REG - Frontier IP Group - Final Results
27/10/2022 07:00
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RNS Number : 2597E Frontier IP Group plc 27 October 2022
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27 October 2022
Frontier IP Group Plc
("Frontier IP" or the "Group")
Final results for the year ended 30 June 2022
Financial highlights
· Net assets per share as at 30 June 2022 increased 27% to 88.5p (30
June 2021: 69.8p)
· Basic earnings per share increased 6% to 18.60p (2021: 17.47p)
· Part-disposal of holding in Exscientia generated cash of £6,525,000
in the period under review (2021: nil) realising a profit of £2,867,000
(2021: nil).
· Total revenue and other operating income increased by 11% to
£14,104,000 (2021: £12,668,000) - reflecting the net unrealised profit on
the revaluation of investments of £10,908,000 (2021: £12,306,000) and the
realised profit on disposal of investments of £2,867,000 (2021: nil)
· Fair value of our equity portfolio increased by 24% to £39,712,000
(2021: £31,982,000) after disposals of £3,659,000 (2021: nil) and additions
of £1,378,000 (2021: £347,000)
· Profit before tax increased 6% to £10,879,000 (2021: £10,242,000)
· Cash balances at 30 June 2022 of £4,368,000 (2021: £1,992,000)
Corporate highlights
· Generated cash proceeds of £6.5 million selling shares in
portfolio company Exscientia following its successful listing on the Nasdaq
Global Select Market at a valuation of $2.9 billion in October 2021. Post
year-end the Company has sold another tranche of shares in Exscientia
generating a further £3.4 million in cash with Frontier IP retaining 782,400
shares
· Strengthened Board of Directors with the appointment of Professor
Dame Julia King, Baroness Brown of Cambridge DBE FREng FRS as an independent
Non-Executive Director in October 2021. Julia is Chair of the Group's
Remuneration Committee and is also a member of the Audit Committee
· Awarded an Innovation and Business Development Award by the UK
Department for International Trade in Portugal for work with AquaInSilico
Portfolio highlights
· Exscientia became our first portfolio company to IPO, listing on the
Nasdaq Global Select Market in October 2021
· A year of concentrating on our existing portfolio. Companies across
the portfolio made robust commercial and technical progress during the year,
demonstrating their value to prospective partners and investors in difficult
economic and market conditions. The Group believes that previous steps taken
to strengthen management teams are bearing fruit
· Portfolio continues to mature with several companies reaching
inflection points, reflected by their success in raising funds and developing
stronger industry engagement. Fundraisings and grant awards included:
o Exscientia raised a total of $510.4 million through an initial public
offering and concurrent private placement through listing on the Nasdaq Global
Select Market in October 2021 with a valuation of $2.9 billion. In the six
months to 30 June 2022, Exscientia delivered on major new and existing
collaborations, and advanced its pipeline programmes
o CamGraPhIC raised £1.6 million through an equity funding round. Post year
end, the company raised a further £1.26 million
o Cambridge Raman Imaging is coordinating CHARM, an international project
awarded €3.3 million by the European Innovation Council. The company also
raised £1.1 million through an equity funding round
· Strong commercial and technical progress made by a number of
portfolio companies, including developing new and existing industry
partnerships:
o Exscientia entered into a $70 million collaboration agreement with the
Bill & Melinda Gates Foundation and a strategic research collaboration
with Sanofi under which the company received an upfront cash payment of $100
million with the potential for a further $5.2 billion in milestone payments
and tiered royalties
o The Vaccine Group achieved a significant milestone in development of its
COVID-19 vaccine with pig trials showing it potentially offered broad immunity
against the disease and current and future variants
o Celerum launched its first commercial product and won its first customer,
Colin Lawson Transport
o Fieldwork Robotics started commercial trials of its raspberry harvesting
agricultural robots - robot-harvested raspberries now available in the shops
o Post year end, Cambridge Raman Imaging started testing a commercial
prototype of its graphene-based Raman imaging device, developed in
collaboration with Motic, a leading manufacturer of medical imaging devices
o Pulsiv completed a first close of a new fundraising in July 2022 which was
reflected in an increase in the value of the Group's holding in Pulsiv by
£4,996,000 over the year to 30 June 2022. Adam Westcott joined Pulsiv as
Chief Financial Officer during the year
o Elute Intelligence announced the appointment of Steve Cable as Chief
Executive Officer post year end.
ENQUIRIES
Frontier IP Group Plc T: 020 3968 7815
Neil Crabb, Chief Executive Officer neil@frontierip.co.uk (mailto:neil@frontierip.co.uk)
Andrew Johnson, Communications & Investor Relations andrew.johnson@fronterip.co.uk
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
Sandy Fraser / Harry Gooden / George Tzimas
Chairman's Statement
Performance
Frontier IP and its portfolio companies produced a resilient performance
during the year to June 2022. These numbers represent solid progress,
following as they do from an exceptional year to 30 June 2021, when pre-tax
profits rose by 145 per cent, and despite the significant uncertainties caused
by political, market and economic turbulence we saw during the period. I am
very pleased with the response from the Group and across the portfolio.
The highlight of the year was unquestionably the successful listing of
Exscientia on the Nasdaq Global Select Market in October 2021. The company
raised a total of $510.4 million through an upsized initial public offering
and a concurrent private placement with a valuation of $2.9 billion. Following
the IPO, we sold a quarter of our equity holding in the company, raising £6.5
million, followed by a further £3.4 million share sale after the year end.
Although Exscientia shares have suffered since listing, closing at $10.89 on
30 June and $8.21 on 30 September 2022 as part of the broader market and
technology sell off, with the knock-on impact on growth in the fair valuation
of our portfolio at the year end, I am very confident about the prospects for
Exscientia. The company is exceptionally well-capitalised, ending its own
first half to June with more than $730 million of cash. It has forged
partnerships with some of the world's biggest pharmaceutical companies,
including Bristol Myers Squibb and Sanofi, and institutions such as the Bill
& Melinda Gates Foundation.
I am delighted to say the rest of the portfolio performed well. The drop in
Exscientia's valuation was partially offset by valuation increases elsewhere.
Successful equity funding rounds included CamGraPhIC, which raised £1.6
million in September 2021, and a further £1.26 million in August this year.
Our other graphene spin out Cambridge Raman Imaging raised £1.1 million and
is coordinating a pan-European project awarded €3.3 million by the European
Innovation Council. Neil goes into more detail in his statement about some of
the challenges facing not just Frontier IP but the world more broadly in his
statement. But I remain excited by the possibilities latent within our
portfolio and the ability of the companies to meet tangible, real-world
demands and confront some of the biggest challenges we face head on. Pulsiv,
CamGraPhIC, Nandi Proteins, Alusid, The Vaccine Group, and others all have
significant potential. In short, they are developing new technologies to solve
major problems and tackling issues around climate, energy, food, water and
health.
I am delighted to say we continued to strengthen our team during the year.
Professor Dame Julia King, Baroness Brown of Cambridge DBE, FREng and FRS,
joined as a non-executive director during the year, an appointment that was
made and announced at the time of our results last year
We have seen our operations in Portugal growing, where we saw encouraging
progress from InSignals Neurotech, AquaInSilico and the pan-European Emporia
4KT project, which has won backing from the European Union for a 16-month
extension to improve technology transfer across the Atlantic seaboard's Blue
Economy following a successful first phase.
We added two new companies during the year, and we continue to concentrate
on the commercial development and scale up of our existing companies. Across
the portfolio, commercial and technical progress has been good, and I am
looking forward to updatinge you next year on progress. Our pipeline of
opportunities looks exciting, and we are hopeful of incorporating new
companies in the current financial year.
Our governance
Good governance is vital for long-term sustainable growth, and we strive to
achieve the highest standards for a business our size. We have adopted the
Quoted Companies Alliance Corporate Governance Code, introduced in April 2018.
To see more details about how we apply the principles of the Code, see the Our
Governance section of this report and our website:
https://www.frontierip.co.uk/about/governance/
(https://www.frontierip.co.uk/about/governance/)
Results
I am delighted with how the Group performed in the year. The growth in the
fair value of our portfolio to £39,712,000 was reflected in net assets per
share of 88.5p and we achieved our first exit in the period under review from
a partial sale of our holding in Exscientia.
For the year to 30 June 2022, total revenue and other operating income
increased by 11% to £14,104,000 (2021: £12,668,000) as a result of a net
unrealised profit on the revaluation of investments of £10,908,000 (2021:
£12,306,000), of which £4,996,000 was due to the increase in fair value of
Pulsiv, and the realised profit on part-disposal of our holding in Exscientia
of £2,867,000 (2021: nil). This part-disposal provided cash proceeds of
£6,525,000 which, along with proceeds of £3,433,000 from realisations since
30 June 2022, has significantly strengthened our balance sheet.
Outlook
The market and economic outlook is difficult to predict given the number and
scale of the domestic and global problems now looming. However, we are well
capitalised and our portfolio companies are addressing fundamental global
challenges. We are confident about our prospects for the coming year and
beyond.
Andrew Richmond
Chairman
26 October 2022
Chief Executive Officer's Statement
Frontier IP enjoyed a successful year to 30 June 2022. The fair value of our equity portfolio rose 24% to £39,712,000 and, while profit before tax of £10,879,000 was only 6% ahead of the prior year, net assets per share increased from 69.8p to 88.5p. I am delighted to say we are in a strong financial position.
The Group closed the year with more than £4 million cash on the balance sheet and has subsequently raised a further £3.4 million by selling a further part of our stake in Exscientia. The Group is well placed to weather any market or economic disruption and to take advantage of opportunities as they arise.
And we believe there might well be opportunities. The shorter-term outlook is highly uncertain, geopolitical risks abound, and there are fundamental challenges to be addressed - including climate change, energy, water, food and health. But history shows that disruption can drive technology adoption and our portfolio is positioned strongly to meet the challenges we all face.
To go into more detail:
The shorter-term outlook is uncertain. I warned at the half year that the environment was highly unpredictable: in the shorter term, the war in Ukraine has compounded risks already apparent, such as supply chain pressures and energy prices. The COVID-19 pandemic has yet to end. Inflation is rising. Central banks are raising interest rates and starting to unwind quantitative easing. Economists are warning of the UK entering recession during the first half of next year (2023). Underlying all these are the potential for macro shocks with the potential to send markets into a tailspin.
In terms of geopolitics, there are several areas of concern. Prospects for the United States are uncertain. Jobs data looks positive, but there has been sharp contraction in mortgages and consumer confidence has struck new lows. Corporate earnings have held up, but the outlook is uncertain - and the strong dollar is pump-priming inflation and energy prices worldwide. China's economy, so long a motor for global growth, is looking bleak. The country is facing severe demographic challenges as a result of the one child policy, which has led to an ageing population with the proportion of young dominated by men. Conditions in the property sector, a substantial part of GDP, are worsening, and its economy is also affected by very tough COVID-19 lockdowns, energy and climate, which has led to industry shutdowns. There is also the growing risk of debt defaults across lower-to-middle-income countries.
In Europe, the Ukraine war is obviously a major source of risks and heightens uncertainty. But the biggest fear of international investors is the possibility of another Italian debt crisis because the country's bonds are widely used as collateral in financial markets - which are hugely over leveraged. As for the UK, aside from inflation, there is rising industrial unrest, reflecting squeezed finances. House prices are under pressure.
Then there are the other risks: climate change is having an impact - again, on energy, on food production, and on water; and of course, the COVID-19 pandemic is still continuing, and the probability of future pandemics is greater than assumed as bacteria and viruses adapt to the changing environment.
All these factors might affect the appetite of investors for risk, in turn leading to greater pricing pressures on start-up and early-stage companies.
Now, I am not saying all of the above will happen. However, these are the risks as we seem them, and it is prudent to consider and warn of them.
First, our balance sheet is strong. I promised shareholders we would not seek to raise further funding from them. This is still the case. Our business model is also extremely capital efficient. So far, we have generated nearly £10 million in cash through selling shares in Exscientia. The original cost of those shares was less than £2,000.
On a broader note, it is important to realise that crises boost innovation. The example of war driving step-changes in technology is well known: what is less well known is that economic crises can have the same effect. The 1929 crash and subsequent Great Depression saw a sharp upturn in technology adoption. US productivity rose during the 1930s, following gains in the 1920s. Indeed, one economist has written the period 1929 to 1941 was the most technologically progressive decades in America's history. Significant advances were made in areas such as electrical machinery and equipment (which in turn boosted industrial productivity) chemical engineering, aeronautics, power generation and distribution, and engineering - and before World War II made an impact.
We expect the fundamental problems around climate, energy, food, water and health to spur a similar drive towards new technologies to solve them. And our portfolio is well placed to take advantage. The nature of our business model and the focus on industrial partnerships mean we avoid more volatile consumer-facing sectors such as fintech and delivery services.
So, to examples. On the climate and energy side, I am excited about the potential for Pulsiv, which I believe has the potential to become a major green technology company. By offering major improvements in the efficiency with which electricity is converted - by reducing wasted energy from about 50 per cent to under 10 per cent - the technology could significantly reduce the strain on national power grids if adopted at a great enough scale. The components required are cost effective, can be fitted into smaller, lighter form factors, and used in an enormous range of devices. Pulsiv offers a compelling proposition - better products at the same price for their customers and lower bills for consumers.
Alusid also helps to save energy and water in one of the most energy-intensive manufacturing sectors - tile making. Its novel manufacturing processes to make tiles and architectural services from recycled industrial waste uses a third less energy and 75 per cent less water than used to make conventional tiles.
CamGraPhIC's graphene-based photonics are able to transmit digital data and communications more rapidly than equivalent technologies and use at least 70 per cent less energy. Celerum's software improves logistics' efficiency and has the potential to reduce the carbon emitted by truck fleets.
AquaInSilico is developing software to improve wastewater treatment across a range of industries, recovering more valuable resources, such as phosphorus, while making water quality better. It is part of a United Nations Development Programme Ocean Innovation Challenge in Cape Verde. Molendotech's unique testing kits are able to test water for harmful bacteria in a matter of minutes on site compared to the days currently taken.
Two of our companies are directly involved in food. Nandi Proteins' ingredients replace chemical E-numbers, fat and gluten in a wide range of processed foods, including meat replacements. Fieldwork Robotics now has machines operating commercially to harvest raspberries in Portugal, a boost to horticultural productivity.
On health, Exscientia is already established as a world leader in using artificial intelligence (AI) to accelerate the discovery of new drugs. Cambridge Raman Imaging is using graphene-based ultrafast lasers and AI to develop faster and better ways to diagnose and monitor tumours and other diseases, while The Vaccine Group is developing new types of vaccines, including those with the potential to prevent future pandemics.
These companies are only a snapshot of our portfolio, and I am looking forward to updating on progress on other companies in future announcements.
Finally, to reflect development of our portfolio as it matures and companies evolve, we have added a further two clusters to the existing four. The additional ones are energy and the Blue Economy. Crises beget opportunities. Our cluster-based approach means we are focused on the areas where we see the greatest opportunity and our well-financed balance sheet means we are positioned to take advantage.
Although we cannot say for how long the current uncertainties will exist, or how bad things might get, we remain confident in the future prospects for the business.
And, as always, I would very much like to thank you, our shareholders, and other stakeholders, for your continued support.
Neil Crabb, Chief Executive Officer
26 October 2022
Key Performance Indicators and Alternative Performance Measures
The Key Performance Indicators and Alternative Performance Measures for the
Group are:
KPI / APM Description 2022 Performance
Basic earnings per share (KPI) Profit attributable to shareholders divided by the weighted average number of 18.6p (2021: 17.47p)
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 88.5p (2021: 69.8p)
outstanding
Total revenue and other operating income (KPI) Growth in the aggregate of revenue from services, change in fair value of £14,104,000 (2021: £12,668,000)
investments and realised profit on disposal of investments
Profit (KPI) Profit before tax for the year £10,879,000 (2021: £10,242,000)
Total initial equity in new portfolio companies (APM) Note 1 Aggregate percentage equity earned from new portfolio companies during the 20% (2021: 0%)
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 2022 it is the aggregate percentage holding from
two new spin-out companies during the year.
We are pleased to report that the Group achieved increases in all Key
Performance Indicators and Alternative Performance Measures, despite the
difficult economic and market conditions.
Exscientia's IPO in October 2021 enabled us to sell part of our holding in the
second half of our financial year generating proceeds of £6,525,000 and a
realised profit of £2,867,0000. Since 30 June 2022 we have sold further
shares in Exscientia for £3,433,000 and still hold 50% of our original
holding. The value of the Group's equity investments increased to £39,712,000
(2021: £31,982,000) with net assets increasing to £48,699,000 (2021:
£38,421,000). Profit after tax for the Group for the year to 30 June 2022 was
£10,230,000 (2021: £9,566,000) after a deferred tax charge of £649,000
(2021: £676,000). This result includes a realised profit on disposal of
investments of £2,867,000 (2021: nil), an unrealised profit on the
revaluation of investments of £10,908,000 (2021: £12,306,000) and reflects a
decrease in services revenue to £329,000 (2021: £362,000) and greater
administrative expenses of £3,104,000 (2021: £2,171,000) primarily due to
bonuses of £480,000 and an increase in personnel.
Operational Review
Frontier IP delivered a solid performance for the year, given considerable
market and economic uncertainties.
We ensured that we were well capitalised, generating £6.5 million in cash
by selling shares in Exscientia following its successful listing on the Nasdaq
Global Select Market at a valuation of $2.9 billion in October 2021. This
capital base helps to ensure we are in a good position to take advantage of
any opportunities we see arising in the current environment, including
investing directly in our portfolio companies when appropriate. After the year
end, we generated a further £3.4 million in cash by selling another tranche
of Exscientia shares. We retain half our holding in the company.
Companies across the portfolio continued to make good technical and commercial
progress, reflecting the potential value they provide to industry partners and
investors. Steps taken to strengthen management teams in previous years are
paying off. Several companies successfully raised funds.
Further validation to the approach we take to nurturing early-stage businesses
came when the UK Department for International Trade in Portugal awarded us an
Innovation and Business Development Award for the work we were doing with
AquaInSilico. Emporia 4KT, a pan-European project where we are one of 17
partners received further grant funding and a 16-month extension to build on
the work already undertaken during the initial three years. The project
brings together government, academics and business to create and support
start-up companies in the Blue Economy across Europe's Atlantic seaboard.
As a people focussed business, we took steps to expand our team and to ensure
we attract and retain the best people. We strengthened our Board of Directors
with the appointment of Dame Julia King, Baroness Brown of Cambridge DBE FREng
FRS as an independent Non-Executive Director and expanded our team with three
new hires during the year.
Post period-end our Remuneration Committee commissioned an external review of
the Group's remuneration framework. The outcome of this review, conducted by
Remuneration Consultants Ellason LLP, is set out in detail in the Remuneration
Committee Report.
Portfolio Review
Frontier IP strives to develop and maximise value from its portfolio. We do so
by taking founding stakes in companies at incorporation and then working in
long-term partnerships with shareholders, academic and industry partners.
As part of our sustainability agenda, we have mapped our portfolio companies
to relevant United Nations Sustainability Development Goals (UN SDGs).
(https://sdgs.un.org/goals) All equity holdings are as at 30 June 2022.
Core portfolio
Alusid: Frontier IP stake: 38.9 per cent
Alusid creates beautiful, premium-quality tiles, tabletops and other surfaces
by recycling industrial waste ceramics and glass, most of which would
otherwise be sent to high-impact landfill
The company has successfully scaled up its technology for mass production on
industry-standard manufacturing equipment. Its innovative formulations and
processes use 35 per cent less energy, reducing CO2 emissions, and up to 75
per cent less water than used to make tiles conventionally.
Alusid was also one of only five companies globally shortlisted for the
Climate Solutions Partnership's Cities of Tomorrow Challenge run by the World
Wildlife Fund and HSBC to pitch to potential investors.
During the year, new customers for the company's batch-made products included
the Stonehenge Visitor Centre and BBC Bristol.
UN Sustainable Development Goal mapping: SDG 9, industry, innovation and
infrastructure; SDG 12, responsible consumption and production.
UN Sustainable Development Goal mapping: SDG 9, industry, innovation and
infrastructure; SDG 12, responsible consumption and production.
Amprologix: Frontier IP stake: 10.0 per cent
Amprologix was created to commercialise the work of Mathew Upton, Professor of
Medical Microbiology at Plymouth's Institute of Translational and Stratified
Medicine.
The company continued to make progress with development of its new family of
antibiotics based epidermicin, which is derived from bacteria found on human
skin, to tackle antimicrobial-resistant MRSA and other superbugs. Ingenza, a
leader in industrial biotechnology and synthetic biology, is also a
shareholder and is working with Amprologix to develop and scale up the
technology.
COVID-19 has heightened interest in other threats to human health globally.
Among these is the danger from antimicrobial resistance, named as a top 10
threat to global health by the World Health Organisation.
UN SDG mapping: SDG 3, good health and well-being
AquaInSilico: Frontier IP stake: 29.0 per cent
AquaInSilico is developing sophisticated software tools able to understand and
predict how biological and chemical processes unfold in different operating
conditions.
These can be used to optimise wastewater treatment across many industries,
including municipal wastewater treatment plants, oil groups, brewers, pulp,
paper and steel makers, food processing and waste recovery businesses.
The Portuguese company was selected in 2021 to receive $250,000 as an Ocean
Innovator through the United Nations Development Programme's Ocean Innovation
Challenge. The first year of the two-year project saw the project make highly
promising progress in developing tools to help partners in protecting and
conserving one of the world's most diverse marine environments around the Cape
Verde archipelago. The next stage will see the tools applied to reduce the
amount of nutrients entering the sea and improve water quality for the local
population, particularly for agricultural use.
During the year, the work Frontier IP did in collaboration with AquaInSilico
resulted in the Group winning an Innovation and Business Development Award
from the UK Department for International Trade in Portugal.
UN SDG mapping: SDG 6, clean water and sanitation, SDG 12, responsible
consumption and production, SDG 14, life below water
Cambridge Raman Imaging: Frontier IP stake: 26.8 per cent
Our first graphene spin out, Cambridge Raman Imaging (CRI) is developing Raman
imaging technology based on graphene-based ultra-fast lasers, to detect and
monitor tumours. The company was formed as a result of a partnership between
the University of Cambridge and the Politecnico di Milano in Italy.
The main application creates digital images of patient cells and tissue. It
then employs Artificial Intelligence (AI) based analysis of chemical
signatures for accurately differentiating between healthy tissue and diseased
tissue in the patient samples, augmenting or replacing subjective diagnosis of
samples by histopathologists. The technology removes the need for chemical
staining - eliminating a major contributor to sample variation seen between
one lab and the next.
During the year, the company raised £1.1 million through a second equity
funding round and promoted appointed Chief Technology Officer Matteo Negro to
Chief Executive Officer. A project CRI is coordinating was also selected to
receive a €3.3 million grant from the European Innovation Council. Called
CHARM, the project aims to develop a high-speed, low-cost medical device to
transform cancer diagnosis and treatment.
A commercial prototype of a Raman imaging microscope in collaboration with
leading medical imaging manufacturer Motic has been developed.
UN SDG mapping: SDG 3 good health and well-being
CamGraPhIC : Frontier IP stake: 20.8 per cent
CamGraPhIC develops graphene-based photonics for high-speed data and
telecommunications. Graphene photonics are seen as a key enabler for 5G
technologies by the company's industrial partners.
Initial applications are high-speed optical transceivers. In laboratory
conditions these have worked at 100Gb per second, around twice the speed of
equivalent technologies, and across multiple wavebands. They are projected to
consume at least 70 per cent less energy. Other uses include 6mm wave, which
has the potential to transmit data at up to 1 terabyte per second,
high-performance computing and in networks able to meet the demands of
processor intensive artificial intelligence applications.
The company raised £1.6 million through an equity funding round during the
year to accelerate development and scale up of the technology. After the
period close, CamGraPhIC raised a further £1.26 million and announced that
Sir Michael Rake, the former chair of BT Group and an investor in the company,
will be joining its board of directors.
UN SDG mapping: SDG 9, industry, innovation and infrastructure, SDG 11,
sustainable cities and infrastructure
Celerum: Frontier IP stake: 33.8 per cent
Celerum is developing novel artificial intelligence to improve the operational
efficiency of logistics and supply chains.
The company's technology is based on nature-inspired computing, which develops
software and algorithms based on natural processes and behaviours, such as
those exhibited by ant colonies and fish schools. A project conducted on
behalf of Highlands and Islands Enterprise across food and drink supply chains
in northern Scotland, showed it has the potential to cut carbon emissions by
up to 40 per cent if suppliers and logistics firms are willing to work
together to share loads.
Progress during the year was highly encouraging. The company launched its
first commercial product, Truck Logistics System, for companies operating
small to medium sized road haulage fleets, and won its first commercial
customer, Aberdeen-based Colin Lawson Transport.
UN SDG mapping: SDG 9, industry, innovation and infrastructure
Des Solutio: Frontier IP stake: 25.0 per cent
Des Solutio is developing safer and greener alternatives to the toxic solvents
currently used to extract active ingredients by the pharmaceutical, personal
care, household goods and food industries.
It does this by creating new methods to use Natural Deep Eutectic Solvents,
found in a huge array of plants, to replace toxic organic solvents, such as
ethanol, employed currently. This means it is contributing to the
environmentally sound management of chemicals, and reducing their release to
air, water and soil. The company is still at an early stage but is already
generating industry interest.
UN SDG mapping: SDG 9 industry, innovation and infrastructure; SDG 12,
responsible consumption and production
Elute Intelligence: Frontier IP stake: 41.2 per cent
Elute's software tools are designed to help users intelligently search,
compare and analyse complex documents by mimicking the way people read. There
are a huge range of potential applications, from searching patents and
contracts, to detecting evidence of plagiarism, collusion and copyright
infringement. The company's tools help to enhance research, support improved
technological capabilities and innovation.
After the year end, Elute announced the appointment of Steve Cable as Chief
Executive Officer.
UN SDG mapping: SDG 9, industry, innovation and infrastructure
Exscientia: Frontier IP stake: 1.0 per cent
Exscientia, a spin out from the University of Dundee, became the first in our
portfolio to IPO, raising total gross proceeds of $510million through a public
offer and private placements with SoftBank and the Bill & Melinda Gates
Foundation. The IPO, priced at the top end of the estimated range, valued the
company at $2.9 billion. During the year, Exscientia also announced a $70
million collaboration with the Bill & Melinda Gates Foundation to develop
novel therapeutics against Coronavirus and other viruses with pandemic
potential. The Bill & Melinda Gates Foundation is investors in the
company.
Now based in Oxford, Exscientia is a world leader in artificial
intelligence-driven drug discovery. It is the company behind the first
AI-created drugs to enter human clinical trials, taking years off traditional
drug discovery processes.
Following the IPO, Exscientia announced a collaboration and licence agreement
with one of the world's biggest pharmaceutical companies Sanofi. The company
received an upfront cash payment of $100 million and the deal has the
potential for a further $5.2 billion in total milestone payments and tiered
royalties. It also entered into a partnership with the University of Oxford
Target Discovery Institute to create Xcellomics, a programme to expedite
early-stage drug discovery for unmet medical needs.
UN SDG mapping: SDG 3, good health and well-being
Fieldwork Robotics: Frontier IP stake: 24.5 per cent
Raspberries picked by Fieldwork Robotics' robot harvesting technology went on
sale in supermarkets after the company launched commercial operations. The
company deployed two robots to Portugal, where the fruit can be harvested
throughout the year, as part of a commercial field trial to prove the robots
could work autonomously alongside humans. Fieldwork's focus is now on making
the robots faster and scaling up production to get more robots into the field.
The company is also working with Bonduelle, a leading vegetable producer, on a
three-year project to develop a cauliflower harvesting robot.
Robotic fruit and vegetable harvesting technology has the potential to improve
agricultural productivity, reduce food waste by more accurate picking and
minimising human contact, and result in better quality jobs, with harvesting
labour replaced by skilled robot operators. There is also potential for
cutting carbon emissions through reduced need for migrant labour.
UN SDG mapping: SDG 2, zero hunger; SDG 12 responsible consumption and
production
InSignals Neurotech: Frontier IP stake: 33.0 per cent
InSignals Neurotech made significant progress during the year with its novel
technology to analyse the motor symptoms of Parkinson's disease and other
neurological disorders. The company is developing wireless to measure
precisely motor symptoms, such as wrist rigidity, in real time to help
surgeons and neurologists assess the extent of the disease. Initial prototypes
were designed to help identify the best locations to place implants in the
brain. However, an improved version can now be used to monitor symptoms more
broadly for disease tracking and to understand better how patients are
responding to treatment. A multi-centred clinical trial was established to
test the devices.
The spin out from the Portuguese Institute for Systems and Computer
Engineering, Technology and Science ("INESC TEC"), with the support of São
João University Hospital, part of the University of Porto.
UN SDG mapping: SDG 3 good health and well-being
Molendotech: Frontier IP stake: 13.0 per cent
Molendotech continued work on its innovative rapid pathogen detection
technology. Siren(BW), a kit to test bathing water for faecal matter based on
Molendotech's proprietary bacterial detection technology, is now commercially
available. The kit, which can be used on site, cuts testing times from up to
two days to under 30 minutes because samples do not need to be sent to a
laboratory, enabling environmental agencies and other authorities to assess
water quality swiftly.
The company has also developed a novel method to detect specific pathogenic
bacteria, and the investment will enable further development of this
technology for new markets, including the food industry, where it has the
potential to extend shelf life and reduce food waste. This work is being
undertaken in collaboration with industry partners.
UN SDG mapping: SDG 6, clean water and sanitation; SDG 12 responsible
consumption and production
Nandi Proteins: Frontier IP stake: 20.1 per cent
Nandi Proteins is scaling up commercial products based on its technology to
create a wide range of customised ingredients based on vegetable and animal
proteins. These functional proteins can be used to replace undesirable
ingredients, such as fat, gluten, E-number additives in processed foods, or
those that people do not want to consume - for example, by replacing animal
proteins with vegetable proteins.
The company has gained major industrial traction and is making significant
commercial progress with food groups in several applications. These include
projects using animal proteins to replace fat and meat, using vegetable
proteins to replace egg whites in meat alternatives and to improve the taste
and texture of gluten-free products, and proteins to replace chemical binders
and emulsifiers in plant-based alternative meats and baked goods.
Nandi's technology has the potential to contribute to more sustainable
agriculture and food production by supporting the plant-based alternative meat
industry and by reducing chemical ingredients in processed food. Cutting fat
in affordable processed foods will help to make them less harmful.
UN SDG mapping: SDG 2, end hunger; SDG 12, responsible consumption and
production
NTPE: Frontier IP stake: 48.0 per cent
NTPE is developing cellulose-based eco-friendly, low-cost, low-power
paper-based electronics to replace silicon in some electronic applications.
Called Paper-E, the novel technology means electronic circuits, sensors and
semiconductors can be printed onto any cellulose-based paper. Paper-based
energy harvesters, such as solar cells, can be included in the circuits.
The company is focusing on a range of potential applications, including a
book-E concept to produce cheap and accessible educational tools to teach
children about electronics. Longer-term health applications include diagnostic
sensors for use in health and food, smart packaging and paper-based sensors
for use in very remote environments.
Cellulose is natural, sustainable and recyclable material. Its use can help
reduce the severe negative impact of silicon mining, use and disposal. The
technology is still at an early stage of development.
UN SDG mapping: SDG 12, responsible consumption and production
PoreXpert: Frontier IP stake: 15.0 per cent
PoreXpert, a software and consultancy firm, has developed novel software and
methods to model the voids within porous materials and how gases, liquids and
colloidal suspensions behave within them.
Applications include helping companies understand and exploit the nature of
oil and gas reserves to improve the efficiency of exploration and extraction,
supporting industry efforts to reduce their impact on the environment. It is
also being used to help maximise the lifespan of the UK's Advanced Gas Cooled
nuclear reactors, which generate 20 per cent of the national energy
requirement, without greenhouse gas emissions.
UN SDG mapping: SDG 7, affordable and clean energy; SDG 12, responsible
consumption and production
Pulsiv: Frontier IP stake: 18.3 per cent
Pulsiv's technology has the potential to make a profound impact on the energy
sector. It cuts the amount of energy consumed by devices, therefore reducing
the strain on power grids, and can boost the output of photovoltaic solar
cells.
This is because about half the electricity used by devices is wasted because
of inefficient power conversion. That's why converters heat up in operation.
Pulsiv's novel technology converts electricity much more efficiently - in
tests it wastes only about 10 per cent of the energy. Furthermore, its new
power conversion techniques can be incorporated in smaller, lighter and more
cost-effective designs. So the technology has the potential to reduce strains
on power grids and cut costs for manufacturers and bills for consumers.
The technology can be used in nearly all mains-powered products, battery
chargers, lighting applications, electric vehicles, portable power tools and
DC motors. Not only does it convert electricity from mains to device more
efficiently, it also works from device to mains, significantly improving the
efficiency of renewable sources. The company is also working on a solar
microinverter to maximise the output from photovoltaic solar cells.
Pulsiv enjoyed a year of solid technical and commercial progress. It is
building relationships with major manufacturers, including those in consumer
electronics and the solar sector.
UN SDG mapping: SDG 7, affordable and clean energy; SDG 13, climate action
The Vaccine Group: Frontier IP stake: 17.0 per cent
The Vaccine Group is creating a wide range of vaccines based on a novel
herpesvirus-based platform. Its core focus is on preventing the spread of
zoonotic and economically damaging diseases.
During the year, the company achieved a major milestone in the development of
its next generation COVID-19 vaccine for use in animals. Trial data from pigs
showed strong T cell responses to SARS-CoV-2, the virus that causes COVID-19,
as well as the more divergent SARS-CoV-1. This means the vaccine has the
potential to provide broad immunity against current and future variants.
There have also been highly promising developments through the company's first
commercial collaboration agreement with ECO Animal Health Group and The
Pirbright Institute to develop vaccines for porcine respiratory and
reproductive syndrome.
Other vaccines under development include those for African swine fever, bovine
tuberculosis, bovine mastitis, streptococcus suis, Ebola and Lassa fever. To
date, the company and its international partners have been awarded more than
£9 million in grant funding from the UK, US and Chinese governments.
UN SDG mapping: SDG 2, end hunger; SDG 3 good health and well-being
Core Portfolio Summary at 30 June 2022
Portfolio Company % Issued Share Capital About Source
Alusid Limited 38.9% 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 41.2% Software tools able to intelligently search, compare and analyse unstructured Existing business
data
Exscientia Limited 1.0% Novel informatics and experimental methods for drug discovery University of Dundee
Fieldwork Robotics Limited 24.5% Robotic harvesting technology for challenging horticultural applications University of Plymouth
Insignals Neurotech Lda 33.0% Wearable medical devices supporting deep brain surgery INESC TEC
Molendotech Limited 12.0% Rapid detection of water borne bacteria University of Plymouth
Nandi Proteins Limited 20.1% Food protein technology Heriot-Watt University, Edinburgh
NTPE Lda 48.0% Novel technology to print electronic circuits, sensors and semiconductors onto FCT Nova
paper
PoreXpert Limited 15.0% Analysis and modelling of porous materials University of Plymouth
Pulsiv Limited 18.3% High efficiency power conversion and solar power generation University of Plymouth
Riskocity Limited 15.9% Maritime cyber risk 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 £571,000, equivalent to 1.4% of the fair value of
the Group's equity investments at 30 June 2022.
Financial Review
Key Highlights
During the second half of the year the Group sold approximately 28% of its
holding in Exscientia generating proceeds of £6,525,000 and realising a gain
of £2,867,000. The value of the remaining holding in Exscientia was
£10,132,000 at 30 June 2022. The value of the Group's equity investments
increased to £39,712,000 (2021: £31,982,000) with net assets increasing to
£48,699,000 (2021: £38,421,000).
Profit after tax for the Group for the year to 30 June 2022 was £10,230,000
(2021: £9,566,000) after a deferred tax charge of £649,000 (2021:
£676,000). This result includes a realised profit on disposal of investments
of £2,867.000 (2021: nil), an unrealised profit on the revaluation of
investments of £10,908,000 (2021: £12,306,000) and reflects a decrease in
services revenue to £329,000 (2021: £362,000) and greater administrative
expenses of £3,104,000 (2021: £2,171,000) primarily due to bonuses of
£480,000 and an increase in personnel.
Revenue
Total revenue and other operating income for the year to 30 June 2022, which
is the aggregate of services revenue, realised gain on the disposal of
investments and unrealised gain on the revaluation of investments, increased
11% to £14,104,000 (2021: £12,668,000). Revenue from services decreased 9%
to £329,000 (2021: £362,000). The Group realised a gain on disposal of
investments of £2,867,000. This gain arose on the sale of part of the Group's
holding in Exscientia which was valued at £3,659,000 at 30 June 2021 and
which generated proceeds of £6,525,000. Unrealised gains on revaluation of
equity investments of £10,011,000 (2021: £12,191,000) included an increase
of £4,996,000 in the value of Pulsiv. Unrealised gains included net
unrealised profit on the revaluation of debt investments of £898,000 (2021:
£115,000).
Administrative Expenses
Administrative expenses increased 43% to £3,104,000 (2021: £2,171,000). The
increase is primarily due to increased employee costs which included bonuses
of £480,000.
Share Based Payments
Share based payments decreased 11% to £329,000 (2021: £368,000). No options
were granted during the year and some options lapsed.
Earnings Per Share
Basic earnings per share were 18.60p (2021: 17.47p). Diluted earnings per
share were 17.53p (2021: 16.62p).
Statement of Financial Position
The principal items in the statement of financial position at 30 June 2022 are
financial assets at fair value through profit and loss comprising equity
investments of £39,712,000 (2021: £31,982,000) and debt investments of
£2,981,000 (2021: £2,320,000). The carrying value of these items is
determined by the Directors using their judgement when applying the Group's
accounting policies. The matters taken into account when assessing the fair
value of the portfolio companies are detailed in the accounting policy on
investments. The movement during the year in equity and debt investments is
detailed in notes 13 and 14 to the financial statement respectively.
The Group had goodwill of £1,966,000 at 30 June 2022 (2021: £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 2022 of £5,201,000 (2020:
£2,379,000) reflecting primarily an increase in cash balances of £2,376,000.
The current assets at 30 June 2022 include trade receivables of £376,000
which are more than 90 days overdue. The portfolio company debtors are in the
process of raising funds and the directors are confident that, depending on
the amounts raised, the amounts due to the Group will be paid in either cash
or equity.
Net assets per share
Net assets of the Group increased to £48,699,000 at 30 June 2022 (30 June
2021: £38,421,000) resulting in net assets per share of 88.5p (30 June 2021:
69.8p).
Cash
The Group's cash balances increased during the year by £2,376,000 to
£4,368,000 at 30 June 2022. Operating activities consumed £3,006,000
(2021: £1,466,000) reflecting an increase in administrative expenses and an
increased in trade receivables and other current assets. Investing activities
generated £5,382,000 having consumed £1,692,000 in 2021. This reflected
proceeds on disposal of part of our holding in Exscientia of £6,525,000 and
the purchase of equity and debt investments of £1,141,000 (2022: £1,689,000)
in eight of our portfolio companies.
Principal Risks and Challenges affecting the Group
The specific financial risks of price risk, interest rate risk, credit risk
and liquidity risk are discussed in note 1 to the financial statements. The
principal broader risks - financial, operational, cash flow and personnel -
are considered below.
The key financial risk in our business model is the inability to realise
sufficient income through the sale of our holdings in portfolio companies to
cover operating costs and investment capital. This risk has been mitigated
through the sale of shares in Exscientia, our most valuable holding at 30 June
2022, through disposing parts of our stake during the year and after the year
end. The other principal financial risk of the business is a fall in the value
of the Group's portfolio. With regards to the value of the portfolio itself,
the fair value of each portfolio company represents the best estimate at a
point in time and may be impaired if the business does not perform as well as
expected, directly impacting the Group's value and profitability. This risk is
mitigated as the number of companies in the portfolio increases. 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. Short-term risks include the war
in Ukraine and its impact on supply chains and energy prices, and the
continuing COVID-19 pandemic. Inflation and interest rates are rising.
Longer-term risks include uncertainties in the US economy, particularly around
mortgages and consumer confidence, and China, which is facing demographic
challenges, pressures in its property sector, and from COVID-19 lockdowns,
energy and climate, which has led to industrial closures. In Europe, aside
from Ukraine, there is the potential for an Italian debt crisis.
Any economic downturn would mean considerable uncertainty in capital markets,
resulting in a lower level of funding activity for such companies and a less
favourable exit environment. The impact of this may be to constrain the growth
and value of the Group's portfolio and to reduce the potential for revenue
from advisory work. The Group seeks to mitigate these risks by maintaining a
strong balance sheet, relationships with co-investors, industry partners and
financial institutions, as well as controlling the cash burn rate in portfolio
companies.
In terms of COVID-19, the remaining risks to the Group are operational:
Frontier IP and portfolio company employees may contract the virus and be
unavailable for work for extended periods of time. The Group seeks to mitigate
these risks by maintaining a safe working environment and 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.
By order of the Board
Neil Crabb
Director
26 October 2022
Remuneration Review
In line with the Remuneration Committee's role to ensure the on-going
appropriateness and relevance of the Group's remuneration policy, Ellason LLP
was appointed to conduct an external review of the Group's remuneration
framework with the aim that it continues to reinforce long-term value
creation, capture Group and individual performance, and support growth by
enhancing the Group's ability to attract and retain the best people. The
review highlighted several areas where the Committee believes revisions are
required, from FY2023, to ensure competitiveness with the market and to
formalise a structure which provides a more consistent remuneration package as
the Group scales-up its operations. The Committee has had a very constructive
consultation with the Group's largest shareholders and it is grateful for
their input.
Salary
The review indicated that salaries and pay overall for the executive directors
are significantly behind the market. The Remuneration Committee generally
aims to target salaries at market median for high-performing and experienced
executives, and is therefore proposing to transition the executive director
salaries to levels more competitive with the market over the next 2 years. The
first increase will be in FY23, with full-time equivalent salaries raised to
£200,000 for the CEO, and to £160,000 for each of the CFO, CCO, and COO. The
Committee is expecting further increases in FY24 which are likely to be less
than the increase in FY23 and will disclose these in the relevant directors'
remuneration report.
Annual Bonus
We intend to adopt a more formalised cash bonus structure which provides for
potential annual awards to eligible employees, including the executive
directors. Our business model means that the availability of cash to pay
bonuses will be dependent on cash being raised through asset realisations, and
so it is proposed that the bonus opportunity in any financial year will be
dependent on this activity.
A Group-wide bonus pool will be funded each year, based on the Group's cash
generation: in a year where no asset realisation occurs, the maximum annual
bonus will be limited to c.30% of salary for an executive director (and lower
levels for other staff); conversely, in a year when an asset realisation
occurs the maximum annual bonus will be limited to 100% of salary for an
executive director. Allocation of the pool will be based on a range of
factors, including contribution to Group performance, achievement of specific
objectives, seniority and tenure. In any given year, whether or not there has
been an asset realisation, bonuses would only be paid where the Group
determines there is a sufficient surplus to the medium term operating cash
requirement.
LTIP
Over recent years, our main long-term incentive has been regular grants of
options, the most recent of which have comprised both approved and unapproved
options, with vesting based on continued employment over 3 years, and with
exercise prices set at nominal price (10p) or at the prevailing share price.
Whilst this historical arrangement has been simple, the Remuneration Committee
believes that a more targeted arrangement which focuses vesting on specific
outcomes will better suit the Group's ambitions in the future.
Going forward, the primary long-term incentive will be an 'LTIP' based on
annual awards of performance shares (structured as nominal cost options,
'NCOs'), with vesting linked 70% to NAV per share and 30% to Total Shareholder
Return measured over 3 financial years. Vesting will also be subject to a
discretionary underpin, assessed by the Remuneration Committee, to be used to
reduce vesting, if required, in the event that the recorded NAV/TSR
performance is not consistent with the Remuneration Committee's view on the
Group's underlying performance. Performance against NAV and TSR targets set
for each LTIP cycle will be disclosed in the relevant remuneration report.
This revision will require some changes to the current unapproved option plan
rules to enable awards as above. A key change will be to the provision around
dilution, which currently permits dilution of up to 15% of share capital over
10 years, but with a limit of 5% for awards with 'discounted' exercise prices
(which captures NCOs). This secondary limit will be removed on the basis that,
going forward, the vesting of LTIP awards, whilst structured as NCOs, will no
longer be linked only to continued employment but also to stretching targets
around NAV per share growth and TSR.
LTIP participants will include the executive directors and other Group
employees; allocations will be made annually from an aggregate award pool
which is limited in size to ensure sufficient shares are available to grant in
future years without exceeding the Group's dilution limits. Our modelling
suggests that LTIP awards to the executive directors may have a grant value of
c.65-75% of salary in FY2023 - the actual value will depend on the share price
at grant. The LTIP will include an individual grant limit of 200% of salary
in any financial year, but this level would require a significant increase
from the current share price to be breached.
The first awards to be granted under the LTIP will be made as soon as
practicable during FY 2023.
Option awards may also be granted to Group employees under the Group's
Approved Company Share Option Plan, to the extent an individual has headroom
under the relevant limits.
Directors' remuneration
An analysis of remuneration by director is given in Note 6 of this
announcement .
Contracts of service
Neil Crabb's, Jacqueline McKay's, James Fish's and Matthew White's service
agreements are subject to a three-month notice period. It is planned that
these Contracts of Service will be reviewed during FY2023 including a
proposal, from the remuneration review, to increase the notice period to six
months.
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2022
2022 2021
Notes £'000 £'000
Revenue
Revenue from services 3 329 362
Other operating income
Unrealised profit on the revaluation of investments 13,14 10,908 12,306
Realised profit on disposal of investments 2,867 -
14,104 12,668
Administrative expenses 5 (3,104) (2,171)
Share based payments (329) (368)
Other income 207 104
Profit from operations 10,878 10,233
Interest income on short term deposits 1 9
Profit from operations and before tax 10,879 10,242
Taxation 7 (649) (676)
Profit and total comprehensive income attributable to
the equity holders of the Company 10,230 9,566
Profit per share attributable to the equity holders of the Company:
Basic earnings per share 8 18.60p 17.47p
Diluted earnings per share 8 17.53p 16.62p
All of the Group's activities are classed as continuing.
There is no other comprehensive income in the year (2021:
nil).
Consolidated Statement of Financial Position
At 30 June 2022
2022 2021
Notes £'000 £'000
Assets
Non-current assets
Tangible fixed assets 9 6 11
Goodwill 10 1,966 1,966
Equity investments 13 39,712 31,982
Debt investments 14 2,981 2,320
44,665 36,279
Current assets
Trade receivables and other current assets 15 1,051 595
Cash and cash equivalents 4,368 1,992
5,419 2,587
Total assets 50,084 38,866
Liabilities
Non-current liabilities
Deferred taxation 7 (1,167) (237)
(1,167) (237)
Current liabilities
Trade and other payables 16 (218) (208)
(218) (208)
Total liabilities (1,385) (445)
Net assets 48,699 38,421
Equity
Called up share capital 17 5,501 5,501
Share premium account 17 14,576 14,576
Reverse acquisition reserve 18 (1,667) (1,667)
Share based payment reserve 18 1,324 1,276
Retained earnings 18 28,965 18,735
Total equity 48,699 38,421
Consolidated Statements of Changes in Equity
For the year ended 30 June 2022
Group
Share- Total equity
Share Reverse 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 2020 5,076 12,819 (1,667) 477 9,161 25,866
Issue of shares 425 1,757 - - - 2,182
Share-based payments - - - 799 8 807
Profit/total comprehensive income for the year
- - - - 9,566 9,566
At 30 June 2021 5,501 14,576 (1,667) 1,276 18,735 38,421
Issue of shares - - -
Share-based payments - - - 48 48
Profit/total comprehensive income for the year
- - - 10,230 10,230
At 30 June 2022 5,501 14,576 (1,667) 1,324 28,965 48,699
Consolidated Statements of Cash Flows
For the year ended 30 June 2022
Group Group
2022 2021
Notes £'000 £'000
Cash flows from operating activities 21 (3,006) (1,466)
Cash flows from investing activities
Purchase of tangible fixed assets 9 (3) (12)
Purchase of equity investments 13 (614) (71)
Disposal of equity investments 6,525 -
Purchase of debt investments 14 (527) (1,618)
Disposal of debt investments 14 - -
Net amounts receivable from group undertakings - -
Interest income 1 9
Net cash from investing activities 5,382 (1,692)
Cash flows from financing activities
Proceeds from issue of equity shares - 2,334
Costs of share issue - (152)
Net cash generated from financing activities - 2,182
Net increase/(decrease) in cash and cash equivalents 2,376 (976)
Cash and cash equivalents at beginning of year 1,992 2,968
Cash and cash equivalents at end of year 4,368 1,992
Notes to the Financial Statements
1. Financial risk management
Financial risk factors
(a) Market risk
Interest rate risk
As the Group has no borrowings it only has limited interest rate risk. The
impact is on income, debt investments and operating cash flow and arises from
changes in market interest rates. Cash resources are held in floating rate
accounts.
Price risk
The Group is exposed to equity securities price risk because of equity
investments classified on the consolidated statement of financial position as
financial assets at fair value through profit and loss. The maximum exposure
is the fair value of these assets which is £39,712,000 (2021: £31,982,000)
of which quoted equity investments comprise £10,132,000 (2021: £nil). Equity
investments are valued in accordance with the Group's accounting policy on
equity investments. Management's monitoring of and contact with portfolio
companies provides sufficient information to value these companies and the
Board regularly reviews their progress, prospects and valuation. Information
on reasonable possible shifts in the valuation of equity investments is
provided in note 13 to the financial statements.
(b) Credit risk
The Group's credit risk is primarily attributable to its trade receivables,
other debtors and cash equivalents. The Group's current cash and cash
equivalents are held with two UK financial institutions, the Bank of Scotland
plc and Barclays Bank plc, both of which have a credit rating of "P1" from
credit agency Moody's, indicating that Moody's consider that these banks have
a "superior" ability to repay short-term debt obligations. The concentration
of credit risk from trade receivables and other debtors varies throughout the
year depending on the timing of transactions and invoicing of fees. Details
of major customers to the Group are set out in Note 4. Details of trade
receivables and other current assets are set out in note 15. Management's
assessment is aided through representation on the Board and/or through
providing advisory services to the companies.
The maximum exposure to credit risk for, trade receivables, other current
asset and cash equivalents is represented by their carrying amount.
(c) Capital risk management
The Group is funded by equity finance only. Total capital is calculated as
'total equity' as shown in the consolidated statement of financial position.
The Group's objectives for managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to manage the cost of
capital. In order to maintain the capital structure, the Group may issue new
shares as required. The Group currently has no debt. There were no changes in
the Group's approach to capital management during the year.
(d) Liquidity risk
The Group seeks to manage liquidity risk to ensure sufficient liquidity is
available to meet the requirements of the business and to invest cash assets
safely and profitably. The Group's business model is to realise cash through
the sale of investments in portfolio companies and in the absence of such
realisations the Group would plan to raise additional capital. The Board
reviews available cash to ensure there are sufficient resources for working
capital requirements and investments. At 30 June 2022 and 30 June 2021 all
amounts shown in the consolidated statement of financial position under
current assets and current liabilities mature for payment within one year.
2. Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates and judgements.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are addressed below:
(i) Valuation of investments
In applying valuation techniques to determine the fair value of unquoted
equity investments the Group makes estimates and assumptions regarding the
future potential of the investments. As the Group's unquoted investments are
in seed, start-up and early-stage businesses it can be difficult to assess the
outcome of their activities and to make reliable forecasts. Given the
difficulty of producing reliable cash flow projections for use in discounted
cash flow valuations, this technique is applied with caution. Adjustments made
to fair value are, by their very nature, subjective and determining the fair
value is a critical accounting estimate. Reasonable possible shifts, which
themselves are estimates, are included in Note 13 and show a reasonable
possible shift for the total unquoted equity investments of 23% (2021: 29%)
being £9,070,000 (2021: £9,249,000) from a total value of £39,712,000
(2021: £31,982,000). In applying valuation techniques to determine the fair
value of debt investments the Group makes estimates and assumptions regarding
the time to repayment or conversion, discount rate and credit risk. A 25%
increase in the time to repayment or conversion reduces the value of debt
investments from £2,981,000 to £2,951,000 and a 25% increase in the discount
rate reduces the value of the debt investments from £2,981,000 to
£2,941,000. Where warrants are attached to a debt instrument, the fair
value is determined using the Black-Scholes-Merton valuation model. The
significant inputs to the model are provided in note 14. The price at which
debt investments were made is 94% of the fair value of debt investments at 30
June 2022 (2021: 95%).
(ii) Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in
accordance with the stated accounting policy. The recoverable amount is
determined using a value in use value model which requires a number of
estimations and assumptions about the timing and amount of future cash flows.
As future cash flows relate primarily to proceeds from sale of investments,
these estimates and assumptions are subject to a high degree of uncertainty.
Note 10 describes the key assumptions and sensitivity applied.
(iii) Consideration of credit losses
The matters taken into account in the recognition of credit losses include
historic current and forward-looking information. The Group's exposure to
credit losses is with companies from its own portfolio whose ability to settle
their debts is primarily dependant on their ability to raise capital rather
than their current trading. The age of debt is not considered in assessing
credit loss as the outcome is expected to be binary. The debt is also
concentrated in a small number of companies; five companies account for 98% of
trade receivables at 30 June 2022. Management has in-depth knowledge of these
companies and is providing the fundraising service for four of them. The
Group's history of credit loss is negligible and therefore management focus on
the factors which impact the ability of these companies to successfully raise
capital and a probability of default as a result of the failure to raise
capital is applied to determine the expected credit loss Details of the
expected credit loss are provided in note 15.
Critical accounting judgements
The Group believes that the most significant judgement areas in the
application of its accounting policies are establishing the fair value of its
unquoted equity investments and the consideration of any impairment to
goodwill. The matters taken into account by the Directors when assessing the
fair value of the unquoted equity investments are detailed in the accounting
policy on investments.
The considerations taken into account by the Directors when reviewing goodwill
are detailed in Note 10. In addition, the Directors judge that the Group is
exempt from applying the equity method of accounting for associates in which
it has interests of over 20% as they consider the Group to be similar to a
venture capital organisation and elects to hold such investments at fair value
in the statement of financial position.
IAS28 Investments in Associates and Joint Ventures permits investments held by
entities which are similar to venture capital organisations to be excluded
from its scope where those investments are designated, upon initial
recognition, as at fair value through profit and loss.
3. Revenue from services
During the year the Group earned revenue from the provision of services to
portfolio companies and university partners as follows:
2022 2021
£'000 £'000
Retainers with portfolio companies 313 324
Corporate finance fees from portfolio company fundraisings - 15
Advisory fees from universities on initial spin-outs 7 -
License income from universities 9 23
329 362
4. Major customers
During the year the Group had five major customers that accounted for 86% of
its revenue from services (2021: five customers accounted for 76%). The
revenues generated from each customer were as follows:
2022 2021
£'000 £'000
Customer 1 78 78
Customer 2 72 72
Customer 3 48 48
Customer 4 44 48
Customer 5 42 29
284 275
5. Administration expenses
Expenses included in administrative expenses are analysed below.
2022 2021
£'000 £'000
Employee costs 2,320 1,534
Consultant 81 66
Travel and subsistence 7 1
Depreciation 8 6
Bad and doubtful debts 141 -
Fees payable to auditor:
- audit fee 60 59
- non-audit services 5 13
Legal, professional and financial costs 313 290
Premises lease 113 133
Administration costs 56 69
3,104 2,171
6. Directors and employees
The average number of people employed by the Group during the year was:
2022 2021
Number Number
Business and corporate development 16 15
2022 2021
£'000 £'000
Wages and salaries 1,714 1,125
Social security 218 146
Pension costs - defined contribution plans 208 98
Non-executive directors' fees 105 95
Other benefits 75 70
Total employee administration expenses 2,320 1,534
All employees with the exception of Jacqueline McKay are employed by Frontier
IP Group plc. Jacqueline McKay is employed by the subsidiary Frontier IP
Limited and her costs are shown in the table of directors' remuneration below.
The key management of the Group and the Company comprise the Frontier IP Group
Plc Board of Directors. The remuneration of the individual Board members is
shown below.
Remuneration comprises basic salary, pension contributions and benefits in
kind, being private health insurance and life assurance. The type of
remuneration is constant from year to year. Ad hoc bonuses may be paid to
reward exceptional performance and bonuses were paid during the year to 30
June 2022. Such bonuses are decided by the Remuneration Committee. Share
options are also awarded to employees from time to time. The granting of
share options to individual employees is determined taking into account
seniority, commitment to the business and recent performance.
The total remuneration for each director is shown below.
Amounts in £'000
Salary Bonus Other benefits Pension Share option Total
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Executive
N Crabb 143 138 143 - 5 4 14 12 64 72 368 226
J McKay 41 84 106 - 5 5 85 32 57 66 294 187
J Fish 112 108 74 - 4 3 37 11 58 66 287 188
M White 134 130 30 - 4 3 26 13 54 64 247 210
Non-executive
A Richmond 45 43 - - - - - - - - 45 43
M Bourne 12 26 - - - - - - - - 12 26
C Wilson 27 26 - - - - - - - - 27 26
J King 22 - - - - - - - - - 22 -
536 555 353 - 18 15 162 68 233 268 1,302 906
7. Taxation
2022 2021
£'000 £'000
Current tax - -
Deferred tax 649 676
Tax charge for the year 649 676
A reconciliation from the reported profit before tax to the total tax charge
is shown below:
2022 2021
£'000 £'000
Profit before tax 10,879 10,242
-
Profit before tax at the effective rate of corporation tax in the UK of 19%
(2021: 19%)
2,067 1,946
Effects of:
Fair value movement in investments not recognised in deferred tax (1,689) 159
Expenses not deductible for tax purposes 63 70
Movement in deferred tax asset of losses not recognised 36 (1,610)
Other adjustments 172
Tax charge for the year 649 676
The UK corporation tax rate was previously enacted to reduce to 17% from 1
April 2020. However, the Finance Act 2020, which was substantively enacted
on 11 March 2020, repealed this rate reduction and the corporation tax rate
has remained at 19% from 1 April 2020. The Finance Act 2021 received Royal
Assent on 10 June 2021 which has enacted an increase in the UK corporation tax
rate to 25% from 1 April 2023. The closing deferred tax assets and
liabilities have been calculated at a blended rate of 21.75%, on the basis
that this is the rate at which those assets and liabilities are expected to
unwind.
Deferred Tax
Group
Deferred tax liabilities at 30 June 2022
Unrealised gains investments (2,485)
(2,485)
Deferred tax assets at 30 June 2022
Tax losses 830
Short-term timing differences - pension 11
Short-term timing differences - outstanding share options 476
Short term timing differences - fixed assets 1
1,318
Net deferred tax (liability) / asset (1,167)
Group
Deferred tax movement
At 1 July 2021 237
Debited to profit and loss account 649
Debited to equity 281
At 30 June 2022 1,167
8. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to
the shareholders of Frontier IP Group Plc by the weighted average number of
shares in issue during the year.
Profit attributable to shareholders Weighted average number of shares Basic earnings per share amount in pence
£'000
Year ended 30 June 2022 10,230 55,005,546 18.60
Year ended 30 June 2021 9,566 54,761,420 17.47
b) Diluted
Diluted earnings per share is calculated by adjusting the weighted number of
ordinary shares outstanding to assume conversion of all dilutive potential
ordinary shares. The Company has only one category of dilutive potential
ordinary shares: share options. A calculation is done to determine the number
of shares that could have been acquired at fair value (determined as the
average annual market value share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above is compared with the number
of shares that would have been issued assuming the exercise of the share
options.
Profit attributable to shareholders Weighted average number of shares adjusted for share options Diluted earnings per share amount in pence
£'000
Year ended 30 June 2022 10,230 58,339,949 17.53
Year ended 30 June 2021 9,566 57,548,082 16.62
9. Tangible fixed assets
Fixtures and equipment
£'000
Cost
At 1 July 2020 26
Additions 12
Disposals (2)
At 30 June 2021 36
Additions 3
Disposals -
At 30 June 2022 39
Depreciation
Accumulated depreciation at 1 July 2020 21
Charge for the year to 30 June 2021 6
Disposals (2)
Accumulated depreciation at 30 June 2021 25
Charge for the year to 30 June 2022 8
Disposals -
Accumulated depreciation at 30 June 2022 33
Net book value
At 30 June 2021 11
At 30 June 2022 6
10 Goodwill
Group
£'000
Cost
At 1 July 2020, 30 June 2021 and at 30 June 2022 1,966
Impairment
At 1 July 2020, 30 June 2021 and at 30 June 2022 -
Carrying value
At 30 June 2022 1,966
At 30 June 2021 1,966
The Group conducts an annual impairment test on the carrying value of goodwill
based on the recoverable amount of the Group as one cash generating operating
unit. The recoverable amount is determined using a value in use model. The net
present value of projected cash flows is compared with the carrying value of
the Group's investments and goodwill. Projected cash flows are based on
management approved budgets for a period of three years and key assumptions
over a further seven years. When determining the key assumptions, management
has used both past experience and management judgement, but as future cash
inflows are derived primarily from the realisation of investments, these
assumptions are subject to a high degree of uncertainty. The key assumptions
used in the model were rate of return 33%; average yearly realisations 6.7%;
annual growth in trading income 8%; annual growth in the cost base 11%;
discount 11%. The Board considers that a reasonable possible change in the
rate of return or in the discount rate would cause the carrying amount of the
cash generating unit to exceed its recoverable amount. A decrease in the rate
of return from 33% to 18% and an increase in the discount rate from 11% to 29%
would cause the recoverable amount to equal the carrying amount. The Board
considers that the recoverable amount of the Group as one cash generating
operating unit is greater than its carrying value.
11. Categorisation of Financial Instruments
At fair value through profit or loss
£'000 Amortised cost
£'000 Total
Financial assets £'000
At 30 June 2021
Equity investments 31,982 - 31,982
Debt investments 2,320 - 2,320
Trade and other receivables - 595 595
Cash and cash equivalents - 1,992 1,992
Total 34,302 2,587 36,889
At 30 June 2022
Equity investments 39,712 - 39,712
Debt investments 2,981 - 2,981
Trade and other receivables - 1,052 1,052
Cash and cash equivalents - 4,368 4,368
Total 42,693 5,420 48,113
All financial liabilities are categorised as other financial liabilities and
recognized at amortised cost.
All net fair value gains in the year are attributable to financial assets
designated at fair value through profit or loss. (2021: all net fair value
gains were attributable to financial assets designated at fair value through
profit or loss.)
12. Investment in subsidiaries
Company Company 2021
2022
£'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 Alfredo Guisado
No 39, Sala 11, 1500-030 Lisboa, Portugal.
13. Equity investments
Equity investments are valued individually at fair value in accordance with
the Group's accounting policy on investments. All but one of the Group's
equity investments are unquoted and these have been categorised as being level
3, that is, valued using unobservable inputs. All gains and losses relate to
assets held at the year end, and the fair value movement has been shown in the
income statement as other operating income.
Equity Investments Group Group
2022 2021
£'000 £'000
At 1 July 31,982 19,444
Additions 614 71
Conversion of debt investments 764 276
Disposals (3,659) -
Unrealised profit on revaluation 10,011 12,191
At 30 June 39,712 31,982
The table below sets out the movement during the year in the value of unquoted
equity investments by the valuation matrix stages described in the accounting
policy on equity investments:
Unquoted Equity Investments
Stage Stage 2 Stage Stage 4 Stage Stage 6 Total
1 3 5
£'000 £'000 £'000 £'000 £'000 £'000 £'000
1 July 2020 75 914 3,245 15,210 - - 19,444
Transfers between stages (15) (720) 338 397 - - -
Fair value change through other operating income (29) 38 1,495 10,687 - - 12,191
Additions - - - 347 - - 347
30 June 2021 31 232 5,078 26,641 - - 31,982
Transfers between stages (16) 16 (13,210) - 13,210 -
Fair value increase through other operating income 6 550 1,008 7,866 - 581 10,011
Additions 10 - - 1,368 - 1,378
Disposals - - - - - (3,659) (3,659)
30 June 2022 31 798 6,086 22,665 - 10,132 39,712
The table below provides information about equity investment fair value
measurements.
(See the accounting policy on investments for a description of the valuation
matrix stages)
Valuation matrix stage No of Investments Fair value Unobservable inputs Reasonable possible shift
£'000 % +/- £000
At 30 June 2021
Stage 1 4 31 The company is valued at fair value which is typically at a notional value of 20% 6
around £50,000
Stage 2 2 232 Management's assessment of the value of IP transferred and valuation of grants 30% 70
from which economic benefit is derived
Stage 3 7 5,078 Management's assessment of performance against milestones and discussions of 39% 1,980
likely imminent fundraising
Stage 4 10 26,641 The price of last funding round provides unobservable input into the valuation 27% 7,193
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 0 - 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 - Based on bid price at balance sheet date. - -
30 June 2021 31,982 29% 9,249
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 the value 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 latest funding round provides unobservable input into the 28% 6,382
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 10,132 Based on bid price at balance sheet date. - -
30 June 2022 39,712 23% 9,070
The percentage reasonable possible shift for each stage is the blended
percentage reasonable possible shift of each company at that stage which are
based on the Directors' assessment of the level of uncertainty attached to the
valuation inputs.
The valuation of the Group's investment in Exscientia (Stage 6) at 30 June
2022 was £10,132,000, 26% of the Group's total equity investments and 21% of
its net assets at 30 June 2022. During the year, the Group sold part of the
investment in Exscientia for £6,525,000 realising a gain of £2,867,000. The
increase in the value of the Group's remaining holding in Exscientia over the
year to 30 June 2022 was £581,000, 5% of the Group's net unrealised profit on
the revaluation of investments and 5% of profit before tax for the year to 30
June 2022. The valuation is the bid price on the Nasdaq exchange at 30 June
2022.
Significant unobservable inputs:
The valuation of the Group's investment in Pulsiv (Stage 4) at 30 June 2022
was £9,083,000, 23% of the Group's total equity investments and 19% of its
net assets at 30 June 2022. The increase in the value of the Group's holding
in Pulsiv over the year to 30 June 2022 was £4,996,000, 46% of the Group's
net unrealised profit on the revaluation of investments and 46% of profit
before tax for the year to 30 June 2022. The significant inputs into the
valuation of the Group's holding in Pulsiv included the price of an investment
in July 2022.
The valuation of the Group's investment in The Vaccine Group (TVG) (Stage 3)
at 30 June 2022 was £5,554,000, 14% of the Group's total equity investments
and 11% of its net assets at 30 June 2022. The increase in the value of the
Group's holding in TVG over the year to 30 June 2022 was £1,008,000, 9% of
the Group's net unrealised profit on the revaluation of investments and 9% of
profit before tax for the year to 30 June 2022. The significant inputs into
the valuation of the Group's holding in TVG included an assessment of the
progress made in the nine projects in progress at 30 June 2022 since the most
recent funding round in January 2020, the growth in valuation of vaccine
companies over the period and a discounted cash flow model. The company's
activities on the projects funded by the US, UK and Chinese governments remain
on track and have met the milestones agreed with the funders. Post-year end
animal trials were completed on a transmissible Lassa fever vaccine, believed
to be the first of its kind in the world. The lab based trial demonstrated: a)
effective transmission of the vaccine from directly vaccinated to unvaccinated
animals, and b) a significant reduction in the shedding of Lassa fever virus
from both directly and indirectly vaccinated animals when infected (compared
to unprotected infected animals). Trials were also carried out on the
Streptococcus suis vaccine developed for use in pigs; the initial trials in
rabbits (a well-defined animal model) demonstrated a good immune response to
vaccination. This specific vaccine constructs and others developed by TVG will
be tested in pigs by project partners during the current financial year. These
activities are an indicator of the positive progress made during the period.
Whilst TVG has a growing portfolio of projects, each of the projects are
individually high risk but also potentially high reward for TVG. It is
therefore challenging to accurately value TVG given the material impact of
success or failure in any one of these projects. This remains particularly
challenging at this point in time as the ongoing COVID-19 environment has seen
a strong growth in the valuations of vaccine companies, particularly those
that are specifically targeting COVID-19. The current valuation has been
corroborated by discounted cash flows which have been risk adjusted for
probability of success using rates typically seen in animal health vaccine
development. A 25% reduction in the royalty rate, market penetration, success
rate or cost per dose would reduce the valuation of the Group's investment in
TVG by 26% while a 25% decrease in the discount rate would increase the
valuation by 47%. The high risk/reward nature of TVG's projects, the
difficulty in estimating future cash flows and the high level of judgement
involved mean there is a risk of material adjustment to the valuation.
Equity investments are carried in the statement of financial position at fair
value even though the Group may have significant influence over those
companies. This treatment is permitted by IAS28, Investments in Associates. At
30 June 2022 the Group held an economic interest of 20% or more in the
following companies:
Name of Undertaking Registered Address % Issued Share Capital Share Class
AquaInSilico Avenida Tenente Valadim, nº. 17, 2º F, 2560-275 Torres Vedras, Portugal 29.0% Ordinary
Alusid Limited Richard House, Winckley Square, Preston, Lancashire, PR1 3HP 38.9% Ordinary
Cambridge Raman Imaging Limited Botanic House,100 Hills Road, Cambridge, CB2 1PH 26.8% Ordinary
CamGraPhIC Limited Botanic House,100 Hills Road, Cambridge, CB2 1PH 20.8% Ordinary
Celerum Limited 30 East Park Road, Kintore, Inverurie, AB51 0FE 33.8% Ordinary
Des Solutio LDA Avenida Tenente Valadim, nº. 17, 2º F, 2560-275 Torres Vedras, Portugal 25.0% Ordinary
Elute Intelligence Holdings Limited 21 Church Road, Tadley, RG26 3AX 41.2% Ordinary
Fieldwork Robotics Limited Research And Innovation Floor 2 Marine Building, Plymouth University, 24.5% Ordinary
Plymouth, PL4 8AA
Insignals Neurotech Lda Rua Passeio Alegre, 20 Centro de Incubacyo e Aceleracyo Do Porto, Porto 32.9% Ordinary
4150-570, Portugal
Nandi Proteins Limited 93 George Street, Edinburgh, EH2 3ES 20.1% A Ordinary
NTPE LDA Avenida Tenente Valadim, nº. 17, 2º F, 2560-275 Torres Vedras, Portugal 47.9% Ordinary
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 £100,000 to £175,000 were made to four companies during the
period. All debt investments are categorised as fair value through profit or
loss and measured at fair value. The Group uses valuation techniques that
management consider appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs The price at
which the debt investment was made may be a reliable indicator of fair value
at that date but management consider the financial position and prospects for
the portfolio company borrower when valuing debt investments at subsequent
measurement dates.
Certain debt investments carry warrants granting the option to purchase
shares. The exercise price is generally the price of shares issued at the
first equity fundraising following the grant and the period of exercise is
generally at any time from the first equity fundraising to an exit event. The
fair value of the warrants is determined using the Black-Scholes-Merton
valuation model. The significant inputs into the model for each warrant were
the exercise price, the current share price valuation, volatility of 70%
(2021: 70%), expected life of between six months and five years and an annual
risk-free interest rate of 2.07% (2021: 0.04%). The value of warrants included
in debt investments at 30 June 2022 is £827,000 (2021: £60,000)
The movement of debt investments during the year is set out below:
Group Group 2021
2022
£'000 £'000
At 1 July 2,320 863
Additions 527 1,618
Disposals - -
Conversion to unquoted equity investments (764) (276)
Reclassification - -
Unrealised profit on revaluation 898 115
At 30 June 2,981 2,320
All debt investments are classed as non-current. Certain debt instruments have
conversion or repayment terms dependent on the amount and timing of an equity
fundraising by the portfolio company borrower. The exercise of a conversion
right would reclass the debt investment as a non-current equity investment.
The expectation is to exercise the right to repayment, however there is
uncertainty over the timing and amount of equity fundraisings. Furthermore,
notwithstanding the right to repayment being triggered, the Group may decide,
depending on the circumstance at the time, to defer repayment or convert into
equity for the benefit of the portfolio company borrower in which the Group
also holds an equity stake.
15. Trade receivables and other current assets
Group Group
2022 2021
£'000 £'000
Trade receivables 388 336
Receivables from Group undertakings - -
VAT 12 13
Prepayments and accrued income 386 58
Other debtors 128 109
Accrued interest 180 79
1,094 595
Expected credit loss at 1 July - -
Other current assets provided for in the year 43 -
Other current assets written off in the year - -
Expected credit loss at 30 June 43 -
Less receivables from Group undertakings - non current
- -
Current portion 1,051 595
Trade receivables
Group Group
2022 2021
£'000 £'000
Trade receivables not past due 28 54
Trade receivables past due 1-30 days 29 71
Trade receivables past due 31-60 days 26 25
Trade receivables past due 61-90 days 27 14
Trade receivables past due over 90 days 376 172
Gross trade receivables at 30 June 486 336
Expected credit loss at 1 July - -
Debts provided for in the year 98 -
Debts written off in the year - -
Expected credit loss at 30 June 98 -
Net trade receivables at 30 June 388 336
Trade receivables are amounts due from portfolio companies for services
provided with net amounts recorded as revenue in the consolidated statement of
comprehensive income. The expected credit losses are estimated by reference to
the financial position and specific circumstances of the portfolio companies,
by reference to past default experience and by assessment of the current and
forecast economic conditions. The nature of the services provided to portfolio
companies means the Group has in-depth knowledge of the companies' prospects
both for trading and raising capital and the number of companies with past due
receivables is small enabling a full assessment of recoverability by company.
The Group also considers if a general provision for expected loss through
applying the historical rate of portfolio company failures is material.
£22,000 of trade receivables at 30 June 2022 have been recovered post
year-end (2021: £34,000). Of the remaining £464,000, £104,000 is due from
Fieldwork Robotics (2021: £104,000), £101,000 from Elute Intelligence
(2021: £76,000), £43,000 from Alusid (2021: £87,000) and £120,000 from
Nandi Proteins Ltd (2021: £26,000). The Group's history of credit loss is
negligible and therefore management focus on the factors which impact the
ability of its debtor companies to successfully raise capital and a
probability of default as a result of the failure to raise capital is applied
to determine the expected credit loss
Receivables from Group undertakings carry interest of 2.0% above base rate
(2021: 2.0%).
16. Trade and other payables
Group Group
2022 2021
£'000 £'000
Trade payables 41 36
Payables to group undertakings - -
Social security and other taxes 53 56
VAT - -
Other creditors 10 6
Accruals and deferred income 114 110
At 30 June 218 208
Less payables to Group undertakings - non current
- -
Current portion 218 208
17. Share capital and share premium
Number of shares issued and fully paid Ordinary shares of 10p
Share premium
Total
£'000 £'000 £'000
At 30 June 2021 55,005,546 5,501 14,576 20,077
At 30 June 2022 55,005,546 5,501 14,576 20,077
18. Reserves
The reverse acquisition reserve was created on the reverse takeover of
Frontier IP Group Plc. The fair value of equity-settled share-based payments
is expensed on a straight-line basis over the vesting period and the amount
expensed in each year is transferred to the share-based payment reserve. The
amount by which the deferred tax asset arising on the intrinsic value of the
outstanding share options differs from the cumulative expense is also
transferred to the share-based payment reserve. Included in retained
earnings are unrealised profits amounting to £35,233,000. The movement in
reserves for the years ended 30 June 2022 and 2021 is set out in the
Consolidated and Company Statement of Changes in Equity.
19. Share options
Frontier IP has three option schemes. Under the Frontier IP Group Plc Employee
Share Option Scheme 2011 - Amended 26 March 2018, both enterprise management
incentive options and unapproved options are granted. No payment is required
from option holders on the grant of an option. The options are exercisable
starting three years from the date of the grant with no performance
conditions. The scheme runs for a period of ten years but no new options can
be granted as the Group has ceased to be a qualifying company for EMI purposes
No options were granted during the year.
Movements in the number of share options outstanding and their related
weighted average exercise prices were as follows:
2022 2022 2021 2021
Weighted average exercise price Weighted average exercise price
Options Options
Pence per share Pence per share
At 1 July 31.99 5,030,181 30.48 4,335,676
Granted - - 42.21 748,858
Exercised - - - -
Lapsed 64.36 (43,455) 51.45 (54,353)
At 30 June 31.71 4,986,726 31.99 5,030,181
Of the 4,986,726 outstanding options (2021: 5,030,181) 2,836,000 had vested at
30 June 2022 (2021: 2,134,000). The vested options have a weighted average
exercise price of 26.53p.
Share options outstanding at the end of the year have the following expiry
date and exercise prices:
Exercise price 2022 2021
Pence per share Number Number
2023 15.00 652,607 652,607
2024 26.88 432,393 432,393
2026 26.63 650,000 650,000
2027 40.00 399,000 399,000
2028 65.00 246,000 246,000
2028 10.00 456,000 456,000
2029 66.00 694,050 707,612
2029 10.00 736,946 737,711
2030 65.00 409,414 438,542
2030 10.00 310,316 310,316
The weighted average remaining contractual life of the outstanding options is
5.3 years.
20. Leases
2022 2021
Land & Buildings Land & Buildings
£'000 £'000
Commitments under non-cancellable leases expiring:
Within one year 91 72
Within two to five years - -
After five years - -
91 72
The leases relate to rental of serviced offices. Under the terms of the rental
agreements, the supplier has the right to terminate the agreement during the
period of use, however at inception of the agreement this was not considered
likely to occur. For short term leases (12 months or less) and leases of low
value assets, the Group has opted to recognise a lease expense on a
straight-line basis as permitted by IFRS 16's transitional rules. Currently
the longest lease ends in April 2023.
21. Cash used in operations
Group Group
2022 2021
£'000 £'000
Profit before tax 10,879 10,242
Adjustments for:
Share-based payments 329 368
Depreciation 8 6
Interest received (1) (9)
Unrealised profit on the revaluation of investments
(10,908) (12,306)
Realised profit on disposal of investments (2,867) -
Changes in working capital:
Trade and other receivables (456) 235
Trade and other payables 10 (2)
Cash flows from operating (3,006) (1,466)
activities
The movements in liabilities from financing cashflows are nil.
22. Related party transactions
Neil Crabb is a director of PoreXpert Limited, Pulsiv Limited and Alusid
Limited. Campbell Wilson is a director of Tarsis Technology Limited and
principal of Wilson Biopharma Consulting. Matthew White is a director of The
Vaccine Group Limited, Nandi Proteins Limited and Fieldwork Robotics Limited.
All these companies, with the exception of Wilson Biopharma, are portfolio
companies of the Group. The Group charged fees to these companies and was owed
amounts from these companies as follows:
By the Group Fees charged Fees charged Amounts owed Amounts owed
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Nandi Proteins Limited 78 78 120 26
Pulsiv Solar Limited 44 48 5 19
Alusid Limited 72 72 43 87
The Vaccine Group Limited 48 48 34 15
Celerum Limited 5 30 - -
Fieldwork Robotics Limited - 35 104 104
By Related Parties
Wilson Biopharma Consulting 12 12 - -
23. Subsequent events
Since 30 June 2022 the Group has sold 349,020 American Depositary Shares of
Exscientia for net proceeds of £3,433,000. The book value at 30 June 2022
of the shares sold was £3,126,000 resulting in a realised gain of £307,000
in the financial year to 30 June 2023.
24. Basis of preparation
The financial information does not constitute the financial statements.
For the period covered:
a) the statutory financial statements will be delivered to the registrar of
companies in due course;
b) the auditor has reported on the statutory financial statements and the
audit report was unqualified.
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