TIDMIPO
RNS Number : 6971F
IP Group PLC
11 March 2020
FOR RELEASE ON 11 March 2020
("IP Group" or "the Group" or "the Company")
IP Group plc Annual Results Release
IP Group plc (LSE: IPO), the developer of intellectual
property-based businesses, today announces its annual financial
results for the year ended 31 December 2019.
Portfolio highlights
-- Fair value of portfolio: GBP1,045.6m (2018: GBP1,128.2m)
-- 169% increase in cash realisations to GBP79.5m, which
exceeded investment into portfolio for the first time since 2007
(2018: GBP29.5m)
-- Investment into portfolio: GBP64.7m (2018: GBP100.9m)
-- Net portfolio fair value reduction(1) of GBP43.9m, approximately 4% (2018: GBP48.4m, 4%)
-- Oxford Nanopore announced investment and secondary share
sales totalling GBP109.5m, having more than doubled revenue and
orders in 2018 to $43.7m and $60.6m respectively
-- Istesso announced positive outcome from Phase 2a study of MBS2320 for rheumatoid arthritis
-- Significant commercial progress at Ceres Power including
first product launch with Japan's Miura and further GBP8m licence
and joint development agreement with Korea's Doosan
-- Total funds raised by portfolio companies of GBP430m (2018:
GBP717m) including financing rounds for Inivata (GBP40.0m),
Featurespace (GBP25.0m) and Azuri Technologies (GBP20.0m)
Financial and operational highlights
-- Hard NAV(1) GBP1,141.5m or 108 pence per share (2018: GBP1,217.5m, 115 pence per share)
-- Net assets GBP1,141.9m (2018: GBP1,218.2m)
-- Strong liquidity with gross cash and deposits at 31 December
2019 of GBP194.9m (2018: GBP219.0m) and net cash of GBP112.4m
(2018: GBP121.2m)
-- Return on Hard NAV(1) of negative GBP73.7m (2018: negative GBP75.6m)
-- Loss for the year of GBP78.9m (2018: GBP293.8m loss)
-- Net overheads reduced by 13% to GBP22.6m (2018: GBP26.0m)
-- Parkwalk Advisors, the Group's specialist EIS subsidiary,
grew assets under management to GBP300m (2018: GBP220m)
-- Further encouraging progress made in developing the Group's
businesses in the US and Australia
-- Board strengthened through appointment of two additional
independent non-executive directors
Post period end highlights
-- Ceres Power announces Bosch to increase stake to 18% from 4%
with GBP38m strategic investment, which included a GBP22m partial
realisation by IP Group
-- Total further cash realisations from the portfolio of GBP55.4m in 2020
(1) Alternative performance measure, see Note 27 for definition
and reconciliation to IFRS primary statements
Alan Aubrey, Chief Executive of IP Group, said: "In 2019
realisations from our portfolio hit a record GBP79.5m and exceeded
investment into the portfolio for the first time since 2007. This
strong cash generation has continued into 2020, with realisations
to date now totalling more than GBP55m. Realisations from our
maturing companies, the ongoing focusing and rationalisation of the
portfolio as well as tight cost control has placed the Group in a
strong financial position and these remain three areas of focus for
the Group in 2020.
During 2019 the Group's portfolio saw a net fair value reduction
of GBP43.9 or 4%, and, whilst disappointing, this reflects ongoing
rationalisation in the portfolio and significant headwinds,
particularly in the UK market. However, our three most valuable
holdings, Oxford Nanopore, Istesso and Ceres Power, made excellent
progress during the year with Oxford Nanopore and Ceres Power also
announcing positive developments since the year end. Consequently,
we remain confident in the prospects of our portfolio, which we
continue to believe includes world-changing businesses that will
deliver impact and significant benefits for multiple
stakeholders."
For more information, please contact:
IP Group plc www.ipgroupplc.com
Alan Aubrey, Chief Executive
Officer +44 (0) 20 7444 0050
Greg Smith, Chief Financial
Officer +44 (0) 20 7444 0062/+44 (0) 7979
Liz Vaughan-Adams, Communications 853802
Charlotte Street Partners
David Gaffney +44 (0) 7854 609998
Andrew Wilson +44 (0) 7810 636995
Further information on IP Group is available on our website:
www.ipgroupplc.com
Notes
(i) Nature of announcement
This Annual Results Release was approved by the directors on 10
March 2020.
The financial information set out in this Annual Results Release
does not constitute the company's statutory accounts for 2019 or
2018. Statutory accounts for the years ended 31 December 2019 and
31 December 2018 have been reported on by the Independent Auditor.
The Independent Auditor's Reports on the Annual Report and
Financial Statements for 2019 and 2018 were unqualified, did not
draw attention to any matters by way of emphasis, and did not
contain a statement under 498(2) or 498(3) of the Companies Act
2006. Statutory accounts for the year ended 31 December 2016 have
been filed with the Registrar of Companies. The statutory accounts
for the year ended 31 December 2019 will be delivered to the
Registrar following the Company's annual general meeting.
The 2019 Annual Report and Accounts will be published in April
2020 and a copy will be posted on the Group's website
(www.ipgroupplc.com). In accordance with Listing Rule 9.6.1 a copy
of the Annual Report and Accounts will also be submitted to the
National Storage Mechanism on or around this date and will be
available for inspection at: www.Hemscott.com/nsm.do from that
time.
Throughout this Annual Results Release the Group's holdings in
portfolio companies reflect the undiluted beneficial equity
interest excluding debt, unless otherwise explicitly stated.
(ii) Forward looking statements
This Annual Report and Accounts may contain forward looking
statements. These statements reflect the Board's current view, are
subject to a number of material risks and uncertainties and could
change in the future. Factors which could cause or contribute to
such changes include, but are not limited to, the general economic
climate and market conditions, as well as specific factors relating
to the financial or commercial prospects or performance of
individual companies within the Group's portfolio.
STRATEGIC REPORT
Chairman's summary
2019 was a pivotal year for IP Group. It was the year in which
the resilience of the Group, its operating and funding models and
the cohesion and adaptability of its management team were all
severely tested. Our share price fell by 35% during the year to
close at 71p, while net assets per share reduced by 6% to 108p. It
is testament to the strength of the Group's culture, in particular
executive management's determination to demonstrate the latent
value within the portfolio of companies, that we enter 2020 in a
more sustainable financial position than that in which we entered
2019. This has yet to be reflected in the share price which, after
an initial recovery, has fallen further in 2020 as part of the
recent general market decline. The share price therefore remains
significantly below the Group's year end net asset value per share,
a gap which the Board is focused on reducing.
At the outset of 2019, the Board recognised that it was no
longer prudent to continue to rely upon a funding model dominated
by a small number of shareholders, a number of whom were facing
their own challenges, due in part to weakening public market
sentiment for smaller, technology driven companies. This led to the
Board exploring the full range of alternative operating and funding
models to determine which were best suited to support the Group's
backing of world-changing technology through its 'cradle to
maturity' operating model. The urgency of this review was
accelerated upon the well-publicised difficulties surrounding
Woodford Investment Management who had hitherto been a leading
supporter and investor in IP Group.
Management's response to the challenges the Group faced was both
insightful and pragmatic. There was a clear recognition that hard
choices needed to be made, first to realise cash from the portfolio
and second, to be even more selective in deploying our valuable
financial and management resources to the portfolio companies most
likely to demonstrate returns in the short to medium term. The
cohesion and adaptability displayed by executive management in
making the necessary choices was impressive. Through the course of
2019, the Group made cash realisations from the portfolio of
GBP79.5m, a record sum, and ended the year with gross cash
resources of GBP194.9m, significantly ahead of its plan. This was
achieved after supporting the portfolio with a further GBP64.7m of
investment.
2019 was also the year in which the maturity of the portfolio
began to show clearly the value inherent from the range and depth
of past investment activity. A few examples illustrate this well.
Life Sciences portfolio company, Istesso successfully concluded
Phase 2a trials for its leading investigational drug, with no
serious adverse events and some evidence of clinical benefit.
Oxford Nanopore's technology was selected for the population-scale
'Genome Program' launched by Abu Dhabi's Department of Health.
Oxford Nanopore also successfully negotiated primary and secondary
funding deals at the turn of the year which confirmed its valuation
and encouraged optimism over future growth. Finally, Ceres Power
further developed its industrial partnerships with leading global
companies in the power generation and supply sectors, building on
its global leadership in fuel cell technology. The company is on
track to make a meaningful contribution to the achievement of a
lower carbon future. The Chief Executive's review covers these in
more detail together with other notable developments within the
portfolio.
Coincident with this, the Group's recent expansion of its
University partnership model into both Australia and the United
States showed encouraging progress, both in terms of portfolio
investment and fresh sources of funding. A highly successful
roadshow of portfolio companies in Beijing in October added to the
growing international reach and reputation of the Group.
This progress without doubt contributed to the company's ability
during 2019 to reshape its shareholder base. A bookbuild led by
BofA Securities in September facilitated liquidity for departing
shareholders and attracted a broad range of new shareholders
including leading public pension fund, RPMI Railpen, who have built
their stake in the Company to just over 15 per cent. We are
delighted to welcome them as shareholders.
We took steps during the year to strengthen the Board in terms
of experience and prepare for known retirement plans. Dr. Caroline
Brown, a seasoned Non-executive Director ("NED") in energy and
technology focussed companies, with a successful investment banking
career behind her, joined the Board on 1 July. On 1 August we
welcomed Aedhmar Hynes to the Board who brought with her invaluable
experience from having founded and led a global, US-based, digital
marketing and communications business. Jonathan Brooks, who served
on the Board for nearly nine years, is stepping down from the Board
as of today. On behalf of shareholders and the Board I want to
record our sincere appreciation of his dedication and wise counsel
over his period of service. Dr. Brown has taken over his role as
Chair of the Audit and Risk Committee and Heejae Chae succeeds him
as Chair of the Remuneration Committee.
The current year has started well with the Group realising a
further GBP55.4m of cash from its portfolio in the year to date.
The major contributors to this have been Oxford Nanopore, as
described above, and Ceres, who in January announced that Bosch was
increasing its equity shareholding in the company to c.18% from
c.4% - a significant strategic step forward in the partnership
established in August 2018 following successful collaboration on
technology development and manufacturing in both the UK and
Germany. IP Group took this opportunity to realise a small portion
of its investment in Ceres while retaining a significant holding in
the company. Following this announcement, Ceres Power has seen its
share price rise 37% in early 2020 adding approximately GBP25m to
the value of our shareholding. Overall, as at 10 March 2020, the
Group's quoted portfolio has seen a net fair value gain of GBP20m,
versus a decline in the AIM market of 16% over the same period.
There is still, however, much to do to build on the reshaping of
the Group which commenced last year but we start from a good
position, with momentum within the portfolio and against a backdrop
of strong commitment from the new Government to expand support and
development to the UK's leadership positions in science and
technology.
We also benefit from a strong purpose-led and entrepreneurial
culture at IP Group, one in which our team are deeply committed to
the Group's aim of delivering and supporting world-changing
businesses for the benefit of all stakeholders. IP Group recognises
that meaningful engagement with stakeholders is critical as it
enables the Board to make informed decisions. In my role as Chair,
I held a number of meetings with shareholders during the course of
the year. Engagement with all stakeholders is reported in further
detail in the Section 172 report.
As the world seeks expanded support from technology to
contribute to addressing the major challenges of our time in terms
of climate change, demographic ageing and more productive use of
scarce resources, IP Group is well placed through our portfolio
companies to be part of the solutions needed. The Group is
monitoring the spread and impact of Coronavirus, which has caused
significant volatility in global equity markets, focusing on the
safety of our employees and monitoring potential impacts within our
portfolio. Oxford Nanopore is supporting and collaborating with
public health professionals enabling real-time genomic surveillance
to be used in the fight against the virus around the world.
Finally, I want to express the Board's appreciation of all our
colleagues working for the Group who, in challenging times, worked
tirelessly and effectively to secure the strong position from which
the Group can now build.
Sir Douglas Flint
Chairman
Chief Executive's Operational review
Summary
During 2019, the Group focussed on its financial priorities
including generating realisations and managing the Group's net
overheads. The Group continued to prioritise maintaining strong
liquidity and our targeted disposals programme resulted in record
cash realisations from our portfolio in 2019 of GBP79.5m (FY 2018:
GBP29.5m), resulting in year-end cash balances of GBP194.9m while
net overheads for the year reduced to GBP22.6m (FY 2018:
GBP26.0m).
This was a positive outcome in a year characterised by
significant geopolitical developments and the consequent increased
political and economic uncertainty as well as challenging market
sentiment. Against that backdrop, there were fewer large-scale
capital raises completed by the Group's portfolio companies in 2019
than in the previous year. As a result, the total portfolio capital
raised reduced to GBP430m of which the Group contributed GBP64.7m
(2018: GBP717m; GBP100.9m). Further, and continuing a trend also
evident in 2018, less than 1% of the GBP430m total capital raised
was from parties with a shareholding of 1% or more in IP Group
(FY18: 6% of GBP717m).
In addition to the recent success in generating cash
realisations from its increasingly mature portfolio, the Group has
been seeking to broaden its formal access to third-party private
capital. The Group's 'hybrid' strategy for accessing capital for
its portfolio companies comprises funds from its 'evergreen'
balance sheet, third-party funds under management or advisement,
and its wide network of international co-investors. In recent
years, the Group has developed the second category through its
market leading EIS fund management business, Parkwalk Advisors, and
in Australia through its advisory mandate with Hostplus, one of the
largest Australian Superannuation Funds. In addition, the Group has
seen recent success in attracting blue-chip family office
investment into its US platform. The Group continues to explore
several similar opportunities.
In 2019, the Group also took further actions to focus the
portfolio, aimed at returning to NAV growth in the short to medium
term, while our three most valuable assets Oxford Nanopore, Ceres
Power and Istesso, which account for 37% of net asset value, all
performed strongly in the year.
As at 31 December 2019, the fair value of the Group's portfolio
was GBP1,045.6m (2018: GBP1,128.2m). This reflects net portfolio
fair value reductions of 3.9% or GBP43.9m (2018: GBP48.4m) during
the period. Including Net Overheads, the overall Return on Hard NAV
for the period was negative GBP73.7m (2018: negative GBP75.6m), or
around 7p per share, with the Group finishing the period with Hard
NAV per share of 107.8p (2018: 115.0p).
The Group's purpose of addressing some of the world's most
pressing challenges through the companies we back remains highly
relevant. Our portfolio is well aligned with the UN's Sustainable
Development Goals ('SDGs') and we have made good progress this year
in embedding ESG matters across our organisation.
UK portfolio
The UK portfolio continues to represent more than 80% of the
Group's net assets and our teams have directed time and resources
primarily at the focus assets considered most likely to have a
meaningful impact on Group NAV in the short to medium term. The
Group also continued to invest capital cautiously, primarily into
those focus assets.
Individual company highlights in the portfolio came from Oxford
Nanopore, Istesso and Ceres Power, which all announced significant
technical and/or commercial developments. Oxford Nanopore confirmed
a more than doubling of revenues in 2018 to $43.7m and orders to
$60.6m alongside opening a new factory in Oxfordshire this year to
support rapid growth in demand for nanopore sequencing technology.
In January 2020, Oxford Nanopore announced it had raised GBP29.3m
of new capital and facilitated the secondary sale of GBP80.2m of
shares, an aggregate investment of GBP109.5m. The resulting fair
value gain was reflected in the Group's 2019 results while the
GBP22.0m cash proceeds were received in February 2020.
Istesso, the Group's most valuable life sciences company
holding, announced positive headline results from its Phase 2a
study of MBS2320, its investigational drug for the treatment of
rheumatoid arthritis. In the third quarter of the year, Istesso was
notified by its collaboration partner J&J that it did not
intend to exercise its option in respect of the programme. We see
this as a neutral development when offset against the increase in
value conferred by the positive Phase 2a data. The J&J
partnership was signed in 2014 at a pre-clinical stage, whereas the
drug is now in Phase 2 with a novel mechanism-of-action that has
potential in rheumatoid arthritis, other autoimmune conditions and
cancer. Thus, we believe that the product has significant
development potential and licensing value as an unencumbered asset.
Ceres Power also announced a number of key milestones, including
its first product launch, having jointly developed a fuel cell heat
and power system with Miura Co. Ltd, Japan's largest industrial
boiler company, as well as an GBP8m collaboration and licensing
agreement with South Korea's Doosan. In January 2020, Ceres
completed a GBP38m financing and announced that Bosch increase d
its holding in Ceres to c.18% from c.4% and extended its strategic
relationship .
These positive performances were, however, offset by the
reduction in value of a number of life sciences companies due to
clinical or commercial setbacks. The Group regularly assesses its
portfolio and, particularly in light of their recent performance,
has given consideration to those therapeutic development companies
in its life sciences portfolio, which, excluding Istesso, are
valued at GBP144m. Management considers that there continues to be
a significant opportunity to generate value for stakeholders
through therapeutic development companies, a view supported by a
significant recent McKinsey & Company report, Biotech in
Europe: A strong foundation for growth and innovation. However,
recognising the risk profile typically associated with such
companies, going forward it intends to direct capital expenditure
at a smaller number of high conviction assets with a target
ownership of at least 25%.
In the cleantech portfolio, while First Light Fusion
successfully commissioned its pulsed power fusion demonstrator,
'Machine 3', it has not yet demonstrated a fusion reaction, a delay
to the targeted schedule that it had previously communicated. The
company remains confident, however, that achieving fusion is a
matter of time and believes there is no fundamental issue with its
approach. This view is supported by the eminent First Light
Scientific Advisory Board.
Further information on the performance of the Group's portfolio
businesses is provided in the Portfolio Review below .
Parkwalk Advisors
Parkwalk, the Group's specialist EIS fund management subsidiary,
now has assets under management of over GBP300m (FY 2018: GBP220m)
including funds managed in conjunction with the universities of
Oxford, Cambridge and Bristol and, for the first time in 2020,
Imperial College London. Parkwalk has managed the largest EIS fund
(by monies raised) in each of the last three years. In 2019,
Parkwalk invested GBP65.0m (FY 2018: GBP64.3m) in the university
spin-out sector across 38 companies including four companies in the
core IP Group portfolio. Fifteen new companies joined the portfolio
and Parkwalk achieved ten exits: five higher than cost (between
1.7x and 12.8x) and five lower. Investments were made across a
range of technologies including plant genetics, graphene-based
electronics, autonomous driving, clean-tech, healthcare, AI and
genomics. In 2019 Parkwalk liaised with the government and
universities on improving the financial ecosystem for
knowledge-intensive spin-out companies. Over the period Parkwalk
received five awards, including 'Growth Investor of the Year'.
North America
In North America, IP Group, Inc. and its portfolio companies
continued to make progress, achieving a number of financial and
developmental milestones. Most notably, two companies in the
portfolio secured external investment rounds from strategic and
financial investors. Exyn Technologies, Inc. (University of
Pennsylvania) raised $16m in a Series A round, including investment
from Centricus Asset Management, Yamaha Ventures, In-Q-Tel, Corecam
Family Office, and Red and Blue Ventures; and MOBILion Systems,
Inc. (Pacific Northwest National Laboratory) raised $15.4m in a
Series A financing, which included investment from Agilent
Technologies, Hostplus, Cultivation Capital, and iSelect Fund. The
total amount raised by the US portfolio was $31m with 75% of the
funds coming from external investment.
Prior to its Series A funding, MOBILion was deemed to be
controlled by IP Group, and hence consolidated as a subsidiary. The
successful Series A financing resulted in a dilution of the Group's
shareholding and loss of control of the board of MOBILion,
resulting in its deconsolidation as a subsidiary and recognition as
a portfolio company. This resulted in a fair value gain of
GBP10.6m.
Other advancements include Optimeos Life Sciences (Princeton
University) signing a commercial agreement with an undisclosed
pharmaceutical company, marking their third commercial deal to
date. Chip Diagnostics (University of Pennsylvania) was awarded the
Johnson & Johnson Quickfire Challenge and will be collaborating
with J&J on cancer diagnostics. MOBILion Systems partnered with
strategic investor, Agilent Technologies Inc. to integrate its
patented ion mobility separations technology, called Structures for
Lossless Ion Manipulation (SLIM), with Agilent's Q-TOF mass
spectrometry platform as its first commercial product offering.
MOBILion also partnered with investigators at the Complex
Carbohydrate Research Center at the University of Georgia to
explore ion mobility technology in glycoscience. Exyn Technologies
announced the commercial availability of its Autonomy Aerial Robots
("A3Rs"), the first and most advanced fully autonomous aerial
system for data collection in GPS-denied environments. The US team
closed six proof-of-concept investments with the University of
Pennsylvania, National Renewable Energy Laboratory (NREL),
Princeton University, the University of Washington and Yale
University
In March 2020, IP Group, Inc. attracted further strategic
investment into the US business, building on the investment made by
two US-based blue-chip family offices during late 2018 and early
2019.
Australasia
In Australasia, the Group continued to build on the solid
foundation of its partnerships with the Group of Eight and the
University of Auckland, completing a further six new investments,
bringing the portfolio to eight companies. Among these new
investments were AMSL Aero (University of Sydney) which is
developing a highly efficient novel electric vertical take-off and
landing (eVTOL) aircraft platform, and Kira Biotech which is
developing an antibody against a novel target for the treatment of
GvHD and other autoimmune diseases. Alongside these companies, the
Group continues to build a strong pipeline of projects from across
its university partners. The IP Group team in Australasia now
stands at eleven, split between Melbourne, Sydney, Brisbane and
Perth. In terms of capital, the Group continues to work with
Hostplus, one of Australia's largest superannuation funds with over
A$46bn in funds under management through the AU$100m IP Group
Hostplus Innovation Fund which is invested in a number of companies
across the global portfolio.
Greater China
Following the launch of IP Group Greater China in Hong Kong in
2018, two employees relocated from London HQ in 2019 to establish
the office. The Greater China office continued to facilitate market
entry and business partnership engagement with relevant Chinese
partners for our portfolio companies. The Group hosted its third
annual 'Global Deep Tech Forum' event in Beijing in October where
13 of our portfolio companies introduced their technology and
business to over 200 attendees from the Greater China area. Having
seen increasing business needs from our portfolio companies for
local partnership, joint-venture, and/or supply chain management in
China, the Group is working with top tier financial institutions in
China to explore ways of providing our portfolio companies with
support in accessing local capital as well as relationships with
local customers and suppliers.
Outlook
During 2019 the Group realised a record GBP79.5m in cash from
its portfolio, which exceeded investment for the first time since
2007. This strong cash generation has continued into 2020, with
realisations to date now totalling more than GBP55m. Realisations
from our maturing companies, the ongoing focusing and
rationalisation of the portfolio as well as tight cost control has
placed the Group in a strong financial position and these remain
three areas of focus for the Group in 2020.
Our three most valuable holdings, Oxford Nanopore, Istesso and
Ceres Power, made excellent progress during the year with Oxford
Nanopore and Ceres Power also announcing positive developments
since the year end. We also anticipate further commercial and
technical updates from a number of other companies over the coming
twelve months, including Diurnal, Featurespace, First Light Fusion,
Microbiotica, PsiOxus, Ultraleap and Wave Optics. Consequently, we
remain confident in the prospects of our portfolio, which we
continue to believe includes world-changing businesses that will
deliver significant benefits for multiple stakeholders.
Our portfolio aligns well with the UN's Sustainable Development
Goals, such as Climate Action and Human Health, and we are well
positioned to benefit from the increased investor interest in
impact investing given the efforts being made by portfolio
companies to address climate change, disease prevention, and an
ageing population, among other issues.
Alan Aubrey
Chief Executive Officer
PORTFOLIO REVIEW
Our portfolio: On the path to self-sustainability, with
portfolio realisations exceeding investment
Overview
As at 31 December 2019, the value of the Group's portfolio was
GBP1 ,045.6 m (2018: GBP1,128.2m) reflecting net investment offset
by net portfolio losses of GBP43.9m (2018: loss GBP 48.4 m). The
portfolio consists of interests in 57 'focus' companies,
representing over 87% of the portfolio value, and 75 other
companies (2018: 61, 90%, 76). Of these, 99 are based in the UK, 23
in the US and eight in Australasia (2018:122, 23, 2). In addition,
the Group has holdings in two multi-sector platform businesses as
well as a further 49 de minimis holdings and 40 organic holdings.
(2018: 3, 44, 47).
The Group exited its interest in eight companies (2018: three )
and realised total cash proceeds during the year of GBP79.5m (2018:
GBP29.5m). In addition, GBP22.0m of cash from the Group's partial
realisation of its holding in Oxford Nanopore was received in
February, while a further GBP5.3m of deferred consideration was
outstanding at year end (2018: GBPnil). The largest contributors to
this cash figure were the Group's partial realisation of its
holdings in Oxford Sciences Innovation plc (GBP32.1m), Concirrus
Limited (GBP6.1m), Cambridge Innovation Capital plc (GBP4.3m) and
Nexeon Limited (GBP4.0m), and the full realisation of its holdings
in Process Systems Enterprise Limited (GBP13.8m), Dukosi
Technologies Limited (GBP5.3m cash received in year, GBP5.0m
deferred consideration), Circassia Pharmaceuticals plc (GBP4.6m)
and Cortexica Vision Systems Limited (GBP4.5m).
During the year to 31 December 2019, the Group provided
pre-seed, seed and post-seed capital totalling GBP64.7m to its
portfolio companies (2018: GBP100.9m). The Group deployed capital
into ten new companies and six new pre-incorporation projects
during the year (2018: nine, zero). Two of the companies were
sourced from the UK, two from the US and six from Australasia
(2018: five, two, two), and the six pre-incubation projects were
sourced from the US (2018: zero).
Performance summary
A summary of the Income Statement gains and losses that are
directly attributable to the portfolio is as follows:
2019 GBPm 2018 GBPm
==================================================== ========= =========
Unrealised gains on the revaluation of investments 86.3 99.7
Unrealised losses on the revaluation of investments (154.6) (153.1)
Effects of movement in exchange rates (2.3) 3.0
==================================================== ========= =========
Change in fair value of equity and debt investments (70.6) (50.4)
==================================================== ========= =========
Gain on disposals of equity investments 16.1 2.0
Gain on deconsolidation of subsidiary 10.6 -
==================================================== ========= =========
Net portfolio gains/(losses) (43.9) (48.4)
==================================================== ========= =========
The largest contributors to unrealised gains on the revaluation
of investments were Ceres Power Holdings plc (GBP27.5m), Istesso
Limited (GBP24.7m) and Oxford Nanopore Technologies Limited
(GBP12.2m). These unrealised gains were principally offset by
unrealised losses on the revaluation of Autifony Therapeutics
Limited (GBP13.0m), PsiOxus Therapeutics Limited (GBP10.9m),
Topivert Limited (GBP10.7m), AIM-quoted Actual Experience plc
(GBP10.6m), and AIM-quoted Circassia Pharmaceuticals plc
(GBP8.4m).
The performance of the Group's holdings in companies quoted on
AIM saw a net unrealised fair value decrease of GBP12.4m (2018:
decrease of GBP99.8m) while the Group's holdings in unquoted
companies experienced a net fair value decrease of GBP58.2m (2018:
increase of GBP46.4m).
Investments and realisations
The Group deployed a total of GBP64.7m across 55 new and
existing projects during the period (2018: GBP100.9m, 77 projects),
versus realisations of GBP79.5m (2018: 29.5m), resulting in overall
net realisations for the year of GBP14.8m (2018: net investment of
GBP71.4m). An analysis of amounts invested by company focus as
follows:
2019 2018
GBPm GBPm
====================================================== ====== ======
Top 20 21.8 26.0
Focus 21.2 41.6
Other (including companies exited by 31 December 2019) 11.8 19.4
Total United Kingdom 54.8 87.0
United States(1) 6.9 13.2
Australasia 3.0 0.7
Total purchase of equity and debt investments 64.7 100.9
====================================================== ====== ======
Less cash proceeds from sales of equity investments (79.5) (29.5)
====================================================== ====== ======
Net (realisations) / investment (14.8) 71.4
====================================================== ====== ======
1 United States investment total includes GBP1.6m (2018:
GBP1.1m) invested in Uniformity Labs, Inc., which is one of the Top
20 holdings by value.
Co-investment analysis
Including the GBP65m invested by the Group, the Group's
portfolio raised a total of GBP[440]m during the year to 31
December 2019 (2018: GBP717m). Co-investment in 2019 came from more
than 200 different investors, excluding individuals, and less than
1% of the funding came from parties with a greater than 1%
shareholding in IP Group plc (2018: 6%). An analysis of this
co-investment by source is as follows:
Portfolio capital raised 2019 2018
GBPm % GBPm %
------------------------------------------------ ----- ----- ----- ----
IP Group (1) 64.5 15% 100.9 14%
Funds managed by Parkwalk Advisors 13.2 3 % 20.8 3%
IP Group plc shareholders (>1% holdings) 0.7 0% 43.1 6%
Institutional investors 147.0 34 % 291.6 41%
Corporate, other EIS, individuals, universities
and other 138.6 33 % 234.6 33%
Capital into multi-sector platforms 66.3 15% 26.0 3%
------------------------------------------------ ----- ----- ----- ----
Total 430.3 100 % 717.0 100%
------------------------------------------------ ----- ----- ----- ----
1. Reflects primary investment only; the Group made further
GBP0.2m investment via secondary purchase of shares
Portfolio analysis by focus
At 31 December 2019, the Group's portfolio fair value of
GBP1,045.6m was distributed across the portfolio as follows:
As at 31 December 2019 As at 31 December 2018
============================ ==============================
Fair value Number Fair value(2) Number
================ ========== ================= ===========
Stage GBPm % % GBPm % %
================================= ========= ===== ==== ==== ========== ===== === ====
Top 20 by value 720.2 72% 20 15% 732.5 68% 20 13%
Focus 164.0 16% 37 28% 204.4 19% 41 27%
Other 110.2 12% 75 57% 147.7 13% 89 60%
================================= ========= ===== ==== ==== ========== ===== === ====
Total 994.4 100% 132 100% 1,084.6 100% 150 100%
De minimis and organic holdings 13.0 8.3
================================= ========= ===== ==== ==== ========== ===== === ====
Total Portfolio 1,007.4 1,092.9
================================= ========= ===== ==== ==== ========== ===== === ====
Attributable to third parties(1) 38.2 35.3
================================= ========= ===== ==== ==== ========== ===== === ====
Gross Portfolio 1,045.6 1,128.2
================================= ========= ===== ==== ==== ========== ===== === ====
1. In the above table, the amount attributable to third parties
consists of GBP17.2m attributable to minority interests represented
by third party limited partners in the consolidated fund, IP
Venture Fund II, GBP7.2m attributable to minority interests
represented by third party limited partners in the consolidated US
portfolio, GBP10.9m attributable to Imperial College London and
GBP2.9m attributable to other third parties (2018: GBP18.7m,
GBP5.5m, GBP8.1m and GBP3.0m).
Top 20 investments consist of the 20 most valuable holdings in
the Group's portfolio by the period-end value. Focus investments
are those investments that are not within the 20 most valuable, but
on which the Life Sciences and Technology teams focus a significant
proportion of their resources and capital. These investments
typically, although not exclusively, fall within the 100 most
valuable portfolio company holdings by period-end value, and they
comprise 88% of the portfolio by value (2018: 84%). Outside of
these companies, the portfolio contains a broad selection of
potentially exciting opportunities, categorised as 'other'. Many of
these opportunities are at an early stage, and they typically
receive a lower level of capital and management resource.
Companies which are at a very early stage or in which the
Group's holding is of minimal value, but remain as operating
businesses, are classed as de minimis holdings. Organic holdings
are investments in which the Group has acquired a shareholding upon
creating the company as a result of our technology transfer
relationship with Imperial College London, but in which we have not
actively invested.
The total value of the Group's portfolio companies (excluding
multi-sector platforms, organic investments and de minimis
holdings) is almost GBP5bn.
Portfolio analysis by sector
The Group funds spin-out companies based on a wide variety of
scientific research emerging from leading research-intensive
institutions and does not limit itself to funding companies from
particular areas of science. The Group splits its core opportunity
evaluation, investment and business-building team into two
specialist divisions, Life Sciences and Technology. Where the Group
invests in businesses that cannot be classified within these
divisions, primarily those portfolio companies which also invest in
other opportunities, they are recorded as multi-sector platforms.
An update on the two primary operating segments is included in the
financial review below.
As at 31 December 2019 As at 31 December 2018
============================ ==============================
Fair value Number Fair value(2) Number
================ ========== ================= ===========
Sector GBPm % % GBPm % %
================================= ========= ===== ==== ==== ========== ===== === ====
Life Sciences 598.7 60% 56 42% 624.5 57% 64 43%
Technology 369.0 37% 74 56% 396.9 37% 83 55%
Multi-sector platforms 26.7 3% 2 2% 63.2 6% 3 2%
================================= ========= ===== ==== ==== ========== ===== === ====
Total 994.4 100% 132 100% 1,084.6 100% 150 100%
De minimis and organic holdings 13.0 8.3
================================= ========= ===== ==== ==== ========== ===== === ====
Total Portfolio 1,007.4 1,092.9
================================= ========= ===== ==== ==== ========== ===== === ====
Attributable to third parties(1) 38.2 35.3
================================= ========= ===== ==== ==== ========== ===== === ====
Gross Portfolio 1,045.6 1,128.2
================================= ========= ===== ==== ==== ========== ===== === ====
1. The amount attributable to third parties consists of GBP17.2m
attributable to minority interests represented by third party
limited partners in the consolidated fund, IP Venture Fund II,
GBP7.2m attributable to minority interests represented by third
party limited partners in the consolidated US portfolio, GBP10.9m
attributable to Imperial College London and GBP2.9m attributable to
other third parties (2018: GBP18.7m, GBP5.5m, GBP8.1m and
GBP3.0m).
The following table lists information on the 20 most valuable
portfolio company investments, which represent 71% of the total
portfolio value (2018: 63%). Additional detail on the performance
of these companies is included in the Life Sciences and Technology
portfolio reviews.
Fair Fair
value value
of Unrealised of
Significant Primary Group Group Fair value Group
named valuation Stake holding movement holding
co-investors basis at 31 at Net and fees at
at 31 Dec at 31 Dec 31 Dec investment/ settled 31 Dec
Company name Description 2019 Dec 2019 2019(I) 2018 (divestment)(III) in equity 2019
(sector) % GBPm GBPm GBPm GBPm
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Enabling the
Oxford Nanopore analysis of Amgen, CCB, Recent
Technologies any living thing, GIC, Hostplus, financing
Limited by any person, Invesco, (within
(Life Sciences) in any environment Lansdowne 0-6 months) 16.7 274.1 (22.5) 12.2 263.8
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Reprogramming
metabolism to
Istesso Limited treat autoimmune
(Life Sciences) disease Puhua Capital DCF* 56.4 57.9 - 24.7 82.6
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Bosch,
Ceres Power Cheaper, cleaner Oceanwood, Quoted
Holdings plc power for a Weichai (bid
(Technology) changing world Power price) 18.6 47.1 - 27.5 74.6
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Highland
Europe,
Insight, Recent
Invoke, financing
Featurespace MissionOG, (within
Limited Leading predictive TTV Capital, 6-12
(Technology) analytics company Robert Sansom months) 22.3 25.2 4.1 0.1 29.4
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Recent
financing
Garrison Anti-malware (within
Technology solutions for BGF, Dawn 12-18
Limited enterprise cyber Capital, months)
(Technology) defences NM Capital * 23.4 28.8 - - 28.8
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Recent
Cornes, financing
Ultraleap Contactless Dolby Ventures, (within
Holdings haptic technology Hostplus, 12-18
Limited "feeling without Mayfair months)
(Technology) touching" Partners * 22.6 27.5 - - 27.5
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Recent
Transforming Cancer Research, financing
clinical cancer CIC, J&J (within
Inivata Limited care with liquid Innovation, 6-12
(Life Sciences) biopsy RT Partners months) 28.2 18.9 4.1 1.0 24.0
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Blue Pool,
Fosun Pharma,
Invesco,
University of Lansdowne,
Oxford preferred Redmile,
Oxford Sciences IP partner under Sequoia, Post-balance
Innovation plc 15-year framework Temasek, sheet
(Multi-sector) agreement Tencent transaction 3.2 55.5 (31.8) 0.2 23.9
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Recent
Ieso Digital Digital therapeutics financing
Health Limited for psychiatry Draper Esprit (anticipated) 46.6 13.9 2.0 2.5 18.4
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
First Light Solving fusion DCF,
Fusion Limited with the simplest Market-based
(Technology) possible machine OSI * 35.9 17.9 - - 17.9
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Novel optical Bosch Venture
waveguides and Capital, Recent
Wave Optics modules for Gobi Partners, financing
Limited augmented reality GoerTek (within
(Technology) displays Inc., Octopus 0-6 months) 17.5 15.2 - - 15.2
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Invesco,
PsiOxus Lundbeckfonden,
Therapeutics Gene and viral Mercia,
Limited therapies for SR one, PWERM
(Life Sciences) cancer Schroder * 26.3 22.6 2.8 (10.9) 14.5
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Recent
financing
Equipment, materials (within
Uniformity Labs, and software 18-24
Inc. for additive months)
(Technology) manufacturing Not disclosed * 22.8 13.1 1.4 (0.4) 14.1
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Targeting
deubiquitylating Pfizer,
enzymes for Roche,
Mission the treatment Sofinnova
Therapeutics of CNS and Partners,
Limited mitochondrial SR one,
(Life Sciences) disorders Schroder PWERM 20.2 13.7 - - 13.7
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Recent
financing
YoYo Wallet Mobile payments (within
Limited with integrated Hard Yaka, 12-18
(Technology) loyalty schemes LeadX Capital months) 39.6 13.7 - - 13.7
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Developing high
value, novel
medicines to
Autifony treat serious
Therapeutics diseases of Pfizer,
Limited the central SV Health
(Life Sciences) nervous system Investors DCF * 27.6 25.6 - (13.0) 12.6
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Andera Partners,
Biologic Astellas,
therapeutics EMBL Ventures, Recent
Crescendo eliciting the Quan Capital, financing
Biologics immune system Sofinnova (within
Limited against solid Partners, 12-18
(Life Sciences) tumours Takeda, months) 18.7 12.3 - - 12.3
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Software to Recent
enable every Fundamental financing
Oxbotica Limited vehicle to become Insurance (within
(Technology) autonomous Investments 0-6 months) 17.2 5.5 5.0 1.1 11.6
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Next generation
cardiac diagnostic Recent
device platform financing
Creavo Medical bringing (18-24
Technologies magnetocardiography Puhua Capital, months)
Limited to the point University adjusted
(Life Sciences) of care of Leeds downwards 39.3 14.4 3.0 (6.1) 11.3
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Vertex,
Foresight,
F-Prime
Capital,
Tamorer, Recent
Leading the Invesco, financing
genomic Lansdowne, (within
Genomics plc transformation Schroder, 12-18
(Life Sciences) of healthcare OSI months) 12.7 10.3 - - 10.3
-------------------- ---------------- -------------- ------- ------- ----------------- ---------- -------
Other companies (112 companies) 371.4 14.0 (111.2) 274.2
------------------------------- ------- ------- ----------------- ---------- -------
De minimis and organic
investments 8.3 (0.2) 4.9 13.0
------------------------------- ------- ------- ----------------- ---------- -------
Value not attributable to
equity holders (II) 35.3 (1.2) 4.1 38.2
------------------------------- ------- ------- ----------------- ---------- -------
Total 1,128.2 (19.3) (63.3) 1,045.6
------------------------------- ------- ------- ----------------- ---------- -------
i. Represents the Group's undiluted beneficial economic equity
interest (excluding debt), including only the Group's portion of
IPVF II, and the Group's portion of the US portfolio. Voting
interest is below 50%.
ii. Includes GBP2.7m increase in revenue share to Imperial
College London, with a corresponding increase in revenue share
liability resulting in no net fair value movement.
iii. Includes GBP11.2m movement in respect of the
deconsolidation of MOBILion Systems, Inc. and recognition as a
portfolio company.
* Third party valuation specialists used for 31 December 2019
valuation
Portfolio review: Life Sciences
IP Group's Life Sciences portfolio comprises 56 companies worth
GBP598.7m as at 31 December 2019.
Oxford Nanopore
Oxford Nanopore Technologies Ltd, the Group's most valuable
holding, made further significant progress in 2019. The company,
whose goal is to enable the analysis of any living thing, by
anyone, anywhere, is behind the only real-time DNA/RNA sequencer
that can sequence any read length. The technology is also fully
scalable from smaller portable formats to larger devices for
population-scale sequencing.
In 2019, expansion of the customer community continued as
evidenced by the bank of more than 650 scientific publications,
driven by continued technology improvement and a greater range of
devices that serve broader market segments. Between 2017 and 2018,
sales growth of 2.3x was achieved, whilst maintaining margins,
and managing a small increase in operating expenditure (8%).
More recently, in January 2020, Oxford Nanopore announced that
it had completed another successful fundraising, raising GBP29.3m
of new capital and facilitating the secondary sale of GBP80.2m of
shares, representing an aggregate investment of GBP109.5m. Funds
were raised from both new investors and existing shareholders from
the US, Europe and Asia Pacific. The fundraising brings the total
primary investment in Oxford Nanopore to approximately GBP480m.
In early 2020, highlights also include the heavy involvement of
Oxford Nanopore's technology in genomic surveillance during the
novel coronavirus outbreak with the company shipping an additional
200 MinION sequencers and related consumables to China.
2019 highlights
Oxford Nanopore's technology has continued to be proven in
broader applications. New publications and applications citing the
technology in 2019 included workflows for rapid, accurate and
data-rich cancer genome analysis, pathogen analysis, crop genomes
and human genetics and, in 2020, COVID-19 pathogen analysis and
outbreak surveillance. The total number of publications citing
nanopore technology for sequencing is now in excess of 750. The
technology is also starting to be adopted beyond research
laboratories into more regulated environments, and 2019 saw tests
becoming available in infectious disease, HLA tissue typing and
food safety.
Oxford Nanopore also continued to scale up production and in
July, the first processes at its new manufacturing facility in
Oxfordshire came online.
The MinION building features what is one of the largest clean
rooms in Europe and when fully fitted out will have the ability to
run 20 modular production
lines for the manufacturing of 1.2m flow cells a year. This will
be achieved with deep automation, for consistent high quality
product and increasingly
cost-efficient manufacturing.
In December 2019, Oxford Nanopore noted that its technology had
been selected for the population-scale 'Genome Program' launched by
Abu Dhabi's Department of Health. The project aims to be the first
of its kind worldwide to provide citizens with their own
high-quality genome as a baseline and aims to incorporate genomic
data into healthcare management.
Technology
Oxford Nanopore has developed and commercialised a novel
generation of DNA/RNA sequencing technology. Unlike any other
sequencing technology on the market, nanopore sequencing provides
all of the following features:
-- The ability to sequence any length fragment of DNA/RNA,
whether short to ultra-long - conferring benefits in genome
assembly, the characterisation of structural variation, phasing and
other advantages
-- Real time analysis - with data available as soon as an
experiment starts, analysis workflows can be shortened for rapid
insights. Dynamic workflows are possible, for example 'adaptive
sampling' where the device selects regions of interest (typically
this has been done with sample preparation techniques)
-- Scalability - to portable devices . This provides the unique
ability to take the device into the field, or simply for
researchers to operate a personal sequencer, on-demand
-- Scalability - to ultra-high yields , catering to large genome
projects or larger genomes (e.g. human or plant genomes, at
scale)
-- Direct electronic analysis - resulting in rich biological
information such as direct methylation or direct RNA sequencing
Notable technical developments in 2019 included:
-- The delivery of PromethION 48 to the market in 2019. This
device can run the full 48 flow cells concurrently. A single run
using all flow cells,
performed internally, has generated more than 7Tb of data. (for
context, a human genome is 3Gb). P48 is designed to address ultra-
high throughput opportunities such as human or plant genomes, at
scale.
-- The introduction of Flongle, a flow cell adapter for MinION
or GridION. This is the first on- demand, low cost sequencing
solution for smaller tests on the market and is designed to open up
new users and markets. Demand for Flongle
has been very high and the company is currently scaling up
production of this technology.
-- Device upgrades in 2019 include GridION Mk1, PromethION 24,
VolTRAXv2 . The latter provides an automated, programmable
sample
prep solution that is designed to drive consistent high
performance for any user - with or without lab skills or kit.
In addition, the company has focused on improving performance by
enhancing yield, accuracy and usability, adding to existing
disruptive properties such as portability, real-time data and long
reads.
Recent customer records include the generation of 43Gb data from
a MinION Flow Cell and 180Gb from a PromethION Flow Cell. This
translates
to better value experiments for customers and increased uptake
of the technology as it becomes increasingly cost competitive and
able to enable larger projects.
Yields have been driven by multiple factors including software
upgrades and new kits that can 'refuel' flow cells. Oxford Nanopore
has also addressed the increasing power of nanopore devices by
providing high performance GPUs for real time analysis in
PromethION and GridION devices, as well as the MinIT accessory
for MinION.
Multiple strategies have also been deployed to continuously
increase accuracy, including the improvement of basecalling
algorithms/onward analysis tools and new nanopore chemistries.
A range of applications are enabled by the current, improved
performance of the R9.4.1 nanopore, and the newest R10.3 nanopore
is also showing positive results in high consensus accuracy.
In addition, Oxford Nanopore continues to focus on delivering
even further enhanced accuracy through a combination of data
analysis and
chemistry, with a goal of providing across-the-board competitive
and disruptive performance.
Other significant portfolio company updates
At 31 December 2019, the Life Sciences division, excluding
Oxford Nanopore, consisted of 55 companies, with a combined value
of GBP334.9m (2018: 63 companies; GBP350.4m). The reduction in
number of companies and a GBP60.2m net fair value reduction,
excluding net investment, reflects three main factors:
1. poor performance in the public markets;
2. technical and commercial setbacks in several key private companies; and
3. ongoing rationalisation of the portfolio.
In terms of the performance of the quoted Life Sciences
portfolio, there was a net reduction of GBP18.6m, equating to 33%
of the net fair value loss, with the biggest impact coming from
Circassia and Tissue Regenix (each down approximately GBP8m).
Diurnal's development of its late-stage portfolio of endocrinology
products continued to show progress, with marketing applications
filed for Alkindi in the US and Chronocort in Europe.
In the private portfolio, the key write-downs related to
Autifony (GBP13.0m), PsiOxus (GBP10.9m), Topivert (GBP10.7m),
Creavo (GBP7.4m) and Cell Medica (GBP7.0m), each resulting from
financing, partnering or technical setbacks. In terms of positive
developments, Istesso announced positive headline data from its
Phase 2a study of its investigational drug for rheumatoid
arthritis, MBS2320, which led to a GBP25m write-up of the
division's holding value. In the third quarter of the year, Istesso
was notified by its collaboration partner J&J that it did not
intend to exercise its option in respect of the programme. We see
this as a neutral development when offset against the increase in
value conferred by the positive Phase 2a data. The J&J
partnership was signed in 2014 at a pre-clinical stage, whereas the
drug is now in Phase 2 with a novel mechanism-of-action that has
potential in rheumatoid arthritis, other autoimmune conditions and
cancer. Thus, we believe that the product has significant
development potential and licensing value as an unencumbered asset.
Elsewhere, Pulmocide generated promising data in a study of its
novel agent for the treatment of fungal infection in lung
transplant.
Rationalisation of the portfolio has been ongoing since the
combination of the Life Sciences portfolios of both IP Group and
Touchstone in late 2017. This rationalisation process will continue
over the next year or so and will result in a smaller, more
focussed but diverse portfolio of 10-20 companies, each one with
'NASDAQ potential' and with a target ownership of at least 25%.
During 2020, several companies are expected to go through key,
potentially value-enhancing inflection points, for example,
Diurnal, Microbiotica and PsiOxus.
Dr Sam Williams
Managing Partner, Life Sciences
Portfolio review: Technology
IP Group's Technology portfolio comprises 74 companies worth
GBP372.0m as at 31 December 2019.
Technology
The Technology division had two strategic priorities in 2019:
focus and sustainability. We aimed to ensure that our human and
capital resources were focused on a small group of assets that we
believe to have the greatest potential to deliver strong returns,
whilst also achieving cash sustainability by taking advantage of a
maturing portfolio to increase cash realisations compared to
previous years. Both objectives were comprehensively achieved:
investment capital was directed to a narrow group of high
conviction portfolio company holdings and in parallel we were able
to realise significant proceeds from equity sales with an overall
IRR of 9.1% and 1.3x multiple. As a result of the full and partial
exits achieved during 2019, the sale proceeds (including GBP5m
deferred funds) from the Tech portfolio exceeded the investment
outflow by GBP13.1m, whilst the portfolio overall decreased in
value by roughly GBP10.0m against a challenging market
backdrop.
The largest realisation in the Tech portfolio came from the sale
of our portfolio company Process Systems Enterprise Ltd (PSE) to
Siemens in a deal that yielded GBP13.8m for the Group. This
transaction served as an excellent example of the strength in depth
of the portfolio: PSE was not amongst our most valuable holdings
and may not have been particularly well-known to IP Group
shareholders, but the company was profitable with healthy revenue
streams and had a compelling product suite that attracted a
top-tier acquirer. We were also pleased to be able to realise
around GBP6m from the sale of some of our stake in insurance data
analytics company Concirrus, which allowed us the opportunity to
realise all monies invested to date alongside increasing ownership
from co-investors deeply connected to the sector.
In terms of major investment transactions, Featurespace closed a
GBP25m round led by Insight Partners, a leading US venture capital
and private equity firm, in early 2019. The company continues to
grow strongly, closing commercial deals with Enfuce, RBS and
Circulo de Credito. The market Featurespace is addressing continues
to expand rapidly and the company is well positioned to take
advantage of this growth. Elsewhere in the Tech portfolio, we saw
relatively few major fundraise transactions as many of the most
valuable portfolio company holdings in the portfolio, including
UltraLeap (formerly Ultrahaptics) and Garrison, completed large
funding rounds during 2018 and so were focused on deploying that
capital to achieve commercial progress in 2019.
In another positive move, UltraLeap, acquired the Silicon Valley
company Leap Motion, which owned a broad portfolio of fundamental
patents relating to hand tracking. The Leap Motion technology,
which was already embedded in UltraLeap's own products, can very
accurately recognise human hand gestures. We believe that the
combined company now owns the most compelling technology stack for
gesture-based computer input and feedback. The merger presents an
opportunity for UltraLeap to become one of the defining players in
the rapidly evolving field of human-machine interaction. The
company is seeing strong early commercial progress, recording a
doubling of booked orders in Q4 2019 compared to the previous
quarter.
Also in the field of Virtual and Augmented Reality, our
portfolio company WaveOptics made excellent progress this year with
further investment secured from Goertek and Hostplus alongside the
achievement of some very encouraging commercial milestones.
Progress has also been made by the new management team at
Mirriad plc, which announced a major deal with Tencent in June 2019
that the company reported would generate multiple millions of
pounds of revenue for Mirriad over the 24-month contract term. This
followed proactive management of the asset by IP Group that
precipitated a fundamental change in the leadership team and
strategy last year.
The share price of AIM-listed Actual Experience plc decreased
significantly during the year, despite that company announcing 1.8x
revenue growth to GBP1.9 million, "significant customer
deployments" and a successful evaluation with Vodafone, resulting
in a GBP10.6m fair value reduction in the Group's holding. We
reduced the fair value of the Group's holding in private company,
Impression Technologies, that is developing 'lightweighting'
solutions for manufacturing processes, as well as holdings in a
handful of other assets. This followed an assessment of each
company's value in light of delayed technical and/or commercial
progress or based on investor feedback where such companies are
seeking to raise further capital.
Cleantech
It has been a very successful year for the Cleantech portfolio's
most valuable asset, Ceres Power. The company has seen significant
commercial progress including the doubling of revenue for a fourth
consecutive year, the first product launch with Japan's Miura Co.
using Ceres' SteelCell(R) in a combined heat and power ('CHP')
system for commercial use, and the signing of a new system licence
and joint development agreement with Doosan worth GBP8m over two
years. This progress was recognised in the company's share price,
which continued to increase during 2019, adding around GBP27.5m to
the Group's holding value. Since the year-end, the share price has
risen a further 37 per cent, resulting in a further increase of
approximately GBP25m to the value of the Group's holding]. In
January 2020 Bosch announced a strategic move to increase its
holding in Ceres to c.18%, and as part of this transaction the
Group sold approximately a quarter of its shareholding, generating
GBP22.4m cash proceeds and realising a 5.1x equity multiple and a
46% IRR.
Elsewhere in the Cleantech portfolio, our cell-level battery
controls company, Dukosi, was sold to the investment group KCK,
delivering an overall gross IRR of 33%. The Cleantech team
identified battery management systems as an attractive part of the
value chain, assembled a compelling offering from university and
industrial IP and expertise, funded the company from an early stage
and dedicated considerable effort to developing and helping to
shape the business into an attractive exit proposition.
We were also pleased to see Azuri, the provider of pay-as-you-go
solar home solutions to off-grid households across Africa, close a
new investment of US$26 million, led by Fortune Global 500 company
Marubeni Corporation.
In the first half of the year, First Light Fusion successfully
commissioned its pulsed power fusion demonstrator, 'Machine 3'.
Constructing the world's highest-current (14 MA) pulsed power
machine dedicated to fusion for a capital cost of only GBP4m was a
remarkable achievement. In October, the UK Atomic Energy Authority
(UKAEA), the leading government lab for fusion energy research,
completed a project to establish the basic operating parameters for
First Light's 'fusion island' concept at the heart of its power
plant design, and concluded that it is fundamentally viable, the
first time a start-up in the space has received this endorsement.
As at the results publication date, First Light has not yet
demonstrated a fusion reaction, a delay to the targeted schedule
that it had previously communicated. The company remains confident
that achieving fusion is a matter of time and believes there is no
fundamental issue with its approach. This view is supported by the
eminent First Light Scientific Advisory Board. Balancing the
progress since the last financing round, particularly on reactor
development, with the more recent delay to the forecast achievement
of fusion, the Group has maintained the fair value of its 35.9%
holding in First Light at GBP17.9m.
Mark Reilly
Managing Partner, Technology
Multi-Sector Platforms
The Group has shareholdings in two multisector platform
companies, Oxford Sciences Innovation plc ("OSI") and Cambridge
Innovation Capital plc ("CIC"). During 2019, the Group has reduced
its exposure to OSI and CIC and has exited its small holding in
AIM-quoted Frontier IP Group plc, generating total proceeds of
GBP36.8m. As at 31 December 2019, IP Group has a 3.3% holding in
OSI valued at GBP23.9m and a 1.0% holding in CIC valued at
GBP2.8m.
As a result of its 15-year framework agreement with the
University of Oxford, OSI is the preferred intellectual property
partner for the provision of capital to, and development of, Oxford
spin-out companies and is entitled to 50% of the university's
founder equity in spin-out companies. In 2019 OSI has continued to
support its existing portfolio, with GBP58.2m further investment
being made and OSI leading on 32 investments. The number of
investments now stands at 78 with a total portfolio value of
GBP290.6m and cash and deposits of GBP173.7m. Net asset value per
share has risen from 116.1p to 118.0p during 2019.
CIC is a preferred investor for the University of Cambridge for
the commercialisation of intellectual property created at the
University under a ten-year memorandum of understanding, and a
Cambridge-based investor in technology and healthcare companies
from the Cambridge Cluster. Since its inception, CIC has secured
GBP275m of investment, invested GBP155.3m, and its current
portfolio of 31 investments is held at GBP253.6m.
FINANCIAL REVIEW
Greg Smith
Chief Financial Officer
The Group recorded a loss for the year of GBP78.9m (2018: loss
of GBP293.8m) and a negative Return on Hard NAV, i.e. on the
Group's net assets excluding goodwill and intangible assets, of
GBP73.7m (2018: negative GBP75.6m). Net assets at 31 December 2019
were GBP1,141.9m (2018: GBP1,218.2m) and Hard NAV totalled
GBP1,141.5m at 31 December 2019 (2018: GBP1,217.5m), representing
107.8p per share (2018: 115.0p).
Consolidated statement of comprehensive income
A summary analysis of the Group's financial performance is
provided below:
2019 2018
GBPm GBPm
=========================================================== ====== =======
Net portfolio losses(1) (43.9) (48.4)
Change in fair value of limited and limited liability
partnership interests (0.7) 2.3
Net overheads(2) (22.6) (26.0)
Administrative expenses - consolidated portfolio companies (5.4) (2.6)
Administrative expenses - share-based payments charge (2.3) (1.9)
IFRS 3 charge in respect of acquisition of subsidiary (2.5) (3.3)
Carried interest plan release 1.3 1.1
Amortisation of intangible assets (0.3) (9.9)
Goodwill impairment - (203.2)
Net finance (expense)/income (2.4) (1.8)
Taxation (0.1) (0.1)
=========================================================== ====== =======
(Loss)/profit for the year (78.9) (293.8)
Other comprehensive income 0.1 (0.1)
=========================================================== ====== =======
Total comprehensive income/(loss) for the year (78.8) (293.9)
=========================================================== ====== =======
Exclude:
Amortisation of intangible assets 0.3 9.9
Goodwill impairment - 203.2
Share-based payment charge 2.3 1.9
IFRS charge in respect of acquisition of subsidiary 2.5 3.3
=========================================================== ====== =======
Return on Hard NAV (73.7) (75.6)
=========================================================== ====== =======
1. Defined in note 29 Alternative Performance Measures.
2. See net overheads table below and definition in note 29
Alternative Performance Measures.
Net portfolio gains/(losses) consist primarily of realised and
unrealised fair value gains and losses from the Group's equity and
debt holdings in spin-out businesses, which are analysed in detail
in the Portfolio review below.
In addition to portfolio fair value gains and losses, 2019 net
portfolio gains include a GBP10.6m gain on deconsolidation of
Mobilion Sytems, Inc. Prior to its 2019 Series A funding, MOBILion
was deemed to be controlled by IP Group, and hence consolidated as
a subsidiary. The successful Series A financing resulted in a
dilution of the Group's shareholding and loss of control of the
board of MOBILion, resulting in its deconsolidation as a subsidiary
as at 1 July 2019 and recognition as a portfolio company. This
resulted in a fair value gain of GBP10.6m, being the fair value of
the Group's investment in MOBILion, less its net assets at the
point of deconsolidation.
Net overheads
2019 2018
GBPm GBPm
================================================== ====== ======
Other income 8.6 9.9
Administrative expenses - all other expenses (29.2) (34.5)
Administrative expenses - Annual Incentive Scheme (2.0) (1.4)
================================================== ====== ======
Net overheads (22.6) (26.0)
================================================== ====== ======
Other income totalled GBP8.6m, a decrease on the year (2018:
GBP9.9m) due in part to the transfer of future commercialisation
operations of the Group's Technology Transfer Office to Imperial
College London on 28 February 2019. Under this arrangement, the
Group retains its rights to earnings in respect of existing
licences, while new commercialisation activity is undertaken
directly by Imperial, resulting in reduced income in respect of
these activities in 2019. Additionally, 2019 saw a lower level of
corporate finance fees earned by its IP Capital team, reflecting
the lower level of funding raised by the portfolio in 2019. Other
income comprises fund management fees, licensing and patent income
from Imperial Innovations, corporate finance fees as well as
consulting and similar fees, typically chargeable to portfolio
companies for services including executive search and selection as
well as legal and administrative support.
Other central administrative expenses, excluding
performance-based staff incentives and share-based payments
charges, have decreased to GBP29.2m during the period (2018:
GBP34.5m), primarily as a result of cost savings realised from the
transfer of the TTO noted above, as well as the surrender of the
lease on 7 Air Street, the former Touchstone head office on 22
March 2019. Offsetting these savings was growth in the cost of the
Group's US and Australasian operations. Of the GBP29.2m gross
overheads, GBP6.5m relates to the cost of the Group's US,
Australasian and Greater China operations (2018: GBP5.8m).
The charge of GBP2.0m in respect of the Group's Annual Incentive
Scheme (2018: GBP1.4m), reflects performance against 2019 AIS
targets.
Other income statement items
The share-based payments charge of GBP2.3m (2018: GBP1.9m)
reflects the accounting charge for the Group's Long-Term Incentive
Plan and Deferred Bonus Share Plan. This non-cash charge reflects
the fair value of services received from employees, measured by
reference to the fair value of the share-based payments at the date
of award, but has no net impact on the Group's total equity or net
assets.
Included within the Group's administrative expenses are costs in
respect of a small number of other portfolio companies. Typically,
the Group owns a non-controlling interest in its portfolio
companies; however, in certain circumstances the Group takes a
controlling stake and hence consolidates the results of a portfolio
company into the Group's financial statements. The administrative
expenses included in the Group's results for such companies
primarily comprise staff costs, R&D and other operating
expenses. These costs included consolidated costs in respect of
MOBILion Systems, Inc., for the first half of the year until its
deconsolidation on 1 July 2019.
The carried interest plan release of GBP1.3m (2018: release of
GBP1.1m) relates to the recalculation of liabilities under the
Group's carry schemes, which include the current UK scheme, as well
as historic IP Group and Touchstone schemes. Payments are generally
only due to carry plan participants when sufficient asset
realisations have occurred.
Costs of GBP2.5m (2018: GBP3.3m) were recognised in relation to
contingent consideration payable to the sellers of Parkwalk
Advisors Limited deemed under IFRS 3 to be a payment for
post-acquisition services.
Acquisition intangibles relate to separately identifiable assets
recognised through the acquisition of Touchstone Innovations plc,
Parkwalk Advisors Limited and Fusion IP plc; these assets are
amortised over the period to which the contractual commitments
relate and were fully amortised as at 31 December 2019.
Consolidated statement of financial position
A summary analysis of the Group's assets and liabilities is
provided below:
Year ended Year ended
31 December 31 December
2019 2018
GBPm GBPm
======================================= ============ ============
Goodwill and other intangible assets 0.4 0.7
Portfolio 1,045.6 1,128.2
Other non-current assets 22.5 18.8
Cash and deposits 194.9 219.0
EIB debt facility (82.5) (97.8)
Other net current assets/(liabilities) 6.3 (9.9)
Other non-current liabilities (45.3) (40.8)
======================================= ============ ============
Total Equity or Net Assets 1,141.9 1,218.2
Exclude:
Goodwill and other intangible assets (0.4) (0.7)
Hard NAV 1,141.5 1,217.5
Hard NAV per share 107.8p 115.0p
======================================= ============ ============
The composition of, and movements in, the Group's portfolio is
described in the Portfolio review below.
Portfolio Valuation Basis
Year ended Year ended
31 December 31 December
2019 2018
GBP m GBPm
------------------------------ ------------ ------------
Quoted 117.7 133.2
Recent financing (<12 months) 455.3 657.3
Recent financing (>12 months) 251.1 197.9
Other valuation methods 197.8 106.7
Debt 23.7 33.1
Total portfolio 1,045.6 1,128.2
The table above summarises the valuation basis for the Group's
portfolio. Further details on the Group's valuation policy can be
found in notes 1 and 15. The Group seeks to use observable market
data as the primary basis for determining asset fair values where
appropriate. Other valuation methods include: market-derived
valuations adjusted to reflect considerations including (inter
alia) technical measures, financial measures and market and sales
measures; discounted cash flows and price-earnings multiples.
The Group engages third party valuation specialists to provide
valuation support where required; during 2019 we commissioned third
party valuations on ten out of the top 20 holdings in respect of
our half-yearly or full year reporting (2018: five).
Other Assets/Liabilities
The majority of non-current assets relate to holdings in LP and
LLP funds, namely UCL Technology Fund LP, Apollo Therapeutics LLP
and Technikos LLP. These funds give us both economic interest and
direct investment opportunities in a portfolio of early-stage
companies, as well as relationships with high-quality institutional
co-investors.
The largest items within other non-current liabilities are loans
from LPs of consolidated funds. The Group consolidates the assets
of two managed funds in which it has a significant economic
interest, specifically co-investment fund IP Venture Fund II LP and
IPG Cayman LP. The latter was created in late 2018 to facilitate
third-party investment into the Group's US portfolio. Loans from
third parties of consolidated funds represent third-party loans
into these partnerships. These loans are repayable only upon these
funds generating sufficient realisations to repay the Limited
Partners.
At 31 December 2019, the Group held gross cash and deposits of
GBP194.9m (2018: GBP219.0m). It remains the Group's policy to place
cash that is surplus to near-term working capital requirements on
short-term and overnight deposits with financial institutions that
meet the Group's treasury policy criteria or in low-risk treasury
funds rated Prime or above. The Group's treasury policy is
described in detail in note 2 to the Group financial statements
alongside details of the credit ratings of the Group's cash and
deposit counterparties.
At 31 December 2019, the Group had a total of GBP16.6m (2018:
GBP40.2m) held in US Dollars and GBP0.2m (2018: GBP0.1m) held in
AUS Dollars.
Both IP Group and Touchstone Innovations plc arranged debt
facilities with the European Investment Bank ("the EIB"), total
borrowings under which totalled GBP82.5m at the period end (2018:
GBP97.8m). Of these facilities, GBP15.4m is due to be repaid within
twelve months of the period end (2018: GBP15.4m). The facility
provides IP Group with an additional source of long-term capital to
support the development of the portfolio.
Share Capital
In November 2019, the Board approved in principle a capital
reduction involving a reduction of the Group's share premium and
merger reserves, with a corresponding increase in the Group's
retained profit reserve, in order to create distributable reserves
at the IP Group plc individual company level. This gave the Group
the flexibility to make future purchases of its own shares and/or
to make future distributions of profits in cash or specie although
at the time the Board confirmed that it had no current plans to do
so. The capital reduction was completed in December 2019, and the
impact is shown in the Group Statement of Changes in Equity
below.
Cash and deposits
The principal constituents of the movement in Cash and deposits
during the year are summarised as follows:
2019 2018
GBPm GBPm
============================================================= ====== =======
Net Cash generated/(used) by operating activities (17.3) (24.9)
Net Cash generated/(used) in investing activities (excluding
cash flows from deposits) 9.3 (76.0)
Cash acquired on acquisition of subsidiary undertakings
net of cash acquired) (2.5) -
Repayment/drawdown of debt facility (15.3) (6.3)
Other financing activities 1.7 -
Effect of foreign exchange rate changes - (0.1)
============================================================= ====== =======
Movement during period (24.1) (107.3)
============================================================= ====== =======
At 31 December 2019, the Group's Cash and deposits totalled
GBP194.9m, a decrease of GBP24.1m from a total of GBP219.0m at 31
December 2018 due largely to net cash used by operating activities
of GBP17.3m, net cash generated by investing activities of GBP9.3m
and debt repayments of GBP15.3m.
A categorisation of the Group's Cash and deposits is provided
below:
2019 2018
GBPm GBPm
--------------------------------------------- ----- -----
Held within Group subsidiaries 188.1 199.6
Held by consolidated funds - US portfolio 5.8 15.7
Held by consolidated funds - all other funds 0.5 1.8
Held by consolidated portfolio companies 0.5 1.9
Total Cash and deposits 194.9 219.0
--------------------------------------------- ----- -----
Under the terms of its term loans with the EIB, the Group is
required to maintain a minimum cash balance of GBP30m. The Group is
also required to hold six months of debt service costs (interest
and capital repayments) in a separate bank account, which totalled
GBP9.4m at 31 December 2019 (2018: GBP9.4m).
Taxation
The Group's business model seeks to deliver long-term value to
its stakeholders through the commercialisation of fundamental
research carried out at its partner universities. To date, this has
been largely achieved through the formation of, and provision of
services and development capital to, spin-out companies formed
around the output of such research. The Group primarily seeks to
generate capital gains from its holdings in spin-out companies over
the longer term but has historically made annual net operating
losses from its operations from a UK tax perspective. Capital gains
achieved by the Group would ordinarily be taxed upon realisation of
such holdings; however, since the Group typically holds in excess
of 10% in its portfolio companies and those companies are
themselves trading, the Directors continue to believe that the
majority of its holdings will qualify for the Substantial
Shareholdings Exemption ("SSE"). This exemption provides that gains
arising on the disposal of qualifying holdings are not chargeable
to UK corporation tax and, as such, the Group has continued not to
recognise a provision for deferred taxation in respect of uplifts
in value on those equity holdings that meet the qualifying
criteria. Gains arising on sales of non-qualifying holdings would
ordinarily give rise to taxable profits for the Group, to the
extent that these exceed the Group's operating losses from time to
time.
The Group complies with relevant global initiatives including
the US Foreign Account Tax Compliance Act ("FATCA") and the OECD
Common Reporting Standard.
Alternative Performance Measures ("APMs")
The Group discloses alternative performance measures, such as
Hard NAV, Hard NAV per share and Return on Hard NAV, in this Annual
Report. The Directors believe that these APMs assist in providing
additional useful information on the underlying trends, performance
and position of the Group. Further information on APMs utilised in
the Group is set out in note 29.
RISK MANAGEMENT
Managing risk: our framework for balancing risk and reward
Governance
Overall responsibility for the risk framework and definition of
risk appetite rests with the Board, who, through regular review of
risks ensure, that risk exposure is matched with an ability to
achieve the Group's strategic objectives. The IP Group Risk Council
is the executive body that operates to establish, recommend and
maintain a fit-for-purpose risk management framework appropriate
for the Group and oversees the effective application of the
framework across the business. The Risk Council is chaired by the
CFO, has representation from operational business units as required
during the year, and is supported in its operation by PwC. Risk
identification is carried out through a bottom-up process via
operational risk registers maintained by individual teams which are
updated and reported to the Risk Council at least bi-annually, with
additional top-down input from the management team with
non-executive review being carried out by the Audit and Risk
Committee at least annually.
Risk management process
Ranking of the Group's risks is carried out by combining the
financial, strategic, operational, reputational, regulatory and
employee impact of risks and the likelihood that they may occur.
Operational risks are collated into strategic risks which
identifies key themes and emerging risks and ultimately informs our
principal risks which are detailed in the Principal Risk and
Uncertainty section of this report. The operations of the Group,
and the implementation of its objectives and strategy, are subject
to a number of principal risks and uncertainties. Were more than
one of the risks to occur together, the overall impact on the Group
may be compounded.
The design and ongoing effectiveness of the key controls over
the Group's principal risks are documented using a "risk and
control matrix", which includes an assessment of the design and
operating effectiveness of the controls in question. The key
controls over the Group's identified principal risks are reviewed
as part of the Group's risk management process, by management, the
Audit & Risk Committee and the Board during the year. However,
the Group's risk management programme can only provide reasonable,
not absolute, assurance that principal risks are managed to an
acceptable level.
During 2019 we have continued to build on our existing risk
management framework, enhancing risk management and internal
control processes and working with PwC in an outsourced internal
audit capacity. This activity included refreshing the Group's
operational, strategic and principal risk registers, an assessment
of the strategic risks and the appropriateness of our principal
risks, which resulted in the identification of two new principal
risks, as described below. Testing of key controls over our
principal risks, a refresh of the Group's risk appetite statements
over the principal risks and developing key risk indicators to aid
Board monitoring also took place. Internal audit reviews were
conducted over the investment process, financial controls and Cyber
and IT security and an updated assessment of the risk posed by
Brexit was led by the Risk Council. The Risk Council has continued
to support the Board in exercising its responsibility surrounding
risk management through its regular meetings. Priorities for 2020
include further business reviews by the internal audit function,
enhancing risk reporting across the business and communicating the
key outputs of the risk management programme to the wider employee
group.
Emerging Risks
The Group's management and Board regularly considers emerging
risks and opportunities, both internal and external, which may
affect the Group in the near, medium and long term. The Board also
considered this subject in detail at its strategy day in October.
Set out below are examples of some of the potential emerging risks
that are currently being monitored by management and the Board:
Near term - Covid-19 (novel Coronavirus)
As the Covid-19 virus has developed over recent weeks, we have
been assessing the impact on our employees and our business to
ensure that both are effectively supported and managed. We are
regularly communicating advice to all of our employees, based on
local government advice in each of our geographies, that focuses on
safety, travel, hygiene (including self-quarantine) and recognising
the symptoms of the virus. Contingency planning, primarily centred
around remote working, has been carried out to help ensure that the
Group can continue to operate as effectively as possible. It is too
early for us to be able to fully assess the likely impact on our
portfolio companies although the fair values of a number of the
Group's quoted portfolio companies have experienced volatility in
recent weeks. In addition, management teams are generally following
government travel advice, which may limit fundraising or commercial
activities in the short term. However, certain companies, such as
Oxford Nanopore, have seen
both disruption for certain customers alongside an increase in
recent demand for their products and services as a result of the
outbreak. We will continue to monitor the impact.
Near term - Cyber and IT security
Cyber and IT security continue to be areas of risk for the Group
and its portfolio as we continue to invest in intellectual-property
based portfolio companies which could be targets for hackers or
competitors and the regulatory landscape which is evolving rapidly
around data security and the increasing powers of regulators to
impose significant fines on companies who inadvertently breach new
legislation such as GDPR. It is against this backdrop that the
Group has now considered that Cyber and IT security now constitutes
a principal risk for the Group in its own right. While historically
this risk was recognised and captured within the risk of failing to
comply with legislation, government policy and regulation risk, it
has now been elevated to a stand-alone risk.
Medium term - the UK's withdrawal from the EU
The UK left the EU on 31 January 2020 and at the time of
writing, had entered into a transition period scheduled to last
until the end of 2020, during which it will continue to be bound by
EU laws until it negotiates a new trade deal with the remaining 27
member states. While the Group has considered that the risk posted
by Brexit does not constitute a principal risk for the Group,
uncertainty in the medium term remains over certain areas that
could impact the Group's strategic aims, as follows:
Key risks
--------------------------------------------------------------------------------
Access to capital
Macroeconomic environment could cause a short-term UK recession which would
reduce investor confidence and impact access to capital for both IP Group
and its portfolio companies.
Uncertainty over grant funding capital available for the Group's early-stage
portfolio companies could cause funding risks for university spin out companies
in the UK.
--------------------------------------------------------------------------------
Performance and management of portfolio companies
The performance and management of portfolio companies is crucial to the
success of the Group and, as a result, the preparation that portfolio company
management teams have undertaken to address key Brexit risks will be central
to the successful navigation of operational and other issues that may impact
their performance.
--------------------------------------------------------------------------------
People
The macroeconomic environment has an impact on long-term recruitment and
planning for companies. Additional visa restrictions will also impact academics
and student movement to the UK, thus affecting the pool for potential portfolio
companies and the quality of university partnerships.
--------------------------------------------------------------------------------
Partnerships
University research funding risks could mean that the UK becomes a less
attractive place for academics to come and perform research projects in
the UK.
--------------------------------------------------------------------------------
Longer term - climate change
Climate change continues to be a key concern of the Group and
all its stakeholders. IP Group invests in technology which has the
potential to have positive impacts on the environment and the Group
is well positioned to take advantage of the changing preferences of
governments, businesses and individuals, see case study on
C-Capture Ltd.
Consideration of risk appetite:
The industry the Group operates in inherently involves accepting
risk in order to achieve the Group's strategic aims of creating and
maintaining a pipeline of compelling intellectual property-based
opportunities, developing and supporting its portfolio companies
into a diversified portfolio of robust businesses and delivering
attractive financial returns on those assets and third-party funds.
The Group accepts risk only as it is consistent with the Group's
purpose and strategy and where they can be appropriately managed
and offer a sufficient reward. The Board has determined its risk
appetite in relation to each of its principal risks and considered
appropriate metrics to monitor performance to ensure it remains
within the defined thresholds. The Board's assessment of risk
appetite is described in the summary of each principal risk
below.
Risk appetite ratings defined:
Very low: following a marginal-risk, marginal-reward approach
that represents the safest strategic route available
Low: seeking to integrate sufficient control and mitigation
methods in order to accommodate a low level of risk, though this
will also limit reward potential
Balanced: An approach which brings a high chance of success,
considering the risks, along with reasonable rewards, economic and
otherwise
High: Willing to consider bolder opportunities with higher
levels of risk in exchange for increased business payoffs
Very high: pursuing high-risk, inherently uncertain options that
carry with them the potential for high-level rewards
1 It may be difficult for the Group to maintain the required level
of capital to continue to operate at optimum levels of investment,
activity and overheads
The Group's business has historically been reliant on capital markets,
particularly those in the UK. While the Group's business model is
moving towards self-sustainability with realisations contributing
to the Group's ongoing capital needs, the ability of the Group to
raise further capital, either through equity issues, debt or realisations
is influenced by the general economic climate and capital market
conditions, particularly in the UK.
Risk appetite
Very low
Link to Strategy Actions taken by management
-------------------------------------------------------
Access to sufficient levels -- The Group has significant internal capital
of capital allows the and managed funds capital to deploy in portfolio
Group to invest in its opportunities -- The Group regularly forecasts
investment assets, develop cash requirements of the portfolio and ensures
early-stage investment all capital allocations are compliant with
opportunities and invest budgetary limits, treasury policy guidelines
in its most exciting companies and transaction authorisation controls --
to ensure future financial The Group ensures that minimum cash is available
returns. for maintain sufficient headroom over debt
covenants and regulatory capital requirements
Develop Deliver
-------------------------------------------------------
KPI Developments during the year
-------------------------------------------------------
-- Change in fair value -- Significant proceeds from sale of equity
of equity and debt investments and debt investments in the year (GBP79.5m)
-- Total equity ("Net -- The Group's share register diversified
Assets") -- Profit/loss in the year and saw significant changes
attributable to equity in the constitution of its major shareholders.
holders -- The Group's share price traded below
NAV during the year which makes it less
attractive to raise new capital through
share issues
-------------------------------------------------------
Examples of risks Change from 2018
-------------------------------------------------------
-- The Group may not be No change
able to provide the necessary
capital to key strategic
assets which may affect
the
portfolio companies'
performance or dilute
future returns
of the Group
-------------------------------------------------------
2 It may be difficult for the Group's portfolio companies to attract
sufficient capital
The Group's portfolio companies are typically in their development
or growth phases and therefore require new capital to continue operations.
While a proportion of this capital will generally be forthcoming
from the Group, subject to capital allocation and company progress,
additional third-party capital will usually be necessary. The ability
of portfolio companies to attract further capital is influenced by
their financial and operational performance and the general economic
climate and trading conditions, particularly (for many companies)
in the UK.
Risk appetite
Low
Link to Strategy Actions taken by management
-------------------------------------------------------
Access to sufficient levels -- The Group operates a corporate finance
of capital allows the Group's function which carries out fundraising mandates
portfolio companies to for portfolio companies -- The Group maintains
invest in its technology close relationships with a wide variety
and commercial opportunities of co-investors that focus on companies
to ensure future financial at differing stages of development -- The
returns. Group regularly forecasts cash requirements
of the portfolio -- While Parkwalk Advisors
Develop Deliver operates independently they have been and
continue to be an important co-investor
of the Group, supporting shared portfolio
companies
-------------------------------------------------------
KPI Developments during the year
-------------------------------------------------------
-- Change in fair value -- IP Group hosted investor events in 2019
of equity and debt investments including a Deep Tech Forum in China and
-- Total equity ("Net Assets") the IP Group Technology Summit in the US
-- Profit/loss attributable to showcase portfolio technology to investors
to equity holders -- Continued management of an AUS$100m trust
for an Australian Super Fund which has a
mandate to co-invest with IP Group plc portfolio
companies. In the year, four Group portfolio
companies received funding from this investment
vehicle.
-------------------------------------------------------
Examples of risks Change from 2018
-------------------------------------------------------
-- The success of those No change
portfolio companies which
require significant funding
in the future may be influenced
by the market's appetite
for investment in early
stage companies, which
may not be sufficient --
Failure of companies within
the Group's portfolio may
make it more difficult
for the Group or its spin-out
companies to raise additional
capital
-------------------------------------------------------
3 The returns and cash proceeds from the Group's early-stage companies
can be very uncertain
Early-stage companies typically face a number or risks, including
not being able to secure later rounds of funding at crucial development
inflection points and not being able to source or retain appropriately
skilled staff. Other risks arise where competing technologies enter
the market, technology can be materially unproven and may ultimately
fail, IP may be infringed, copied or stolen, may be more susceptible
to cybercrime and other administrative taxation or compliance issues.
These factors may lead to the Group not realising a sufficient return
on its invested capital at an individual company or overall portfolio
level.
Risk appetite High
Link to Strategy Actions taken by management
-------------------------------------
Uncertain cash returns could impact -- The Group's employees have
the Group's ability to deliver attractive significant experience in sourcing,
returns to shareholders when our ability developing and growing early-stage
to react to portfolio company funding technology companies to significant
requirements is negatively impacted value, including use of the
or where budgeted cash proceeds are Group's systematic opportunity
delayed. evaluation and business building
methodologies within delegated
Deliver board authorities -- Members
of the Group's senior leadership
team often serve as non-executive
directors or advisers to portfolio
companies to help identify and
remedy critical issues promptly
-- Support on operational, legal
and company secretarial matters
is offered to minimise failures
due to common administrative
factors -- The Group has spin-out
company holdings across different
sectors managed by experienced
sector-specialist teams to reduce
the impact of a single company
failure or sector demise --
The Group maintains significant
cash balances and seeks to employ
a capital efficient process
deploying low levels of initial
capital to enable identification
and mitigation of potential
failures at the earliest possible
stage
-------------------------------------
KPI Developments during the year
-------------------------------------
-- Change in fair value of equity -- The Group's portfolio companies
and debt investments -- Purchase of raised approximately GBP430m
equity and debt investments -- Proceeds of capital in 2019 -- The Group
from the sale of equity investments maintained board representation
on more than 92% of its "focus"
companies by number
-------------------------------------
Examples of risks Change from 2018
-------------------------------------
-- Portfolio company failure directly No change
impacts the Group's value and profitability
-- At any time, a large proportion
of the Group's portfolio may be accounted
for by very few companies which could
exacerbate the impact of any impairment
or failure of one or more of these
companies -- The value of the Group's
drug discovery and development portfolio
companies may be significantly impacted
by a negative clinical trial result
-- Cash realisations from the Group's
portfolio through trade sales and
IPOs could vary significantly from
year to year
-------------------------------------
4 Universities or other research-intensive institutions may terminate
their partnerships or other collaborative relationships with the
Group
The Group's business, results of operations and prospects are at
least partially dependent on access to leading scientific research
through partnerships and other collaborative relationships with research-intensive
institutions. Failure to maintain such relationships may impact the
Group's ability to source new investment opportunities.
Risk appetite High
Link to Strategy Actions taken by management
--------------------------------------------
The Group's strategic objective of building -- The Group continues to
and maintaining a pipeline of compelling consider and, where appropriate,
intellectual property-based opportunities, enter into new and innovative
in part depends on the quality of the partnerships and collaborations
commercialisation partnerships and other with research institutions
collaborative relationships the Group -- The Group has been able
holds. to source opportunities through
non-exclusive relationships
Create and other sources -- Members
of the Group's senior team
work closely with partner
institutions to ensure that
each commercial relationship
is mutually beneficial and
productive -- The Group's
track record in IP commercialisation
may make the Group a partner
of choice for other institutions,
acting as a barrier to entry
for competitors
--------------------------------------------
KPI Developments during the year
--------------------------------------------
-- Number of new portfolio companies -- Integrated the management
of UK university partnerships
within the UK investment partnership
teams -- Completed investments
with four new university partnerships
in Australasia
--------------------------------------------
Examples of risks Change from 2018
--------------------------------------------
-- Termination or non-renewal of arrangements Decreased
through failure to perform obligations
may result in the loss of exclusive rights
-- The loss of exclusive rights may limit
the Group's ability to secure attractive
IP opportunities to commercialise --
This could potentially have a material
adverse effect on the Group's long-term
business, results of operations, performance
and prospects -- Competition in the market
may reduce the opportunities available
to create new spin-out companies
--------------------------------------------
5 The Group may lose key personnel or fail to attract and integrate
new personnel
The industry in which the Group operates is a specialised area and
the Group requires highly qualified and experienced employees. There
is a risk that the Group's employees could be approached and solicited
by competitors or other technology-based companies and organisations
or could otherwise choose to leave the Group. Scaling the team,
particularly in foreign jurisdictions such as Australasia and Hong
Kong, presents an additional potential risk.
Risk appetite Balanced
Link to Strategy Actions taken by management
-------------------------------------------
The Group's strategic objectives -- Senior team succession plans have
of developing and supporting been developed -- The Group carries
a portfolio of compelling intellectual out regular market comparisons for
property-based opportunities staff and executive remuneration
into robust businesses capable and seeks to offer a balanced incentive
of delivering attractive financial package comprising a mix of salary,
returns on our assets is dependent benefits, performance-based long-term
on the Group's employees who incentives and benefits such as flexible
work with the portfolio companies working and salary sacrifice arrangements
and those who support them. -- The Group encourages employee
development and inclusion through
Develop Deliver coaching and mentoring and carries
out annual objective setting and
appraisals -- The Group promotes
an open culture of communication
and provides an inspiring and challenging
workplace where people are given
autonomy to do their jobs. The Group
is fully supportive of flexible working
and has enabled employees to work
flexibly.
-------------------------------------------
KPI Developments during the year
-------------------------------------------
-- Total equity -- "Net Assets" -- Created IP Connect employee forum
-- Number of new portfolio companies and appointed Designated Non-executive
Director to facilitate dialogue with
Board in both directions. Part of
IP Connect's remit is also to support
the evolution of the culture and
continuous improvement of working
life at the Group. -- Continued to
support the 30% Club initiative and
during the year 17 employees across
the Group took part in the Club's
annual cross-company mentoring programme.
-- Continued to dedicate resources
to remuneration and incentivisation.
-- Staff attrition, excluding the
technology transfer operations was
18.5%, broadly flat with 2018. --
Approximately 42% of employees have
been with the Company for at least
five years.
-------------------------------------------
Examples of risks Change from 2018
-------------------------------------------
-- Loss of key executives and Decreased
employees of the Group or an
inability to attract, retain
and integrate appropriately skilled
and experienced employees could
have an adverse effect on the
Group's competitive advantage,
business, financial condition,
operational results and future
prospects
-------------------------------------------
6 Macroeconomic conditions may negatively impact the Group's ability
to achieve its strategic objectives
Adverse macroeconomic conditions could reduce the opportunity to
deploy capital into opportunities or may limit the ability of such
portfolio companies to receive third party funding, develop profitable
businesses or achieve increases in value or exits. Political uncertainty,
including impacts from Brexit or similar scenarios, could have
a number of potential impacts, including changes to the labour
market available to the Group for recruitment or regulatory environment
in which the Group and its portfolio companies operate.
Risk appetite Very high
Link to Strategy Actions taken by management
--------------------------------------------------
The Group's strategic objectives -- Senior management receive regular
of developing a portfolio of capital market and economic updates
commercially successful portfolio from the Group's capital markets team
companies and delivering attractive and its brokers -- Six-monthly budget
financial returns on our assets and quarterly capital allocation process
and third-party funds can be and monitoring against agreed budget
materially impacted by the -- Regular oversight of upcoming capital
current macroeconomic environment requirements of portfolio from both
the Group and third parties -- The
Develop Deliver Group's Risk Council conducts horizon
scanning for upcoming events which
may impact the Group such as a hard
Brexit or climate change.
--------------------------------------------------
KPI Developments during the year
--------------------------------------------------
-- Change in fair value of -- Macroeconomic and geopolitical
equity and debt investments conditions remain
-- Total equity -- "Net Assets" uncertain in the UK. The UK left
-- Profit or loss attributable the EU on 31 January 2020 and at the
to equity holders time of writing, had entered into
a transition period scheduled to last
until the end of the year, during
which it will continue to be bound
by EU laws until it negotiates a new
trade deal with the remaining 27 member
states. Uncertainty remains on the
long-term impacts of Brexit and anticipated
future trade deals. -- Brexit process
remained a source of uncertainty in
the year. The Risk Council reconsidered
the risks posed by a hard Brexit for
the Group's operations and portfolio
companies and took precautionary actions
to ensure any impacts were mitigated
appropriately.
--------------------------------------------------
Examples of risks Change from 2018
--------------------------------------------------
-- The success of those portfolio No change
companies which require significant
external funding may be influenced
by the market's appetite for
investment in early-stage companies,
which may not be sufficient
-- 11.2% of the Group's portfolio
value is held in companies
quoted on the AIM market and
decreases in values to this
market could result in a material
fair value impact to the portfolio
as a whole
--------------------------------------------------
7 There may be changes to, impacts from, or failure to comply with,
legislation, government policy and regulation
There may be unforeseen changes in, or impacts from, government
policy, regulation or legislation (including taxation legislation).
This could include changes to funding levels or to the terms upon
which public monies are made available to universities and research
institutions and the ownership of any resulting intellectual property.
Risk appetite Balanced
Link to Strategy Actions taken by management
------------------------------------------------
The Group's strategic objectives -- University partners are incentivised
of creating and maintaining to protect their IP for exploitation
a portfolio of compelling opportunities as the partnership agreements share
to deliver attractive returns returns between universities, academic
for shareholders could be materially founders and the Group -- The Group
impacted by failure to comply utilises professional advisers as
with or adequately plan for appropriate to support its monitoring
a change in legislation, government of, and response to changes in, tax,
policy or regulation. insurance or other legislation --
The Group has internal policies and
Create Deliver procedures to ensure its compliance
with applicable FCA regulations --
The Group maintains D&O, professional
indemnity and clinical trial insurance
policies
------------------------------------------------
KPI Developments during the year
------------------------------------------------
-- Total equity -- "Net Assets" -- Ongoing focus on regulatory compliance,
including third party reviews and
utilisation of specialist advisers
-- UK Government has committed to
university funding and has emphasised
the importance of science and innovation
-- Group of specialist therapeutics
advisors continually consulted
------------------------------------------------
Examples of risks Change from 2018
------------------------------------------------
-- Changes could result in No change
universities and researchers
no longer being able to own,
exploit or protect intellectual
property on attractive terms.
-- Changes to tax legislation
or the nature of the Group's
activities, in particular in
relation to the Substantial
Shareholder Exemption, may
adversely affect the Group's
tax position and accordingly
its value and operations. --
Regulatory changes or breaches
could ultimately lead to withdrawal
of regulatory permissions for
the Group's FCA-authorised
subsidiaries, resulting in
loss of fund management contracts,
reputational damage or fines.
-- The UK's decision to leave
the EU could have an adverse
impact on the level of research
funding made available to UK
universities from which the
Group sources new opportunities.
------------------------------------------------
8 The Group may be subjected to Phishing and Ransomware attacks,
data leakage and hacking.
This could include taking over email accounts to request or authorise
payments, GDPR breaches and access to sensitive corporate and
portfolio company data.
Risk appetite Balanced
Link to Strategy Actions taken by management
--------------------------------------------------
The Group's strategic objectives -- The Group reviews its data and
of creating and maintaining cyber-security processes with its
a portfolio of compelling external outsourced IT provider and
opportunities to deliver attractive applies the UK Government's "ten steps"
returns for shareholders could framework -- Regular IT management
be materially impacted by reporting framework in place -- Internal
a serious cyber security breach and third-party reviews of policies
at a corporate or portfolio and procedures in place to ensure
company level. appropriate framework in place to
safeguard data -- Assessment of third-party
Create Deliver suppliers of cloud-based and on-premises
systems in use
--------------------------------------------------
KPI Developments during the year
--------------------------------------------------
-- Total equity -- "Net Assets" -- Ongoing focus on IT security and
staff training, including internal
audit reviews and utilisation of specialist
advisers -- Implementation of network
and infrastructure security systems
to respond to emerging threats --
Continued programme of penetration
testing -- Review of business continuity
and disaster recovery plan undertaken
in the year
--------------------------------------------------
Examples of risks Change from 2018
--------------------------------------------------
-- The Group or one or a combination New
of its portfolio companies
could face significant fines
from a data security breach
-- The Group or one of its
portfolio companies could
be subjected to a phishing
attack which could lead to
invalid payments being authorised
or a sensitive information
leak -- A malware or ransomware
attack could lead to systems
becoming non-functioning and
impair the ability of the
business to operate in the
short term
--------------------------------------------------
9 The Group may be negatively impacted operationally as a result
of its recent international expansion
The potential for a negative impact to the Group arising from the
overseas operations through non-compliance with local laws and regulations,
failure to integrate overseas operations with the Group, an inability
to foresee territory-specific risks and macro-events. The Group
may also fail to establish effective control mechanisms, considering
different working culture and environment, leading to significant
senior management time requirement, distracting from core day-to-day
business.
Risk appetite Balanced
Link to Strategy Actions taken by management
---------------------------------------------------
The Group's strategy includes -- Local legal and regulatory advisers
building a portfolio of compelling have been engaged in the establishment
intellectual-property based phase of overseas operations. US and
companies across the UK, US Australasian teams have their own
and Australasia. The scale of in-house legal teams who regularly
the Group's international operations report to the Global Head of Legal
represents increased importance -- IP Exec and HR are involved in
of successful execution of this senior hires for new territories.
element of the Group's strategy. Senior international personnel include
current and former UK employees, encouraging
Create Develop a shared culture across territories
-- There is regular travel between
the UK and other territories to ensure
the Group is aligned in its strategy
and culture -- The risk management
framework in place across each business
unit has been established in each
international territory and is integrated
into the Group's regular risk management
processes and reporting -- Third party
suppliers are used for accounting
and payroll services to reduce the
risk of fraud
---------------------------------------------------
KPI Developments during the year
---------------------------------------------------
-- Total equity -- "Net Assets" -- Coordination of risk reporting
across Australia, Hong Kong and USA
-- Developed a US operating manual
alongside professional advisors having
restructured the US operation in late
2018 -- Application for Hong Kong
regulatory permissions being explored
with specialist local advisors
---------------------------------------------------
Change from 2018
Examples of risks
---------------------------------------------------
-- A legal or regulatory breach No change
could ultimately lead to the
withdrawal of regulatory permissions
in Australia, resulting in loss
of trust management contracts,
reputational damage and fines
-- Divergent group cultures
may lead to difficulties in
achieving the Group's strategic
aims -- A major control failure
could lead to a successful fraudulent
attack on the Group's IT infrastructure
or access to bank accounts --
Senior management may spend
a significant amount of time
in setting up and establishing
new territories which could
detract from central Group strategy
and operations
---------------------------------------------------
STRATEGIC REPORT APPROVAL
The Strategic Report as set out above has been approved by the
Board.
CONSOLIDATED FINANCIAL INFORMATION
The financial information set out below has been extracted from
the Annual Report and Accounts of IP Group plc for the year
ended
31 December 2019 and is an abridged version of the full
financial statements, not all of which are reproduced in this
announcement.
DIRECTORS' RESPONSIBILITIES STATEMENT
The responsibility statement set out below has been reproduced
from the Annual Report and Accounts, which will be published in
April 2020, and relates to that document and not this
announcement.
Each of the directors confirms to the best of their
knowledge:
- The Group financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS
Regulation and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the
Group.
- The Annual Report and Accounts includes a fair review of the
development and performance of the business and the financial
position of the group and the parent company, together with a
description or the principal risks and uncertainties that they
face.
ON BEHALF OF THE BOARD
Sir Douglas Flint Alan Aubrey
Chairman Chief Executive Officer
10 March 2020
Consolidated statement of comprehensive income
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
------------------------------------------------------- ---- ------ -------
Portfolio return and revenue
Change in fair value of equity and debt investments 15 (70.6) (50.4)
Gain on disposal of equity investments 16 16.1 2.0
Gain on deconsolidation of subsidiary 17 10.6 -
Change in fair value of limited and limited liability
partnership interests 25 (0.7) 2.3
Revenue from services and other income 8.6 9.9
------------------------------------------------------- ---- ------ -------
(36.0) (36.2)
Administrative expenses
Carried interest plan release 1.3 1.1
Share-based payment charge 24 (2.3) (1.9)
Goodwill impairment 12 - (203.2)
Amortisation of intangible assets 13 (0.3) (9.9)
Other administrative expenses 8 (39.1) (41.8)
------------------------------------------------------- ---- ------ -------
(40.4) (255.7)
Operating loss 7 (76.4) (291.9)
Finance income 1.2 1.2
Finance costs (3.6) (3.0)
------------------------------------------------------- ---- ------ -------
Loss before taxation (78.8) (293.7)
Taxation 10 (0.1) (0.1)
------------------------------------------------------- ---- ------ -------
Loss for the year (78.9) (293.8)
------------------------------------------------------- ---- ------ -------
Other comprehensive income
Exchange differences on translating foreign operations 0.1 (0.1)
------------------------------------------------------- ---- ------ -------
Total comprehensive loss for the year (78.8) (293.9)
------------------------------------------------------- ---- ------ -------
Attributable to:
Equity holders of the parent (75.4) (293.8)
Non-controlling interest (3.4) (0.1)
------------------------------------------------------- ---- ------ -------
(78.8) (293.9)
Loss per share
Basic (p) 11 (7.12) (27.71)
Diluted (p) 11 (7.12) (27.71)
------------------------------------------------------- ---- ------ -------
The accompanying notes form an integral part of the financial
statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
------------------------------------------------------- ---- ------ -------
Portfolio return and revenue
Change in fair value of equity and debt investments 15 (70.6) (50.4)
Gain on disposal of equity investments 16 16.1 2.0
Gain on deconsolidation of subsidiary 17 10.6 -
Change in fair value of limited and limited liability
partnership interests 25 (0.7) 2.3
Revenue from services and other income 8.6 9.9
------------------------------------------------------- ---- ------ -------
(36.0) (36.2)
Administrative expenses
Carried interest plan release 1.3 1.1
Share-based payment charge 24 (2.3) (1.9)
Goodwill impairment 12 - (203.2)
Amortisation of intangible assets 13 (0.3) (9.9)
Other administrative expenses 8 (39.1) (41.8)
------------------------------------------------------- ---- ------ -------
(40.4) (255.7)
Operating loss 7 (76.4) (291.9)
Finance income 1.2 1.2
Finance costs (3.6) (3.0)
------------------------------------------------------- ---- ------ -------
Loss before taxation (78.8) (293.7)
Taxation 10 (0.1) (0.1)
------------------------------------------------------- ---- ------ -------
Loss for the year (78.9) (293.8)
------------------------------------------------------- ---- ------ -------
Other comprehensive income
Exchange differences on translating foreign operations 0.1 (0.1)
------------------------------------------------------- ---- ------ -------
Total comprehensive loss for the year (78.8) (293.9)
------------------------------------------------------- ---- ------ -------
Attributable to:
Equity holders of the parent (75.4) (293.8)
Non-controlling interest (3.4) (0.1)
------------------------------------------------------- ---- ------ -------
(78.8) (293.9)
Loss per share
Basic (p) 11 (7.12) (27.71)
Diluted (p) 11 (7.12) (27.71)
------------------------------------------------------- ---- ------ -------
The accompanying notes form an integral part of the financial
statements.
Consolidated statement of financial position
As at 31 December 2019
2019 2018
Note GBPm GBPm
---------------------------------------------------- ----- ------- -------
ASSETS
Non-current assets
Intangible assets:
Goodwill 12 0.4 0.4
Acquired intangible assets 13 - 0.3
Property, plant and equipment 1.1 1.5
Portfolio:
Equity investments 15 1,021.9 1,095.1
Debt investments 15 23.7 33.1
Limited and limited liability partnership interests 25 21.4 17.3
---------------------------------------------------- ----- ------- -------
Total non-current assets 1,068.5 1,147.7
---------------------------------------------------- ----- ------- -------
Current assets
Trade and other receivables 18 5.0 6.6
Receivable on sale of debt and equity investments 16,19 27.3 -
Deposits 73.0 90.0
Cash and cash equivalents 121.9 129.0
---------------------------------------------------- ----- ------- -------
Total current assets 227.2 225.6
---------------------------------------------------- ----- ------- -------
Total assets 1,295.7 1,373.3
---------------------------------------------------- ----- ------- -------
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Called up share capital 22 21.2 21.2
Share premium account 99.7 684.7
Merger reserve - 372.6
Retained earnings 1,020.5 135.8
---------------------------------------------------- ----- ------- -------
Total equity attributable to equity holders 1,141.4 1,214.3
---------------------------------------------------- ----- ------- -------
Non-controlling interest 0.5 3.9
---------------------------------------------------- ----- ------- -------
Total equity 1,141.9 1,218.2
---------------------------------------------------- ----- ------- -------
Current liabilities
Trade and other payables 20 26.0 16.5
EIB debt facility 21 15.4 15.4
---------------------------------------------------- ----- ------- -------
Non-current liabilities
EIB debt facility 21 67.1 82.4
Carried interest plan liability 5.5 6.8
Loans from limited partners of consolidated funds 21 26.0 23.0
Revenue share liability 15 13.8 11.0
---------------------------------------------------- ----- ------- -------
Total equity and liabilities 1,295.7 1,373.3
---------------------------------------------------- ----- ------- -------
Registered number: 4204490
The accompanying notes form an integral part of the financial
statements. The financial statements were approved by the Board of
Directors and authorised for issue on 10 March 2020 and were signed
on its behalf by:
Greg Smith Alan Aubrey
Chief Financial Officer Chief Executive Officer
Consolidated statement of cash flows
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
--------------------------------------------------------- ---- ------ -------
Operating activities
Operating loss for the period (76.4) (291.9)
Adjusted for:
Change in fair value of equity and debt investments 15 70.6 50.4
Change in fair value of limited and limited liability
partnership interests 25 0.7 (2.3)
Gain on disposal of equity investments 16 (16.1) (2.0)
Gain on deconsolidation of subsidiary 17 (10.6) -
Depreciation of property, plant and equipment 1.2 1.2
Amortisation of intangible non-current assets 13 0.3 9.9
Goodwill impairment 12 - 203.2
Long-term incentive carry scheme release (1.3) (1.1)
Fees settled in the form of equity - (0.3)
Share-based payment charge 2.3 1.9
Changes in working capital
Decrease in trade and other receivables 1.6 1.5
Decrease in trade and other payables 9.5 (3.6)
Increase loans from limited partners of consolidated
funds 3.0 9.9
Other operating cash flows
Net interest paid (2.1) (1.7)
--------------------------------------------------------- ---- ------ -------
Net cash outflow from operating activities (17.3) (24.9)
--------------------------------------------------------- ---- ------ -------
Investing activities
Purchase of property, plant and equipment (0.7) (0.6)
Purchase of equity and debt investments 15 (64.7) (100.9)
Investment in limited and limited liability partnership
funds 25 (6.8) (4.8)
Distribution from limited partnership funds 25 2.0 0.8
Net cash flow from deposits 17.0 5.0
Cash disposed via deconsolidation of subsidiary 17 (2.5) -
Proceeds from sale of equity and debt investments 16 79.5 29.5
--------------------------------------------------------- ---- ------ -------
Net cash inflow/(outflow) from investing activities 23.8 (71.0)
--------------------------------------------------------- ---- ------ -------
Financing activities
Proceeds from the issue of share capital by consolidated
portfolio company 17 2.9 -
Lease principal payment (1.2) -
Repayment of EIB facility 21 (15.3) (6.3)
Net cash outflow from financing activities (13.6) (6.3)
--------------------------------------------------------- ---- ------ -------
Net decrease in cash and cash equivalents (7.1) (102.2)
Cash and cash equivalents at the beginning of the
year 129.0 231.3
Effect of foreign exchange rate changes - (0.1)
--------------------------------------------------------- ---- ------ -------
Cash and cash equivalents at the end of the year 121.9 129.0
--------------------------------------------------------- ---- ------ -------
The accompanying notes form an integral part of the financial
statements.
Consolidated statement of changes in equity
For the year ended 31 December 2019
Attributable to equity holders of the parent
Non-
Share Share Merger Retained controlling Total
capital premium(i) reserve(ii) earnings(iii) Total interest(iv) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ----------- ------------ -------------- ------- ------------- -------
At 1 January 2018 21.1 683.1 508.6 291.7 1,504.5 4.0 1,508.5
Comprehensive income - - - (293.8) (293.8) (0.1) (293.9)
IFRS 3 charge - equity
settled 0.1 1.6 - - 1.7 - 1.7
Transfer between reserves
on impairment of subsidiaries - - (136.0) 136.0 - - -
Equity-settled
share-based payments - - - 1.9 1.9 - 1.9
------------------------------- -------- ----------- ------------ -------------- ------- ------------- -------
At 1 January 2019 21.2 684.7 372.6 135.8 1,214.3 3.9 1,218.2
Capital reduction
(v) - (585.0) (372.6) 957.6 - - -
Comprehensive income - - - (75.4) (75.4) (3.4) (78.8)
Purchase of treasury
stock (vi) - - - (0.2) (0.2) - (0.2)
Equity-settled
share-based payments - - - 2.3 2.3 - 2.3
Currency translation - - - 0.4 0.4 - 0.4
------------------------------- -------- ----------- ------------ -------------- ------- ------------- -------
At 31 December 2019 21.2 99.7 - 1,020.5 1,141.4 0.5 1,141.9
------------------------------- -------- ----------- ------------ -------------- ------- ------------- -------
(i) Share premium - Amount subscribed for share capital in
excess of nominal value, net of directly attributable issue
costs.
(ii) Merger reserve - Amount subscribed for share capital in
excess of nominal value in relation to the qualifying acquisition
of subsidiary undertakings.
(iii) Retained earnings - Cumulative net gains and losses
recognised in the consolidated statement of comprehensive income
net of associated share-based payments credits.
(iv) Non-controlling interest - Share of profits attributable to
the Limited Partners of IP Venture Fund II LP - a consolidated fund
which was created in May 2013 - as well as the equity invested in
partially-owned subsidiaries that is held by third parties.
(v) In 2019 Group effected a reduction of capital and
cancellation of share premium account, which was count approved on
17(th) December 2019, resulting in the reduction in the share
premium and merger reserves, and a corresponding increase in
retained earnings.
(vi) Reflects purchase of IP Group equity to settle exercise of
options in respect of the Group's Defined Benefit Share Plan.
(vii) Reflects currency translation differences on reserves
non-GBP functional currency subsidiaries.
The accompanying notes form an integral part of the financial
statements.
Notes to the consolidated financial statements
1. Accounting Policies
Basis of preparation
The Annual Report and Accounts of IP Group plc ("IP Group" or
the "Company") and its subsidiary companies (together, the "Group")
are for the year ended 31 December 2019. The principal accounting
policies adopted in the preparation of the financial statements are
set out below. The policies have been consistently applied to all
the years presented, unless otherwise stated. These financial
statements have been prepared in accordance with International
Financial Reporting Standards, International Accounting Standards
and Interpretations (collectively "IFRS") issued by the
International Accounting Standards Board ("IASB") as adopted by the
European Union ("adopted IFRSs").
The preparation of financial statements in compliance with IFRS
requires the use of certain critical accounting estimates. It also
requires Group management to exercise judgement in the most
appropriate selection of the Group's accounting policies. The areas
where significant judgements and estimates have been made in
preparing the financial statements and their effect are disclosed
in note 3.
The financial statements are prepared on a going concern basis,
as the directors are satisfied that the Group and parent Company
have the resources to continue in business for the foreseeable
future. In making this assessment, the directors have considered a
wide range of information relating to present and future
conditions, including future projections of profitability, cash
flows and capital resources.
Changes in accounting policies
(i) New standards, interpretations and amendments effective from
1 January 2019
The following new standards have been applied in these financial
statements:
IFRS 16 Leases
IFRS 16 Leases was issued on 13 January 2016 and replaces IAS 17
Leases. IFRS 16 requires all operating leases in excess of one
year, where the Group is the lessee, to be included on the Group's
statement of financial position, and recognised as a right-of-use
("ROU") asset and a related lease liability representing the
obligation to make lease payments. The ROU asset will be amortised
on a straight-line basis with the lease liability being amortised
using the effective interest method. Optional exemptions are
available under IFRS 16 for short-term leases (lease terms less
than 12 months) and for small-value leases.
The Group has applied IFRS 16 using the modified retrospective
approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17. The details of
accounting policies under IAS 17 are disclosed separately if they
are different from those under IFRS 16 and the impact of changes is
disclosed in Note 23.
(ii) New standards, interpretations and amendments not yet
effective
No new standards, interpretations and amendments not yet
effective are expected to have a material effect on the Group's
future financial statements.
Basis of consolidation
(i) Business Combinations
The Group accounts for business combinations using the
acquisition method from the date that control is transferred to the
Group (see (ii) Subsidiaries below). Both the identifiable net
assets and the consideration transferred in the acquisition are
measured at fair value at the date of acquisition and transaction
costs are expensed as incurred. Goodwill arising on acquisitions is
tested at least annually for impairment. In instances where the
Group owns a non-controlling stake prior to acquisition the step
acquisition method is applied, and any gain or losses on the fair
value of the pre-acquisition holding is recognised in the
consolidated statement of comprehensive income.
(ii) Subsidiaries
Where the Group has control over an entity, it is classified as
a subsidiary. Typically, the Group owns a non-controlling interest
in its portfolio companies; however in certain circumstances the
Group takes a controlling interest and hence treats the portfolio
company as a subsidiary. As per IFRS 10, an entity is classed as
under the control of the Group when all three of the following
elements are present: power over the entity; exposure to variable
returns from the entity; and the ability of the Group to use its
power to affect those variable returns.
In situations where the Company has the practical ability to
direct the relevant activities of the investee without holding the
majority of the voting rights, it is considered that de facto
control exists. In determining whether de facto control exists the
Group considers all relevant facts and circumstances,
including:
-- The size of the Company's voting rights relative to both the
size and dispersion of other parties who hold voting rights;
-- Substantive potential voting rights held by the Company and by other parties;
-- Other contractual arrangements; and
-- Historic patterns in voting attendance.
In assessing the IFRS 10 control criteria in respect of the
Group's private portfolio companies, direction of the relevant
activities of the company is usually considered to be exercised by
the company's board, therefore the key control consideration is
whether the Group currently has a majority of board seats on a
given company's board, or is able to obtain a majority of board
seats via the exercise of its voting rights. Control is reassessed
whenever facts and circumstances indicate that there may be a
change in any of these elements of control.
The consolidated financial statements present the results of the
Company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between Group companies are
therefore eliminated in full. The consolidated financial statements
incorporate the results of business combinations using the
acquisition method. In the statement of financial position, the
acquiree's identifiable assets and liabilities are initially
recognised at their fair values at the acquisition date. Contingent
liabilities dependent on the disposed value of an associated
investment are only recognised when the fair value is above the
associated threshold. The results of acquired operations are
included in the consolidated statement of comprehensive income from
the date on which control is obtained. They are consolidated until
the date on which control ceases.
(iii) Associates
Associates are portfolio companies over which the Group has
significant influence, but does not control, generally accompanied
by a shareholding of between 20% and 50% of the voting rights.
As permitted under IAS 28, the Group elects to hold such
investments at fair value through profit and loss in accordance
with IFRS 9. This treatment is specified by IAS 28 Investment in
Associates and Joint Ventures, which permits investments held by a
venture capital organisation or similar entity to be excluded from
its measurement methodology requirements where those investments
are designated, upon initial recognition, as at fair value through
profit or loss and accounted for in accordance with IFRS 9
Financial Instruments. Therefore, No associates are presented on
the consolidated statement of financial position.
Changes in fair value of associates are recognised in profit or
loss in the period of the change. The Group has no interests in
associates through which it carries on its business.
The disclosures required by Section 409 of the Companies Act
2006 for associated undertakings are included in note 10 of the
Company financial statements. Similarly, those investments which
may not have qualified as an Associate but fall within the wider
scope of significant holdings and so are subject to Section 409
disclosure acts are also included in note 10 of the Company
financial statements.
(iv) Limited Partnerships and Limited Liability Partnerships
("Limited Partnerships")
Group entities act as general partner and investment manager to
the following Limited Partnerships:
Interest
in limited
partnership
Name %
------------------------------------------- ------------
IPG Cayman LP 87.0
IP Venture Fund II LP ("IPVFII") 33.3
IP Venture Fund LP ("IPVF") 10.0
The North East Technology Fund LP ("NETF") -
------------------------------------------- ------------
The Group receives compensation for its role as investment
manager to these Limited Partnerships, including fixed fees and
performance fees. The directors consider that these amounts are in
substance and form "normal market rate" compensation for its role
as investment manager.
In order to determine whether these Limited Partnerships were
required to be consolidated, the presence of the three elements of
control noted in part (ii) was examined.
In the case of IPG Cayman LP and IPVFII, the Group has power
over the entity as fund manager, and Group's significant stake in
these funds creates an exposure to variable returns from those
interests, and the Group can use its power to affect those variable
returns. As such, IPG Cayman LP and IPVFII meet the criteria in
IFRS 10 Consolidated Financial Statements and are consequently
consolidated.
In the case of IPVF, the Directors consider that the minority
Limited Partnership interest does not create an exposure of such
significance that it indicates that the Group acts as anything
other than an agent for the other Limited Partners in the
arrangement. This is further supported by the presence of a strict
investment policy and the inability for the general partner to
change the restrictive terms of that policy other than with
agreement of 100% of IPVF's Limited Partners.
Similarly, the lack of a stake in NETF indicates the Group's
role as an agent for the limited partner. As a result, the
directors consider that the Group does not have the power to govern
the operations of these limited partnerships so as to obtain
benefits from their activities and accordingly do not meet the
definition of a subsidiary under IFRS 10 Consolidated Financial
Statements. However, the Group does have the power to exercise
significant influence over its limited partnerships and accordingly
the Group's accounting treatment for the interest in IPVF is
consistent with that of associates as described earlier in this
report, i.e. in accordance with IFRS 9 Financial Instruments and
designated as at fair value through profit or loss on initial
recognition.
In addition to Limited Partnerships where Group entities act as
general partner and investment manager, the Group has interests in
three further entities which are all managed by third parties:
Interest
in limited
partnership
Name %
---------------------------------------- ------------
UCL Technology Fund LP ("UCL Fund") 46.4
Technikos LLP ("Technikos") 18.0
Apollo Therapeutics LLP ("Apollo Fund") 8.3
---------------------------------------- ------------
The Group has a 46.4% interest in the total capital commitments
of the UCL Fund. The Group has committed GBP24.8m to the fund
alongside the European Investment Fund ("EIF"), University College
London and other investors. Participation in the UCL Fund provides
the Group with the opportunity to generate financial returns and
visibility of potential intellectual property from across
University College London's research base.
The Group has an 18.0% interest in the total capital commitments
of Technikos, a fund with an exclusive pipeline agreement with
Oxford University's Institute of Biomedical Engineering.
The Group has an 8.3% interest in the total capital commitments
of Apollo Therapeutics LLP ("Apollo"), a GBP40.0m venture between
AstraZeneca, GlaxoSmithKline, Johnson & Johnson and the
technology transfer offices of Imperial College London (via IP2IPO
Innovations Limited), University College London (via UCL Business
plc) and the University of Cambridge (via Cambridge Enterprise
Limited). The venture supports the translation of academic
therapeutic science into innovative new medicines by combining the
skills of the university academics with industry expertise at an
early stage.
Investments in these Limited and Limited Liability Partnerships
are recognised at fair value through profit and loss in accordance
with IFRS 9.
(v) Non-controlling interests
The total comprehensive income, assets and liabilities of
non-wholly owned subsidiaries are attributed to owners of the
parent and to the non-controlling interests in proportion to their
relative ownership interests.
Portfolio return and revenue
Change in fair value
Change in fair value of equity and debt investments represents
revaluation gains and losses on the Group's portfolio of
investments. Gains on disposal of equity investments represent the
difference between the fair value of consideration received and the
carrying value at the start of the accounting period on the
disposal of equity investments. Change in fair value of Limited
Partnership investments represents revaluation gains and losses on
the Group's investments in Limited Partnership funds. Changes in
fair values of assets do not constitute revenue.
Revenue from services and other income
All revenue from services is generated primarily from within the
United Kingdom and is stated exclusive of value added tax, with
further revenue generated in the Group's Australian and US
operations. Revenue is recognised when the Group satisfies its
performance obligations, in line with IFRS 15. Revenue from
services and other income comprises:
Advisory fees
Fees earned from the provision of business support services
including IP Assist and IP Exec services and fees for IP Group
representation on portfolio company boards are recognised as the
related services are provided. Corporate finance advisory fees are
generally earned as a fixed percentage of total funds raised and
recognised at the time the related transaction is successfully
concluded. In some instances, these fees are settled via the issue
of equity in the company receiving the corporate finance services
at the same price per share as equity issued as part the financing
round to which the advisory fees apply.
Fund management services
Fund management fees include fiduciary fund management fees
which are generally earned as a fixed percentage of total funds
under management and are recognised as the related services are
provided and performance fees payable from realisation of agreed
returns to investors which are recognised as performance criterion
are met.
Licence & Royalty income
The Group's IP licenses typically constitute separate
performance obligations, being separate from other promised goods
or services. Revenue is recognised in line with the performance
obligations included in the license, which can include sales-based,
usage-based on milestone-based royalties.
Dividends
Dividends receivable from equity shares are included within
other portfolio income and recognised on the ex-dividend date or,
where no ex-dividend date is quoted, are recognised when the
Group's right to receive payment is established.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in intangible assets and allocated from
the acquisition date to each of the Group's cash-generating units
("CGUs") that are expected to benefit from the business
combination. Goodwill may be allocated to CGUs in both the acquired
business and in the existing business.
Other intangible assets
Other intangible assets represent contractual arrangements and
memorandums of understanding with UK universities acquired through
acquisition of subsidiaries. At the date of acquisition, the cost
of these intangibles as a share of the larger acquisition was
calculated and subsequently the assets are held at amortised
cost.
Impairment of intangible assets (including goodwill)
Goodwill is not subject to amortisation but is tested for
impairment annually and whenever events or circumstances indicate
that the carrying amount may not be recoverable. Assets that are
subject to amortisation are tested for impairment when events or a
change in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by
which the carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of the asset's fair value less
costs to sell and the value in use. For the purposes of assessing
impairments, assets are grouped at the lowest levels for which
there are identifiable cash flows (i.e. CGUs).
Financial assets
In respect of regular way purchases or sales, the Group uses
trade date accounting to recognise or derecognise financial
assets.
Financial assets are derecognised when the rights to receive
cash flows from the assets have expired or the Group has
transferred substantially all risks and rewards of ownership.
The Group classifies its financial assets into one of the
categories listed below, depending on the purpose for which the
asset was acquired. None of the Group's financial assets are
categorised as held to maturity or available for sale.
(i) At fair value through profit or loss
Held for trading and financial assets are recognised at fair
value through profit and loss. This category includes equity
investments, debt investments and investments in limited
partnerships. Investments in associated undertakings, which are
held by the Group with a view to the ultimate realisation of
capital gains, are also categorised as at fair value through profit
or loss. This measurement basis is consistent with the fact that
the Group's performance in respect of investments in equity
investments, limited partnerships and associated undertakings is
evaluated on a fair value basis in accordance with an established
investment strategy.
Financial assets at fair value through profit or loss are
initially recognised at fair value and any gains or losses arising
from subsequent changes in fair value are presented in profit or
loss in the statement of comprehensive income in the period which
they arise.
Fair value hierarchy
The Group classifies financial assets using a fair value
hierarchy that reflects the significance of the inputs used in
making the related fair value measurements. The level in the fair
value hierarchy, within which a financial asset is classified, is
determined on the basis of the lowest level input that is
significant to that asset's fair value measurement. The fair value
hierarchy has the following levels:
Level 1 - Quoted prices in active markets.
Level 2 - Inputs other than quoted prices that are observable,
such as prices from market transactions.
Level 3 - One or more inputs that are not based on observable
market data.
Previously, the Group's policy was to classify equity
investments in unquoted spin-out companies as Level 3a where prices
had been determined from recent investments in the last twelve
months, and as Level 3b where prices had been determined from
recent investments in more than twelve months and other valuation
techniques. The Group has amended this policy to reflect revised
IPEV guidelines which specify that the Price of a Recent Investment
represents one of a number of inputs used to arrive at fair value,
and now uses a single classification for all Level 3 equity
investments. Comparative information had been represented
accordingly for consistency.
Equity investments
Fair value is the underlying principle and is defined as "the
price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date"
(IPEV guidelines, December 2018).
Where the equity structure of a portfolio company involves
different class rights in a sale or liquidity event, the Group
takes these different rights into account when forming a view on
the value of its investment.
Valuation techniques used
The fair value of unlisted securities is established using
appropriate valuation techniques in line with IPEV guidelines. The
selection of appropriate valuation techniques is considered on an
individual basis in light of the nature, facts and circumstances of
the investment and in the expected view of market participants. The
Group selects valuation techniques which make maximum use of
market-based inputs. Techniques are applied consistently from
period to period, except where a change would result in better
estimates of Fair Value. Multiple valuation techniques may be used
so that the results of one technique may be used as a cross
check/corroboration of an alternative technique.
Valuation techniques used include:
-- Quoted investments: the fair values of quoted investments are
based on bid prices in an active market at the reporting date.
-- Milestone approach: an assessment is made as to whether there
is an indication of change in Fair Value based on a consideration
of the relevant milestones typically agreed at the time of making
the investment decision.
-- Scenario analysis: a forward-looking method that considers
one or more possible future scenarios. These methods include
simplified scenario analysis and relative value scenario analysis,
which tie to the fully diluted ("post-money") equity value, as well
as full scenario analysis vie the use of the probability-weighted
expected return method (PWERM).
-- Current value method: the estimation and allocation of the
equity value to the various equity interests in a business as
though the business were to be sold on the Measurement Date.
-- Discounted cash flows: deriving the value of a business by
calculating the present value of expected future cash flows.
-- Multiples: the application of an appropriate multiple to a
performance measure (such as earnings or revenue) of the Investee
Company in order to derive a value for the business.
The Fair Value indicated by a recent transaction is used to
calibrate inputs used with valuation techniques including those
noted above. At each measurement date, an assessment is made as to
whether changes or events subsequent to the relevant transaction
would imply a change in the investment's fair value. The Price of a
Recent Investment is not considered a standalone valuation
technique (see further considerations below). Where the current
fair value of an investment is unchanged from the price of a recent
financing, the group refers to the valuation basis as 'Recent
Financing'.
Price of recent investment as an input in assessing Fair
Value
The Group considers that fair value estimates which are based
primarily on observable market data will be of greater reliability
than those based on assumptions. Given the nature of the Group's
investments in seed, start-up and early-stage companies, where
there are often no current and no short-term future earnings or
positive cash flows, it can be difficult to gauge the probability
and financial impact of the success or failure of development or
research activities and to make reliable cash flow forecasts.
Consequently, in many cases the most appropriate approach to fair
value is a valuation technique which is based on market data such
as the price of a recent investment, and market participant
assumptions as to potential outcomes.
Calibrating such scenarios or milestones may result in a fair
value equal to price of recent investment for a limited period of
time. Often qualitative milestones provide a directional indication
of the movement of fair value.
In applying a calibrated scenario or milestone approach to
determine fair value consideration is given to performance against
milestones that were set at the time of the original investment
decision, as well as taking into consideration the key market
drivers of the investee company and the overall economic
environment. Factors that the Group considers include, inter alia,
technical measures such as product development phases and patent
approvals, financial measures such as cash burn rate and
profitability expectations, and market and sales measures such as
testing phases, product launches and market introduction.
Where the Group considers that there is an indication that the
fair value has changed, an estimation is made of the required
amount of any adjustment from the last price of recent
investment.
Where a deterioration in value has occurred, the Group reduces
the carrying value of the investment to reflect the estimated
decrease. If there is evidence of value creation the Group may
consider increasing the carrying value of the investment; however,
in the absence of additional financing rounds or profit generation
it can be difficult to determine the value that a market
participant may place on positive developments given the potential
outcome and the costs and risks to achieving that outcome and
accordingly caution is applied.
Debt investments
Debt investments are generally unquoted debt instruments which
are convertible to equity at a future point in time. Such
instruments are considered to be hybrid instruments containing a
fixed rate debt host contract with an embedded equity derivative.
The Group designates the entire hybrid contract at fair value
through profit or loss on initial recognition and, accordingly, the
embedded derivative is not separated from the host contract and
accounted for separately. The price at which the Debt Investment
was made may be a reliable indicator of Fair Value at that date
depending on facts and circumstances. Any subsequent remeasurement
will be recognised as changes in fair value in the statement of
comprehensive income.
(ii) At amortised cost
These assets are non-derivative financial assets with fixed and
determinable payments that are not quoted in an active market. They
arise principally through the provision of services to customers
(trade receivables) and are carried at cost less provision for
impairment.
Deposits
Deposits comprise longer-term deposits held with financial
institutions with an original maturity of greater than three months
and, in line with IAS 7 are not included within Cash and cash
equivalents. Cash flows related to amounts held on deposit are
presented within Investing activities in the Consolidated statement
of cash flows.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and short-term
deposits held with financial institutions with an original maturity
of three months or less.
Financial liabilities
Current financial liabilities are composed of trade payables and
other short-term monetary liabilities, which are recognised at
amortised cost.
Non-current liabilities are composed of loans from Limited
Partners of consolidated funds, outstanding amounts drawn down from
a debt facility provided by the European Investment Bank, carried
interest plans liabilities, and revenue share liabilities arising
as a result of the Group's former Technology Pipeline Agreement
with University College London.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
consolidated statement of comprehensive income over the period of
the borrowing using the effective interest rate method.
The Group consolidates the assets of two managed funds in which
it has a significant economic interest, specifically co-investment
fund IP Venture Fund II LP and IPG Cayman LP. The latter was
created in late 2018 to facilitate third-party investment into the
Group's US portfolio. Loans from third parties of consolidated
funds represent third-party loans into these partnerships. These
loans are repayable only upon these funds generating sufficient
realisations to repay the Limited Partners. Management anticipates
that the funds will generate the required returns and consequently
recognises the full associated liabilities.
The Group operates a carried interest plan or Long-Term
Incentive Carry Scheme ("LTICS") for eligible employees. Before any
payment to a participant becomes due under the scheme, the Group
must first have received back the amount of their investment in the
relevant vintage together with a hurdle rate of 8% per annum
compound on their investment. At the point at which the hurdle rate
has been exceeded a liability is recognised for the unrealised gain
due to members of the scheme vintage. The liability is measured by
reference to the fair value of the relevant investments, with
movements in the liability being recognised in the consolidated
statement of comprehensive income.
The Group provides for liabilities in respect of revenue sharing
obligations arising under the former Technology Pipeline Agreement
with Imperial College London. Under this agreement, the Group
received founder equity in spin out companies from Imperial
College, and following a sale of such founder equity, a
pre-specified 'revenue share' (typically 50%) is payable to
Imperial College and other third parties. The liability for this
revenue-share, based on fair value, is recognised as part of the
movement in fair value through profit or loss (see note 15 for
further details).
Unless otherwise indicated, the carrying amounts of the Group's
financial liabilities are a reasonable approximation to their fair
value. Non-current liabilities are recognised initially at fair
value net of transaction costs incurred, and subsequently at
amortised cost.
Share capital
Financial instruments issued by the Group are treated as equity
if the holders have only a residual interest in the Group's assets
after deducting all liabilities. The objective of the Group is to
manage capital so as to provide shareholders with above- average
returns through capital growth over the medium to long-term. The
Group considers its capital to comprise its share capital, share
premium, merger reserve and retained earnings.
Top Technology Ventures Limited, Parkwalk Advisors Ltd and
Touchstone Investment Management Limited, are Group subsidiaries
which are subject to external capital requirements imposed by the
Financial Conduct Authority ("FCA") and as such must ensure that it
has sufficient capital to satisfy these requirements. The Group
ensures it remains compliant with these requirements as described
in their respective financial statements.
Employee benefits
(i) Pension obligations
The Group operates a company defined contribution pension scheme
for which all employees are eligible. The assets of the scheme are
held separately from those of the Group in independently
administered funds. The Group currently makes contributions on
behalf of employees to this scheme or to employee personal pension
schemes on an individual basis. The Group has no further payment
obligations once the contributions have been paid. The
contributions are recognised as employee benefit expenses when they
are due.
(ii) Share-based payments
The Group engages in equity-settled share-based payment
transactions in respect of services receivable from employees, by
granting employees conditional awards of ordinary shares subject to
certain vesting conditions.
Conditional awards of shares are made pursuant to the Group's
Long-Term Incentive Plan ("LTIP") awards and/or the Group's Annual
Incentive Scheme ("AIS"). The fair value of the shares is estimated
at the date of grant, taking into account the terms and conditions
of the award, including market-based performance conditions.
The fair value at the date of grant is recognised as an expense
over the period that the employee provides services, generally the
period between the start of the performance period and the vesting
date of the shares. The corresponding credit is recognised in
retained earnings within total equity. The fair value of services
is calculated using the market value on the date of award and is
adjusted for expected and actual levels of vesting. Where
conditional awards of shares lapse the expense recognised to date
is credited to the statement of comprehensive income in the year in
which they lapse.
Where the terms for an equity-settled award are modified, and
the modification increases the total fair value of the share-based
payment, or is otherwise beneficial to the employee at the date of
modification, the incremental fair value is amortised over the
vesting period.
Deferred tax
Full provision is made for deferred tax on all temporary
differences resulting from the carrying value of an asset or
liability and its tax base. Deferred tax is determined using tax
rates (and laws) that have been enacted or substantively enacted by
the reporting date and are expected to apply when the related
deferred tax asset is realised or deferred tax liability settled.
Deferred tax assets are recognised to the extent that it is
probable that the deferred tax asset will be recovered in the
future.
Leases
Following the adoption of IFRS 16 all operating leases in excess
of one year, where the Group is the lessee, are included on the
Group's statement of financial position, and recognised as a
right-of-use ("ROU") asset and a related lease liability
representing the obligation to make lease payments. The ROU asset
is amortised on a straight-line basis with the lease liability
being amortised using the effective interest method. Short-term
leases (lease terms less than 12 months) and small-value leases are
exempt from IFRS 16 and are charged to the statement of
comprehensive income on a straight-line basis over the term of the
lease.
2. Financial Risk Management
As set out in the Principal risks and uncertainties section
above, the Group is exposed, through its normal operations, to a
number of financial risks, the most significant of which are
market, liquidity and credit risks.
In general, risk management is carried out throughout the Group
under policies approved by the Board of Directors. The following
further describes the Group's objectives, policies and processes
for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is
presented throughout these financial statements.
(a) Market risk
(i) Price risk
The Group is exposed to equity securities price risk as a result
of the equity and debt investments, and investments in Limited
Partnerships held by the Group and categorised as at fair value
through profit or loss.
The Group mitigates this risk by having established investment
appraisal processes and asset monitoring procedures which are
subject to overall review by the Board. The Group has also
established corporate finance and communications teams dedicated to
supporting portfolio companies with fundraising activities and
investor relations.
The Group holds investments which are publicly traded on AIM (13
companies) and investments which are not traded on an active
market.
The net portfolio loss in 2019 of GBP43.9m represents a 4.4%
reduction against the opening balance (2018: net loss of GBP48.4m,
a 4.3% reduction) and a similar increase or decrease in the prices
of quoted and unquoted investments is considered to be reasonably
possible. The table below summarises the impact of a 1%
increase/decrease in the price of both quoted and unquoted
investments on the Group's post-tax profit for the year and on
equity.
2019 2018
----------------------- -----------------------
Quoted Unquoted Total Quoted Unquoted Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ -------- ----- ------ -------- -----
Equity and debt investments
and investments in limited
partnerships 1.2 9.5 10.7 1.3 10.1 11.4
---------------------------- ------ -------- ----- ------ -------- -----
(ii) Interest rate risk
The Group holds three EIB debt facilities with the overall
balance as at 31 December 2019 amounting to GBP82.7m (2018:
GBP97.8m) with GBP20.1m being subject to variable rate interest
(2018: GBP24.0m) and GBP62.6m (2018: GBP73.8m) being subject to
fixed rate interest of 3.2%.
The variable rate consists of two elements. A facility of GBP30m
which bears interest at a fixed rate of 1.98% with an additional
variable spread equal to the six-month GBP LIBOR rate as at the
first date of each six-month interest period. The average floating
interest rate (including the fixed element) for 2019 was 2.9%
(2018: 2.69%). The second facility of GBP8.1m is based on a
floating interest rate including LIBOR and the average interest in
the year was 3.64% (2018: 3.42%). There are no hedging instruments
in place to cover against interest rate fluctuation as exposure is
deemed insignificant.
The other primary impact of interest rate risk to the Group is
the impact on the income and operating cash flows as a result of
the interest-bearing deposits and cash and cash equivalents held by
the Group.
(iii) Concentrations of risk
The Group is exposed to concentration risk via the significant
majority of the portfolio being UK-based companies and thus subject
to the performance of the UK economy. The Group is increasing its
operations in the US and the determination of the associated
concentrations is determined by the number of investment
opportunities that management believes represent a good
investment.
The Group mitigates this risk, in co-ordination with liquidity
risk, by managing its proportion of fixed to floating rate
financial assets. The table below summarises the interest rate
profile of the Group.
2019 2018
----------------------------------- ------------------------------------
Fixed Floating Interest Fixed Floating Interest
rate rate free Total rate rate free Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------ -------- -------- ------- ------ -------- -------- --------
Financial assets
Equity investments - - 1,021.9 1,021.9 - - 1,095.1 1,095.1
Debt investments - - 23.7 23.7 - - 33.1 33.1
Limited and limited liability
partnership interests - - 21.4 21.4 - - 17.3 17.3
Deposits 73.0 - - 73.0 90.0 - - 90.0
Cash and cash equivalents - 121.9 - 121.9 - 129.0 - 129.0
Trade receivables - - 1.4 1.4 - - 4.3 4.3
Other receivables - - 3.6 3.6 - - 1.5 1.5
Receivable on sale of debt
and equity investments - - 27.3 27.3 - - - -
-------------------------------- ------ -------- -------- ------- ------ -------- -------- --------
73.0 121.9 1,099.3 1,294.2 90.0 129.0 1,151.3 1,370.3
-------------------------------- ------ -------- -------- ------- ------ -------- -------- --------
Financial liabilities
Trade payables - - (1.5) (1.5) - - (1.7) (1.7)
Other accruals and deferred
income - - (24.5) (24.5) - - (14.7) (14.7)
EIB debt facility (62.6) (19.9) - (82.5) (73.8) (24.0) - (97.8)
Carried interest plan liability - - (5.5) (5.5) - - (6.8) (6.8)
Revenue share liability - - (13.7) (13.7) - - (11.0) (11.0)
Loans from limited partners
of consolidated funds - - (26.1) (26.1) - - (23.0) (23.0)
-------------------------------- ------ -------- -------- ------- ------ -------- -------- --------
(62.6) (19.9) (71.3) (164.0) (73.8) (24.0) (57.2) (155.0)
-------------------------------- ------ -------- -------- ------- ------ -------- -------- --------
At 31 December 2019, if interest rates had been 1% higher/lower,
post-tax profit for the year, and other components of equity, would
have been GBP1.6m (2018: GBP1.0m) higher/lower as a result of
higher interest received on floating rate cash deposits.
(b) Liquidity risk
The Group seeks to manage liquidity risk, to ensure sufficient
liquidity is available to meet foreseeable needs and to invest cash
assets safely and profitably. The Group's Treasury Management
Policy asserts that at any one point in time no more than 60% of
the Group's cash and cash equivalents will be placed in fixed-term
deposits with a holding period greater than three months.
Accordingly, the Group only invests working capital in short-term
instruments issued by reputable counterparties. The Group
continually monitors rolling cash flow forecasts to ensure
sufficient cash is available for anticipated cash requirements.
(c) Credit risk
The Group's credit risk is primarily attributable to its
deposits, cash and cash equivalents, debt investments and trade
receivables. The Group seeks to mitigate its credit risk on cash
and cash equivalents by making short-term deposits with
counterparties, or by investing in treasury funds with an "AA"
credit rating or above managed by institutions. Short-term deposit
counterparties are required to have most recently reported total
assets in excess of GBP5bn and, where applicable, a prime
short-term credit rating at the time of investment (ratings are
generally determined by Moody's or Standard & Poor's). Moody's
prime credit ratings of "P1", "P2" and "P3" indicate respectively
that the rating agency considers the counterparty to have a
"superior", "strong" or "acceptable" ability to repay short-term
debt obligations (generally defined as having an original maturity
not exceeding 13 months). An analysis of the Group's deposits and
cash and cash equivalents balance analysed by credit rating as at
the reporting date is shown in the table opposite. All other
financial assets are unrated.
2019 2018
Credit rating GBPm GBPm
--------------------------------------------- ----- -----
P1 176.1 64.1
P2 - 134.7
AAAMMF * 13.2 14.1
Other 5.6 6.1
--------------------------------------------- ----- -----
Total deposits and cash and cash equivalents 194.9 219.0
--------------------------------------------- ----- -----
*The Group holds GBP13.2m (2018: GBP14.1m) with JP Morgan GBP
liquidity fund, which has a AAAMMF credit rating with Fitch
The Group holds GBP3.1m (2018 GBP6.1m) with Arbuthnot Latham, a
private bank with no debt in issue and, accordingly, on which a
credit rating is not applicable. Bloomberg assess Arbuthnot
Latham's 1-year default probability at 0.1127% (2018: 0.0457%).
The Group has no significant concentration of credit risk, with
exposure spread over a large number of counterparties and
customers. The Group has detailed policies and strategies which
seek to minimise these associated risks including defining maximum
counterparty exposure limits for term deposits based on their
perceived financial strength at the commencement of the deposit.
The maximum single counterparty limit for fixed term deposits in
excess of 3 months at 31 December 2019 was the greater of 25% of
total group cash or GBP50.0m (2018: 25%, GBP50.0m). In addition, no
single institution may hold greater than great then 50% of total
cash or GBP50m. (2018: 50%, GBP50m)
The Group's exposure to credit risk on debt investments is
managed in a similar way to equity price risk, as described
earlier, through the Group's investment appraisal processes and
asset monitoring procedures which are subject to overall review by
the Board.
The maximum exposure to credit risk for debt investments,
receivables and other financial assets is represented by their
carrying amount.
3. Significant Accounting Estimates and Judgements
The directors make judgements and estimates concerning the
future. Estimates and judgements are continually evaluated and are
based on historical experience and other factors, such as
expectations of future events, and are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates. The estimates and assumptions which have the most
significant effects on the carrying amounts of the assets and
liabilities in the financial statements are discussed below.
(i) Valuation of unquoted equity and debt investments
The group's accounting policy in respect of the valuation of
unquoted equity investments is set out in Note 1. In applying this
policy, the key areas over which judgment are exercised
include:
- Consideration of whether a funding round is sufficiently arm's
length to be representative of fair value
- The relevance of the price of recent investment as an input to fair value
- In the case of companies with complex capital structures, the
appropriate methodology for assigning value to different classes of
equity based on their differential economic rights
- Where using valuation methods such as discounted cash flows,
inputs including the probability of achieving milestones and the
discount rate used.
- Debt investments typically represent convertible debt, in such
cases judgment is exercised in respect of the estimated equity
value received on conversion of the loan.
In all cases, valuations are based on the judgement of the
Directors after consideration of the above and upon available
information believed to be reliable, which may be affected by
conditions in the financial markets. Due to the inherent
uncertainty of the investment valuations, the estimated values may
differ significantly from the values that would have been used had
a ready market for the investments existed, and the differences
could be material.
4. Revenue from Services
Revenue from services is derived from the provision of advisory
and venture capital fund management services or from licensing
activities, royalty revenues and patent cost recoveries.
5. Operating Segments
For both the year ended 31 December 2019 and the year ended 31
December 2018, the Group's revenue and loss before taxation were
derived largely from its principal activities within the UK.
For management reporting purposes, the Group is currently
organised into two operating segments:
i. the commercialisation of intellectual property via the
formation of long-term partner relationships with universities;
ii. the management of venture capital funds focusing on early-stage UK technology companies;
Consideration has been given to whether the UK Life Sciences and
Technology partnerships or the US and Australasian operations
represent separate reporting segments. In light of the
executive-level management of several strategic assets in the
portfolio, the involvement of the Board in the investment approval
process for larger investments, and following consideration of the
criteria for aggregation of operating segments, we conclude that
this is not the case.
Venture
University capital
partnership fund
business management Consolidated
Year ended 31 December 2019 GBPm GBPm GBPm
---------------------------------------------------- ------------ ----------- ------------
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments (70.6) - (70.6)
Gain on disposal of equity investments 16.1 - 16.1
Gain on deconsolidation of subsidiary 10.6 - 10.6
Change in fair value of limited and limited
liability partnership interests (0.7) - (0.7)
Revenue from services and other income 3.1 5.5 8.6
----------------------------------------------------- ------------ ----------- ------------
(41.5) 5.5 (36.0)
Administrative expenses
Carried interest plan release 1.3 - 1.3
Share-based payment charge (2.3) - (2.3)
Amortisation of intangible assets (0.3) - (0.3)
Administrative expenses (35.0) (4.1) (39.1)
----------------------------------------------------- ------------ ----------- ------------
Operating loss (77.8) 1.4 (76.4)
Finance income 1.1 0.1 1.2
Finance costs (3.6) - (3.6)
----------------------------------------------------- ------------ ----------- ------------
Loss before taxation (80.3) 1.5 (78.8)
Taxation (0.1) - (0.1)
----------------------------------------------------- ------------ ----------- ------------
Loss for the year (80.4) 1.5 (78.9)
----------------------------------------------------- ------------ ----------- ------------
STATEMENT OF FINANCIAL POSITION
Assets 1,276.0 19.7 1,295.7
Liabilities (146.2) (7.6) (153.8)
----------------------------------------------------- ------------ ----------- ------------
Net assets 1,129.8 12.1 1,141.9
----------------------------------------------------- ------------ ----------- ------------
Other segment items
Capital expenditure 0.5 0.2 0.7
Depreciation (1.1) (0.1) (1.2)
----------------------------------------------------- ------------ ----------- ------------
UK Non-UK Consolidated
Year ended 31 December 2019 GBPm GBPm GBPm
----------------------------------------------- ------ ------ ------------
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue (47.2) 11.2 (36.0)
Administrative expenses (29.4) (11.0) (40.4)
----------------------------------------------- ------ ------ ------------
Operating (loss)/profit (76.6) 0.2 (76.4)
Net interest (2.4) - (2.4)
----------------------------------------------- ------ ------ ------------
(Loss)/profit before taxation (79.0) 0.2 (78.8)
Taxation - (0.1) (0.1)
----------------------------------------------- ------ ------ ------------
(Loss)/profit for the year (79.0) 0.1 (78.9)
----------------------------------------------- ------ ------ ------------
UK Non-UK Consolidated
Year ended 31 December 2019 GBPm GBPm GBPm
--------------------------------------------- ------- ------ --------------
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets 220.2 7.0 227.2
Non-current assets 1,001.3 67.2 1,068.5
Current liabilities (40.0) (1.4) (41.4)
Non-current liabilities (103.0) (9.4) (112.4)
--------------------------------------------- ------- ------ --------------
Total equity 1,078.5 63.4 1,141.9
--------------------------------------------- ------- ------ --------------
Venture
University capital
partnership fund
business management Consolidated
Year ended 31 December 2018 GBPm GBPm GBPm
---------------------------------------------------- ------------ ----------- ------------
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments (50.4) - (50.4)
Gain on disposal of equity investments 2.0 - 2.0
Gain on deconsolidation of subsidiary - - -
Change in fair value of limited and limited
liability partnership interests 2.3 - 2.3
Revenue from services and other income 3.4 6.5 9.9
----------------------------------------------------- ------------ ----------- ------------
(42.7) 6.5 (36.2)
Administrative expenses
Carried interest plan charge 1.1 - 1.1
Share-based payment charge (1.9) - (1.9)
Amortisation of intangible assets (9.2) (0.7) (9.9)
Goodwill impairment (201.1) (2.1) (203.2)
Administrative expenses (34.3) (7.5) (41.8)
----------------------------------------------------- ------------ ----------- ------------
Operating loss (288.1) (3.8) (291.9)
Finance income 1.2 - 1.2
Finance costs (3.0) - (3.0)
----------------------------------------------------- ------------ ----------- ------------
Loss before taxation (289.9) (3.8) (293.7)
Taxation (0.1) - (0.1)
----------------------------------------------------- ------------ ----------- ------------
Loss for the year (290.0) (3.8) (293.8)
----------------------------------------------------- ------------ ----------- ------------
STATEMENT OF FINANCIAL POSITION
Assets 1,351.0 22.3 1,373.3
Liabilities (145.2) (9.9) (155.1)
----------------------------------------------------- ------------ ----------- ------------
Net assets 1,205.8 12.4 1,218.2
----------------------------------------------------- ------------ ----------- ------------
Other segment items
Capital expenditure 0.6 - 0.6
Depreciation (1.2) - (1.2)
UK Non-UK Consolidated
Year ended 31 December 2018 GBPm GBPm GBPm
----------------------------------------------- ------- ------ ------------
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue (50.4) 14.2 (36.2)
Administrative expenses (247.7) (8.0) (255.7)
----------------------------------------------- ------- ------ ------------
Operating (loss)/profit (298.1) 6.2 (291.9)
Net interest (1.8) - (1.8)
----------------------------------------------- ------- ------ ------------
(Loss)/profit before taxation (299.9) 6.2 (293.7)
Taxation (0.1) - (0.1)
----------------------------------------------- ------- ------ ------------
(Loss)/profit for the year (300.0) 6.2 (293.8)
UK Non-UK Consolidated
Year ended 31 December 2018 GBPm GBPm GBPm
--------------------------------------------- ------- ------ --------------
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets 207.4 18.2 225.6
Non-current assets 1,099.8 47.9 1,147.7
Current liabilities (24.4) (7.5) (31.9)
Non-current liabilities (107.5) (15.7) (123.2)
--------------------------------------------- ------- ------ --------------
Total equity 1,175.3 42.9 1,218.2
6. Auditor's Remuneration
Details of the auditor's remuneration are set out below:
2019 2018
GBP'000s GBP'000s
----------------------------------------------------------------- --------- ---------
Fees payable to the Company's auditor for the audit of the
Company's annual accounts 130 129
The audit of the Company's subsidiaries, pursuant to legislation 203 115
----------------------------------------------------------------- --------- ---------
Total fees for audit services 333 244
Audit-related assurance services 40 32
----------------------------------------------------------------- --------- ---------
Total assurance services 373 276
All other services 9 9
----------------------------------------------------------------- --------- ---------
Total non-assurance services 9 9
----------------------------------------------------------------- --------- ---------
7. Operating Loss
Operating loss has been arrived at after (charging) or
crediting:
2019 2018
GBPm GBPm
---------------------------------------------------- ------ -------
Amortisation of intangible assets (0.3) (9.9)
Goodwill impairment - (203.2)
Depreciation of tangible assets (1.2) (1.2)
Employee costs (see note 9) (19.6) (21.3)
Operating leases (see note 23) - (1.1)
Gain on deconsolidation of subsidiary (see note 17) 10.6 -
---------------------------------------------------- ------ -------
8. Other administrative expenses
Other administrative expenses comprise:
2019 2018
GBPm GBPm
---------------------------------------------------------- ----- -----
Employee costs (see note 9) 19.6 21.3
IFRS 3 charge in respect of acquisition of subsidiary (1) 2.5 3.3
Professional services 5.0 7.5
Consolidated portfolio costs 5.4 2.6
Depreciation of tangible assets 1.2 1.2
Other expenses 5.4 5.9
---------------------------------------------------------- ----- -----
39.1 41.8
---------------------------------------------------------- ----- -----
1. Costs of GBP2.5m (2018: GBP3.3m) were recognised in relation
to contingent consideration payable to the sellers of Parkwalk
Advisors Limited deemed under IFRS 3 to be a payment for
post-acquisition services.
9. Employee Costs
Employee costs (including executive directors) comprise:
2019 2018
GBPm GBPm
----------------------------------------- ----- -----
Salaries 13.0 14.9
Defined contribution pension cost 1.1 1.3
Share-based payment charge (see note 24) 2.3 1.9
Other bonuses accrued in the year 2.0 1.4
Social security 1.2 1.8
----------------------------------------- ----- -----
19.6 21.3
----------------------------------------- ----- -----
The average monthly number of persons (including executive
directors) employed by the Group during the year was 130, all of
whom were involved in management and administration activities
(2018: 167).
10. Taxation
2019 2018
GBPm GBPm
------------------------------------------ ----- -----
Current tax
UK corporation tax on losses for the year - -
Foreign tax 0.1 0.1
------------------------------------------ ----- -----
0.1 0.1
Deferred tax - -
------------------------------------------ ----- -----
Total tax 0.1 0.1
------------------------------------------ ----- -----
The Group primarily seeks to generate capital gains from its
holdings in spin-out companies over the longer-term but has
historically made annual net operating losses from its operations
from a UK tax perspective. Capital gains achieved by the Group
would ordinarily be taxed upon realisation of such holdings. The
directors continue to believe that the Group qualifies for the
Substantial Shareholdings Exemption ("SSE").
The amount for the year can be reconciled to the loss per the
statement of comprehensive income as follows:
2019 2018
GBPm GBPm
--------------------------------------------------------- ------ -------
Loss before tax (78.8) (293.7)
--------------------------------------------------------- ------ -------
Tax at the UK corporation tax rate of 19% (2018: 19.00%) (15.0) (55.8)
Expenses not deductible for tax purposes 4.0 0.2
Income not taxable (3.3) -
Amortisation on goodwill arising on consolidation 0.1 40.5
Non-taxable income on deconsolidation of Mobilion (2.0) -
Fair value movement on investments qualifying for SSE 9.5 8.8
Movement on share-based payments 0.4 0.3
Movement in tax losses arising not recognised 6.3 6.1
Rate change on foreign tax 0.1 -
--------------------------------------------------------- ------ -------
Total tax charge 0.1 0.1
--------------------------------------------------------- ------ -------
At 31 December 2019, deductible temporary differences and unused
tax losses, for which no deferred tax asset has been recognised,
totalled GBP285.4m (2018: GBP228.3m). An analysis is shown
below:
2019 2018
----------------- ----------------
Deferred Deferred
Amount tax Amount tax
GBPm GBPm GBPm GBPm
---------------------------------------------- ------- -------- ------ --------
Accelerated capital allowances (0.7) (0.1) - -
Share-based payment costs and other temporary
differences (13.8) (2.3) 4.6 0.8
Unused tax losses (270.9) (46.1) 223.7 38.0
---------------------------------------------- ------- -------- ------ --------
(285.4) (48.5) 228.3 38.8
---------------------------------------------- ------- -------- ------ --------
At 31 December 2019, deductible temporary differences and unused
tax losses, for which a deferred tax asset/(liability) has been
recognised, totalled GBPnil (2018: GBPnil). An analysis is shown
below:
2019 2018
---------------- ----------------
Deferred Deferred
Amount tax Amount tax
GBPm GBPm GBPm GBPm
----------------------------- ------ -------- ------ --------
Temporary timing differences 6.1 1.0 8.1 1.4
Unused tax losses (6.1) (1.0) (8.1) (1.4)
----------------------------- ------ -------- ------ --------
- - - -
----------------------------- ------ -------- ------ --------
11. Loss per Share
2019 2018
Loss GBPm GBPm
--------------------------------------------------------- ------ -------
Loss for the purposes of basic and dilutive earnings per
share (75.4) (293.8)
--------------------------------------------------------- ------ -------
2019 2018
Number of Number of
Number of shares shares shares
------------------------------------------------------------ ------------- -------------
Weighted average number of ordinary shares for the purposes
of basic earnings per share 1,059,144,595 1,058,678,987
Effect of dilutive potential ordinary shares:
Options or contingently issuable shares - -
------------------------------------------------------------ ------------- -------------
Weighted average number of ordinary shares for the purposes
of diluted
earnings per share 1,059,144,595 1,058,678,987
------------------------------------------------------------ ------------- -------------
No adjustment has been made to the basic loss per share in the
year ended 31 December 2019, as the exercise of share options would
have the effect of reducing the loss per ordinary share, and
therefore is not dilutive.
Potentially dilutive ordinary shares include contingently
issuable shares arising under the Group's LTIP arrangements, and
options issued as part of the Group's Sharesave schemes and
Deferred Bonus Share Plan (for annual bonuses deferred under the
terms of the Group's annual incentive scheme).
12. Goodwill
2019 2018
GBPm GBPm
--------------------------------------------------------- ----- -------
At 1 January 0.4 202.5
Recognised on buyout of minority interest in US platform - 1.1
Impairment of goodwill - (203.2)
--------------------------------------------------------- ----- -------
At 31 December 0.4 0.4
--------------------------------------------------------- ----- -------
Goodwill arising on business combinations is reviewed for
impairment on an annual basis, or more frequently if there are
indications that goodwill may be impaired. Recoverable amounts for
CGUs are based on the higher of value in use and fair value less
costs of disposal. Value in use is calculated from cashflow
projections for the CGUs to which the goodwill has been allocated.
The goodwill allocated to each CGU is summarised in the table
below.
2019 2018
GBPm GBPm
---------------------- ----- -----
Parkwalk Advisors CGU 0.4 0.4
---------------------- ----- -----
0.4 0.4
---------------------- ----- -----
13. Intangible Assets
GBPm
------------------------------------------------- -----
Cost
At 1 January 2019 30.6
------------------------------------------------- -----
Additions acquired through business combinations -
------------------------------------------------- -----
At 31 December 2019 30.6
------------------------------------------------- -----
Accumulated amortisation
At 1 January 2019 30.3
Charge for the year 0.3
------------------------------------------------- -----
At 31 December 2019 30.6
------------------------------------------------- -----
Net book value
At 31 December 2019 -
------------------------------------------------- -----
At 31 December 2018 0.3
------------------------------------------------- -----
The intangible assets represent contracts with customers and
other contractual arrangements with UK universities acquired
through acquisition of subsidiaries. The individual contractual
arrangements are amortised in a straight line over the remainder of
their terms with the expense being presented directly on the
primary statements.
14. Categorisation of Financial Instruments
At fair
value through
profit Amortised
or loss cost Total
Financial assets GBPm GBPm GBPm
---------------------------------------------------- -------------- --------- -------
At 31 December 2019
Equity investments 1,021.9 - 1,021.9
Debt investments 23.7 - 23.7
Other financial assets - - -
Limited and limited liability partnership interests 21.4 - 21.4
Trade and other receivables - 5.0 5.0
Receivable on sale of debt and equity investments 27.3 27.3
Deposits - 73.0 73.0
Cash and cash equivalents - 121.9 121.9
---------------------------------------------------- -------------- --------- -------
Total 1,067.0 227.2 1,294.2
---------------------------------------------------- -------------- --------- -------
At 31 December 2018
Equity investments 1,095.1 - 1,095.1
Debt investments 33.1 - 33.1
Limited and limited liability partnership interests 17.3 - 17.3
Trade and other receivables - 5.8 5.8
Deposits - 90.0 90.0
Cash and cash equivalents - 129.0 129.0
---------------------------------------------------- -------------- --------- -------
Total 1,145.5 224.8 1,370.3
---------------------------------------------------- -------------- --------- -------
All financial liabilities are categorised as other financial
liabilities and recognised at amortised cost.
In light of the credit ratings applicable to the Group's cash
and cash equivalent and deposits, (see note 2 for further details),
and given the nature of the Group's other significant receivable
balance balances in respect of amounts receivable on sale of debt
and equity investments which have either been received post year
end or are bank guaranteed, we estimate expected credit losses on
the Group's receivables to be under GBP0.1m and therefore not
disclosed further (2018: less than GBP0.1m), similarly we have not
presented an analysis of credit ratings of trade and other
receivable and receivables on sale of debt and equity
investments.
All net fair value gains in the year are attributable to
financial assets designated at fair value through profit or loss on
initial recognition (2018: all net fair value gains in the year are
attributable to financial assets designated at fair value through
profit or loss on initial recognition).
All interest income is attributable to financial assets not
classified as fair value through profit and loss.
15. Net Investment Portfolio
Note 1 includes a description of the fair value hierarchy
used.
Total
Level 1 Level 3 GBPm
------------------ ------------------------------------- -------
Equity investments Unquoted Equity investments
in quoted debt investments in unquoted
spin-out in spin-out spin-out
companies companies companies
GBPm GBPm GBPm
------------------------------------------- ------------------ ----------------- ------------------ -------
At 1 January 2019 133.2 33.1 961.9 1,128.2
Investments during the year 6.3 22.2 36.2 64.7
Transaction-based reclassifications during
the year - (10.3) 10.3 -
Other transfers between hierarchy levels
during the year - (1.0) 1.0 -
Disposals (9.0) (0.1) (81.6) (90.7)
Fair value of investment in Mobilion
recognised on deconsolidation - - 11.2 11.2
Change in revenue share(ii) (0.6) - 3.4 2.8
Change in fair value in the year(i) (12.4) (20.2) (38.0) (70.6)
------------------------------------------- ------------------ ----------------- ------------------ -------
At 31 December 2019 117.5 23.7 904.4 1,045.6
------------------------------------------- ------------------ ----------------- ------------------ -------
At 1 January 2018 225.0 42.3 832.5 1,099.8
Investments during the year 11.2 17.5 72.2 100.9
Transaction-based reclassifications during
the year 4.7 (17.0) 12.3 -
Disposals (7.9) (8.0) (11.6) (27.5)
Fees settled via equity - - 0.2 0.2
Change in revenue share(ii) - - 5.2 5.2
Change in fair value in the year(i) (99.8) (1.7) 51.1 (50.4)
------------------------------------------- ------------------ ----------------- ------------------ -------
At 31 December 2018 133.2 33.1 961.9 1,128.2
------------------------------------------- ------------------ ----------------- ------------------ -------
(i) For description of revenue share arrangement see description below.
(ii) The change in fair value in the year includes a loss of
GBP1.4m (2018: gain of GBP3.1m) in exchange differences on
translating foreign currency investments. The total unrealised
change in fair value in respect of Level 3 investments was a loss
of GBP53.1m (2018: gain of GBP49.4m).
Previously, the Group's policy was to classify equity
investments in unquoted spin-out companies as Level 3a where prices
had been determined from recent investments in the last twelve
months, and as Level 3b where prices had been determined from
recent investments in more than twelve months and other valuation
techniques. The Group has amended this policy to reflect revised
IPEV guidelines which specify that the Price of a Recent Investment
represents one of a number of inputs used to arrive at fair value,
and now uses a single classification for all Level 3 equity
investments. Comparative information had been represented
accordingly for consistency.
Unquoted equity and debt investment are measured in accordance
with IPEV guidelines with reference to the most appropriate
information available at the time of measurement. In addition to
recent financing transactions, significant unobservable inputs used
in the fair value measurement include (inter alia)
portfolio-company specific milestone analysis, estimated clinical
trial success rates, exit ranges, scenario probabilities and
discount factors. Where relevant, multiple valuation approaches may
be used in arriving at an estimate of fair value for an individual
asset. Such inputs are typically portfolio-company specific and
therefore cannot be aggregated for the purposes of portfolio-level
sensitivity analysis. For Level 3 companies where a DCF approach
has been used, a 1% increase/decrease in the discount rate used
would equate to a GBP11.8m increase/decrease in fair value.
For assets and liabilities that are recognised at fair value on
a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing
categorisation (based on the lowest level input that is significant
to the fair value measurement as a whole) at the end of each
reporting period. Transfers between levels are then made as if the
transfer took place on the first day of the period in question,
except in the cases of transfers between tiers based on an initial
public offering ("IPO") of an investment wherein the changes in
value prior to the IPO are calculated and reported in level 3, and
those changes post are attributed to level 1.
Transfers between Level 3 and Level 1 occur when a previously
unquoted investment undertakes an initial public offering,
resulting in its equity becoming quoted on an active market. In the
current period, transfers of this nature amounted to GBPnil (2018:
GBPnil). Transfers between Level 1 and Level 3 would occur when a
quoted investment's market becomes inactive, or the portfolio
company elects to delist. There have been no such instances in the
current period (2018: no such instances).
Transfers between Level 3 debt and Level 3 equity occur upon
conversion of convertible debt into equity.
Within level 3 equity investments, the distribution by total
portfolio company holding value is as follows: investments
>GBP10m: GBP684.2m (2018: GBP700.3m), investments GBP5m-GBP10m:
GBP104.9m (GBP147.4m), investments GBP1.5m-GBP5m: GBP88.0m (2018:
GBP90.6m), investments < GBP1.5m: GBP27.2m (2018: GBP23.6m).
Within level 3 debt investments, the distribution by total
portfolio company holding value is as follows: investments
>GBP10m: GBP6.3m (2018: GBP10.5m), investments GBP5m-GBP10m:
GBP2.0m (GBP7.5m), investments GBP1.5m-GBP5m: GBP11.8m (2018:
GBP10.7), investments < GBP1.5m: GBP3.6m (2018: GBP4.4m).
Under the Group's former Technology Pipeline Agreement with
Imperial College London, the Group received founder equity in spin
out companies from Imperial College. Following a sale of such
founder equity stakes, a pre-specified 'revenue share' (typically
50%) is payable to Imperial College and other third parties. As at
31 December 2019, equity investments which were subject to revenue
sharing obligations totalled GBP13.8m (2018: GBP11.0m). A
corresponding non-current liability is recognised in respect of
these revenue sharing obligations.
2019 2018
Change in fair value in the year GBPm GBPm
--------------------------------- ------- -------
Fair value gains 86.3 103.3
Fair value losses (156.9) (153.7)
--------------------------------- ------- -------
(70.6) (50.4)
--------------------------------- ------- -------
The Company's interests in subsidiary undertakings are listed in
note 2 to the Company's financial statements.
16. Gain on disposal of equity investments
2019 2018
GBPm GBPm
---------------------------------------------------------- ------ ------
Disposal proceeds 79.5 29.5
Amounts receivable on sale of debt and equity investments
(see note 19) 27.3 -
Carrying value of investments (90.7) (27.5)
Profit on disposal 16.1 2.0
---------------------------------------------------------- ------ ------
17. Gain on deconsolidation of subsidiary
During the first half of 2019, MOBILion completed a first close
of its Series A investment of GBP2.9m which did not result in a
loss of control by IP Group, and accordingly the proceeds of this
issue of equity are disclosed within financing activities in the
Group Consolidated Statement of Cash Flows.
Following a second close of the Series A fundraise, IP Group
lost control of the board of MOBILion, resulting in its
deconsolidation as a subsidiary and recognition as a portfolio
company.
As part of this transaction, net assets including GBP2.5m of
cash were deconsolidated from the Group Consolidated Statement of
Financial Position, this movement is disclosed within investing
activities in the Group Consolidated Statement of Cash Flows. The
transaction resulted in a gain on deconsolidation of GBP10.6m,
calculated as follows:
2019 2018
GBPm GBPm
---------------------------------------------- ----- -----
Fair value of equity investment recognised 11.2 -
Fair value of subsidiary net assets disposed:
Cash 2.5 -
Other net liabilities (3.1) -
10.6 -
---------------------------------------------- ----- -----
18. Trade and Other Receivables
2019 2018
GBPm GBPm
------------------- ----- -----
Trade debtors 1.4 4.3
Prepayments 0.6 0.8
Right of use asset 2.1 -
Other receivables 0.9 1.5
------------------- ----- -----
5.0 6.6
------------------- ----- -----
The directors consider the carrying amount of trade and other
receivables to approximate their fair value. All receivables are
interest free, repayable on demand and unsecured.
19. Receivable on sale of debt and equity investments
2019 2018
GBPm GBPm
----------------------- ----- -----
Deferred consideration 5.3 -
Short term receivables 22.0 -
----------------------- ----- -----
27.3 -
----------------------- ----- -----
Deferred consideration relates to amounts receivable respect of
the sale of Dukosi Limited (GBP5.0m) and Process Systems Enterprise
Limited (GBP0.3m).
Short term receivables relates to GBP22.0m receivable in respect
of shares in Oxford Nanopore Technology Limited sold on 31 December
2019 and for which payment was received in February 2020.
20. Trade and Other Payables
2019 2018
Current liabilities GBPm GBPm
---------------------------------------------------------- ----- -----
Trade payables 1.4 1.7
Social security expenses 0.5 0.7
Bonus accrual 2.1 2.1
Lease Liability 2.1 -
Payable to Imperial College and other third parties under
revenue share obligations 11.2 1.7
Current tax payable 0.1 0.1
Other accruals and deferred income 8.6 10.2
---------------------------------------------------------- ----- -----
26.0 16.5
---------------------------------------------------------- ----- -----
Amounts payable to Imperial College and other third parties
under revenue share obligations include GBP9.7m payable in respect
of the disposal proceeds of Process Systems Enterprise Limited,
which were settled in January 2020.
21. Borrowings
2019 2018
Non-current liabilities GBPm GBPm
----------------------------------------------------------- ----- -----
Loans drawn down from the Limited Partners of consolidated
funds 26.0 23.0
EIB debt facility 67.1 82.4
93.1 105.4
----------------------------------------------------------- ----- -----
2019 2018
Current liabilities GBPm GBPm
-------------------- ----- -----
EIB debt facility 15.4 15.4
-------------------- ----- -----
15.4 15.4
-------------------- ----- -----
Loans drawn down from the Limited Partners of consolidated
funds
The loans from Limited Partners of consolidated funds are
interest free and repayable only upon the applicable funds
generating sufficient returns to repay the Limited Partners.
Management anticipates that the funds will generate the required
returns and consequently recognises the full associated
liabilities. The classification of these loans as non-current
reflects the forecast timing of returns and subsequent repayment of
loans, which is not anticipated to occur within one year.
EIB debt facility
The Group has a number of debt facilities with the European
Investment Bank which it has used to fund UK university spin-out
companies as they develop and mature. The terms of the facilities
are summarised below:
Initial Repayment Repayment commencement
Description amount Date drawn Interest rate terms date
------------------- ------- ---------- ---------------- --------- ----------------------
IP Group Facility, Floating, linked
tranche 1 GBP15m Dec 2015 to LIBOR 5 years Jan 2019
IP Group Facility,
tranche 2 GBP15m Dec 2017 Fixed 3.016% 5 years Jan 2019
Touchstone Facility Floating, linked
A GBP30m Jul 2013 to LIBOR 12 years Jan 2015
Touchstone Facility
B GBP50m Feb 2017 Fixed 3.026% 8 years Jul 2018
------------------- ------- ---------- ---------------- --------- ----------------------
The IP Group loans contain covenants requiring that the ratio
between the value of the portfolio along with the value of the
Group's cash net of any outstanding liabilities, and the
outstanding debt facility does not fall below 6:1. The Group must
maintain that the amount of unencumbered funds freely available to
the Group is not less than GBP15.0m. The Group is also required to
maintain a separate bank account which must at any date maintain a
minimum balance equal to that of all payments due to the EIB in the
forthcoming six months.
The Touchstone loans contain a debt covenant requiring that the
ratio of the total fair value of investments plus cash and
qualifying liquidity to debt should at no time fall below 4:1. The
loan also stipulates that on any date, the aggregate of all amounts
scheduled for payment to the EIB in the following six months should
be kept in a separate bank account.
The Group closely monitors that the covenants are adhered to on
an ongoing basis and has complied with these covenants throughout
the year. The Group will continue to monitor the covenants'
position against forecasts and budgets to ensure that it operates
within the prescribed limits.
2019 2018
The maturity profile of the borrowings was as follows: GBPm GBPm
------------------------------------------------------- ----- -----
Due within 6 months 7.7 7.7
Due 6 to 12 months 7.7 7.7
Due 1 to 5 years 64.2 61.7
Due after 5 years 3.1 21.0
------------------------------------------------------- ----- -----
Total (i) 82.7 98.1
------------------------------------------------------- ----- -----
2019 2018
A reconciliation in the movement in debt is as follows: GBPm GBPm
-------------------------------------------------------- ------ -----
At 1 January 98.1 104.4
Repayment of debt (15.4) (6.3)
At 31 December (i) 82.7 98.1
-------------------------------------------------------- ------ -----
There were no non-cash movements in debt.
(i) These are gross amounts repayable and exclude costs of
GBP0.2m (2018: GBP0.3m) incurred on obtaining the loans and
amortised over the life of the loans.
22. Share Capital
2019 2018
------------------- -------------------
Issued and fully paid: Number GBPm Number GBPm
-------------------------------------- ------------- ---- ------------- ----
Ordinary shares of 2p each
At 1 January 1,059,144,595 21.2 1,057,383,601 21.1
Issued in respect of post-acquisition
services - - 1,519,849 0.1
Issued under employee share plans - - 241,145 -
-------------------------------------- ------------- ---- ------------- ----
At 31 December 1,059,144,595 21.2 1,059,144,595 21.2
-------------------------------------- ------------- ---- ------------- ----
The Company has one class of ordinary shares with a par value of
2p ("Ordinary Shares") which carry equal voting rights, equal
rights to income and distributions of assets on liquidation, or
otherwise, and no right to fixed income.
23. Operating Lease Arrangements
The group leases office premises. Information about leases for
which the Group is a lessee is presented below.
2019
Right of use asset GBPm
--------------------------------- -----
At 1 January 2019 2.7
Additions 0.5
Depreciation charge for the year (1.1)
---------------------------------- -----
At 31 December 2019 2.1
---------------------------------- -----
At the reporting date, the Group had outstanding commitments for
future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Lease Liabilities
2019
Maturity analysis - contractual undiscounted cash flows GBPm
--------------------------------------------------------- -----
Within one year 1.3
In the second to fifth years inclusive 0.9
More than five years -
--------------------------------------------------------- -----
Total undiscounted lease liabilities at 31 December 2019 2.2
---------------------------------------------------------- -----
2019
Statement of financial position GBPm
-------------------------------- -----
Current 1.2
Non-current 0.9
--------------------------------- -----
At 31 December 2019 2.1
--------------------------------- -----
2019
Statement of comprehensive income GBPm
---------------------------------- -----
Interest on lease liabilities 0.1
2019
Amounts recognised in the statement of cash flows GBPm
-------------------------------------------------- -----
Total cash outflow for leases 1.2
2018
GBPm
------------------------------------------------------------ -----
Payments under operating leases recognised in the statement
of comprehensive
income for the year 1.1
------------------------------------------------------------- -----
At the reporting date, the Group had outstanding commitments for
future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
2018
GBPm
--------------------------------------- -----
Within one year 1.8
In the second to fifth years inclusive 3.4
---------------------------------------- -----
5.2
--------------------------------------- -----
Operating lease payments represent rentals by the Group for its
office properties. Leases are negotiated for an average term of
five years and rentals are fixed for an average of one year.
24. Share-Based Payments
In 2018, the Group continued to incentivise employees through
its LTIP and AIS.
Deferred Bonus Share Plan ("DBSP")
Awards made to employees under the Group's AIS above a certain
threshold include 50% deferred into IP Group equity through the
grant of nil-cost options under the Group's DBSP. The number of
nil-cost options granted under the Group's DBSP is determined by
the share price at the vesting date. The DBSP options are subject
to further time-based vesting over two years (typically 50% after
year one and 50% after year two).
An analysis of movements in the DBSP options outstanding is as
follows:
Weighted Weighted
-average Number -average
Number exercise of exercise
of options price options price
2019 2019 2018 2018
------------------------------------------ ----------- --------- --------- ---------
At 1 January 605,641 - 394,494 -
AIS deferral shares award during the year 192,106 - 468,901 -
Exercised during the year (63,370) - (241,145) -
Lapsed during the year (271,937) - (16,609) -
------------------------------------------ ----------- --------- --------- ---------
At 31 December 462,440 - 605,641 -
------------------------------------------ ----------- --------- --------- ---------
Exercisable at 31 December 114,028 - 153,349 -
------------------------------------------ ----------- --------- --------- ---------
The options outstanding at 31 December 2019 had an exercise
price of GBPnil (2018: GBPnil) and a weighted-average remaining
contractual life of 0.5 years (2018: 0.6 years).
The weighted average share price at the date of exercise for
share options exercised in 2019 was 98.6p (2018: 127p).
As the 2018 AIS financial performance targets were met and as
the number of DBSP options to be granted in order to defer such
elements of the AIS payments as are required under our remuneration
policy are based on a percentage of employees' salary, the
share-based payments line includes the associated share-based
payments expense incurred in 2018.
Long-Term Incentive Plan ("LTIP")
Awards under the LTIP take the form of conditional awards of
ordinary shares of 2p each in the Group which vest over the
prescribed performance period to the extent that performance
conditions have been met. The Remuneration Committee imposes
objective conditions on the vesting of awards and these take into
consideration the guidance of the Group's institutional investors
from time to time.
The 2019 LTIP awards were made on 26 April 2019. The awards will
ordinarily vest on 31 March 2022, to the extent that the
performance conditions have been met. The awards are based on the
performance of the Group's Hard NAV and Total Shareholder Return
("TSR"). Both performance measures are combined into a matrix
format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the
Group's 2018 Annual Report and Accounts. The total award is subject
to an underpin based on the relative performance of the Group's TSR
to that of the FTSE 250 index, which can reduce the awards by up to
50%. The 2018 LTIP matrix is designed such that up to 100% of the
award (prior to the application of the underpin) will vest in full
in the event of both Hard NAV increasing by 15% per year on a
cumulative basis, from 1 January 2019 to 31 December 2021, and TSR
increasing by 15% per year on a cumulative basis from the date of
award to 31 March 2022, using an industry-standard average price
period at the beginning and end of the performance period. Further,
the matrix is designed such that 30% of the award shall vest (again
prior to the application of the underpin) if the cumulative
increase is 8% per annum for both measures over their respective
performance periods ("threshold performance"). A straight-line
sliding scale is applied for performance between the distinct
points on the matrix of vesting targets.
The 2018 LTIP awards were made on 10 May 2018. The awards will
ordinarily vest on 31 March 2021, to the extent that the
performance conditions have been met. The awards are based on the
performance of the Group's Hard NAV and Total Shareholder Return
("TSR"). Both performance measures are combined into a matrix
format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the
Group's 2018 Annual Report and Accounts. The total award is subject
to an underpin based on the relative performance of the Group's TSR
to that of the FTSE 250 index, which can reduce the awards by up to
50%. The 2018 LTIP matrix is designed such that up to 100% of the
award (prior to the application of the underpin) will vest in full
in the event of both Hard NAV increasing by 15% per year on a
cumulative basis, from 1 January 2018 to 31 December 2020, and TSR
increasing by 15% per year on a cumulative basis from the date of
award to 31 March 2021, using an industry-standard average price
period at the beginning and end of the performance period. Further,
the matrix is designed such that 30% of the award shall vest (again
prior to the application of the underpin) if the cumulative
increase is 8% per annum for both measures over their respective
performance periods ("threshold performance"). A straight-line
sliding scale is applied for performance between the distinct
points on the matrix of vesting targets.
The 2017 LTIP awards were made on 29 August 2017. The awards
will ordinarily vest on 31 March 2020, to the extent that the
performance conditions have been met. The awards are based on the
performance of the Group's Hard NAV and Total Shareholder Return
("TSR"). Both performance measures are combined into a matrix
format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the
Group's 2017 Annual Report and Accounts. The total award is subject
to an underpin based on the relative performance of the Group's TSR
to that of the FTSE 250 index, which can reduce the awards by up to
50%. The 2017 LTIP matrix is designed such that up to 100% of the
award (prior to the application of the underpin) will vest in full
in the event of both Hard NAV increasing by 15% per year on a
cumulative basis, from 1 January 2017 to 31 December 2019, and TSR
increasing by 15% per year on a cumulative basis from the date of
award to 31 March 2020, using an industry-standard average price
period at the beginning and end of the performance period. Further,
the matrix is designed such that 30% of the award shall vest (again
prior to the application of the underpin) if the cumulative
increase is 8% per annum for both measures over their respective
performance periods ("threshold performance"). A straight-line
sliding scale is applied for performance between the distinct
points on the matrix of vesting targets.
The 2016 LTIP awards did not meet the threshold performance
target and lapsed on 31 March 2019.
The movement in the number of shares conditionally awarded under
the LTIP is set out below:
Weighted-average Weighted-average
Number exercise Number exercise
of options price of options price
2019 2019 2018 2018
----------------------------------- ----------- ---------------- ----------- ----------------
At 1 January 12,376,238 - 9,066,117 -
Lapsed during the year (2,971,286) - (1,262,697) -
Forfeited during the year (764,103) - (452,484) -
Vested during the year - - - -
Notionally awarded during the year 7,018,906 - 5,025,302 -
----------------------------------- ----------- ---------------- ----------- ----------------
At 31 December 15,659,755 - 12,376,238 -
----------------------------------- ----------- ---------------- ----------- ----------------
Exercisable at 31 December - - - -
----------------------------------- ----------- ---------------- ----------- ----------------
The options outstanding at 31 December 2019 had an exercise
price in the range of GBPnil (2018: GBPnil) and a weighted-average
remaining contractual life of 1.4 years (2018: 1.3 years).
The fair value of LTIP shares notionally awarded during the year
was calculated using Monte Carlo pricing models with the following
key assumptions:
2019 2018
-------------------------------------------------------- -------- --------
Share price at date of award GBP0.991 GBP1.355
Exercise price GBPnil GBPnil
Fair value at grant date GBP0.34 GBP0.57
Expected volatility (median of historical 50-day moving
average) 37% 36%
Expected life (years) 3.0 3.0
Expected dividend yield 0% 0%
Risk-free interest rate 1.0% 1.0%
-------------------------------------------------------- -------- --------
Former Touchstone LTIP
Also in 2017, as a result of the combination with Touchstone,
award holders under existing Touchstone long-term incentive share
schemes were entitled to receive 2.2178 new IP Group shares in
exchange for each Touchstone share, an exchange ratio set out in
the Offer Document for the acquisition (the "exchange ratio").
2016 schemes:
It was proposed that, given the short period of time since
grant, awards would not become exercisable in connection with the
Offer and therefore that no progress towards meeting performance
targets had been made. Instead award holders were offered the
opportunity to release their awards in exchange for the grant of a
replacement award of equivalent value over shares in IP Group and
the exercise price was set at 3.33 pence divided by the exchange
ratio. The vesting dates on the replacement awards remained the
same as the original award, being 1 December 2020, 1 December 2021
and 1 December 2022. The replacement awards are subject to
performance conditions adjusted from those attaching to the
original Touchstone award as follows: a) the Net Asset Value
("NAV") condition will be adjusted to reflect Touchstone's
portfolio being part of the enlarged group following the
acquisition and b) the Total Shareholder Return ("TSR") condition
will be adjusted so that TSR shall be measured by reference to the
performance of IP Group shares over the performance period with the
starting share price for such purpose being adjusted by dividing
the existing starting share price of 290 pence by the exchange
ratio detailed above. The TTO specific targets remain the same.
Weighted-average Weighted-average
Number exercise Number exercise
of options price of options price
2019 2019 2018 2018
--------------------------- ----------- ---------------- ----------- ----------------
At 1 January 1,146,810 - 2,875,606 -
Forfeited during the year (406,754) - (1,728,796) -
At 31 December 740,056 - 1,146,810 -
--------------------------- ----------- ---------------- ----------- ----------------
Exercisable at 31 December - - - -
--------------------------- ----------- ---------------- ----------- ----------------
The options outstanding at 31 December 2019 had an exercise
price of GBP1.366 (2018: GBP1.366) and a weighted-average remaining
contractual life of 1.9 years (2018: 2.9 years).
2006 schemes:
Holders of 2006 Touchstone awards were offered the opportunity
to release each of their awards in exchange for the grant of a
replacement award of equivalent value over shares in IP Group. The
exercise period and time-based vesting provisions for the
replacement awards remained the same as the original Touchstone
awards but the shareholder return performance condition will be
updated by reference to the exchange ratio. Awards under the 2006
scheme were exercisable to some extent at the time of the grant of
replacement awards, subject to meeting the applicable vesting
conditions.
Weighted-average Weighted-average
Number exercise Number exercise
of options price of options price
2019 2019 2018 2018
--------------------------- ----------- ---------------- ----------- ----------------
At 1 January 1,278,834 - 1,808,001 -
Forfeited during the year (200,735) - (529,167) -
At 31 December 1,078,099 2.13 1,278,834 2.14
--------------------------- ----------- ---------------- ----------- ----------------
Exercisable at 31 December 1,078,099 2.13 1,278,834 2.14
--------------------------- ----------- ---------------- ----------- ----------------
The options outstanding at 31 December 2019 had an exercise
price of GBP2.13 (2018: GBP2.14) and a weighted-average remaining
contractual life of 4.9 years (2018: 5.9 years).
The fair value charge recognised in the statement of
comprehensive income during the year in respect of all share-based
payments, including the DBSP, LTIP and Former Fusion IP LTIP, was
GBP2.3m (2018: GBP1.9m).
25. Limited and Limited Liability Partnership Interests
GBPm
------------------------------------- -----
At 1 January 2018 11.0
Additions during the year 4.8
Realisations in the year (0.8)
Change in fair value during the year 2.3
-----
At 1 January 2019 17.3
Additions during the year 6.8
Realisations in the year (2.0)
Change in fair value during the year (0.7)
------------------------------------- -----
At 31 December 2019 21.4
------------------------------------- -----
The Group considers interests in Limited and Limited Liability
Partnerships to be Level 3 in the fair value hierarchy throughout
the current and previous financial years. If the assumptions used
in the valuation techniques for the Group's holding in each company
are varied by using a range of possible alternatives, there is no
material difference to the carrying value of the respective
spin-out company. The effect on the consolidated statement of
comprehensive income for the period is also not expected to be
material.
26. Related Party Transactions
The Group has various related parties arising from its key
management, subsidiaries, equity stakes in portfolio companies and
management of certain Limited Partnership funds.
a) Limited Partnerships
The Group manages a number of investment funds structured as
Limited Partnerships. Group entities have a Limited Partnership
interest (see note 1) and act as the general partners of these
Limited Partnerships. The Group therefore has power to exert
significant influence over these Limited Partnerships. The
following amounts have been included in respect of these Limited
Partnerships:
2019 2018
Statement of comprehensive income GBPm GBPm
---------------------------------- ----- -----
Revenue from services 0.1 0.5
---------------------------------- ----- -----
2019 2018
Statement of financial position GBPm GBPm
----------------------------------- ----- -----
Investment in limited partnerships 5.6 5.8
----------------------------------- ----- -----
Amounts due from related parties - 1.2
----------------------------------- ----- -----
b) Key management transactions
The following key management held shares in the following
spin-out companies as at 31 December 2019:
Director/ Company name Number of Number of shares Number of %
PDMR shares held acquired/ (disposed shares held
at of) in the at
1 January 2019 period 31 December
2019
-------------- ------------------------------ --------------- -------------------- ------------- --------
Alan Aubrey Accelercomm Limited 638 - 638 0.24%
Alesi Surgical Limited 18 - 18 0.14%
Amaethon Limited - A
Shares 104 - 104 3.12%
Amaethon Limited - B
Shares 11,966 - 11,966 1.04%
Amaethon Limited - Ordinary
shares 21 - 21 0.32%
Avacta Group plc 191,334 - 191,334 <0.1%
Boxarr Limited 1,732 - 1,732 0.24%
Capsant Neurotechnologies
Limited 11,631 - 11,631 0.81%
Crysalin Limited 1,447 - 1,447 0.13%
Deep Matter Group plc 2,172,809 - 2,172,809 0.30%
Ditto AI Limited - Ordinary
Shares 72,092,028 1,025,820,000 1,097,912,028 12.41%
Ditto AI Limited - B
Shares 98,876,568 - 98,876,568 1.12%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 15 - 15 0.87%
Getech Group plc(2) 15,000 - 15,000 <0.1%
hVivo plc 37,160 - 37,160 <0.1%
Ilika plc(2) 14,476 - 14,476 <0.1%
Istesso Limited 1,185,150 - 1,185,150 1.05%
Itaconix plc 88,890 - 88,890 <0.1%
Karus Therapeutics Limited 223 - 223 <0.1%
Microbiotica Limited 10,000 - 10,000 <0.1%
Mirriad Advertising
plc 33,333 - 33,333 <0.1%
Modern Water plc 519,269 - 519,269 0.42%
Oxbotica Limited 16 13 29 <0.1%
Oxford Advanced Surfaces
Limited 1 - 1 <0.1%
Oxford Nanopore Technologies
Limited 101,208 (8,483) 92,725 0.31%
Perachem Holdings plc 108,350 - 108,350 0.29%
Salunda Limited 53,639 - 53,639 <0.1%
Structure Vision Limited 212 (212) 0 0.00%
Surrey Nanosystems Limited 453 - 453 0.22%
Tissue Regenix Group
plc 2,389,259 - 2,389,259 0.20%
Xeros Technology Group
plc 22,847 - 22,847 <0.1%
Zeetta Networks Limited 424 - 424 0.13%
Amaethon Limited - A
Mike Townend Shares 104 - 104 3.12%
Amaethon Limited - B
Shares 11,966 - 11,966 1.04%
Amaethon Limited - Ordinary
shares 21 - 21 0.32%
Applied Graphene Materials
plc 22,619 - 22,619 <0.1%
Avacta Group plc 20,001 - 20,001 <0.1%
Capsant Neurotechnologies
Limited 11,282 - 11,282 0.79%
Creavo Technologies
Limited 117 - 117 <0.1%
Crysalin Limited 1,286 - 1,286 0.11%
Deep Matter Group plc 932,944 - 932,944 0.13%
Ditto AI Limited 613,048 - 613,048 <0.1%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 14 - 14 0.81%
Getech Group plc(2) 20,000 - 20,000 <0.1%
Istesso Limited 1,185,150 - 1,185,150 1.05%
Ilika plc(2) 10,000 - 10,000 <0.1%
Mike Townend Itaconix plc 64,940 - 64,940 <0.1%
Mirriad Advertising
plc 25,000 - 25,000 <0.1%
Modern Water plc 575,000 - 575,000 0.46%
Oxbotica Limited - 26 26 <0.1%
Oxford Advanced Surfaces
Limited 1 - 1 <0.1%
Oxford Nanopore Technologies
Limited 30,967 (2,316) 28,651 <0.1%
Perachem Holdings plc 113,222 - 113,222 0.30%
Structure Vision Limited 212 (212) 0 0.00%
Surrey Nanosystems Limited 404 - 404 0.20%
Tissue Regenix Group
plc 1,950,862 - 1,950,862 0.17%
Ultraleap Holdings Limited(1) 1,224 - 1,224 <0.1%
Xeros Technology Group
plc 35,499 - 35,499 <0.1%
Greg Smith Alesi Surgical Limited 2 - 2 <0.1%
Avacta Group plc 3,904 - 3,904 <0.1%
Capsant Neurotechnologies
Limited 896 - 896 <0.1%
Crysalin Limited 149 - 149 <0.1%
Ditto AI Limited 144,246 - 144,246 <0.1%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 4 - 4 0.23%
Getech Group plc(2) 8,000 - 8,000 <0.1%
hVivo plc 61,340 - 61,340 <0.1%
Istesso Limited 313,425 - 313,425 0.28%
Itaconix plc 4,500 - 4,500 <0.1%
Perachem Holdings plc 4,830 - 4,830 <0.1%
Mirriad Advertising
plc 16,667 - 16,667 <0.1%
Modern Water plc 7,250 - 7,250 <0.1%
Oxbotica Limited 8 - 8 <0.1%
Oxford Nanopore Technologies
Limited 1,581 (44) 1,537 <0.1%
Surrey Nanosystems Limited 88 - 88 <0.1%
Tissue Regenix Group
plc 50,000 - 50,000 <0.1%
Xeros Technology Group
plc 1,392 - 1,392 <0.1%
David Baynes Alesi Surgical Limited 4 - 4 <0.1%
Arkivum Limited 377 - 377 <0.1%
Creavo Technologies
Limited 46 - 46 <0.1%
Diurnal Group plc 73,000 - 73,000 <0.1%
Mirriad Advertising
plc 16,667 - 16,667 <0.1%
Oxford Nanopore Technologies
Limited 174 - 174 <0.1%
Ultrahaptics Holdings
Limited(1) 2,600 - 2,600 <0.1%
Zeetta Networks Limited 424 - 424 0.13%
--------------------------------------------- --------------- -------------------- ------------- --------
Mark Reilly Actual Experience plc 65,500 - 65,500 0.14%
Ceres Power Holdings
plc 5,697 - 5,697 <0.1%
Diurnal Group plc 7,500 - 7,500 <0.1%
Mirriad Advertising
plc 33,333 33,333 66,666 <0.1%
Oxbotica Limited 8 - 8 <0.1%
Ultraleap Holdings Limited(1) 1,700 - 1,700 <0.1%
Wave Optics Limited 308 - 308 <0.1%
--------------------------------------------- --------------- -------------------- ------------- --------
Sam Williams Accelercomm Limited 127 - 127 <0.1%
Alesi Surgical Limited 1 - 1 <0.1%
Avacta Group plc 19,537 - 19,537 <0.1%
Creavo Medical Technologies
Limited 23 - 23 <0.1%
Diurnal Group plc 52,248 - 52,248 <0.1%
Sam Williams Genomics plc 333 - 333 <0.1%
Istesso Limited 7,048,368 - 7,048,368 8.89%
Microbiotica Limited 7,000 - 7,000 <0.1%
Mirriad Advertising
plc 3,333 - 3,333 <0.1%
Oxehealth Limited - 27 27 <0.1%
Oxford Nanopore Technologies
Limited 340 - 340 <0.1%
Topivert Limited - 1,000 1,000 <0.1%
Ultraleap Holdings Limited(1) 558 - 558 <0.1%
--------------------------------------------- --------------- -------------------- ------------- --------
1. Previously called Ultrahaptics Holdings Limited
2. No longer a portfolio company at the balance sheet date
ii) Key management personnel compensation
Key management personnel compensation comprised the
following:
2019 2018
GBPm GBPm
-------------------------------- ----- -----
Short-term employee benefits(i) 2,776 2,402
Post-employment benefits(ii) 93 114
Other long-term benefits - -
Termination benefits - -
Share-based payments(iii) 1,195 1,089
-------------------------------- ----- -----
Total 4,064 3,605
-------------------------------- ----- -----
(i) Represents key management personnel's base salaries,
benefits including cash in lieu of pension where relevant, and the
cash-settled element of the Annual Incentive Scheme.
(ii) Represents employer contributions to defined contribution pension and life assurance plans
(iii) Represents the accounting charge for share-based payments,
reflecting LTIP and DBSP options currently in issue as part of
these schemes. See note 24 for a detailed description of these
schemes.
c) Portfolio companies
i) Services
The Group earns fees from the provision of business support
services and corporate finance advisory services to portfolio
companies in which the Group has an equity stake. Through the lack
of control over portfolio companies these fees are considered
arms-length transactions. The following amounts have been included
in respect of these fees:
2019 2018
Statement of comprehensive income GBPm GBPm
---------------------------------- ----- -----
Revenue from services 0.5 4.3
---------------------------------- ----- -----
2019 2018
Statement of financial position GBPm GBPm
-------------------------------- ----- -----
Trade receivables 0.2 0.9
-------------------------------- ----- -----
ii) Investments
The Group makes investments in the equity and debt of unquoted
and quoted investments where it does not have control but may be
able to participate in the financial and operating policies of that
company. It is presumed that it is possible to exert significant
influence when the equity holding is greater than 20%. The Group
has taken the Venture Capital Organisation exception as permitted
by IAS 28 and not recognised these companies as associates, but
they are related parties. The total amounts included for
investments where the Group has significant influence but not
control are as follows:
2019 2018
Statement of comprehensive income GBPm GBPm
---------------------------------- ------ ------
Net portfolio losses (54.2) (20.5)
---------------------------------- ------ ------
2019 2018
Statement of financial position GBPm GBPm
-------------------------------- ----- -----
Equity and debt investments 532.7 618.1
-------------------------------- ----- -----
d) Subsidiary companies
Subsidiary companies that are not 100% owned either directly or
indirectly by the parent Company have intercompany balances with
other Group companies totalling as follows:
2019 2018
Statement of financial position GBPm GBPm
------------------------------------------------- ----- -----
Intercompany balances with other Group companies 1.5 3.6
------------------------------------------------- ----- -----
These intercompany balances represent funding loans provided by
Group companies that are interest free, repayable on demand and
unsecured.
27. Capital Management
The Group's key objective when managing capital is to safeguard
the Group's ability to continue as a going concern so that it can
continue to provide returns for shareholders and benefits for other
stakeholders.
The Group sets the amount of capital in proportion to risk. The
Group manages the capital structure, and makes adjustments to it,
in light of changes in economic conditions and the risk
characteristics of its underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
issued new shares or dispose of interests in more mature portfolio
companies.
During 2019, the Group's strategy, which was unchanged from
2018, was to maintain healthy cash and short-term deposit balances
that enable it to provide capital to all portfolio companies, as
determined by the Group's investment committee, whilst having
sufficient cash reserves to meet all working capital requirements
in the foreseeable future.
The Group has an external debt facility with associated
covenants that are described in note 21.
28. Capital Commitments
Commitments to limited partnerships
Pursuant to the terms of their Limited Partnership agreements,
the Group has committed to invest the following amounts into
Limited Partnerships as at 31 December 2019:
Year of Original Invested Remaining
commencement commitment to date commitment
Partnership of partnership GBPm GBPm GBPm
------------------------ ---------------- ----------- -------- -----------
IP Venture Fund 2006 3.1 3.1 -
IP Venture Fund II LP 2013 10.0 7.6 2.4
UCL Technology Fund LP 2016 24.8 10.2 14.6
Apollo Therapeutics LLP 2016 3.3 1.0 2.3
------------------------ ---------------- ----------- -------- -----------
Total 41.2 21.9 19.3
------------------------------------------ ----------- -------- -----------
29. Alternative Performance Measures ("APM")
IP Group management believes that the alternative performance
measures included in this document provide valuable information to
the readers of the financial statements as they enable the reader
to identify a more consistent basis for comparing the business'
performance between financial periods and provide more detail
concerning the elements of performance which the managers of the
Group are most directly able to influence or are relevant for an
assessment of the Group. They also reflect an important aspect of
the way in which operating targets are defined and performance is
monitored by the directors. These measures are not defined by IFRS
and therefore may not be directly comparable with other companies'
APMs, including those in the Group's industry. APMs should be
considered in addition to, and are not intended to be a substitute
for, or superior to, IFRS measurements.
The directors believe that these APMs assist in providing
additional useful information on the underlying trends, performance
and position of the Group. Consequently, APMs are used by the
directors and management for performance analysis, planning,
reporting and incentive-setting purposes.
Calculation
------------------------------------------------
Reference
for 2019 2018
APM reconciliation Definition and purpose GBPm GBPm
--------------- --------------- ------------------------------------ ------------------ ------------- -------------
Hard NAV Primary Hard NAV is defined as the Total equity 1,141.9 1,218.2
statements total equity of the Group
less intangible assets. Excluding
intangible assets highlights
the Group's assets that management
can be reasonably expected
to influence in the short
term and therefore reflects
the short-term resources available
to drive future performance.
Additionally, excluding intangible
assets allows better comparison
with the Group's competitors,
many of which operate under
fund structures and therefore
would not include intangible
assets.
Excluding: 0.4
The measure shows tangible Goodwill 0.4 0.3
assets managed by the Group.
It is used as a performance
metric for directors and employees
as a part of annual incentives
in the Group.
Other intangible -
assets
------------------------------------ ------------------ ------------- -------------
Hard NAV 1,141.5 1,217.5
--------------------------------------------------------------------------------------- ------------- -------------
Hard NAV Primary Hard NAV per share is defined Hard NAV GBP1,141.5m GBP1,217.5m
per share statements as Hard NAV, as defined above,
Note 22 divided by the number of shares
in issue.
The measure shows tangible
assets managed by the Group
per share in issue. It is
a useful measure to compare
to the Group's share price.
--------------- --------------- ------------------------------------
Shares in
issue 1,059,144,595 1,059,144,595
--------------------------------------------------------------------------------------- ------------- -------------
Hard NAV per
share 107.8p 115.0p
--------------------------------------------------------------------------------------- ------------- -------------
Return on Hard NAV is defined
as the total comprehensive
income or loss for the year
excluding charges which do
not impact on Hard NAV,
specifically
amortisation of intangible
assets, share-based payment
charges and the charge in
respect of consideration deemed
to represent post-acquisition
services under IFRS 3 which
is anticipated to be a
non-recurring
item.
Return on Hard NAV is defined
as the total comprehensive
income or loss for the year
excluding charges which do
not impact on Hard NAV,
specifically
amortisation of intangible
assets, share-based payment
charges and the charge in
respect of consideration deemed
to represent post-acquisition
services under IFRS 3.
The measure shows a summary
Primary of the income statement gains Total
Return on statements, and losses which directly comprehensive
Hard NAV Note 8 impact Hard NAV. income (78.8) (293.9)
--------------- --------------- ------------------------------------
Excluding:
--------------- --------------- ------------------------------------
Amortisation
of intangible
assets 0.3 9.9
Goodwill impairment - 203.2
Share-based
payment charge 2.3 1.9
IFRS 3 charge
in respect
of acquisition
of subsidiary
(note 8) 2.5 3.3
--------------------------------------------------------------------------------------- ------------- -------------
Return on
Hard NAV (73.7) (75.6)
--------------------------------------------------------------------------------------- ------------- -------------
Net portfolio gains are defined
as the movement in the value
of holdings in the portfolio
due to share price movements
or impairments in value, gains
or losses on realisation of
investments and gains or losses
on disposals of subsidiaries.
The measure shows a summary
of the income statement gains
and losses which are directly
attributable to the portfolio,
which is a headline measure
for the Group's performance. Change in
This is a key driver of the fair value
Return on Hard NAV which is of equity
Net portfolio a performance metric for directors' and debt
gains/(losses) Note 15 and employees' incentives. investments (70.6) (50.4)
--------------- --------------- ------------------------------------
Gain on disposal
of equity
investments 16.1 2.0
Gain on deconsolidation
of subsidiary 10.6 -
--------------------------------------------------------------------------------------- ------------- -------------
Net portfolio
(losses)/gains (43.9) (48.4)
--------------------------------------------------------------------------------------- ------------- -------------
Calculation
-------------- -------------------- ----------------------------------
Reference 2019 2018
APM for reconciliation Definition and purpose GBPm GBPm
-------------- -------------------- ----------------------------------
Net overheads are defined
as the Group's core overheads
less operating income. The
measure reflects the Group's
controllable net operating
"cash-equivalent" central
cost base and is used as a
performance metric in the
Group's annual incentive scheme.
Core overheads exclude items
such as share-based payments,
Financial amortisation of intangibles
Review, and consolidated portfolio
Net overheads Note 8 company costs Other income 8.6 9.9
-------------- -------------------- ----------------------------------
Other administrative
expenses (see
statement
of comprehensive
income) (39.1) (41.8)
Excluding:
Administrative
expenses -consolidated
portfolio
companies 5.4 2.6
IFRS 3 charge
in respect
of acquisition
of subsidiary
(note 8) 2.5 3.3
----------------------------------------------------------------------------------------------- ------ ------
Net overheads (22.6) (26.0)
----------------------------------------------------------------------------------------------- ------ ------
Cash is defined as cash and
cash equivalents plus deposits.
The measures gives a view
of the Group's liquid resources
on a short-term timeframe.
The Group's Treasury Policy
Cash and Primary has a maximum maturity limit Cash and cash
deposits statements of 13 months for deposits. equivalents 121.9 129.0
-------------- -------------------- ----------------------------------
Deposits 73.0 90.0
Cash 194.9 219.0
----------------------------------------------------------------------------------------------- ------ ------
The selection of the modified retrospective approach for
adoption of IFRS 16 in which prior year comparative information is
not restated has not resulted in any inconsistencies in the Group's
APMs.
30. Post Balance Sheet Events
As of the reporting date, the Group has completed realisations
of GBP55.4m in respect of the 2019 disposal of shares in Oxford
Nanopore Technologies Limited, and other disposals including in
Ceres Power Holdings plc.
As of the reporting date, realised and unrealised fair value
gains in respect of the Group's quoted portfolio totalled GBP20m,
largely in respect of Ceres Power Holdings plc, which has seen a
overall fair value gain of GBP25m since 31 December 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR XFLBFBXLBBBF
(END) Dow Jones Newswires
March 11, 2020 03:00 ET (07:00 GMT)
Ip (LSE:IPO)
Historical Stock Chart
From Apr 2024 to May 2024
Ip (LSE:IPO)
Historical Stock Chart
From May 2023 to May 2024