Final Results
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310 ("MAR"). With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.
28 October 2021
Frontier IP Group Plc
("Frontier IP" or the "Group")
Final results for the year ended 30 June 2021
Financial highlights
· Fair value of our equity portfolio increased by 64% to £31,982,000 (2020: £19,444,000)
· Profit before tax increased by 145% to £10,242,000 (2020: £4,184,000)
· Total revenue and other operating income increased by 99% to £12,668,000 (2020: £6,377,000) -reflecting the net unrealised profit on the revaluation of investments of £12,306,000 (2020: £5,973,000)
· Revenue from services decreased by 10% to £362,000 (2020: £404,000)
· Basic earnings per share increased to 17.47p (2020: 8.76p)
· Cash balances at 30 June 2021 of £1,992,000 (2020: £2,968,000)
· Net assets per share as at 30 June 2021 of 69.8p (2020: 51.0p)
Corporate highlights
· Raised £2.3 million via an oversubscribed placing and retail offer to support additional investment in the Group and to enable increased capacity for bridge financing and investment in portfolio companies
· The fundraising was firmly supported by existing shareholders and a significant number of new investors
· Team strengthened with three key appointments
· Post period end, first portfolio company IPO - Exscientia listed on Nasdaq Global Select Market raising gross proceeds of approximately $304.7 million through a public offer and a further $160 million through private placements with SoftBank and the Bill & Melinda Gates Foundation, with a value of $2.9 billion
· Post period end, Professor Dame Julia King, Baroness Brown of Cambridge DBE FREng FRS, joined the Board of Directors as an independent Non-Executive Director
Portfolio highlights
· Robust commercial and technical progress, including industry engagement and increased pace of fundraisings across the portfolio, reflected by the increase in fair value
· Growing maturity of the portfolio with a number of companies reaching inflection points, reflected by increased pace of funding rounds, strengthening of management teams, and industry engagement. Fundraisings and grant awards included:
o Exscientia closing a Series C funding round at $100 million and raising a further $225 million in a Series D round, led by new investor SoftBank. Post period end, the company raised total gross proceeds of $464.7 million through listing on the Nasdaq Global Select Market with a value of $2.9 billion
o Cambridge Raman Imaging raised £250,000 through an equity funding round and involvement in €5 million pan-European project to develop new medical imaging technologies
o Pulsiv completed £1.5 million equity funding round. In addition, the company converted £500,000 of debt plus accrued interest into equity, including a £250,000 loan from the UK government's Future Fund scheme
o AquaInSilico was selected to receive $250,000 after being named as an Ocean Innovator by the United Nations Development Programme's Ocean Innovation Challenge. The company also received a €60,000 EIT RawMaterials grant
o Fieldwork Robotics raised £675,000 through an equity funding round and received £229,000 in grants from schemes managed by Innovate UK
o Elute Intelligence raised £250,000 in its first equity funding round
o Nandi Proteins raised £720,000 through a convertible loan, including £360,000 from the UK government's Future Fund, matched by Frontier IP and Shackleton Finance
o Alusid raised £250,000 in a convertible loan, including £125,000 from the UK government's Future Fund, matched by Frontier IP and a private investor
o InSignals Neurotech gained €100,000 investment from Portugal Ventures
o Post period end, CamGraPhIC raised £1.6 million
· Strong commercial and technical progress made by a number of portfolio companies, including developing new and existing industry partnerships:
o Exscientia expanded its collaboration with Bristol Myers Squibb. Agreement includes upfront and commercial milestone payments potentially worth more than $1.2 billion. Post period end, Exscientia entered a $70 million collaboration with the Bill & Melinda Gates Foundation
o The Vaccine Group entered into first commercial agreement, with The Pirbright Institute and ECO Animal Health, and made good progress on developing its novel vaccine platform
o Fieldwork Robotics secured collaboration agreements with Bosch and Bonduelle, one of the world's leading vegetable producers
o Cambridge Raman Imaging signed a licence with Motic, a leading manufacturer of medical imaging devices
o Elute Intelligence launched its Patent Reader product following successful pilot with dedicated user group comprising multinationals, high-tech SMEs and professional intellectual property service providers
· Steps taken to strengthen leadership and teams across portfolio to oversee scale up of companies:
o Pulsiv appointed former Aixtron and Arm executive Darrel Kingham as Chief Executive Officer, Dr Zaki Ahmed as Chief Strategy Officer, and announced appointment of Adam Westcott as Chief Financial Officer
o The Vaccine Group appointed GALVmed Chief Scientific Officer Jeremy Salt as Chief Executive Officer. He is a former senior director for the world's biggest animal health group Zoetis
o Nandi Proteins appointed David Flower, a former senior director with Boon Rawd Brewing Company and Kerry Foods, as Chief Executive Officer
o Alusid appointed David Taylor, founding chief executive for both English Partnerships and Amec Developments, property entrepreneur and Pro-Chancellor of the University of Central Lancashire to its board of directors as the University's representative
ENQUIRIES
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Frontier IP Group Plc |
T: 020 3968 7815 |
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Neil Crabb, Chief Executive Andrew Johnson, Communications & Investor Relations
Company website: www.frontierip.co.uk |
andrew.johnson@fronterip.co.uk M: 07464 546 025 |
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Allenby Capital Limited (Nominated Adviser) Nick Athanas / George Payne
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T: 0203 328 5656
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Singer Capital Markets (Broker) Sandy Fraser / Harry Gooden / George Tzimas
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T: 0207 496 3000 |
Chairman's Statement
Performance
Frontier IP and its portfolio companies made excellent progress during the year to June 2021. The results are exceptional. Exscientia was a major part of the uplift in the fair value of the portfolio and the significant increase in the profit before tax. The results to 30 June 2021 however do not take account of Exscientia's successful IPO following the period end. Achievements and developments elsewhere in the portfolio also contributed to our results. It is enough to say here that I am delighted the portfolio made progress across a broad front.
This is particularly so in the context of COVID-19. The response from the Frontier IP team and our portfolio companies continued to be exemplary. I would like once again to thank them for their continued efforts and the way they reacted to the opportunities and challenges arising from the pandemic.
Impacts from the virus on the Group and its portfolio have been broadly as expected, as Neil, our Chief Executive, outlined in our Annual Report last year. The pandemic highlighted the danger of zoonotic diseases and the need for effective vaccines and therapeutics, providing direct opportunities for companies such as The Vaccine Group (TVG), Exscientia and Amprologix. Other companies are well placed to seize the opportunities provided by new ways of working or tackling other issues brought into focus by the pandemic, such as CamGraPhIC and Fieldwork Robotics.
In most other cases, impact was neutral. The main negative impacts were delays, either because decision making from industrial partners was affected, or labs and other facilities remained closed. The few companies which have suffered, we believe, are still fundamentally good and we remain confident about their futures. Several took advantage of the UK government's furlough scheme and the Future Fund, raising money through convertible loans, and we are grateful for the support.
We continued to strengthen our team with the appointments of Mark Rosten as Software Commercialisation Director, Darren Winter as Director of Corporate Relationships and Harry Ayton as Chemical Process Engineer. They all provide good examples of how we provide hands-on support for our portfolio companies beyond the financial. Mark has o ver 30 years of experience in product development with 15 years leading and managing software development teams in health, fintech and transport, while Harry has a PhD in Chemical Engineering from the University of Cambridge.
We also raised a further £2.3 million to give us the firepower and flexibility to take advantage of opportunities as they arise. The value of this approach was demonstrated when we were able to provide a loan to CamGraPhIC, a company whose graphene-based photonics have significant potential in telecoms. We were also able to match funding provided by the UK government through its Future Fund scheme to support innovative companies through the pandemic.
Industry partnerships and collaboration are a vital part of what we do. They help us to validate technology and understand potential applications, market needs and demands. So it was pleasing to see Fieldwork Robotics enter relationships with two major multinationals, Bosch and Bonduelle, and Cambridge Raman Imaging with Motic. The Vaccine Group also signed its first commercial agreement with ECO Animal Health Group and The Pirbright Institute - strong backing for its novel vaccine platform technology.
It's also worth mentioning a couple of projects we are involved with outside the portfolio. DNA Origami is a collaboration with Dr Ioanna Mela of the University of Cambridge, exploring the possible application of origami-like DNA nanostructures and their use as drug delivery vehicles . Early work to date is promising.
Frontier IP is also a partner in Emporia4KT, a pan-European project bringing together government, academia and business to support innovation and economic growth across Atlantic coastal economies. Our role is to help identify technology which can be commercialised. Teams from five countries are now developing 13 early-stage technologies.
There were no additions to our portfolio this year, as we focused on supporting the commercial development and scale up of existing companies in the portfolio as they approached inflection points. However, our pipeline of intellectual property opportunities looks good, and we would expect to incorporate new companies in the coming year.
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 have adopted the Quoted Companies Alliance Corporate Governance Code, introduced in April 2018. To see more details about how we apply the principles of the Code, see the Our Governance section of this report and our website: https://www.frontierip.co.uk/about/governance/
Board Changes
I am pleased to report that in line with our commitment to maintaining a dynamic management framework we are making some changes to the makeup of our Board. We have appointed Professor Dame Julia King, Baroness Brown of Cambridge DBE FREng FRS, as an independent Non-Executive Director effective from 28 October 2021.
Baroness Brown is an engineer with immense experience across industry and government. Following an academic career at Cambridge University, Julia held senior engineering and business roles at Rolls-Royce between 1994 and 2002, before returning to academia as Principal of Engineering at Imperial College and then as Vice Chancellor and Chief Executive of Aston University from 2006-2016. She is currently Chair of The Carbon Trust, a non-executive director of Ørsted, Chair of the Adaptation Committee of the Climate Change Committee, a member of the BEIS Hydrogen Advisory Council and a Non-Executive Director of AIM quoted Ceres Power Holdings plc.
Julia is passionate about education and engineering and contributed to the Browne report on university funding and to Lord Stern's review on the research excellence framework. She Chairs STEM Learning Limited and is the Chair of the Governing Board at the Henry Royce Institute for Advanced Materials.
Julia is a Fellow of the Royal Academy of Engineering, a Fellow of the Royal Society and was awarded a DBE for services to higher education and technology. In 2015 she was elevated to her Peerage as the Baroness Brown of Cambridge and sits as a Crossbench Peer in the House of Lords where she is a member of the Science and Technology Select Committee.
In addition, Michael Bourne, currently an independent Non-Executive Director, has notified the Company that, having served on the Board for more than seven years, he has decided to step down from his non-executive role at Frontier IP. Michael will remain on the board until the Company's forthcoming annual general meeting to be held on 9 December 2021 where he will not seek re-election as a director. I would like to take this first opportunity to thank Mike for his service on the Board and his valued contribution during his time in office.
Results
I am delighted with how the Group performed in the year. An increase of 145% in pre-tax profits and an increase in the fair value of our portfolio to £31,982,000 vindicate the strength of our business model.
For the year to 30 June 2021, total revenue and other operating income increased by 99% to £12,668,000 (2020: £6,377,000) as a result of a net unrealised profit on the revaluation of investments of £12,306,000 (2020: £5,973,000), principally due to the increase in fair value of Exscientia. Revenue from services, principally board retainers and licence income decreased by 10% to £362,000 (2020: £404,000) as some services were assigned to companies' own management.
Outlook
The results and the pipeline of companies now scaling up and starting to achieve their commercial potential shows our innovative business model is delivering. We are confident Exscientia's successful IPO is a foretaste of future success. We have a built a strong platform for growth, and so we are confident about our prospects for the coming year and beyond.
Andrew Richmond
Chairman
27 October 2021
Chief Executive Officer's Statement
Frontier IP enjoyed a highly successful year to 30 June 2021. The fair value of our equity portfolio rose 64% to £31,982,000, with profit before tax increasing by 145% to £10,242,000. Profit after tax increased by 129% to £9,566,000.
These pleasing numbers are significantly ahead of our expectations. They reflect the excellent commercial and technical progress made across the portfolio despite the difficulties posed by the ongoing COVID-19 pandemic.
Exscientia made the most significant contribution. The company enjoyed a stellar year and is now firmly established as one of the world's leading companies using artificial intelligence (AI) to drive discovery of new drugs. Three of its AI-designed candidates have now entered human clinical trials - the first in the world to do so - with the technology knocking years off the time taken to discover new drug candidates by traditional methods.
This has been accompanied by burgeoning interest and commitment from industry collaborators and investors. One of the world's biggest pharmaceutical companies Bristol Myers Squibb expanded its collaboration agreement, adding further upfront payments and milestones potentially worth more than $1.2 billion. And the company successfully closed a Series C funding round at $100 million after investment from funds managed by BlackRock, followed by a SoftBank-led Series D round raising $225 million and an option to draw a further $300 million if needed.
Its progress over the last year was cemented by a successful $2.9 billion IPO on the Nasdaq Global Select Market, raising gross proceeds of $304.7 million through a public offer and a further $160 million in private placements at the top end of the price range. The private placements with SoftBank and the Bill & Melinda Gates Foundation, which is supporting the company's work on discovering new therapeutics for COVID-19 and other viruses with pandemic potential, provide further validation for the company's technology.
Exscientia is the first company in our portfolio to IPO. We are confident it will continue to grow and prosper. But we are equally excited by the prospects for our other portfolio companies. Our pipeline is strong, developing in depth and maturity. Significant potential is now emerging.
A number of our companies made impressive progress. They have reached, or are approaching, inflection points, which mark important and favourable changes in their technical, industrial or financial progress. In response, it is vital that we at Frontier IP ensure they are in the best possible position to take advantage of these opportunities. Part of this is to ensure they are properly funded. We were pleased the pace of fundraisings increased across the portfolio over the year.
Further testament to the quality and technological potential of the portfolio companies are the individuals they attract. During the year, we strengthened the management teams across the portfolio, putting in place the right leaders to push companies towards commercial success. We are very happy with the high calibre of the individuals we have been able to recruit.
I would first draw attention to Pulsiv. We believe the company will become a major green technology business. Its unique technology improves the efficiency of electricity conversion meaning devices waste much less energy than conventional techniques. If widely adopted, it means electricity grids can generate less electricity to meet the demand from devices and appliances. It can be used in virtually all mains-powered devices and has a host of other applications. The technology can be fitted into smaller form factors and can manage energy consumption more intelligently, cutting costs for manufacturers and bills for consumers. The company raised £1.5 million during the year.
To ensure it can achieve its full potential, the company appointed Darrel Kingham, formerly of Aixtron and Arm, as Chief Executive Officer. Since joining Pulsiv, Darrel has transformed the company's approach to scaling up its technology and is now in advanced discussions with a number of major companies about integrating it into their devices.
The Vaccine Group (TVG) and Nandi Proteins also appointed new Chief Executive Officers. Jeremy Salt joined TVG from GALVmed, where he was Chief Scientific Officer. Before GALVmed, he was a senior director for the world's largest animal health group Zoetis. His extensive experience at senior levels means he is the right person to oversee the next phase of TVG's development after a year when it continued to progress well, including its first commercial agreement with ECO Animal Health Group and The Pirbright Institute.
David Flower joined Nandi Proteins from the Boon Rawd Brewing Company, maker of Singha beer. He has also been Managing Director Home Baking for Kerry Foods. Nandi is well placed to exploit opportunities across the food sector, including in the fast-growing alternative meat markets, as well as in processed foods and baking.
I am also excited about the prospects for CamGraPhIC , which is developing high-speed, low-energy, graphene-based photonics for the telecoms industry. In laboratory tests, the technology has performed at about twice the speed of equivalent technologies while consuming much less energy. There is considerable interest from leading multinationals in the industry. And telecoms are only one set of potential applications for the company. It is already exploring possibilities in quantum computing.
These are only four of the companies in our portfolio with the potential to become sizeable businesses. Others are also developing well. Topps Tiles has already announced its intention to launch a range of Alusid-made tiles; Fieldwork's robot soft-fruit and harvesting technology has been improved significantly in collaboration with Bosch; AquaInSilico is now part of a prestigious United Nations Development Programme project to help protect and conserve one of the world's most diverse marine environments.
Sustainability is attracting heightened interest. It is a natural consequence of what we do and how we work. Science and technology are vital to ensuring we can tackle the social and environmental challenges we all face, from improving health to cutting carbon emissions. There is a strong commercial incentive for identifying IP which helps to solve these problems - and these are opportunities our industry collaborators are keen to explore.
As a result, over the years, we have developed expertise which lies across four clusters - AI and robotics, food and agritech, engineered particles and materials, and pathogens and cell imaging - all of which offer clear benefits to society and the environment.
There has been some debate around sustainability metrics and their value to investors and other stakeholders. Much of the talk concerns the costs and the effect on returns as companies seek to mitigate negative impacts - for example by offsetting carbon emissions or managing water waste. Mitigation is necessary but will only take us so far. It is a reactive approach which, we believe, does not give enough weight to the role of new technologies in solving the problems we face. All companies in our portfolio have the potential to make positive societal and environmental impacts - and some, such as Pulsiv, could be transformative.
This year we are introducing a more formal framework for evaluating sustainability by aligning ourselves to the United Nations Sustainable Development Goals. They provide a framework and a set of targets for 2030 which suit the forward-looking nature of our business. You can learn more in the Portfolio Review section of this report.
Finally, I would very much like to thank you, our shareholders, and other stakeholders, for your continued support. We remain confident about our future prospects.
Neil Crabb, Chief Executive Officer
27 October 2021
Key Performance Indicators
The Key Performance Indicators for the Group are:
|
KPI |
Description |
2021 Performance |
|
Fair value of the portfolio |
Value of equity in the portfolio |
£31,982,000 (2020: £19,444,000) |
|
Total revenue and other operating income |
Growth in the aggregate of revenue from services and change in fair value of the portfolio |
£12,668,000 (2020: £6,377,000) |
|
Profit |
Profit before tax for the year |
£10,242,000 (2020: £4,184,000) |
|
Net assets per share |
Value of the Group's assets less the value of its liabilities per share outstanding |
69.8p (2020: 51.0p) |
|
Total initial equity in new portfolio companies |
Aggregate percentage equity earned from new portfolio companies during the year |
0% (2020: 72%) |
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 focused more on the existing portfolio and did not take on any new portfolio companies during the year.
The value of the Group's equity investments increased to £31,982,000 (2020: £19,444,000) with net assets increasing to £38,421,000 (2020: £25,866,000). Profit after tax for the Group for the year to 30 June 2021 was £9,566,000 (2020: £4,184,000) after a deferred tax charge of £676,000 (2020: nil). This result includes a net unrealised profit on the revaluation of investments of £12,306,000 (2020: £5,973,000) and reflects a decrease in services revenue to £362,000 (2020: £404,000), greater administrative expenses of £2,171,000 (2020: £2,011,000) primarily due to an increase in personnel and an increase in share-based payments to £368,000 (2020: £230,000).
Operational Review
Corporate
Frontier IP made robust progress during the year, despite the impact of COVID-19. A number of portfolio companies are now moving rapidly towards achieving their potential. They have made significant technical and commercial advances during the year, and the Group has moved to strengthen them further by supporting fund raisings and appointing senior leadership to their teams.
To flex our business model and ensure we were in a good position to take advantage of the opportunities we saw arising, we raised a further £2.3 million (before expenses) through an oversubscribed placing and PrimaryBid offer. This was in addition to the £3.8 million (net of expenses) we raised in November 2019. The money allowed us to provide more direct financing to portfolio companies, in particular by helping us to match convertible loans from the UK government's Future Fund.
People are vital to our success. Our different business model, which is based on providing direct, hands-on support for technology from a very early stage of development means we look to recruit those with relevant commercial and technical experience, as well as financial.
During the year, we appointed Mark Rosten as Software Commercialisation Director, a non-board role. Mark has more than 30 years' experience leading software teams across the health, fintech and transport sectors. Before Frontier IP, he was Senior Vice President Product Development at mobile payments group Bango plc. Harry Ayton joined as a Chemical Process Engineer. He has a doctorate in Chemical Engineering from the University of Cambridge. Finally, Darren Winter, who has held a number of senior sales positions in the City of London, was appointed Director of Commercial Relationships.
Portfolio Review
Frontier IP strives to develop and maximise value from its portfolio. We do so by taking founding stakes in companies at incorporation and then working in long-term partnerships with shareholders, academic and industry partners.
As part of our sustainability agenda, we have mapped our portfolio companies to relevant United Nations Sustainability Development Goals (UN SDGs). All equity holdings are as at 30 June 2021.
Core portfolio
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 continued work to scale up its technology for mass production on industry-standard manufacturing equipment following a successful pilot the previous year. This culminated in a statement from Topps Tiles that it intended to launch the Alusid-made Principle range. It will be the world's first tile range mass manufactured from recycled materials. During the year, Alusid also raised £250,000 through a convertible loan, including a £125,000 investment from the UK government's Future Fund.
In March, David Taylor CBE, founding chief executive of both English Partnerships and Amec Developments and Pro Chancellor and chair of the University Board, joined Alusid's board of directors as representative of the University of Central Lancashire.
Alusid's sustainable process technology uses up to 29 per cent less energy than conventional tile manufacture while still running on the same equipment, reducing CO2 emissions. Its product is made from recycled waste, much of which would otherwise end in high-impact landfill.
UN Sustainable Development Goal mapping: SDG 9, industry, innovation and infrastructure; SDG 12, responsible consumption and production.
Amprologix: Frontier IP stake: 10.0 per cent
Amprologix was created to commercialise the work of Mathew Upton, Professor of Medical Microbiology at Plymouth's Institute of Translational and Stratified Medicine.
The company continued to make progress with development of its new family of antibiotics based epidermicin, which is derived from bacteria found on human skin, to tackle antimicrobial-resistant MRSA and other superbugs. Ingenza, a leader in industrial biotechnology and synthetic biology, is also a shareholder and is working with Amprologix to develop and scale up the technology.
COVID-19 has heightened interest in other threats to human health globally. Among these is the danger from antimicrobial resistance, named as a top 10 threat to global health by the World Health Organisation.
UN SDG mapping: SDG 3, good health and well-being
AquaInSilico: Frontier IP stake: 29.0 per cent
AquaInSilico, the Group's fourth spin out in Portugal, is developing sophisticated software tools able to understand and predict how biological and chemical processes unfold in different operating conditions.
These can be used to optimise wastewater treatment across many industries, including municipal wastewater treatment plants, oil groups, brewers, pulp, paper and steel makers, food processing and waste recovery businesses.
Highlights of the company's year included the award of a €60,000 EIT RawMaterials grant from the European Union's European Institute of Innovation and Technology to commercialise tools to remove phosphorus from wastewater in a more environmentally friendly and effective way than existing technologies.
AquaInSilico was also selected to receive $250,000 as an Ocean Innovator through the United Nations Development Programme's Ocean Innovation Challenge. The company is now involved in a two-year project to help protect and conserve one of the world's most diverse marine environments around the Cape Verde archipelago in the Atlantic Ocean. Its tools will be used to reduce the amount of nutrients entering the sea and to improve water quality for the local population.
UN SDG mapping: SDG 6, clean water and sanitation, SDG 12, responsible consumption and production, SDG 14, life below water
Cambridge Raman Imaging: Frontier IP stake: 25.8 per cent
Cambridge Raman Imaging, the Group's first graphene spin out, is developing Raman imaging technology based on graphene-based ultra-fast lasers, to detect and monitor tumours. The company was formed as a result of a partnership between the University of Cambridge and the Politecnico di Milano in Italy.
The key application employs Artificial Intelligence (AI) based analysis of chemical signatures, for accurately differentiating between healthy tissue and diseased tissue in patient samples, augmenting or replacing subjective diagnosis of samples by histopathologists. This will be without chemical staining - eliminating a major contributor to sample variation seen between one lab and the next.
During the year, the company raised £250,000 in its first equity funding round, appointed a Chief Technology Officer, and entered into a collaboration with Chinese manufacturer Motic. The company also announced its involvement in a €5 million project, Crimson, to develop new imaging technologies to enable researchers to investigate diseases unfolding in cells in near real time. This will promote greater understanding of disease, opening the way for the development of new treatments.
UN SDG mapping: SDG 3 good health and well-being
CamGraPhIC : Frontier IP stake: 26.7 per cent
A second graphene spin out, this time from the University of Cambridge and Italian research institute CNIT, CamGraPhIC develops graphene-based photonics for high-speed data and telecommunications. Graphene photonics are seen as a key enabler for 5G technologies by the company's industrial partners.
Initial applications are high-speed optical transceivers. In laboratory conditions these have worked at 100Gb per second, around twice the speed of equivalent technologies, and consume at least 75 per cent less energy. The area is attracting increased interest, with COVID-19 and the subsequent rise in remote working underlining the need for very high broadband speeds.
UN SDG mapping: SDG 9, industry, innovation and infrastructure, SDG 11, sustainable cities and infrastructure
Celerum: Frontier IP stake: 33.8 per cent
Celerum is developing novel artificial intelligence to improve the operational efficiency of logistics and supply chains. The technology also has the potential to address a host of other complex scientific, engineering and industrial challenges.
Celerum develops 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. This novel artificial intelligence can be used to improve the operational efficiency of logistics and supply chains and has the potential to address a host of other complex scientific, engineering and industrial challenges. During the year, the company announced it had been sub-contracted to support software development for Aberdeen-based company PlanSea Solutions.
Although the technology is at an early stage of development, a project conducted on behalf of Highlands and Islands Enterprise across food and drink supply chains in northern Scotland, showed it has the potential to cut carbon emissions by up to 40 per cent if suppliers and logistics firms are willing to work together to share loads.
UN SDG mapping: SDG 9, industry, innovation and infrastructure
Des Solutio: Frontier IP stake: 25.0 per cent
Des Solutio is developing safer and greener alternatives to the toxic solvents currently used to extract active ingredients by the pharmaceutical, personal care, household goods and food industries.
It does this by creating new methods to use Natural Deep Eutectic Solvents, found in a huge array of plants, to replace toxic organic solvents, such as ethanol, employed currently. This means it is contributing to the environmentally sound management of chemicals, and reducing their release to air, water and soil. The company is still at an early stage but is already generating industry interest.
UN SDG mapping: SDG 9 industry, innovation and infrastructure; SDG 12, responsible consumption and production
Elute Intelligence: Frontier IP stake: 41.2 per cent
Elute's software tools are designed to help users intelligently search, compare and analyse complex documents by mimicking the way people read. There are a huge range of potential applications, from searching patents and contracts, to detecting evidence of plagiarism, collusion and copyright infringement.
During the year, the company raised £250,000 through its first equity funding round and launched its innovative Patent Reader product commercially following a successful pilot with a dedicated user group. The Patent Reader allows users to identify relevant patents and understand why they are relevant within minutes. It is also developing an enterprise search tool and continued to provide its COVID-19 document reader free to researchers. The company's tools help to enhance research, support improved technological capabilities and innovation.
UN SDG mapping: SDG 9, industry, innovation and infrastructure
Exscientia: Frontier IP stake: 1.7 per cent
Exscientia, a spin out from the University of Dundee, now based in Oxford, is a world leader in artificial intelligence-driven drug discovery. It is the company behind the first three AI-created drugs to enter human clinical trials, taking years off traditional drug discovery processes.
Post period end, the company became the first in our portfolio to IPO, raising total gross proceeds of $464.7 million through a public offer and private placements with SoftBank and the Bill & Melinda Gates Foundation. The IPO, priced at the top end of the estimated range, valued the company at $2.9 billion.
It cemented a growing reputation globally, which had already been recognised by investors and the pharmaceutical industry. In March 2021, Exscientia completed a Series C funding round at $100 million with an investment from funds managed by BlackRock; in April a Series D funding round led by SoftBank raised $225 million with an option to raise a further $300 million. The following month, Exscientia announced a collaboration with one of the world's biggest pharmaceutical companies Bristol Myers Squibb with upfront and potential milestones of more than $1.2 billion.
The company also entered a strategic research and development agreement with EQRx, a company committed to developing and providing medicines at lower prices.
Although the company is primarily focused on non-communicable diseases, such as cancer, OCD, Alzheimer's and rare diseases, it announced the discovery of two potential therapeutics for COVID-19 earlier this year.
UN SDG mapping: SDG 3, good health and well-being
Fieldwork Robotics: Frontier IP stake: 22.2 per cent
Fieldwork Robotics made good progress in developing its robot soft fruit picking and vegetable harvesting technology, despite COVID-19 affecting necessary field trials.
During the year, the company entered into a collaboration with Bosch, which optimises the robot arm technology and software to increase speed and reduce costs. This has resulted in a number of improvements to the technology. It also started working with Bonduelle, a leading vegetable producer, on a three-year project to develop a cauliflower harvesting robot.
The company raised £675,000 through an equity funding round and received grants totalling £229,000 from schemes managed by Innovate UK.
Robotic fruit and vegetable harvesting technology has the potential to improve agricultural productivity, reduce food waste by more accurate picking and minimising human contact, and result in better quality jobs, with harvesting labour replaced by skilled robot operators. There is also potential for cutting carbon emissions through reduced need for migrant labour.
UN SDG mapping: SDG 2, zero hunger; SDG 12 responsible consumption and production
Insignals Neurotech: Frontier IP stake: 33.0 per cent
Insignals Neurotech, 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 three clinical studies. During the year, the company received a €100,000 investment from leading Portuguese venture capital firm Portugal Ventures.
InSignals is also working on other applications in neurology.
Parkinson's is the fastest growing neurodegenerative disease worldwide - by 2040, 13 million people are expected to become sufferers.
UN SDG mapping: SDG 3 good health and well-being
Molendotech: Frontier IP stake: 12.6 per cent
Molendotech continued work on its innovative rapid pathogen detection technology. SirenBW, a kit to test bathing water for faecal matter based on Molendotech's proprietary bacterial detection technology, is now commercially available. The kit, which can be used on site, cuts testing times from up to two days to under 30 minutes because samples do not need to be sent to a laboratory, enabling environmental agencies and other authorities to assess water quality swiftly.
The company has also developed a novel method to detect specific pathogenic bacteria, and the investment will enable further development of this technology for new markets, including the food industry, where it has the potential to extend shelf life and reduce food waste. This work is being undertaken in collaboration with industry partners.
UN SDG mapping: SDG 6, clean water and sanitation; SDG 12 responsible consumption and production
Nandi Proteins: Frontier IP stake: 20.1 per cent
Nandi Proteins is now scaling up commercial products based on its technology to create a wide range of customised ingredients based on vegetable and animal proteins. These functional proteins can be used to replace undesirable ingredients, such as fat, gluten, E-number additives in processed foods, or those that people do not want to consume - for example, by replacing animal proteins with vegetable proteins.
The company has gained significant industrial traction and is now collaborating with major companies on several applications. These include projects to improve the taste and texture of gluten-free products, using vegetable proteins to replace egg whites in meat alternatives to turn a vegetarian product vegan, and proteins to replace chemical binders and emulsifiers in plant-based alternative meats and baked goods. The company is also developing animal proteins to replace fat.
To oversee scale up and further development of the technology, Nandi appointed David Flower, former managing director Europe for Singha beer maker the Boon Rawd Brewing Company as chief executive. He was previously managing director, home baking, for Kerry Foods. The company also raised £720,000 through a convertible loan backed by £360,000 from the UK government's future fund.
Nandi's technology has the potential to contribute to more sustainable agriculture and food production by supporting the plant-based alternative meat industry and by reducing chemical ingredients in processed food. Cutting fat in affordable processed foods will help to make them less harmful.
UN SDG mapping: SDG 2, end hunger; SDG 12, responsible consumption and production
NTPE: Frontier IP stake: 31.6 per cent
NTPE is developing cellulose-based eco-friendly, low-cost, low-power paper-based electronics to replace silicon in some electronic applications. Called Paper-E, the novel technology means electronic circuits, sensors and semiconductors can be printed onto any cellulose-based paper. Paper-based energy harvesters, such as solar cells, can be included in the circuits.
The company is focusing on a range of potential applications, including a book-E concept to produce cheap and accessible educational tools to teach children about electronics. Longer-term health applications include diagnostic sensors for use in health and food, smart packaging and paper-based sensors for use in very remote environments.
Cellulose is natural, sustainable and recyclable material. Its use can help reduce the severe negative impact of silicon mining, use and disposal. The technology is still at an early stage of development.
UN SDG mapping: SDG 12, responsible consumption and production
PoreXpert: Frontier IP stake: 15.0 per cent
PoreXpert, a software and consultancy firm, has developed novel software and methods to model the voids within porous materials and how gases, liquids and colloidal suspensions behave within them.
Applications include helping companies understand and exploit the nature of oil and gas reserves to improve the efficiency of exploration and extraction, supporting industry efforts to reduce their impact on the environment. It is also being used to help maximise the lifespan of the UK's Advanced Gas Cooled nuclear reactors, which generate 20 per cent of the national energy requirement, without greenhouse gas emissions.
UN SDG mapping: SDG 7, affordable and clean energy; SDG 12, responsible consumption and production
Pulsiv: Frontier IP stake: 18.3 per cent
About half the electricity used by devices is wasted because of inefficient power conversion - that's why converters heat up in operation. Pulsiv's novel technology converts electricity much more efficiently - in tests it wastes only about 10 per cent of the energy. Furthermore, its fundamentally new power conversion techniques can be incorporated in smaller, lighter and more cost-effective designs. So the technology has the potential to reduce strains on power grids and cut costs for manufacturers and bills for consumers.
The technology can be used in nearly all mains-powered products, battery chargers, lighting applications, electric vehicles, portable power tools and DC motors. Not only does it convert electricity from mains to device more efficiently, it also works from device to mains, significantly improving the efficiency of renewable sources. The company is working on a solar microinverter to maximise the output from photovoltaic solar cells.
During the year, the company completed a £1.5 million equity funding round and significantly strengthened its management team. Darrel Kingham, formerly of Aixtron and Arm, joined as chief executive officer. Dr Zaki Ahmed, the man behind the technology, left his post at the University of Plymouth to join full time as chief strategy officer, and Tim Moore, executive vice president of Shark Robotics, Shark Ninja, became a non-executive director. Adam Westcott has been appointed as chief financial officer. These appointments reflect the fact the company is now pushing ahead with full commercial scale up of the technology.
UN SDG mapping: SDG 7, affordable and clean energy; SDG 13, climate action
The Vaccine Group: Frontier IP stake: 17.0 per cent
The Vaccine Group is creating a wide range of vaccines based on a novel herpesvirus-based platform. Its core focus is on preventing the spread of zoonotic and economically damaging diseases. Vaccines under development include those for COVID-19, African swine fever, bovine tuberculosis, bovine mastitis, streptococcus suis, Ebola and Lassa fever. To date, the company and its international partners have been awarded more than £9 million in grant funding from the UK, US and Chinese governments.
Key events of the year include the company signing its first commercial collaboration agreement with ECO Animal Health Group and The Pirbright Institute to develop vaccines for porcine respiratory and reproductive syndrome.
To reflect the progress made by the company, Jeremy Salt was appointed chief executive officer to oversee the vaccine platform's continued development and commercialisation of the technology. Jeremy joined from GALVmed, where he was chief scientific officer. He has previously director of Biologicals Research & Development for Europe, Africa and Middle East of the world's biggest animal health group Zoetis.
UN SDG mapping: SDG 2, end hunger; SDG 3 good health and well-being
Core Portfolio Summary at 30 June 2021
|
Portfolio Company |
% Issued Share Capital |
About |
Source |
|
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 |
|
AquaInSilico Lda |
29.0% |
Digital tools to optimise wastewater treatment |
FCT Nova |
|
Cambridge Raman Imaging Limited |
25.8% |
Medical imaging using ultra-fast lasers |
University of Cambridge and Politecnico di Milano |
|
CamGraPhIC Limited |
26.7% |
Graphene-based photonics |
University of Cambridge and CNIT |
|
Celerum Limited |
33.8% |
Near real-time automated fleet scheduling |
Robert Gordon University |
|
Des Solutio Lda |
25.0% |
Green alternatives to industrial toxic solvents |
FCT Nova |
|
Elute Intelligence Holdings Limited |
41.2% |
Software tools able to intelligently search, compare and analyse unstructured data |
Existing business |
|
Exscientia Limited |
1.7% |
Novel informatics and experimental methods for drug discovery |
University of Dundee |
|
Fieldwork Robotics Limited |
22.2% |
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 Limited |
18.3% |
High efficiency power conversion and solar power generation |
University of Plymouth |
|
The Vaccine Group Limited |
17.0% |
Herpesvirus-based vaccines for the control of bacterial and viral diseases |
University of Plymouth |
The Group holds equity stakes in 8 further portfolio companies. The combined value of these holdings was £28,000, equivalent to 0.1% of the fair value of the Group's portfolio at 30 June 2021.
Financial Review
Key Highlights
The value of the Group's equity investments increased to £31,982,000 (2020: £19,444,000) with net assets increasing to £38,421,000 (2020: £25,866,000).
Profit after tax for the Group for the year to 30 June 2021 was £9,566,000 (2020: £4,184,000) after a deferred tax charge of £676,000 (2020: nil). This result includes a net unrealised profit on the revaluation of investments of £12,306,000 (2020: £5,973,000) and reflects a decrease in services revenue to £362,000 (2020: £404,000), greater administrative expenses of £2,171,000 (2020: £2,011,000) primarily due to an increase in personnel and an increase in share-based payments to £368,000 (2020: £230,000).
On 21 July 2020, the Company conducted a placing of 4,243,140 new ordinary shares of 10p for cash at a price of 55p per share raising £2,334,000 before expenses of £152,000.
Revenue
Total revenue and other operating income for the year to 30 June 2021, which is the aggregate of services revenue and unrealised gain on the revaluation of investments, increased 99% to £12,668,000 (2020: £6,377,000). Revenue from services decreased 10% to £362,000 (2020: £404,000). The Group's net unrealised profit on the revaluation of investments increased 106% to £12,306,000 (2020: £5,973,000). Unrealised gains on revaluation of equity investments of £12,603,000 (2020: £7,064,000) were offset by fair value decreases of £412,000 (2020: £1,051,000). £8,803,000 of the equity investment gain relates to Exscientia Limited which raised capital in April 2021 at an increased price and £1,494,000 to The Vaccine Group Limited. Unrealised gains included net unrealised profit on the revaluation of debt investments of £115,000 (2020: unrealised loss of £40,000).
Administrative Expenses
Administrative expenses increased 8% to £2,171,000 (2020: £2,011,000). The increase is primarily due to increased employee and consultant costs.
Share Based Payments
Share based payments increased 60% to £368,000 (2020: £230,000) reflecting the charge for options granted in November 2020 and a full year's charge for options granted in December 2019.
Earnings Per Share
Basic earnings per share were 17.47p (2020: 8.76p). Diluted earnings per share were 16.62p (2020: 8.41p).
Statement of Financial Position
The principal items in the statement of financial position at 30 June 2021 are financial assets at fair value through profit and loss £34,302,000 (2020: £20,307,000) and goodwill £1,966,000 (2020: £1,966,000). Financial assets at fair value through profit and loss comprise equity holdings of £31,982,000 (2020: £19,444,000) and debt investments of £2,320,000 (2020: £863,000) 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 matters taken into account when assessing the fair value of the portfolio companies are detailed in the accounting policy on investments. The considerations taken into account by the Directors when reviewing the carrying value of goodwill are detailed in Note 9 to the financial statements.
The Group had net current assets at 30 June 2021 of £2,379,000 (2020: £3,588,000). The current assets at 30 June 2021 include trade receivables of £172,000 which are more than 90 days overdue from portfolio companies Alusid, Elute Intelligence and Fieldwork Robotics. Other debtors also include an unsecured interest free loan to Alusid of £31,000. The directors are confident that Alusid, Elute Intelligence 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 £38,421,000 at 30 June 2021 (30 June 2020: £25,866,000) resulting in net assets per share of 69.8p (2020: 51.0p).
Cash
The Group's cash balances decreased during the year by £976,000 to £1,992,000 at 30 June 2021. Operating activities consumed £1,466,000 (2020: £1,758,000) and investing activities consumed £1,692,000 (2020: £600,000) reflecting the purchase of debt investments of £1,618,000 (2020: £588,000) which included a loan of £933,000 to CamGraPhIC Limited and £320,000 to Nandi Proteins Limited. The Group raised cash of £2,182,000 net of costs through a placing 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 key financial risk in our business model is the inability to realise sufficient income through the sale of our holdings in portfolio companies to cover operating costs and investment capital. This risk has been mitigated through the post-year end initial public offering of Exscientia, our most valuable holding at 30 June 2021, creating a significant, readily realisable asset to cover our cash requirements for the foreseeable future. The other principal financial risk of the business is a fall in the value of the Group's portfolio. With regards to the value of the portfolio itself, the fair value of each portfolio company represents the best estimate at a point in time and may be impaired if the business does not perform as well as expected, directly impacting the Group's value and profitability. This risk is mitigated as the number of companies in the portfolio increases. T he Group continues to pursue its aim of actively seeking realisation opportunities within its portfolio to reduce the requirement for additional capital raising.
The principal operational risk of the business is management's ability to continue to identify spin out companies from its formal and informal university relationships, to increase the revenue streams that will generate cash in the short term and achieve realisations from the portfolio.
Early-stage 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, as well as controlling the cash burn rate in portfolio companies.
The remaining risks to the Group attributable to the COVID-19 pandemic on the Group are: Operational - Frontier and portfolio company employees may contract the virus and be unavailable for work for extended periods of time; Valuation - the economic impact could delay the commercial progress and fundraisings of some portfolio companies; and general economic deterioration could impede the company's ability to raise funds when required. The Group seeks to mitigate these risks by maintaining a safe working environment, e nsuring portfolio companies have considered and addressed risks and strengthening the Group's balance sheet.
Changes to the basis on which IP is licensed in the Higher Education sector might lead to reduced opportunity or a need to vary the business model. Any uncertainty in the sector may have an impact on the operation of the Group's commercialisation partnerships in terms of lower levels of intellectual property generation and therefore commercialisation activity. The Group seeks to mitigate these risks by continuing to seek new sources of IP from a wide range of institutions both within and outside of the UK.
The impact of Brexit is still to become fully apparent but could have a broad disruptive impact on the Group: reduced research funding impacting access to quality IP in the higher education sector; reduced grant funding for portfolio companies; disruption to the business of portfolio companies who trade with the EU or who are unable to recruit skilled labour. We believe the direct impact of Brexit on the Group's operations to be limited but will be kept under review. However, we will continue to work closely with our portfolio companies to mitigate the impact of any issues arising.
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.
By order of the Board
Neil Crabb
Director
27 October 2021
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2021
|
|
|
2021 |
|
2020 |
|
|
Notes |
£'000 |
|
£'000 |
|
Revenue |
|
|
|
|
|
Revenue from services
Other operating income Unrealised profit on the revaluation of investments |
11,12 |
362
12,306 |
|
404
5,973 |
|
|
|
|
|
|
|
|
|
12,668 |
|
6,377 |
|
|
|
|
|
|
|
Administrative expenses Share based payments Other income |
4 |
(2,171) (368) 104 |
|
(2,011) (230) 27 |
|
|
|
|
|
|
|
Profit from operations |
|
10,233 |
|
4,163 |
|
|
|
|
|
|
|
Interest income on short term deposits |
|
9 |
|
21 |
|
|
|
|
|
|
|
Profit from operations and before tax |
|
10,242 |
|
4,184 |
|
|
|
|
|
|
|
Taxation |
6 |
(676) |
|
- |
|
|
|
|
|
|
|
Profit and total comprehensive income attributable to |
|
|
|
|
|
the equity holders of the Company |
|
9,566 |
|
4,184 |
|
|
|
|
|
|
|
Profit per share attributable to the equity holders of the Company: |
|
|
|
|
|
Basic earnings per share |
7 |
17.47p |
|
8.76p |
|
Diluted earnings per share |
7 |
16.62p |
|
8.41p |
All of the Group's activities are classed as continuing.
There is no other comprehensive income in the year (2020: nil).
Consolidated Statement of Financial Position
At 30 June 2021
|
|
|
2021 |
|
2020 |
|
|
Notes |
£'000 |
|
£'000 |
|
Assets |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Tangible fixed assets |
8 |
11 |
|
5 |
|
Goodwill |
9 |
1,966 |
|
1,966 |
|
Equity investments Debt investments |
11 12 |
31,982 2,320 |
|
19,444 863 |
|
|
|
36,279 |
|
22,278 |
|
Current assets |
|
|
|
|
|
Trade receivables and other current assets |
13 |
595 |
|
830 |
|
Cash and cash equivalents |
|
1,992 |
|
2,968 |
|
|
|
2,587 |
|
3,798 |
|
Total assets |
|
38,866 |
|
26,076 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Deferred taxation |
6 |
(237) |
|
- |
|
|
|
(237) |
|
- |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
14 |
(208) |
|
(210) |
|
|
|
(208) |
|
(210) |
|
Total liabilities |
|
(445) |
|
(210) |
|
|
|
|
|
|
|
Net assets |
|
38,421 |
|
25,866 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Called up share capital |
15 |
5,501 |
|
5,076 |
|
Share premium account |
15 |
14,576 |
|
12,819 |
|
Reverse acquisition reserve |
16 |
(1,667) |
|
(1,667) |
|
Share based payment reserve |
16 |
1,276 |
|
477 |
|
Retained earnings |
16 |
18,735 |
|
9,161 |
|
Total equity |
|
38,421 |
|
25,866 |
Consolidated Statement of Changes in Equity
For the year ended 30 June 2021
|
|
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 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 |
|
|
|
|
|
|
|
|
|
Issue of shares |
425 |
1,757 |
- |
- |
- |
2,182 |
|
Share-based payments |
- |
- |
- |
799 |
8 |
807 |
|
Profit/total comprehensive income for the year |
- |
- |
- |
- |
9,566 |
9,566 |
|
|
|
|
|
|
|
|
|
At 30 June 2021 |
5,501 |
14,576 |
(1,667) |
1,276 |
18,735 |
38,421 |
Consolidated Statement of Cash Flows
For the year ended 30 June 2021
|
|
|
Group |
Group |
|
|
|
2021 |
2020 |
|
|
Notes |
£'000 |
£'000 |
|
|
|
|
|
|
Cash flows from operating activities |
19 |
(1,466) |
(1,758) |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchase of tangible fixed assets |
8 |
(12) |
(3) |
|
Purchase of equity investments |
11 |
(71) |
(97) |
|
Purchase of debt investments |
12 |
(1,618) |
(588) |
|
Disposal of debt investments |
12 |
- |
40 |
|
Amounts receivable from group undertakings |
|
- |
- |
|
Interest income Other income |
|
9 - |
21 27 |
|
Net cash used in investing activities |
|
(1,692) |
(600) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of equity shares |
|
2,334 |
4,175 |
|
Costs of share issue |
|
(152) |
(315) |
|
Net cash generated from financing activities |
|
2,182 |
3,860 |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
(976) |
1,502 |
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
2,968 |
1,466 |
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
1,992 |
2,968 |
Notes to the Financial Statements
1. Financial risk management
Financial risk factors
Going concern
As described in the Directors' Report, the Group's strategy is to develop a growing portfolio of spin out companies that will provide cash inflows through realisation of investments. In assessing going concern, the Directors considered the Group's cash requirements over the three years to 30 June 2024. The forecast included operating activities and known near term purchase of investments. It did not include cash from the disposal of investments or for the purchase of unplanned investments. The analysis showed that at 30 June 2021 the Group had insufficient cash to cover its expenditure for the next 12 months. On 1 October 2021 one of the Group's portfolio companies Exscientia completed an initial public offering with the initial public offering price valuing the Group's holding at $34.4 million - approximately £25.5 million. The Directors plan to realise sufficient cash from the Exscientia holding in 2021 to cover expenditure for at least the next 12 months. For further operating and investment cash requirements over the three-year assessment period, the Directors intend to realise further cash from either the Exscientia holding or from other portfolio company exits. Consequently, the Directors continue to adopt the going concern basis in preparing the Group's financial statements.
(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 £31,982,000 (2020: £19,444,000).
(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 14. 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 2021 and 30 June 2020 all amounts shown in the consolidated statement of financial position under current assets and current liabilities mature for payment within one year.
2. Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and judgements.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:
(i) Valuation of investments
In applying valuation techniques to determine the fair value of unquoted equity investments the Group makes estimates and assumptions regarding the future potential of the investments. As the Group's 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 29% being £9,249,000 from a total value of £31,982,000. In applying valuation techniques to determine the fair value of debt investments the Group makes estimates and assumptions regarding the time to repayment or conversion, discount rate and credit risk. Where warrants are attached to a debt instrument, the fair value is determined using the Black-Scholes-Merton valuation model. The significant inputs to the model are provided in note 13. The price at which debt investments were made is 95% of the fair value of debt investments at 30 June 2021.
(ii) Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the stated accounting policy. The recoverable amount is determined using a value in use model which requires 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 76% of its revenue from services (2020: five customers accounted for 75%). The revenues generated from each customer were as follows:
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Customer 1 |
78 |
90 |
|
Customer 2 |
72 |
72 |
|
Customer 3 |
48 |
53 |
|
Customer 4 |
48 |
48 |
|
Customer 5 |
29 |
39 |
|
|
275 |
302 |
4. Administration expenses
Expenses included in administrative expenses are analysed below.
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Employee costs |
1,534 |
1,446 |
|
Consultant |
66 |
43 |
|
Travel and subsistence |
1 |
22 |
|
Depreciation |
6 |
6 |
|
Bad and doubtful debts |
- |
(1) |
|
Audit services: |
|
|
|
- audit of the Company and consolidated accounts - audit of the Company's subsidiaries pursuant to legislation |
54 5 |
65 2 |
|
Non-audit services : |
|
|
|
- tax services |
10 |
8 |
|
- consultancy services |
3 |
9 |
|
Legal, professional and financial costs |
290 |
217 |
|
Premises lease |
133 |
142 |
|
Administration costs |
69 |
52 |
|
|
2,171 |
2,011 |
5. Directors and employees
The average number of people employed by the Group during the year was:
|
|
2021 |
2020 |
|
|
Number |
Number |
|
|
|
|
|
Business and corporate development |
15 |
15 |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Wages and salaries |
1,125 |
1,081 |
|
Social security |
146 |
146 |
|
Pension costs - defined contribution plans |
98 |
73 |
|
Non-executive directors' fees |
95 |
95 |
|
Other benefits |
70 |
51 |
|
Employee administration expenses |
1,534 |
1,446 |
|
Share option expense |
368 |
230 |
|
|
1,902 |
1,676 |
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 |
|||||
|
|
2021 |
2020 |
2021 |
2020 |
2021 |
2020 |
2021 |
2020 |
2021 |
2020 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
'000 |
|
Executive |
|
|
|
|
|
|
|
|
|
|
|
N Crabb |
138 |
138 |
4 |
3 |
12 |
15 |
72 |
21 |
226 |
177 |
|
J McKay |
84 |
103 |
5 |
4 |
32 |
11 |
66 |
11 |
187 |
129 |
|
J Fish |
108 |
108 |
3 |
3 |
11 |
11 |
66 |
20 |
188 |
142 |
|
M White |
130 |
130 |
3 |
3 |
13 |
13 |
64 |
20 |
210 |
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-executive |
|
|
|
|
|
|
|
|
|
|
|
A Richmond |
43 |
43 |
- |
- |
- |
- |
- |
- |
43 |
43 |
|
M Bourne |
26 |
26 |
- |
- |
- |
- |
- |
- |
26 |
26 |
|
C Wilson |
26 |
26 |
- |
- |
- |
- |
- |
- |
26 |
26 |
|
|
555 |
574 |
15 |
13 |
68 |
50 |
268 |
72 |
906 |
709 |
6. Taxation
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Current tax |
- |
- |
|
Deferred tax |
676 |
- |
|
Tax charge for the year |
676 |
- |
A reconciliation from the reported profit before tax to the total tax charge is shown below:
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Profit before tax |
10,242 |
4,184 |
-
|
Profit before tax at the effective rate of corporation tax in the UK of 19% (2020: 19%) |
1,946 |
795 |
|
Effects of: Fair value movement in investments not recognised in deferred tax |
159 |
(1,086) |
|
Expenses not deductible for tax purposes |
70 |
48 |
|
Movement in deferred tax asset of losses not recognised |
(1,610) |
295 |
|
Other adjustments |
111 |
(52) |
|
Tax charge for the year |
676 |
- |
The UK corporation tax rate was previously enacted to reduce to 17% from 1 April 2020. However, the Finance Act 2020, which was substantively enacted on 11 March 2020, repealed this rate reduction and the corporation tax rate has remained at 19% from 1 April 2020 . The Finance Act 2021 received Royal Assent on 10 June 2021 which has enacted an increase in the UK corporation tax rate to 25% from 1 April 2023. The closing deferred tax assets and liabilities have been calculated at a blended rate of 21.75%, on the basis that this is the rate at which those assets and liabilities are expected to unwind.
Deferred Tax
|
|
Group |
|
Deferred tax liabilities at 30 June 2021 |
|
|
Unrealised gains investments |
(2,795) |
|
|
(2,795) |
|
Deferred tax assets at 30 June 2021 |
|
|
Tax losses |
1,891 |
|
Short-term timing differences - pension |
2 |
|
Short-term timing differences - outstanding share options |
665 |
|
|
2,558 |
|
|
|
|
Net deferred tax (liability) / asset |
(237) |
|
|
Group |
|
Deferred tax movement |
|
|
At 1 July 2020 |
- |
|
Debited / (credited) to profit and loss account |
676 |
|
Credited to equity |
(439) |
|
At 30 June 2021 |
237 |
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 2021 |
9,566 |
54,761,420 |
17.47 |
|
|
|
|
|
|
Year ended 30 June 2020 |
4,184 |
47,753,569 |
8.76 |
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 2021 |
9,566 |
57,548,082 |
16.62 |
|
|
|
|
|
|
Year ended 30 June 2020 |
4,184 |
49,775,053 |
8.41 |
8. Tangible fixed assets
|
|
Fixtures and equipment |
|
|
£'000 |
|
Cost |
|
|
At 1 July 2019 |
23 |
|
Additions |
3 |
|
Disposals |
- |
|
At 30 June 2020 |
26 |
|
Additions |
12 |
|
Disposals |
(2) |
|
At 30 June 2021 |
36 |
|
|
|
|
Depreciation |
|
|
Accumulated depreciation at 1 July 2019 |
16 |
|
Charge for the year to 30 June 2020 |
5 |
|
Disposals |
- |
|
Accumulated depreciation at 30 June 2020 |
21 |
|
Charge for the year to 30 June 2021 |
6 |
|
Disposals |
(2) |
|
Accumulated depreciation at 30 June 2021 |
25 |
|
Net book value |
|
|
At 30 June 2020 |
5 |
|
At 30 June 2021 |
11 |
9. Goodwill
|
|
Group |
|
|
£'000 |
|
Cost |
|
|
At 1 July 2019, 30 June 2020 and at 30 June 2021 |
1,966 |
|
|
|
|
Impairment |
|
|
At 1 July 2019, 30 June 2020 and at 30 June 2021 |
- |
|
|
|
|
Carrying value |
|
|
At 30 June 2021 |
1,966 |
|
At 30 June 2020 |
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.
The assumptions used in the model are set out below:
|
|
2021 |
2020 |
||
|
|
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% - 150% |
- |
|
Equity in existing portfolio
|
- |
1.65%-41.2%* |
- |
2.4% - 43.5% |
|
Dilution
|
35% |
Average of 28% |
35% |
Average of 31% |
|
Years to exit
|
7 |
7 ** |
7 |
7 |
|
Rate of return
|
27% |
27% |
27% |
27% |
|
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 2021. Average of £49.4m*** |
£1.5m |
£1.5m - carrying values of individual companies at 30 June 2020. Average of £13.5m |
* Actual range of equity at 30 June 2021 excluding immaterial holdings.
** Minimum of 4 years for existing portfolio companies with the exception of Exscientia.
*** £5.1m excluding the value of Exscientia.
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 percentage change required in an assumption 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. |
-57% |
|
Dilution |
+140% |
|
Years to exit |
+43% |
|
Rate of return |
-22% |
|
Discount rate (pre-tax) |
+51% |
|
Value at first funding round |
-50% |
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 £9.9m and a 22% decrease in the rate of return from 27% to 21% 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 2021 |
|
|
|
|
Equity investments |
31,982 |
- |
31,982 |
|
Debt investments |
2,320 |
- |
2,320 |
|
Trade and other receivables |
- |
595 |
595 |
|
Cash and cash equivalents |
- |
1,992 |
1,992 |
|
Total |
34,302 |
2,587 |
36,889 |
All financial liabilities are categorised as other financial liabilities and recognized at amortised cost.
All net fair value gains in the year are attributable to financial assets designated at fair value through profit or loss. (2020: all net fair value gains were attributable to financial assets designated at fair value through profit or loss.)
11. 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 2021 |
Group 2020 |
|
|
£'000 |
£'000 |
|
At 1 July |
19,444 |
13,252 |
|
Additions |
71 |
97 |
|
Conversion of debt investments |
276 |
82 |
|
Fair value increases |
12,603 |
7,064 |
|
Fair value decreases |
(412) |
(1,051) |
|
At 30 June |
31,982 |
19,444 |
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 2020 |
75 |
914 |
3,245 |
15,210 |
- |
19,444 |
|
Transfers between stages |
(15) |
(720) |
338 |
397 |
- |
- |
|
Fair value (decrease) / increase through other operating income |
(29) |
38 |
1,495 |
10,687 |
- |
12,191 |
|
Additions |
- |
- |
- |
347 |
- |
347 |
|
30 June 2021 |
31 |
232 |
5,078 |
26,641 |
- |
31,982 |
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 |
4 |
31 |
Initial valuation of new spin outs at £50,000 |
20% |
6 |
|
Stage 2 |
2 |
232 |
Management's assessment of the value of IP transferred and the value of grants from which economic benefit is derived. |
30% |
70 |
|
Stage 3 |
7 |
5,078 |
Management's assessment of performance against milestones and discussions of likely imminent fundraising. |
39% |
1,980 |
|
Stage 4 |
10 |
26,641 |
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. |
27% |
7,193 |
|
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 2021 |
31,982 |
|
29% |
9,249 |
|
Significant unobservable inputs:
The valuation of the Group's investment in Exscientia at 30 June 2021 was £13,210,000, 41% of the Group's total equity investments and 34% of its net assets at 30 June 2021. The increase in the value of the Group's holding in Exscientia over the year to 30 June 2021 was £8,803,000, 72% of the Group's net unrealised profit on the revaluation of investments and 86% of profit before tax for the year to 30 June 2021. The significant inputs into the valuation of the Group's holding in Exscientia included the price of an investment in April 2021 as well as progress from then until 30 June 2021.
The valuation of the Group's investment in Pulsiv Solar at 30 June 2021 was £4,087,000, 13% of the Group's total equity investments and 11% of its net assets at 30 June 2021. The increase in the value of the Group's holding in Pulsiv over the year to 30 June 2021 was £200,000, 2% of the Group's net unrealised profit on the revaluation of investments and 2% of profit before tax for the year to 30 June 2021. The significant inputs into the valuation of the Group's holding in Pulsiv included the price of an investment in May 2021 as well as progress from then until 30 June 2021.
The valuation of the Group's investment in The Vaccine Group (TVG) at 30 June 2021 was £4,546,000, 14% of the Group's total equity investments and 12% of its net assets at 30 June 2021. The increase in the value of the Group's holding in TVG over the year to 30 June 2021 was £1,494,000, 12% of the Group's net unrealised profit on the revaluation of investments and 15% of profit before tax for the year to 30 June 2021. 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 2021 since the most recent funding round in January 2020, the growth in valuation of vaccine companies over the period and a discounted cash flow model. The company's activities on the projects funded by the US, UK and Chinese governments remain on track and have met the milestones agreed with the funders. Post-period end animal trials commenced on a transmissible Ebola vaccine, believed to be the first of its kind in the world; this demonstrates the progress made during the period.
TVG's projects are individually high risk but also potentially high reward for TVG. It is therefore challenging to accurately value TVG given the material impact of success or failure in any one of these projects. This remains particularly challenging at this point in time as the 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 25% while a 25% increase in the success rate or a 25% reduction in the discount rate would increase the valuation by 23% and 24% respectively. The high risk/reward nature of TVG's projects, the difficulty in estimating future cash flows and the high level of judgement involved mean there is a risk of material adjustment to the valuation.
Equity investments are carried in the statement of financial position at fair value even though the Group may have significant influence over those companies. This treatment is permitted by IAS28, Investments in Associates. At 30 June 2021 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 |
25.8% |
Ordinary |
|
Cambridge Simulation Solutions Limited |
8 Cody Road, Waterbeach, Cambridge, CB25 9LS |
40.0% |
Ordinary |
|
CamGraPhIC Limited |
Wellington House, East Road, Cambridge, CB1 1BH |
26.7% |
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 Intelligence Holdings Limited |
21 Church Road, Tadley, RG26 3AX |
41.2% |
Ordinary |
|
Fieldwork Robotics Limited |
Research And Innovation Floor 2 Marine Building, Plymouth University, Plymouth, PL4 8AA |
22.2% |
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 where the holding carries a value.
12. 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 £50,000 (Pulsiv) to £933,000 (CamGraPhIC) 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.
Certain debt investments carry warrants granting the option to purchase shares. The exercise price is generally the price of shares issued at the first equity fundraising following the grant and the period of exercise is generally at any time from the first equity fundraising to an exit event. The fair value of the warrants is determined using the Black-Scholes-Merton valuation model. The significant inputs into the model for each warrant were the exercise price, the current share price valuation, volatility of 70%, expected life of between four and six years and an annual risk-free interest rate of 0.038%. The value of warrants included in debt investments at 30 June 2021 is £60,000 (2020: nil)
The movement of debt investments during the year is set out below:
|
|
Group 2021 |
Group 2020 |
|
|
£'000 |
£'000 |
|
At 1 July |
863 |
382 |
|
Additions |
1,618 |
588 |
|
Disposals |
- |
(40) |
|
Conversion to unquoted equity investments |
(276) |
(82) |
|
Reclassification |
- |
55 |
|
Fair value increases |
272 |
- |
|
Fair value decreases |
(157) |
(40) |
|
At 30 June |
2,320 |
863 |
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.
13. Trade receivables and other current assets
|
|
Group |
Group |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Trade receivables |
336 |
614 |
|
Receivables from Group undertakings |
- |
- |
|
VAT |
13 |
3 |
|
Prepayments and accrued income |
58 |
48 |
|
Other debtors |
109 |
146 |
|
Accrued interest |
79 |
19 |
|
|
595 |
830 |
|
Less receivables from Group undertakings - non current |
- |
- |
|
Current portion |
595 |
830 |
Trade receivables
|
|
Group |
Group |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Trade receivables not past due |
54 |
62 |
|
Trade receivables past due 1-30 days |
71 |
28 |
|
Trade receivables past due 31-60 days |
25 |
29 |
|
Trade receivables past due 61-90 days |
14 |
21 |
|
Trade receivables past due over 90 days |
172 |
474 |
|
Gross trade receivables at 30 June |
336 |
614 |
|
|
|
|
|
Expected credit loss at 1 July |
- |
- |
|
Debts provided for in the year |
- |
- |
|
Debts written off in the year |
- |
- |
|
Expected credit loss at 30 June |
- |
- |
|
|
|
|
|
Net trade receivables at 30 June |
336 |
614 |
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. £34,000 of trade receivables at 30 June 2021 have been recovered post year-end. Of the remaining £302,000, £104,000 is due from Fieldwork Robotics, £87,000 from Alusid and £76,000 from Elute Intelligence. The directors are confident that these companies will be able to raise sufficient funds to repay their debt and fund their business plan. If the directors considered it necessary to write off the equity investment in a portfolio company, they would also provide for a specific credit loss for any amounts due from the portfolio company, otherwise they 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 2.0% above base rate (2020: 2.0%).
14. Trade and other payables
|
|
Group |
Group |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Trade payables |
36 |
36 |
|
Social security and other taxes |
56 |
47 |
|
VAT |
- |
- |
|
Other creditors |
6 |
7 |
|
Accruals and deferred income |
110 |
120 |
|
At 30 June |
20 8 |
210 |
15. 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 2020 |
50,762,406 |
5,076 |
12,819 |
17,895 |
|
Issue of shares through a placing |
4,243,140 |
425 |
1,757 |
2,182 |
|
At 30 June 2021 |
55,005,546 |
5,501 |
14,576 |
20,077 |
On 21 July 2020, the Company conducted a placing of 4,243,140 new ordinary shares of 10p for cash at a price of 55p per share raising £2,334,000 before expenses of £152,000. 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 55,005,546 ordinary shares of 10p each.
16. Reserves
The reverse acquisition reserve was created on the reverse takeover of Frontier IP Group Plc. The fair value of equity-settled share-based payments is expensed on a straight-line basis over the vesting period and the amount expensed in each year is transferred to the share-based payment reserve. The amount by which the deferred tax asset arising on the intrinsic value of the outstanding share options differs from the cumulative expense is also transferred to the share-based payment reserve. Included in retained earnings are unrealised profits amounting to £31,068,000. The movement in reserves for the years ended 30 June 2021 and 2020 is set out in the Consolidated and Company Statement of Changes in Equity.
17. Share options
Frontier IP has three option schemes. Under the Frontier IP Group Plc Employee Share Option Scheme 2011 - Amended 26 March 2018, both enterprise management incentive options and unapproved options are granted. No payment is required from option holders on the grant of an option. The options are exercisable starting three years from the date of the grant with no performance conditions. The scheme runs for a period of ten years but no new options can be granted as the Group has ceased to be a qualifying company for EMI purposes. During the year, the Group adopted two new schemes as outlined in the Remuneration Committee Report but no options were granted under these schemes during the year.
Movements in the number of share options outstanding and their related weighted average exercise prices were as follows:
|
|
2021 Weighted average exercise price |
2021
Options |
2020 Weighted average exercise price |
2020
Options |
|
|
Pence per share |
|
Pence per share |
|
|
At 1 July |
30.48 |
4,335,676 |
27.05 |
3,312,000 |
|
Granted |
42.21 |
748,858 |
40.74 |
1,663,376 |
|
Exercised |
- |
- |
27.72 |
(331,034) |
|
Lapsed |
51.45 |
(54,353) |
52.04 |
(308,666) |
|
At 30 June |
31.99 |
5,030,181 |
30.48 |
4,335,676 |
Of the 5,030,181 outstanding options (2020: 4,335,676) 2,134,000 had vested at 30 June 2021 (2020: 2,134,000). The vested options have a weighted average exercise price of 25.62p.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
|
|
Exercise price Pence per share |
2021 Number |
2020 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 |
246,000 |
292,000 |
|
2028 |
10.00 |
456,000 |
539,000 |
|
2029 |
66.00 |
707,612 |
740,971 |
|
2029 2030 2030 |
10.00 65.00 10.00 |
737,711 438,542 310,316 |
739,705 - - |
The weighted average remaining contractual life of the outstanding options is 6.4 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 35.73p per option. The significant inputs into the model were the exercise price shown above, weighted average share price of 65.0p, volatility of 42%, dividend yield of 0%, expected life of 5 years and annual risk-free interest rate of 0.022%. Future volatility has been estimated based on 5 years' historical monthly data.
18. Leases
|
|
2021 |
2020 |
|
|
Land & Buildings |
Land & Buildings |
|
|
£'000 |
£'000 |
|
Commitments under non-cancellable leases expiring: |
|
|
|
Within one year |
72 |
90 |
|
Within two to five years |
- |
4 |
|
After five years |
- |
- |
|
|
72 |
94 |
The leases relate to rental of serviced offices. Under the terms of the rental agreements, the supplier has the right to terminate the agreement during the period of use, however at inception of the agreement this was not considered likely to occur. For short term leases (12 months or less) and leases of low value assets, the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16's transitional rules. Currently the longest lease ends in March 2022.
19. Cash used in operations
|
|
Group |
Group |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Profit before tax |
10,242 |
4,184 |
|
Adjustments for: |
|
|
|
Share-based payments |
368 |
230 |
|
Depreciation |
6 |
6 |
|
Interest received |
(9) |
(21) |
|
Other income |
- |
(27) |
|
Fair value (gain) on financial assets through profit and loss |
(12,306 ) |
(5,973) |
|
Changes in working capital: |
|
|
|
Trade and other receivables Trade and other payables |
235 (2)
|
(228) 71 |
|
Cash flows from operating activities |
(1,466) |
(1,758) |
The movements in liabilities from financing cashflows are nil.
20. Related party transactions
Neil Crabb is a director of PoreXpert Limited, Pulsiv Limited, Celerum Limited and Alusid Limited. Campbell Wilson is a director of Tarsis Technology Limited and principal of Wilson Biopharma Consulting. Matthew White is a director of The Vaccine Group Limited, Nandi Proteins Limited and Elute Intelligence Holdings 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:
|
|
Fees charged |
Fees charged |
Amounts owed |
Amounts owed |
|
|
2021 |
2020 |
2021 |
2020 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Nandi Proteins Limited |
78 |
90 |
26 |
324 |
|
Pulsiv Solar Limited |
48 |
48 |
19 |
59 |
|
Alusid Limited |
72 |
72 |
87 |
118 |
|
Tarsis Technology Limited |
- |
- |
- |
- |
|
The Vaccine Group Limited |
48 |
28 |
15 |
15 |
|
Celerum Limited |
30 |
21 |
- |
10 |
|
Elute Intelligence Holdings Limited
|
30 |
21 |
85
|
3
|
|
|
|
|
|
|
|
By Related Parties
|
|
|
|
|
|
Wilson Biopharma Consulting
|
12 |
12 |
- |
- |
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 £152,000. Neil Crabb, CEO and Michael Bourne, a Non-Executive Director, subscribed for 54,545 and 55,000 Placing Shares respectively. In addition, 602,851 Placing Shares were subscribed for by Quilter Cheviot Investment Management ("Quilter"). Quilter is a substantial shareholder in the Group, as defined in the AIM Rules, and their participation in the Placing was deemed to be a related party transaction under the AIM Rules.
21. Subsequent events
On 1 October 2021, Exscientia conducted an initial public offering. The initial public offering price valued the Group's holding at $34.4 million - approximately £25 million, an increase of approximately £12 million from the value of the Group's holding at 30 June 2021.
22. 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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