Interim Management Statement

Summary

Frontier IP made strong progress during the period and post period close in developing portfolio companies and creating value for shareholders by:

·    Supporting Alusid as the company started exploring options for an initial public offering. During the period, Alusid attracted a £500,000 investment from Octopus Investments as part of a larger funding round.

·    Strengthening the board of directors with Dame Julia King, Baroness Brown of Cambridge, DBE, FREng FRS FMedSci assuming the role as Chair of Frontier IP having previously been the senior independent non-executive on the board.

·    Helping portfolio companies strengthen their boards of directors and management teams.

·    Bringing one new company into the portfolio, Deakin Bio-Hybrid Materials.

·    Post period end, the Group raised £1.7 million by selling its remaining equity stake in Exscientia.

Operational Review

The Group and its portfolio companies made good commercial and technical progress during the half year to 31 December 2023. Our portfolio is maturing and several companies are moving closer to the stage where they could provide a potential exit for the Group. We further developed our relationships with university, government and industry partners. Further positive newsflow is expected in the coming months as the portfolio continues to mature.

Portfolio developments included:  

CamGraPhIC: Frontier IP stake 20.8 per cent

CamGraPhIC is developing ground-breaking graphene-based photonics for scalable, faster and cheaper optical transceivers, devices at the heart of high-speed data and telecommunication networks. Partners include leading multinationals from the telecoms and semiconductor sectors. They believe the company's technology could prove an important enabler for the 5G and 6G telecoms networks of the future and for advanced computing applications. There is also potential for uses in other sectors. Current versions of the technology have achieved speeds about twice that of equivalent technologies, and they consume 70 per cent less energy. During the period, CamGraPhIC announced it had put in place a new loan facility to provide funding of up to £1.5 million to support progress. The company is attracting serious commercial interest from organisations across multiple sectors and is exploring its funding options.

Fieldwork Robotics: Frontier IP stake 19.2 per cent

Fieldwork Robotics has developed advanced AI-supported harvesting robots, initially focused on soft fruits, such as raspberries, to help solve the problem of worker shortages, increase farm efficiency and reduce food wastage. During the period, the company completed a fundraising of £2.1 million with Elbow Beach Capital investing £1.5 million and the remainder being procured from Seedrs and existing shareholders. It also appointed a new Chief Executive Officer, David Fulton.

GraphEnergyTech: Frontier IP stake 30.4 per cent

GraphEnergyTech is developing advanced high-conductivity graphene inks. Initial applications are to create graphene electrodes to replace expensive silver electrodes in solar cells. Silver is the most commonly used material for solar cell electrodes, but the rising popularity of solar power means global reserves could be exhausted by 2050, according to research from the University of New South Wales, Australia. The company was incorporated in the UK during the first half of the last financial year with operations in Switzerland and was co-founded by Professor Michael Grätzel of the Ecole Polytechnique Federale de Lausanne. He is one of the world's most cited academics. Since incorporation, the company was selected during the period to represent the Swiss National Start-up Team in the 4YFN section of the Mobile World congress in Barcelona.  This means the company is one of 10 most promising start-ups in Switzerland. It has also recruited its first two employees: a graphene manufacturing specialist in the UK during the period, and, post period end, a materials deposition expert in Lausanne.

Pulsiv: Frontier IP stake 18.2 per cent

Pulsiv's technology significantly improves the energy efficiency of power supplies, battery chargers and LED lighting, cutting energy consumption and customer bills. The technology also extracts more energy from photovoltaic solar cells. Because it uses fewer components, it can be incorporated into more compact designs and is cost effective for manufacturers. Commercial traction is strong and growing: the company is in advanced discussions with major manufacturers and has put in place a global distribution network. During the period, serial entrepreneur and technology pioneer Dr Mark Gerhard joined as chairman and Dr Tim Moore full time as Chief Product Officer. Mark has extensive experience growing and exiting businesses in the video games, artificial intelligence and cyber security sectors. They include Jagex, developer of Runescape, which was sold for $250 million when Mark was Chief Executive Officer. Tim, a Pulsiv non-executive director, joined full time as Chief Product Officer from his post as Chief Technology Officer for Nasdaq-listed consumer electronics group SharkNinja. Post period end the company announced plans to launch a 65W USB C for adapters, chargers and wall sockets able to operate at 95 per cent efficiency.  

The Vaccine Group: Frontier IP stake 17 per cent

The Vaccine Group is developing a novel herpesvirus-based vaccine technology able to form a platform for a wide range of vaccines targeted at diseases in livestock and companion animals. The company has developed a strong vaccine pipeline: diseases targeted include porcine reproductive and respiratory syndrome, streptococcus suis, African swine fever and bovine tuberculosis. During the period, TVG created an Advisory Board to support scale up. The three high-ranking members have extensive veterinarian and industry expertise and networks. They are: Christophe Barnier-Quer, who works for Merck Life Sciences in a senior role; Johan Dreesen, a member of the Advisory Council to Kela Pharma and GALVmed board member; and Vaughn Kubiak, who brings 40 years' experience in global animal health.

Nandi: Frontier IP stake 19.8 per cent

Nandi's protein technology transforms commodity proteins into functional food ingredients. The company signed a commercial agreement with a global food ingredients company who will manufacture and take to market Nandi's first commercial ingredients once scale up and final application tests have been completed successfully. The ingredients are collagen-based meat and fat replacers for use in processed meat products, such as sausages and burgers, reducing calories and cost. The company is also advanced in developing a second product, a vegetable protein-based egg white replacer that has been successfully tested in a range of applications including meringues, alternative meat products and multiple bakery products. Other products include vegetable proteins to replace methylcellulose, a widely used binder in plant-based meat, and whey proteins to replace chemical emulsifiers in baked products.

Alusid: Frontier IP stake 35.4 per cent

Alusid makes beautiful, premium-quality tiles, tabletops and other surfaces by recycling industrial waste, ceramics and glass, much of which would otherwise go to landfill. The company's patented formulations and processes use less energy and water than conventional tile manufacturing. During the period, the company concluded a funding round raising £1.13 million. The company is scaling up a hard-wearing floor tile for mass manufacture and is investigating the use of glazes made from recycled materials to further increase the amount of recycled content in its tiles, currently at industry-leading levels of 90 per cent or more.

Deakin Bio: Frontier IP stake 33.3 per cent

One company joined the portfolio. Frontier IP took an equity stake in Deakin Bio-Hybrid Materials, a company developing advanced bio-based materials from organic waste such as chickpea broth and widely available non-organic powders.

Corporate developments

Dame Julia King, Baroness Brown of Cambridge, DBE FREng FRMedSci, previously the Company's senior independent non-executive director, became independent Non-Executive Chair at the annual meeting in December 2023, replacing Andrew Richmond. Andrew stepped down from the Board of Directors having served on the Frontier IP board for 11 years. Jim Fish is to step down from the Board of Directors as Chief Financial Officer by the end of May 2024. He will remain with the Group in a new role as Portfolio Finance Director to continue supporting portfolio companies.

Post period end, the Group completed its exit of Exscientia, realising a further £2.54 million to support its balance sheet. In return for a nominal investment, the Group has realised a total of approximately £14 million from Exscientia.

Outlook

Frontier IP faces the future with confidence. There are a number of highly promising developments within the portfolio as companies gain industry traction, scale up and achieve commercial viability. Others are at or approaching inflection points. We continue to add companies to the portfolio to ensure we have a broad spread of maturity throughout.

Despite the difficult market and economic conditions, we are optimistic about the longer-term prospects for the Group.

Neil Crabb

Chief Executive Officer

Results Summary

Financial assets at fair value through profit and loss at 31 December 2023 increased to £41,530,000 (30 June 2023: £37,589,000; 31 December 2022: £41,065,000). This reflects an unrealised profit on the revaluation of investments of £2,849,000, the partial disposal of the Group's investment in Exscientia of £784,000 and investments in other portfolio companies of £1,876,000. Unrealised profit on the revaluation of investments over the first half increased by c.600 per cent to £2,849,000 (2022: unrealised profit of £400,000), the profit deriving from unquoted equity investments £2,697,000, the remaining holding in quoted company Exscientia £123,000 and debt investments of £29,000. Revenue from services remained level at £203,000 (2022: £203,000). The Group sold part of its holding in Exscientia for net proceeds of £839,000, realising profits of £54,000 in the period under review. The remaining holding in Exscientia was sold post period end for net proceeds of £1,708,000, realising profits of £72,000 post period end and £195,000 in the current financial year. A profit before tax of £1,415,000 (2022: loss £469,000) reflected the increase in the unrealised profit on the revaluation of investments offset by a lower realised profit on disposal of investments and increased administrative expenses while profit after tax increased by c.450 per cent to £1,488,000 (2022: £269,000). Administrative expenses increased by 26 per cent to £1,803,000 (2022: £1,429,000) of which personnel expenses accounted for 19% of the increase. The share-based payment charge increased to £122,000 (2022: £70,000). Basic earnings per share were 2.67pp (2022: 0.49p).

Cash balances stood at £2,737,000 as at 31 December 2023 (30 June 2023: £4,603,000; 31 December 2022: £5,850,000). Post 31 December 2023, the Group disposed of its remaining holding in Exscientia for net proceeds of £1,708,000. Net assets per share as at 31 December 2023 were 84.2p (30 June 2023: 81.8p; 31 December 2022: 88.2p).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 December 2023

All the Group's activities are classed as continuing and there were no comprehensive gains or losses in any period other than those included in the statement of comprehensive income.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2023

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six-months ended 31 December 2023

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 December 2023

NOTES

1.   General information

The Company is a limited liability company incorporated in England and with its registered office at c/o CMS Cameron McKenna Nabarro Olswang LLP, 78 Cannon Street, London EC4N 6AF. The Company's main trading office is situated at 93 George Street, Edinburgh, EH2 3ES.

The Company is quoted on the AIM market.

This condensed consolidated interim financial information was approved and authorised for issue by a duly appointed and authorised committee of the Board of Directors on 13 March 2024.                     

This condensed interim financial information has not been audited or reviewed by the Company's auditor.

2.   Basis of preparation

This condensed consolidated interim financial information for the six months ended 31 December 2023 has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting". The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 June 2023, which have been prepared in accordance with UK adopted International Financial Reporting Standards (IFRS).

This condensed consolidated interim financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparatives for the full year ended 30 June 2023 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was qualified on the basis that they were unable to obtain sufficient appropriate audit evidence in respect of the valuation of certain early stage equity investments valued at £1.2 million.

3.         Going Concern

The accounts for the full year ended 30 June 2023 drew attention to the existence of a material uncertainty that cast significant doubt on the Group's ability to continue as a going concern. The material uncertainty was the dependence on the timing and amount of exit proceeds from the Group's sole quoted investment in Exscientia valued at £2.3 million at 30 June 2023. Since 30 June 2023 the Group has sold its remaining shares in Exscientia for over £2.5 million and the Group has sufficient cash to cover its operating expenditure for the next 12 months. However, to fund any unplanned investments and to cover operating expenditure beyond the next 12 months the Group needs to realise cash through further portfolio exits, the timing and amount of which is subject to material uncertainty.

4.   Accounting policies

The accounting policies applied by the Group in these unaudited half year results are consistent with those applied in the annual financial statements for the year ended 30 June 2023 as described in the Group's Annual Report for that year and as available on our website www.frontierip.co.uk. No new standards that have become effective in the period have had a material effect on the Group's financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

5.   Segmental information

The chief operating decision-maker has been identified as the Group's board of directors. The board reviews the Group's internal reporting to assess performance and allocate resources. Currently the board considers that the Group has one operating activity, the commercialisation of intellectual property. The Group's revenue and profit before taxation were derived almost entirely from its principal activities within the UK. Though the Group has a Portuguese subsidiary as well as partnerships and spin outs in Portugal the associated revenues and costs are currently immaterial and, accordingly, no additional geographical disclosures are given.

6.   Taxation

The taxation income for the six months to 31 December 2023 of £73,000 (31 December 2022: income of £738,000) represents movements in deferred tax on unrealised fair value gains, available tax losses and share-based payments.

A deferred tax asset in respect of trading losses arising before 1 April 2017 has not been recognised in view of the uncertainty as to the level of future taxable trading profits.

7.   Earnings per share

The calculation of the basic earnings per share for the six months ended 31 December 2023 and 31 December 2022 and for the year ended 30 June 2023 is based on the earnings attributable to the shareholders of Frontier IP Group Plc in each period divided by the weighted average number of shares in issue during the period.

8.   Financial assets at fair value through profit and loss

Equity investments comprise the following:

The valuation of the Group's investment in GraphEnergyTech increased by £1,230,000 during the six months to 31 December 2023, 44 per cent of the net fair value increase in unquoted equity investments. The valuation of the Group's investment in Pulsiv at 31 December 2023 increased by £862,000 over the six months to December 2023, 31 per cent of the net fair value increase in equity investments. Pulsiv's valuation at 31 December 2023 was £10,365,000, 30 per cent of the Group's total equity investments and 22 per cent of its net assets at 31 December 2023.

During the six months to 31 December 2023 the Group sold 168,559 American Depositary Shares of Exscientia for net proceeds of £839,000 resulting in a realised profit of £54,000. The Group's remaining investment in Exscientia, 324,991 American Depositary Shares, increased in value by £123,000 during the six months to 31 December 2023. The valuation of the Group's investment in Exscientia at 31 December 2023 was £1,636,000, 5 per cent of the Group's total equity investments and 3 per cent of its net assets at 31 December 2023.

Debt investments comprise the following: 

Debt investments are loans to portfolio companies to fund early-stage costs, provide funding alongside grants and bridge to an equity fundraise. Certain debt investments carry warrants granting the option to purchase shares.

The most significant loan made during the six months to 31 December 2023 was to CamGraPhIC (£1,457,000). £170,000 was loaned to Celerum and £150,000 to The Vaccine Group. The most significant debt investments at 31 December 2023 were loans to CamGraPhIC (£4,252,000), Nandi Proteins (£911,000) and Elute Intelligence (£483,000). The valuation of the Group's debt investments in CamGraPhIC increased by £183,000 during the six months to 31 December 2023, 85 per cent of the fair value increases in unquoted debt instruments; the valuation of the debt investment in Elute decreased by £139,000 in the same period, 74 per cent of the fair value decreases in debt investments.

9.   Copies of Half Yearly Report

Copies of the Half Yearly Report will be available on the Company's website, www.frontierip.co.uk, and on request from the Company's offices at 93 George Street, Edinburgh EH2 3ES no later than 20^th March 2024.

10. Equity holdings

      All Group equity holdings in portfolio companies in the interim management statement are as at 31 December 2023.