Nanoco achieving cost efficiency, but legislation woes hampering adoption

Nanoco Technologies (LON: NANO), a developer and manufacturer of Cadmium-Free-Quantum-Dots technology (CFQD) used in TVs and monitors, has released its full year trading update and outlook today.

Whilst the market for quantum dots continues to grow as consumers demand better quality displays, the adoption of the more sustainable cadmium-free quantum dots appears to be slow, hindering the demand for Nanotec's flagship technology. Regulation and legislation surrounding the restriction of cadmium have also been meagre. 

Management highlighted that cash burn for the company is currently £750k per month which equates to £9m per year. It also confirmed that net cash has fallen to £5.7m, down from £8.3m in January.

The Group clearly needs a dose of fresh capital to keep the lights on given current cash burn rates imply around 7.5 months of funding left. This delay in monetization and likely future dilution has led to shares in the Group falling 7% today. 

The Trading Update outlines the progress the Group has made to the commercialisation of its products, yet confirms adoption of CFQD technology may take time. 

The Group says they remain focused on achieving cost efficiency ahead of their "anticipated volume of future orders". This may be helped along the recently announced legislation in Europe, banning the use of Cadmium in Displays from October 2019. 

Regarding commercialization, Management had this to say...

"Nanoco's Runcorn manufacturing facility now has the capacity to produce enough CFQDs to supply approximately one million large TVs, operating on a 24/7 shift pattern. Further capacity can be achieved with limited capital expenditure and will be brought online as demand increases."

Nanoco's products are now found in Hisense, TCL and TPV Philips ultra high definition products.

Looking to the future, Management said in the report that:

"The Group continues to make solid progress in commercialisation of CFQDs and expects to announce further orders from its healthy pipeline of projects.  With the market continuing to develop more slowly than originally anticipated, we remain focused on careful management of costs ahead of the anticipated sales ramp-up."

In the three years to 2016 revenue for the Group fell and net losses grew by 150% to £11m as the company prepared the ground for future commercialisation. The market clearly sees potential in the Group who currently trades at a market cap of £70m. As more governments come on board to ban cadmium, the cadmium-free market is set to account for 90% of displays requiring quantum dots.