Risk Management

Managing risk is key to the delivery of The Group’s strategic objectives

In common with all businesses at Nanoco’s stage of development, the Group is exposed to a range of risks, some of which are not wholly within our control or capable of complete mitigation or protection through insurance. Specifically, a number of the Group’s products and potential applications are at an early stage in their development, or still being validated by customers, and hence it is not possible to be certain that a particular project or product will lead to a commercial application. Other products require further development work to confirm a commercially viable application. The technology, particularly in the Sensing division, is still in its infancy and has yet to see market adoption. Equally, a number of products are considered commercially viable but have yet to see demand for full scale production. It is also the case that the Group is often only one part of a long and complex supply chain for new product applications. The Group therefore has little visibility of demand other than from contracts already in place. There are therefore a range of risks that are associated with the different stages of product development as well as for the Group as a whole.

Risk management process

The Group has established a process for carrying out a robust risk assessment that evaluates and manages the principal risks faced by the Group. A detailed review of individual risks was undertaken initially by the leadership team, and then reviewed by the Board during the financial year ended 31 July 2023. This year, that review also incorporated climate related risks, as required by TCFD reporting. The Board has also established an acceptable level of risk (risk appetite) that informs the scale and urgency of actions required. Where risks are deemed to be outside management control, efforts are focused on mitigating any potential impact. Where all practical measures to prevent or mitigate risks have been taken and a residual element of risk still remains, these risks are accepted by the Group. Risks are evaluated with respect to the probability of occurrence and the potential impact if a risk crystallised. Where the Group has identified risks, these are monitored with controls and action plans to reduce the probability of a risk crystallising and the impact of each potential event if it did occur. The residual risk score, after mitigating controls, is then plotted on a “risk heat map”. The Group’s principal risks are shown on the heat map below and are discussed in further detail in the pages following.

Governance framework

Principal overarching risk

The historical principal overarching strategic risk faced by the business was that the Group exhausted its available funding before achieving adequate levels of commercial revenues and cash flows to be self-funding. This risk has been largely mitigated by the settlement with Samsung during the financial year ended 31 July 2023. This mitigation has shifted the focus of risk to market adoption of the technology, which is required for the business to be commercially viable in the long term.

Other principal risks

Risks are broadly categorised as strategic, operational, financial or compliance. The table on pages 34-35 of the annual report focuses on those risks that the Directors believe are the most important currently faced by the business. Other risks may be unknown at present and some that are currently rated as low risk could become more material risks in the future. The Group’s risk management process tracks risks as they evolve and change.