Nanoco Group plc (OTCPK:NNOCF) Q2 2022 Earnings Conference Call April 13, 2022 5:00 AM ET

Brian Tenner - Chief Executive Officer

Liam Gray - Chief Financial Officer

Tariq Hamoodi - Golden Bridge Advisory

Good morning and welcome to the Interim Results for Nanoco Group plc for the six months ending January 31, 2022. My name is Brian Tenner, the Chief Executive of Nanoco and I'm joined this morning by Liam Gray, our CFO. There will be a chance for questions at the end, either over the phone or they can be submitted online through the link that everyone must have received. And so without further ado, now turning to Slide number 3 for the highlights of the six months of the interim reporting period.

Just wanted to remind you that back in November last year, we said that 2022 would be a big year for Nanoco and I'm pleased to say that, that is exactly how things are shaping up. Our confidence is growing on a number of fronts as we continue to deliver and visibility improves on near-term value inflection points. So looking at the operational highlights of the first six months. We agreed further work packages with our major European customer. We've also expanded our range of infrared sensing materials, that's for the European customer but also for the Asian customer that we announced last year. We started preparing Runcorn for scale up on production activity. And finally, on the litigation, we believe that's proceeding well and we look forward to the decision on the IPRs in May '22. So in the next five to six weeks. And we expect that to be the first major value inflection point that we'll save this year on the litigation.

In terms of financial highlights, our revenue and other operating income was up 21% year-on-year, -- our cost base is stable at around £400,000 per calendar month and we will see that reduce in the second half of the current financial year and also then in the first half of the next financial year. Our cash at the six month point was around £1.8 million and that actually rose to £2.6 million in February '22 and the reason for the difference is that there was a slightly late receipt of our R&D tax credit compared to the prior year.

And lastly, because of that cash position and the improved performance across all aspects of the organic business, we now expect our organic cash runway to extend to the first half of calendar year 2023. So that's it for the highlights. And if we now turn over to Slide 4. There's a couple of reminders of the different sources of value that we see in Nanoco today.

If you look at the large blue bubble on the top left of that chart, you'll see it's headed sensing. We still expect to see potential production order visibility in the second half of calendar year 2022, so in the next six or seven months. And our confidence in that area is growing compared to this time last year. If you then look at the gray bubble in the middle and titled litigation. Again, that's an area where our confidence is growing. We've now had the oral hearing in the IPRs and the transcript of that has been published. I'll say a little bit about it more later. But again, we expect a key-value milestone on the litigation to be the IPR results in May '22 and we then expect to see the second value inflection point on litigation in the second half of this calendar year, so around the fourth quarter of this calendar year.

And then coming off of litigation, very much linking into display because display fortunes are very much linked to the litigation. And we're still engaging on a number of small-scale development projects but we believe success in the litigation will open up either future customer relationships or potential license agreements on the display side of the business. So those are the three key areas that we see value being generated in the Nanoco over the next 12 to 18 months.

If we turn over the slide to Page number 5, there is a reminder of the opportunity that we have in infrared sensing. And what we've put on here is just a reminder that the opportunities that we see there but also the applications and potential applications that we see in infrared sensing are actually getting bigger, becoming more numerous and again, coupled with our performance in this, that's why we're seeing growing confidence in this area. So just to remind people, the problem with current silicon sensors is that they are very inefficient in the infrared, they are interfered with by natural sunlight and other apostatic conditions, they also lead to higher power drain in mobile devices. And frankly, the alternative today in terms of InGaAs sensors are extremely expensive. So the question then is, why would you use quantum dots? Well, quantum dots solve most of those problems. By applying quantum dots to a CMOS sensor, you actually expand the range of the sensor far into the infrared as far as 2,000 nanometers.

With the application of quantum dots, that then allows you to become sunlight issues or other atmospheric condition issues. It can also reduce the amount of power needed in the mobile device with obvious benefits for battery lives. And last but not least, CMOS sensor with quantum dots applied to come up to 100x cheaper than an investment point of view. So it's very well suited for the mass market. In terms of what's Nanoco's differentiation in this space? Well, our materials when applied to CMOS sensors already proven data capture efficiency of 10x or 10 times up to 1,000%. We already, with our Runcorn production facility, have large production capability in place. I've already mentioned our expanding range of materials at multiple different tunable wavelengths.

And last but again but no means least, a lot of that sits on top of our IP protected technology platform. And I won't go through all the pictures down below. We just added a few more of the use cases and applications where CMOS sensors, particularly in sweat short wave in feed and can be applied. So you can see on the bottom left, agriculture and the applications they rely on the fact that ware sensors can actually see water or hoister that's a key capability.

The second picture from the left, you can see driver monitoring and the regulations that are coming into effect throughout Europe and the rest of the world are requiring many more sensors to be in the cabin monitoring the driver, whether they're looking at the road, whether they're looking at the window, etcetera, etcetera. And again, the last two pictures there on the right-hand side around surveillance and also security and anti-counterfeiting. So what we're trying to get across there is a huge and growing range of high value-added applications for NIR, near infrared, so less than 1,000 nanometers; and short wave infrared, so between 1,000 and 2,000 nanometer wavelengths.

If you turn over the page then to Page number 6. I'll say a little bit more about what we've been doing on our portfolio of materials for infrared sensing. And I do want to remind you that the typical cycle to move from the start of a project, i.e., development phase, all the way through to production takes three to four years. That's not just because of the length of time it takes us to do our work. But clearly, our customers need to look at the use cases, the technology, their own production processes. So this is not a process that can be done in 6 to 12 months. So you should always assume that the transition time from a blue D on this chart through to a green P on this chart is typically around three to four years. So again, just to remind folks, in 2018, we had one customer, one product. It was that product up in the top left, customer one, near infrared and it was material set A.

By this -- by the term of the final results last year, we moved on to five different customers in eight distinct products. And I'm pleased to say that our progress on our material set has carried on during the first half of financial year 2022. So we've continued to expand our portfolio of materials. And at the same time, we're readying Runcorn for production of at least one material and getting ready for a second material. And again, just to remind folks, as we announced last November, our customer has already -- our key customers already published road maps that imply actual commercial production in calendar year 2023. So we maintain our unchanged goal all by calendar year 2023, having one material in production and having a second material validated for production.

Finally, if you just look at that chart on the top left, you can see there are two of the circles that are surrounded by boxes outlined in dots. The first of those, where there's a red dot with an S in it, that's the second material for a key customer, we're removing past optimization and we're not working on the scale-up of that material.

And the second change since this time last year is if you look at the customer four, there's not a new material set at a new wavelength. And actually, if you look in that, we previously had nothing in these wavelengths. So we've now got something in there where we're at the development stage for that new material. You won't necessarily expect to see a new material being added every six months but it's our goal to make sure that this portfolio either grows or advances to the next stage as we go through each reporting cycle. So good progress basically on our portfolio of sensing materials.

Now, I turn over the page to Page number 7. I'll say a little bit about our display opportunities. As I mentioned earlier, these are closely linked to the outcome of the litigation. So looking at the opportunity. We mentioned before, Samsung share in QD TV market is now below 90%. And it is worth noting that, that market is a growing market as well, partly because, as I say here in the fourth bullet, there's a growing range of devices that are actually using QDs free quantum dots in their displays. Again, if you asked the question why we used quantum dots in the displays? We've covered this a number of times before but just to remind people, the color of the display and the quality of the display is significantly enhanced through the addition of quantum dots. And also, it's very important to note that the quantum dot solution can integrate with the current LCD supply chain. So you do not need to completely change the supply chain to quantum dots in any display solution.

In terms of Nanoco's differentiation, again, we said before, our materials are cadmium-free. They gave that enhanced color compared to regular LCDs and they're also energy-efficient compared to regular LCDs. It is worth noting that our materials apply to all generation of TVs and those who are watching what's happening in the market will have seen there have been very significant investments in new capital equipment in plants in second-generation quantum dot TV, sometimes referred to as QD-OLED TVs which use quantum dots and inks which are then printed onto the devices. And again, it is worth noting the number of quantum dots that are needed in the second-generation TVs is significantly higher, could be as much as 4x higher than what is needed for a regular display TV. But as I've already mentioned, the outcome on display, our ability to generate customers outside of Samsung's market share is closely linked to the litigation and clearly, a validation of our IP after the IPRs in May '22, so in the next five to six weeks, would give us significantly more confidence to start pushing our IP and our materials with other display manufacturers.

If you look at the chart on the bottom right, there's forecast there from an external market reporting agency. And the key message we're getting across there is that as long as there are more devices starting to use quantum dots, that means there will be a demand for more quantum dots. And that growth in that market can only be helpful for Nanoco at our own production capability which we still retain in Runcorn.

So go to the page, I'll say just a little bit about some adjacent applications for our cadmium-free quantum dots. The first is on Life Sciences, folks will be aware that we've been working on a brand from the U.K. government from Innovate UK. That's for the rapid detection of pathogens by conjugating antibodies to quantum dots.

I'm pleased to report that we've already succeeded in the proof-of-concept stage and then we're now working on device mechanics, i.e., how to incorporate quantum dots in a device, the sort of device that we're all familiar with through COVID testing but also applicable to other pathogens. It is worth noting, however, the background expire at the end of May '22. And after that point in time, we will continue to seek commercial partners to carry things forward thereafter even if development work is more restricted after that point in time.

Looking on the right-hand side, again, we continue to engage with a number of smaller inquiries from a range of customers on both straight lighting applications but also on horticultural applications, whether that's in the lighting space or actually in the greenhouse space. where you'd be relying on natural sunlight as the source of the like. It is worth noting, however, though, that we are focused very much on our sensing and display opportunities because we are constrained by our financial resources. And the reason we focus on sensing display as we think that was our nearer term routes to commercialization. So that's it on the organic business. And if we now turn to a number of slides on the litigation.

So I'm now looking at Slide number 9 which is entitled Samsung Litigation Update. And again, we've made these points before but it's worth reminding people all these key points because they are still relevant to an understanding of the litigation and where we're up to in that. So just to remind folk, there are five patents that we are litigating against Samsung. Those five patents have got 47 subsidiary claims sitting under the that relate to our QD capabilities. In order to win, whether it's through IPRs and then the trial, we only need at least one claim over the 47 to survive both the patent review and the trial. Clearly, the more patent claims that survive the IPR that we can take to trial and the better but we are limited trial because it's only one week long, three or four claims is all we really have the time to litigate on in the trial. The PTAB, PTAB is the Patent Travel and Appeal Board. It's an extension of the U.S. payment office. They are making a decision on the validity of our patents by May '22. We believe the oral hearing went well. And assuming we survive the patent survive, the PTAB review, the next step will be the trial. Because the PTAB would have settled validity, it does mean that during the trial, we will just have to focus on two arguments, infringements and damages. And given that the trial is only one week long and each side gets 12 hours to present its case, it's actually really useful that we will not also have to talk to the jury about validity and only focus on infringement and their damages.

To remind folk in this case, the damages on this trial in Texas is just U.S. sales only and we estimate that's around 33% of Samsung's global QD TV sales. It is just historical sales only. So if the trial is in October, it will only cover sales of TVs up to October 2022.

And lastly, the trial also considers the question of willfulness because if Samsung are fine doing knowingly or deliberately infringed our IP, then damages under U.S. law can increase by up to 3x but we would note that the typical decision around willfulness in Texas is typically around 1.5x multiple, so not a 3x multiple. We believe the damages model should reflect the total value enabled by our IP, i.e., the value of the entire TV because without the quantum dots enhancing the display, you do ask yourself why would anyone bother money on a TV that didn't have an improved display. But there are other damages models that are available and that Samsung may well argue that we should only be looking at the actual cost of the quantum dots or the film that's in the TV.

In terms of what happens to any award, we obviously have some contingent fee relationships with the funder and also with our legal advisers. But in summary, if there was a modest favorable award for Nanoco, we would retain around 50% of such an award from the trial and that would rise towards around 80% as the absolute value of the award got bigger. So as the word got bigger, we retain a higher percentage and because the reward is bigger or the awards bigger and the absolute number would also get bigger because of that should then remind people that any award will be subject to U.K. corporation tax and the company has around £36 million of U.K. losses that would be available to offset that. So it remains very much the case that the Samsung litigation, if it's successful, has a transformative potential for the company's future organic prospects and also for the creation of shareholder value.

Now, I go over the page to Page 10. Just a reminder of the timeline on the litigation. The first large arrow at the top runs through the PTAB, patent Trial and Appeal Board Process. The IPRs were instituted in May 2021. The statutory timeline for a decision from PTAB is within one year. So at the latest, it's around the 19th, 20th of May, 2022. And we have the oral hearing in the 23rd of February and a transcript of that is not publicly available. And our reading of that transcript suggest it went very well for Nanoco and we look forward to seeing the actual decision of the PTAB in the next four to five weeks. Again, it's worth noticing that a decision of the PTAB can be appealed by either side and then typically, those appeals are resolved within 12 to 18 months. So again, it does tend to be a slightly faster process than the trial process.

We then look at the second large arrow below, the timeline for the trial process. We had that good outcome in the Markman hearing back in March '21 last year when we won on four out of the five patents. We are expecting the jury trial to be around October '22. That's partly because the judge's wording when he agreed to delay the trial. He was obviously ready to go to trial, everything had been prepared. So once PTAB made their decision, there will be a hearing in June this year to decide if the stay is going to be lifted and shortly thereafter, if it is lifted, we'd expect to see that trial then scheduled in for some point in the second half of the year.

And I say, we are indicating around October-November for that jury trial After the jury reached their verdict and they're verdict, again, just to remind people, it will have a damages number, it will have a decision on willfulness but not a multiplier and it won't say anything about future sales or future royalties. Those last two things come when the judge writes and publishes his formal opinion on the case. So that's when he'll give an opinion. If he's going to award a future royalty. If it doesn't, it might need more litigation. Equally, if the jury has decided that the infringement was willful, he will apply a multiplier to the damages. And once he's written his report then both sides have the opportunity to appeal that decision. And again, it is worth noting that a judicial decision, so the trial process, the appeal that can be lodged against that and there are many different grounds that those appeals to be lodged on can go on for a number of years. It was indicated here, it could be more than two years, it could be longer still.

And the last reminder on all of this is that the litigation, the IPR process, etcetera, is all being paid for by a third-party litigation funder who receive a multiple of their invested capital if we are successful in this overall process. So there's no negative cash flow impact on the Nanoco's cash flows.

If we then turn over the page to Page 11, it's the last one from me on the litigation. We're just trying to draw out some of the value opportunities for the litigation process around the world. The figures you can see in red with the percentages, that's our estimates based on publicly available market estimates of sales by Samsung QD TVs around the world. In North America which includes Canada, around 35%, that's why it's slightly different from the 33% I mentioned for the U.S. earlier. You can see that in Western Europe, actually 27%, it's not that much smaller than North America. And if you look at China and Taiwan, around 10% and around Korea and Japan around 10%. The reason we draw those four territories is the same five patents that we have in the U.S., the same or similar patents obviously translated into local languages have been registered in those three additional territories that we've highlighted all here.

One of the ones I want to highlight is China. It's obviously a growing market and they themselves have got their own version of So their own environmental standards on the inclusion or the exclusion, I should say, cadmium from TVs. We're also aware, based on press reports that Samsung are now selling their panels to other huge multinationals which all serve to increase the number of potentially infringing units that are out there in the market. And as I mentioned in a couple of slides earlier, the QD use cases are expanding to include telephones, tablets, phablets and advertising, public displays, etcetera. So I just wanted to reiterate that the successful litigation in the U.S., even if you're really just talking about the point of trial, never mind getting through to appeals and that final resolution, it does unlock more than just the damages award in the USA.

And one specific thing that would be unlocked if we're successful in our IPRs and/or the trial process, is the opportunity for Nanoco to then start looking in more what I'd call injunction friendly territories for potential litigation. So it is the case in the United States following a Supreme Court decision a number of years ago that unless you're a direct competitor of the infringer, it's very, very hard, if not impossible to get an injunction.

Nanoco do not make TVs; we are not a direct competitor for Samsung. So it is unlikely that we can get an injunction in the United States to stop the sale of TVs. However, that is not true in some European territories, some of the largest European territories. In some, injunction is not quite automatic but it's towards that end of things; and in others, it's still a popular form of address. So there are still lots of levers and there's a long way to go on the litigation. But just to summarize, the IPR outcome in the next five to six weeks is a critical value inflection point. We expect to be successful enough with enough claims to survive that we'll be moving very confidently through to putting that in front of a jury in Texas in the fourth quarter of this calendar year.

And I'll now hand you over to Liam, who will take you through a financial summary of our performance.

Thank you, Brian. Good morning, everyone. If we begin with our financial highlights slide ended this January 2022. Starting with the top line, our revenue on the operating income is 21% higher in the same period in the prior year at £1.3 million compared to £1.1 million. This has flowed through to our bottom line with additional cost savings contributing to our adjusted operating loss, reducing by 27%. In spite of the reduced cost base, we intend to invest in our organic R&D activities providing R&D services to our business.

If you look at our costs, our headcount is largely stable. It's not regional business. We do have some organic staff attrition. And when this happens, we'll have to replace staff as and when needed. This ensures we can continue to support our customers in both sensing and display sectors. Continuing to focus on reducing our cost base where possible, we recently and the closure of our ground floor facility in Manchester. This follows on from the previously announced closure of our first floor facility which completed in March of this year. In spite of some costs as a result of moving all our operations to Runcorn, we anticipate seeing some of the financial benefits of these moves in the current financial year.

On our cash position, our customer way continues to be a key management focus and currently extends at H1 of calendar year '23. Once the gross cash costs, so before the benefit of revenue and our R&D tax claim around £0.4 million which, as mentioned previously, we reduced payout the Manchester premises exited for. And our business model means there is a strong cash conversion on any new commercial wins which was better extend the cash runway. If we move on to the next slide. Here, we have our summary income statement. As mentioned previously, our revenue and other operating cost has increased by 21% from £1.1 million to £1.3 million. This is due to both an increase in our commercial revenue of £0.1 million and additional grant income of £0.1 million as the same period in the prior year. This, coupled with a smaller reduction on our R&D investment costs, has resulted in an induced EBITDA which was reduced £1.5 million in the prior year to £1.1 million in the current year.

Our share-based payment charge is slightly higher in the quarter period due to bonuses to staff in the prior year which was something that they have an options to preserve cash and therefore, we incur a share payment charge. There's been a reduction in depreciation and amortization charge in the period of £0.3 million which reflects the lower IP impairment and amortization charge in the prior year. Depreciation is expected forfeiture periods as a result of closure of the Manchester premises. And whilst our R&D is used to finance cost of the loan notes issued in July '21 offsetting the R&D tax number which means overall, the reduction in our loss asset tax from £2.3 million to £2.1 million.

We can move on to our next slide. This slide reconciles the movement in net loss between the current period and the same period in the prior year. It's probably worth noting that on the chart, the blue movements that are positive for the company, as they show a reduction in the net loss at the rent movements increasing the net loss. So we start with the prior period net loss of £2.3 million. The additional revenue and other operating income of £0.2 million, has very few additional costs. As mentioned, our sales income has a strong operational leverage, so the majority of any additional revenue flow through to the bottom line. Our operating costs reduced by £0.2 million in spite of having the benefit of in the prior period, as we continue to try and reduce our breakeven point as low as possible without impacting our operational business.

Closure of the Manchester site when completable and exit will further contribute to this with our cost base reducing to around £4 million per year. increase in our share-based payment charge as mentioned on the previous slide and then some of these small costs of £0.1 million which goes back to our current period loss of £2.1 million. Just to reiterate, our current gross monthly cash costs are made stable of £0.4 million before the impact of revenue and actually in the benefit of R&D If you move on to the next slide, our movements in cash. So we start with the closing position as at July '21 of £3.8 million. Our adjusted EBITDA of £1.1 million reduces this to £2.7 million. We then have some adverse working capital which totaled £0.5 million.

Operating lease charges of £0.3 million which are now shown outside of our EBITDA results of IFRS 16 and to our reported cash balance of £1.8 million at the end of January '22. However, note to provide a like-for-like comparison, we have had a couple of items back here.

As mentioned before, there were delays in the receipt of the R&D tax credit and a significant not payment was also received late. In total, these were £1 million. And therefore, the like-for-like cash balance is £2.8 million. This year's underlying cash consumption of £1 million in the period and equates to a net long cash £0.2 million a month. This also compares to a £2.3 million underlying cash consumption in the prior period.

So we then move on to the next slide which is our financial summary for the period. The guidance, our informational pipeline opportunities underpin the idea revenue being at least in line with FY '21. Our current gross cash costs remain stable £0.4 million per month. And we'll see the benefits of the closure of the Manchester properties in Q3 of the current financial year. Business is stable with good commercial prospects and steady headcount. Our capabilities is in line with previous years. Our team are highly flexible and continues to work on both the services and products for our business. In spite of a number of in the past few years, we continue to retain our core capabilities and we anticipate all operations being transferred to fully by June 2022.

And finally, on our cash consolidation will further reduce our cost base with an average net monthly cash burn of £0.2 million with our current order book and commercial opportunities, our run were extends to H1 of calendar year '23. Any new commercial opportunities will further to extend this, obviously, depending on their scale and composition. As always, we do we think it plans to protect the business and able to see the lawsuit through the provision.

And with that, I'll push it back to Brian for a summary.

Thanks, Liam. If we now turn over to Slide number 19. As said at the start, just reminded people that we said last November that 2022 is going to be a very important year for value generation inside the Nanoco. If you're looking at the sources of that value, we've got Samsung litigation with key value inflection points in May '22, the IPR decision and then again, we're expecting in quarter four of the current financial -- or current calendar year, so around October-November. We also expect in the second half of this calendar year on the organic side of the business to have visibility on sensing materials production orders to lead to revenue production -- actual production revenue in calendar year 2023. And just to emphasize, the management team is active in working to generate value from both of those sources.

In terms of cash runway, Liam has covered this in quite a lot of detail but just to remind people, we expect our cost base to reduce by around 20% over the next 12 months, so from around £4.8 million a year to around £4 million which will have a beneficial impact on significantly lowering our breakeven point when those production orders come.

The organic cash runway currently extends to the first half of calendar year 2023. And importantly, that data is beyond the key value inflection points, the key-value milestones that I mentioned, both in respect to the litigation. And also when we expect to see some visibility on commercial production orders. And again, as Liam said, new business wins could extend this further with contingency plans in place to protect the IP value and the lawsuit. So in terms of the opportunity, the consolidation in Runcorn reduces our costs and improves our organic platform. by bringing closer together our R&D capability, our scale-up capability and also our production capability.

And to remind people, we retain production capability in Runcorn for both sensing materials and for display materials or cadmium-free quantum dots. If successful, the litigation against Samsung will promote new licensing opportunities for cabin free quantum dots and potentially new production opportunities for the same display materials. And ultimately, success in our organic business will deliver our medium-term goal of the business becoming self-financing. So final comment for me is that our confidence is growing and we expect to deliver significant organic and litigation value inflection points during the remainder of calendar year 2022.

And with that, I'll now thank you for listening. I will now hand over to Marian, who's going to handle any questions on the phone. And after we take any questions from people on the phone, we'll then be going through any questions that have been submitted through the online process.

So, I'll hand you over to Marian.

[Operator Instructions] We will take the first question from Tariq Hamoodi from Golden Bridge Advisory. Please go ahead.

Hi, there. Good morning, Brian and Liam. Great to see momentum building across the board here, particularly given the company's capital constraints. And I just got a couple of questions here, if you wouldn't mind taking them. First, could you tell us a bit more just about the go-to-market strategy and how some of these opportunities are falling on your last and the pipeline building. is materials development done on a reverse inquiry basis? Or are you guys still actively out marking materials or the ability to produce specific materials for a particular sector and product? And then the second one I've got for you is just on the cost base. I mean, obviously, cash runway or having cash run rate out to 2023 will serve as a positive surprise for everyone here. And I'm just curious how the cost base is actually coming down? I think a few of us have picked up on the fact that you guys may be looking to make some hires, so I'm just wondering where that comes from, particularly as you gear up for production?

Okay. Thanks, Tariq. It's Brian here. I'll take both of those. So the first one, go-to-market strategy and your question is it more based on The simple answer to that is yes. And one of the areas that we took a conscious proactive decision to save money in the past was to cease, if you like, our proactive business development activities. We have been spending too much time and money looking at multiple different opportunities rather than actually focusing on one or two very near-term opportunities. So if you like we are still responding to reverse inquiries where customers are coming to us and saying, "Look, do you have a material that builds the following? Could you make a material the following?"

And we are putting the majority of our effort into two or three of the very large relationships that we have at the moment. And bluntly taking advantage of -- for both the European customer and the Asian customer. They themselves have thousands of customers. And if you look at either of them, their top 10 customers are huge multinationals, multibillion-dollar companies across a huge range of different markets, whether it's consumer electronics, white goods, automotive, agricultural, security, etcetera, the sorts of applications we mentioned earlier. And I think if we -- once we actually get into commercial production and the organic business is therefore more stable and self-financing, that's when I think we would, particularly on the sensing side, start to look at being more proactive on business development.

And again, the same would apply on the display side, particularly if we're successful on the IPR, just reminding a number of those large companies out there may even be customers of Samsung that actually our IP is not being proven to be valid and that we will be comparing a list of who else we're going to go after if we think they're buying products that have got infringing IP. So that's it on the go-to-market side. In terms of the cost piece, yes, we are hiring for a number of roles at the minute. But they -- it's a very or a very bland explanation for some of the hiring that's going on in a minute. We have a small team at the moment. In a number of cases, we're down to a single individual performing a role.

And if, as in one case, that person decided they want to spend more time with a very young family and they're moving on, we, therefore, have to replace that person. So it's not making the cost base any higher. It's not gearing up for anything. It's just maintaining the status quo. And the same applies in we're also looking for a production chemist. We really need to move to Runcorn that not everybody would be able to make that move because some of the distances involved for some individuals were just too far. So again, there's been a very small, a reassuringly small fallout because of the move but so those new hires are around that. And we do still expect the primary savings on the cost base in the next to 12 months will actually be driven by exiting the Manchester facility. So not just the direct cost of the rent rates, etcetera but all the associated services.

As there are no further questions on the phone, I'll hand you over to your speakers for any webcast questions.

Okay. So we've got a number of questions there. We do have another 20 minutes this morning. So if people have other questions, feel free to submit them. I'll read the moat between and then between the two of us, we shall answer them. So question one is it's referencing a comment I made earlier, do these published customer road maps specifically relate to the use of non-cadmium or heavy metal-free materials for commercialized products?

The comment about published customer road maps was very specifically for an infrared sensing application. Just to be clear, cabin free quantum dots or the materials that we put into our display materials, they also go into our Life Sciences materials and they also are of potential news in lighting and horticulture. And we differentiate those with our sensing products. Sensing products, they are cadmium-free, there's absolutely new cadmium in them but they are not what we would define using our trademarks, etcetera, cadmium-free quantum dots, even though they are cadmium-free. I know that's slightly confusing. But yes, so the customer road map we were talking about was specific to sensing. So it's actually not part of the CFQD portfolio that we talk about. And this question about heavy metals, people may or may not be aware, 80 or 90 of the elements of the periodic table are described as heavy metals.

Some of them are toxic. Some of them are highly toxic. Some of them are regulated and some of them are nontoxic. And so we do have a number of materials that people would say, well, that is a heavy metal but it's either operating well within regulated safety levels or they're what people regard as being nontoxic.

Then look at the second question was if the PTAB result is appealed, will the main trail be delayed from October 2022? So in theory, it could be. However, the Texas Court has already decided that there will be a hearing in June that will decide whether or not the delay continues. Our view is because we were ready for trial and the history and practice of the Texas courts is that once they've got a PTAB decision, they will not wait from the outcome of the PTAB appeals. So while it is theoretically possible and certainly, if we and Samsung asked for a further delay that it could be delayed but even in that situation, it doesn't have to. And I can tell you now that if we're successful in the PTAB, as I sit here today, we have no intention of asking for a further delay.

So our view is that the stay will be lifted and hence, we believe that the trial will happen in the second half of this year but it is not impossible but I'd say it's highly unlikely that the trial will be delayed further for any PTAB appeals. I should just point out a statistic that this is freely and publicly available that PTAB decisions that are appealed around 2/3, 65% of them are found in favor of the original decision. So less than 1/3 actually negatively impact the initial PTAB decision.

If I look at question three on here. Given that other global issues, what might be the probability of Samsung avoiding an appeal? Are there also some positive offsets to the appeal? I'm struggling to understand what that question means. The probability of Samsung avoiding an appeal. If there's an adverse decision for Samsung, they're almost certainly going to appeal. So if you take the PTAB, unless Samsung win all 47 of the claims, i.e., Nanoco lose everything I would expect them to appeal. If you look at some of the appeals that have been launched in different cases in the past, there are so many for paying, Judge misdirected himself on the definition of a certain word and the panel didn't take into account to our argument over here, they didn't give enough argument over here.

There are a huge number of for a people who want to appeal, basically, we'll find it easy to appeal. So I would say it's inevitable or it's guaranteed that there will be an appeal coming out of the PTAB decision. But as I say, if Nanoco was successful in a reasonable number of claims, I would expect Samsung to appeal those decisions. The same will happen in the trial, if there is a verdict in favor of Nanoco, Samsung are likely to appeal. The only thing that could stop both of those is if Samsung decided to engage in and make a reasonable settlement offer. And we've been asked about this in the past, would we accept a settlement for us and the Board. It has always been about fair value. So if Samsung offered very fair value for our IP, our loss royalties, our future income, etcetera, etcetera, etcetera, then of course, we would be foolish not to engage in that conversation. But absent that sort of actual agreement on a settlement, you can expect both processes on IPR and on the core is to carry on it is likely, if not inevitable that there will be appeals to both of those.

Fourth question on here, is £1 million a year enough for R&D? At the moment, -- so someone has asked the question £1 million enough for R&D? Liam is telling me that we're spending £1 million per six months, £1 million every six months. Okay.

Our whole CASA spend is £2 million for the year which is largely in line with the prior year number.

Right. Okay. So we're saying £2 million a year, £1 million over the six months. There is a little bit of cloth being cut, if I can use that metaphor. I mentioned earlier, we are constrained in the number of opportunities we can pursue. So for example, when the life sciences grant expires, we don't have enough money to carry that forward ourselves partly because we don't see it as a close enough for a near-term enough opportunity to be worthwhile investing in, we are pushing as many of our materials through the development cycle from R&D into scale up and into production. And ultimately and that's the virtuous circle that will and allow us to start doing more in the R&D space if we think it's worthwhile because if we have a product in commercial production, the company will rapidly on reasonable volumes or even relatively small volumes and get to a breakeven point, if not a cash-generative point. And then we have that good problem to have of saying, no, what can we do with our surplus cash? Do we expand our R&D? Do we expand our production capability, etcetera, etcetera?

So for now, we are happy. We have enough scientists to do the R&D projects that we're working on for five different customers and different applications, etcetera. We're also able to respond to those reverse inquiries that I mentioned in my response to Tariq earlier. So we think we've got enough R&D and as circumstances opportunities and financial resources that could be -- and it would be our intention to re-expand that. But I don't think we'd ever expanded back to the days when we had 140 people in the company and we're potentially pursuing too many different opportunities with the lack of focus. So I hope that's a clear answer on the R&D. Yes, we're happy. We don't think that we're being strangled on an R&D side.

I'm just going to perhaps refresh on this online spreadsheets to see if there are any other questions come in. No, there aren't any other questions from either on the phone or on the webcast. So thanks again, everybody, for listening and taking the time. This presentation, both a hard copy documents and the recording of this webcast will be available on our website shortly. There will be a further online presentation tomorrow by the Investor Company platform, I guess, targeted more at the retail investors but equally institutions are -- we're very happy to have them on that.

It will be a shorter session on the presentation and an opportunity for more questions once people have had a chance to digest today's news. And so thanks very much from Liam and I, and that's us saying goodbye.