. So the more light, you're converting to an electrical signal, that's more data you're collecting. And if you think about autonomous vehicles and LiDAR, if you think about using infrared sensing for -- as a security feature to unlock or securely transfer money on a mobile device, the more data you have, the more accurate you are. So this is where we're very, very bullish about the technology. And although hugely disappointing that the U.S. company didn't move forward with this specific program, we're still working on other programs with them. The technology is -- the reason for the change had nothing to do with that huge efficiency gain, it was something totally unrelated to us and what the technology -- the promise of the technology. And since then, the number of folks who're really interested in this area it's -- we're basically the shackles are off, we're free to go after them, which we're doing.

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [5]

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And has that U.S. relationship led to some level of advantage over the competition when it comes to IRQDs, anything quantifiable? Are you like 2, 3 years ahead of your competition? Or is it the production capability that's already in place?

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [6]

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So the -- I think the answer is, yes. So I think I mentioned during the presentation, one of the reasons that Nanoco was chosen was because of this ability to scale up. So it's one thing to make quantum dots, whether IR or visible in a tiny quantity in the lab. PhD students all over the world, they're doing that. But to take those and make them consistently at high quality in quantity and mass is really tough. And I would say, being brutally honest, that we're not a natural supply chain partner of that large U.S. customer. And they went other places to big electronic materials, chemical producers that you expect who couldn't do it. And we solved that problem. And really worked very effectively, delivered the technology. So huge opportunity for us.

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [7]

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And then lastly on the life science and the lightning part, could you remind us what the -- so are there dedicated people in that team out of the 76, that will be around. I'm just trying to get to understand whether that can be carved out and maybe find a JV partner for those activities in the future.

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [8]

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So the lighting uses the same -- because the lighting is using the exact same dots we use in display. So it's the same team. Life science, however, is a dedicated team of 5. And we've publicly stated that one of the things that we're looking at is carving out that life science unit and looking at exploring, and we are actively exploring partnerships with large pharma, large biotech companies in that area because whether it's being used for surgical applications or advanced early stage diagnosis, for example, of pancreatic cancer that we're working on, the technology or even photodynamic therapy, where it has a rather than just a diagnostic or an imager, you actually have a therapeutic effect where you switch the light on and it does do some work in terms of killing cancer cells. We're -- we recognize that, although we have a dedicated team who are highly skilled in the area, we as -- the broader we is Nanoco, are not a life science company, don't have the dedicated skills to get -- to maximize that value. So we're looking for partnerships.

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Anne Margaret Crow, Edison Investment Research Limited - Analyst [9]

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Anne Crow from Edison.

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [10]

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Please questions for Brian.

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Anne Margaret Crow, Edison Investment Research Limited - Analyst [11]

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I wanted to ask a couple of questions about the display side. So the first one was, one of the things that you're looking for in, sort of, Generation 1 of display is having that technology, sort of, moving to cheaper TV sets. And I was wondering what evidence there was that, that is happening? Then the second question was, you've been putting a lot of R&D effort into improving the performance of quantum dots. So wondering where you stood now with respect to the competition and whether the efficiency was now sufficient for the very small pixels that are being required for some of the Gen 2 work, still working with very tiny micro LEDs? And then the third question isn't necessarily to do with display at all, but you rather tantalizingly referred to new material set and I was wondering what those were?

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [12]

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Sure. I love all the multiple questions. So I'll try and if I forget one of them, please, please remind me. So evidence that TV is -- question on evidence that TVs were disseminating or democratizing down into the midrange, biggest evidence is, if you go to the high street look at Samsung TVs, you'll see them now. And certainly, in the U.S., we're seeing them in the sub-$1000 range. So typically, the high end, which is where they started, was 55 inch and up panels that were north of $2,500. So really, the high end. We're now seeing lower end or mid range 55-inch square meter panels at the $1,000 mark. So that's -- please check yourself.

We're also seeing new entrants, people like Vizio in the U.S. and in China, specifically TCL and Hisense, introducing TVs and those Chinese TVs are all sub-$1,000 TVs.

Second question was are our dots, I believe, are the Nanoco quantum dots ready for Gen 2, so the R&D capability. The answer is not quite, They're getting there. So we now -- we believe we now -- on the Gen 1 materials, truly have the best green in the world and our red is pretty comparable. And we're seeing film that's being produced with our cad-free materials that's basically equivalent to cadmium, which is excellent. Because there's always been a gap and R&D team's drive has been to close that gap and that gap is -- we're seeing is essentially closed.

For film -- for Gen 2, we are printing or patterning. So you're either printing using inkjet printing, or you're patterning using the photoresist resin, highly concentrated blocks of pixelated quantum dots on top of either blue, micro LED array or a blue OLED.

That highly concentrated slug of dots needs to do a lot of work and that it needs to absorb a huge amount of light and convert all that light into whatever call it red or green efficiently. And the path length is only a few microns. So between 2 and say 10 microns, where the path length, the width of the film is about 100 microns. So the work we're asking the quantum dots to do is pretty tough. So the focus for Nanoco on the dots is dramatically enhancing the absorption capability the ability to quickly absorb light and flip it, convert it into the red and green wavelength. And so the team has made excellent progress. The absorption capability of dots versus film has been improved by a factor of 4 over the last year. We're working very closely with our licensing partners in this area who are very plugged in to the main TV guys and focused on getting this up.

And the third question, I wrote your third question down, but I can't read my writing. So could you...

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Anne Margaret Crow, Edison Investment Research Limited - Analyst [13]

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Okay. Wondering if you could provide a bit more color on the new materials?

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [14]

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Oh, new materials, right? That's right. Right. Thank you. I understand. The new materials -- so indeed, we work with a whole range of compound semiconductor. So we're always tuning the materials, as well as turning the size of the dots. We also have a new effort in materials that we're calling 2D, 2-dimensional materials, which is a program that Nigel, our CTO, is working on with Kostya Novoselov, who's the Nobel prize winning laureate for graphene. So the 2 of them have a program on 2D materials. These are materials that we're seeing -- we're developing, it's all of the IP, everything's running through Nanoco, some amazing performance, weird and wonderful, and we're not disclosing what those materials are. But it's really pointy end of research, it's a number of years out, but we're actually starting to incorporate those into different devices and the performance we're getting is tremendous in some of the areas, but it's still early stage. But you put those guys together, it's -- you get interesting results.

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Unidentified Analyst, [15]

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Just one for me. On the IRQD materials, can you give us an indication of where the most interest is beyond, obviously, the U.S. customer, is that more in sort of the mobile and consumer electronics or the automotive autonomous vehicles market?

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [16]

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Yes, both. So a lot of interest in consumer electronics from the major players. And there are probably 5 key semiconductor companies in the world who are involved in sensors. So we were in a supply chain with one of those and they're -- who we're still very active with and still a partner, and -- but there are 4 others.

On the -- and this -- these 5 semiconductor companies are also folks who would be very interested in selling these semiconductor solutions, these IR sensors, not only into consumer electronics, but into automotive and every other. But the automotive, autonomous vehicle, the whole LIDAR market is challenged by the current technology, which runs at 850 nanometers, is often blinded by sunlight.

Sunlight, there is a huge amount of infrared, close to 50% of sunlight is IR. So 850 is right in that zone. And one of the challenges that the current LIDAR systems have is a big problem with signal to noise, how do you differentiate a 850-nanometer laser versus all the 850-nanometer ambient sunlight. And that's a bit of a bummer if you're in an autonomous vehicle, and it only works on rainy days. So the industry is moving, is trying to move from 850 nanometers into longer wavelengths, 1,550, which is beyond wavelengths which damage the eye because one of the solutions at 850 is just crank laser power up. So you have all those cars shooting higher power lasers. But 850 will start to fry your retina so that's not -- you think sharks and laser beams and stuff, but -- sorry, it was bad reference there. So -- and then 850, you move to 1,550, you go back to Damindu's question around InGaAs, the only credible technology at 1,550 is InGaAs today, but it's prohibitively expensive in the volume, the production is not fair to make out. So we're looking across all of the applications for IR.

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Unidentified Analyst, [17]

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Obviously, the mobile is far quicker to market than the automotive, with automotive qualification time lines. I mean, let's say, a different device manufacturer wanted to put this into a phone, how quickly could they go through the process of design, qualification, production, sourcing to get your technology into a device? If you're having those conversations now?

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Brian Thomas Tenner, Nanoco Group plc - COO, CFO, Company Secretary & Director [18]

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So we already know that the technology is proven in the, call it, the module, the bet, the sensor that's being added to whatever device it is, whether it's a handset, whether it's an Internet of Things device, whether it's a machine that's got a sensor attached to it. It really depend who they go to in the supply chain. So obviously, we've worked with one player in the supply chain, I don't mean the end customer -- the guys looking at the sensors, who can already do that. So in theory, someone could turn up and place an order tomorrow, in theory. However, they actually have to decide to adopt it and they -- if it is then part of another device, they may have to reconfigure the device. So I think the lead time is probably more around the end user, integrating the solution into their final device piece of equipment, whatever it is, their design lead times, and what impact that may have on rest of the solution rather than the length of time it would take to spin up manufacturing capability. Because, again, from the point of view of our dots, we've mentioned the facility will be fully validated in the next few months. So the dots are ready to go coating it onto silicon is a specialist process, but there are already people that can do it.

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Michael A. Edelman, Nanoco Group plc - CEO & Executive Director [19]

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So in that validation, you say, well, why -- maybe your question is, why -- what's going on with validation when the customer -- the end customer said, that they're not moving forward with a specific program. We make the die. We've develop, scaled up, we manufacture the dots, they go to a semiconductor company who they'll put it on to the CMOS back plane effectively, make to turn it into a module, and then that goes to someone else who assembles that into it. So that final validation, full manufacturing scale-up is still being completed and still being -- is still very active between us and the next person in the supply chain, who are equally interested in ensuring this technology moves forward.

So if you look at the investment that they've put in to this technology. It dwarfs the GBP 16.5 million, that's been invested in Nanoco? Absolutely, dwarfs it. So they have a huge incentive to make sure this works.

So what's nice about this. This is not Nanoco on our own trying to open up these other markets. We have some pretty large semiconductor partners, helping out and pushing equally hard.

Great. If there are no other questions. Thank you all very much, and thank to those on the phone.