TIDMFIPP
RNS Number : 2597E
Frontier IP Group plc
27 October 2022
The information contained within this announcement is deemed by
the Group to constitute inside information as stipulated under the
Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations
2019/310 ("MAR"). With the publication of this announcement via a
Regulatory Information Service, this inside information is now
considered to be in the public domain.
27 October 2022
Frontier IP Group Plc
("Frontier IP" or the "Group")
Final results for the year ended 30 June 2022
Financial highlights
-- Net assets per share as at 30 June 2022 increased 27% to 88.5p (30 June 2021: 69.8p)
-- Basic earnings per share increased 6% to 18.60p (2021: 17.47p)
-- Part-disposal of holding in Exscientia generated cash of
GBP6,525,000 in the period under review (2021: nil) realising a
profit of GBP2,867,000 (2021: nil).
-- Total revenue and other operating income increased by 11% to
GBP14,104,000 (2021: GBP12,668,000) - reflecting the net unrealised
profit on the revaluation of investments of GBP10,908,000 (2021:
GBP12,306,000) and the realised profit on disposal of investments
of GBP2,867,000 (2021: nil)
-- Fair value of our equity portfolio increased by 24% to
GBP39,712,000 (2021: GBP31,982,000) after disposals of GBP3,659,000
(2021: nil) and additions of GBP1,378,000 (2021: GBP347,000)
-- Profit before tax increased 6% to GBP10,879,000 (2021: GBP10,242,000)
-- Cash balances at 30 June 2022 of GBP4,368,000 (2021: GBP1,992,000)
Corporate highlights
-- Generated cash proceeds of GBP6.5 million selling shares in
portfolio company Exscientia following its successful listing on
the Nasdaq Global Select Market at a valuation of $2.9 billion in
October 2021. Post year-end the Company has sold another tranche of
shares in Exscientia generating a further GBP3.4 million in cash
with Frontier IP retaining 782,400 shares
-- Strengthened Board of Directors with the appointment of
Professor Dame Julia King, Baroness Brown of Cambridge DBE FREng
FRS as an independent Non-Executive Director in October 2021. Julia
is Chair of the Group's Remuneration Committee and is also a member
of the Audit Committee
-- Awarded an Innovation and Business Development Award by the
UK Department for International Trade in Portugal for work with
AquaInSilico
Portfolio highlights
-- Exscientia became our first portfolio company to IPO, listing
on the Nasdaq Global Select Market in October 2021
-- A year of concentrating on our existing portfolio. Companies
across the portfolio made robust commercial and technical progress
during the year, demonstrating their value to prospective partners
and investors in difficult economic and market conditions. The
Group believes that previous steps taken to strengthen management
teams are bearing fruit
-- Portfolio continues to mature with several companies reaching
inflection points, reflected by their success in raising funds and
developing stronger industry engagement. Fundraisings and grant
awards included:
o Exscientia raised a total of $510.4 million through an initial
public offering and concurrent private placement through listing on
the Nasdaq Global Select Market in October 2021 with a valuation of
$2.9 billion. In the six months to 30 June 2022, Exscientia
delivered on major new and existing collaborations, and advanced
its pipeline programmes
o CamGraPhIC raised GBP1.6 million through an equity funding
round. Post year end, the company raised a further GBP1.26
million
o Cambridge Raman Imaging is coordinating CHARM, an
international project awarded EUR 3.3 million by the European
Innovation Council. The company also raised GBP1.1 million through
an equity funding round
-- Strong commercial and technical progress made by a number of
portfolio companies, including developing new and existing industry
partnerships:
o Exscientia entered into a $70 million collaboration agreement
with the Bill & Melinda Gates Foundation and a strategic
research collaboration with Sanofi under which the company received
an upfront cash payment of $100 million with the potential for a
further $5.2 billion in milestone payments and tiered royalties
o The Vaccine Group achieved a significant milestone in
development of its COVID-19 vaccine with pig trials showing it
potentially offered broad immunity against the disease and current
and future variants
o Celerum launched its first commercial product and won its
first customer, Colin Lawson Transport
o Fieldwork Robotics started commercial trials of its raspberry
harvesting agricultural robots - robot-harvested raspberries now
available in the shops
o Post year end, Cambridge Raman Imaging started testing a
commercial prototype of its graphene-based Raman imaging device,
developed in collaboration with Motic, a leading manufacturer of
medical imaging devices
o Pulsiv completed a first close of a new fundraising in July
2022 which was reflected in an increase in the value of the Group's
holding in Pulsiv by GBP4,996,000 over the year to 30 June 2022.
Adam Westcott joined Pulsiv as Chief Financial Officer during the
year
o Elute Intelligence announced the appointment of Steve Cable as
Chief Executive Officer post year end.
ENQUIRIES
Frontier IP Group Plc T: 020 3968 7815
Neil Crabb, Chief Executive Officer neil@frontierip.co.uk
Andrew Johnson, Communications & Investor andrew.johnson@fronterip.co.uk
Relations M: 07464 546 025
Company website: www.frontierip.co.uk
Allenby Capital Limited (Nominated Adviser) T: 0203 328 5656
Nick Athanas / George Payne
Singer Capital Markets (Broker) T: 0207 496 3000
Sandy Fraser / Harry Gooden / George Tzimas
Chairman's Statement
Performance
Frontier IP and its portfolio companies produced a resilient
performance during the year to June 2022. These numbers represent
solid progress, following as they do from an exceptional year to 30
June 2021, when pre-tax profits rose by 145 per cent, and despite
the significant uncertainties caused by political, market and
economic turbulence we saw during the period. I am very pleased
with the response from the Group and across the portfolio.
The highlight of the year was unquestionably the successful
listing of Exscientia on the Nasdaq Global Select Market in October
2021. The company raised a total of $510.4 million through an
upsized initial public offering and a concurrent private placement
with a valuation of $2.9 billion. Following the IPO, we sold a
quarter of our equity holding in the company, raising GBP6.5
million, followed by a further GBP3.4 million share sale after the
year end.
Although Exscientia shares have suffered since listing, closing
at $10.89 on 30 June and $8.21 on 30 September 2022 as part of the
broader market and technology sell off, with the knock-on impact on
growth in the fair valuation of our portfolio at the year end, I am
very confident about the prospects for Exscientia. The company is
exceptionally well-capitalised, ending its own first half to June
with more than $730 million of cash. It has forged partnerships
with some of the world's biggest pharmaceutical companies,
including Bristol Myers Squibb and Sanofi, and institutions such as
the Bill & Melinda Gates Foundation.
I am delighted to say the rest of the portfolio performed well.
The drop in Exscientia's valuation was partially offset by
valuation increases elsewhere. Successful equity funding rounds
included CamGraPhIC, which raised GBP1.6 million in September 2021,
and a further GBP1.26 million in August this year. Our other
graphene spin out Cambridge Raman Imaging raised GBP1.1 million and
is coordinating a pan-European project awarded EUR3.3 million by
the European Innovation Council. Neil goes into more detail in his
statement about some of the challenges facing not just Frontier IP
but the world more broadly in his statement. But I remain excited
by the possibilities latent within our portfolio and the ability of
the companies to meet tangible, real-world demands and confront
some of the biggest challenges we face head on. Pulsiv, CamGraPhIC,
Nandi Proteins, Alusid, The Vaccine Group, and others all have
significant potential. In short, they are developing new
technologies to solve major problems and tackling issues around
climate, energy, food, water and health.
I am delighted to say we continued to strengthen our team during
the year. Professor Dame Julia King, Baroness Brown of Cambridge
DBE, FREng and FRS, joined as a non-executive director during the
year, an appointment that was made and announced at the time of our
results last year
We have seen our operations in Portugal growing, where we saw
encouraging progress from InSignals Neurotech, AquaInSilico and the
pan-European Emporia 4KT project, which has won backing from the
European Union for a 16-month extension to improve technology
transfer across the Atlantic seaboard's Blue Economy following a
successful first phase.
We added two new companies during the year, and we continue to
concentrate on the commercial development and scale up of our
existing companies. Across the portfolio, commercial and technical
progress has been good, and I am looking forward to updatinge you
next year on progress. Our pipeline of opportunities looks
exciting, and we are hopeful of incorporating new companies in the
current financial year.
Our governance
Good governance is vital for long-term sustainable growth, and
we strive to achieve the highest standards for a business our size.
We have adopted the Quoted Companies Alliance Corporate Governance
Code, introduced in April 2018. To see more details about how we
apply the principles of the Code, see the Our Governance section of
this report and our website:
https://www.frontierip.co.uk/about/governance/
Results
I am delighted with how the Group performed in the year. The
growth in the fair value of our portfolio to GBP39,712,000 was
reflected in net assets per share of 88.5p and we achieved our
first exit in the period under review from a partial sale of our
holding in Exscientia.
For the year to 30 June 2022, total revenue and other operating
income increased by 11% to GBP14,104,000 (2021: GBP12,668,000) as a
result of a net unrealised profit on the revaluation of investments
of GBP10,908,000 (2021: GBP12,306,000), of which GBP4,996,000 was
due to the increase in fair value of Pulsiv, and the realised
profit on part-disposal of our holding in Exscientia of
GBP2,867,000 (2021: nil). This part-disposal provided cash proceeds
of GBP6,525,000 which, along with proceeds of GBP3,433,000 from
realisations since 30 June 2022, has significantly strengthened our
balance sheet.
Outlook
The market and economic outlook is difficult to predict given
the number and scale of the domestic and global problems now
looming. However, we are well capitalised and our portfolio
companies are addressing fundamental global challenges. We are
confident about our prospects for the coming year and beyond.
Andrew Richmond
Chairman
26 October 2022
Chief Executive Officer's Statement
Frontier IP enjoyed a successful year to 30 June 2022. The fair
value of our equity portfolio rose 24% to GBP39,712,000 and, while
profit before tax of GBP10,879,000 was only 6% ahead of the prior
year, net assets per share increased from 69.8p to 88.5p. I am
delighted to say we are in a strong financial position.
The Group closed the year with more than GBP4 million cash on
the balance sheet and has subsequently raised a further GBP3.4
million by selling a further part of our stake in Exscientia. The
Group is well placed to weather any market or economic disruption
and to take advantage of opportunities as they arise.
And we believe there might well be opportunities. The
shorter-term outlook is highly uncertain, geopolitical risks
abound, and there are fundamental challenges to be addressed -
including climate change, energy, water, food and health. But
history shows that disruption can drive technology adoption and our
portfolio is positioned strongly to meet the challenges we all
face.
To go into more detail:
The shorter-term outlook is uncertain. I warned at the half year
that the environment was highly unpredictable: in the shorter term,
the war in Ukraine has compounded risks already apparent, such as
supply chain pressures and energy prices. The COVID-19 pandemic has
yet to end. Inflation is rising. Central banks are raising interest
rates and starting to unwind quantitative easing. Economists are
warning of the UK entering recession during the first half of next
year (2023). Underlying all these are the potential for macro
shocks with the potential to send markets into a tailspin.
In terms of geopolitics, there are several areas of concern.
Prospects for the United States are uncertain. Jobs data looks
positive, but there has been sharp contraction in mortgages and
consumer confidence has struck new lows. Corporate earnings have
held up, but the outlook is uncertain - and the strong dollar is
pump-priming inflation and energy prices worldwide. China's
economy, so long a motor for global growth, is looking bleak. The
country is facing severe demographic challenges as a result of the
one child policy, which has led to an ageing population with the
proportion of young dominated by men. Conditions in the property
sector, a substantial part of GDP, are worsening, and its economy
is also affected by very tough COVID-19 lockdowns, energy and
climate, which has led to industry shutdowns. There is also the
growing risk of debt defaults across lower-to-middle-income
countries.
In Europe, the Ukraine war is obviously a major source of risks
and heightens uncertainty. But the biggest fear of international
investors is the possibility of another Italian debt crisis because
the country's bonds are widely used as collateral in financial
markets - which are hugely over leveraged. As for the UK, aside
from inflation, there is rising industrial unrest, reflecting
squeezed finances. House prices are under pressure.
Then there are the other risks: climate change is having an
impact - again, on energy, on food production, and on water; and of
course, the COVID-19 pandemic is still continuing, and the
probability of future pandemics is greater than assumed as bacteria
and viruses adapt to the changing environment.
All these factors might affect the appetite of investors for
risk, in turn leading to greater pricing pressures on start-up and
early-stage companies.
Now, I am not saying all of the above will happen. However,
these are the risks as we seem them, and it is prudent to consider
and warn of them.
First, our balance sheet is strong. I promised shareholders we
would not seek to raise further funding from them. This is still
the case. Our business model is also extremely capital efficient.
So far, we have generated nearly GBP10 million in cash through
selling shares in Exscientia. The original cost of those shares was
less than GBP2,000.
On a broader note, it is important to realise that crises boost
innovation. The example of war driving step-changes in technology
is well known: what is less well known is that economic crises can
have the same effect. The 1929 crash and subsequent Great
Depression saw a sharp upturn in technology adoption. US
productivity rose during the 1930s, following gains in the 1920s.
Indeed, one economist has written the period 1929 to 1941 was the
most technologically progressive decades in America's history.
Significant advances were made in areas such as electrical
machinery and equipment (which in turn boosted industrial
productivity) chemical engineering, aeronautics, power generation
and distribution, and engineering - and before World War II made an
impact.
We expect the fundamental problems around climate, energy, food,
water and health to spur a similar drive towards new technologies
to solve them. And our portfolio is well placed to take advantage.
The nature of our business model and the focus on industrial
partnerships mean we avoid more volatile consumer-facing sectors
such as fintech and delivery services.
So, to examples. On the climate and energy side, I am excited
about the potential for Pulsiv, which I believe has the potential
to become a major green technology company. By offering major
improvements in the efficiency with which electricity is converted
- by reducing wasted energy from about 50 per cent to under 10 per
cent - the technology could significantly reduce the strain on
national power grids if adopted at a great enough scale. The
components required are cost effective, can be fitted into smaller,
lighter form factors, and used in an enormous range of devices.
Pulsiv offers a compelling proposition - better products at the
same price for their customers and lower bills for consumers.
Alusid also helps to save energy and water in one of the most
energy-intensive manufacturing sectors - tile making. Its novel
manufacturing processes to make tiles and architectural services
from recycled industrial waste uses a third less energy and 75 per
cent less water than used to make conventional tiles.
CamGraPhIC's graphene-based photonics are able to transmit
digital data and communications more rapidly than equivalent
technologies and use at least 70 per cent less energy. Celerum's
software improves logistics' efficiency and has the potential to
reduce the carbon emitted by truck fleets.
AquaInSilico is developing software to improve wastewater
treatment across a range of industries, recovering more valuable
resources, such as phosphorus, while making water quality better.
It is part of a United Nations Development Programme Ocean
Innovation Challenge in Cape Verde. Molendotech's unique testing
kits are able to test water for harmful bacteria in a matter of
minutes on site compared to the days currently taken.
Two of our companies are directly involved in food. Nandi
Proteins' ingredients replace chemical E-numbers, fat and gluten in
a wide range of processed foods, including meat replacements.
Fieldwork Robotics now has machines operating commercially to
harvest raspberries in Portugal, a boost to horticultural
productivity.
On health, Exscientia is already established as a world leader
in using artificial intelligence (AI) to accelerate the discovery
of new drugs. Cambridge Raman Imaging is using graphene-based
ultrafast lasers and AI to develop faster and better ways to
diagnose and monitor tumours and other diseases, while The Vaccine
Group is developing new types of vaccines, including those with the
potential to prevent future pandemics.
These companies are only a snapshot of our portfolio, and I am
looking forward to updating on progress on other companies in
future announcements.
Finally, to reflect development of our portfolio as it matures
and companies evolve, we have added a further two clusters to the
existing four. The additional ones are energy and the Blue Economy.
Crises beget opportunities. Our cluster-based approach means we are
focused on the areas where we see the greatest opportunity and our
well-financed balance sheet means we are positioned to take
advantage.
Although we cannot say for how long the current uncertainties
will exist, or how bad things might get, we remain confident in the
future prospects for the business.
And, as always, I would very much like to thank you, our
shareholders, and other stakeholders, for your continued
support.
Neil Crabb, Chief Executive Officer
26 October 2022
Key Performance Indicators and Alternative Performance
Measures
The Key Performance Indicators and Alternative Performance
Measures for the Group are:
KPI / APM Description 2022
Performance
Basic earnings Profit 18.6p (2021:
per attributable 17.47p)
share (KPI) to
shareholders
divided
by the
weighted
average
number of
shares in
issue during
the year.
-------------------------------------- --------------------------------------
Net assets per Value of the 88.5p (2021:
share Group's 69.8p)
(KPI) assets less
the value
of its
liabilities
per share
outstanding
-------------------------------------- --------------------------------------
Total revenue Growth in the GBP14,104,000
and aggregate (2021:
other of revenue GBP12,668,000)
operating from services,
income change in fair
(KPI) value
of investments
and
realised
profit on
disposal of
investments
-------------------------------------- --------------------------------------
Profit (KPI) Profit before GBP10,879,000
tax (2021:
for the year GBP10,242,000)
-------------------------------------- --------------------------------------
Aggregate
Total initial percentage
equity equity earned
in new from
portfolio new portfolio
companies companies
(APM) Note during the
1 year 20% (2021: 0%)
-------------------------------------- --------------------------------------
Note 1 - The total initial equity in portfolio companies is not
an IFRS measure. It is used by Directors to measure the total
percentage equity stakes received in all new spin-out companies
during the year. It does not reflect holdings in individual
spin-outs and does not include equity received through post
spin-out investment. For 2022 it is the aggregate percentage
holding from two new spin-out companies during the year.
We are pleased to report that the Group achieved increases in
all Key Performance Indicators and Alternative Performance
Measures, despite the difficult economic and market conditions.
Exscientia's IPO in October 2021 enabled us to sell part of our
holding in the second half of our financial year generating
proceeds of GBP6,525,000 and a realised profit of GBP2,867,0000.
Since 30 June 2022 we have sold further shares in Exscientia for
GBP3,433,000 and still hold 50% of our original holding. The value
of the Group's equity investments increased to GBP39,712,000 (2021:
GBP31,982,000) with net assets increasing to GBP48,699,000 (2021:
GBP38,421,000). Profit after tax for the Group for the year to 30
June 2022 was GBP10,230,000 (2021: GBP9,566,000) after a deferred
tax charge of GBP649,000 (2021: GBP676,000). This result includes a
realised profit on disposal of investments of GBP2,867,000 (2021:
nil), an unrealised profit on the revaluation of investments of
GBP10,908,000 (2021: GBP12,306,000) and reflects a decrease in
services revenue to GBP329,000 (2021: GBP362,000) and greater
administrative expenses of GBP3,104,000 (2021: GBP2,171,000)
primarily due to bonuses of GBP480,000 and an increase in
personnel.
Operational Review
Frontier IP delivered a solid performance for the year, given
considerable market and economic uncertainties.
We ensured that we were well capitalised, generating GBP6.5
million in cash by selling shares in Exscientia following its
successful listing on the Nasdaq Global Select Market at a
valuation of $2.9 billion in October 2021. This capital base helps
to ensure we are in a good position to take advantage of any
opportunities we see arising in the current environment, including
investing directly in our portfolio companies when appropriate.
After the year end, we generated a further GBP3.4 million in cash
by selling another tranche of Exscientia shares. We retain half our
holding in the company.
Companies across the portfolio continued to make good technical
and commercial progress, reflecting the potential value they
provide to industry partners and investors. Steps taken to
strengthen management teams in previous years are paying off.
Several companies successfully raised funds.
Further validation to the approach we take to nurturing
early-stage businesses came when the UK Department for
International Trade in Portugal awarded us an Innovation and
Business Development Award for the work we were doing with
AquaInSilico. Emporia 4KT, a pan-European project where we are one
of 17 partners received further grant funding and a 16-month
extension to build on the work already undertaken during the
initial three years. The project brings together government,
academics and business to create and support start-up companies in
the Blue Economy across Europe's Atlantic seaboard.
As a people focussed business, we took steps to expand our team
and to ensure we attract and retain the best people. We
strengthened our Board of Directors with the appointment of Dame
Julia King, Baroness Brown of Cambridge DBE FREng FRS as an
independent Non-Executive Director and expanded our team with three
new hires during the year.
Post period-end our Remuneration Committee commissioned an
external review of the Group's remuneration framework. The outcome
of this review, conducted by Remuneration Consultants Ellason LLP,
is set out in detail in the Remuneration Committee Report.
Portfolio Review
Frontier IP strives to develop and maximise value from its
portfolio. We do so by taking founding stakes in companies at
incorporation and then working in long-term partnerships with
shareholders, academic and industry partners.
As part of our sustainability agenda, we have mapped our
portfolio companies to relevant United Nations Sustainability
Development Goals (UN SDGs). All equity holdings are as at 30 June
2022.
Core portfolio
Alusid: Frontier IP stake: 38.9 per cent
Alusid creates beautiful, premium-quality tiles, tabletops and
other surfaces by recycling industrial waste ceramics and glass,
most of which would otherwise be sent to high-impact landfill
The company has successfully scaled up its technology for mass
production on industry-standard manufacturing equipment. Its
innovative formulations and processes use 35 per cent less energy,
reducing CO2 emissions, and up to 75 per cent less water than used
to make tiles conventionally.
Alusid was also one of only five companies globally shortlisted
for the Climate Solutions Partnership's Cities of Tomorrow
Challenge run by the World Wildlife Fund and HSBC to pitch to
potential investors.
During the year, new customers for the company's batch-made
products included the Stonehenge Visitor Centre and BBC
Bristol.
UN Sustainable Development Goal mapping: SDG 9, industry,
innovation and infrastructure; SDG 12, responsible consumption and
production.
UN Sustainable Development Goal mapping: SDG 9, industry,
innovation and infrastructure; SDG 12, responsible consumption and
production.
Amprologix: Frontier IP stake: 10.0 per cent
Amprologix was created to commercialise the work of Mathew
Upton, Professor of Medical Microbiology at Plymouth's Institute of
Translational and Stratified Medicine.
The company continued to make progress with development of its
new family of antibiotics based epidermicin, which is derived from
bacteria found on human skin, to tackle antimicrobial-resistant
MRSA and other superbugs. Ingenza, a leader in industrial
biotechnology and synthetic biology, is also a shareholder and is
working with Amprologix to develop and scale up the technology.
COVID-19 has heightened interest in other threats to human
health globally. Among these is the danger from antimicrobial
resistance, named as a top 10 threat to global health by the World
Health Organisation.
UN SDG mapping: SDG 3, good health and well-being
AquaInSilico: Frontier IP stake: 29.0 per cent
AquaInSilico is developing sophisticated software tools able to
understand and predict how biological and chemical processes unfold
in different operating conditions.
These can be used to optimise wastewater treatment across many
industries, including municipal wastewater treatment plants, oil
groups, brewers, pulp, paper and steel makers, food processing and
waste recovery businesses.
The Portuguese company was selected in 2021 to receive $250,000
as an Ocean Innovator through the United Nations Development
Programme's Ocean Innovation Challenge. The first year of the
two-year project saw the project make highly promising progress in
developing tools to help partners in protecting and conserving one
of the world's most diverse marine environments around the Cape
Verde archipelago. The next stage will see the tools applied to
reduce the amount of nutrients entering the sea and improve water
quality for the local population, particularly for agricultural
use.
During the year, the work Frontier IP did in collaboration with
AquaInSilico resulted in the Group winning an Innovation and
Business Development Award from the UK Department for International
Trade in Portugal.
UN SDG mapping: SDG 6, clean water and sanitation, SDG 12,
responsible consumption and production, SDG 14, life below
water
Cambridge Raman Imaging: Frontier IP stake: 26.8 per cent
Our first graphene spin out, Cambridge Raman Imaging (CRI) is
developing Raman imaging technology based on graphene-based
ultra-fast lasers, to detect and monitor tumours. The company was
formed as a result of a partnership between the University of
Cambridge and the Politecnico di Milano in Italy.
The main application creates digital images of patient cells and
tissue. It then employs Artificial Intelligence (AI) based analysis
of chemical signatures for accurately differentiating between
healthy tissue and diseased tissue in the patient samples,
augmenting or replacing subjective diagnosis of samples by
histopathologists. The technology removes the need for chemical
staining - eliminating a major contributor to sample variation seen
between one lab and the next.
During the year, the company raised GBP1.1 million through a
second equity funding round and promoted appointed Chief Technology
Officer Matteo Negro to Chief Executive Officer. A project CRI is
coordinating was also selected to receive a EUR3.3 million grant
from the European Innovation Council. Called CHARM, the project
aims to develop a high-speed, low-cost medical device to transform
cancer diagnosis and treatment.
A commercial prototype of a Raman imaging microscope in
collaboration with leading medical imaging manufacturer Motic has
been developed.
UN SDG mapping: SDG 3 good health and well-being
CamGraPhIC : Frontier IP stake: 20.8 per cent
CamGraPhIC develops graphene-based photonics for high-speed data
and telecommunications. Graphene photonics are seen as a key
enabler for 5G technologies by the company's industrial
partners.
Initial applications are high-speed optical transceivers. In
laboratory conditions these have worked at 100Gb per second, around
twice the speed of equivalent technologies, and across multiple
wavebands. They are projected to consume at least 70 per cent less
energy. Other uses include 6mm wave, which has the potential to
transmit data at up to 1 terabyte per second, high-performance
computing and in networks able to meet the demands of processor
intensive artificial intelligence applications.
The company raised GBP1.6 million through an equity funding
round during the year to accelerate development and scale up of the
technology. After the period close, CamGraPhIC raised a further
GBP1.26 million and announced that Sir Michael Rake, the former
chair of BT Group and an investor in the company, will be joining
its board of directors.
UN SDG mapping: SDG 9, industry, innovation and infrastructure,
SDG 11, sustainable cities and infrastructure
Celerum: Frontier IP stake: 33.8 per cent
Celerum is developing novel artificial intelligence to improve
the operational efficiency of logistics and supply chains.
The company's technology is based on nature-inspired computing,
which develops software and algorithms based on natural processes
and behaviours, such as those exhibited by ant colonies and fish
schools. A project conducted on behalf of Highlands and Islands
Enterprise across food and drink supply chains in northern
Scotland, showed it has the potential to cut carbon emissions by up
to 40 per cent if suppliers and logistics firms are willing to work
together to share loads.
Progress during the year was highly encouraging. The company
launched its first commercial product, Truck Logistics System, for
companies operating small to medium sized road haulage fleets, and
won its first commercial customer, Aberdeen-based Colin Lawson
Transport.
UN SDG mapping: SDG 9, industry, innovation and
infrastructure
Des Solutio: Frontier IP stake: 25.0 per cent
Des Solutio is developing safer and greener alternatives to the
toxic solvents currently used to extract active ingredients by the
pharmaceutical, personal care, household goods and food
industries.
It does this by creating new methods to use Natural Deep
Eutectic Solvents, found in a huge array of plants, to replace
toxic organic solvents, such as ethanol, employed currently. This
means it is contributing to the environmentally sound management of
chemicals, and reducing their release to air, water and soil. The
company is still at an early stage but is already generating
industry interest.
UN SDG mapping: SDG 9 industry, innovation and infrastructure;
SDG 12, responsible consumption and production
Elute Intelligence: Frontier IP stake: 41.2 per cent
Elute's software tools are designed to help users intelligently
search, compare and analyse complex documents by mimicking the way
people read. There are a huge range of potential applications, from
searching patents and contracts, to detecting evidence of
plagiarism, collusion and copyright infringement. The company's
tools help to enhance research, support improved technological
capabilities and innovation.
After the year end, Elute announced the appointment of Steve
Cable as Chief Executive Officer.
UN SDG mapping: SDG 9, industry, innovation and
infrastructure
Exscientia: Frontier IP stake: 1.0 per cent
Exscientia, a spin out from the University of Dundee, became the
first in our portfolio to IPO, raising total gross proceeds of
$510million through a public offer and private placements with
SoftBank and the Bill & Melinda Gates Foundation. The IPO,
priced at the top end of the estimated range, valued the company at
$2.9 billion. During the year, Exscientia also announced a $70
million collaboration with the Bill & Melinda Gates Foundation
to develop novel therapeutics against Coronavirus and other viruses
with pandemic potential. The Bill & Melinda Gates Foundation is
investors in the company.
Now based in Oxford, Exscientia is a world leader in artificial
intelligence-driven drug discovery. It is the company behind the
first AI-created drugs to enter human clinical trials, taking years
off traditional drug discovery processes.
Following the IPO, Exscientia announced a collaboration and
licence agreement with one of the world's biggest pharmaceutical
companies Sanofi. The company received an upfront cash payment of
$100 million and the deal has the potential for a further $5.2
billion in total milestone payments and tiered royalties. It also
entered into a partnership with the University of Oxford Target
Discovery Institute to create Xcellomics, a programme to expedite
early-stage drug discovery for unmet medical needs.
UN SDG mapping: SDG 3, good health and well-being
Fieldwork Robotics: Frontier IP stake: 24.5 per cent
Raspberries picked by Fieldwork Robotics' robot harvesting
technology went on sale in supermarkets after the company launched
commercial operations. The company deployed two robots to Portugal,
where the fruit can be harvested throughout the year, as part of a
commercial field trial to prove the robots could work autonomously
alongside humans. Fieldwork's focus is now on making the robots
faster and scaling up production to get more robots into the
field.
The company is also working with Bonduelle, a leading vegetable
producer, on a three-year project to develop a cauliflower
harvesting robot.
Robotic fruit and vegetable harvesting technology has the
potential to improve agricultural productivity, reduce food waste
by more accurate picking and minimising human contact, and result
in better quality jobs, with harvesting labour replaced by skilled
robot operators. There is also potential for cutting carbon
emissions through reduced need for migrant labour.
UN SDG mapping: SDG 2, zero hunger; SDG 12 responsible
consumption and production
InSignals Neurotech: Frontier IP stake: 33.0 per cent
InSignals Neurotech made significant progress during the year
with its novel technology to analyse the motor symptoms of
Parkinson's disease and other neurological disorders. The company
is developing wireless to measure precisely motor symptoms, such as
wrist rigidity, in real time to help surgeons and neurologists
assess the extent of the disease. Initial prototypes were designed
to help identify the best locations to place implants in the brain.
However, an improved version can now be used to monitor symptoms
more broadly for disease tracking and to understand better how
patients are responding to treatment. A multi-centred clinical
trial was established to test the devices.
The spin out from the Portuguese Institute for Systems and
Computer Engineering, Technology and Science ("INESC TEC"), with
the support of São João University Hospital, part of the University
of Porto.
UN SDG mapping: SDG 3 good health and well-being
Molendotech: Frontier IP stake: 13.0 per cent
Molendotech continued work on its innovative rapid pathogen
detection technology. Siren(BW) , a kit to test bathing water for
faecal matter based on Molendotech's proprietary bacterial
detection technology, is now commercially available. The kit, which
can be used on site, cuts testing times from up to two days to
under 30 minutes because samples do not need to be sent to a
laboratory, enabling environmental agencies and other authorities
to assess water quality swiftly.
The company has also developed a novel method to detect specific
pathogenic bacteria, and the investment will enable further
development of this technology for new markets, including the food
industry, where it has the potential to extend shelf life and
reduce food waste. This work is being undertaken in collaboration
with industry partners.
UN SDG mapping: SDG 6, clean water and sanitation; SDG 12
responsible consumption and production
Nandi Proteins: Frontier IP stake: 20.1 per cent
Nandi Proteins is scaling up commercial products based on its
technology to create a wide range of customised ingredients based
on vegetable and animal proteins. These functional proteins can be
used to replace undesirable ingredients, such as fat, gluten,
E-number additives in processed foods, or those that people do not
want to consume - for example, by replacing animal proteins with
vegetable proteins.
The company has gained major industrial traction and is making
significant commercial progress with food groups in several
applications. These include projects using animal proteins to
replace fat and meat, using vegetable proteins to replace egg
whites in meat alternatives and to improve the taste and texture of
gluten-free products, and proteins to replace chemical binders and
emulsifiers in plant-based alternative meats and baked goods.
Nandi's technology has the potential to contribute to more
sustainable agriculture and food production by supporting the
plant-based alternative meat industry and by reducing chemical
ingredients in processed food. Cutting fat in affordable processed
foods will help to make them less harmful.
UN SDG mapping: SDG 2, end hunger; SDG 12, responsible
consumption and production
NTPE: Frontier IP stake: 48.0 per cent
NTPE is developing cellulose-based eco-friendly, low-cost,
low-power paper-based electronics to replace silicon in some
electronic applications. Called Paper-E, the novel technology means
electronic circuits, sensors and semiconductors can be printed onto
any cellulose-based paper. Paper-based energy harvesters, such as
solar cells, can be included in the circuits.
The company is focusing on a range of potential applications,
including a book-E concept to produce cheap and accessible
educational tools to teach children about electronics. Longer-term
health applications include diagnostic sensors for use in health
and food, smart packaging and paper-based sensors for use in very
remote environments.
Cellulose is natural, sustainable and recyclable material. Its
use can help reduce the severe negative impact of silicon mining,
use and disposal. The technology is still at an early stage of
development.
UN SDG mapping: SDG 12, responsible consumption and
production
PoreXpert: Frontier IP stake: 15.0 per cent
PoreXpert, a software and consultancy firm, has developed novel
software and methods to model the voids within porous materials and
how gases, liquids and colloidal suspensions behave within
them.
Applications include helping companies understand and exploit
the nature of oil and gas reserves to improve the efficiency of
exploration and extraction, supporting industry efforts to reduce
their impact on the environment. It is also being used to help
maximise the lifespan of the UK's Advanced Gas Cooled nuclear
reactors, which generate 20 per cent of the national energy
requirement, without greenhouse gas emissions.
UN SDG mapping: SDG 7, affordable and clean energy; SDG 12,
responsible consumption and production
Pulsiv: Frontier IP stake: 18.3 per cent
Pulsiv's technology has the potential to make a profound impact
on the energy sector. It cuts the amount of energy consumed by
devices, therefore reducing the strain on power grids, and can
boost the output of photovoltaic solar cells.
This is because about half the electricity used by devices is
wasted because of inefficient power conversion. That's why
converters heat up in operation. Pulsiv's novel technology converts
electricity much more efficiently - in tests it wastes only about
10 per cent of the energy. Furthermore, its new power conversion
techniques can be incorporated in smaller, lighter and more
cost-effective designs. So the technology has the potential to
reduce strains on power grids and cut costs for manufacturers and
bills for consumers.
The technology can be used in nearly all mains-powered products,
battery chargers, lighting applications, electric vehicles,
portable power tools and DC motors. Not only does it convert
electricity from mains to device more efficiently, it also works
from device to mains, significantly improving the efficiency of
renewable sources. The company is also working on a solar
microinverter to maximise the output from photovoltaic solar
cells.
Pulsiv enjoyed a year of solid technical and commercial
progress. It is building relationships with major manufacturers,
including those in consumer electronics and the solar sector.
UN SDG mapping: SDG 7, affordable and clean energy; SDG 13,
climate action
The Vaccine Group: Frontier IP stake: 17.0 per cent
The Vaccine Group is creating a wide range of vaccines based on
a novel herpesvirus-based platform. Its core focus is on preventing
the spread of zoonotic and economically damaging diseases.
During the year, the company achieved a major milestone in the
development of its next generation COVID-19 vaccine for use in
animals. Trial data from pigs showed strong T cell responses to
SARS-CoV-2, the virus that causes COVID-19, as well as the more
divergent SARS-CoV-1. This means the vaccine has the potential to
provide broad immunity against current and future variants.
There have also been highly promising developments through the
company's first commercial collaboration agreement with ECO Animal
Health Group and The Pirbright Institute to develop vaccines for
porcine respiratory and reproductive syndrome.
Other vaccines under development include those for African swine
fever, bovine tuberculosis, bovine mastitis, streptococcus suis,
Ebola and Lassa fever. To date, the company and its international
partners have been awarded more than GBP9 million in grant funding
from the UK, US and Chinese governments.
UN SDG mapping: SDG 2, end hunger; SDG 3 good health and
well-being
Core Portfolio Summary at 30 June 2022
Portfolio Company % Issued About Source
Share Capital
Alusid Limited 38.9% Recycled materials University of
Central Lancashire
--------------- ---------------------------- ------------------------
Amprologix Limited 10.0% Novel antibiotics Universities
to tackle antimicrobial of Plymouth and
resistance Manchester
--------------- ---------------------------- ------------------------
AquaInSilico Lda 29.0% Digital tools to FCT Nova
optimise wastewater
treatment
--------------- ---------------------------- ------------------------
Cambridge Raman 26.8% Medical imaging using University of
Imaging Limited ultra-fast lasers Cambridge and
Politecnico di
Milano
--------------- ---------------------------- ------------------------
CamGraPhIC Limited 20.8% Graphene-based photonics University of
Cambridge and
CNIT
--------------- ---------------------------- ------------------------
Celerum Limited 33.8% Near real-time automated Robert Gordon
fleet scheduling University
--------------- ---------------------------- ------------------------
Des Solutio Lda 25.0% Green alternatives FCT Nova
to industrial toxic
solvents
--------------- ---------------------------- ------------------------
Elute Intelligence 41.2% Software tools able Existing business
Holdings Limited to intelligently
search, compare and
analyse unstructured
data
--------------- ---------------------------- ------------------------
Exscientia Limited 1.0% Novel informatics University of
and experimental Dundee
methods for drug
discovery
--------------- ---------------------------- ------------------------
Fieldwork Robotics 24.5% Robotic harvesting University of
Limited technology for challenging Plymouth
horticultural applications
--------------- ---------------------------- ------------------------
Insignals Neurotech 33.0% Wearable medical INESC TEC
Lda devices supporting
deep brain surgery
--------------- ---------------------------- ------------------------
Molendotech Limited 12.0% Rapid detection of University of
water borne bacteria Plymouth
--------------- ---------------------------- ------------------------
Nandi Proteins 20.1% Food protein technology Heriot-Watt University,
Limited Edinburgh
--------------- ---------------------------- ------------------------
NTPE Lda 48.0% Novel technology FCT Nova
to print electronic
circuits, sensors
and semiconductors
onto paper
--------------- ---------------------------- ------------------------
PoreXpert Limited 15.0% Analysis and modelling University of
of porous materials Plymouth
--------------- ---------------------------- ------------------------
Pulsiv Limited 18.3% High efficiency power University of
conversion and solar Plymouth
power generation
--------------- ---------------------------- ------------------------
Riskocity Limited 15.9% Maritime cyber risk University of
Plymouth
--------------- ---------------------------- ------------------------
The Vaccine Group 17.0% Herpesvirus-based University of
Limited vaccines for the Plymouth
control of bacterial
and viral diseases
--------------- ---------------------------- ------------------------
The Group holds equity stakes in 6 further portfolio companies.
The combined value of these holdings was GBP571,000, equivalent to
1.4% of the fair value of the Group's equity investments at 30 June
2022.
Financial Review
Key Highlights
During the second half of the year the Group sold approximately
28% of its holding in Exscientia generating proceeds of
GBP6,525,000 and realising a gain of GBP2,867,000. The value of the
remaining holding in Exscientia was GBP10,132,000 at 30 June 2022.
The value of the Group's equity investments increased to
GBP39,712,000 (2021: GBP31,982,000) with net assets increasing to
GBP48,699,000 (2021: GBP38,421,000).
Profit after tax for the Group for the year to 30 June 2022 was
GBP10,230,000 (2021: GBP9,566,000) after a deferred tax charge of
GBP649,000 (2021: GBP676,000). This result includes a realised
profit on disposal of investments of GBP2,867.000 (2021: nil), an
unrealised profit on the revaluation of investments of
GBP10,908,000 (2021: GBP12,306,000) and reflects a decrease in
services revenue to GBP329,000 (2021: GBP362,000) and greater
administrative expenses of GBP3,104,000 (2021: GBP2,171,000)
primarily due to bonuses of GBP480,000 and an increase in
personnel.
Revenue
Total revenue and other operating income for the year to 30 June
2022, which is the aggregate of services revenue, realised gain on
the disposal of investments and unrealised gain on the revaluation
of investments, increased 11% to GBP14,104,000 (2021:
GBP12,668,000). Revenue from services decreased 9% to GBP329,000
(2021: GBP362,000). The Group realised a gain on disposal of
investments of GBP2,867,000. This gain arose on the sale of part of
the Group's holding in Exscientia which was valued at GBP3,659,000
at 30 June 2021 and which generated proceeds of GBP6,525,000.
Unrealised gains on revaluation of equity investments of
GBP10,011,000 (2021: GBP12,191,000) included an increase of
GBP4,996,000 in the value of Pulsiv. Unreali sed gains included net
unrealised profit on the revaluation of debt investments of
GBP898,000 (2021: GBP115,000).
Administrative Expenses
Administrative expenses increased 43% to GBP3,104,000 (2021:
GBP2,171,000). The increase is primarily due to increased employee
costs which included bonuses of GBP480,000.
Share Based Payments
Share based payments decreased 11% to GBP329,000 (2021:
GBP368,000). No options were granted during the year and some
options lapsed.
Earnings Per Share
Basic earnings per share were 18.60p (2021: 17.47p). Diluted
earnings per share were 17.53p (2021: 16.62p).
Statement of Financial Position
The principal items in the statement of financial position at 30
June 2022 are financial assets at fair value through profit and
loss comprising equity investments of GBP39,712,000 (2021:
GBP31,982,000) and debt investments of GBP2,981,000 (2021:
GBP2,320,000). The carrying value of these items is determined by
the Directors using their judgement when applying the Group's
accounting policies. The matters taken into account when assessing
the fair value of the portfolio companies are detailed in the
accounting policy on investments. The movement during the year in
equity and debt investments is detailed in notes 13 and 14 to the
financial statement respectively.
The Group had goodwill of GBP1,966,000 at 30 June 2022 (2021:
GBP1,966,000). The considerations taken into account by the
Directors when reviewing the carrying value of goodwill are
detailed in Note 10 to the financial statements.
The Group had net current assets at 30 June 2022 of GBP5,201,000
(2020: GBP2,379,000) reflecting primarily an increase in cash
balances of GBP2,376,000. The current assets at 30 June 2022
include trade receivables of GBP376,000 which are more than 90 days
overdue. The portfolio company debtors are in the process of
raising funds and the directors are confident that, depending on
the amounts raised, the amounts due to the Group will be paid in
either cash or equity.
Net assets per share
Net assets of the Group increased to GBP48,699,000 at 30 June
2022 (30 June 2021: GBP38,421,000) resulting in net assets per
share of 88.5p (30 June 2021: 69.8p).
Cash
The Group's cash balances increased during the year by
GBP2,376,000 to GBP4,368,000 at 30 June 2022. Operating activities
consumed GBP3,006,000 (2021: GBP1,466,000) reflecting an increase
in administrative expenses and an increased in trade receivables
and other current assets. Investing activities generated
GBP5,382,000 having consumed GBP1,692,000 in 2021. This reflected
proceeds on disposal of part of our holding in Exscientia of
GBP6,525,000 and the purchase of equity and debt investments of
GBP1,141,000 (2022: GBP1,689,000) in eight of our portfolio
companies.
Principal Risks and Challenges affecting the Group
The specific financial risks of price risk, interest rate risk,
credit risk and liquidity risk are discussed in note 1 to the
financial statements. The principal broader risks - financial,
operational, cash flow and personnel - are considered below.
The key financial risk in our business model is the inability to
realise sufficient income through the sale of our holdings in
portfolio companies to cover operating costs and investment
capital. This risk has been mitigated through the sale of shares in
Exscientia, our most valuable holding at 30 June 2022, through
disposing parts of our stake during the year and after the year
end. The other principal financial risk of the business is a fall
in the value of the Group's portfolio. With regards to the value of
the portfolio itself, the fair value of each portfolio company
represents the best estimate at a point in time and may be impaired
if the business does not perform as well as expected, directly
impacting the Group's value and profitability. This risk is
mitigated as the number of companies in the portfolio increases. T
he Group continues to pursue its aim of actively seeking
realisation opportunities within its portfolio to reduce the
requirement for additional capital raising.
The principal operational risk of the business is management's
ability to continue to identify spin out companies from its formal
and informal university relationships, to increase the revenue
streams that will generate cash in the short term and achieve
realisations from the portfolio.
Early-stage companies are particularly sensitive to downturns in
the economic environment. There are currently several areas of
concern that could affect the UK and wider global markets and
economy. Short-term risks include the war in Ukraine and its impact
on supply chains and energy prices, and the continuing COVID-19
pandemic. Inflation and interest rates are rising. Longer-term
risks include uncertainties in the US economy, particularly around
mortgages and consumer confidence, and China, which is facing
demographic challenges, pressures in its property sector, and from
COVID-19 lockdowns, energy and climate, which has led to industrial
closures. In Europe, aside from Ukraine, there is the potential for
an Italian debt crisis.
Any economic downturn would mean considerable uncertainty in
capital markets, resulting in a lower level of funding activity for
such companies and a less favourable exit environment. The impact
of this may be to constrain the growth and value of the Group's
portfolio and to reduce the potential for revenue from advisory
work. The Group seeks to mitigate these risks by maintaining a
strong balance sheet, relationships with co-investors, industry
partners and financial institutions, as well as controlling the
cash burn rate in portfolio companies.
In terms of COVID-19, the remaining risks to the Group are
operational: Frontier IP and portfolio company employees may
contract the virus and be unavailable for work for extended periods
of time. The Group seeks to mitigate these risks by maintaining a
safe working environment and e nsuring portfolio companies have
considered and addressed risks.
Changes to the basis on which IP is licensed in the Higher
Education sector might lead to reduced opportunity or a need to
vary the business model. Any uncertainty in the sector may have an
impact on the operation of the Group's commercialisation
partnerships in terms of lower levels of intellectual property
generation and therefore commercialisation activity. The Group
seeks to mitigate these risks by continuing to seek new sources of
IP from a wide range of institutions both within and outside of the
UK.
The Group is dependent on its executive team for its success and
there can be no assurance that it will be able to retain the
services of key personnel. This risk is mitigated by the Group
through recruiting additional skilled personnel and ensuring that
the Group's reward and incentive framework aids our ability to
recruit and retain key personnel. We expanded our team during the
year and, post period-end, commissioned an external review of our
remuneration framework.
By order of the Board
Neil Crabb
Director
26 October 2022
Remuneration Review
In line with the Remuneration Committee's role to ensure the
on-going appropriateness and relevance of the Group's remuneration
policy, Ellason LLP was appointed to conduct an external review of
the Group's remuneration framework with the aim that it continues
to reinforce long-term value creation, capture Group and individual
performance, and support growth by enhancing the Group's ability to
attract and retain the best people. The review highlighted several
areas where the Committee believes revisions are required, from
FY2023, to ensure competitiveness with the market and to formalise
a structure which provides a more consistent remuneration package
as the Group scales-up its operations. The Committee has had a very
constructive consultation with the Group's largest shareholders and
it is grateful for their input.
Salary
The review indicated that salaries and pay overall for the
executive directors are significantly behind the market. The
Remuneration Committee generally aims to target salaries at market
median for high-performing and experienced executives, and is
therefore proposing to transition the executive director salaries
to levels more competitive with the market over the next 2 years.
The first increase will be in FY23, with full-time equivalent
salaries raised to GBP200,000 for the CEO, and to GBP160,000 for
each of the CFO, CCO, and COO. The Committee is expecting further
increases in FY24 which are likely to be less than the increase in
FY23 and will disclose these in the relevant directors'
remuneration report.
Annual Bonus
We intend to adopt a more formalised cash bonus structure which
provides for potential annual awards to eligible employees,
including the executive directors. Our business model means that
the availability of cash to pay bonuses will be dependent on cash
being raised through asset realisations, and so it is proposed that
the bonus opportunity in any financial year will be dependent on
this activity.
A Group-wide bonus pool will be funded each year, based on the
Group's cash generation: in a year where no asset realisation
occurs, the maximum annual bonus will be limited to c.30% of salary
for an executive director (and lower levels for other staff);
conversely, in a year when an asset realisation occurs the maximum
annual bonus will be limited to 100% of salary for an executive
director. Allocation of the pool will be based on a range of
factors, including contribution to Group performance, achievement
of specific objectives, seniority and tenure. In any given year,
whether or not there has been an asset realisation, bonuses would
only be paid where the Group determines there is a sufficient
surplus to the medium term operating cash requirement.
LTIP
Over recent years, our main long-term incentive has been regular
grants of options, the most recent of which have comprised both
approved and unapproved options, with vesting based on continued
employment over 3 years, and with exercise prices set at nominal
price (10p) or at the prevailing share price. Whilst this
historical arrangement has been simple, the Remuneration Committee
believes that a more targeted arrangement which focuses vesting on
specific outcomes will better suit the Group's ambitions in the
future.
Going forward, the primary long-term incentive will be an 'LTIP'
based on annual awards of performance shares (structured as nominal
cost options, 'NCOs'), with vesting linked 70% to NAV per share and
30% to Total Shareholder Return measured over 3 financial years.
Vesting will also be subject to a discretionary underpin, assessed
by the Remuneration Committee, to be used to reduce vesting, if
required, in the event that the recorded NAV/TSR performance is not
consistent with the Remuneration Committee's view on the Group's
underlying performance. Performance against NAV and TSR targets set
for each LTIP cycle will be disclosed in the relevant remuneration
report.
This revision will require some changes to the current
unapproved option plan rules to enable awards as above. A key
change will be to the provision around dilution, which currently
permits dilution of up to 15% of share capital over 10 years, but
with a limit of 5% for awards with 'discounted' exercise prices
(which captures NCOs). This secondary limit will be removed on the
basis that, going forward, the vesting of LTIP awards, whilst
structured as NCOs, will no longer be linked only to continued
employment but also to stretching targets around NAV per share
growth and TSR.
LTIP participants will include the executive directors and other
Group employees; allocations will be made annually from an
aggregate award pool which is limited in size to ensure sufficient
shares are available to grant in future years without exceeding the
Group's dilution limits. Our modelling suggests that LTIP awards to
the executive directors may have a grant value of c.65-75% of
salary in FY2023 - the actual value will depend on the share price
at grant. The LTIP will include an individual grant limit of 200%
of salary in any financial year, but this level would require a
significant increase from the current share price to be
breached.
The first awards to be granted under the LTIP will be made as
soon as practicable during FY 2023.
Option awards may also be granted to Group employees under the
Group's Approved Company Share Option Plan, to the extent an
individual has headroom under the relevant limits.
Directors' remuneration
An analysis of remuneration by director is given in Note 6 of
this announcement .
Contracts of service
Neil Crabb's, Jacqueline McKay's, James Fish's and Matthew
White's service agreements are subject to a three-month notice
period. It is planned that these Contracts of Service will be
reviewed during FY2023 including a proposal, from the remuneration
review, to increase the notice period to six months.
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2022
2022 2021
Notes GBP'000 GBP'000
Revenue
Revenue from services 3 329 362
Other operating income
Unrealised profit on the revaluation of investments 13,14 10,908 12,306
Realised profit on disposal of investments 2,867 -
14 ,104 12,668
Administrative expenses 5 (3,104) (2,171)
Share based payments (329) (368)
Other income 207 104
Profit from operations 10,878 10,233
Interest income on short term deposits 1 9
Profit from operations and before tax 10,879 10,242
Taxation 7 (649) (676)
Profit and total comprehensive income attributable
to
--------- --------
the equity holders of the Company 10,230 9,566
========= ========
Profit per share attributable to the equity
holders of the Company:
Basic earnings per share 8 18 .60p 17.47p
Diluted earnings per share 8 17 .53p 16.62p
All of the Group's activities are classed as continuing.
There is no other comprehensive income in the year (2021:
nil).
Consolidated Statement of Financial Position
At 30 June 2022
2022 2021
Notes GBP'000 GBP'000
Assets
Non-current assets
Tangible fixed assets 9 6 11
Goodwill 10 1,966 1,966
Equity investments 13 39 ,712 31,982
Debt investments 14 2,981 2,320
44 ,665 36,279
--------- ---------
Current assets
Trade receivables and other current assets 15 1,051 595
Cash and cash equivalents 4,368 1,992
--------- ---------
5,419 2,587
--------- ---------
Total assets 50,084 38,866
--------- ---------
Liabilities
Non-current liabilities
Deferred taxation 7 (1,167) (237)
--------- ---------
(1,167) (237)
--------- ---------
Current liabilities
Trade and other payables 16 (218) (208)
---------
(218) (208)
--------- ---------
Total liabilities (1,385) (445)
--------- ---------
Net assets 48,699 38,421
========= =========
Equity
Called up share capital 17 5,501 5,501
Share premium account 17 14,576 14,576
Reverse acquisition reserve 18 (1,667) (1,667)
Share based payment reserve 18 1,324 1,276
Retained earnings 18 28,965 18,735
--------- ---------
Total equity 48,699 38,421
========= =========
Consolidated Statements of Changes in Equity
For the year ended 30 June 2022
Group
Share- Total equity
Share Reverse based attributable
Share premium acquisition payment Retained to
capital account reserve reserve earnings equity holders
of the Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2020 5,076 12,819 (1,667) 477 9,161 25,866
Issue of shares 425 1,757 - - - 2,182
Share-based payments - - - 799 8 807
Profit/total comprehensive
income for the year - - - - 9,566 9,566
At 30 June 2021 5,501 14,576 (1,667) 1,276 18,735 38,421
---------- ---------- -------------- --------- ----------- ----------------
Issue of shares - - -
Share-based payments - - - 48 48
Profit/total comprehensive
income for the year - - - 10,230 10,230
At 30 June 2022 5,501 14,576 (1,667) 1,324 28,965 48,699
========== ========== ============== ========= =========== ================
Consolidated Statements of Cash Flows
For the year ended 30 June 2022
Group Group
2022 2021
Notes GBP'000 GBP'000
Cash flows from operating activities 21 (3,006) (1,466)
Cash flows from investing activities
Purchase of tangible fixed assets 9 (3) (12)
Purchase of equity investments 13 (614) (71)
Disposal of equity investments 6,525 -
Purchase of debt investments 14 (527) (1,618)
Disposal of debt investments 14 - -
Net amounts receivable from group - -
undertakings
Interest income 1 9
Net cash from investing activities 5,382 (1,692)
-------- ----------
Cash flows from financing activities
Proceeds from issue of equity
shares - 2,334
Costs of share issue - (152)
Net cash generated from financing
activities - 2,182
-------- ----------
Net increase/(decrease) in cash
and cash equivalents 2,376 (976)
Cash and cash equivalents at beginning
of year 1,992 2,968
Cash and cash equivalents at
end of year 4,368 1,992
======== ==========
Notes to the Financial Statements
1. Financial risk management
Financial risk factors
(a) Market risk
Interest rate risk
As the Group has no borrowings it only has limited interest rate
risk. The impact is on income, debt investments and operating cash
flow and arises from changes in market interest rates. Cash
resources are held in floating rate accounts.
Price risk
The Group is exposed to equity securities price risk because of
equity investments classified on the consolidated statement of
financial position as financial assets at fair value through profit
and loss. The maximum exposure is the fair value of these assets
which is GBP39,712,000 (2021: GBP31,982,000) of which quoted equity
investments comprise GBP10,132,000 (2021: GBPnil). Equity
investments are valued in accordance with the Group's accounting
policy on equity investments. Management's monitoring of and
contact with portfolio companies provides sufficient information to
value these companies and the Board regularly reviews their
progress, prospects and valuation. Information on reasonable
possible shifts in the valuation of equity investments is provided
in note 13 to the financial statements.
(b) Credit risk
The Group's credit risk is primarily attributable to its trade
receivables, other debtors and cash equivalents. The Group's
current cash and cash equivalents are held with two UK financial
institutions, the Bank of Scotland plc and Barclays Bank plc, both
of which have a credit rating of "P1" from credit agency Moody's,
indicating that Moody's consider that these banks have a "superior"
ability to repay short-term debt obligations. The concentration of
credit risk from trade receivables and other debtors varies
throughout the year depending on the timing of transactions and
invoicing of fees. Details of major customers to the Group are set
out in Note 4. Details of trade receivables and other current
assets are set out in note 15. Management's assessment is aided
through representation on the Board and/or through providing
advisory services to the companies.
The maximum exposure to credit risk for, trade receivables,
other current asset and cash equivalents is represented by their
carrying amount.
(c) Capital risk management
The Group is funded by equity finance only. Total capital is
calculated as 'total equity' as shown in the consolidated statement
of financial position. The Group's objectives for managing capital
are to safeguard the Group's ability to continue as a going concern
in order to provide returns for shareholders and benefits for other
stakeholders and to manage the cost of capital. In order to
maintain the capital structure, the Group may issue new shares as
required. The Group currently has no debt. There were no changes in
the Group's approach to capital management during the year.
(d) Liquidity risk
The Group seeks to manage liquidity risk to ensure sufficient
liquidity is available to meet the requirements of the business and
to invest cash assets safely and profitably. The Group's business
model is to realise cash through the sale of investments in
portfolio companies and in the absence of such realisations the
Group would plan to raise additional capital. The Board reviews
available cash to ensure there are sufficient resources for working
capital requirements and investments. At 30 June 2022 and 30 June
2021 all amounts shown in the consolidated statement of financial
position under current assets and current liabilities mature for
payment within one year.
2. Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates and
judgements.
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are addressed below:
(i) Valuation of investments
In applying valuation techniques to determine the fair value of
unquoted equity investments the Group makes estimates and
assumptions regarding the future potential of the investments. As
the Group's unquoted investments are in seed, start-up and
early-stage businesses it can be difficult to assess the outcome of
their activities and to make reliable forecasts. Given the
difficulty of producing reliable cash flow projections for use in
discounted cash flow valuations, this technique is applied with
caution. Adjustments made to fair value are, by their very nature,
subjective and determining the fair value is a critical accounting
estimate. Reasonable possible shifts, which themselves are
estimates, are included in Note 13 and show a reasonable possible
shift for the total unquoted equity investments of 23% (2021: 29%)
being GBP9,070,000 (2021: GBP9,249,000) from a total value of
GBP39,712,000 (2021: GBP31,982,000). In applying valuation
techniques to determine the fair value of debt investments the
Group makes estimates and assumptions regarding the time to
repayment or conversion, discount rate and credit risk. A 25%
increase in the time to repayment or conversion reduces the value
of debt investments from GBP2,981,000 to GBP2,951,000 and a 25%
increase in the discount rate reduces the value of the debt
investments from GBP2,981,000 to GBP2,941,000. Where warrants are
attached to a debt instrument, the fair value is determined using
the Black-Scholes-Merton valuation model. The significant inputs to
the model are provided in note 14. The price at which debt
investments were made is 94% of the fair value of debt investments
at 30 June 2022 (2021: 95%).
(ii) Impairment of goodwill
The Group tests annually whether goodwill has suffered any
impairment, in accordance with the stated accounting policy. The
recoverable amount is determined using a value in use value model
which requires a number of estimations and assumptions about the
timing and amount of future cash flows. As future cash flows relate
primarily to proceeds from sale of investments, these estimates and
assumptions are subject to a high degree of uncertainty. Note 10
describes the key assumptions and sensitivity applied.
(iii) Consideration of credit losses
The matters taken into account in the recognition of credit
losses include historic current and forward-looking information.
The Group's exposure to credit losses is with companies from its
own portfolio whose ability to settle their debts is primarily
dependant on their ability to raise capital rather than their
current trading. The age of debt is not considered in assessing
credit loss as the outcome is expected to be binary. The debt is
also concentrated in a small number of companies; five companies
account for 98% of trade receivables at 30 June 2022. Management
has in-depth knowledge of these companies and is providing the
fundraising service for four of them. The Group's history of credit
loss is negligible and therefore management focus on the factors
which impact the ability of these companies to successfully raise
capital and a probability of default as a result of the failure to
raise capital is applied to determine the expected credit loss
Details of the expected credit loss are provided in note 15.
Critical accounting judgements
The Group believes that the most significant judgement areas in
the application of its accounting policies are establishing the
fair value of its unquoted equity investments and the consideration
of any impairment to goodwill. The matters taken into account by
the Directors when assessing the fair value of the unquoted equity
investments are detailed in the accounting policy on
investments.
The considerations taken into account by the Directors when
reviewing goodwill are detailed in Note 10. In addition, the
Directors judge that the Group is exempt from applying the equity
method of accounting for associates in which it has interests of
over 20% as they consider the Group to be similar to a venture
capital organisation and elects to hold such investments at fair
value in the statement of financial position.
IAS28 Investments in Associates and Joint Ventures permits
investments held by entities which are similar to venture capital
organisations to be excluded from its scope where those investments
are designated, upon initial recognition, as at fair value through
profit and loss.
3. Revenue from services
During the year the Group earned revenue from the provision of
services to portfolio companies and university partners as
follows:
2022 2021
GBP'000 GBP'000
Retainers with portfolio companies 313 324
Corporate finance fees from portfolio company
fundraisings - 15
Advisory fees from universities on initial 7 -
spin-outs
License income from universities 9 23
329 362
======== ========
4. Major customers
During the year the Group had five major customers that
accounted for 86% of its revenue from services (2021: five
customers accounted for 76%). The revenues generated from each
customer were as follows:
2022 2021
GBP'000 GBP'000
Customer 1 78 78
Customer 2 72 72
Customer 3 48 48
Customer 4 44 48
Customer 5 42 29
284 275
======== ========
5. Administration expenses
Expenses included in administrative expenses are analysed
below.
2022 2021
GBP'000 GBP'000
Employee costs 2,320 1,534
Consultant 81 66
Travel and subsistence 7 1
Depreciation 8 6
Bad and doubtful debts 141 -
Fees payable to auditor:
- audit fee 60 59
- non-audit services 5 13
Legal, professional and financial costs 313 290
Premises lease 113 133
Administration costs 56 69
3,104 2,171
======== ========
6. Directors and employees
The average number of people employed by the Group during the
year was:
2022 2021
Number Number
Business and corporate development 16 15
======= =======
2022 2021
GBP'000 GBP'000
Wages and salaries 1,714 1,125
Social security 218 146
Pension costs - defined contribution plans 208 98
Non-executive directors' fees 105 95
Other benefits 75 70
-------- --------
Total employee administration expenses 2,320 1,534
-------- --------
All employees with the exception of Jacqueline McKay are
employed by Frontier IP Group plc. Jacqueline McKay is employed by
the subsidiary Frontier IP Limited and her costs are shown in the
table of directors' remuneration below.
The key management of the Group and the Company comprise the
Frontier IP Group Plc Board of Directors. The remuneration of the
individual Board members is shown below.
Remuneration comprises basic salary, pension contributions and
benefits in kind, being private health insurance and life
assurance. The type of remuneration is constant from year to year.
Ad hoc bonuses may be paid to reward exceptional performance and
bonuses were paid during the year to 30 June 2022. Such bonuses are
decided by the Remuneration Committee. Share options are also
awarded to employees from time to time. The granting of share
options to individual employees is determined taking into account
seniority, commitment to the business and recent performance.
The total remuneration for each director is shown below.
Amounts in GBP'000
Salary Bonus Other benefits Pension Share option Total
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Executive
N Crabb 143 138 143 - 5 4 14 12 64 72 368 226
J McKay 41 84 106 - 5 5 85 32 57 66 294 187
J Fish 112 108 74 - 4 3 37 11 58 66 287 188
M White 134 130 30 - 4 3 26 13 54 64 247 210
Non-executive
A Richmond 45 43 - - - - - - - - 45 43
M Bourne 12 26 - - - - - - - - 12 26
C Wilson 27 26 - - - - - - - - 27 26
J King 22 - - - - - - - - - 22 -
----- ----- -------- ------- ------ ------
536 555 353 - 18 15 162 68 233 268 1,302 906
===== ===== ===== ===== ======== ======= ===== ===== ======= ====== ====== =====
7. Taxation
2022 2021
GBP'000 GBP'000
Current tax - -
Deferred tax 649 676
Tax charge for the year 649 676
======== ========
A reconciliation from the reported profit before tax to the
total tax charge is shown below:
2022 2021
GBP'000 GBP'000
Profit before tax 10,879 10,242
======== ========
-
Profit before tax at the effective rate of
corporation tax in the UK of 19% (2021: 19%) 2,067 1,946
Effects of:
Fair value movement in investments not recognised
in deferred tax (1,689) 159
Expenses not deductible for tax purposes 63 70
Movement in deferred tax asset of losses not
recognised 36 (1,610)
Other adjustments 172
Tax charge for the year 649 676
========== ========
The UK corporation tax rate was previously enacted to reduce to
17% from 1 April 2020. However, the Finance Act 2020, which was
substantively enacted on 11 March 2020, repealed this rate
reduction and the corporation tax rate has remained at 19% from 1
April 2020 . The Finance Act 2021 received Royal Assent on 10 June
2021 which has enacted an increase in the UK corporation tax rate
to 25% from 1 April 2023. The closing deferred tax assets and
liabilities have been calculated at a blended rate of 21.75%, on
the basis that this is the rate at which those assets and
liabilities are expected to unwind.
Deferred Tax
Group
Deferred tax liabilities at 30 June 2022
Unrealised gains investments (2,485)
-------------------
(2,485)
-------------------
Deferred tax assets at 30 June 2022
Tax losses 830
Short-term timing differences - pension 11
Short-term timing differences - outstanding share
options 476
Short term timing differences - fixed assets 1
-------------------
1,318
-------------------
Net deferred tax (liability) / asset (1,167)
-------------------
Group
Deferred tax movement
At 1 July 2021 237
Debited to profit and loss account 649
Debited to equity 281
-----------------
At 30 June 2022 1,167
-----------------
8. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit
attributable to the shareholders of Frontier IP Group Plc by the
weighted average number of shares in issue during the year.
Profit attributable Weighted Basic
to shareholders average earnings
GBP'000 number of per share
shares amount
in pence
Year ended 30 June 2022 10,230 55,005,546 18.60
-------------------- ----------- -----------
Year ended 30 June 2021 9,566 54,761,420 17.47
-------------------- ----------- -----------
b) Diluted
Diluted earnings per share is calculated by adjusting the
weighted number of ordinary shares outstanding to assume conversion
of all dilutive potential ordinary shares. The Company has only one
category of dilutive potential ordinary shares: share options. A
calculation is done to determine the number of shares that could
have been acquired at fair value (determined as the average annual
market value share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding
share options. The number of shares calculated as above is compared
with the number of shares that would have been issued assuming the
exercise of the share options.
Profit attributable Weighted Diluted
to shareholders average earnings
GBP'000 number of per share
shares adjusted amount
for share in pence
options
Year ended 30 June 2022 10,230 58,339,949 17.53
-------------------- ----------------- -----------
Year ended 30 June 2021 9,566 57,548,082 16.62
-------------------- ----------------- -----------
9. Tangible fixed assets
Fixtures
and equipment
GBP'000
Cost
At 1 July 2020 26
Additions 12
Disposals (2 )
---------------
At 30 June 2021 36
---------------
Additions 3
Disposals -
At 30 June 2022 39
Depreciation
Accumulated depreciation at 1 July 2020 21
Charge for the year to 30 June 2021 6
Disposals (2)
Accumulated depreciation at 30 June 2021 25
Charge for the year to 30 June 2022 8
Disposals -
---------------
Accumulated depreciation at 30 June 2022 33
---------------
Net book value
At 30 June 2021 11
===============
At 30 June 2022 6
===============
10 Goodwill
Group
GBP'000
Cost
At 1 July 2020, 30 June 2021 and at 30 June
2022 1,966
Impairment
At 1 July 2020, 30 June 2021 and at 30 June -
2022
--------
Carrying value
At 30 June 2022 1,966
========
At 30 June 2021 1,966
========
The Group conducts an annual impairment test on the carrying
value of goodwill based on the recoverable amount of the Group as
one cash generating operating unit. The recoverable amount is
determined using a value in use model. The net present value of
projected cash flows is compared with the carrying value of the
Group's investments and goodwill. Projected cash flows are based on
management approved budgets for a period of three years and key
assumptions over a further seven years. When determining the key
assumptions, management has used both past experience and
management judgement, but as future cash inflows are derived
primarily from the realisation of investments, these assumptions
are subject to a high degree of uncertainty. The key assumptions
used in the model were rate of return 33%; average yearly
realisations 6.7%; annual growth in trading income 8%; annual
growth in the cost base 11%; discount 11%. The Board considers that
a reasonable possible change in the rate of return or in the
discount rate would cause the carrying amount of the cash
generating unit to exceed its recoverable amount. A decrease in the
rate of return from 33% to 18% and an increase in the discount rate
from 11% to 29% would cause the recoverable amount to equal the
carrying amount. The Board considers that the recoverable amount of
the Group as one cash generating operating unit is greater than its
carrying value.
11. Categorisation of Financial Instruments
At fair
value through Amortised
profit or cost Total
Financial assets loss GBP'000 GBP'000
GBP'000
At 30 June 2021
Equity investments 31,982 - 31,982
Debt investments 2,320 - 2,320
Trade and other receivables - 595 595
Cash and cash equivalents - 1,992 1,992
--------------- ------------ ----------
Total 34,302 2,587 36,889
--------------- ------------ ----------
At 30 June 2022
Equity investments 39,712 - 39,712
Debt investments 2,981 - 2,981
Trade and other receivables - 1,052 1,052
Cash and cash equivalents - 4,368 4,368
--------------- ------------ ----------
Total 42,693 5,420 48,113
--------------- ------------ ----------
All financial liabilities are categorised as other financial
liabilities and recognized at amortised cost.
All net fair value gains in the year are attributable to
financial assets designated at fair value through profit or loss.
(2021: all net fair value gains were attributable to financial
assets designated at fair value through profit or loss.)
12. Investment in subsidiaries
Company Company
2022 2021
GBP'000 GBP'000
At 1 July 2,383 2,383
Provision for impairment - -
-------- --------
At 30 June 2,383 2,383
======== ========
Group Investments
The Company has investments in the following subsidiary
undertakings.
Country of Proportion
incorporation of ordinary
shares directly
held by the
Company
Frontier IP Limited
- principal activity is commercialisation
of IP Scotland 100%
Frontier IP Management Limited
- principal activity is investment
advisory and marketing services Scotland 100%
FIP Portugal, Unipessoal, Lda.
- principal activity is commercialisation
of IP Portugal 100%
The registered office of all subsidiaries registered in Scotland
is c/o CMS Cameron McKenna Nabarro Olswang LLP, Saltire Court, 20
Castle Terrace, Edinburgh EH1 2EN.
The registered office of FIP Portugal, Unipessoal, Lda is Rua
Alfredo Guisado No 39, Sala 11, 1500-030 Lisboa, Portugal.
13. Equity investments
Equity investments are valued individually at fair value in
accordance with the Group's accounting policy on investments. All
but one of the Group's equity investments are unquoted and these
have been categorised as being level 3, that is, valued using
unobservable inputs. All gains and losses relate to assets held at
the year end, and the fair value movement has been shown in the
income statement as other operating income.
Equity Investments Group Group
2022 2021
GBP'000 GBP'000
At 1 July 31,982 19,444
Additions 614 71
Conversion of debt investments 764 276
Disposals (3,659) -
Unrealised profit on revaluation 10,011 12,191
At 30 June 39,712 31,982
======== ========
The table below sets out the movement during the year in the
value of unquoted equity investments by the valuation matrix stages
described in the accounting policy on equity investments:
Unquoted Equity
Investments
Stage Stage Stage Stage Stage Stage Total
1 2 3 4 5 6
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
1 July 2020 75 914 3,245 15,210 - - 19,444
Transfers between
stages (15) (720) 338 397 - - -
Fair value change
through other
operating income (29) 38 1,495 10,687 - - 12,191
Additions - - - 347 - - 347
-------- -------- -------- --------- -------- -------- --------
30 June 2021 31 232 5,078 26,641 - - 31,982
-------- -------- -------- --------- -------- -------- --------
Transfers between
stages (16) 16 (13,210) - 13,210 -
Fair value increase
through other
operating income 6 550 1,008 7,866 - 581 10,011
Additions 10 - - 1,368 - 1,378
Disposals - - - - - (3,659) (3,659)
-------- -------- -------- --------- -------- -------- --------
30 June 2022 31 798 6,086 22,665 - 10,132 39,712
======== ======== ======== ========= ======== ======== ========
The table below provides information about equity investment
fair value measurements.
(See the accounting policy on investments for a description of
the valuation matrix stages)
Valuation No of Fair Unobservable inputs Reasonable possible
matrix Investments value shift
stage
GBP'000 % +/- GBP000
At 30 June 2021
The company is valued
at fair value which is
Stage typically at a notional
1 4 31 value of around GBP50,000 20% 6
Management's assessment
of the value of IP transferred
and valuation of grants
Stage from which economic benefit
2 2 232 is derived 30% 70
Management's assessment
of performance against
Stage milestones and discussions
3 7 5,078 of likely imminent fundraising 39% 1,980
The price of last funding
round provides unobservable
input into the valuation
of any individual investment.
However, subsequent to
the funding round, management
are required to re-assess
the carrying value of
investments at each year-end
which result in unobservable
Stage inputs into the valuation
4 10 26,641 methodology. 27% 7,193
Stage 0 - Discounted comparable - -
5 public company valuation.
Unobservable inputs into
discounted cash-flow
are forecasts of future
cash-flows, probabilities
of project failure, and
evaluation of the time
value of money.
Stage 6 - Based on bid price at - -
balance sheet date.
--------------
30 June 2021 31,982 29% 9,249
-------- --------------
At 30 June 2022
The company is valued
at fair value which is
Stage typically at a notional
1 3 31 value of around GBP50,000 20% 6
Management's assessment
of the value of IP transferred
and the value of grants
Stage from which economic benefit
2 3 798 is derived. 31% 248
Management's assessment
of performance against
Stage milestones and discussions
3 7 6,086 of likely imminent fundraising. 40% 2,434
The price of latest funding
round provides unobservable
input into the valuation
of any individual investment.
However, subsequent to
the funding round, management
are required to re-assess
the carrying value of
investments at each year
end which result in unobservable
Stage inputs into the valuation
4 10 22,665 methodology. 28% 6,382
Stage - - Discounted comparable - -
5 public company valuation.
Unobservable inputs into
discounted cash flow
are forecasts of future
cash flows, probabilities
of project failure and
evaluation of the time
cost of money.
Stage Based on bid price at
6 1 10,132 balance sheet date. - -
30 June 2022 39,712 23% 9,070
======== ==============
The percentage reasonable possible shift for each stage is the
blended percentage reasonable possible shift of each company at
that stage which are based on the Directors' assessment of the
level of uncertainty attached to the valuation inputs.
The valuation of the Group's investment in Exscientia (Stage 6)
at 30 June 2022 was GBP10,132,000, 26% of the Group's total equity
investments and 21% of its net assets at 30 June 2022. During the
year, the Group sold part of the investment in Exscientia for
GBP6,525,000 realising a gain of GBP2,867,000. The increase in the
value of the Group's remaining holding in Exscientia over the year
to 30 June 2022 was GBP581,000, 5% of the Group's net unrealised
profit on the revaluation of investments and 5% of profit before
tax for the year to 30 June 2022. The valuation is the bid price on
the Nasdaq exchange at 30 June 2022.
Significant unobservable inputs:
The valuation of the Group's investment in Pulsiv (Stage 4) at
30 June 2022 was GBP9,083,000, 23% of the Group's total equity
investments and 19% of its net assets at 30 June 2022. The increase
in the value of the Group's holding in Pulsiv over the year to 30
June 2022 was GBP4,996,000, 46% of the Group's net unrealised
profit on the revaluation of investments and 46% of profit before
tax for the year to 30 June 2022. The significant inputs into the
valuation of the Group's holding in Pulsiv included the price of an
investment in July 2022.
The valuation of the Group's investment in The Vaccine Group
(TVG) (Stage 3) at 30 June 2022 was GBP5,554,000, 14% of the
Group's total equity investments and 11% of its net assets at 30
June 2022. The increase in the value of the Group's holding in TVG
over the year to 30 June 2022 was GBP1,008,000, 9% of the Group's
net unrealised profit on the revaluation of investments and 9% of
profit before tax for the year to 30 June 2022. The significant
inputs into the valuation of the Group's holding in TVG included an
assessment of the progress made in the nine projects in progress at
30 June 2022 since the most recent funding round in January 2020,
the growth in valuation of vaccine companies over the period and a
discounted cash flow model. The company's activities on the
projects funded by the US, UK and Chinese governments remain on
track and have met the milestones agreed with the funders.
Post-year end animal trials were completed on a transmissible Lassa
fever vaccine, believed to be the first of its kind in the world.
The lab based trial demonstrated: a) effective transmission of the
vaccine from directly vaccinated to unvaccinated animals, and b) a
significant reduction in the shedding of Lassa fever virus from
both directly and indirectly vaccinated animals when infected
(compared to unprotected infected animals). Trials were also
carried out on the Streptococcus suis vaccine developed for use in
pigs; the initial trials in rabbits (a well-defined animal model)
demonstrated a good immune response to vaccination. This specific
vaccine constructs and others developed by TVG will be tested in
pigs by project partners during the current financial year. These
activities are an indicator of the positive progress made during
the period.
Whilst TVG has a growing portfolio of projects, each of the
projects are individually high risk but also potentially high
reward for TVG. It is therefore challenging to accurately value TVG
given the material impact of success or failure in any one of these
projects. This remains particularly challenging at this point in
time as the ongoing COVID-19 environment has seen a strong growth
in the valuations of vaccine companies, particularly those that are
specifically targeting COVID-19. The current valuation has been
corroborated by discounted cash flows which have been risk adjusted
for probability of success using rates typically seen in animal
health vaccine development. A 25% reduction in the royalty rate,
market penetration, success rate or cost per dose would reduce the
valuation of the Group's investment in TVG by 26% while a 25%
decrease in the discount rate would increase the valuation by 47%.
The high risk/reward nature of TVG's projects, the difficulty in
estimating future cash flows and the high level of judgement
involved mean there is a risk of material adjustment to the
valuation.
Equity investments are carried in the statement of financial
position at fair value even though the Group may have significant
influence over those companies. This treatment is permitted by
IAS28, Investments in Associates. At 30 June 2022 the Group held an
economic interest of 20% or more in the following companies:
Name of Undertaking Registered Address % Issued Share
Share Class
Capital
AquaInSilico Avenida Tenente Valadim, n . 29.0% Ordinary
17, 2 F, 2560-275 Torres Vedras,
Portugal
---------------------------------- --------- -----------
Alusid Limited Richard House, Winckley Square, 38.9% Ordinary
Preston, Lancashire, PR1 3HP
---------------------------------- --------- -----------
Cambridge Raman Botanic House,100 Hills Road, 26.8% Ordinary
Imaging Limited Cambridge, CB2 1PH
---------------------------------- --------- -----------
CamGraPhIC Limited Botanic House,100 Hills Road, 20.8% Ordinary
Cambridge, CB2 1PH
---------------------------------- --------- -----------
Celerum Limited 30 East Park Road, Kintore, 33.8% Ordinary
Inverurie, AB51 0FE
---------------------------------- --------- -----------
Des Solutio Avenida Tenente Valadim, n . 25.0% Ordinary
LDA 17, 2 F, 2560-275 Torres Vedras,
Portugal
---------------------------------- --------- -----------
Elute Intelligence 21 Church Road, Tadley, RG26 41.2% Ordinary
Holdings Limited 3AX
---------------------------------- --------- -----------
Fieldwork Robotics Research And Innovation Floor 24.5% Ordinary
Limited 2 Marine Building, Plymouth
University, Plymouth, PL4 8AA
---------------------------------- --------- -----------
Insignals Neurotech Rua Passeio Alegre, 20 Centro 32.9% Ordinary
Lda de Incubacyo e Aceleracyo Do
Porto, Porto 4150-570, Portugal
---------------------------------- --------- -----------
Nandi Proteins 93 George Street, Edinburgh, 20.1% A Ordinary
Limited EH2 3ES
---------------------------------- --------- -----------
NTPE LDA Avenida Tenente Valadim, n . 47.9% Ordinary
17, 2 F, 2560-275 Torres Vedras,
Portugal
---------------------------------- --------- -----------
The nature of these companies' business is provided in the
Portfolio Review section of the Strategic Report where the holding
carries a value.
14. Debt investments
Debt investments are loans to portfolio companies to fund
early-stage costs, provide funding alongside grants and bridge to
an equity fundraise. Loans ranging from GBP100,000 to GBP175,000
were made to four companies during the period. All debt investments
are categorised as fair value through profit or loss and measured
at fair value. The Group uses valuation techniques that management
consider appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the use of
relevant observable inputs and minimising the use of unobservable
inputs The price at which the debt investment was made may be a
reliable indicator of fair value at that date but management
consider the financial position and prospects for the portfolio
company borrower when valuing debt investments at subsequent
measurement dates.
Certain debt investments carry warrants granting the option to
purchase shares. The exercise price is generally the price of
shares issued at the first equity fundraising following the grant
and the period of exercise is generally at any time from the first
equity fundraising to an exit event. The fair value of the warrants
is determined using the Black-Scholes-Merton valuation model. The
significant inputs into the model for each warrant were the
exercise price, the current share price valuation, volatility of
70% (2021: 70%), expected life of between six months and five years
and an annual risk-free interest rate of 2.07% (2021: 0.04%). The
value of warrants included in debt investments at 30 June 2022 is
GBP827,000 (2021: GBP60,000)
The movement of debt investments during the year is set out
below:
Group Group
2022 2021
GBP'000 GBP'000
At 1 July 2,320 863
Additions 527 1,618
Disposals - -
Conversion to unquoted equity
investments (764) (276)
Reclassification - -
Unrealised profit on revaluation 898 115
At 30 June 2,981 2,320
======== ========
All debt investments are classed as non-current. Certain debt
instruments have conversion or repayment terms dependent on the
amount and timing of an equity fundraising by the portfolio company
borrower. The exercise of a conversion right would reclass the debt
investment as a non-current equity investment. The expectation is
to exercise the right to repayment, however there is uncertainty
over the timing and amount of equity fundraisings. Furthermore,
notwithstanding the right to repayment being triggered, the Group
may decide, depending on the circumstance at the time, to defer
repayment or convert into equity for the benefit of the portfolio
company borrower in which the Group also holds an equity stake.
15. Trade receivables and other current assets
Group Group
2022 2021
GBP'000 GBP'000
Trade receivables 388 336
Receivables from Group undertakings - -
VAT 12 13
Prepayments and accrued income 386 58
Other debtors 128 109
Accrued interest 180 79
1,094 595
Expected credit loss at 1 July - -
Other current assets provided 43 -
for in the year
Other current assets written - -
off in the year
-------- --------
Expected credit loss at 30 June 43 -
-------- --------
Less receivables from Group
undertakings - non current - -
-------- --------
Current portion 1,051 595
======== ========
Trade receivables
Group Group
2022 2021
GBP'000 GBP'000
Trade receivables not past due 28 54
Trade receivables past due 1-30
days 29 71
Trade receivables past due 31-60
days 26 25
Trade receivables past due 61-90
days 27 14
Trade receivables past due over
90 days 376 172
-------- --------
Gross trade receivables at 30
June 486 336
-------- --------
Expected credit loss at 1 July - -
Debts provided for in the year 98 -
Debts written off in the year - -
-------- --------
Expected credit loss at 30 June 98 -
-------- --------
Net trade receivables at 30
June 388 336
======== ========
Trade receivables are amounts due from portfolio companies for
services provided with net amounts recorded as revenue in the
consolidated statement of comprehensive income. The expected credit
losses are estimated by reference to the financial position and
specific circumstances of the portfolio companies, by reference to
past default experience and by assessment of the current and
forecast economic conditions. The nature of the services provided
to portfolio companies means the Group has in-depth knowledge of
the companies' prospects both for trading and raising capital and
the number of companies with past due receivables is small enabling
a full assessment of recoverability by company. The Group also
considers if a general provision for expected loss through applying
the historical rate of portfolio company failures is material.
GBP22,000 of trade receivables at 30 June 2022 have been recovered
post year-end (2021: GBP34,000). Of the remaining GBP464,000,
GBP104,000 is due from Fieldwork Robotics (2021: GBP104,000),
GBP101,000 from Elute Intelligence (2021: GBP76,000), GBP43,000
from Alusid (2021: GBP87,000) and GBP120,000 from Nandi Proteins
Ltd (2021: GBP26,000). The Group's history of credit loss is
negligible and therefore management focus on the factors which
impact the ability of its debtor companies to successfully raise
capital and a probability of default as a result of the failure to
raise capital is applied to determine the expected credit loss
Receivables from Group undertakings carry interest of 2.0% above
base rate (2021: 2.0%).
16. Trade and other payables
Group Group
2022 2021
GBP'000 GBP'000
Trade payables 41 36
Payables to group undertakings - -
Social security and other taxes 53 56
VAT - -
Other creditors 10 6
Accruals and deferred income 114 110
-------- --------
At 30 June 218 208
Less payables to Group undertakings
- non current - -
-------- --------
Current portion 218 208
======== ========
17. Share capital and share premium
Number Ordinary
of shares shares Share
issued of 10p premium Total
and fully
paid
GBP'000 GBP'000 GBP'000
At 30 June 2021 55,005,546 5,501 14,576 20,077
At 30 June 2022 55,005,546 5,501 14,576 20,077
=========== ========= ========== ========
18. Reserves
The reverse acquisition reserve was created on the reverse
takeover of Frontier IP Group Plc. The fair value of equity-settled
share-based payments is expensed on a straight-line basis over the
vesting period and the amount expensed in each year is transferred
to the share-based payment reserve. The amount by which the
deferred tax asset arising on the intrinsic value of the
outstanding share options differs from the cumulative expense is
also transferred to the share-based payment reserve. Included in
retained earnings are unrealised profits amounting to
GBP35,233,000. The movement in reserves for the years ended 30 June
2022 and 2021 is set out in the Consolidated and Company Statement
of Changes in Equity.
19. Share options
Frontier IP has three option schemes. Under the Frontier IP
Group Plc Employee Share Option Scheme 2011 - Amended 26 March
2018, both enterprise management incentive options and unapproved
options are granted. No payment is required from option holders on
the grant of an option. The options are exercisable starting three
years from the date of the grant with no performance conditions.
The scheme runs for a period of ten years but no new options can be
granted as the Group has ceased to be a qualifying company for EMI
purposes No options were granted during the year.
Movements in the number of share options outstanding and their
related weighted average exercise prices were as follows:
2022 2022 2021 2021
Weighted Weighted
average exercise Options average exercise Options
price price
Pence per Pence per
share share
At 1 July 31.99 5,030,181 30.48 4,335,676
Granted - - 42.21 748,858
Exercised - - - -
Lapsed 64.36 (43,455) 51.45 (54,353)
At 30 June 31.71 4,986,726 31.99 5,030,181
========== ==========
Of the 4,986,726 outstanding options (2021: 5,030,181) 2,836,000
had vested at 30 June 2022 (2021: 2,134,000). The vested options
have a weighted average exercise price of 26.53p.
Share options outstanding at the end of the year have the
following expiry date and exercise prices:
Exercise 2022 2021
price Number Number
Pence per
share
2023 15.00 652,607 652,607
2024 26.88 432,393 432,393
2026 26.63 650,000 650,000
2027 40.00 399,000 399,000
2028 65.00 246,000 246,000
2028 10.00 456,000 456,000
2029 66.00 694,050 707,612
2029 10.00 736,946 737,711
2030 65.00 409,414 438,542
2030 10.00 310,316 310,316
=========== ========= =========
The weighted average remaining contractual life of the
outstanding options is 5.3 years.
20. Leases
2022 2021
Land Land &
& Buildings Buildings
GBP'000 GBP'000
Commitments under non-cancellable leases expiring:
Within one year 91 72
Within two to five years - -
After five years - -
------------- -----------
91 72
============= ===========
The leases relate to rental of serviced offices. Under the terms
of the rental agreements, the supplier has the right to terminate
the agreement during the period of use, however at inception of the
agreement this was not considered likely to occur. For short term
leases (12 months or less) and leases of low value assets, the
Group has opted to recognise a lease expense on a straight-line
basis as permitted by IFRS 16's transitional rules. Currently the
longest lease ends in April 2023.
21. Cash used in operations
Group Group
2022 2021
GBP'000 GBP'000
Profit before tax 10,879 10,242
Adjustments for:
Share-based payments 329 368
Depreciation 8 6
Interest received (1) (9)
Unrealised profit on the revaluation
of investments (10,908) (12,306)
Realised profit on disposal (2,867) -
of investments
Changes in working capital:
Trade and other receivables (456) 235
Trade and other payables 10 (2)
-----------
Cash flows from operating activities (3,006) (1,466)
=========== ===========
The movements in liabilities from financing cashflows are
nil.
22. Related party transactions
Neil Crabb is a director of PoreXpert Limited, Pulsiv Limited
and Alusid Limited. Campbell Wilson is a director of Tarsis
Technology Limited and principal of Wilson Biopharma Consulting.
Matthew White is a director of The Vaccine Group Limited, Nandi
Proteins Limited and Fieldwork Robotics Limited. All these
companies, with the exception of Wilson Biopharma, are portfolio
companies of the Group. The Group charged fees to these companies
and was owed amounts from these companies as follows:
By the Group Fees Fees Amounts Amounts
charged charged owed owed
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Nandi Proteins Limited 78 78 120 26
Pulsiv Solar Limited 44 48 5 19
Alusid Limited 72 72 43 87
The Vaccine Group Limited 48 48 34 15
Celerum Limited 5 30 - -
Fieldwork Robotics Limited - 35 104 104
By Related Parties
Wilson Biopharma Consulting 12 12 - -
23. Subsequent events
Since 30 June 2022 the Group has sold 349,020 American
Depositary Shares of Exscientia for net proceeds of GBP3,433,000.
The book value at 30 June 2022 of the shares sold was GBP3,126,000
resulting in a realised gain of GBP307,000 in the financial year to
30 June 2023.
2 4 . Basis of preparation
The financial information does not constitute the financial
statements.
For the period covered:
a) the statutory financial statements will be delivered to the
registrar of companies in due course;
b) the auditor has reported on the statutory financial
statements and the audit report was unqualified.
This information is provided by RNS, the news service of the
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Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
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END
FR MFBTTMTJTTAT
(END) Dow Jones Newswires
October 27, 2022 02:00 ET (06:00 GMT)
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