Quoted Companies Alliance Small & Mid-Cap Sentiment Index

Regulatory burden & small & mid-sized quoted companies in the UK

Quoted Companies Alliance Small & Mid-cap Sentiment Index Wave 22, June 2019

August 1, 2019 Executive summary

•About two-thirds (63%) of small and mid-caps find regulatory compliance The majority of smaller either excessive or demanding, one-third find it manageable quoted companies find it •72% of small and mid-caps think that increased regulatory burden is a reason challenging to deal with why the number of companies on public equity markets has fallen in the UK regulatory burden •The 3 most burdensome listing requirements are FCA rules, corporate governance, and providing annual reports. Companies do not believe that policymakers •Only 8% of small and mid-caps believe UK policymakers understand the understand the impact on impact that regulation has on their business them •Only 12% of small and mid-caps have in-house government/public affairs Small and mid-caps have roles limited resources to •Only 16% have specialist investor relations staff manage regulatory burden •Only 36% have in-house legal affairs staff Small and mid-caps are •52% think the business environment will get better, versus 22% think it will more likely to be get worse optimistic going forward

2 Complying with regulation as a whole Thinking about the resources (e.g. time, money, manpower etc) that your company has to commit to complying with regulation as a whole, which of the following best describes the impact this has?

42% 63% of companies find compliance 36% either excessive or demanding

36% find it manageable

21%

0% 1%

Excessive – diverts significant Demanding – diverts significant Manageable – diverts resources Effortless – we have appropriate Don't know resources and hinders regular resources and impacts company but has minimal impact on resources in place to comply with company operations operations company operations regulations without it impacting company operations

BASE: 77 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES Listing requirements and adherence difficulty Companies: Which of the following listing requirements, if any, does your business find most difficult to adhere to?

Financial Conduct Authority (FCA) regulatory activities 18%

Corporate governance 17%

Producing annual reports 17%

London Stock Exchange regulatory activities 11%

Broker/nominated advisers 11% Legal advice on regulatory issues 10% “Individually they are Hiring non-executive directors 8% not burdensome but Raising money 8% look at the length of Financial Reporting Council (FRC) regulatory activities 8% the list and overlap Analysis of share registrar 7% between them!” –

Takeover Panel regulatory activities 6% respondent

Financial public relations 2%

Audit 2%

Other 2%

BASE: 76 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES Listing requirements and adherence difficulty Advisers: Which of the following listing requirements, if any, do you think small and mid-cap quoted UK companies find most difficult to adhere to?

Corporate governance 55% Raising money 32% Financial Conduct Authority (FCA) regulatory activities 29% London Stock Exchange regulatory activities 24% Advisers have different Hiring non-executive directors 24% Financial Reporting Council (FRC) regulatory activities 21% views on what small and Legal advice on regulatory issues 18% mid-caps find most Analysis of share registrar 18% difficult. Financial public relations 18% Audit 18% Corporate governance Producing annual reports 13% Broker/nominated advisers 13% and raising money are Takeover Panel regulatory activities 13% seen as much more Don't know 8% challenging externally Other 5% than by the companies None of these 5% themselves. Other advisors 3% Registrar 3%

BASE: 38 ADVISORY COMPANIES Decline in number of companies on public equity markets

The number of companies on public equity markets in the UK has fallen consistently in the recent decades. Why do you think this is? Please select all that apply.

Regulatory burden of public markets 72%

Rise of private equity 56%

Ease of raising money elsewhere 38%

Poor performance of UK markets 15%

Low interest rates 10%

Other 11%

Don't know 5%

0% 10% 20% 30% 40% 50% 60% 70% 80%

BASE: 77 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES Do policymakers understand the impact of regulation on small and mid-caps?

Do you think the following understand the impact it is having on your company operations? Yes No Don't know

UK regulators 22% 71% 7%

UK policymakers 8% 81% 12%

BASE: 49 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES; What could UK regulators or policymakers do, with regards to regulation, to help your company?

“Government, both political and civil servants must “Make it realistic for size of company - demonstrate a willingness to learn more about SME's. I've one size does not fit all.” been quite heavily involved in helping government through the Brexit process, and only BEIS civil servants have put their hands up and said they don't know enough “Recognise that particularly small cap companies are about the potential impacts on SMEs. Government only as much a customer of the public equity markets as knows big business and the big sectors, the very people consumer / investors. Otherwise there will be no need who can look after themselves.” to bother about consumer / investors because there will be no companies for them to invest in.”

“Make it simpler - more regulation does not equal less corporate failure, just makes companies less efficient. Reduce the rubbish in annual reports and “In equity markets just simplify the rules and group make them more readable - most are novel length them together so that directors can remember now but sadly are slightly more interesting than them easily and so that policing them places a reading the small print on a finance document.” smaller financial burden on the company.”

QUESTION: WHAT COULD UK REGULATORS OR POLICYMAKERS DO, WITH REGARDS TO REGULATION, TO HELP YOUR COMPANY? Responsibility for business functions Thinking about the following functions which your business may undertake, who within your company is responsible for them?

In-House specialist staff In-House, but not specialists (i.e. staff covering more than one role) External specialist staff Other Don't know

65% 63%

50% 51%

42%

37% 36% 33% 32% 30% 31% 26% 22%

16% 13% 14% 12% 12% 7% 5% 2% 0% 0% 0% 0% 0% 0% 1% 0% 0%

Government/public Regulatory affairs Legal affairs Human resources Public relations Investor relations affairs

BASE: 75 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES; Future business environment How do you see the business environment for your company / small and mid-cap UK quoted companies developing in the next 3-5 years?

60%

52% 50%

40%

30%

23% 22% 20%

10% 3%

0% Category 1 It will get better Not changing It will get worse Don't know

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES Methodology

• 117 interviews were conducted between 17/04/19 and 04/06/19.

• 78 from small and mid-cap UK quoted companies, 39 from advisory companies (this includes investors, auditors, accountants, lawyers, brokers, and AIM NOMADs etc.)

• This survey was conducted by YouGov using an online interview administered to members and associates of the QCA. An email was sent to the QCA database, inviting them to take part in the survey and providing a link to it. A link to the survey was also circulated by the QCA to their contacts. The sample definition is "small and mid-cap UK quoted companies and advisory companies". The responding sample is weighted by industry to be representative of small and mid-cap UK quoted companies, as derived from London Stock Exchange data, but the advisory companies are not weighted in any way.

• Note: Where the percentages for a chart are calculated on bases fewer than 40 respondents these must not be reported as they do not represent a wide enough cross-section of the target population to be considered statistically reliable. These questions and figures will be italicised.

11 Appendix: background

The Small & Mid-Cap Sentiment Index: • The QCA/YouGov Small & Mid-Cap Sentiment Survey has been running since 2011. • This is the 22nd wave and is conducted twice yearly. It is an established source of information about the small and mid-sized quoted company sector.

The small & mid-cap sector in the UK: • In 2019, there are around 1,250 small and mid-size quoted companies in the UK, representing 93% of all companies quoted on UK stock exchanges. • They employ approximately 3 million people, representing 11% of private sector employment in the UK, and contribute over £26bn in annual taxes (source).

The Quoted Companies Alliance: • The Quoted Companies Alliance is the independent membership organisation that champions the interests of small to mid-size quoted companies. • For more information please visit www.theqca.com.

12 Appendix: All UK quoted companies by market capitalisation

140,000.00

120,000.00

100 biggest companies ) (FTSE 100)

100,000.00 (millions 80,000.00

60,000.00

40,000.00 1,249 small and mid-cap companies Market capitalisation capitalisation Market

20,000.00

0.00

Ilika Ilika PLC

Relx PLCRelx

Boku Boku Inc

Bunzl plc Bunzl

Fiske PLC

IXICO PLCIXICO

Tesco Tesco PLC

Oleeo PLC Oleeo

Savills PLC Savills

Britvic Britvic PLC

Capita PLCCapita

Senior PLCSenior

Fastjet PLCFastjet

Toople PLC

Renold Renold PLC

Softcat PLCSoftcat PLCADVFN

Easyjet Easyjet PLC

Lonmin PLCLonmin

Solo Oil Oil PLC Solo

Victoria PLCVictoria

Spectris PLC Spectris

Hunting PLC

T Clarke PLC T Clarke

Forterra PLCForterra

Centrica PLC Centrica

Cobham PLCCobham

Unilever PLCUnilever

A.G.Barr PLC A.G.Barr

Fresnillo Fresnillo PLC

Sportech Sportech PLC

Marlowe PLC Marlowe Synnovia PLC

Focusrite PLCFocusrite PLCSynectics PLC Sosandar

Bodycote PLCBodycote

Concepta Concepta PLC

Microgen Microgen PLC

Earthport PLCEarthport

Kingfisher Kingfisher PLC

Ovoca Bio PLCBioOvoca

Digitalbox Digitalbox PLC

WANdisco PLC WANdisco

Shoe Zone PLC Shoe Zone

Whitbread PLC PLCRedcentric

RPC Group PLCRPC Group

Thinksmart Ltd Thinksmart

Integumen PLCIntegumen

Vitec Group Vitec Plc

Park Group PLC Park Group

Strix Group PLC Strix Group

Henry Boot Henry PLC Boot

URU Metals URULtd

Serabi Gold SerabiPLC

Rank Group PLC Rank Group

ProPhotonix LtdProPhotonix

EMIS Group EMIS PLC

Huntsworth PLC Huntsworth

Lidco Group PLC Lidco Group

Echo Energy PLC Echo Energy

Galliford TryPLCGalliford

Morses Club PLC Club Morses

Keller Group PLC Keller Group

Condor Gold CondorPLC

Scapa Group PLC Scapa Group

Falanx Group Ltd Falanx Group Centers NV Plaza

MPAC Group PLC MPAC Group

KCOM KCOM Group PLC Group Mears PLC

Autins Group PLC Autins

Innovaderma Innovaderma PLC

Vianet Group PLCVianet Group

7digital Group plc 7digital Group

DFS Furniture DFS PLC

Travis Perkins Perkins PLCTravis

Mi-Pay Group PLC Mi-Pay Group

Exillon Energy ExillonPLC PLC GroupTricorn

Getech Group PLC Getech

MySale Group MySale PLC

Chagala Group Ltd Chagala Group

Medica Medica Group PLC PLC Colefax Group

Qinetiq Group Qinetiq PLC Group CostainPLC

Tekmar Group PLC Tekmar

Equiniti Group PLC Equiniti Group Mining Avocet PLC

Webis Holding PLC Holding Webis

HSBC Holdings PLC HSBC Holdings

Limitless Earth PLC Limitless Earth

Grafton Group PLC Grafton

ContourGlobal PLCContourGlobal

Regency Mines PLCMines Regency

Staffline Group PLC Staffline Group

Halfords Group PLC Halfords

Petra LtdDiamonds Petra

ATTRAQT Group plc ATTRAQT Group

Jarvis PLCSecuritiesJarvis

Rose Petroleum PLC Rose Petroleum

Judges Scientific PLC Judges Scientific PLC Enteq Upstream

Anglesey Mining PLC Anglesey Mining

Harvest Minerals Ltd Harvest Minerals

Quartix Holdings Holdings PLC Quartix

Immotion Group PLC Immotion

Leaf Clean Energy CleanLeafCo Energy

Sureserve Group SureservePLC

Dixons Carphone PLC Dixons Carphone PLC ResourcesEgdon

J D Wetherspoon PLC J Wetherspoon D

Sylvania Platinum Platinum Ltd Sylvania

Proactis Holdings Proactis PLC

Wizz Air Air Holdings WizzPLC

JD Sports Fashion PLCFashion SportsJD

Bezant Resources PLC ResourcesBezant

Alexander Mining PLC Alexander Mining

Bigblu Broadband PLC Bigblu Broadband PLC Appscatter Group

Actual Experience PLC ExperienceActual

Stilo International PLC International Stilo

Gooch & Housego Housego PLC Gooch & StoreGroup Lok'nPLC

Strategic Minerals Strategic PLC

Tri-Star Resources PLC Tri-Star Resources

WH Ireland Group PLC WH Group Ireland

Macfarlane Group MacfarlanePLC

Shearwater Group PLC Shearwater Group

Hilton Food Group Hilton PLC

Kape Technologies PLCTechnologiesKape

Access Intelligence Intelligence PLC Access

Richland Resources Ltd Richland Resources

Ethernity Networks Ethernity Ltd

Somero Enterprises Somero Inc Enterprises

Proteome Proteome Sciences PLC

Energean Oil & Gas Oil & PLCGas Energean

Anglo Asian Mining PLC Asian Anglo Mining

Norman Broadbent PLC Norman Broadbent

Central Asia Metals PLC Asia MetalsCentral

Savannah Resources Plc Savannah Resources

IronRidge Resources Ltd IronRidge Resources PLCPier BrightonGroup

Arena EventsGroup PLC Arena

Biome Technologies Biome PLC Technologies

Creo Medical Medical Group CreoPLC

Arricano Real Estate PLC Real Arricano Estate

Amino Technologies PLCTechnologies Amino

Rainbow Rare Earths Ltd Rare RainbowEarths

Gulf Marine PLC ServicesMarine Gulf

Flowtech Fluidpower FlowtechPLC Fluidpower

Hill & Smith Holdings PLCSmith Hill Holdings &

OPG OPG Power Ventures PLC

Tissue Regenix Group PLC Tissue Regenix

Catalyst Media Group PLC GroupCatalyst Media

Domino's Pizza Group PLC Domino's Group Pizza

Chaarat Gold Holdings Ltd Gold Chaarat Holdings

United Utilities Group PLC United Utilities Pharmaceuticals Oy Faron

Pan African Resources PLC Pan Resources African

Accrol Group Holdings PLC Group Accrol Holdings

African Battery Metals PLC BatteryAfrican

VR EducationPLCVR Holdings

Legal & General Group PLC & Legal GroupGeneral

Sabre InsuranceGroup PLC Sabre

RA International Group PLC RA Group International

Anglo African Oil & Gas PLCGas Oil African Anglo &

Spire Healthcare Group PLC Healthcare GroupSpire

Polymetal International PLCInternationalPolymetal PLCBanking ParagonGroup

Dechra Dechra Pharmaceuticals PLC

TF & JH Braime Holdings Holdings & PLC BraimeJHTF

Premier African Minerals Ltd Premier Minerals African

Zegona Zegona Communications PLC

Concurrent Technologies PLCTechnologiesConcurrent

Sabien Technology Group PLC Group Sabien Technology

Circassia Pharmaceuticals Pharmaceuticals PLC Circassia

Georgia Healthcare Group PLC Healthcare Group Georgia

Tatton Asset Management Tatton AssetPLC

Big Sofa Technologies Group PLC Big Group Sofa Technologies

Litigation Capital Management Ltd ManagementCapital Litigation

K3 Business Technology Group PLCTechnologyBusiness K3Group

London & Associated Properties PLC London & Properties Associated

Port Erin Biopharma Investments Investments BiopharmaLtd Port Erin

Reach4Entertainment PlcEnterprisesReach4Entertainment

Sherborne Investors (Guernsey) C LtdC Investors Sherborne (Guernsey)

Premier Technical Services Group Services Premier PLC Technical

Conroy Gold and Natural Resources PLC and Natural Conroy Resources Gold

Symphony Environmental Technologies Environmental PLC Technologies Symphony

International Consolidated Airlines Group SA Consolidated International Airlines Secure Property Development & Investment & PLC Investment DevelopmentSecure Property All companies quoted on London Stock Exchange Main Market and AIM

Source: How small and mid-cap quoted companies make a substantial contribution to markets, employment and tax revenues, May 2019, QCA/Hardman & Co