REG - Frontier IP Group - Final results for the year ended 30 June 2023
31/10/2023 07:15
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RNS Number : 7792R Frontier IP Group plc 31 October 2023
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31 October 2023
Frontier IP Group Plc
("Frontier IP" or the "Group")
Final results for the year ended 30 June 2023
Financial highlights
· Net assets per share as at 30 June 2023 decreased 8% to 81.8p (30
June 2022: 88.5p)
· Basic loss per share of 5.85p (2022: earnings per share of 18.60p)
· Part-disposal of holding in Exscientia generated cash of £4,926,000
in the period under review (2022: £6,525,000) realising a loss of £786,000
(2022: profit of £2,867,000)
· Unrealised loss on the revaluation of investments of £966,000 (2022:
unrealised gain of £10,908,000)
· Fair value of our equity portfolio decreased by 17% to £32,964,000
(2022: £39,712,000) following disposals of £5,713,000 (2022: £3,659,000)
and additions of £745,000 (2022: £1,378,000)
· Loss before tax of £4,370,000 (2022: profit before tax £10,879,000)
· Cash balances at 30 June 2023 of £4,603,000 (2022: £4,368,000)
Corporate highlights
· Generated cash proceeds of £4.93 million from selling shares in
portfolio company Exscientia during the year. Following the Exscientia share
sales, Frontier IP is interested in 493,550 Advanced Depositary Shares in
Exscientia representing 0.4% of Exscientia's issued share capital. In total
the Group has raised net proceeds of £11.45 million through selling
Exscientia shares since January 2022. During the period a total of £2.4
million was invested in the portfolio by Frontier IP off its own balance sheet
through debt and equity investments and through advances of which £1.08
million was invested into CamGraPhIC.
· Appointed Nigel Grierson and Dr David Holbrook as independent
Non-Executive Directors and Professor Dame Julia King, Baroness Brown of
Cambridge DBE FREng FRS became a Senior Independent Director in March 2023.
All are members of the audit, remuneration and nomination committees. Campbell
Wilson stepped down as a Non-Executive Director in April 2023, having served
nine years on the board of directors.
· Expanded our portfolio with the incorporation of two new portfolio
companies during the year: Enfold Health and GraphEnergyTech. After the year
end, the Group took an equity stake in early-stage company Deakin Bio-Hybrid
Materials.
· Post period end the Group announced that Chairman Andrew Richmond
would not be offering himself for re-election at the coming Annual General
Meeting, having served for over eleven years as an independent Non-Executive
Director, the majority of which time was as Chairman. Baroness Brown will
become Group Chair following the AGM in December.
Portfolio highlights
· The portfolio continues to mature. Several companies are generating
revenues having achieved commercial traction. Others have made significant
industrial and technical progress and are either at or reaching their
inflection points. Chief Executive Officers were appointed at two companies
during the year and one post-year end as we strengthened management teams. Two
new portfolio companies were incorporated, and a further one joined the
portfolio after the end of the year. Despite difficult market conditions,
several portfolio companies raised funds.
Highlights included:
o Alusid launched its first range of mass-produced wall tiles made from
sustainable materials with Topps Tiles, the retail arm of Topps Tiles plc the
UK's no.1 tile specialist. The company is now developing its first range of
floor tiles following a collaboration with Imerys, a world leader in
speciality minerals
o CamGraPhIC raised £1.26 million to develop and scale up its graphene-based
photonics and announced that Sir Michael Rake, the former chair of BT Group,
is to join the board of directors. Post year end, the company secured a loan
facility for up to a further £1.5 million
o Pulsiv launched Pulsiv Osmium, a technology to improve the energy
efficiency of nearly all mains-powered applications, including power supplies
and battery chargers. The company raised £1.5 million, has built a global
distribution network, sent reference designs to potential customers and is in
talks with major manufacturers
o Celerum appointed David Gladding as CEO during the year and successfully
renewed its contract with Colin Lawson Transport, the first customer for its
Truck Logistics System software. Post year end, the company added two more
customers including Grampian Continental, its first operating internationally
o Steve Cable was appointed CEO of Elute. He has a history of growing
software companies as part of his 25 years' experience. The company is testing
a beta version of an IP analysis product for investment professionals
o Cambridge Raman Imaging made first sales of its graphene-based ultra-fast
lasers for use in Raman imaging microscopes. In tests, its digital imaging
technology helped histopathologists detect tumours ahead of traditional
methods
o The Vaccine Group successfully completed two government-backed projects to
develop candidates for a transmissible Lassa fever vaccine and a Streptococcus
suis vaccine. After the year end, the company announced plans to expand its
vaccine portfolio
· Other post period end developments included:
o Pulsiv appointed serial technology entrepreneur Mark Gerhard as chair, and
Tim Moore joined full time from his role at SharkNinja
o Fieldwork Robotics announced a £1.5 million fundraise from Elbow Beach
Capital, and appointed David Fulton as Chief Executive Officer
Key extracts from the Annual Report can also be viewed below which include the
basis for a qualified audit opinion and material uncertainty relating to going
concern.
ENQUIRIES
Frontier IP Group Plc T: 020 3968 7815
Neil Crabb, Chief Executive neil@frontierip.co.uk
Andrew Johnson, Communications & Investor Relations M: 07464 546 025
Company website: www.frontierip.co.uk (http://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
Harry Gooden / James Fischer
ABOUT FRONTIER IP
Frontier IP unites science and commerce by identifying strong intellectual
property and accelerating its development through a range of commercialisation
services. A critical part of the Group's work is involving relevant industry
partners at an early stage of development to ensure technology meets real
world demands and needs.
The Group looks to build and grow a portfolio of equity stakes and licence
income by taking an active involvement in spin-out companies, including
support for fund raising and collaboration with relevant industry partners at
an early stage of development.
Chairman's Statement
Performance
The year to June 2023 was a period of excellent commercial and technical progress for Frontier IP's portfolio. Although it was disappointing to report our first pre-tax loss, the numbers in fact represented a resilient performance when placed in the context of exceptionally difficult markets, particularly for early-stage technology companies, and continued economic uncertainty, high inflation and interest rates. Neil addresses some of the issues in his statement, highlighting the success some companies have enjoyed in moving beyond inflection points to winning commercial contracts. Briefly, revenue generation within the portfolio is increasing as seen in Alusid, Celerum and Fieldwork Robotics. Pulsiv has put in place a global distribution network, and launched its first commercial product, Pulsiv Osmium to improve the power efficiency of almost all mains-powered devices.
Others are approaching inflection points, the stage at which potential starts to be realised, the technology validated and the route to scale up clear. The Vaccine Group successfully completed two government-funded projects; CamGraPhIC is now gaining industry traction from beyond the telecoms industry and Elute Intelligence is beta testing a product aimed at investment professionals. CamGraPhIC and Pulsiv completed funding rounds during the year.
It's important we maintain the pipeline of new companies joining the portfolio, so it was pleasing to see Enfold Health and GraphEnergyTech incorporated during the year with DeakinBio, an existing firm in which we took an equity stake, added after the year end.
A crucial element of our business model is to strengthen the management of our portfolio companies when they reach the point of achieving commercial viability. So, it is highly encouraging to see a number of important appointments made during the course of the year and beyond. Portfolio companies also bolstered their management teams, with Steve Cable and David Gladding becoming chief executives of Elute and Celerum respectively during the year, with David Fulton filling the same role at Fieldwork Robotics and significant appointments at Pulsiv after the year end. Alusid appointed Stuart Christie as chief financial officer.
We've also enhanced our own board. Two new independent Non-Executive Directors were appointed to the Frontier IP Board of Directors during the year. Nigel Grierson and Dr David Holbrook have many years of experience in industry and finance at the highest levels.
Nigel has 20 years' experience in the IT industry with positions in product development, marketing, and senior management, and, as Managing Director of venture capital funds managing investments of over $500 million in start-up companies across Europe. He was co-Managing Director of the Doughty Hanson Technology Fund and has held senior roles at Intel Corporation, including running strategic programmes working directly for Intel's then Chief Executive Officer Dr Andrew Grove and Chief Operating Officer Dr Craig Barrett.
David is a leading healthcare technology investment professional with 30 years' experience in the life sciences sectors. He has sat on more than 20 boards of directors during his career. He is currently a non-executive director at AIM quoted Oxford BioDynamics plc, a senior advisor to digital health investor RYSE Asset Management and Chairman of The Liver Group Charity. Involved in healthcare for 40 years, David has been a physician, held senior business development roles with major multinationals and spent the last 25 years specialising in the innovation space with much of that time in seed venture investing focused primarily on university spin outs.
They joined Dame Julia King, Baroness Brown of Cambridge, as part of the non-executive team on the board. Julia was appointed our Senior Independent Director in March this year and will become Chair at our Annual Meeting in December 2023. I will not be standing for re-election having served for more than eleven years as an independent Non-Executive Director, the majority of which as Chair.
To attract such high-calibre and experienced directors to our board is, I believe, a very strong vindication of Frontier IP's innovative business model, the expertise and skill of our team, and the quality of companies within our portfolio.
The appointments of Nigel and David followed the decision of Campbell Wilson to step down from his role as a Non-Executive Director in April having served on the Board for nearly nine years. Campbell played a vital part in helping Frontier develop and grow. I am delighted to say he remains involved with the Group in an advisory role with several portfolio companies and would like to express my thanks to him for his work on behalf of the Group for the past nine years.
This is my final statement as your Chairman. Having served eleven years on the Board of Directors, it is time for me to leave, so I will not be standing for re-election as this year's Annual General Meeting. Replacing me is Professor Dame Julia King, Baroness Brown of Cambridge, DBE FREng FRS FMedSci. It has been an immense privilege to serve on the board of such an exciting company and to witness the Group's growth during my time here. Julia has already proved to be an invaluable member of the board. In the two years she has been with us, she has put her extensive experience and knowledge of industry, academic and the political world to Frontier IP's great benefit. The Group is in capable hands.
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/
(https://www.frontierip.co.uk/about/governance/) .
Results
The results represented a resilient performance in what continue to be
challenging markets for technology companies and their investors. The fall in
fair value of our equity portfolio to £32,964,000 reflected disposals of
£5,713,000 and additions of £745,000. We made an unrealised loss on the
revaluation of investments of £966,000, against an unrealised gain for the
year to June 2022 of nearly £11 million.
The part-disposal of our holding in Exscientia, generated nearly £5 million
cash during the year. Our cash balances at 30 June 2023 were £4.6 million.
Outlook
The markets and economic outlook remain difficult to predict given the high
levels of global uncertainty. However, I am confident about the prospects for
both the group and the portfolio, which is addressing some of the most
critical global challenges we face today.
Andrew Richmond
Chairman
30 October 2023
Chief Executive Officer's Statement
Despite a difficult year financially, I am delighted with the significant
commercial and technical progress made by companies across the portfolio this
year and into the period beyond. Alusid, Nandi Proteins, Cambridge Raman
Imaging, Celerum, and Fieldwork Robotics are all either generating revenues or
are about to start, taking further strides forward to commercial viability.
The day moves closer for a second portfolio company to follow Exscientia in
launching an initial public offering or to execute a trade sale.
Alusid has said it is exploring options for an IPO in 2024. The company
enjoyed a breakthrough year after successfully completing a deal with Topps
Tiles, the UK's no. 1 tile specialist, and Starbucks - Alusid is now selling
to franchisees across Europe and the Middle East. The company also made good
technical progress in developing a hard-wearing floor tile for which industry
interest is already high.
Other companies to watch include Nandi Proteins, which successfully scaled up
its technology to create functional food ingredients and is now looking
forwards to making important commercial progress in the coming year.
Industrial interest in the company's products is high.
CamGraPhIC is another company making excellent technical and commercial
progress with its graphene-based photonics technology. The company was already
working closely with major multinationals in data and telecommunications but
is now starting to gain traction from beyond the sector and from governmental
organisations.
Celerum secured its first repeat customer and additional new customers for
AI-driven Truck Logistics Software, and Cambridge Raman Imaging gained
important validation for its technology with the first sales of its
graphene-based ultra-fast lasers for medical imaging. Fieldwork Robotics
continues to develop its raspberry-harvesting robots. These are already
picking raspberries for supermarkets, and the company's new Chief Executive
David Fulton is aiming to have more than a hundred commercially available
robots by the end of 2025.
All this represents great progress in the context of an increasingly difficult
economic and market backdrop of rising costs, rising inflation and rising
interest rates. If there is not going to be an economic contraction in the UK,
growth is still likely to be sluggish. Of course, it has taken companies
several years to reach this point, perhaps longer than anticipated. But
developing the kind of deep technologies, based on substantiative scientific
or engineering advances, in which we specialise, takes time. It is not easy.
This is a positive: competitors attempting to replicate the technologies
successfully developed across our portfolio will find the task hard. The
barriers to entry are high.
There are things that could be done to make deep technology commercialisation
easier, however. The fear, uncertainty and doubt now stalking the markets are
exposing and exacerbating long-term structural problems within the UK: the
failure of the education and capital markets to connect properly.
We are home to some of the world's best universities and researchers. There is
not a shortage of scientific and engineering expertise, of ideas or
innovation, or people to make them work. We are home to a globally important
financial sector able to deploy deep and vast reserves of liquidity. Money
is available.
However, the sources of innovation and the sources of capital are not linking
efficiently together.
Part of the problem reflects the fact that public equity markets have
struggled for some time. In 1966, there were comfortably more than 4,000
companies listed on London's main market; by the end of 2022, the number was
about 1,100. Many factors have been put forward for this market failure,
including the weightier burdens and greater costs of regulation. Alternative
sources of finance, such as venture capital and private equity have grown and
prospered in consequence. These changing trends accelerated post the financial
crisis as central banks slashed interest rates and launched quantitative
easing. Cheap money flooded the markets.
The unwillingness of the UK pension and investment industry to commit to
equity investment especially in technology stocks, has compounded the problem.
Much of the pension fund money has been switched into bonds as part of a
broader move towards indexation to mitigate risks. You could argue that buying
long-dated bonds at low yields guarantees only poor returns at best when held
to maturity and substantial losses when interest rates go up. Yet it is the
case that Arm is owned by Japanese group SoftBank and is listed on Nasdaq; and
Oxford Nanopore and Exscientia received no money from traditional UK venture
capital backers as they grew. One is now listed in London, the other in New
York.
Other possible challenges are emerging. One is the National Security
Investment Act. The Act introduces constraints on who can invest in areas
defined as strategic by the government. It risks further costs and delays. The
full impact has yet to be felt, but unintended consequences could be losing
important technologies to foreign markets as companies seek capital abroad or
technologies failing because there is no capital.
Therefore, it is good to see government persuading major pension funds to
enter a voluntary agreement to commit 5 per cent of their investments to
early-stage businesses by 2030, even though it is not mandated that this
should be solely in UK companies. It is a small step, but a welcome one.
More can be done. To encourage pension funds to commit capital to technology,
I would suggest linking the substantial tax benefits they enjoy to investing
in venture capital. The regulatory framework should be tweaked to encourage
more asset diversification and longer-term, strategic thinking. From our
perspective, incorporating new companies and working with very young
businesses, the Enterprise Investment Scheme (EIS) and Seed EIS are important.
They were limited by European Union state aid rules, but post-Brexit there is
the opportunity to take a more expansive approach.
Despite the challenges, I remain optimistic about the potential for our
companies to achieve success.
Crises spur innovation. Wars are the most commonly cited example, but
depressions have an impact too. The United States, for example, following the
Wall Street crash, enjoyed a decade of then unprecedented technological
progress in the run up to its entry into the Second World War in 1941.
Important steps were made in areas such as electrical and chemical
engineering, aeronautics, and power generation.
Today, the world is facing crises around climate, energy, food, water and
health, as well as the uncertainty caused by the Ukraine war and around the
direction in the economy and markets. Technology is at the heart of our
efforts to meet these challenges and provide a path to prosperity.
And when times are tough, there is always a greater emphasis on costs. Our
approach, driven by our industry expertise and partnerships with major
companies is highly responsive to their requirements. And given the current
economic climate, they are obviously concerned with costs and as swift a
return on technology deployment as possible.
Pulsiv's novel technology cuts the amount of energy wasted in converting power
from about half to less than 10 per cent. It has the potential to cut costs
for manufacturers and energy bills for consumers and, if deployed at scale, it
has the potential to reduce the strain on national power grids. The company
has successfully built out a global distribution network and made two major
board appointments after the year end. Mark Gerhard became chairman. Mark is a
serial entrepreneur with a very strong record of growing and exiting
technology businesses. And Tim Moore, a Pulsiv non-executive director, left
his job as Chief Technology Officer of Nasdaq-listed consumer electronics
group SharkNinja to join the company full time as Chief Product Officer. Both
appointments support our belief that Pulsiv will become a significant green
technology company. Mark said on his appointment that Pulsiv is "highly
analogous" to Arm.
CamGraPhIC's graphene-based photonics run at higher speed and lower
temperatures than equivalent technologies - therefore using less energy. Data
centres, which are reckoned to consume about one per cent of global energy
output, are one potential market for the company's optical transceivers.
Our pipeline of new companies is also in robust health. One,
GraphEnergyTech, is developing graphene inks to replace silver electrodes in
photovoltaic solar cells. This could prove to be a critically vital
technology. A study from the University of New South Wales said on current
rates of solar energy growth, the industry could consume all known global
silver reserves within the next decade. Another new company, DeakinBio, is
developing new materials for tiles and other surfaces, joining Alusid in
developing technologies that reduces the energy consumed by manufacturing.
The impacts of ultra-processed foods and obesity and the mighty costs they
impose on health services are subject to widespread concern. Nandi Protein can
help. Its technology uses natural ingredients such as fava beans and whey to
replace fat, gluten and chemical, E-number additives in a wide range of
different foods. The Vaccine Group is focused on using its novel
herpesvirus-based vaccine platform to develop animal vaccines to combat
economically harmful and zoonotic diseases. Fieldwork Robotics' fruit and
vegetable harvesters address the global shortage of labour prepared to work in
the fields. AquaInSilico and Molendotech are both striving towards better
water quality. AquaInSilico through its novel software algorithms to improve
wastewater treatment, Molendotech with faster tests for harmful bacteria in
water, which cut the time needed from days into hours, or even quicker.
We took the decision during the year to strengthen our Board of Directors with
two new independent Non-Executive directors, broadening the board's skills
base and helping position us for the next phase of our evolution. More
recently we announced that Andrew Richmond would not be offering himself for
re-election at the coming Annual General Meeting and that Baroness Brown would
replace Andrew as Group Chair following the AGM in December. I would like to
take this opportunity to thank Andrew for his service, support and counsel
over the years of our growth. I wish him every success for the future.
Our companies are striving towards creating technologies with the potential to
make material impacts in the areas in which they operate. The pipeline of
innovation remains fruitful, as shown by the three new companies added during
the year and after. Our strong relationships with industry partners and their
engagement with the portfolio gives us confidence that companies are meeting
market needs and demands. For all the challenges, I remain upbeat about the
Group's future prospects.
Neil Crabb, Chief Executive Officer
30 October 2023
Basis for qualified audit opinion
As noted within the external auditor's report set out in the Annual Report and
Financial Statements, expected to be published and sent to shareholders on or
around 20 November 2023, the Directors were not able to provide the external
auditor with sufficient and appropriate evidence in relation to the estimation
of fair value for certain investments, specifically being those investments
described as 'Stage 2' in the accounting policies, which have been valued at
£1.2 million (representing 3.6% of equity investments of £32.9 million and
2.6% of net assets) as at 30 June 2023. As a result, the external auditor was
unable to conclude in respect of the valuation of these investments and was
unable to perform alternative procedures. Consequently, this formed the basis
for a qualified opinion on these Stage 2 investments.
The external auditors were therefore unable to determine whether any
adjustment was necessary to these amounts as at 30 June 2023 or whether there
was any consequential effect on the Group and Parent Company's other
comprehensive income for the year ended 30 June 2023.
Material uncertainty related to going concern
We draw attention to the accounting policies in the financial statements,
which indicate that the Group has insufficient cash to cover its operating
expenditure for the 12 months from the date of the signing of these Group and
Parent Company financial statements. However, the Directors intend to realise
further cash from the Group's sole quoted investment in Exscientia, valued at
£2.3 million at 30 June 2023, which they expect will provide the Group and
Parent Company with sufficient cash to cover its operating expenditure for
this period. The timing and amount of exit proceeds is subject to
uncertainty. This condition, and the other matters noted in the accounting
policies, indicate the existence of a material uncertainty that may cast
significant doubt on the Group's and Parent Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
may be necessary if the Group or Parent Company were not a going concern.
Key Performance Indicators and Alternative Performance Measures
The Key Performance Indicators and Alternative Performance Measures for the
Group are:
KPI / APM Description 2023 Performance
Basic earnings per share (KPI) Profit attributable to shareholders divided by the weighted average number of Loss of 5.8p (2022: profit of 18.6p)
shares in issue during the year.
Net assets per share (KPI) Value of the Group's assets less the value of its liabilities per share 81.8p (2022: 88.5p)
outstanding
Total revenue and other operating income (KPI) Growth in the aggregate of revenue from services, change in fair value of Negative income of £1,380,000 (2022: positive income of £14,104,000)
investments and realised profit on disposal of investments
Profit (KPI) Profit before tax for the year Loss of £4,370,000 (2022: profit of £10,879,000)
Total initial equity in new portfolio companies (APM) Note 1 Aggregate percentage equity earned from new portfolio companies during the 108% (2022:20%)
year
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 2023 it is the aggregate percentage holding from
two new spin-out companies during the year.
The Group achieved its initial equity Alternative Performance Measure but
failed to achieve its four Key Performance Indicators reflecting the difficult
market conditions during the year.
Net assets per share decreased by 8% to 81.8p (2022: 88.5p) reflecting a loss
after tax of £3,244,000. The value of the Group's investments decreased to
£37,589,000 (2023: £42,693,000) reflecting the opening value of Exscientia
shares sold of £5,713,000, purchase of investments of £1,576,000 and net
unrealised losses on revaluation of £966,000. The Exscientia shares sold
generated proceeds of £4,926,000. Loss after tax for the Group for the year
to 30 June 2023 was £3,244,000 (2022: profit of £10,230,000) after a
deferred tax credit of £1,126,000 (2022: charge of £649,000). This result
includes a realised loss on disposal of investments of £786,000 (2022: gain
of £2,867,000), an unrealised loss on the revaluation of investments of
£966,000 (2022: gain of £10,908,000) and reflects an increase in services
revenue to £372,000 (2022: £329,000) Administrative expenses of £3,130,000
(2022: £3,104,000) were flat primarily due to no bonuses being paid in 2023.
Operational Review
During the year, we took the opportunity to refresh our Board of Directors
with the appointments of Nigel Grierson and David Holbrook as independent
Non-Executive Directors from 15(th) March 2023. Both Nigel and David have
extensive experience in industry and finance.
Professor Dame Julia King, Baroness Brown of Cambridge DBE FREng FRS FMedSci,
who joined the Board in October 2021, became Senior Independent Director on
the same date. Campbell Wilson stepped down in April 2023 having served as a
Non-Executive Director for nine years but continues to support the Group in an
advisory capacity with selected portfolio companies.
Companies across the portfolio continued to make good technical and commercial
progress, with several starting to generate revenues for the first time as
longer-term industry engagement started to translate into contracts and sales.
We continued to strengthen management teams across the portfolio. Elute
Intelligence and Celerum appointed Chief Executive Officers during the year,
as did Fieldwork Robotics after the year end. Pulsiv and CamGraPhIC
successfully raised funds during the year, with Fieldwork Robotics following
after the year end.
As a people focussed business, we took steps to expand our team and to ensure
we attract and retain the best people. We hired four full-time employees to
the Frontier IP team during the year.
Our Remuneration Committee began to implement the changes to our remuneration
arrangements recommended in last year's external review. Progress is set out
in 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).
(https://sdgs.un.org/goals) All equity holdings are as at 30 June 2023.
Core portfolio
Alusid: Frontier IP stake: 37.4 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 and during the year signed a
contract to sell its first mass-manufactured tile range, Principle, through
Topps Tiles, the UK's no.1 tile specialist.
Alusid also successfully completed a collaboration with one of the world's
leading specialty minerals group, Imerys, which resulted in the company
developing floor tiles, a missing product from its ranges. Pilot trials are
now underway to see if the floor tiles can be mass produced, with high
industry interest in the product.
The company is also selling products to Starbucks franchisees across Europe,
Middle East and Africa. Other customers include H&M, Cos, Nando's, the BBC
and the Stonehenge Visitor Centre, run by English Heritage.
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 heightened interest in other threats to human health globally. During
the year, the World Health Organisation reiterated its warnings about the
threats from antimicrobial-resistant superbugs and called for a step up in
efforts to create new antibiotics.
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.
During the year, the company saw its digital tools implemented by a client in
Cape Verde as part of the Phos-Value project to recycle environmentally
harmful nutrients as biofertilisers and improve water
quality in the islands. The project was supported by
the United Nations Development Program. AquaInSilico was also selected to take
part in a European PathFinder project to develop sustainable products and made
good progress in gaining municipal and industrial interest in its UPWATER®
technology.
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, and
the company is developing FFAI 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 successfully integrated its laser with a widely
available commercial microscope and sold its first lasers. Tests showed
histopathologists could identify tumours at an earlier stage from digital
images generated by CRI's technology than they could from other technologies.
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 the
massive data increases being demanded by 5G and 6G 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 high-performance
computing and in networks able to meet the demands of processor intensive
artificial intelligence applications.
The company raised £1.26 million through an equity funding round during the
year to accelerate development and scale up of the technology, and announced
that Sir Michael Rake, the former BT Group Chairman would be joining its board
of directors at an appropriate time. After the year end, CamGraPhIC put in
place a loan facility worth up to £1.5 million, with Frontier IP subscribing
to loan notes worth £1.32 million.
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 uses specialist algorithms based on nature-inspired
computing, software and algorithms based on natural processes and behaviours.
During the year, the company appointed David Gladding as Chief Executive
Officer. David has more than 30 years' experience in software and IT services
companies, including those specialising in fleet management. The company is
now winning customers for its first commercial product Truck Logistics System,
launched during the year to June 2022. After the year end, the company
announced it had won its first international customer, Grampian Continental,
and was successfully developing more sophisticated versions of the software to
meet the needs of further customers.
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 through the use of Natural Deep Eutectic Solvents. These are
combinations of naturally occurring (often plant based) sugars, acids,
alcohols and amino acids that can be used as safe solvents. These new green
solvents can be used to replace toxic organic solvents used in conventional
processing , 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.
During the year, the company was selected as one of 10 start-ups to take part
in the UK hub of the European Institute of Innovation & Technology's Food
Network and started validation trials of a natural food preservative.
UN SDG mapping: SDG 9 industry, innovation and infrastructure; SDG 12,
responsible consumption and production
Elute Intelligence: Frontier IP stake: 42.2 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. Existing customers for the
company's CopyCatch plagiarism detection software include UCAS, The Open
University, and Slicethepie, the largest paid review site on the internet.
During the year, Elute announced the appointment of Steve Cable as Chief
Executive Officer and is developing Investor Insights, an IP analyst tool for
investment firms, which is now in beta phase.
UN SDG mapping: SDG 9, industry, innovation and infrastructure
Enfold Health: Frontier IP stake 75.8 per cent
Enfold Health, incorporated during the year, is developing novel technology
for attacking the pathogenic bacteria that drive gum disease (gingivitis and
periodontitis). The incorporation resulted from a collaboration between
Frontier IP and Dr Ioanna Mela, an Associate Professor in the Department of
Pharmacology at the University of Cambridge.
Periodontitis increases the risk of developing many common chronic diseases,
including cardiovascular disease, Type 2 diabetes, Alzheimer's, rheumatoid
arthritis and pneumonia, and worsens associated symptoms.
Enfold's Board of Directors includes Gerard Majoor, the former Vice President,
Innovation and Development, Business Group Health and Wellness, for Philips
Oral Health Care and Mother and Child Care.
UN SDG mapping: UN SDG 3 good health and wellbeing
Exscientia: Frontier IP stake: 0.4 per cent
Exscientia, a spin out from the University of Dundee, was the first in our
portfolio to IPO, raising total gross proceeds of $510 million through a
public offer and private placements with SoftBank and the Bill & Melinda
Gates Foundation. It is listed on Nasdaq.
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.
During the year, the company continued to expand its pipeline of drug
candidates, with four new molecules advancing further into clinical trials
during the first half of its financial year to 30 June 2023 alone. The company
is also developing its capabilities: it is building its own hardware and
software solutions to automate a wide range of laboratory processes.
UN SDG mapping: SDG 3, good health and well-being
Fieldwork Robotics: Frontier IP stake: 22.1 per cent
Fieldwork Robotics is looking to have more than 100 robots available for
farmers to hire by 2025 following a post-year end funding round to accelerate
further development of the company's raspberry pickers.
The moves follow the start of commercial trials of the raspberry harvesters in
Portugal, and the continued focus is on making the robots faster and scaling
up the technology.
After the year end, the company also appointed David Fulton as Chief Executive
Officer, replacing Rui Andres who is focusing full time on Molendotech as CEO.
David has more than 30 years' business experience, most recently as co-founder
and director of LAB+BONE, a service to protect dogs' identity by using DNA.
Before starting LAB+BONE, he was Chief Executive Office of WeSee, a company
using advanced computer vision technology mimicking the human brain's ability
to understand and process visual information. He previously held executive
positions with Expedia, Adform and Microsoft.
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
GraphEnergyTech: Frontier IP stake 32.1 per cent
GraphEnergyTech is developing advanced graphene technology for lower-cost and
more environmentally-friendly solar cells - and could help save global silver
reserves from exhaustion by 2050.
The company, which was incorporated into our portfolio during the year, is
developing high-conductivity graphene inks. Initial applications are for
graphene electrodes to replace expensive silver electrodes in solar cells.
Silver is the most commonly used material for solar cell electrodes, and the
solar industry is currently using 100 million troy ounces a year at a cost of
at least $2 billion.
Research by the University of New South Wales, Australia, states more than 85
per cent of current silver reserves could be consumed by solar by 2050, with
the upper end of its estimates as high as 113 per cent.
GraphEnergyTech's electrodes are 22 per cent cheaper than silver at pilot
stage with further reductions expected as the technology is scaled up. The
technology also enables high-efficiency perovskite solar cells by eliminating
the risk of performance degradation caused by metal migration. Manufacturing
is also easy - the graphene inks can be applied a low-cost screen-printing
process, compatible with existing equipment.
Using graphene inks will also reduce the environmentally damaging extraction
of metals, including the use of mercury and cyanide.
UN SDG mapping: UN SDG 7 affordable and clean energy, UN SDG 9, industry,
innovation and infrastructure,
InSignals Neurotech: Frontier IP stake: 32.9 per cent
InSignals Neurotech continues to make progress with its novel technology to
analyse the motor symptoms of Parkinson's disease and other neurological
disorders. The company is developing wireless devices to measure 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 has been established to test the
devices., and a collaboration with the University of Santiago de Compostela in
Spain confirmed how object measurements could produce deeper insights into
disease progression. A mobile application of the technology is now under
development.
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: 10.4 per cent
Molendotech has developed Bacterisk+, a proprietary screening test for faecal
contamination in water. The tests, 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. It has been used to screen marine bathing
waters, inland recreational waters, irrigation water and food process water.
The company has also developed a test to detect specific bacterial strains,
including pathogens, for use in the food industry, animal feeds, veterinary
practices and ballast waters.
UN SDG mapping: SDG 6, clean water and sanitation; SDG 12 responsible
consumption and production
Nandi Proteins: Frontier IP stake: 19.8 per cent
Nandi Proteins successfully demonstrated commercial scale up of its egg white
replacer further extending its range of customised ingredients based on
vegetable and animal proteins. The company continued to develop industry
relationships over the year, which is expected to result in significant
commercial progress in the future.
The company's technology is able to create a wide range of customised
ingredients based on naturally occurring vegetable and animal proteins.
Nandi's functional proteins can be used to replace undesirable ingredients,
such as fat, gluten and chemical E-number additives in processed foods, or to
replace animal proteins with vegetable proteins.
Nandi's technology has the potential to contribute to more sustainable
agriculture and food production by supporting the plant-based alternative meat
industry, by reducing chemical ingredients in processed and ultra-processed
foods and by reducing the amount of meat used in processed meat products.
UN SDG mapping: SDG 2, end hunger; 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: 18.2 per cent
Pulsiv's progress during the year included the launch of its first commercial
product, Pulsiv Osmium, building out a global distribution network and a
funding round that raised £1.5 million. The fundraising valued the company at
£50 million pre money.
The company also established a global distribution network after signing
agreements with partners across North America, Europe and Asia. The company
continues to evolve and post period-end significantly strengthened its board
with two key appointments of serial entrepreneur Mark Gerhard as chair and Tim
Moore, who joined full time as Chief Product Officer from his role at
SharkNinja.
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. Pulsiv Osmium is initially aimed at improving the efficiency of power
supplies, LED lighting and battery chargers, but it can be used across nearly
all mains-powered devices.
Because the technology uses fewer components, 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.
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.
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
economically damaging diseases in livestock.
During the year, the company successfully completed two government-funded
projects. The first funded by the UK and Chinese governments, developed a
vaccine candidate for Streptococcus suis, a bacterial disease carried by pigs
that causes significant productivity losses in the global pig industry.
However, it can also cause meningitis and other symptoms in humans. The
disease is currently poorly served as there are no highly effective vaccines
and treatment uses antibiotics but is showing signs of resistance. A Chinese
commercial collaborator, the Pulike Biological Engineering Company has
demonstrated candidate vaccine production using commercial manufacturing
techniques at pilot scale.
The second project involved developing a transmissible candidate vaccine
against a virus, Lassa fever, for use in the rats that spread the disease. A
small-scale trial showed the candidate could be transmitted between rats,
significantly improve their immunity to Lassa fever and reduce its spread
between them. Technology to scale up for commercial production was also
developed as part of the project, and the company is now in discussion with
potential partners about further development. The work was funded by the US
Defense Advanced Research Projects Agency, led by the University of
California Davis, and involved TVG collaborating with academic partners from
around the world.
TVG now has eight vaccine candidates approaching proof of principle. Its most
advanced projects are for pigs: in addition to streptococcus suis, the company
is also developing vaccines for porcine reproductive and respiratory syndrome
virus, porcine circovirus and African swine fever. It is adding more
candidates to its pipeline to target diseases affecting horses, cattle, cats
and dogs.
UN SDG mapping: SDG 2, end hunger; SDG 3 good health and well-being
Core Portfolio Summary at 30 June 2023
Portfolio Company % Issued Share Capital About Source
Alusid Limited 37.39% Recycled materials University of Central Lancashire
Amprologix Limited 10.0% Novel antibiotics to tackle antimicrobial resistance Universities of Plymouth and Manchester
AquaInSilico Lda 29.0% Digital tools to optimise wastewater treatment FCT Nova
Cambridge Raman Imaging Limited 26.8% Medical imaging using ultra-fast lasers University of 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 fleet scheduling Robert Gordon University
Des Solutio Lda 25.0% Green alternatives to industrial toxic solvents FCT Nova
Elute Intelligence Holdings Limited 42.2% Software tools able to intelligently search, compare and analyse unstructured Existing business
data
Enfold Health Limited 75.8% Improved oral health University of Cambridge
Exscientia Limited 0.4% Novel informatics and experimental methods for drug discovery University of Dundee
Fieldwork Robotics Limited 22.1% Robotic harvesting technology for challenging horticultural applications University of Plymouth
GraphEnergyTech Limited 32.1% High conductivity graphene inks University of Cambridge/École Polytechnique Fédérale de Lausanne
Insignals Neurotech Lda 32.9% Wearable medical devices supporting deep brain surgery INESC TEC
Molendotech Limited 10.4% Rapid detection of water borne bacteria University of Plymouth
Nandi Proteins Limited 19.8% Food protein technology Heriot-Watt University, Edinburgh
PoreXpert Limited 15.0% Analysis and modelling of porous materials University of Plymouth
Pulsiv Limited 18.2% High efficiency power conversion and solar power generation University of Plymouth
The Vaccine Group Limited 17.0% Herpesvirus-based vaccines for the control of bacterial and viral diseases University of Plymouth
The Group holds equity stakes in 6 further portfolio companies. The combined
value of these holdings was £575,000, equivalent to 1.7% of the fair value of
the Group's equity investments at 30 June 2023.
Financial Review
Key Highlights
Net assets per share decreased by 8% to 81.8p (2022: 88.5p) reflecting a loss
after tax of £3,244,000. The loss was driven by a net decrease on revaluation
of investments of £966,000 and a realised loss on part disposal of the
Group's holding in Exscientia of £786,000.
Loss after tax for the Group for the year to 30 June 2023 was £3,244,000
(2022: profit of £10,230,000) after a deferred tax credit of £1,126,000
(2022: charge of £649,000). This result includes a realised loss on disposal
of investments of £786,000 (2022: gain of £2,867,000), an unrealised loss on
the revaluation of investments of £966,000 (2022: gain of £10,908,000) and
reflects an increase in services revenue to £372,000 (2022: £329,000) and
flat administrative expenses of £3,130,000 (2022: £3,104,000) primarily due
to no bonuses being paid in 2023.
Revenue and Other Operating Income
Services revenue increased by 13% to £372,000 (2022: £329,000) but other
operating income, comprising realised and unrealised gains and losses on
investments decreased to a loss of £1,752,000 (2022: gain of £13,775,000).
The realised loss on disposal of investments was £786,000 (2022: gain of
£2,867,000) and the unrealised loss on the revaluation of investments was
£966,000 (2022: gain of £10,908,000). The fall during the year in the value
of Exscientia, the Group's only quoted company holding, was a significant
contributor to these losses. During the year, the Group sold a further part of
its holding in Exscientia for £4,926,000 realising a loss of £786,000 on the
value of the holding at 30 June 2022, 100% of the realised loss for the year
to 30 June 2023. The decrease in the value of the Group's remaining holding in
Exscientia over the year to 30 June 2023 was £2,123,000, 49% of loss before
tax for the year to 30 June 2023. The unrealised loss on the revaluation of
investments of £966,000 comprises losses on equity investments of £1,780,000
and gains on debt investments of £814,000. The significant contributors to
the unrealised loss on equity investments were The Vaccine Group (decrease of
£2,164,000), Exscientia (decrease of £2,123,000) and CamGraPhIC (increase of
£1,430,000). An increase in the value of the Group's debt investment in
CamGraPhIC of £724,000 was the primary contributor to the unrealised gain on
debt investments.
Administrative Expenses
Administrative expenses increased by 1% to £3,130,000 (2022: £3,104,000).
Prior year expenses included the payment of bonuses totalling £480,000 that
were paid to employees of the Group. Excluding prior year bonuses,
administrative expenses increased by 19%, primarily due to increased employee
costs.
Share Based Payments
Share based payments decreased 53% to £155,000 (2022: £329,000) reflecting
option grants during the year.
Earnings Per Share
Basic loss per share was 5.85p (2022: earnings per share of 18.60p). Diluted
loss per share was 5.64p (2022: earnings per share 17.53p).
Statement of Financial Position
The principal items in the statement of financial position at 30 June 2023 are
financial assets at fair value through profit and loss comprising equity
investments of £32,964,000 (2022: £39,712,000) and debt investments of
£4,625,000 (2022: £2,981,000). 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 £1,966,000 at 30 June 2023 (2022: £1,966,000). 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 2023 of £6,181,000 (2022:
£5,201,000) reflecting primarily advances of £793,000 (2022: nil) made to
portfolio companies prior to formalising as loans. The current assets at 30
June 2023 include trade receivables of £604,000 which are more than 90 days
overdue. The portfolio company debtors are in the process of raising funds and
the directors are confident that the amounts due to the company will be paid.
Net assets per share
Net assets of the Group decreased to £45,538,000 at 30 June 2023 (30 June
2022: £48,699,000) resulting in net assets per share of 81.8p (30 June 2022:
88.5p).
Cash
The Group's cash balances increased during the year by £235,000 to
£4,603,000 at 30 June 2023. Operating activities consumed £3,247,000 (2022:
£3,006,000), the increase reflecting primarily advances made to portfolio
companies prior to formalising as loans. Investing activities generated
£3,384,000 (2022:
£5,382,000). This reflected proceeds on disposal of part of our holding in
Exscientia of £4,926,000 (2022: £6,525,000) and the purchase of equity and
debt investments of £1,576,000 (2022: £1,141,000) across nine 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. £4.9 million of cash was
generated during the year from selling shares in portfolio company Exscientia.
The remaining holding in Exscientia was valued at £2.3 million at 30 June
2023. 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. The
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. Global risks include the
continuing war in Ukraine and emerging conflict and instability in the middle
east. The impact of both, particularly the dangers of escalation, on
geopolitics, economically and on markets, are uncertain and difficult to
predict. Inflation and interest rates are rising. Longer-term risks include
uncertainties in the US, where economic growth continues to be slow and around
next year's presidential elections, and in China, which is facing demographic
challenges and pressures in its property sector.
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.
COVID-19 remains a risk with the possibility of new variants emerging. The
likeliest impacts on 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 ensuring 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.
After making appropriate enquiries, the Directors consider that it remains
appropriate to adopt the going concern basis in preparing the financial
statements. However, the Directors intend to realise further cash from the
Group's quoted investment in Exscientia valued at £2.3 million at 30 June
2023 which they reasonably expect will provide the Group with sufficient cash
to cover its operating expenditure for this period. The Directors also expect
that this realisation will, where appropriate, assist the Group in supporting
portfolio companies during this period. The dependence on the amount realised
from this one quoted technology company represents a material uncertainty.
More detail is provided in the Directors' Report.
By order of the Board
Neil Crabb
Director
30 October 2023
Remuneration Review Implementation
Following the review of the Group's remuneration policy during FY 2022, the
aim of which was to ensure that the policy continued to reinforce long-term
value creation by enhancing the Group's ability to attract and retain the best
people, the Group began the implementation of the key findings of the
Remuneration Review during the year.
Salary
As recommended, Director's full-time equivalent salaries were raised to
£200,000 for the CEO, and to £160,000 for each of the CFO, CCO, and COO in
January 2023. The Committee is expecting to implement 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.
All non-director staff also received salary increases in order to ease cost of
living pressures during the year.
Annual Bonus
Our business model means that the availability of cash to pay bonuses will be
dependent on cash being raised through asset realisations, and the bonus
opportunity in any financial year is dependent on this activity and will only
be paid where the Group determines there is a sufficient surplus to the
medium-term operating cash requirement.
Following review, the Remuneration Committee concluded that no bonuses were to
be paid, consequently no bonus payments were made during the period.
LTIP
In line with Remuneration Review recommendations, the Group implemented the
'LTIP' as set out in an advisory resolution, and supported by shareholders, at
the Company's 2022 Annual General Meeting.
The first awards made under the LTIP were granted in March 2023, to all staff
including directors. Details of share options held by Directors who were in
office at 30 June 2023 are set out below.
Option awards were also granted to Group non-director employees under the
Group's Company Share Option Plan.
Directors' remuneration
An analysis of remuneration by director is given in Note 6 of these financial
statements.
Contracts of service
Neil Crabb's, Jacqueline McKay's, James Fish's and Matthew White's service
agreements are subject to a six-month notice period.
Share options
The Company currently has three share option schemes.
The Frontier IP Group plc Employee Share Option Scheme 2011, as adopted by the
Board of Directors of the Company on 30 November 2012 and amended by the Board
of Directors of the Company on 26 March 2018, was able to grant both options
which are Enterprise Management Incentive (EMI) approved. This scheme remains
in place, but no new options will be granted as the Group has ceased to be a
qualifying company for EMI purposes.
Two further schemes are in place: the Frontier IP Group PLC Company Share
Option Plan 2021 ("CSOP") and the Frontier IP Group PLC Unapproved Share
Option Plan 2021, as amended by Board of Directors Resolution on 7 March 2023
("LTIP"). During the period, 191,496 share options were granted under the CSOP
and 643,376 share options were granted under the LTIP.
Details of share options held by Directors who were in office at 30 June 2023
are set out below:
The market price of the Company's shares at 30 June 2023 was 46.0p. The
range of prices during the year was 46.0p to 89.0p.
Directors' interests in shares
The Directors in office at 30 June 2023 had the following interests in the
ordinary shares of 10p each in the Company at the year end.
2023 2022
Number Number
Neil Crabb 3,445,538 2,988,713
Jacqueline McKay 208,637 12,855
Andrew Richmond 850,000 1,000,000
James Fish 100,000 100,000
All of the above interests are beneficial.
Professor Dame Julia King, Baroness Brown of Cambridge
Chair of the Remuneration Committee
30 October 2023
Audit Committee Report
Key Responsibilities
The Committee's terms of reference are available on the Group's website. The
Committee is required, amongst other things, to:
· monitor the integrity of the financial statements of the Group,
reviewing significant financial reporting issues and the judgements they
contain;
· review and challenge where necessary the accounting policies used,
the application of accounting standards and the clarity of disclosure in the
financial statements;
· keep under review the effectiveness of the Group's internal controls
and risk management systems; and
· oversee the relationship with the external auditor, reviewing their
performance and advising the Board on their appointment and remuneration.
Committee Governance
The Committee comprised of three non-executive directors and was chaired by
Andrew Richmond until 13 March 2023 following which the Committee comprised of
four non-executive directors and David Holdbrook replaced Andrew Richmond as
chair. It meets a minimum of two times per year with the external auditors
present. In addition, executive directors are asked to attend.
Activities of the Audit Committee during the year
The Committee met on three occasions during the year under review and up to
the date of this Annual Report with all members present and the external
auditors in attendance. The main areas covered by the Committee are outlined
below:
Internal controls and risk management
The Board has overall responsibility for internal controls and risk
management. As the Board's three non-executive directors were also the
Committee members during the year, the Group's risk analysis and controls
policy was reviewed and updated by the Board. Further details of business
risks identified can be found in Key Risks and Challenges Affecting the Group.
The risk management process is continually being developed and improved.
Significant estimates and judgements
The focus at the Committee meetings was on the significant estimates,
assumptions and judgements used in the financial statements in arriving at the
value of investments, reviewing goodwill for impairment and assessing the
recoverability of amounts owed to the Group by portfolio companies. The
Committee was satisfied that such estimates, assumptions and judgements used
were reasonable and appropriate. Details of critical accounting estimates and
assumptions and of critical accounting judgements can be found in Note 2 to
the Financial Statements.
External audit
The external auditor reports to the Committee on actions taken to comply with
professional and regulatory requirements and is required to rotate the lead
audit partner every five years. BDO LLP were first appointed as external
auditor in FY19 following their merger with Moore Stephens LLP who were the
external auditor in place since FY15 following their merger with Chantrey
Vellacott DFK LLP who were first appointed in FY08. Timothy West was appointed
lead partner in FY17. Chris Meyrick was appointed lead partner in FY22. The
Committee has confirmed it is satisfied with the independence, objectivity and
effectiveness of BDO LLP and has recommended to the Board that the auditors be
reappointed, and there will be a resolution to this effect at the forthcoming
Annual General Meeting. In addition to their statutory duties, BDO LLP are
also engaged to provide non-audit services where it is felt their knowledge of
the business best places them to provide those services, such as review of the
interim results, and where these non-audit services are permitted under the
Financial Reporting Council's ethical guidelines.
Basis for qualified audit opinion
As noted within the external auditor's report, the Directors were not able to
provide the external auditor with sufficient and appropriate evidence in
relation to the estimation of fair value for certain investments, specifically
being those investments described as 'Stage 2' in the accounting policies,
which have been valued at £1.2million (representing 3.6% of equity
investments of £32.9 million and 2.6% of net assets) as at 30 June 2023. As a
result, the external auditor was unable to conclude in respect of the
valuation of these investments and was unable to perform alternative
procedures. Consequently, this formed the basis for their qualified opinion on
these Stage 2 investments.
David Holbrook
Chairman of the Audit Committee
30 October 2023
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2023
2023 2022
Notes £'000 £'000
Revenue
Revenue from services 3 372 329
Other operating income
Unrealised (loss)/profit on the revaluation of investments 13,14 (966) 10,908
Realised (loss)/profit on disposal of investments (786) 2,867
(1,380) 14,104
Administrative expenses 5 (3,130) (3,104)
Share based payments (155) (329)
Interest income on debt investments 232 155
Other income 13 52
(Loss)/profit from operations (4,420) 10,878
Interest income on short term deposits 50 1
(Loss)/profit from operations and before tax (4,370) 10,879
Taxation 7 1,126 (649)
(Loss)/profit and total comprehensive (expense)/income attributable to the
equity holders of the Company
(3,244) 10,230
(Loss)/profit per share attributable to the equity holders of the Company:
Basic (loss) / earnings per share 8 (5.85)p 18.60p
Diluted (loss) / earnings per share 8 (5.64)p 17.53p
All of the Group's activities are classed as continuing.
There is no other comprehensive income in the year (2022: nil).
Consolidated Statement of Financial Position
At 30 June 2023
2023 2022
Notes £'000 £'000
Assets
Non-current assets
Tangible fixed assets 9 13 6
Goodwill 10 1,966 1,966
Equity investments 13 32,964 39,712
Debt investments 14 4,625 2,981
39,568 44,665
Current assets
Trade receivables and other current assets 15 1,026 1,051
Advances 16 793 -
Cash and cash equivalents 4,603 4,368
6,422 5,419
Total assets 45,990 50,084
Liabilities
Non-current liabilities
Deferred taxation 7 (211) (1,167)
(211) (1,167)
Current liabilities
Trade and other payables 17 (241) (218)
(241) (218)
Total liabilities (452) (1,385)
Net assets 45,538 48,699
Equity
Called up share capital 18 5,566 5,501
Share premium account 18 14,627 14,576
Reverse acquisition reserve 19 (1,667) (1,667)
Share based payment reserve 19 1,291 1,324
Retained earnings 19 25,721 28,965
Total equity 45,538 48,699
Consolidated Statements of Changes in Equity
For the year ended 30 June 2023
Group
Share- Total equity
Share Reverse acquisition based payment attributable to
Share capital premium reserve reserve Retained earnings equity holders
account of the Company
£'000 £'000 £'000 £'000 £'000 £'000
At 1 July 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
Issue of shares 65 51 - (18) - 98
Share-based payments - - - (15) - (15)
(Loss)/total comprehensive expense for the year
- - - - (3,244) (3,244)
At 30 June 2023 5,566 14,627 (1,667) 1,291 25,721 45,538
Consolidated Statements of Cash Flows
For the year ended 30 June 2022
Group Group
2023 2022
Notes £'000 £'000
Cash flows from operating activities 22 (3,248) (3,006)
Cash flows from investing activities
Purchase of tangible fixed assets 9 (16) (3)
Purchase of equity investments 13 (691) (614)
Disposal of equity investments 4,926 6,525
Purchase of debt investments 14 (884) (527)
Net amounts receivable from group undertakings - -
Interest income 50 1
Net cash from investing activities 3,385 5,382
Cash flows from financing activities
Proceeds from issue of equity shares 98 -
Costs of share issue - -
Net cash generated from financing activities 98 -
Net increase/(decrease) in cash and cash equivalents 235 2,376
Cash and cash equivalents at beginning of year 4,368 1,992
Cash and cash equivalents at end of year 4,603 4,368
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 £32,964,000 (2022: £39,712,000)
of which quoted equity investments comprise £2,298,000 (2022: £10,132,000).
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 the unquoted 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 debt investments,
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. Details of significant debt investments are set out in Note 14.
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 debt investments, 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 2023 and 30 June 2022 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. 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 £4,625,000 to £4,590,000 and a 25% increase
in the discount rate reduces the value of the debt investments from
£4,625,000 to £4,569,000. 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 65% of the fair value of debt
investments at 30 June 2023 (2022: 94%).
(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 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; four companies account for 81% of trade receivables
four account for 89% of debt investments at 30 June 2023. Management has
in-depth knowledge of these companies and is providing the fundraising service
for all four of them. The Group's history of credit loss is not significant
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.
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:
2023 2022
£'000 £'000
Retainers with portfolio companies 336 313
Corporate finance fees from portfolio company fundraisings 30 -
Advisory fees from universities on initial spin-outs 3 7
License income from universities 3 9
372 329
4. Major customers
During the year the Group had five major customers that accounted for 86% of
its revenue from services (2022: five customers accounted for 76%). Four of
these customers were also in the top five in 2022. The revenues generated from
each customer were as follows:
2023 2022
£'000 £'000
Customer 1 78 78
Customer 2 70 72
Customer 3 52 48
Customer 4 48 44
Customer 5 40 42
288 284
5. Administration expenses
Expenses included in administrative expenses are analysed below.
2023 2022
£'000 £'000
Employee costs 2,117 2,320
Consultant 133 81
Travel and subsistence 21 7
Depreciation 9 8
Bad and doubtful debts 169 141
Fees payable to auditor:
- audit fee 92 60
- non-audit services 3 5
Legal, professional and financial costs 378 313
Premises lease 140 113
Administration costs 68 56
3,130 3,104
6. Directors and employees
The average number of people employed by the Group during the year was:
2023 2022
Number Number
Business and corporate development 20 16
2023 2022
£'000 £'000
Wages and salaries 1,518 1,714
Social security 197 218
Pension costs - defined contribution plans 186 208
Non-executive directors' fees 126 105
Other benefits 52 75
Recruitment 38 -
Total employee administration expenses 2,117 2,320
At 30(th) June 2023, all employees with the exception of Jacqueline McKay were
employed by Frontier IP Group plc. Post year-end, Jacqueline McKay's
employment contract was changed from subsidiary Frontier IP Limited to
Frontier IP Group plc.
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 £'000
Salary Bonus Other benefits Pension Share option Total
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
Executive
N Crabb 177 143 0 143 5 5 17 14 43 64 242 368
J McKay 74 41 0 106 5 5 76 85 36 57 191 294
J Fish 125 112 0 74 4 4 31 37 37 58 197 287
M White 152 134 0 30 3 4 15 26 34 54 204 247
Non-executive
A Richmond 48 45 - - - - - - - - 48 45
M Bourne * - 12 - - - - - - - - - 12
C Wilson * 23 27 - - - - - - - - 23 27
J King 34 22 - - - - - - - - 34 22
N Grierson 10 - - - - - - - - - 10 -
D Holbrook 10 - - - - - - - - - 10 -
653 536 0 353 17 18 139 162 150 233 959 1,302
* Former directors
7. Taxation
2023 2022
£'000 £'000
Current tax - -
Deferred tax (1,126) 649
Tax (credit)/charge for the year (1,126) 649
A reconciliation from the reported (loss)/profit before tax to the total tax
(credit)/charge is shown below:
2023 2022
£'000 £'000
(Loss)/profit before tax (4,370) 10,879
-
(Loss)/profit before tax at the effective rate of corporation tax in the UK of
20.5% (2022: 19%)
(895) 2,067
Effects of:
Fair value movement in investments not recognised in deferred tax (69) (1,689)
Expenses not deductible for tax purposes 31 63
Movement in deferred tax asset of losses not recognised - 36
Adjustments arising from difference between average and deferred tax rates (169) -
Deferred tax recognised in equity (171) -
Other adjustments 147 172
Tax (credit)/charge for the year (1,126) 649
Deferred Tax
Group Group
Deferred tax liabilities at 30 June 2023 2022
Unrealised gains investments (689) (2,485)
Short-term timing differences - fixed assets (1) -
(690) (2,485)
Deferred tax assets at 30 June 2023
Tax losses 277 830
Short-term timing differences - pension 6 11
Short-term timing differences - outstanding share options 196 476
Short-term timing differences - fixed assets - 1
479 1,318
Net deferred tax (liability) / asset (211) (1,167)
Company Company
Deferred tax liabilities at 30 June 2023 2022
Unrealised gains investments (138) (137)
Short-term timing differences - fixed assets - -
(138) (137)
Deferred tax assets at 30 June
Tax losses 272 825
Short-term timing differences - pension - -
Short-term timing differences - outstanding share options 196 476
468 1,301
Net deferred tax (liability) / asset 330 1,164
Group Company
Deferred tax movement
(Liability)/asset at 1 July 2021 237 (2,047)
Credited 649 602
Debited to equity 281) 281
At 30 June 2022 1,167 (1,164)
Group Company
Deferred tax movement
(Liability)/asset at 1 July 2022 (1,167) 1,164
Credited 1,126 (664)
Debited to equity (170) (170)
At 30 June 2023 (211) 330
No deferred tax liability has been recognised on the difference between base cost and fair value of certain financial assets at fair value through profit and loss which qualify as equity investments and which are expected to be exempt from tax under the substantial Shareholding Exemption on their subsequent disposal.
The Group has a net unrecognised deferred tax at year end of £420,000 (Period
ended 30 June 2022: £420,000) calculated at 25% in respect of its unutilised
pre-April 2017 trading losses of £1,680,000 (gross). This is due to
uncertainty in respect of future probable trading profits in Frontier IP
Limited against which these losses can be utilised.
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.
(Loss) / profit attributable to shareholders Weighted average number of shares Basic (loss) / earnings per share amount in pence
£'000
Year ended 30 June 2023 (3,244) 55,409,626 (5.85)
Year ended 30 June 2022 10,230 55,005,546 18.60
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.
(Loss) / profit attributable to shareholders Weighted average number of shares adjusted for share options Diluted (loss) / earnings per share amount in pence
£'000
Year ended 30 June 2023 (3,244) 57,542,781 (5.64)
Year ended 30 June 2022 10,230 58,339,949 17.53
9. Tangible fixed assets
Fixtures and equipment
£'000
Cost
At 1 July 2021 36
Additions 3
Disposals -
At 30 June 2022 39
Additions 16
Disposals (12)
At 30 June 2023 43
Depreciation
Accumulated depreciation at 1 July 2021 25
Charge for the year to 30 June 2022 8
Disposals -
Accumulated depreciation at 30 June 2022 33
Charge for the year to 30 June 2023 9
Disposals (12)
Accumulated depreciation at 30 June 2023 30
Net book value
At 30 June 2022 6
At 30 June 2023 13
10 Goodwill
Group Company
£'000 £'000
Cost
At 1 July 2021, 30 June 2022 and at 30 June 2023 1,966 -
Impairment
At 1 July 2021, 30 June 2022 and at 30 June 2023 - -
Carrying value
At 30 June 2022 1,966 -
At 30 June 2023 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 29% (2022: 33%); average yearly
realisations 6.7% (2022: 6.7%); annual growth in trading income 7.2%
(2022:8%); annual growth in the cost base 7.8% (2022: 11%; discount 14% (2022:
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 29% to 17% or an increase in the discount rate from 14% to 20%
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 profit or loss
£'000 Amortised cost
£'000 Total
Financial assets £'000
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
At 30 June 2023
Equity investments 32,964 - 32,964
Debt investments 4,625 - 4,625
Trade and other receivables - 1,026 1,026
Advances 793 - 793
Cash and cash equivalents - 4,603 4,603
Total 38,382 5,629 44,011
All financial liabilities are categorised as other financial liabilities and
recognized at amortised cost.
All net fair value losses in the year are attributable to financial assets
designated at fair value through profit or loss. (2022: 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
2023
£'000 £'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 of ordinary
incorporation shares directly held by the Company
Frontier IP Limited Scotland 100%
- principal activity is commercialisation of IP
Frontier IP Management Limited Scotland 100%
- principal activity is investment advisory and marketing services
FIP Portugal, Unipessoal, Lda. Portugal 100%
- principal activity is commercialisation of IP
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 João Frederico
Ludovice 22ª, Loja
1500-357, Benfica, Lisbon, 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. The quoted investment are
categorised as being level 1, that is, valued using quoted prices in active
markets for identical assets or liabilities which the Group can access at the
measurement date. 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 Company Company 2022
2023 2022 2023
£'000 £'000 £'000 £'000
At 1 July 39,712 31,982 26,963 16,011
Additions 691 614 691 614
Conversion of debt investments 54 764 54 764
Disposals (5,713) (3,659) - -
Unrealised (loss)/profit on revaluation (1,780) 10,011 551 9,574
At 30 June 32,964 39,712 28,259 26,963
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:
Equity Investments
Stage Stage 2 Stage Stage 4 Stage Stage 6 Total
1 3 5
Fair value category 3 3 3 3 3 1
£'000 £'000 £'000 £'000 £'000 £'000 £'000
1 July 2021 31 232 5,078 26,641 - - 31,982
Transfers between stages (16) 16 - (13,210) - 13,210 -
Fair value change 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
Transfers between stages - 44 2,234 (2,278) - - -
Fair value increase through other operating income (31) 351 (2,447) 2,469 - (2,122) (1,780)
Additions - - - 745 - - 745
Disposals - - - - - (5,713) (5,713)
30 June 2023 - 1,193 5,873 23,601 - 2,297 32,964
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 matrix stage No of Investments Fair value Inputs Reasonable possible shift
£'000 % +/- £000
At 30 June 2022
Stage 1 3 31 The company is valued at fair value which is typically at a notional value of 20% 6
around £50,000
Stage 2 3 798 Management's assessment of the value of IP transferred and valuation of grants 31% 248
from which economic benefit is derived
Stage 3 7 6,086 Management's assessment of performance against milestones and discussions of 40% 2,434
likely imminent fundraising
Stage 4 10 22,665 The price of last funding round provides unobservable input into the valuation 28% 6,382
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 inputs into the valuation
methodology.
Stage 5 - - Discounted comparable 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 1 10,132 Based on bid price at balance sheet date. - -
30 June 2022 39,712 23% 9,070
At 30 June 2023
Stage 1 4 - The company is valued at fair value which is the cost of the initial equity. - -
If advisory services are provided by the Group prior to spin out in return for
its equity stake, the cost is the value of services invoiced. If no advisory
services have been invoiced prior to spin out, the cost is the nominal value
of the shares received.
Stage 2 4 1,193 Management's assessment of the value of IP transferred and the value of grants 36% 429
from which economic benefit is derived.
Stage 3 6 5,873 Management's assessment of performance against milestones and discussions of 42% 2,467
likely imminent fundraising.
Stage 4 9 23,601 The price of latest funding round provides unobservable input into the 31% 7,316
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 inputs into the valuation
methodology.
Stage 5 - - Discounted comparable 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 6 1 2,297 Based on bid price at balance sheet date. - -
30 June 2023 32,964 31% 10,212
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.
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 2023 the Group held an economic interest of 20% or more in the
following companies:
Name of Undertaking Registered Address % Issued Share Capital Share Class
2023
2022
AquaInSilico Avenida Tenente Valadim, nº. 17, 2º F, 2560-275 Torres Vedras, Portugal 29.0% Ordinary
29.0%
Alusid Limited Richard House, Winckley Square, Preston, Lancashire, PR1 3HP 37.4% Ordinary
38.9%
Cambridge Raman Imaging Limited Botanic House,100 Hills Road, Cambridge, CB2 1PH 26.8% Ordinary
26.8%
CamGraPhIC Limited Botanic House,100 Hills Road, Cambridge, CB2 1PH 20.8% Ordinary
20.8%
Celerum Limited 30 East Park Road, Kintore, Inverurie, AB51 0FE 33.8% Ordinary
33.8%
Des Solutio LDA Avenida Tenente Valadim, nº. 17, 2º F, 2560-275 Torres Vedras, Portugal 25.0% Ordinary
25.0%
Elute Intelligence Holdings Limited 21 Church Road, Tadley, RG26 3AX 42.2% Ordinary
41.2%
Enfold Health Limited The Officers' Mess, Royston Road, Duxford, Cambridgeshire, United Kingdom, 75.8% Ordinary
CB22 4QH
0.0%
Fieldwork Robotics Limited Research And Innovation Floor 2 Marine Building, Plymouth University, 22.1% Ordinary
Plymouth, PL4 8AA
24.5%
GraphEnergyTech Limited The Officers' Mess, Royston Road, Duxford, Cambridgeshire, United Kingdom, 32.1% Ordinary
CB22 4QH
0.0%
Insignals Neurotech Lda Rua Passeio Alegre, 20 Centro de Incubacyo e Aceleracyo Do Porto, Porto 32.9% Ordinary
4150-570, Portugal
32.9%
NTPE LDA Avenida Tenente Valadim, nº. 17, 2º F, 2560-275PortugalVedras, Portugal 47.9% Ordinary
47.9%
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 £15,000 to £200,000 were made to seven companies during the
period. All debt investments are categorised as fair value through profit or
loss and measured at fair value. These have been categorised as being level 3,
that is, valued using unobservable inputs. 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%
(2022: 70%), expected life of between three months and six years and annual
risk-free interest rates to end of term of between 4.45% and 5.30% (2022:
2.07% and 2.07%). The value of warrants included in debt investments at 30
June 2023 is £1,597,000 (2022: £827,000).
The movement of debt investments during the year is set out below:
Group Group 2022 Company Company 2022
2023 2023
£'000 £'000 £'000 £'000
At 1 July 2,981 2,320 2,297 1,759
Additions 884 527 575 427
Conversion to unquoted equity investments (54) (764) (54) (764)
Unrealised profit on revaluation 814 898 739 875
At 30 June 4,625 2,981 3,557 2,297
Debt investments with three portfolio companies accounted for 89% of the value
of debt investments at 30 June 2023: CamGraPhIC (£2,612,000), Nandi Proteins
(£884,000) and Elute Intelligence (£623,000)
Conversions of debt investments are non-cash transactions, so not reflected in
the statement of cashflows. 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 Company Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade receivables 529 388 338 279
Receivables from Group undertakings - - 357 285
VAT 7 12 - 9
Prepayments and accrued income 71 386 30 284
Other debtors 74 128 17 67
Accrued interest 448 180 286 84
1,129 1,094 1,028 1,008
Expected credit loss at 1 July 43 - 27 -
Other current assets provided for in the year 60 43 62 27
Other current assets written off in the year - - - -
Expected credit loss at 30 June 103 43 89 27
Less receivables from Group undertakings - non current
- - 357 285
Current portion 1,026 1,051 582 696
Trade receivables
Group Group Company Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade receivables not past due 32 28 18 21
Trade receivables past due 1-30 days 35 29 23 21
Trade receivables past due 31-60 days 33 26 18 18
Trade receivables past due 61-90 days 32 27 21 18
Trade receivables past due over 90 days 604 376 383 279
Gross trade receivables at 30 June 736 486 463 357
Expected credit loss at 1 July 98 - 78 -
Debts provided for in the year 109 98 47 78
Debts written off in the year - - - -
Expected credit loss at 30 June 207 98 125 78
Net trade receivables at 30 June 529 388 338 279
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. The
Group's history of credit loss is not sufficiently material to inform future
expectations 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 Bank of
England base rate (2022: 2.0%).
16. Advances
Group 2023 Group 2022 Company 2023 Company 2022
£'000 £'000 £'000 £'000
Advances 793 - 785 -
Prior to 30 June 2023 the Group advanced funds to two portfolio companies
prior to execution of loan documentation. £785,000 of advances were to
CamGraPhIC. The advances were reclassed as Debt Investments post year-end.
17. Trade and other payables
Group Group Company Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade payables 23 41 42 62
Payables to group undertakings - - 3,366 192
Social security and other taxes 68 53 - -
VAT 9 - 9 -
Other creditors 14 10 - -
Accruals and deferred income 127 114 109 69
At 30 June 241 218 3,526 323
Less payables to Group undertakings - non current
- - (3,366) (192)
Current portion 241 218 160 131
18. Share capital and share premium
Number of shares issued and fully paid Ordinary shares of 10p
Share premium
Total
£'000 £'000 £'000
At 30 June 2022 55,005,546 5,501 14,576 20,077
Exercise of options 652,607 65 51 116
At 30 June 2023 55,658,153 5,566 14,627 20,193
19. 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 £28,562,000 (2022:
£35,233,000). Consequently, there were no distributable reserves at 30 June
2023 or 30 June 2022. The movement in reserves for the years ended 30 June
2023 and 2022 is set out in the Consolidated and Company Statement of Changes
in Equity.
20. 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
under this scheme.
Under the Frontier IP Group plc Company Share Option Plan 2021 ("CSOP"), no
payment is required from option holders on 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. 191,496
share options were granted during the year under the CSOP.
Under the Frontier IP Group plc Unapproved Share Option Plan 2021 ("LTIP"), no
payment is required from option holders on grant of an option. The options are
exercisable starting three years from the date of grant provided certain
performance conditions have been met. The scheme runs for a period of ten
years. 643,376 share options were granted during the year under the LTIP.
Movements in the number of share options outstanding and their related
weighted average exercise prices were as follows:
2023 2023 2022 2022
Weighted average exercise price Weighted average exercise price
Options Options
Pence per share Pence per share
At 1 July 31.71 4,986,726 31.99 5,030,181
Granted 24.43 834,872 - -
Exercised 15.00 (652,607) - -
Lapsed 63.76 (69,927) 64.36 (43,455)
At 30 June 32.22 5,099,064 31.71 4,986,726
Of the 5,099,064 outstanding options (2022: 4,986,726) 3,570,616 had vested at
30 June 2023 (2022: 2,836,000). The vested options have a weighted average
exercise price of 32.46p.
Share options outstanding at the end of the year have the following expiry
date and exercise prices:
Exercise price 2023 2022
Pence per share Number Number
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 66.00 652,612 694,050
2029 10.00 734,611 736,946
2030 65.00 383,260 409,414
2030 10.00 310,316 310,316
2032 85.00 74,646 -
2033 66.00 116,850 -
2033 10.00 643,376 -
The weighted average remaining contractual life of the outstanding options is
5.8 years.
The weighted average fair value of options granted to executive Directors and
employees during the year determined using the Black-Scholes-Merton valuation
model was 48.02p per option. The significant inputs into the model were the
exercise prices shown above, weighted average share price of 68.5p, volatility
of 9.9%, dividend yield of 0%, expected life of 5 years and annual risk-free
interest rate of 3.41%. Future volatility has been estimated based on 5 years'
historical daily data.
21. Leases
2023 2022
Land & Buildings Land & Buildings
£'000 £'000
Commitments under non-cancellable leases expiring:
Within one year 90 91
Within two to five years - -
After five years - -
90 91
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 March 2024.
22. Cash used in operations
Group Group Company Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Profit/(loss) before tax (4,370) 10,879 (873) 8,136
Adjustments for:
Share-based payments 155 329 155 329
Depreciation 9 8 - -
Interest received (50) (1) (52) (1)
Unrealised loss/(profit) on the revaluation of investments
966 (10,908) (1,290) (10,449)
Realised loss/(profit) on disposal of investments 786 (2,867) - -
Changes in working capital:
Trade and other receivables* 26 (456) 122 (250)
Advances (793) - (785) -
Trade and other payables 23 10 19 50
Cash flows from operating (3,248) (3,006) (2,704) (2,185)
activities
*Movement in trade and other receivables includes non-cash accrued interest on
debt investments with portfolio companies
The movements in liabilities from financing cashflows are nil.
23. Related party transactions
Neil Crabb is a director of PoreXpert Limited, Pulsiv Limited, CamGraPhIC Ltd,
Cambridge Raman Imaging Ltd and Alusid Limited. Campbell Wilson, a former
director of Frontier IP, is a 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 Consulting, 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 charged Fees charged Amounts owed Amounts owed
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Nandi Proteins Limited 78 78 213 120
Pulsiv Limited 24 44 5 5
Alusid Limited 70 72 127 43
The Vaccine Group Limited 48 48 77 34
Celerum Limited 52 5 52 -
Fieldwork Robotics Limited 30 - - 104
CamGraPhIC Ltd 40 - 112 -
Cambridge Raman Imaging Ltd 24 - - -
By Related Parties
Wilson Biopharma Consulting 12 12 - -
24. Subsequent events
There were no subsequent events to report.
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