Statement of Compliance with the QCA Corporate Governance Code
Good governance is good business. It is vital for sustainable growth. Recent changes to the London Stock Exchange’s AIM Rules mean we must adopt and comply with a recognised corporate governance code. We also want to achieve the highest standards we can.
To these ends, we have adopted the Quoted Companies Alliance (QCA) Code introduced in April 2018.
The QCA Code takes the key elements of good governance and applies them in a manner which is workable for the different needs of growing companies. It outlines 10 broad principles and a set of disclosures. This report sets out each principle and explains how we are complying.
This disclosure was last reviewed and updated on 6 November 2019.
Establish a strategy and business model which promote long-term value for shareholders
Frontier IP’s purpose is to unite science, finance and industry to turn outstanding research into high-value businesses. Our aim is to generate long-term, sustainable returns for all our stakeholders; investors, universities, academics, industry partners and the companies themselves.
Our approach is innovative and capital efficient. It is based on proving the commercial worth of intellectual property, working closely in partnership with universities, academics and industrial partners; we earn our equity in portfolio companies in return for providing IP commercialisation and support services. These range from ensuring the business mechanics run smoothly to direct, hands-on support for technology development.
The focus is on the essentials: validating the technology and, through early industry engagement, understanding how it can be scaled up and what market needs or demands are being met.
Because intellectual property can have applications across many different sectors, we assess IP based on our expertise and understanding of underlying technologies, industrial processes and potential partners. As a result, our portfolio companies fall into clusters where they have either potential industry partners or underlying technologies in common. This allows us to exploit synergies in expertise and across networks to drive value in a more effective way than taking a narrower sector-based approach.
Funding is typically raised for portfolio companies from third parties once milestones are achieved to fund future development and progress to an exit. We may ourselves commit small sums at an early stage to portfolio companies through loan advances to enable them to meet working capital requirements. Portfolio companies also take advantage of nondilutive grant funding.
Shareholder value is therefore driven by the potential for realisations on exit, with the value of the portfolio representing potential deferred earnings.
We have developed, and continue to develop, strong relationships with universities, academics, industry and other organisations to source, identify and evaluate IP. Shareholders in our portfolio businesses are usually universities, academics, institutions, private investors and ourselves. Typically, no shareholder has a controlling stake, ensuring interests are aligned across all those involved in building the business.
The Group also generates additional revenue from its portfolio through board retainers and fees for bespoke business development, corporate and strategic advisory work, and fundraising. In order to provide corporate finance support and capital raising for our portfolio, Group subsidiary Frontier IP Management Limited is an Appointed Representative of Privium Fund Management (UK) Limited, which is authorised and regulated by the FCA.
Seek to understand and meet shareholder needs and expectations
The Group communicates with shareholders and the market through the annual report and accounts, full-year and half-year announcements, the annual general meeting and one-to-one meetings with existing and potential institutional investors. We communicate openly, clearly and directly to ensure our strategy, business model and performance are clearly understood.
Shareholder feedback, support and agreement with our strategic objectives are critically important to developing our business, so we actively solicit their views. The Board is kept informed of the views and concerns of major shareholders.
We maintain regular contact and dialogue through the annual general meeting, roadshows, correspondence and digital channels, including our website www.frontierip.co.uk, social media and email. Earlier this year, we held our first event with our partner the Royal Academy of Engineering, where investors were among more than 100 guests attending.
Information about the company is also disclosed in a timely manner through the RNS and RNS Reach services of the London Stock Exchange and our website. Our brokers are also in regular contact with institutional investors. Our Notice of AGM is sent to all shareholders with our published accounts.
To improve investor communications further, we appointed Andrew Johnson as communications and investor relations Director in March this year. His contact details are: firstname.lastname@example.org or on 07464 546 025. This information is clearly displayed in Company announcements and on the website.
Take into account wider stakeholder and social responsibilities and their implications for long-term success
We are committed to meeting the needs of all our stakeholders. Aside from shareholders, stakeholders are key to our success and include employees, portfolio companies, universities, industry partners, suppliers and regulators. We maintain a regular dialogue with all our partners through a range of communication channels and actively solicit feedback. Engagement strengthens relationships and leads to better business decisions.
AT 30 June 2019, Frontier IP employed 15 people across offices in Cambridge, Edinburgh and London. They are actively encouraged to provide feedback and express their needs, interests and expectations through frequent formal and informal conversations.
We believe in treating our people well and keeping their interests aligned with the business through share options awards. Interns are engaged through the European Student Placement Agency (ESPA). We pay ESPA to cover the interns’ cost of accommodation and travel to work. The intern receives a grant for living expenses.
Currently, we operate a flat structure, so issues tend to be raised and dealt with by an executive director, usually the Chief Executive Officer. We believe this is appropriate for a company of our size. However, because the company is growing we are now actively looking to put in place further formal processes. We expect to provide an update in our next annual report.
Universities supply us with intellectual property. They are critical to our success. We work with them through informal and formal relationships and maintain constant contact with them, our portfolio businesses, the academics and industry partners involved. When negotiating with our partners, from industry as well as universities, we strive to strike agreements where benefits are shared fairly among all.
We aim to pay suppliers promptly and regularly review contracts with service providers, such as IT and our lawyers, to ensure a good service. Our contact with regulators is mediated and guided by our Nominated Adviser and other professional advisers. Many of our portfolio companies have demonstrable social as well as potential economic, commercial and shareholder value. They include:
- Pulsiv Solar: developing micro-inverters to make photovoltaic solar cells and power converters much more energy efficient
- The Vaccine Group: novel vaccine technology to create more effective vaccines to treat a wide range of animal ailments and reduce the risk of a catastrophic pandemic resulting from a disease which has jumped from animals to humans
- Nandi Proteins: striving to tackle the obesity crisis through technology reducing the amount of sugar, fat and additives in processed food
- Alusid: recycling industrial waste ceramics and glass otherwise destined for landfill to create high-quality tiles, tabletops and other surfaces
- Tarsis Technology: working with a world-leading crop protection company on novel ways to deliver pesticides and fungicides in a more precise and controlled way, reducing environmental run off
- Molendotech: tests for faecal matter in water already commercially available to allow the speedier assessment of bathing water – potential applications also include tests for drinking water
- Fieldwork Robotics: its unique robot technology could support Britain’s farmers struggling to recruit seasonal labour to pick soft fruit and vegetables
- Amprologix: new antibiotics to overcome the threat from antimicrobial-resistant superbugs
- Des Solutio: replacing the use of toxic solvents in manufacturing
- Celerum: software to assign logistical resource more efficiently
When assessing intellectual property for potential spin outs, we are very aware of potential environmental, social and reputational risks and seek to mitigate them.
Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Group has an established framework of risk analysis and controls for which the board is ultimately responsible and which it regularly reviews. There is also a clearly-defined set of key performance indicators which the board uses to monitor the Group’s progress towards meeting its strategic aims and objectives.
The Board is responsible for reviewing and approving the Group’s strategy, objectives and business plans. It is also responsible for ensuring any necessary corrective action is taken should performance materially vary from plans and forecasts.
- As the Group is a small business with few personnel and limited opportunity for segregation of duties, board oversight provides the main overriding control
- The Board receives and reviews detailed reports on financial performance and position against budget and forecast, use of cash, cash forecasts and detailed analysis of portfolio movements. Any material capital or unbudgeted overhead expenditure must be approved by the Board
- The Board approves treasury and dividend policies and significant changes in accounting policies
- The Annual Report and Financial Statements, the half-yearly report, interim management statements and any other reporting required by the AIM Rules is approved by the Board
- The Audit Committee supports the board in discharging its financial control duties
Maintaining sound controls and discipline is critical to managing the risks of the business. Although we believe our capital-efficient business model mitigates many of the risks associated with start-up and early-stage companies, they are by their nature inherently riskier than more established businesses.
We believe the internal controls we have in place are appropriate for our size, complexity and risk profile. They include:
- Close management of the everyday activities of the Group by the Executive Directors
- Established processes in place, overseen by the Chief Executive Officer, to rigorously assess university intellectual property and its commercial potential
- Executive Directors approving entry into strategic partnerships and collaborations with universities, other research institutions, and industry, and other material contracts
- Board review and approval of the Group’s risk appetite, the effectiveness of its risk and control processes, and procedures for preventing fraud and bribery in line with the Group’s policies
- Board review and approval of the Group’s clearly-defined key performance indicators to ensure adherence to strategic aims and objectives
The Group is supported by its Nominated Adviser and other professional advisors to ensure compliance with all relevant regulations and laws in the countries in which it operates.
Maintain the board as well-functioning, balanced team, led by the Chair
At the year-end, the Group Board comprised the Non-Executive Chairman, two NonExecutive Directors and five Executive Directors – an appropriate balance for the Group’s size and complexity. The Board considers, after careful review, that the Chairman and one Non-Executive Director are independent. They have served for fewer than nine years, are considered to be independent in character and judgement and receive no additional remuneration from the Group apart from a director’s fee.
The Board is satisfied it has the right balance of independence, knowledge and expertise to fulfil its duties and responsibilities effectively.
Six Board meetings are scheduled each year and a number of ad-hoc Boards to approve specific issues such as the interim and annual accounts are held. Each Directors’ attendance record at scheduled Board meetings will be disclosed in the annual report and accounts for the Company.
All Directors are encouraged to use their judgement and challenge all matters. In addition to regular communication with the Chief Executive Officer, the Chairman meets frequently with the Chief Financial Officer and Chief Operating Officer to ensure they are performing as required.
Board activities typically include:
- Discussing and reviewing the Group’s business model, strategy, objectives and key performance indicators
- Reviewing the Group’s portfolio companies and their performance, including plans, partnerships and forecasts
- Continuing to communicate regularly with existing and potential investors in the Group and its portfolio businesses
- Reviewing financial and non-financial policies, controls and stock market statements
- Attending the Group’s Capital Markets Day
- Discussing the Group’s capital structure and financial structure, including loans and investments
- Approving the recommendations of the Audit, Remuneration and Nominations committees
- Approval and monitoring of the Group’s annual budget and approving extraordinary capital expenditure
- Directors’ interests, share dealings and related party matters
Conflicts of interest:
The Group has systems in place to monitor and deal with conflicts of interests. Considering and, where appropriate, approving Directors’ conflicts of interest (in relation to the public company and its subsidiaries) is a matter reserved for the Board. Each Director has a statutory duty under the Companies Act 2006 to avoid a situation in which he or she has, or can have, a direct or indirect interest that conflicts or may potentially conflict with the interests of the Group. This duty is in addition to the continuing duty that a director owes to the Group to disclose to the Board any transaction or arrangement under consideration by the Company in which he or she is interested.
The Board is aware of the other commitments and interests of its directors and any material changes are reported to and where appropriate agreed with the rest of the Board.
Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
A full list of Board directors can be found here.
Further details on their skills and experience can be found in the annual report and accounts.
The Board considers it has an effective and appropriate balance of skills and experience, including in the areas of fund management, private equity, university spin outs and small-to-medium-sized businesses, science, innovation and technology. All Directors receive regular and timely information on the operational and financial performance of the Group and its portfolio companies. Information is circulated to the Board before meetings.
The Board decides the appointment and removal of Directors and there is a rigorous and transparent process in place. The Group’s Articles of Association demand that one-third of the Board must stand for re-election by shareholders annually in rotation and that all Directors must stand for re-election at least once every three years. Any new Directors appointed during the year must stand for election at the annual general meeting immediately following their appointment.
We are an equal opportunities Company and ensure we recruit, develop, promote, support and retain skilled and motivated people regardless of disability, race, religion or belief, sex, sexual orientation, gender identification, marital status or age. The Board acknowledges that certain groups are currently under-represented, and we remain vigilant in ensuring equal opportunities for current and potential members of our team.
All Directors can take independent professional advice to further their duties and are encouraged to engage in activities which further their professional development. Directors can also access the advice and services of the Group’s Company Secretary and Chief Financial Officer.
Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
Board performance is closely linked to the performance of the Group. There are clearly defined and relevant key performance indicators, aligned with long-term value creation, which are:
- Fair value of the portfolio: movement in the equity value in the portfolio
- Total revenue: growth in the aggregate of revenue from services and change in the fair value of the portfolio
- Profit: profit before tax for the year
- Net assets per share: value of the group’s assets less the value of its liabilities per share outstanding
- Total initial equity in new portfolio companies: aggregate percentage equity earned from new portfolio companies during the year
In addition, the performance of our committees and individual Directors is reviewed and assessed on an ongoing basis by the Chairman and Chief Executive Officer.
We believe these measures are appropriate for a Company of our size and complexity. However, as the business grows, we will continue to the adapt the process to ensure it is appropriate for the organisation and Board structure.
Promote a corporate culture that is based on ethical values and behaviours
Frontier IP is a small company with a very flat structure. The Board is expected to set an example and act in the best interests of the Group and its stakeholders – shareholders, employees, universities, industry partners, suppliers and our portfolio companies. The corporate culture aims to be open and fair in dealings with all stakeholders, working in partnerships to ensure mutual benefit. Ethical values and behaviours are recognised and respected.
It is central to our business model that we work equitably with universities, investors and industry partners. Our corporate values reflect that need.
Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
The Board is satisfied it has the appropriate structures and processes for a company of its size.
Scheduled Board meetings are held six times a year to set and review the Group’s direction, spread throughout the year and aligned as far as possible with its financial and operational calendar. Further meetings are held when necessary. Board meetings are held at the Group’s various office locations to give the Non-Executive Directors a better understanding of our team’s work.
The Board and its Committees receive relevant and timely information, including Board papers and presentations, before each meeting, which is run to a formal agenda. All Directors are encouraged to challenge proposals, and decisions are taken on a vote after discussion and debate. Any concerns can be noted in the minutes of the meeting, which are then circulated to directors. Specific actions are agreed and followed up, as appropriate. Senior executives below Board level attend Board meetings where appropriate to present business updates.
The Board is supported in its decision-making by the Audit, Remuneration and Nomination Committees, and the Company’s Nominated Adviser and other professional advisers when appropriate. The terms of reference for the Board committees can be found on our website.
There is a clear separation of responsibilities at the top. The Chairman, Andrew Richmond, is responsible for running the business of the Board, including meetings, and ensuring strategic focus and direction. The Chief Executive Officer, Neil Crabb, is responsible for setting strategy and ensuring it is executed.
The other Executive Directors support and challenge the Chief Executive Officer in formulating and executing the Group’s strategy, including setting and managing budgets, risk management and compliance with relevant regulations and laws.
While this is appropriate for a company of our size, the Board will review its governance framework regularly as the Group grows.
Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
Frontier IP holds a continuing dialogue with shareholders and other relevant stakeholders through regular updates, frequent conversations, the annual report and accounts, full-year and half-year announcements, the annual general meeting and one-to-one meetings with existing and potential institutional investors. Investors and other stakeholders are encouraged to provide feedback. There are regular meetings and conversations between the Chief Executive Officer, the communications and investor relations director and shareholders. Board Directors are appraised of shareholder feedback.
Shareholders can vote at the annual general meeting. Group Directors stand down in rotation for re-election.
The Group aims to be transparent, clear and direct in communications with shareholders and stakeholders, including its employees, and university and industry partners.
Information about the Company is disclosed in a timely manner through the RNS and RNS
Reach services of the London Stock Exchange and our website: www.frontierip.co.uk . Our Nomad and our Broker are also in regular contact with investors.
In addition, the Company uses several digital channels, including the website, social media and email. The Chief Executive Officer, Neil Crabb, is regularly interviewed by specialist investor website Proactive Investors and we also hold events to which key stakeholders are invited.