Final Results
5 November 2020
Frontier IP Group plc
("Frontier IP", the "Group" or "the Company")
Audited final results for the year ended 30 June 2020
Frontier IP is focused on the commercialisation of intellectual property
Financial highlights
· Fair value of our portfolio increased by 47% to £19,444,000 (2019: £13,252,000)
· Profit before tax increased by 78% to £4,184,000 (2019: £2,350,000)
· Total revenue and other operating income increased by 49% to £6,377,000 (2019: £4,268,000) - reflecting a net unrealised profit on the revaluation of investments of £5,973,000 (2019: £3,850,000)
· Revenue from services decreased by 3% to £404,000 (2019: £418,000)
· Basic earnings per share increased to 8.76p (2019: 5.77p)
· Cash balances at 30 June 2020 of £2,968,000 (2019: £1,466,000)
· Net assets per share as at 30 June 2020 of 51.0p (2019: 41.4p)
Corporate highlights
· Strong response to opportunities and challenges presented by COVID-19 includes portfolio companies taking advantage of additional UK government support and adapting portfolio company technology to meet challenges posed by the crisis
· Post period end, raised £2.3 million via an oversubscribed placing and PrimaryBid retail offer to provide firepower and nimbleness through additional investment in the Group and enable increased capacity for bridge financing and direct investment in portfolio companies
· The post period end fundraising attracting strong support from existing and a significant number of new investors
· Two new portfolio companies incorporated - Elute Intelligence Holdings Limited and AquaInSilico Lda
· Increased stake in portfolio company Celerum from 10 per cent to 33.8 per cent to support development of its nature-inspired artificial intelligence tools to improve the efficiency of logistics
· Appointed Nplus1 Singer Advisory LLP ("N+1 Singer") as the Group's sole broker. Allenby Capital remains the Group Nominated Adviser
· Team strengthened with the appointment of two specialist advisers focused on defence, and food and agritech. We also appointed a Technology Commercialisation Director and, post period end, a Software Commercialisation Director. Both posts are non-board roles
· Collaborative project with University of Cambridge to tackle gum disease awarded grant by the National Biofilms Innovation Centre
Portfolio highlights
· Strong commercial and technical progress, including industry engagement, within the portfolio overall, reflected in the increase in fair value
· Growing maturity of portfolio with a number of companies approaching inflection points reflected in faster flow of equity fund raisings:
o Exscientia secured $60 million in Series C funding, led by new investor Novo Holdings
o The Vaccine Group raised £680,000 and Fieldwork Robotics raised £316,000 through their first equity fund raisings
o Molendotech raised a further equity investment of £425,000
o Post period end, Cambridge Raman Imaging Limited attracted £250,000 equity investment in addition to winning €140,000 EU Graphene Flagship grant during the year
o Post period end Pulsiv Solar raised £500,000 via a convertible loan, including a £250,000 investment by the UK government's Future Fund matched by the University of Plymouth Enterprise Limited and Frontier IP
o Post-period end Elute Intelligence commercially launched Patent Reader Product following successful trials with a group of high-end users
o Post period end, Nandi Proteins raised £720,000 via a convertible loan, including a £360,000 investment from the UK government's Future Fund, matched by Frontier IP and Shackleton Finance Limited
· Portfolio companies also made strong commercial and technical progress, including developing new and existing industry partnerships:
o The Vaccine Group is developing vaccines for COVID-19, Ebola, Lassa fever, African Swine Fever bovine Tuberculosis and bovine mastitis, generating new commercialisable IP
o Exscientia entered collaborative agreements with Rallybio, Bayer AG and SRI International. Behind first AI-designed drug to enter human clinical trials in partnership with Sumitomo Dainippon Pharma. Entered COVID-19 joint initiative with Diamond Light Source and Calibr to progress compounds with potential to be viable drugs to combat the disease
o Elute Intelligence used novel technology to develop COVID-19 document reader and Patent Reader product, launched commercially post period end
o Post period end Pulsiv Solar announced it had started work funded by major multinational to incorporate technology into new product line, was engaged with other major companies and strengthened IP position
o Other post period end developments included Fieldwork Robotics entering into a collaboration with Bosch, Celerum supporting PlanSea Solutions and AquaInSilico working with a leading European environmental, water and waste management group
ENQUIRIES
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Frontier IP Group Plc |
T: 020 7332 2338 |
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Neil Crabb, Chief Executive Andrew Johnson, Communications & Investor Relations Company website: www.frontierip.co.uk
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neil@frontierip.co.uk M: 07464 546 025 |
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Allenby Capital Limited (Nominated Adviser) |
T: 0203 328 5656 |
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Nick Athanas / James Hornigold
N+1 Singer (Broker) Harry Gooden / George Tzimas
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T: 0207 496 3000 |
ABOUT FRONTIER IP
Frontier IP unites science and commerce by identifying strong intellectual property and accelerating its development through a range of commercialisation services. A critical part of the Group's work is involving relevant industry partners at an early stage of development to ensure technology meets real world demands and needs.
The Group looks to build and grow a portfolio of equity stakes and licence income by taking an active involvement in spin-out companies, including support for fund raising and collaboration with relevant industry partners at an early stage of development.
Chairman's Statement
Performance
The year to 30 June 2020 saw Frontier IP and its portfolio companies make strong progress despite the considerable uncertainties resulting from the COVID-19 outbreak. Chief Executive Officer Neil Crabb deals with the impact and our response in his statement, so I will limit my comments to saying that I am delighted with the responses from the Frontier IP team and our portfolio companies.
I would like to thank them for the splendid way they have reacted to the challenges and opportunities arising from the crisis.
Outside of coronavirus, highlights of the year saw the growing maturity of the portfolio reflected in an increased flow of fundraising and new industrial partnerships. A number of companies are now at important inflection points in their development. They have completed much hard toil in developing and validating their technologies and are now poised to see commercialisation materially accelerate.
Among them, of course, is Exscientia, whose artificial intelligence underpinned the first AI-designed drug to enter human clinical trials in partnership with Sumitomo Dainippon Pharma. The Company also raised $60 million through a successful Series C equity funding round during the year and signed further collaboration and commercial agreements, including with Bayer AG. Total milestone and other payments potentially due to Exscientia now come to more than £500 million.
Other successes include the significant progress made by Pulsiv Solar which is now being paid by a major multinational to incorporate its technology to improve the energy efficiency of power converters into a new product line. The company was already collaborating with Bosch.
Building on our relationship, Bosch also entered into a collaboration with Fieldwork Robotics to support development of its agricultural robots. The Company also completed its first ever equity fund raising and entered into a new industry collaboration after the period end; it is now working with Bonduelle, a leading European produce company, to develop a cauliflower harvesting iteration of its advanced agricultural robot technology.
I was also delighted with the rapid rate of progress at our two new portfolio companies. Elute Intelligence, the first in our portfolio to be formed from an existing company rather than a university spin out, commercially launched its Patent Reader post period end, as well as providing free-to-use tools for researchers investigating COVID-19. In addition, AquaInSilico won a European Union grant to commercialise its wastewater management software tools for improving the removal of phosphorus from wastewater.
Neil talks about the work The Vaccine Group is doing to create a family of vaccines, initially for use in animals, to combat COVID-19. The company is also making significant progress in its other work developing vaccines for Ebola, Lassa fever, African Swine Fever, bovine tuberculosis and Streptococcus suis. The company and its partners have already received substantial backing from the state sector. Strong endorsement from the private sector came post period when it announced a collaboration with The Pirbright Institute and ECO Animal Health Group.
We believe our portfolio as a whole is strongly placed despite the uncertainties resulting from the virus - and as we explain in our governance statements, our companies are playing their part in tackling some of the most pressing issues of the day.
Our governance
Good governance is vital for long-term sustainable growth, and we strive to achieve the highest standards for a company our size. We adhere to the Quoted Companies Alliance Corporate Governance Code, introduced in April 2018. To see more details about how we apply the principles of the Code, see the Our Governance section of this report and our website: https://www.frontierip.co.uk/about/governance/
Results
I am delighted with how the Group has performed in the year. An increase of 78% in pre-tax profits and an increase in the fair value of our portfolio to £19,444,000 vindicate the strength of our business model.
For the year to 30 June 2020, total revenue and other operating income increased by 49% to £6,377,000 (2019: £4,268,000) as a result of a net unrealised profit on the revaluation of investments of £5,973,000 (2019: £3,850,000), principally due to the increase in fair value of Pulsiv Solar and The Vaccine Group. Revenue from services, principally board retainers and licence income decreased slightly by 3% to £404,000 (2019: £418,000) as some services were assigned to companies' own management.
Outlook
"Our team at Frontier IP is strong, and we strengthened it further with several key appointments during the year. I would like to thank our team for an excellent performance in very difficult circumstances. It has also been a particularly tough environment for our partners and I would like to express my gratitude to our key stakeholders for their resilience and for their support in growing our portfolio, which I am sure will continue to develop and thrive in the years ahead."
Andrew Richmond
Chairman
Chief Executive Officer's Statement
Frontier IP saw another strong year for the period to 30 June 2020. The fair value of our portfolio rose 47% to £19,444,000. We continued to adhere to our capital efficient business model with profit before tax increasing by 78% to £4,184,000. These numbers were significantly ahead of initial management expectations.
More detail on the reasons for our strong progress can be found in the corporate and portfolio reviews elsewhere in these statements. The growing maturity of our portfolio and the number of companies now reaching important inflection points provide further evidence that the very different approach our business model takes to commercialising intellectual property is working.
The business model is also proving its resilience. The progress of the past year has clearly been overshadowed by the events of the final quarter as a result of COVID-19 and the unprecedented steps taken to stop the spread of the virus. At the time of our half year results in March, I said we always sought to be candid about the risks we face, and that remains true now we have a much clearer understanding of challenges and opportunities presented by the pandemic. While I would not want to underplay the negative impact on some portfolio companies, I believe for the portfolio as a whole, there is much more potential on the upside.
Broadly, the impacts on our portfolio companies fall into one of four areas - those where there are direct opportunities, others where opportunities arise from pandemic-induced changes to infrastructure, where the impact is neutral, and finally where the pandemic has caused delays to technical and commercial development.
Direct opportunities: most obviously The Vaccine Group, which has made rapid progress in developing a family of COVID-19 vaccines, initially for use in animals, to tackle the disease. Exscientia has been applying its artificial intelligence to identify potential treatments for COVID-19, while Elute has developed dedicated free-to-use document searching software to aid academics researching the virus. The pandemic has also highlighted other threats to global health, including the danger from antimicrobial resistance, Amprologix's area of expertise.
Infrastructure opportunities: areas where the pandemic has led to new ways of doing things, accelerated change or resulted in new government policy. For example, it has heightened the problems fruit and vegetable growers have in recruiting seasonal labour, the issue Fieldwork Robotics is seeking to address through its innovative agricultural robot technology. Other companies in this bracket would include Celerum, whose software improves the operational efficiency of complex logistics. CamGraPhIC , a company developing graphene and other 2D materials-based photonics able to transmit data significantly quicker over mobile and broadband networks, has the opportunity to benefit from the rise of remote working and the even greater need for high-speed transmission.
Neutral, where the impact is neither good or bad and the companies have been able to continue business on a reasonably normal basis. These include AquaInSilico, Des Solutio, NTPE, Insignals Neurotech, Cambridge Simulation Solutions, Cambridge Raman Imaging and Pulsiv Solar - although the latter, post period end, has benefited from the Future Fund scheme established to support innovative companies through the COVID-19 outbreak.
Finally, there are those companies facing delays to their technical or commercial development as a result of the outbreak. These are companies, for example, where decision making in industrial partners has been affected, or laboratories closed for the duration. However, the outbreak has not affected the fundamental worth of what they are doing, and we remain confident about their longer-term prospects. Although we did not furlough people directly employed by Frontier IP, some of our portfolio companies did so in line with their individual circumstances.
It is not only business opportunities that have arisen as a result of the crisis. There are also number of new funding opportunities, ranging from the Future Fund scheme from which Pulsiv and Nandi have benefitted, to the continuity grants to support companies through the pandemic offered by Innovate UK, the UK's innovation agency and which benefitted Fieldwork Robotics.
More broadly, grants are an important part of the funding mix: they are non-dilutive and, as applications are vetted by experts, provide important validation to the technology. Other grant winners during the period and after the period end included Cambridge Raman Imaging and AquaInSilico.
Different circumstances require different approaches. As part of our response to the crisis we have decided to tweak our business model to ensure we have the nimbleness and flexibility to seize opportunities as they arise. To this end, we plan to make more direct investment into our portfolio companies, either through equity investment, or bridge financing. To support this ambition, we were delighted to successfully complete an oversubscribed placing via our broker, N+1 Singer and a PrimaryBid retail offer raising £2.3 million after the period end. I was delighted to see so many retail investors take advantage of the offer. I would like to welcome them to Frontier IP and thank them for their support.
Alongside an equally successful and oversubscribed placing raising £3.8 million net of expenses in November 2019, it means we are in a strong financial position to take advantage of opportunities in an environment which is ever shifting. We remain confident about the long-term prospects for the Group.
Within the Group, we continue to build a platform for future growth, key to which is finding the right people. We were very pleased to announce in October 2019 the appointments of John Price, who has had a long and distinguished career at Mars, Incorporated and Air Vice-Marshal Gary Waterfall CBE as specialist advisers to deepen and expand industrial partnerships for the Group and its portfolio companies. They will focus respectively on food and agritech, and defence.
I was also delighted to strengthen our core team. Lucy Rowbotham, former Director Medical Technology Division, at Cambridge Consultants, joined us as Technology Commercialisation Director in a non-board role. Post period end, we also welcomed Mark Rosten as Software Commercialisation Director, also a non-board role, who joined us from mobile payments group Bango plc where he was Senior Vice President Product Development. One of the objectives when we completed our latest funding round was to use certain of the proceeds to hire high-quality talent, and we are delighted to have delivered on this so quickly and attracted such strong talent.
Another vital aspect of our business model is the strength of the industrial partnerships we forge. They are crucial for helping us understand the potential markets for our portfolio companies and to validate the technology. Therefore, I am very pleased to see our relationship with Bosch developing so strongly, with a new collaboration agreed to support Fieldwork Robotics in addition to the work they are already undertaking for Pulsiv.
I would also very much like to thank our investors and other stakeholders for their continued support in difficult times. We are well positioned despite the possible virus-related market and political headwinds and are confident that the year to come will build on the success we have enjoyed over the previous years of consistent growth and, despite these challenges, will be as successful as the year just passed.
Neil Crabb
Chief Executive Officer
Key Performance Indicators
The Key Performance Indicators for the Group are:
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KPI |
Description |
2020 Performance |
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Fair value of the portfolio |
Value of equity in the portfolio |
£19,444,000 (2019: £13,252,000) |
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Total revenue and other operating income |
Growth in the aggregate of revenue from services and change in fair value of the portfolio |
£6,377,000 (2019: £4,268,000) |
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Profit |
Profit before tax for the year |
£4,184,000 (2019: £2,350,000) |
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Net assets per share |
Value of the Group's assets less the value of its liabilities per share outstanding |
51.0p (2019: 41.4p) |
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Total initial equity in new portfolio companies |
Aggregate percentage equity earned from new portfolio companies during the year |
72% (2019: 123%) |
We are pleased to report that the Group achieved significant increases in four of its five Key Performance Indicators, despite the issues raised by the COVID-19 pandemic. Since the COVID-19 outbreak, we have been more cautious in taking on new portfolio companies and have focused more on the existing portfolio with the result that the initial equity in new portfolio companies for the year is less than in 2019.
The value of the Group's equity investments increased to £19,444,000 (2019: £13,252,000) with net assets increasing to £25,866,000 (2019: £17,591,000). Profit after tax for the Group for the year to 30 June 2020 was £4,184,000 (2019: £2,350,000). This result includes a net unrealised profit on the revaluation of investments of £5,973,000 (2019: £3,850,000) and reflects a decrease in services revenue to £404,000 (2019: £418,000) and greater administrative expenses of £2,241,000 (2019: £1,932,000) as the Group invested in people. The additional administrative expenses were offset by growth in unrealised profit on revaluation of investments.
Operational Review
Corporate
Frontier IP made strong progress during the year, despite the impact of COVID-19 in the final quarter. A number of portfolio companies are now at inflection points as demonstrated by the significant technical and commercial advances made by a number of portfolio companies outlined in the Portfolio Review.
In anticipation of this and to ensure we had the financial wherewithal to make the most of opportunities, we raised £3.8 million (net of expenses) through an oversubscribed placing in November 2019. COVID-19 has given rise to further opportunities across a number of portfolio companies; to enable us to pursue these opportunities we raised a further £2.3 million (before expenses) through an oversubscribed placing and Primary Bid retail offer. The funding will be used to invest in the Group to ensure there is the capacity to step up technology commercialisation. We are also flexing our business model to provide more direct financing to our portfolio companies via bridge funding and direct investments in portfolio companies.
People resource is a potential constraint on our ability to grow our business. During the year, Lucy Rowbotham joined as Technology Commercialisation Director in a non-board role. She is a former Director, Medical Technology Division, at Cambridge Consultants, and has extensive experience of technology commercialisation. Post period end, Mark Rosten joined as Software Commercialisation Director, also in a non-board role, from mobile payments group Bango plc where he was Senior Vice President Product Development.
We were also very pleased to announce the appointments of John Price and Air Vice-Marshal Gary Waterfall CBE as specialist advisers on food and agritech, and defence respectively.
Collaborations and partnerships are an important part of what we do whether with industry, academia or government. We were delighted post year end to extend our relationship with Bosch, already collaborating with Pulsiv Solar, to supporting Fieldwork Robotics with the commercial development of its agricultural robot technology.
We are also delighted to be collaborating with the University of Cambridge on a project to tackle gum disease which has been awarded a grant by the National Biofilms Innovation Centre. Other developments included increasing our stake in Celerum from 10 per cent to 33.8 per cent, reflecting the increased industry interest we are seeing in the company's novel artificial intelligence technology based on natural behaviour.
In September 2019, we announced N+1 Singer as the Group's sole broker alongside Allenby Capital Limited as the Group's Nominated Adviser.
Portfolio Review
Core portfolio
Frontier IP strives to develop and maximise value from its core portfolio, which numbered 19 at the year end. We do so by taking founding stakes in companies at incorporation and then working in long-term partnerships with shareholders, academic and industry partners. Core portfolio companies must meet two out of three criteria:
· The Group holds at least 10 per cent of the company's equity
· Our shareholding is worth at least £500,000
· We see substantial opportunity for a favourable exit, either through trade sale or IPO.
The core portfolio made strong progress across a number of fronts during the year, rising to meet the challenges and opportunities presented by COVID-19 during the final quarter. The growing maturity of the portfolio, with a number of companies approaching inflection points, was reflected in an increased flow of equity fund raisings, including the first equity funding rounds for The Vaccine Group and Fieldwork Robotics. We incorporated two new portfolio companies, including Elute Intelligence, the first from a non-university source. The other was AquaInSilico, our fourth spin out in Portugal. Industry engagement with our portfolio companies remained strong, with highlights including a slew of collaboration agreements for Exscientia, a major multinational funded development work for Pulsiv Solar and, post period end, Fieldwork Robotics entering into a collaboration with Bosch.
Alusid: Frontier IP stake: 35.6 per cent
Alusid's innovative formulations and processes create beautiful, premium-quality tiles, tabletops and other surfaces by recycling industrial waste ceramics and glass, most of which would otherwise be sent to landfill. Its processes also use less energy and water than conventional tile manufacturing.
The Company made significant technical progress during the year, successfully scaling up its technology for mass production on industry-standard manufacturing equipment. A successful pilot resulted in more than 1,000m2 of tiles being made in 24 hours - previously the company was limited to making 4,000m2 a year hand making tiles via a batch process at its Preston plant.
Alusid is in advanced discussions to widen the distribution of its products.
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 is initially developing a new family of antibiotics, helping to tackle antimicrobial-resistant MRSA and other superbugs, based on epidermicin, which is derived from bacteria found on human skin. Progress to date has been rapid and industry involvement is already secured. Ingenza, a leader in industrial biotechnology and synthetic biology, is also a shareholder and is working with Amprologix on scale up.
COVID-19 has generated heightened interest in other threats to human health globally. Among these, and one consistently highlighted the World Health Organisation, is the danger of antimicrobial resistance. Amprologix is well placed to take advantage.
AquaInSilico: Frontier IP stake 29.0 per cent
AquaInSilico, the Group's fourth spin out in Portugal, is developing software tools to optimise wastewater treatment across many different industries, including municipal wastewater treatment plants, oil groups, brewers, pulp, paper and steel makers, food processing and waste recovery businesses.
The Company, a spin out from NOVA University, NOVA School of Science and Technology, has developed sophisticated algorithms able to understand and predict how biological and chemical processes unfold in different operating conditions.
After the period end, the Company announced it had won €60,000 EIT RawMaterials grant from the European Union's European Institute of Innovation and Technology to build on an existing collaboration with a leading environmental, water and waste management group to commercialise tools to remove phosphorus from wastewater in a more environmentally friendly and effective way than existing technologies.
Cambridge Raman Imaging: Frontier IP stake: 30.9 per cent
Cambridge Raman Imaging was the Group's first graphene spin out, the result of a partnership between the University of Cambridge and the Politecnico di Milano, in Italy. It has been incorporated to commercialise research undertaken into ultra-fast lasers based on graphene or other 2D materials, initially for use in Raman-imaging microscopes to diagnose and monitor tumours. During the year, the Company won a €140,000 grant from the EU Graphene Flagship programme.
Post period end, it announced that it had successfully raised £250,000 in equity funding from external investors, been recognised as an official spin out by the Politecnico di Milano, opening up further funding avenues and access to facilities, and appointed a Chief Technology Officer.
CamGraPhIC: Frontier IP stake: 33.3 per cent
A second graphene spin out, this time from the University of Cambridge and Italian research institute CNIT, CamGraPhIC was incorporated to develop 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. The area is attracting increased interest, with COVID-19 and the subsequent rise in remote working underlining the need for very high broadband speeds.
Cambridge Simulation Solutions: Frontier IP stake: 40.0 per cent
Cambridge Simulation Solutions is developing advanced software to simulate and control complex, discontinuous processes, such as the way neural transmitters work in the brain. There are a number of potential industrial and medical applications for the spin out to explore.
Celerum Limited: Frontier IP stake: 33.8 per cent
Celerum is developing novel artificial intelligence to improve the operational efficiency of logistics and supply chains. The technology also has the potential to address a host of other complex scientific, engineering and industrial challenges.
The Company, a spin out from the Robert Gordon University in Aberdeen, is developing technology 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.
During the year, Frontier IP increased its stake in the Company from 10 per cent to 33.8 per cent in response to increased industry interest. Post period end, the Company announced it had been sub-contracted to support software development for Aberdeen-based PlanSea Solutions.
Des Solutio: Frontier IP stake: 25.0 per cent
Des Solutio, incorporated as the Group's second Portuguese spin out in October 2018, 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. The company is developing strong relationships with potential industry partners.
Des Solutio was established to commercialise the research of Associate Professor Ana Rita Duarte and Dr Alexandre Pavia of the NOVA University Lisbon, NOVA School of Science and Technology.
Elute Intelligence: Frontier IP stake 43.5 per cent
Elute Intelligence, whose incorporation was announced during the period, is the first portfolio company not to originate from a university, instead being formed from an existing business, CFL Software Limited and including additional IP developed by Frontier IP.
The Company is developing software tools to 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.
To support researchers investigating COVID-19, the Company launched a dedicated, free-to-use only document reader. Post period end, it also commercially launched a Patent Reader following a successful pilot trial with a user group comprising users from multinationals, high-tech SMEs and professional IP services providers.
Exscientia: Frontier IP stake: 2.4 per cent
Exscientia, a spin out from the University of Dundee, now based in Oxford, justified its reputation as a world leader in artificial intelligence-driven drug discovery by announcing its involvement in the world's first AI-designed drug to enter human clinical trials in partnership with Sumitomo Dainippon Pharma.
The announcement was part of another successful year. Exscientia signed further collaboration agreements with a host of leading pharmaceutical companies, including Rallybio, an early-stage company seeking to combat rare diseases, and giant Bayer AG to bring the total amount of upfront and potential milestone payments and royalties to more than £500 million.
During the period, the company successfully raised $60 million through a Series C funding round led by a new investor Novo Holdings. In March, Exscientia announced a joint initiative to identify COVID-19 drugs with Diamond Light Source, the UK's national synchrotron facility funded by the government, the University of Oxford, and Calibr, a division of Scripps Research (USA).
Fieldwork Robotics: Frontier IP stake: 26.7 per cent
Fieldwork Robotics successfully raised £316,000 through its first equity funding round after completing two sets of field trials for its novel raspberry-harvesting robot technology during the course of 2019. The company is now seeking to accelerate development of both the soft fruit picking and vegetable iterations of the technology.
To this end, it has entered into two further industry collaborations in addition to the work it is doing with Hall Hunter Partnership, a leading soft fruit grower, on the raspberry harvester. Post period end, it entered into a collaboration with Bosch, which will be optimising the robot arm technology and software to increase speed and reduce cost. It also started working with Bonduelle, a leading vegetable producer, on a three-year project to develop a cauliflower harvesting robot.
Although the COVID-19 outbreak has impacted subsequent field trials, it has also exacerbated the problems facing many growers in recruiting labour to work their farms and emphasised the potential for robots in agriculture.
Insignals Neurotech: Frontier IP stake: 33.0 per cent
Insignals Neurotech, a 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, is developing wireless wearable devices to precisely measure wrist rigidity to help surgeons place brain implants more accurately. The first product is aimed at Parkinson's disease and has already undergone two clinical studies.
Molendotech: Frontier IP stake: 12.6 per cent
Molendotech raised £425,000 in equity investment in May 2020 to accelerate development of its innovative rapid pathogen detection technology. The funding round valued the company at £3.9 million, up from its previous valuation, reflecting the success already achieved in commercialising its patented technology.
SirenBW, a kit to test bathing water for faecal matter based on Molendotech's proprietary bacterial detection technology, was launched through Palintest, a subsidiary of FTSE 100 group Halma plc. 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. 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. The company is already in collaboration with G's Group to develop tests detecting the different levels of bacteria in produce, food contact areas, and irrigation and washing water.
Molendotech has also received strong interest internationally from potential customers concerned about the risk of secondary infections result from the COVID-19 outbreak.
Nandi Proteins: Frontier IP stake: 20.1 per cent
Nandi Proteins develops processes and process control technology to create new ingredients from whey, collagen and vegetable proteins to replace chemical E-number additives, fat and gluten in processed food. The technology is now in the process of being scaled up following successful small-scale trials in collaboration with industry partners, which include Devro and Kerry Foods Group.
With its expertise in vegetable proteins and a growing consumer demand for more meat-free products, Nandi is attracting strong interest from major companies in the food industry.
The Company continued to make good technical progress during the year. Although commercial progress has been delayed by the COVID-19 outbreak, the disease and its greater impact on the obese has resulted in the UK government stepping up efforts to encourage people to eat more healthily. The Company also raised £720,000 through a convertible loan from the UK government's Future Fund, Frontier IP and Shackleton Finance Limited.
NTPE LDA: Frontier IP stake: 31.6 per cent
NTPE was our first spin out in Portugal. The company is developing Paper-E, a novel technology to print electronic circuits, sensors and semiconductors onto any cellulose-based paper. It does so by replacing the silicon used in electronics with eco-friendly metal oxides and cellulose. Applications include paper-based diagnostic kits, smart packaging, logistics, and for use with banknotes and passports.
The company was spun out of the NOVA University Lisbon, NOVA School of Science and Technology to commercialise the work of professors Elvira Fortunato and Rodrigo Martins, who lead a team of more than 65 researchers.
PoreXpert: Frontier IP stake: 15.0 per cent
PoreXpert's software and consultancy services provide highly accurate information about the void spaces in porous materials and how gases and liquids behave within them. Customers include major players in the nuclear industry and the oil and gas sector.
Pulsiv Solar: Frontier IP stake: 18.9 per cent
Pulsiv Solar's technology improves the energy efficiency of photovoltaic cells and the power converters used by a host of everyday devices, such as laptops, televisions and mobile phones.
The company enjoyed a year of strong progress, where it successfully proved the technology had very broad application across wide range of industries and product areas. Post period end, Pulsiv announced it had started design work funded by a major multinational to incorporate the technology into a new product line and engaged with a number of other large multinationals about further applications. The company has also strengthened its IP position.
The step change in industrial engagement follows the successful development of a series of demonstration products. Pulsiv was already working with Bosch to optimise the design, cost and manufacturability of the product; the company will be able to market the devices as "Engineered by Bosch" when it moves into commercial production. There is strong industry and government interest in the technology.
Also post period end, Pulsiv announced it had raised a convertible loan of £500,000, with £250,000 from the UK government's Future Fund to support innovative companies through the COVID-19 outbreak being matched by University of Plymouth Enterprise Limited and Frontier IP.
Tarsis Technology: Frontier IP stake: 18.0 per cent
A spin out from the University of Cambridge, Tarsis Technology entered into a collaboration agreement with a world-leading manufacturer of crop protection products in July 2018. The collaboration is researching the use of the company's technology to deliver chemical pesticides and fungicides in a more precise and controlled way using metal-organic framework particles.
The Vaccine Group: Frontier IP stake: 17.0 per cent
The Vaccine Group develops novel vaccine technologies to combat zoonotic diseases, which jump from species to species, including humans, and other diseases.
The period represented a stand-out year for the company. In addition to raising £680,000 through its first equity fund raising, the Company proved the flexibility of its novel vaccine platform technology by making strong progress in developing a range of COVID-19 vaccines, initially for use in animals. The University of Plymouth spin out took significant step forwards with other applications of the technology. Rabbit trials of a bovine mastitis vaccine revealed the potential for new IP, while vaccines to combat bovine tuberculosis and African Swine Fever are ready for animal trials. Work on Ebola and Lassa fever vaccines funded by the US government are also progressing well.
The Company and its partners have already won major backing for their work, winning grants from the US, UK and Chinese governments totalling more than £9 million. Post period end, these strong endorsements from the public sector were enhanced by its first industrial validation, when it entered into a three-way collaboration with The Pirbright Institute and ECO Animal Health Group.
As well as the project to tackle Ebola and Lassa fever, grant-funding also backs work underway to tackle Streptococcus suis, an emerging antibiotic-resistant disease that can leap from pigs to humans.
Core Portfolio at 30 June 2020
|
Portfolio Company |
% Issued Share Capital |
About |
Source |
|
AquaInSilico |
29.0% |
Digital tools to optimise wastewater treatment |
FCT Nova |
|
Alusid Limited |
35.6% |
Recycled materials |
University of Central Lancashire |
|
Amprologix Limited |
10.0% |
Novel antibiotics to tackle antimicrobial resistance |
Universities of Plymouth and Manchester |
|
Cambridge Raman Imaging Limited |
30.9% |
Medical imaging using ultra-fast lasers |
University of Cambridge and Politecnico di Milano |
|
Cambridge Simulation Solutions Limited |
40.0% |
Methods to simulate and control complex chemical processes |
University of Cambridge |
|
CamGraPhIC Limited |
33.3% |
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 Holdings Limited |
43.5% |
Software tools able to intelligently search, compare and analyse unstructured data |
Existing business |
|
Exscientia Limited |
2.4% |
Novel informatics and experimental methods for drug discovery |
University of Dundee |
|
Fieldwork Robotics Limited |
26.7% |
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 |
12.6% |
Rapid detection of water borne bacteria |
University of Plymouth |
|
Nandi Proteins Limited |
20.1% |
Food protein technology |
Heriot-Watt University, Edinburgh |
|
NTPE LDA |
31.6% |
Novel technology to print electronic circuits, sensors and semiconductors onto paper |
FCT Nova |
|
PoreXpert Limited |
15.0% |
Analysis and modelling of porous materials |
University of Plymouth |
|
Pulsiv Solar Limited |
18.9% |
High efficiency power conversion and solar power generation |
University of Plymouth |
|
Tarsis Technology Limited |
18.0% |
Controlled delivery of agrochemicals using metal-organic frameworks |
University of Cambridge |
|
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 four further portfolio companies which do not meet the test for inclusion in its core portfolio. At 30 June 2020, the value of these holdings was £33,624, equivalent to 0.2% of the fair value of the Group's portfolio at 30 June 2020.
Financial Review
Key Highlights
The value of the Group's equity investments increased to £19,444,000 (2019: £13,252,000) with net assets increasing to £25,866,000 (2019: £17,591,000).
Profit after tax for the Group for the year to 30 June 2020 was £4,184,000 (2019: £2,350,000). This result includes a net unrealised profit on the revaluation of investments of £5,973,000 (2019: £3,850,000) and reflects a decrease in services revenue to £404,000 (2019: £418,000) and greater administrative expenses of £2,241,000 (2019: £1,932,000) as the Group invested in people. The additional administrative expenses were offset by growth in unrealised profit on revaluation of investments.
Revenue
Total revenue and other operating income for the year to 30 June 2020, which is the aggregate of services revenue and unrealised gain on the revaluation of investments, increased 49% to £6,377,000 (2019: £4,268,000). Revenue from services decreased 3% to £404,000 (2019: £418,000). The Group's net unrealised profit on the revaluation of investments increased 55% to £5,973,000 (2019: £3,850,000). Unrealised gains on revaluation of investments of £7,064,000 (2019: £3,885,000) were offset by fair value decreases of £1,091,000 (2019: £35,000). £2,646,000 of the gain relates to Pulsiv Solar Limited and £1,428,000 to The Vaccine Group Limited while £760,000 of the impairments relates to Exscientia Limited which raised capital around 30 June 2020 at a price lower that the carrying value.
Administrative Expenses
Administrative expenses increased by 16% to £2,241,000 (2019: £1,932,000). The increase is primarily due to increased staff, salaries and associated costs of £188,000 and share based payments of £103,000 while travel and subsistence costs decreased by £33,000 due to Covid-19 restrictions during the second half of the year.
Earnings Per Share
Basic earnings per share were 8.76p (2019: 5.77p). Diluted earnings per share were 8.41p (2019: 5.51p)
Statement of Financial Position
The principal items in the statement of financial position at 30 June 2020 are goodwill £1,966,000 (2019: £1,966,000) and financial assets at fair value through profit and loss, principally equity holdings of £19,444,000 (2019: £13,252,000) and debt investments £863,000 (2019: £437,000) in portfolio companies. The carrying value of these items is determined by the Directors using their judgement when applying the Group's accounting policies. The considerations taken into account by the Directors when reviewing the carrying value of goodwill are detailed in Note 9. The matters taken into account when assessing the fair value of the portfolio companies are detailed in the accounting policy on investments.
The Group had net current assets at 30 June 2020 of £3,588,000 (2019: £2,212,000). The current assets at 30 June 2020 include trade receivables of £474,000 which are more than 90 days overdue of which £337,000 has been collected since the year end leaving £137,000 to collect from certain portfolio companies, being Alusid and Fieldwork Robotics. Other debtors also includes an unsecured interest free loan to Alusid of £31,000. The directors are confident that both Alusid and Fieldwork Robotics will be able to raise sufficient funds to finance their business plans and pay the amounts due to the Group.
Net assets of the Group increased to £25,866,000 at 30 June 2020 (30 June 2019: £17,591,000) resulting in net assets per share of 51.0p (2019: 41.4p).
Cash
The Group's cash balances increased during the year by £1,502,000 to £2,968,000 at 30 June 2020. Operating activities consumed £1,758,000 (2019: £1,270,000) and investing activities consumed £600,000 (2019: £772,000) reflecting the purchase of financial assets at fair value of £685,000 (2019: £779,000). The group raised cash of £3,814,000 net of costs through a placing in November 2019 and subsequent to the year-end raised cash of £2,178,000 net of costs through a capital raising in July 2020.
Key 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 key broader risks - financial, operational, cash flow and personnel - are considered below.
The principal financial risks of the business are a fall in the value of the Group's portfolio, the impairment of the value of goodwill and recovery of overdue debt from portfolio companies. 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 value of goodwill is linked to the progress of the existing portfolio and to continued identification and acquisition of equity stakes in new portfolio companies.
There is a risk of certain portfolio companies being unable to repay outstanding loans or trade debt owed to the Group. The Group aims to mitigate this risk by helping ensure that these portfolio companies meet planned milestones and are in a position to finance their business plans, typically through fundraising, and repay the debt when due. Since the year end, 69% of overdue trade receivables at 30 June 2020 have been collected.
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 spin out companies are particularly sensitive to downturns in the economic environment. Any downturn would mean considerable uncertainty in the 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 relationships with co-investors, industry partners and financial institutions.
The Group reviewed its risk policy including considering the impact of the COVID-19 pandemic on the Group; the principal risks to the Group are set out below.
Capital risk
The impact of COVID-19 may have resulted in a reduced ability for the Group to source further equity funding. Post-period end, the Group completed an equity fundraising to strengthen its balance sheet and to enable bridge funding and direct investment in its portfolio companies. In addition, where appropriate, we have supported our portfolio companies in raising equity funding, accessing public funding and reducing cost.
Operational risk
We have sought to minimise disruption to the Group's operations by ensuring that the team continues to work effectively remotely and good communication is maintained. We have supported our portfolio companies in doing the same.
Valuation risk
The impact of COVID-19 on our portfolio companies' progress has varied across the portfolio. However, we continue to work closely with our portfolio companies to ensure that our portfolio is supported to meet, or benefit, from the challenges that COVID-19 brings.
A reduction in public funding to the Higher Education sector may result in reduced research funding; universities changing their approach to research, which generates intellectual property, and subsequent commercialisation; or consolidation among Higher Education Institutions. 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.
Brexit presents potential risks for the business: the unknown impact on funding for research and development in both the higher education sector as discussed above and for our portfolio companies; the uncertain economic conditions could impact the ability of our portfolio companies to grow, in particular potentially increased difficulty recruiting and retaining appropriately skilled staff. There may also be risks to certain portfolio companies of potential tariffs, shipping delays and large foreign currency fluctuations. We believe the direct impact of Brexit on the Group's operations is likely to be limited but will be kept under review. The Group will work closely with its portfolio companies to mitigate the impact of any issues arising.
Until the Group generates cash through an investment realisation it will rely on raising additional capital to fund the Group's operations. The uncertainty centres on the ability of management to identify and effect realisations from the portfolio and generate service revenue streams to reduce the Group's reliance on raising money from capital markets. In order to manage this risk, t he Group continues to pursue its aim of actively seeking realisation opportunities within its portfolio and growing service revenue to reduce the requirement for additional capital raising.
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. The Executive Directors are encouraged to hold direct interests in shares in the Company.
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
|
|
|
2020 |
|
2019 |
|
|
Notes |
£'000 |
|
£'000 |
|
Revenue |
|
|
|
|
|
Revenue from services
Other operating income Unrealised profit on the revaluation of investments |
12,13 |
404
5,973 |
|
418
3,850 |
|
|
|
|
|
|
|
|
|
6,377 |
|
4,268 |
|
|
|
|
|
|
|
Administrative expenses Share based payments Dividend income on financial assets at fair value through profit or loss Other income |
4 |
(2,011) (230) - 27 |
|
(1,805) (127) 2 - |
|
|
|
|
|
|
|
Profit from operations |
|
4,163 |
|
2,338 |
|
|
|
|
|
|
|
Interest income on short term deposits |
|
21 |
|
12 |
|
|
|
|
|
|
|
Profit from operations and before tax |
|
4,184 |
|
2,350 |
|
|
|
|
|
|
|
Taxation |
6 |
- |
|
- |
|
|
|
|
|
|
|
Profit and total comprehensive income attributable to |
|
|
|
|
|
the equity holders of the Company |
|
4,184 |
|
2,350 |
|
|
|
|
|
|
|
Profit per share attributable to the equity holders of the Company: |
|
|
|
|
|
Basic earnings per share |
7 |
8.76p |
|
5.77p |
|
Diluted earnings per share |
7 |
8.41p |
|
5.51p |
All of the Group's activities are classed as continuing.
There is no other comprehensive income in the year (2019: nil).
Consolidated Statement of Financial Position
At 30 June 2020
|
|
|
2020 |
|
2019 |
|
|
Notes |
£'000 |
|
£'000 |
|
Assets |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Tangible fixed assets |
8 |
5 |
|
7 |
|
Goodwill |
9 |
1,966 |
|
1,966 |
|
Equity investments Debt investments |
12 13 |
19,444 863 |
|
13,252 40 |
|
Trade receivables |
14 |
- |
|
114 |
|
|
|
22,278 |
|
15,379 |
|
Current assets |
|
|
|
|
|
Debt investments |
13 |
- |
|
397 |
|
Trade receivables and other current assets |
14 |
830 |
|
488 |
|
Cash and cash equivalents |
|
2,968 |
|
1,466 |
|
|
|
3,798 |
|
2,351 |
|
Total assets |
|
26,076 |
|
17,730 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
15 |
(210) |
|
(139) |
|
|
|
(210) |
|
(139) |
|
|
|
|
|
|
|
Net assets |
|
25,866 |
|
17,591 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Called up share capital |
16 |
5,076 |
|
4,243 |
|
Share premium account |
16 |
12,819 |
|
9,791 |
|
Reverse acquisition reserve |
17 |
(1,667) |
|
(1,667) |
|
Share based payment reserve |
17 |
477 |
|
293 |
|
Retained earnings |
17 |
9,161 |
|
4,931 |
|
Total equity |
|
25,866 |
|
17,591 |
Consolidated Statement of Changes in Equity
For the year ended 30 June 2020
|
|
Share capital |
Share premium account |
Reverse acquisition reserve |
Share- based payment reserve |
Retained earnings |
Total equity attributable to equity holders of the Company |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
At 1 July 2018
|
3,828 |
7,789 |
(1,667) |
186 |
2,581 |
12,717 |
|
Issue of shares |
415 |
2,002 |
|
(20) |
|
2,397 |
|
Share-based payments |
- |
- |
- |
127 |
- |
127 |
|
Profit/total comprehensive income for the year |
- |
- |
- |
- |
2,350 |
2,350 |
|
|
|
|
|
|
|
|
|
At 30 June 2019 |
4,243 |
9,791 |
(1,667) |
293 |
4,931 |
17,591 |
|
|
|
|
|
|
|
|
|
Issue of shares |
833 |
3,028 |
- |
(46) |
46 |
3,861 |
|
Share-based payments |
- |
- |
- |
230 |
- |
230 |
|
Profit/total comprehensive income for the year |
- |
- |
- |
- |
4,184 |
4,184 |
|
|
|
|
|
|
|
|
|
At 30 June 2020 |
5,076 |
12,819 |
(1,667) |
477 |
9,161 |
25,866 |
Consolidated Statement of Cash Flows
For the year ended 30 June 2020
|
|
|
|
|
2020 |
2019 |
|
|
|
|
Notes |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
Cash used in operations |
|
|
20 |
(1,758) |
(1,270) |
|
Taxation paid |
|
|
6 |
- |
- |
|
Net cash used in operating activities |
|
|
|
(1,758) |
(1,270) |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchase of tangible fixed assets |
|
|
8 |
(3) |
(7) |
|
Purchase of equity investments |
|
|
12 |
(97) |
(363) |
|
Purchase of debt investments |
|
|
13 |
(588) |
(416) |
|
Disposal of debt investments |
|
|
13 |
40 |
- |
|
Amounts receivable from group undertakings |
|
|
|
- |
- |
|
Interest received Other income Dividend income on financial assets at fair value through profit or loss |
|
|
|
21 27 - |
12 - 2 |
|
Net cash used in investing activities |
|
|
|
(600) |
(772) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from issue of equity shares |
|
|
|
4,175 |
2,552 |
|
Costs of share issue |
|
|
|
(315) |
(155) |
|
|
|
|
|
|
|
|
Net cash generated from financing activities |
|
|
|
3,860 |
2,397 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
1,502 |
355 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
|
1,466 |
1,111 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
|
|
2,968 |
1,466 |
Notes
1. Financial risk management
Financial risk factors
Going concern
The COVID-19 pandemic has not impacted the Group and its portfolio companies to the same extent as many other businesses but the uncertainty over the length of the pandemic presents a significant risk to the Group's future operations. The Directors have assessed the Group's going concern position as outlined in the accounting policies and concluded that the Group has sufficient cash to cover expenditure for a period of more than twelve months.
The Group's business activities are set out in the Strategic Report. These activities expose the Group to a number of financial risks. The following describes the Group's objectives, policies and processes for managing these risks and the methods used to measure them. The Group operates primarily in the UK and although it has started to develop business in Portugal, transactions in foreign currency were minimal during the year and at the year-end. It has therefore not been exposed to any material foreign exchange risk.
(a) Market risk
Interest rate risk
As the Group has no borrowings it only has limited interest rate risk. The impact is on income 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 £19,444,000 (2019: £13,252,000).
(b) Credit risk
The Group's credit risk is primarily attributable to its debt investments, trade receivables, other debtors and cash equivalents. The Group's current cash and cash equivalents are held with two UK financial institutions, the Bank of Scotland plc and Barclays Bank plc, both of which have a credit rating of "P1" from credit agency Moody's, indicating that Moody's consider that these banks have a "superior" ability to repay short-term debt obligations. The concentration of credit risk from trade receivables and other debtors varies throughout the year depending on the timing of transactions and invoicing of fees. Details of major customers to the Group are set out in Note 3. Details of trade receivables and other current assets are set out in note 13. The Group's debt investments are loans to its portfolio companies and its customers are its portfolio companies. These are primarily early stage and start-up companies and Group management determine impairment and assess expected credit loss through taking into account both trading and fundraising prospects in addition to the financial position and other factors. Management's assessment is aided through representation on the Board and/or through providing advisory services to the companies.
The maximum exposure to credit risk for debt investments, trade receivables, other current asset and cash equivalents is represented by their carrying amount.
(c) Capital risk management
The Group is funded by equity finance only. Total capital is calculated as 'total equity' as shown in the consolidated statement of financial position. The Group's objectives for managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to manage the cost of capital. In order to maintain the capital structure the Group may issue new shares as required. The Group currently has no debt. There were no changes in the Group's approach to capital management during the year.
(d) Liquidity risk
The Group seeks to manage liquidity risk to ensure sufficient liquidity is available to meet the requirements of the business and to invest cash assets safely and profitably. The Group's business model is to realise cash through the sale of investments in portfolio companies and in the absence of such realisations the Group would plan to raise additional capital. The Board reviews available cash to ensure there are sufficient resources for working capital requirements and investments. At 30 June 2020 and 30 June 2019 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 unquoted equity 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 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 12 and show a reasonable possible shift for the total unquoted equity investments of 32% being £6,315,000 from a total value of £19,444,000.
(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 value in use models which require a number of estimations and assumptions about the timing and amount of future cash flows. As future cash inflows relate primarily to capital gains on the sale of unquoted equity investments, these estimates and assumptions are subject to a high degree of uncertainty. Note 9 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 applies the IFRS 9 simplified approach to measuring expected loss, details of which are provided in note 14.
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 9. 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. Major customers
During the year the Group had five major customers that accounted for 75% of its revenue from services (2019: five customers accounted for 81%). The revenues generated from each customer were as follows:
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
Customer 1 |
90 |
102 |
|
Customer 2 |
72 |
77 |
|
Customer 3 |
53 |
65 |
|
Customer 4 |
48 |
48 |
|
Customer 5 |
39 |
48 |
|
|
302 |
340 |
4. Administration expenses
Expenses included in administrative expenses are analysed below.
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
Employee costs |
1,446 |
1,276 |
|
Consultant |
43 |
16 |
|
Travel and subsistence |
22 |
56 |
|
Depreciation |
6 |
6 |
|
Bad and doubtful debts |
(1) |
(9) |
|
Audit services: |
|
|
|
- audit of the Company and consolidated accounts - audit of the Company's subsidiaries pursuant to legislation |
65 2 |
35 7 |
|
Non-audit services: - tax services - consultancy services |
8 9 |
7 16 |
|
Legal, professional and financial costs |
217 |
218 |
|
Premises lease |
142 |
133 |
|
Administration costs |
52 |
44 |
|
|
2,011 |
1,805 |
5. Directors and employees
The average number of people employed by the Group during the year was:
|
|
2020 |
2019 |
|
|
Number |
Number |
|
|
|
|
|
Business and corporate development |
15 |
14 |
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
Wages and salaries |
1,081 |
961 |
|
Social security |
146 |
124 |
|
Pension costs - defined contribution plans |
73 |
71 |
|
Non-executive directors' fees |
95 |
92 |
|
Other benefits |
51 |
28 |
|
Share option expense |
230 |
127 |
|
|
1,676 |
1,403 |
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. Such bonuses are decided by the Remuneration Committee on the recommendation of the Chief Executive Officer. 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.
|
|
Salary |
Other benefits |
Pension |
Share option |
Total |
|||||
|
|
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
'000 |
|
Executive |
|
|
|
|
|
|
|
|
|
|
|
N Crabb |
138 |
133 |
3 |
3 |
15 |
11 |
21 |
29 |
177 |
176 |
|
J McKay |
103 |
99 |
4 |
4 |
11 |
10 |
11 |
21 |
129 |
134 |
|
D Cairns |
12 |
74 |
- |
- |
1 |
7 |
0 |
8 |
13 |
89 |
|
J Fish |
108 |
104 |
3 |
3 |
11 |
10 |
20 |
21 |
142 |
138 |
|
M White |
130 |
99 |
3 |
2 |
13 |
10 |
20 |
14 |
166 |
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-executive |
|
|
|
|
|
|
|
|
|
|
|
A Richmond |
43 |
42 |
- |
- |
- |
- |
- |
- |
43 |
42 |
|
M Bourne |
26 |
25 |
- |
- |
- |
- |
- |
- |
26 |
25 |
|
C Wilson |
26 |
25 |
- |
- |
- |
- |
- |
- |
26 |
25 |
|
|
586 |
601 |
13 |
12 |
51 |
48 |
72 |
93 |
722 |
754 |
6. Taxation
A reconciliation from the reported profit before tax to the total tax charge is shown below:
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Profit before tax |
4,184 |
2,350 |
|
Profit before tax at the effective rate of corporation tax in the UK of 19% (2019: 19%) |
795 |
446 |
|
Effects of: |
|
|
|
Non-taxable income |
(1,086) |
(733) |
|
Expenses not deductible for tax purposes |
48 |
26 |
|
Trading losses carried forward |
295 |
269 |
|
Other adjustments |
(52) |
(8) |
|
Tax charge for the year |
- |
- |
The tax asset relating to the Group losses is not recognised, in accordance with Group policy. The Group has a tax asset for cumulative unrelieved management expenses and other tax losses of £1,621,000 (2019: £1,152,000) available for use to offset future profits. These amounts are stated using a corporation tax rate of 19% of total losses of £8,531,000 (2019: 17% of total losses of £6,779,000).
There is a deferred tax liability on the difference between base cost and fair value of certain financial assets at fair value through profit and loss which are not exempt from tax under the Substantial Shareholding Exemption. There are excess management expenses and trading losses carried forward in the Group and there is the ability to transfer gains arising which would be covered by excess management expenses and no tax liability would be expected to arise.
7. 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 £'000 |
Weighted average number of shares |
Basic earnings per share amount in pence |
|
|
|
|
|
|
Year ended 30 June 2020 |
4,184 |
47,753,569 |
8.76 |
|
|
|
|
|
|
Year ended 30 June 2019 |
2,350 |
40,700,979 |
5.77 |
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 £'000 |
Weighted average number of shares adjusted for share options |
Diluted earnings per share amount in pence |
|
|
|
|
|
|
Year ended 30 June 2020 |
4,184 |
49,775,053 |
8.41 |
|
|
|
|
|
|
Year ended 30 June 2019 |
2,350 |
42,632,932 |
5.51 |
8. Tangible fixed assets
|
|
Fixtures and equipment |
|
|
£'000 |
|
Cost |
|
|
At 1 July 2018 |
17 |
|
Additions |
7 |
|
Disposals |
(1) |
|
At 30 June 2019 |
23 |
|
Additions |
3 |
|
Disposals |
- |
|
At 30 June 2020 |
26 |
|
|
|
|
Depreciation |
|
|
Accumulated depreciation at 1 July 2018 |
10 |
|
Charge for the year to 30 June 2019 |
6 |
|
Disposals |
- |
|
Accumulated depreciation at 30 June 2019 |
16 |
|
Charge for the year to 30 June 2020 |
5 |
|
Disposals |
- |
|
Accumulated depreciation at 30 June 2020 |
21 |
|
Net book value |
|
|
At 30 June 2020 |
5 |
|
At 30 June 2019 |
7 |
9. Goodwill
|
|
Group |
Company |
|
|
£'000 |
£'000 |
|
Cost |
|
|
|
At 1 July 2018, 30 June 2019 and at 30 June 2020 |
1,966 |
- |
|
|
|
|
|
Impairment |
|
|
|
At 1 July 2018, 30 June 2019 and at 30 June 2020 |
- |
- |
|
|
|
|
|
Carrying value |
|
|
|
At 30 June 2020 |
1,966 |
- |
|
At 30 June 2019 |
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 net present value of projected cash flows is compared with the carrying value of the Group's investments and goodwill. In arriving at a net present value of projected cash flows, an individual company dilution value-in-use model was used within which assumptions were used for future spin outs and for the existing portfolio. For the prior year, a weighted distribution of outcomes and values model was also used but the Directors consider that as the portfolio has matured the individual company dilution model provides a sufficient impairment test.
The assumptions used in the model are set out below:
|
|
2020 |
2019 |
||
|
|
Future Spin Outs |
Existing Portfolio |
Future Spin Outs |
Existing Portfolio |
|
Initial spin out equity, being the product of the number of spin outs and initial equity acquired.
|
75%-150% |
- |
75% - 175% |
- |
|
Equity in existing portfolio
|
- |
2.4% - 43.5%* |
- |
3% - 40%* |
|
Dilution
|
35% |
Average of 31% |
35% |
Average of 33% |
|
Years to exit
|
7 |
7 (minimum of 2 years from measurement date) |
6 |
6 (minimum of 2 years from measurement date) |
|
Rate of return
|
27% |
27% |
23% |
23% |
|
Discount rate (pre-tax)
|
12% |
12% |
12% |
12% |
|
Value at first/next funding round
|
£1.5m |
£1.5m - carrying values of individual companies at 30 June 2020. Average of £13.5m |
£1.5m |
£1.5m - carrying values of individual companies at 30 June 2019. Average of £13.3m |
* Actual range of equity at 30 June 2020.
Projected cash flows are based upon management approved budgets for service income, overheads and investments for a period of three years and key assumptions over potential investment outcomes in the future. When determining the key assumptions, management has used both past experience and management judgement. In particular, the Group has no history of exits as the Group's portfolio comprises primarily early stage businesses. No increase or growth has been factored into the model with regard to the key assumptions, or for the projected cash flows after the 3-year budgeted period. The COVID-19 pandemic may impact a number of our assumptions, in particular the number of spin-outs and time to exit.
The percentage change required in an assumption in order to cause the recoverable amount to equal the carrying amount is shown below:
|
Assumption |
Change Required |
|
Initial spin out equity, being the product of the number of spin outs and initial equity acquired. |
-25% |
|
Dilution |
+80% |
|
Years to exit |
+29% |
|
Rate of return |
-12% |
|
Discount rate (pre-tax) |
+24% |
|
Value at first funding round |
-18% |
The Board considers that a reasonably possible change in the rate of return would cause the carrying amount of the cash generating unit to exceed its recoverable amount. The amount by which the recoverable amount exceeds the carrying amount is £4.1m and a 12% decrease in the rate of return from 29% to 24% would cause the recoverable amount to equal the carrying amount.
The Board considers that the net present value of cash flow from the Group's one cash generating unit is greater than its carrying value.
10. Categorisation of Financial Instruments
|
Financial assets |
At fair value through profit or loss £'000 |
Amortised cost £'000 |
Total £'000 |
|
At 30 June 2020 |
|
|
|
|
Equity investments |
19,444 |
- |
19,444 |
|
Debt investments |
863 |
- |
863 |
|
Trade and other receivables |
- |
830 |
830 |
|
Cash and cash equivalents |
- |
2,968 |
2,968 |
|
Total |
20,307 |
3,798 |
24,105 |
|
At 30 June 2019 |
|
|
|
|
Equity investments |
13,252 |
- |
13,252 |
|
Debt investments |
382 |
55 |
437 |
|
Trade and other receivables |
- |
602 |
602 |
|
Cash and cash equivalents |
- |
1,466 |
1,466 |
|
Total |
13,634 |
2,123 |
15,757 |
All financial liabilities are categorised as other financial liabilities and recognized at amortised cost.
A reduction in the fair value of financial assets of £40,000 was attributable to credit risk. (2019: £nil)
All net fair value gains in the year are attributable to financial assets designated at fair value through profit or loss. (2019: all net fair value gains were attributable to financial assets designated at fair value through profit or loss.)
11. Investment in subsidiaries
|
|
Company 2020 |
Company 2019 |
|
|
£'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 incorporation |
Proportion of ordinary shares directly held by the Company |
Proportion of ordinary shares held by the Group |
|
|
|
|
|
|
Frontier IP Limited - principal activity is commercialisation of IP |
Scotland |
100% |
|
|
Frontier IP Investments Limi ted - principal activity was investment in the RGU Ventures Investment Fund * |
Scotland |
100% |
|
|
Frontier IP Founder Partners Limited - principal activity was founder partner in the RGU Ventures Investment Fund * |
Scotland |
100% |
|
|
Frontier IP Management Limited - principal activity is investment advisory and marketing services |
Scotland |
100% |
|
|
Frontier IP GP RG Limited - principal activity was the general partner of the RGU Ventures Investment Fund * |
Scotland |
|
100% |
* RGU Ventures Investment Fund was dissolved 15 January 2020.
The registered office of all subsidiaries is c/o CMS Cameron McKenna Nabarro Olswang LLP, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EN.
12. Equity investments
Equity investments are unquoted investments valued individually at fair value in accordance with the Group's accounting policy on investments and 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.
|
Unquoted Equity Investments
|
Group 2020 |
Group 2019 |
Company 2020 |
Company 2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July |
13,252 |
9,041 |
5,777 |
3,441 |
|
Additions |
97 |
359 |
23 |
360 |
|
Conversion of debt investments |
82 |
- |
48 |
- |
|
Fair value increases |
7,064 |
3,864 |
6,617 |
1,988 |
|
Fair value decreases |
(1,051) |
(12) |
(320) |
(12) |
|
At 30 June |
19,444 |
13,252 |
12,145 |
5,777 |
|
Limited Partnership Interests
|
Group 2020 |
Group 2019 |
Company 2020 |
Company 2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July |
- |
19 |
- |
- |
|
Additions |
- |
4 |
- |
- |
|
Fair value decreases |
- |
(23) |
- |
- |
|
At 30 June |
- |
- |
- |
- |
The ten-year term of the RGU Ventures Investment Fund expired on 27 July 2019 and prior to 30 June 2019 the assets were distributed to the limited partners and the limited partnership dissolved in 15 January 2020.
The table below sets out the movement in the value of unquoted equity investments by valuation matrix stage during the year:
|
Unquoted Equity Investments |
Valuation matrix stage |
|||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Stage 4 |
Stage 5 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
1 July 2019 |
78 |
2,537 |
180 |
5,290 |
5,167 |
13,252 |
|
Transfers between stages |
274 |
(2,342) |
1,606 |
5,629 |
(5,167) |
- |
|
Fair value (decrease) / increase through other operating income |
(277) |
696 |
1,459 |
4,135 |
- |
6,013 |
|
Additions |
- |
23 |
- |
156 |
- |
179 |
|
30 June 2020 |
75 |
914 |
3,245 |
15,210 |
- |
19,444 |
The table below provides information about unquoted 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 |
|
Stage 1 |
5 |
75 |
Initial valuation of new spin outs at £50,000 |
20% |
15 |
|
Stage 2 |
3 |
914 |
Management's assessment of the value of IP transferred and the value of grants from which economic benefit is derived. |
25% |
228 |
|
Stage 3 |
6 |
3,245 |
Management's assessment of performance against milestones and discussions of likely imminent fundraising. |
39% |
1,265 |
|
Stage 4 |
9 |
15,210 |
The price of latest funding round provides unobservable input into the valuation of any individual investment. However, subsequent to the funding round, management are required to re-assess the carrying value of investments at each period end which result in unobservable inputs into the valuation methodology. |
32% |
4,867 |
|
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 cost of money. |
- |
- |
|
30 June 2019 |
19,444 |
|
32% |
6,375 |
|
Significant unobservable inputs:
The valuation of the Group's investment in Exscientia at 30 June 2020 was £4,407,000, 23% of the Group's total equity investments and 17% of its net assets at 30 June 2020. The decrease in the value of the Group's holding in Exscientia over the year to 30 June 2020 was £760,000, 13% of the Group's net unrealised profit on the revaluation of investments and 18% of profit for the year to 30 June 2020. The significant inputs into the valuation of the Group's holding in Exscientia included the price of investments immediately before and after 30 June 2020 which were completed at the same price.
The valuation of the Group's investment in Pulsiv Solar at 30 June 2020 was £3,591,000, 18% of the Group's total equity investments and 14% of its net assets at 30 June 2020. The increase in the value of the Group's holding in Pulsiv over the year to 30 June 2020 was £2,646,000, 44% of the Group's net unrealised profit on the revaluation of investments and 63% of profit for the year to 30 June 2020. The significant inputs into the valuation of the Group's holding in Pulsiv included indication of the price of investment at 30 June 2020 and beyond as well as progress since the year end.
The valuation of the Group's investment in The Vaccine Group (TVG) at 30 June 2020 was £3,051,000, 16% of the Group's total equity investments and 12% of its net assets at 30 June 2020. The increase in the value of the Group's holding in TVG over the year to 30 June 2020 was £1,428,000, 24% of the Group's net unrealised profit on the revaluation of investments and 34% of profit for the year to 30 June 2020. The significant inputs into the valuation of the Group's holding in TVG included an assessment of the progress made in the five projects in progress at 30 June 2020 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. In addition TVG has made significant progress on a number of internally funded projects including: the development of three candidate vaccines to protect against SARS CoV-2 (responsible for COVID-19) that are being prepared for animal trials post period end; the development of a candidate vaccine for African Swine Fever Virus (a highly contagious and deadly virus that affects pigs, with no effective vaccine currently commercially available) that was ready for trials in pigs; the development of a candidate vaccine for Bovine tuberculosis that was ready for trials in cattle; the development of a candidate vaccine for bovine mastitis that has been successfully trialled in a model rabbit system and is being prepared for trials in cattle. Post-period end TVG has announced its first agreement with a commercial partner, developing two vaccine candidates for Porcine Reproductive and Respiratory Syndrome Virus in collaboration with the Pirbright Institute and funded by ECO Animal Health Group plc. Each of these 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 is particularly challenging at this point in time as the current 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. A 25% reduction in the royalty rate or cost per dose would reduce the valuation of the Group's investment in TVG by 21% while a 25% increase in the success rate would increase the valuation by 36%. 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 balance sheet 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 2020 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 |
35.6% |
Ordinary |
|
Cambridge Raman Imaging Limited |
Wellington House, East Road, Cambridge, CB1 1BH |
30.9% |
Ordinary |
|
Cambridge Simulation Solutions Limited |
8 Cody Road, Waterbeach, Cambridge, CB25 9LS |
40.0% |
Ordinary |
|
CamGraPhIC Limited |
Wellington House, East Road, Cambridge, CB1 1BH |
33.3% |
Ordinary |
|
Celerum Limited |
School Of Computing Science & Digital Media Robert Gordon University, Garthdee Road, Aberdeen, AB10 7GJ |
33.8% |
Ordinary |
|
Des Solutio LDA |
Avenida Tenente Valadim, nº. 17, 2º F, 2560-275 Torres Vedras, Portugal |
25.0% |
Ordinary |
|
Elute Holdings Limited |
21 Church Road, Tadley, RG26 3AX |
43.5% |
Ordinary |
|
Fieldwork Robotics Limited |
Research And Innovation Floor 2 Marine Building, Plymouth University, Plymouth, PL4 8AA |
26.7% |
Ordinary |
|
Insignals Neurotech Lda |
Rua Passeio Alegre, 20 Centro de Incubacyo e Aceleracyo Do Porto, Porto 4150-570, Portugal |
33.0% |
Ordinary |
|
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 |
31.6% |
Ordinary |
The nature of these companies' business is provided in the Portfolio Review section of the Strategic Report.
13. 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 £75,000 (Cambridge Raman Imaging) to £150,000 (Nandi Proteins) were made to five 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.
Debt investments comprise the following:
|
|
Group 2020 |
Group 2019 |
Company 2020 |
Company 2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Fair value through profit or loss Amortised cost |
863 - |
382 55 |
713 - |
361 55 |
|
At 30 June |
863 |
437 |
713 |
416 |
The movement during the year of debt investments is set out below
|
Fair value through profit or loss
|
Group 2020 |
Group 2019 |
Company 2020 |
Company 2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July |
382 |
- |
361 |
- |
|
Additions |
588 |
361 |
425 |
361 |
|
Disposals |
(40) |
|
(40) |
|
|
Conversion to unquoted equity investments |
(82) |
|
(47) |
|
|
Reclassification |
55 |
- |
55 |
- |
|
Fair value increases |
- |
21 |
- |
- |
|
Fair value decreases |
(40) |
- |
(40) |
- |
|
At 30 June Less non-current |
863 (863) |
382 (40) |
713 (713) |
361 (40) |
|
Current portion |
- |
342 |
- |
321 |
|
Amortised cost
|
Group 2020 |
Group 2019 |
Company 2020 |
Company 2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July |
55 |
- |
55 |
- |
|
Reclassification |
(55) |
55 |
(55) |
55 |
|
At 30 June |
- |
55 |
- |
55 |
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, particularly during the existing COVID-19 pandemic. 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.
14. Trade receivables and other current assets
|
|
Group |
Group |
Company |
Company |
|
|
2020 |
2019 |
2020 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Trade receivables |
614 |
392 |
280 |
151 |
|
Receivables from Group undertakings |
- |
- |
4,612 |
3,854 |
|
VAT |
3 |
3 |
- |
- |
|
Prepayments and accrued income |
48 |
34 |
23 |
11 |
|
Other debtors |
146 |
173 |
117 |
130 |
|
Accrued interest |
19 |
- |
10 |
- |
|
|
830 |
602 |
5,042 |
4,146 |
|
Less trade receivables - non current |
- |
(114) |
- |
- |
|
Less receivables from Group undertakings - non current |
- |
- |
(4,657) |
(3,854) |
|
Current portion |
830 |
488 |
385 |
292 |
Trade receivables
|
|
Group |
Group |
Company |
Company |
|
|
2020 |
2019 |
2020 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Trade receivables not past due |
62 |
68 |
56 |
59 |
|
Trade receivables past due 1-30 days |
28 |
26 |
21 |
16 |
|
Trade receivables past due 31-60 days |
29 |
27 |
22 |
18 |
|
Trade receivables past due 61-90 days |
21 |
13 |
17 |
4 |
|
Trade receivables past due over 90 days |
474 |
258 |
164 |
54 |
|
Gross trade receivables at 30 June |
614 |
392 |
280 |
151 |
|
|
|
|
|
|
|
Expected credit loss at 1 July |
- |
9 |
- |
- |
|
Debts provided for in the year |
- |
(9) |
- |
- |
|
Debts written off in the year |
- |
- |
- |
- |
|
Expected credit loss at 30 June |
- |
- |
- |
- |
|
|
|
|
|
|
|
Net trade receivables at 30 June |
614 |
392 |
280 |
151 |
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. £416,000 of trade receivables at 30 June 2020 have been recovered post year end and the remaining £198,000 is due from four companies including Fieldwork Robotics (£97,000) and Alusid (£87,000). The directors are confident that these companies will be able to raise sufficient funds to repay their debt and fund their business plan. The directors do not consider it necessary to provide for any expected credit loss on a specific company or general basis.
Receivables from Group undertakings carry interest of 2.1% (2019: 2.5%).
15. Trade and other payables
|
|
Group |
Group |
Company |
Company |
|
|
2020 |
2019 |
2020 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Trade payables |
36 |
33 |
14 |
12 |
|
Social security and other taxes |
47 |
41 |
- |
- |
|
VAT |
- |
- |
9 |
7 |
|
Other creditors |
7 |
|
5 |
|
|
Accruals and deferred income |
120 |
65 |
56 |
37 |
|
At 30 June |
210 |
139 |
84 |
56 |
16. 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 2019 |
42,431,372 |
4,243 |
9,791 |
14,034 |
|
Issue of shares on exercise of share options |
331,034 |
33 |
59 |
92 |
|
Issue of shares through a placing |
8,000,000 |
800 |
2,969 |
3,769 |
|
At 30 June 2020 |
50,762,406 |
5,076 |
12,819 |
17,895 |
On 6 November 2019, the Company conducted a placing of 8,000,000 new ordinary shares of 10p for cash at a price of 50p per share raising £4,000,000 before expenses of £231,000. The Company has one class of ordinary shares which carry equal voting rights, equal rights to income and distribution of assets on a winding-up. The allotted share capital of the Company at 30 June 2020 is 50,762,406 ordinary shares of 10p each.
17. 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 movement in reserves for the years ended 30 June 2020 and 2019 is set out in the Consolidated and Company Statement of Changes in Equity on page 49.
18. Share options
Frontier IP has one option scheme, the Frontier IP Group Plc Employee Share Option Scheme 2011 - Amended 26 March 2018. Under the scheme, 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.
Movements in the number of share options outstanding and their related weighted average exercise prices were as follows:
|
|
2020 Weighted average exercise price |
2020
Options |
2019 Weighted average exercise price |
2019
Options |
|
|
Pence per share |
|
Pence per share |
|
|
At 1 July |
27.05 |
3,312,000 |
25.52 |
2,806,000 |
|
Granted |
40.74 |
1,663,376 |
29.33 |
831,000 |
|
Exercised |
27.72 |
(331,034) |
19.67 |
(325,000) |
|
Lapsed |
52.04 |
(308,666) |
- |
- |
|
At 30 June |
30.48 |
4,335,676 |
27.05 |
3,312,000 |
Of the 4,335,676 outstanding options (2019: 3,312,000) 2,134,000 had vested at 30 June 2020 (2019: 1,985,000). The vested options have a weighted average exercise price of 25.62p.
The weighted average share price at the date of exercise for share options exercised during the year was 64.99p (2019: 85.50p)
Share options outstanding at the end of the year have the following expiry date and exercise prices:
|
|
Exercise price Pence per share |
2020 Number |
2019 Number |
|
2023 |
15.00 |
652,607 |
652,607 |
|
2024 |
26.88 |
432,393 |
432,393 |
|
2026 |
26.63 |
650,000 |
900,000 |
|
2027 |
40.00 |
399,000 |
496,000 |
|
2028 |
65.00 |
253,000 |
292,000 |
|
2028 |
10.00 |
468,000 |
539,000 |
|
2029 |
66.00 |
740,971 |
- |
|
2029 |
10.00 |
739,705 |
- |
The weighted average remaining contractual life of the outstanding options is 6.9 years.
The weighted average fair value of options granted to executive Directors and employees during the year determined using the Black-Scholes-Merton valuation model was 36.37p per option. The significant inputs into the model were the exercise price shown above, weighted average share price of 66.0p, volatility of 42%, dividend yield of 0%, expected life of 5 years and annual risk-free interest rate of 0.56%. Future volatility has been estimated based on 5 years' historical monthly data.
19. Leases
|
|
2020 |
2019 |
|
|
Land & Buildings |
Land & Buildings |
|
|
£'000 |
£'000 |
|
Commitments under non-cancellable leases expiring: |
|
|
|
Within one year |
90 |
123 |
|
Within two to five years |
4 |
58 |
|
After five years |
- |
- |
|
|
94 |
181 |
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. One lease has rental commitments of 14 months with an annual rent of £27,000 and is not considered material.
20. Cash used in operations
|
|
Group |
Group |
Company |
Company |
|
|
2020 |
2019 |
2020 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Profit before tax |
4,184 |
2,350 |
4,978 |
967 |
|
Adjustments for: |
|
|
|
|
|
Share-based payments |
230 |
127 |
230 |
127 |
|
Depreciation |
6 |
6 |
- |
- |
|
Interest received Dividends received |
(21) - |
(12) (2) |
(130) - |
(108) - |
|
Other income |
(27) |
- |
(5) |
- |
|
Fair value (gain) on financial assets through profit and loss |
(5,973) |
(3,850) |
(6,257) |
(1,976) |
|
Changes in working capital: |
|
|
|
|
|
Trade and other receivables Trade and other payables |
(228) 71 |
176 (65) |
(92) 28 |
(388) (14) |
|
Cash flows from operating activities |
(1,758) |
(1,270) |
(1,248) |
(1,392) |
The movements in liabilities from financing cashflows are nil.
21. Related party transactions
Neil Crabb is a director of PoreXpert Limited, Pulsiv Solar Limited, Celerum Limited and Alusid Limited. Neil Crabb was a director of Nandi Proteins Limited during the year. 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 Elute Intelligence 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 |
|
|
2020 |
2019 |
2020 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Nandi Proteins Limited |
90 |
102 |
324 |
241 |
|
Pulsiv Solar Limited |
48 |
48 |
59 |
19 |
|
Alusid Limited |
72 |
66 |
118 |
22 |
|
Tarsis Technology Limited |
0 |
36 |
0 |
24 |
|
The Vaccine Group Limited |
28 |
5 |
15 |
1 |
|
Celerum Limited |
21 |
- |
10 |
- |
|
Elute Intelligence Holdings Limited |
21 |
- |
3 |
- |
|
|
|
|
|
|
|
By Related Parties
|
|
|
|
|
|
Wilson Biopharma Consulting
|
12 |
11 |
0 |
0 |
|
|
|
|
|
|
On 6 November 2019 the Group announced a placing to raise £4.0 million (before expenses) through the issue of 8,000,000 new ordinary shares at 50 pence per share. Neil Crabb, CEO and Michael Bourne, a Non-Executive Director, each subscribed for 100,000 Placing Shares. In addition, 2,000,000 Placing Shares were subscribed for by Canaccord Genuity Group Inc. ("Canaccord") and 873,076 Placing Shares were subscribed for by Quilter Cheviot Limited ("Quilter"). Canaccord and Quilter are substantial shareholders in the Group, as defined in the AIM Rules and accordingly their participations in the Placing were deemed to be related party transactions under the AIM Rules. In addition, as Neil Crabb and Michael Bourne are Directors of the Group, their participations were deemed to be related party transactions under the AIM Rules.
22. Subsequent events
On 21 July 2020, the Company conducted a capital raising through the issue of 4,243,410 new ordinary shares of 10p for cash at a price of 55p per share raising £2,334,000 before expenses of £156,000. As a consequence, the Directors believe that the Group will have sufficient funds to fund its activities for the next 12 months. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.
23. 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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