TIDMIPO
RNS Number : 7305R
IP Group PLC
10 March 2021
FOR RELEASE ON 10 March 2021
("IP Group" or "the Group" or "the Company")
IP Group plc Annual Results Release
Record returns and cash realisations, strong financial position,
maiden dividend.
IP Group plc (LSE: IPO), the developer of intellectual
property-based businesses, today announces its annual financial
results for the year ended 31 December 2020.
Portfolio highlights
-- Strong growth, realisations and ongoing investment
o Fair value of portfolio: GBP1,162.7m (2019: GBP1,045.6m)
o Net portfolio gains of GBP231.4m or approximately +22%(1)
(2019: reduction of GBP43.9m)
o 140% increase in cash realisations (2) to GBP191.0m (2019:
GBP79.5m)
o Sustained investment into portfolio: GBP67.5m (2019:
GBP64.7m)
-- Proving the model - from investment to exit
o Total funds raised by portfolio companies GBP1.1bn (2019:
GBP430m) including Oxford Nanopore (GBP162.1m), Hinge Health
($392m), Oxbotica (GBP27m), MobilION (GBP40m), Featurespace
(GBP30m), Inivata ($25m).
o Exited Ceres Power for GBP128m at seven times cost
-- 20 years of impact investing - supporting world-changing businesses
o Portfolio has created three 'unicorns': Oxford Nanopore, Ceres
Power, Hinge Health
o A number of our portfolio companies, most notably Oxford
Nanopore, are actively involved in the response to COVID-19
o Appointment of Prof. Gordon Clark as Chair of ESG Ethics
Committee
Financial and operational highlights
-- Hard NAV(3) GBP1,331.5m or 125.3 pence per share (2019:
GBP1,141.5m or 107.8 pence per share)
-- Net assets GBP1,331.9m (2019: GBP1,141.9m)
-- Profit of GBP185.4m (2019: loss of GBP78.9m)
-- Record positive Return on Hard NAV(3) of GBP189.5m or 17% (2019: -73.7m or -6%)
-- Strong liquidity with gross cash and deposits at 31 December
2020 of GBP270.3m (2019: GBP194.9m) and net cash (gross cash and
deposits less EIB debt) of GBP203.0m (2019: GBP112.4m)
-- Recommended maiden dividend of 1pps, including scrip alternative
Post period-end update
-- North American platform, IP Group, Inc., secured an
additional $50.0m (GBP36.5m*) of funding, including $40.0m from a
new US blue-chip institutional investor alongside $10m from IP
Group.
(1) 23% return on opening portfolio value of GBP1,045.6m
(2) Proceeds from sale of equity and debt investments per Group
Cash Flow Statement
(3) Alternative performance measure, see note 29 for definition
and reconciliation to IFRS primary statements
Alan Aubrey, Chief Executive of IP Group, said: "IP Group made
excellent progress in 2020, achieving both record returns and cash
realisations totalling GBP191m. This financial strength, combined
with the prospects in our maturing portfolio, gives us the
confidence to recommend a maiden dividend of 1 pence per share.
We have great pride in the contribution of many of our companies
to the response to COVID-19. The pandemic has focused attention on
the importance of innovation of science, accelerating key thematic
trends in health, digitisation, and the transition to net zero. We
remain confident that IP Group is well positioned to benefit from
both the increased focus and these thematic trends.
This year, as IP Group celebrates 20 years of generating
innovation, we are excited about the prospects for the portfolio as
well as the impact the Group can have from the renewed focus on
innovation and sustainability. The current year has started
strongly, with much activity in the portfolio including significant
fundraisings, and we remain excited by the prospects for 2021."
Webinar
IP Group will host a webinar for analysts and investors today,
10 March, at 10:00am GMT. For more details or to register as a
participant please visit https://www.ipgroupplc.com/events.
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 x
March 2021.
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 2020 and
31 December 2019 have been reported on by the Independent Auditor.
The Independent Auditor's Reports on the Annual Report and
Financial Statements for 2020 and 2019 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 2020 will be delivered to the
Registrar following the Company's annual general meeting.
The 2020 Annual Report and Accounts will be published in April
2021 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
During 2020, focus and the maturity of the Group's portfolio
drove record realisations and further valuation uplifts,
substantially reducing the gap between our share price and net
asset value per share.
Let me start, on behalf of all shareholders, by recognising and
thanking the executive leadership team for their excellent
stewardship of the Group in what was an unprecedented year of
challenges. Consistent with the experience of most companies, 2020
was, for IP Group, a year in which the operating model was severely
tested by the impact of the coronavirus pandemic. We came through
that test well, largely due to the effective execution of detailed
planning, designed to keep our staff both safe and fully equipped
to continue to support our portfolio companies and engage with all
our stakeholders. Our offices remained substantially closed from
the first lockdown and continue to be so today. Our working
practices were adapted to enable remote working, with the health
and wellbeing of our staff our first priority. Their response was
exceptional, demonstrating the flexibility and commitment needed to
overcome the many restrictions facing them in order to support
portfolio companies who were dealing with their own challenges.
In financial terms, 2020 was a highly successful year. For the
second year in a row, cash realisations were at a record level,
amounting to GBP191.0m (2019: GBP79.5m), driven principally by the
disposal in stages of our investment in Ceres Power (Ceres) at an
overall exit multiple of seven times the cash that we invested over
the eight years we were shareholders. Ceres is, after Oxford
Nanopore Technologies (ONT), the second so-called 'unicorn'
(valuation in excess of US$1bn) to emerge from our portfolio.
Equally important, we generated a record net return on Hard NAV
of GBP189.5m, or 17%, which we believe is a key metric in assessing
our performance. It is hugely encouraging, after two years of net
fair value losses, to see this position reverse. Notable within
this performance is portfolio company Hinge Health which, in
December, completed a US$300m capital raise. This valued the
company at US$3bn, the third 'unicorn', generating a fair value
uplift of GBP39.5m on our 2.4% shareholding.
As a consequence of all of the above, in 2020 we delivered a
record pre-tax profit of GBP185.4m and ended the year with gross
cash and deposit balances amounting to GBP270.3m. We raised no
further capital during the year and invested GBP67.5 million in our
portfolio companies out of the GBP1.1bn that they raised from all
sources. Our cash resources at year end were well in excess of our
expectations going into 2020 and, mindful of the continued
maturation of a number of companies in our portfolio and the
potential opportunities for future cash realisations, I am pleased
to report that the Board is recommending a maiden dividend of 1p
per share.
The success evidenced in 2020 goes well beyond financial
success. The pandemic demonstrated convincingly the challenges
facing the world that require science-based solutions. These most
notably include current health priorities, but also encompass
addressing the threats from climate change and challenges from
society's expanding interface with a data driven world. We are
encouraged by the Government's commitment to build UK
competitiveness on the back of its science base, to support the
'green industrial revolution' and to review UK Listing Rules to
enhance market opportunities for young growing companies. All of
this plays well for our portfolio.
The Group's purpose of 'evolving great ideas into world changing
businesses' and concentrating our investment towards companies
aligned with the UN's Sustainable Development Goals ('SDGs') was a
key factor in the value uplifts achieved in 2020. The maturity of
our portfolio companies as they now begin to achieve meaningful
commercial success on top of scientific recognition will, we
believe, drive the financial success of the Group in the coming
years.
Nowhere is this more evident than with respect to our largest
portfolio holding, Oxford Nanopore, which is working with public
health laboratories around the world on the COVID-19 pandemic.
Oxford Nanopore broadened its appeal during 2020 by expanding its
contribution within the COVID-19 diagnostic testing arena through
its LamPORE platform. This testing approach benefits from being
highly scalable and capable of being deployed in local environments
as well as high throughput traditional laboratory settings, and so
addresses the need for rapid routine testing of large numbers of
people. LamPORE is currently being rolled out globally with initial
use in the UK, Germany, Switzerland and the United Arab
Emirates.
This combination of our focus on impactful, science-based
businesses that can contribute to meeting the SDGs, the stock
market's shift in emphasis towards ESG investing, together with the
maturity and evident commercial success emerging from within our
portfolio were key factors in the 39% rise in IP Group's share
price during the year, from 71p to 98.9p, narrowing the discount to
Hard NAV from 34% to 16%, a trend that I am pleased to say has
continued into 2021. This year has seen further broadening of the
Group's share register and I would like to welcome new shareholders
as well as express our thanks to all shareholders who have
supported the business over the long term.
There were, however, some disappointments in the year. We
disposed of our investment in Avacta in April after many years of
disappointing performance, shortly ahead of an unforeseen deal to
use Avacta's technology to develop a COVID-19 test, which drove its
share price materially higher. Parkwalk Advisors Ltd (Parkwalk),
the market leader in university-focussed EIS funds, which the Group
acquired in 2017 to reinforce the funding available to early-stage
university spin-outs, saw its fundraising somewhat constrained
compared to its expectations due to the impact of COVID-19. This
notwithstanding, Parkwalk, with GBP350m of assets under management,
remains the largest fund manager of its type in terms of money
raised and in 2020 was recognised by the EIS Association as Best
EIS Fund Manager of the year for the fourth consecutive year.
In spite of the constraints imposed by COVID-19 restrictions,
the Board pursued a full agenda throughout the year with all
meetings post March successfully held virtually. In addition to
reviewing performance and business opportunities, the Board and its
committees evaluated detailed proposals regarding enhancements to
the Group's capital allocation policies, its organisational design,
talent management including diversity and inclusion, employee
engagement and succession planning for key roles. More details on
these areas are covered later in the report.
There were no changes in Board composition during the year
beyond the departure of Jonathan Brooks in March, which was
reported in last year's Report and Accounts. After nearly nine
years on the Board, including his time served on the Board of
Touchstone Innovations plc, Professor David Begg, our senior
independent director, will retire at this year's AGM. Aedhmar Hynes
has been nominated to succeed David as senior independent director
and I look forward to working with her in that role.
The year ahead looks challenging, with the economic environment
likely to be highly dependent upon the successful rollout of
vaccination programs across the world, thus facilitating a gradual
easing of travel and work restrictions. Our focus on the
development of science-based solutions to global challenges is,
however, relatively advantaged, even protected, in this environment
and we see continuing value to be built within and realised from
the portfolio in the coming years.
One fresh area of possible future constraint relates to the
recently announced proposals for a revised national security-based
review of investments in the UK as well as similar 'foreign
investment' regimes in the countries in which we operate. Given
that the challenges our portfolio companies address are global,
their potential markets and shareholder bases are similarly global.
Legal analysis suggests the new UK regime could be more expansive
than the current arrangements in terms of approvals required for
equity interests above certain thresholds and thus we shall be
monitoring the progress of the legislation through UK Parliament
and making representations and submissions as necessary.
Let me close by extending on behalf of shareholders my sincere
appreciation to our colleagues who have proven yet again their
agility and commitment in support of our portfolio companies and to
all our stakeholders who have found fresh ways to support and
engage with us in order for us to deliver against our purpose.
Sir Douglas Flint
Chairman
9 March 2021
Our Business
Market environment
The year was dominated by the COVID-19 pandemic and the
consequent humanitarian crisis and increased political and economic
uncertainty. In addition significant geopolitical developments
including the US/China trade war and the Brexit Agreement in the
UK, increased the level of political and economic uncertainty.
The combination of these factors has led to a fast-changing
environment with emerging, difficult-to-read and sometimes
competing trends. The level of political and economic uncertainty
has encouraged investors to be cautious and to retain strong
liquidity, which is important to ensure that they are not
disadvantaged by portfolio companies seeking to raise more capital
earlier than might otherwise be the case. During 2020 IP Group also
acted to ensure that we maintained a strong level of liquidity.
However, investors have also been looking toward sectors and
companies likely to emerge stronger in a post-pandemic world. This
trend has generated strong interest in companies involved in
several areas, for example, the transition to net zero, the
accelerated digitisation of economies and building resilience into
health systems, particularly around protection against future
pathogens.
The pandemic also sparked a bounce-back in the relative strength
of public markets compared to private markets with companies using
the markets to access capital. IP Group's quoted portfolio also
benefitted from this trend with several portfolio companies
carrying out placings in the year.
Purpose: evolving great ideas into world-changing businesses
The purpose of IP Group is to evolve innovation in scientific
research (or ideas) into world-changing businesses - businesses
that make a positive impact on the environment and society
alongside an attractive financial return. We do this by providing
the access to capital and support that scientific innovators and
entrepreneurs need to navigate the tricky journey from idea to
scale-up and impact. The problem we address is the difficulty that
these businesses experience in accessing the capital they need to
make this journey. The risks are substantial and the timelines
often long, and these factors combined make it difficult for many
investors to back these ideas. By funding these opportunities
through an 'evergreen' structure, such as a plc balance sheet, that
can 'follow its money' through to scale-up, we can mitigate these
risks and help create impactful companies that, over the
medium-to-long run, can generate attractive financial returns.
Vision
Our vision is an ever-growing alumnus of self-sustaining,
successful impact companies that IP Group helped create and
sustain. Companies which are achieving a positive and measurable
impact on society alongside a financial return. Our performance
will be measured by financial returns and non-financial impact
measures.
Business model
Our business model is to acquire equity holdings in these
companies, grow the value of those holdings over-time, before
selling down in whole or over a period of time in order to generate
the funds to ensure the ongoing sustainability of the company.
Strategy
Our strategy is to operate separate business units that focus
either on a key sector or geography. Our key sectors are Life
Sciences, Deeptech and Cleantech. Our key geographies are the UK,
the US and Australia and New Zealand. The objective of the
sector-focused business units is to leverage their sector expertise
to find, invest in and support a focused portfolio of start-up
companies that address critical challenges in their sectors. The
objective of our country-focused business units in the UK, the US
and Australia and New Zealand is to create and support university
spin-out companies in their respective countries. We have a nascent
China business unit whose objective is to provide market access
expertise to Group portfolio companies and to access third-party
capital where this is additive to our portfolio companies. We also
operate a cross-country and sector fund, which is called Strategic
Opportunities. The principal asset in this fund is our holding in
Oxford Nanopore. Due to its size and significance to the Group,
this asset is managed directly by the Chief Executive with
assistance from the leadership team. In this fund we also have some
smaller holdings in companies that operate in a similar way to IP
Group but focus on a specific university, such as Oxford, Cambridge
or UCL. These assets give us the opportunity to invest alongside
these companies in spin-outs from those universities. We also
operate support functions in capital markets, legal and executive
search that provide cross-fund or sector expertise in a particular
aspect of business building.
IP Group's key differentiators
-- International, balanced portfolio: Our combination of
geographies and sectors achieves balance between diversity and
focus. It diversifies the geopolitical risk that would arise from
focusing on one country whilst ensuring that we have exposure to
major thematic trends arising from innovation in scientific
research. This balance also helps us build and maintain an
international shareholder and co-investor network.
-- Access to intellectual capital: We have deep and broad
relationships with scientific innovators in all the countries and
sectors we operate in. These networks provide us with significant
opportunities to access disruptive innovative ideas.
-- Business building: The Group actively supports the
development of its portfolio companies through access to
early-stage business-building expertise, interim executive support,
technical and commercial networks and board-level recruitment and
development in addition to the provision of capital. The Group also
provides operational, legal, and business support to its
companies.
-- Access to financial capital: Investing from our balance sheet
capital is a significant advantage compare to fixed life funds as
it means that we are not obliged to sell assets by a specific date
to liquidate the fund. This is important because our companies tend
to progress in a non-linear manner and it is very difficult to
judge the timing of rapid value accretion. In the UK, the Group
also considers tax-advantaged Enterprise Investment Scheme ("EIS")
funds to be an important source of financing for early-stage
technology companies and has seen strong operating performance from
its subsidiary, Parkwalk, the UK's largest EIS growth fund manager
focused on university spin-outs, which links leading institutional
wealth managers and university partners.
-- An impactful purpose: There is a strong natural alignment between scientific research, the commercialisation of such research and impact. In recent years we have articulated this through the strength of alignment between our portfolio with the UN's Sustainable Development Goals ('SDGs'). We have focused on improving our performance on broader ESG issues including establishing an independently chaired ethics committee, adhering to responsible investor principles and developing an approach to identify and measure the most important ESG factors for our business.
Chief Executive's Operational review
Innovation generation: 20 years of IP Group
Context
In 2020 the COVID-19 pandemic caused the biggest global economic
contraction since the Great Depression and the sharpest fall in
equity markets since 1987. The pandemic enveloped the entire world,
changing it permanently and led to terrible loss of life and human
suffering, but it has also transformed the way we live, work,
learn, access healthcare, and much more.
The pandemic has also presented the world with a glimpse of what
being unprepared for an existential crisis might look like - a
stark reminder of our fragility - and this has driven increased
interest in tackling the global threat of climate change.
It has also amplified existing inequalities in our society
including systemic racism, gender inequality, and poverty, causing
all businesses to examine their role in the societies and
communities of which they are a part.
Against this backdrop, all businesses have scrambled to react to
fast-changing events, in the short-term prioritising the health and
safety of employees and business continuity, whilst at the same
time reflecting on their purpose, positioning and strategy and how
to adapt to a post-pandemic world.
This release sets out how IP Group responded to this rapidly
evolving environment and how we are positioned for this new
environment.
Response to COVID-19
The Group reacted quickly to unfolding events, prioritising the
health and wellbeing of colleagues, and ensuring our day-to-day
operations were able to continue. Most colleagues continue to
operate effectively and remotely, and we have increased our
wellbeing offering to support those in need. I would like to take
this opportunity to place on record our appreciation for the
dedication, professionalism, and resilience of colleagues during
this difficult period.
The Group also prioritised supporting the efforts taken by our
portfolio companies to mitigate the potential impacts of the
pandemic on their businesses. Some of these companies have accessed
COVID-19-related support, including convertible loans from the
Future Fund in the UK and loans under the CARES Act in the US. At
the IP Group level, we did not furlough any of our team, nor access
any of the UK Government support schemes.
Scientific innovation has proved to be a vital weapon in the
world's response to COVID-19 and some of the companies that the
Group has backed and supported over the last twenty years have
played critical roles in this response. This contribution has
exemplified the importance of backing innovation in science over
the long-term.
An example of a company making such a contribution is Oxford
Nanopore, which has provided the tools for an unprecedented global
epidemiological effort to sequence and monitor the evolution of the
virus. We are proud of this contribution and that of other
companies backed by IP Group, both past and present, including
Abingdon Health, Avacta, Chip Diagnostics, Ieso Digital Health,
Mobilion, Navenio, Optimeos, Oxehealth, Synairgen and many
more.
Purpose, vision, business model and strategy
IP Group was established in 2001 - we celebrate our 20th
anniversary in 2021 - with a purpose to evolve innovation in
scientific research into world-changing businesses - businesses
that make a positive impact on the environment and society
alongside an attractive financial return.
We provide the capital and support that scientific innovators
and entrepreneurs need to navigate the tricky journey from idea to
scale-up and impact. These businesses find it difficult to access
capital because the risks are substantial and the timelines often
long. By funding these opportunities through an 'evergreen'
structure, such as a plc balance sheet, that can 'follow its money'
through to scale-up, we can mitigate these risks and help create
impactful companies that, over the medium-to-long run, can generate
attractive financial returns.
Our vision is an ever-growing alumnus of self-sustaining,
successful impact companies that IP Group helped create and
sustain, companies that are achieving a positive and measurable
impact on society alongside a financial return.
Our business model is to acquire equity stakes in these
companies, grow the value of those holdings over time, before
selling down in whole or over a period of time in order to generate
the funds to ensure the ongoing sustainability of the Group.
Our strategy is to operate separate Business Units that focus
either on a key sector or key geography. Our key geographies are
the UK, the US, Australia and New Zealand, and China. Our key
sectors are Life Sciences, Deeptech and Cleantech. This combination
of geographies and sectors achieves an attractive balance between
diversity and focus. It diversifies the geopolitical risk that
would arise from focusing on one country whilst ensuring that we
have exposure to major thematic trends arising from innovation in
scientific research.
Financial Results
Against this context, IP Group has shown exceptional resilience
and agility. The Group has returned to growth and profit this year
with a record net Return on Hard NAV of GBP189.5m in 2020 (FY19:
negative GBP73.7m). In addition, the Group again achieved record
cash realisations totalling GBP191.0m compared with GBP79.5m a year
earlier and finishes the year with GBP203.0m of net cash. IP Group
is well-financed with gross cash and deposits of GBP270.3m.
Overview of Fund and Business unit performance
The performance of our Funds and Business Units is summarised
below:
FV as at Simple return
Net Portfolio 31 December on capital
Invested Realisations Gains/(losses) 2020 %
------------------------ --------- ------------- ---------------- ------------- -------------
Strategic Opportunities GBP3.0m GBP29.3m GBP83.2m GBP370.6m 29%
------------------------ --------- ------------- ---------------- ------------- -------------
Life Sciences GBP30.2m GBP22.7m GBP85.1m GBP392.5m 27%
------------------------ --------- ------------- ---------------- ------------- -------------
Deeptech GBP8.7m GBP4.9m GBP6.6m GBP212.5m 3%
------------------------ --------- ------------- ---------------- ------------- -------------
Cleantech GBP10.0m GBP131.4m GBP54.2m GBP58.8m 44%
------------------------ --------- ------------- ---------------- ------------- -------------
North America GBP9.4m - GBP4.7m GBP64.5m 6%
------------------------ --------- ------------- ---------------- ------------- -------------
Australia and New
Zealand GBP3.4m - GBP0.3m GBP7.3m 8%
------------------------ --------- ------------- ---------------- ------------- -------------
Organic and De minimis - GBP2.7m (GBP2.2m) GBP11.9m (13%)
------------------------ --------- ------------- ---------------- ------------- -------------
Total Portfolio GBP64.7m GBP191.0m GBP231.9m GBP1,118.1m 23%
------------------------ --------- ------------- ---------------- ------------- -------------
Attributable to
third parties GBP2.8m - (GBP0.5m) GBP44.6m (2%)
------------------------ --------- ------------- ---------------- ------------- -------------
Gross Portfolio GBP67.5m GBP191.0 GBP231.4m GBP1,162.7m 22%
------------------------ --------- ------------- ---------------- ------------- -------------
Strategic Opportunities
The portfolio saw Net Portfolio Gains of GBP83.2m during 2020,
representing a simple return on opening portfolio fair value of
29%.
The principal asset in the Strategic Opportunities fund is
Oxford Nanopore, the Group's most valuable holding. Oxford Nanopore
has had a very strong year, with management confirming in October
2020 that overall revenues to date were in line with their targeted
significant year on year growth. In addition, the company developed
a new diagnostics business unit, OND, which launched LamPORE, a
rapid, scalable diagnostic for SARS-COV-2, the company's first
regulatory approved diagnostic product. The company was successful
in winning contracts with a total value in excess of GBP110m for
LamPORE from the UK Government. During the year, the company raised
GBP162.1m of new capital from both existing and new investors.
Our valuation of Oxford Nanopore at 31 December 2020 reflects
several factors including the company's strong performance in 2020,
which is described above, and evidence of strong investor interest
in the company. In terms of financing, we considered recent
investment offers received by the company, and the potential impact
and timing of an IPO. As a result, we have concluded on a fair
value of GBP340.3m for the Group's 15.0% undiluted shareholding, an
increase of 29% during the year, resulting in an unrealised fair
value gain of GBP76.5m.
Life Sciences
The portfolio saw Net Portfolio Gains of GBP85.1m during 2020,
representing a simple return on opening portfolio fair value of
27%.
The Life Science Business Unit benefitted from a number of
positive events in the year, including the evolution of IP Group's
third 'unicorn', Hinge Health, Inc, a digital clinic for back and
joint pain for employers and health plans. Hinge Health, which was
founded in Oxford in 2012, completed a $300m (GBP225m) Series D
investment round valuing the company at approximately $3bn
(GBP2.2bn) and IP Group's 2.4% stake at GBP42.1 million.
Deeptech
The portfolio saw Net Portfolio Gains of GBP6.6m during 2020,
representing a simple return on opening portfolio fair value of
3%.
The Deeptech portfolio saw notable successes including at its
highest value holding, Featurespace, which raised GBP30m in a
funding round led by Merian Chrysalis Investment Company in May,
and at WaveOptics, which now counts eight of the world's top ten
tech and social media companies as customers.
Cleantech
The portfolio saw Net Portfolio Gains of GBP54.2m during 2020,
representing a simple return on opening portfolio fair value of
44%.
During the year we realised our entire holding in Ceres Power
with the GBP128.0m proceeds representing a multiple of seven times
cost. This exit, achieved at a company valuation of approximately
GBP1 billion, exemplifies the Group's long-term approach, having
initially invested in Ceres in 2012 at a valuation of less than
GBP1 million. It has been a privilege to work with the Ceres team
over the years and we are immensely proud of the company's
achievements.
Looking forward, our Cleantech team has mapped out the key
technologies which it believes represent the best venture-backed
opportunities on the transition to net zero and during 2021 we will
explore the most appropriate structures to provide the capital
needed to progress these opportunities.
North America (IP Group, Inc.)
The portfolio saw Net Portfolio Gains of GBP4.7m during 2020,
representing a simple return on opening portfolio fair value of
6%.
IP Group Inc's portfolio continued to make significant progress
with several large portfolio funding rounds closing including a
$35.0m round for MOBILion Systems and a $47.0m round for Carisma
Therapeutics. Following the year end, IP Group Inc. secured an
additional $50.0m of funding, comprising $40.0m from a new US
blue-chip institutional investor alongside $10.0m from IP Group
plc. As a result, the Group now has a 61.3% interest in the North
American platform.
Australia and New Zealand (IP Group Pty Ltd)
The portfolio saw Net Portfolio Gains of GBP0.3m during 2020,
representing a simple return on opening portfolio fair value of
8%.
In Australia and New Zealand, the Group continued to make
significant progress on the solid foundation of its partnerships
with the Group of Eight and the University of Auckland. Investments
were completed into four new companies bringing the portfolio to a
total of twelve companies.
Third Party Fund Management
The Group continues to view the management of third-party funds
as an important element of our business model, and we now manage or
advise over GBP400m in third party capital across our Parkwalk, US,
UK and Australian business units.
Parkwalk, the Group's specialist EIS fund management subsidiary,
now has assets under management of GBP350m (FY19: GBP300m)
including alumni funds managed in conjunction with the universities
of Oxford, Cambridge, Bristol and Imperial College London. Parkwalk
has now managed the largest EIS fund (by monies raised) and won the
EIS Association's 'Best EIS Fund Manager' for each of the last four
years.
While the impact of Covid-19 on global capital markets resulted
in somewhat slower progress in attracting further third-party
managed funds, we continue to progress a number of potential
opportunities to further grow funds managed or advised during
2021.
Impact and ESG
There is a strong natural alignment between the Group's purpose
and impact. In recent years we have articulated this by assessing
the impact of our portfolio against the UN's Sustainable
Development Goals ('SDGs') and have also focused on improving our
performance on broader ESG issues, for example:
-- We established an Ethics Committee, chaired by Professor
Gordon Clark, Senior Consultant and Emeritus Professor of the Smith
School of Enterprise and the Environment, Oxford University.
-- We completed a materiality assessment. The materiality
assessment highlighted governance, stewardship practices and
responsible investment processes as key material factors for IP
Group. It also enabled the Group to identify an employee-focused
non-financial KPI that has been included in this year's Annual
Report for the first time.
-- We have started preparing to report against new frameworks, such as TCFD, the Taskforce on Climate-related Financial Disclosures.
In addition, a particular focus this year has been how to
achieve greater inclusion and diversity in the Group's Senior
Leadership Team.
As described in last year's report, the Group currently operates
a unitary board comprising the four Executive Directors, two
Observers, five Independent Non-Executives and a Chair.
In line with the commitments given in last year's Annual Report,
the Group has now established an Executive Committee (ExCo), with
responsibility for the day-to-day management of the Company. The
composition of the ExCo has been designed to ensure a greater level
of diversity of thought. An important element of this is the
creation of two 'Employee Executive' roles on the ExCo. All
employees shall be entitled to apply for these roles and diversity
and inclusion will be key criteria in selecting the successful
candidates. We anticipate making our first Employee Executive
appointments in H1 2021.
Members of ExCo who are not members of the Board will be invited
to attend all or parts of Board Meetings on a regular basis.
Following the establishment of the ExCo, the Board will now review
the size and composition of the Board itself with the objective of
reducing its size and cost whilst ensuring that it continues to
comprise a majority of suitably qualified non-executives. It is
anticipated that this process will commence during 2021.
Further detailed information on Impact, ESG and on the alignment
of our portfolio with the UN's Sustainable Development Goals will
be provided in our Annual Report and Accounts.
Development of our capital allocation framework and total
shareholder returns
A continuing trend in the Group's development, as exemplified by
record portfolio cash realisations during both 2020 and 2019, has
been the maturation of a number of focus assets in our portfolio.
As a result, we have discussed our approach to evolving the IP
Group shareholder value proposition with a wide range of
stakeholders during 2020.
The Board recognises that share price volatility and the
discount / premium to Hard NAV per share has been a major issue to
shareholders over the years. As a result, in considering the
application of our Capital Allocation Policy and the liquidity and
maturity of the portfolio, the Board intends to seek approval from
shareholders to undertake purchases in the Company's shares,
specifically where the shares are trading below Hard NAV per share.
Any decision to repurchase shares would be undertaken in light of
other potential opportunities to deploy capital for the benefit of
stakeholders and will be subject to regular review.
To give the flexibility to be able to implement this strategy,
the Directors will seek the relevant authorities from shareholders
at the forthcoming Annual General Meeting. The Directors will seek
shareholders' approval to renew the authority to purchase up to
10.0 per cent. of the Ordinary Shares in issue from the date of
grant of the authority to the date of the Annual General Meeting in
2022. Such purchases will only be made at a discount to the
prevailing Hard NAV per share. Any such shares that are bought back
may be held in treasury and may subsequently then either be sold
for cash or cancelled.
Dividend policy
The increasing maturity and level of realisations from the
Group's portfolio, as described above, alongside a continued strong
liquidity position, has led the Board to update its dividend
policy. I am therefore pleased to announce that the Board is
recommending a final dividend of 1p per share, to be approved at
the Company's forthcoming AGM.
The Board continues to consider that shareholder returns will
primarily be driven by long-term capital appreciation and that
regular income through dividends will remain a very small component
of the total return. However, the Board considers that the business
model has reached a sufficient stage of maturity that a modest but
growing dividend should form part of the overall shareholder value
proposition. Consistent with this approach, and subject to
shareholder approval at the 2021 AGM, the Board also proposes to
introduce an optional scrip dividend programme, allowing
shareholders to choose to receive dividends in the form of newly
issued, fully paid shares in IP Group plc in lieu of cash.
Further, should the Group make realisations that are very
significant, of a one-off nature and/or result in cash in excess of
short-to-medium term requirements, the Directors would intend to
discuss with major shareholders an appropriate approach to
distributing this excess on a case-by-case basis as part of its
ongoing dialogue with this important stakeholder group.
Outlook
The pandemic has shone a light on the importance of innovation
in science. It has also turbo-charged existing key thematic trends
- for example advances in biology, digitisation, and the transition
to net zero. Our strategy of backing scientific innovation across
key sectors and geographies over the long-term means the Group is
very well positioned to benefit from both the increased focus and
these thematic trends.
The current year has started with much activity including
fundraisings from some portfolio companies as well as from our
North American business which has raised significant funding.
We finished the year in a strong financial position and with a
maturing and high-potential portfolio. This year, as IP Group
celebrates 20 years of generating innovation, we are excited about
the prospects for the portfolio as well as the impact the Group can
have from the renewed focus on innovation and sustainability.
Alan Aubrey
Chief Executive Officer
9 March 2021
PORTFOLIO REVIEW
Our portfolio: Substantial realisations and significant
portfolio progression
Overview
As at 31 December 2020, the value of the Group's portfolio was
GBP1,162.7m (2019: GBP1,045.6m) reflecting net divestment offset by
net portfolio gains of GBP231.4m (2019: loss GBP43.9m). The
portfolio consists of interests in 43 'focus' companies,
representing 84% of the portfolio value, and 88 other companies
(2019: 57, 87%, 75). Of these, 92 are based in the UK, 27 in the US
and 12 in Australasia (2019: 101, 23, eight). In addition, the
Group has 42 de minimis holdings and 35 organic holdings. (2019:
49, 40).
The Group exited its interest in four companies (2019: eight)
and realised total cash proceeds during the year of GBP191.0m
(2019: GBP79.5m). This figure includes GBP22.0m of cash from the
Group's partial realisation of its holding in Oxford Nanopore
Technologies Limited in 2019, and GBP3.5m of deferred consideration
received relating to realisations from other portfolio companies in
previous years. The largest contributor to cash realisations in the
year was the Group's realisation of its full stake in Ceres Power
Holdings plc for proceeds of GBP128.0m. The Group also realised its
full holding in Concirrus Limited (GBP4.3m) and Avacta Group plc
(GBP5.1m), and partially realised its holdings in Enterprise
Therapeutics Limited (GBP15.4m) and Oxford Sciences Innovation plc
('OSI', GBP7.3m). Deferred consideration of GBP15.0m was
outstanding at year end (2019: GBP5.3m), predominantly relating to
the Group's partial realisation of Enterprise Therapeutics
Limited.
During the year to 31 December 2020, the Group provided
pre-seed, seed and post-seed capital totalling GBP67.5m to its
portfolio companies (2019: GBP64.7m). The Group deployed capital
into seven new companies and three new pre-incorporation projects
during the year (2019: ten, six). Two of the companies were sourced
from the UK, one from the US and four from Australasia (2019: two,
two, six), and the three pre-incubation projects were sourced from
the US (2019: six, US).
Performance summary
A summary of the Income Statement gains and losses that are
directly attributable to the portfolio is as follows:
2020 2019
GBPm GBPm
---------------------------------------------------- ------ -------
Unrealised gains on the revaluation of investments 224.8 86.3
Unrealised losses on the revaluation of investments (71.3) (154.6)
Effects of movement in exchange rates (4.6) (2.3)
==================================================== ====== =======
Change in fair value of equity and debt investments 148.9 (70.6)
==================================================== ====== =======
Gain on disposals of equity investments 82.5 16.1
Gain on deconsolidation of subsidiary - 10.6
==================================================== ====== =======
Net portfolio gains/(losses) 231.4 (43.9)
---------------------------------------------------- ------ -------
The largest contributors to unrealised gains on the revaluation
of investments were Oxford Nanopore Technologies Limited (GBP76.5m)
Hinge Health Inc. (GBP39.5m), AIM-quoted Diurnal Group plc
(GBP12.3m), Apcintex Limited (GBP11.0m), Wave Optics (GBP10.0m),
AIM-quoted Mirriad Advertising plc (GBP9.8m), Inivata Limited
(GBP7.0m), Featurespace Limited (GBP6.4m) and Artios Pharma Limited
(GBP6.4m). These unrealised gains were partially offset by
unrealised losses on the revaluation of Autifony Therapeutics
Limited (GBP8.4m), Yoyo Wallet Limited (GBP6.7m), Creavo Medical
Technologies Limited (GBP6.2m), Econic Technologies Limited
(GBP5.4m) and Garrison Technology Limited (GBP5.2m).
The majority of the GBP82.5m realised gains on the sale of
investments relates to the sale of the Group's full holding in
AIM-quoted Ceres Power Holdings plc, which generated a GBP53.4m
gain on disposal, and the sale of a therapeutic programme by
Enterprise Therapeutics Limited, which gave rise to a GBP22.9m gain
on disposal.
The performance of the Group's holdings in companies quoted on
AIM saw a net unrealised fair value increase of GBP40.1m (2019:
decrease of GBP12.4m) while the Group's holdings in unquoted
companies experienced a net unrealised fair value increase of
GBP108.8m (2019: decrease of GBP58.2m).
Investments and realisations
The Group deployed a total of GBP67.5m across 65 new and
existing projects during the period (2019: GBP64.7m, 55 projects),
versus realisations of GBP191.0m (2019: GBP79.5m), resulting in
overall net realisations for the year of GBP123.5m (2019: net
realisations of GBP14.8m).
An analysis of amounts invested by company focus is as
follows:
2020 2019
GBPm GBPm
--------------------------------------------------- ------- ------
Top 20 23.6 21.8
Focus 14.5 21.2
Other (including companies exited by year end) 14.6 11.8
Total United Kingdom 52.7 54.8
United States(1) 11.5 6.9
Australasia 3.3 3.0
=================================================== ======= ======
Total purchase of equity and debt investments 67.5 64.7
=================================================== ======= ======
Less cash proceeds from sales of equity investments (191.0) (79.5)
=================================================== ======= ======
Net (realisations) / investment (123.5) (14.8)
--------------------------------------------------- ------- ------
1 United States investment total includes GBP1.8m (2019:
GBP1.6m) invested in Uniformity Labs, Inc. and GBP2.1m (2019:
GBPnil) invested in MOBILion Systems, Inc., which are in the Top 20
holdings by value.
Co-investment analysis
Including the GBP67.5m invested by the Group, the Group's
portfolio raised a total of GBP1.1bn during the year to 31 December
2020 (2019: GBP430m). Co-investment in 2020 came from more than 170
different investors, excluding individuals, and only 2% of the
funding came from parties with a greater than 1% shareholding in IP
Group plc (2019: more than 200 investors, less than 1%). An
analysis of this co-investment by source is as follows:
Portfolio capital raised 2020 2019
------------------------------------------------ ------------- -----------
GBPm % GBPm %
------------------------------------------------ ------- ---- ----- ----
IP Group (1) 67.5 6% 64.5 15%
Funds managed by Parkwalk Advisors 6.0 1% 13.2 3%
IP Group plc shareholders (>1% holdings) 20.0 2% 0.7 0%
Institutional investors 575.0 54% 147.0 34%
Corporate, other EIS, individuals, universities
and other 365.9 35% 138.6 33%
Capital into multi-sector platforms 20.0 2% 66.3 15%
================================================ ======= ==== ===== ====
Total 1,054.4 100% 430.3 100%
================================================ ======= ==== ===== ====
1 Reflects primary investment only; in 2020 the Group made no
further investment via secondary purchase of shares (2019:
GBP0.2m).
Portfolio analysis by focus
At 31 December 2020, the Group's portfolio fair value of
GBP1,162.7m was distributed across the portfolio as follows:
As at 31 December 2020 As at 31 December 2019
Fair value Number Fair value Number
--------------------------------- ----------------- ----------- ---------------- ----------
Stage GBPm % % GBPm % %
--------------------------------- ---------- ----- ----- ---- --------- ----- ---- ----
Top 20 by value 813.6 74% 20 15% 720.2 72% 20 15%
Focus 114.0 10% 23 18% 164.0 16% 37 28%
Other 178.6 16% 88 67% 110.2 12% 75 57%
================================= ========== ===== ===== ==== ========= ===== ==== ====
Total 1,106.2 100% 131 100% 994.4 100% 132 100%
De minimis and organic holdings 11.9 13.0
================================= ========== ===== ===== ==== ========= ===== ==== ====
Total Portfolio 1,118.1 1,007.4
================================= ========== ===== ===== ==== ========= ===== ==== ====
Attributable to third parties(1) 44.6 38.2
================================= ========== ===== ===== ==== ========= ===== ==== ====
Gross Portfolio 1,162.7 1,045.6
--------------------------------- ---------- ----- ----- ---- --------- ----- ---- ----
1 Amounts attributable to third parties consist of GBP16.3m
attributable to minority interests represented by third party
limited partners in the consolidated fund, IP Venture Fund II
(2019: GBP17.2m), GBP15.3m attributable to minority interests
represented by third party limited partners in the consolidated US
portfolio (2019: 7.2m), GBP10.3m attributable to Imperial College
London (2019: GBP10.9m) and GBP2.7m attributable to other third
parties (2019: GBP2.9m).
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 investment 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 84% of the
portfolio by value (2019: 88%). Outside of these companies, the
portfolio contains a broad selection of 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 that 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 its technology transfer
relationship with Imperial College London, but in which it has not
actively invested.
The total value of the Group's portfolio companies (excluding
OSI and Cambridge Innovation Capital ('CIC'), organic investments
and de minimis holdings) is approximately GBP7bn (2019:
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 specialist
divisions, Life Sciences, Deeptech and Cleantech. A small number of
investments are categorised as 'strategic opportunities', which
principally includes Oxford Nanopore Technologies Limited and
portfolio companies which also invest in other opportunities. An
update on the primary operating segments is included in the
financial review below.
As at 31 December 2020 As at 31 December 2019
Fair value Number Fair value Number
--------------------------------- ----------------- ----------- ---------------- ----------
Sector GBPm % % GBPm % %
--------------------------------- ---------- ----- ----- ---- --------- ----- ---- ----
Strategic 370.6 34% 4 3% 291.6 29% 4 3%
Life Sciences 392.5 35% 40 31% 314.3 32% 41 31%
Deeptech 212.5 19% 36 27% 203.4 20% 40 30%
Cleantech 58.8 5% 12 9% 124.3 13% 16 12%
United States 64.5 6% 27 21% 57.1 6% 23 17%
Australia 7.3 1% 12 9% 3.7 0% 8 6%
================================= ========== ===== ===== ==== ========= ===== ==== ====
Total 1,106.2 100% 131 100% 994.4 100% 132 100%
De minimis and organic
holdings 11.9 13.0
================================= ========== ===== ===== ==== ========= ===== ==== ====
Total portfolio 1,118.1 1,007.4
================================= ========== ===== ===== ==== ========= ===== ==== ====
Attributable to third parties(1) 44.6 38.2
================================= ========== ===== ===== ==== ========= ===== ==== ====
Gross portfolio 1,162.7 1,045.6
--------------------------------- ---------- ----- ----- ---- --------- ----- ---- ----
1 Amounts attributable to third parties consist of GBP16.3m
attributable to minority interests represented by third party
limited partners in the consolidated fund, IP Venture Fund II
(2019: GBP17.2m), GBP15.3m attributable to minority interests
represented by third party limited partners in the consolidated US
portfolio (2019: 7.2m), GBP10.3m attributable to Imperial College
London (2019: GBP10.9m) and GBP2.7m attributable to other third
parties (2019: GBP2.9m).
The following table lists information on the 20 most valuable
portfolio company investments, which represent 70% of the total
portfolio value (2019: 71%). Additional detail on the performance
of these companies is included in the Life Sciences, Deeptech and
Cleantech portfolio reviews.
Fair value
of Group
Net holding
Group Unrealised
Stake Fair value Fair value
at 31 of Group movement
Dec holding and fees
2020 at 31 investment/ settled at 31
(I) Dec 2019 (divestment) in equity Dec 2020
Primary
Significant valuation
named co-investors basis
Company at 31 Dec at 31
name Sector Description 2020 Dec 2020 % GBPm GBPm GBPm GBPm
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Enabling
the analysis
of any living Amgen, CCB,
Oxford thing, by GIC, Hostplus,
Nanopore any person, IHC, Invesco,
Technologies in any Lansdowne,
Limited Strategic environment RPMI Railpen Other 15.0 263.8 - 76.5 340.3
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Reprogramming
metabolism
to treat
Istesso Life autoimmune
Limited Sciences disease Puhua Capital Other* 56.4 82.6 3.0 - 85.6
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Atomico
Advisors,
The World's Bessemer,
First Digital Coatue,
Clinic for Insight, Recent
Hinge Health Life Back and Lead Edge, financing
Inc Sciences Joint Pain Tiger Global, (< 9 months) 2.4 2.6 - 39.5 42.1
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Highland
Europe,
Insight,
Invoke,
Leading MissionOG,
predictive TTV Capital, Recent
Featurespace analytics Robert Sansom, financing
Limited Deeptech company Merian Chrysalis (< 9 months) 19.7 29.4 1.0 6.4 36.8
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Transforming Neogenomics,
clinical Cancer Research,
cancer care CIC, J&J Recent
Inivata Life with liquid Innovation, financing
Limited Sciences biopsy RT Partners (< 9 months) 21.4 24.0 - 7.0 31.0
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Novel optical
waveguides Bosch Venture
and modules Capital,
for augmented Gobi Partners, Recent
Wave Optics reality GoerTek financing
Limited Deeptech displays Inc., Octopus (> 9 months) 17.1 15.2 0.9 10.0 26.1
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Novel products
for the
treatment
of rare
Diurnal Life endocrine Quoted
Group plc Sciences disorders - bid price 31.9 9.4 3.0 12.3 24.7
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Anti-malware
Garrison solutions BGF, Dawn
Technology for enterprise Capital,
Limited Deeptech cyber defences NM Capital Other 23.4 28.8 - (5.2) 23.6
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Contactless
haptic Cornes,
technology Dolby Ventures,
Ultraleap "feeling Hostplus, Recent
Holdings without Mayfair financing
Limited Deeptech touching" Partners (> 9 months)* 22.6 27.5 - (4.1) 23.4
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Blue Pool,
University Fosun Pharma,
of Oxford Invesco,
preferred Lansdowne,
Oxford IP partner Redmile,
Sciences under 15-year Sequoia, Recent
Innovation framework Temasek, financing
plc Strategic agreement Tencent (< 9 months) 2.3 23.9 (7.3) 4.0 20.6
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Solving
fusion with
First Light the simplest Recent
Fusion possible financing
Limited Cleantech machine OSI, Hostplus (< 9 months) 32.0 17.9 2.5 0.1 20.5
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Developing
novel
Apcintex Life haemophilia
Limited Sciences therapies Medicxi Sale process 27.5 7.0 1.0 11.0 19.0
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Arix Bioscience,
BioDiscovery
5, SV Life
Artios Sciences,
Pharma Life Novel oncology Pfizer,
Limited Sciences therapies Merck Ventures Other 11.7 8.2 2.7 6.4 17.3
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Ieso Digital Digital
Health Life therapeutics
Limited Sciences for psychiatry Draper Esprit Other* 46.2 18.4 3.2 (4.8) 16.8
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Fundamental
Insurance
Software Investments,
to enable BT Technology
every vehicle Ventures, Recent
Oxbotica to become BGF, bp financing
Limited Cleantech autonomous venture (< 9 months) 16.4 11.6 4.0 (0.6) 15.0
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Native in-video
advertising
Mirriad allowing
Advertising post-production Quoted
plc Deeptech ad placement - bid price 12.3 5.0 - 9.8 14.8
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Equipment,
materials
and software
for Recent
Uniformity United additive financing
Labs, Inc. States manufacturing Not disclosed (< 9 months) 29.2 14.1 0.2 0.4 14.7
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Optimising
the human
Actual experience
Experience of networked Quoted
plc Deeptech applications - bid price 21.2 9.5 - 4.9 14.4
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Targeting
deubiquitylating
enzymes
for the Pfizer,
treatment Roche, Sofinnova
Mission of CNS and Partners, Recent
Therapeutics Life mitochondrial SR one, financing
Limited Sciences disorders Schroder (< 9 months) 18.0 13.7 - 0.1 13.8
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
A platform
technology
MOBILion for conducting Recent
Systems, United ion mobility financing
Inc. States separations Not disclosed < 9 months 33.4 9.3 3.1 0.5 12.9
------------- ---------- ----------------- ------------------- -------------- ----- ---------- ------------- ---------- ----------
Other companies (111 companies) 372.5 (58.4) (21.3) 292.8
-------------------------------------------- ---------------------------------- ----- ---------- ------------- ---------- ----------
De minimis and organic
investments 13.0 2.0 (3.1) 11.9
-------------------------------------------- ---------------------------------- ----- ---------- ------------- ---------- ----------
Value not attributable
to equity holders(II) 38.2 7.2 (0.8) 44.6
-------------------------------------------- ---------------------------------- ----- ---------- ------------- ---------- ----------
Total 1,045.6 (31.9) 149.0 1,162.7
--------------------------------------------------------------------------------- ----- ---------- ------------- ---------- ----------
i. Represents the Group's undiluted beneficial economic equity
interest (excluding debt), including only the Group's portion of
IPVF II and the US portfolio. Voting interest is below 50%.
ii. Includes GBP0.7m decrease (2019: 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.
* Third party valuation specialists used for 31 December 2020
valuation
Portfolio Review: Strategic Opportunities
Alan Aubrey
Chief Executive Officer
The Strategic Opportunities fund is a cross-country and
cross-sector fund, the principal asset within which is our holding
in Oxford Nanopore. Due to its size and significance to the Group,
this asset is managed directly by the Chief Executive with
assistance from the leadership team. This fund also contains some
smaller holdings in companies that operate in a similar way to IP
Group but focus on a specific university, such as OSI (Oxford) and
CIC (Cambridge).
Oxford Nanopore
Oxford Nanopore is disrupting the paradigm of biological
analysis by making high-performance, novel DNA/RNA sequencing
technology that is accessible and easy to use. Its sequencing
technology, which scales from portable devices to large
high-throughput versions, is now being used in more than 100
countries for a range of biological research applications including
large- scale human genomics, cancer research, microbiology, plant
science, and environmental research. During 2020, the Company
entered the diagnostics market with its first in vitro diagnostic
product, LamPORE, a COVID19 test.
The company, which now has approximately 600 employees, remains
well financed, having raised GBP162.1m million last year from both
existing and new investors including International Holdings Company
(IHC) and RPMI Railpen. It was ranked 20(th) in the Sunday Times
Tech Track 100 annual league table of the UK's fastest growing
private technology companies. The company recorded revenues of
GBP52.1m in 2019, a 60% rise on the prior year, and noted it
achieved "strong growth" in 2020.
COVID-19
Oxford Nanopore remains at the forefront of efforts to tackle
the COVID-19 pandemic both in sequencing the virus and also in
launching its first diagnostic products (LamPORE) for the detection
of the virus in record time.
Genomic epidemiology: Oxford Nanopore's sequencing technology
has been used since the start of 2020 to sequence the virus -
achievable in under seven hours, providing information critical for
epidemiological insights as well as new insights for diagnostic and
vaccine development. Many researchers are using the portable MinION
device, with higher throughput labs using the larger GridION. Early
in the pandemic, the company shipped an additional 200 MinION
sequencers and related consumables to China which were deployed to
support ongoing surveillance of the COVID-19 outbreak there,
supplementing the large number of MinION devices already in
operation in the country.
In March, it was announced that the UK Government and Wellcome
Trust had funded a COVID-19 genome sequencing alliance, to enable
rapid, broad, large-scale sequencing analysis of samples from
patients testing positive for COVID-19. The network aims to
sequence the virus from every patient sample that has tested
positive with the resulting data helping to deliver insights into
how the virus is transmitted and how it evolves. Oxford Nanopore is
supporting participating teams across the UK in this project,
including in the cities of Birmingham, London, Edinburgh, Glasgow,
Nottingham, Sheffield, Liverpool, Cardiff, Exeter and
Cambridge.
Oxford Nanopore's COVID test, LamPORE has now achieved CE
marking for in vitro diagnostic use for the detection of SARS-CoV-2
using the GridION device. This milestone represents Oxford
Nanopore's first IVD clinical diagnostic product and underlines the
huge potential of scalable, real-time nanopore sequencing
technology for this significant and growing market. Further
expansion of the LamPORE product line is anticipated, and
additional regulatory approvals, including Emergency Use
Authorisation in the United States, are being progressed. A version
that includes multiple viruses including influenza, rhinovirus and
SARS-CoV-2 is in development.
An independent evaluation study of LamPORE of over 500 samples
revealed a sensitivity of 99.1% (identification of true positives)
and specificity of 99.6% (identification of true negatives). This
is comparable to RT-PCR, the current gold-standard test for
SARS-CoV-2. LamPORE is currently being rolled out globally, with
initial use in the UK, Germany, Switzerland and United Arab
Emirates. A more recent study of more than 23,000 samples performed
in the NHS confirmed the high performance.
In the UK, the company announced an agreement with the UK's
Department of Health and Social Care with an initial order of
450,000 LamPORE SARS-CoV-2 tests and the potential to increase to
millions of tests per month as indicated by the recent publication
of a contract award notice of GBP112.6m on the TED (Tenders
Electronic Daily) website.
Other 2020 highlights & technical progress
Other significant developments in the year include the
announcement that Oxford Nanopore joined the Africa CDC and other
leading industry partners including the Bill and Melinda Gates
Foundation to announce the African Pathogen Genomics Initiative.
This $100 million four-year initiative aims to build a disease
surveillance and laboratory network based on genomic sequencing
across Africa. This network will not only help identify and inform
research and public health responses to COVID-19 and other epidemic
threats, but also tackle endemic diseases such as HIV,
tuberculosis, malaria, cholera, and other infectious diseases.
Oxford Nanopore has also made significant improvements in the
accuracy of its product suite with a new basecalling algorithm that
further enhances accuracy, Bonito CRF. This has delivered 'raw
read' accuracy of >98%, or 99.1% with a new chemistry, which in
turn supports a range of accurate genomic insights. Increasing data
yields from Oxford Nanopore devices drives new use cases and
customer cost effectiveness; in December the company announced a
new PromethION yield record of 10 Tb, representing a 25%
improvement on the previous record. In January 2021, Novogene
announced routine achievement of more than 220Gb per PromethION
flow cell, allowing the analysis of three human genomes on a single
flow cell. As a PromethION can run up to 48 flow cells, and each
flow cell can be purchased for $625 under certain pricing plans,
this in combination with the rich datasets delivered by nanopore
sequencing positions PromethION competitively for larger genome
projects. Oxford Nanopore has also launched a new MinKNOW App which
enables users to monitor and control their sequencing experiments
remotely using their tablets or even mobile phones.
Research
During the fourth quarter of 2020, over 230 scientific studies
utilising nanopore technology were published, including 14 papers
in high impact journal titles from Nature alone. In the quarter, 28
scientific publications detailing the extensive use of nanopore
sequencing to track and characterise SARS-CoV-2 were published
including an independent study of more than 23,000 samples which
revealed LamPORE COVID-19 to offer highly accurate detection of
SARS-CoV-2, in both symptomatic and asymptomatic population
settings. Within the field of COVID epidemiology, more than 100
papers were published, including where researchers in Brazil
reported the first identification of the highly transmissible
SARS-CoV-2 B1.1.7 variants, and researchers used nanopore
sequencing to comprehensively analyse 16 SARS-CoV-two outbreaks in
mink farms in the Netherlands with results indicating that the
virus was introduced from humans to mink and subsequently
evolved.
Operational developments
The company strengthened its Board with two appointments in
2020. In January, John O'Higgins was appointed as a non-executive
director. Mr O'Higgins was previously CEO of Spectris, the
international productivity-enhancing instrumentation and controls
company. In October, the company announced that Dr Guy Harmelin had
joined the Board as a non-executive director. Previously on the
leadership team at Harel Insurance Investments and Financial
Services, Dr Harmelin invested and worked with multiple successful
companies including Lemonade, Innoviz, American Well, Ecoppia,
Ayala Pharma, Biond Biologics, Tabit, Assured Allies, Quantum
Machines, Rafael and Ein-Tal Hospitals.
Oxford Nanopore also held its major conferences remotely this
year. In June, its sixth Annual 'London Calling' conference
attracted over 5,500 attendees from 91 countries with leading
scientists present their work on a range of topics. In December,
meanwhile, more than 2,400 researchers joined its first online
Community Meeting.
Multi-sector platform companies
The Group has shareholdings in two multi-sector platform
companies, OSI and CIC. As at 31 December 2020, IP Group has a 2.3%
holding in OSI valued at GBP20.6m and a 1.0% holding in CIC valued
at GBP3.1m (2019: 3.3%, GBP23.9m, 1.0%, 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 2020 OSI has continued to
support its existing portfolio, and as at 30(th) September 2020
GBP71.3m further investment had been made, with OSI leading on 31
investments. The number of investments stood at 82 with a total
portfolio value of GBP386.6m and cash and deposits of GBP309.0m.
Net asset value per share had risen from 118.0p to 122.3p during
the first nine months of 2020.
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 GBP175.5m, and its current
portfolio of 31 investments is held at GBP309.1m.
Other holdings
In addition to the holdings described above, the strategic
opportunities fund includes certain other portfolio companies. 2020
saw an additional strategic investment of $3m in Mobilion Systems,
Inc. alongside IP Group, Inc. the Group's North American platform,
reflecting an additional capital allocation based on the compelling
opportunity that this company presents. Mobilion is covered in
further detail in the North American portfolio review.
PORTFOLIO REVIEW: LIFE SCIENCES
Dr Sam Williams
Managing Partner, Life Sciences
"The Life Sciences division enjoyed strong performance in 2020,
with a closing portfolio value of GBP393m and net portfolio gains
of GBP85m, representing a 27% return on the opening portfolio value
of GBP335m. We consider that this positive portfolio performance is
partly attributable to positive actions taken by the Life Sciences
team over the past three years, working closely with the boards and
operational management of our portfolio companies:"
Review of the year
The Life Sciences division enjoyed strong performance in 2020,
with a closing portfolio value of GBP393m versus GBP335m at the end
of 2019. Net portfolio gains were GBP85m, representing a return on
opening portfolio value of 27%. This is a significant improvement
compared with the declines seen in the portfolio in 2018 and 2019.
In addition, cash realisations for 2020 amounted to GBP23m versus
GBP7m in 2019.
We consider that the positive portfolio performance is partly
attributable to the following actions taken by the Life Sciences
team over the past three years, working closely with the boards and
operational management of our portfolio companies:
1. completion of the consolidation process that the division has
been undertaking since the combination of the IP Group and
Touchstone Life Sciences portfolios in early 2018, including
rationalisation of both the number of companies and historic
holding values for individual assets;
2. more efficient management of key assets, with a focus on
non-dilutive funding to reduce IP Group's cash commitment in
capital intensive businesses; and
3. pursuit of M&A to crystallise gains and return cash.
Notable individual successes resulting from these actions
include the sale of part of Enterprise Therapeutics Ltd. to Roche
in October, involving a GBP75m up-front cash payment, the $20m
investment by NeoGenomics Inc. in Inivata Limited with an option to
buy the company, and the $15m investment by Pfizer in Mission
Therapeutics Limited. To add to this, in January 2021 the division
agreed to the acquisition by Centessa Pharmaceuticals of Apcintex
Ltd, a privately held drug-discovery company focused on a single
development-stage asset, SerpinPC for haemophilia, and in which IP
Group held 27%. Centessa is backed by the Life Sciences investment
group Medicxi and is a roll-up of ten of its portfolio companies.
Following the acquisition and Centessa's subsequent $250m Series A
financing, IP Group's resulting minority stake in Centessa is
valued at GBP19.0m, representing a fair value gain of GBP11.0m from
the holding value of Apcintex at 30 June 2020. The LS division
believes the Centessa acquisition has the advantage of spreading
the risk of its investment in SerpinPC across a range of different
assets and, potentially, providing a more rapid route to
liquidity.
In addition to this, there were some notable examples of
outstanding individual company performance, including Diurnal Group
plc's continued commercial traction for Alkindi in the US and EU,
resulting in a 107% share price appreciation and GBP12m gain for
the division, and Artios' multi-billion-dollar research
collaboration with Merck, resulting in a GBP6m increase in our
holding value.
The division has also benefitted from the incredible development
of Hinge Health Inc., a now US-based company that has developed the
most complete Digital MSK Clinic for the whole body. Having
delivered strong commercial progress during 2020, the company
completed a $300m Series D financing in December, valuing the
company at $3bn and our 2.4% stake at GBP42m. This resulted in a
fair value increase in the division in 2020 of GBP40m.
The most notable negative outcomes in terms of individual NAV
result were the GBP8m write-down in our Autifony holding following
the decision by Boehringer Ingelheim not to exercise its option on
the company's Kv3 schizophrenia programme and the GBP6m write-down
in Creavo Medical Technologies Limited following setbacks with the
clinical development of the company's lead product for detection of
acute coronary syndrome. Another disappointment was missed upside
in Avacta Group plc, where we sold our stake days prior to the
announcement of a COVID-related deal with Cytiva which triggered a
significant run in Avacta's stock. However, while the timing was
regrettable on this occasion, the sale is consistent with our
approach of reducing positions in non-core assets which we continue
to believe will provide the best mid- and long-term returns for the
Group.
Overall, we believe the outlook for the division entering 2021
continues to be positive. Some of our companies have been in
existence for nearly 10 years or more, and have products that are
now approaching key milestones, whether clinical, regulatory and/or
financial. In total, we see more than 15 milestone events during
2021-23 that could prove to be material value-inflection
points.
Major milestones that we expect in 2021 include the potential
approval of Diurnal Group plc's Chronocort at the end of Q1, the
start of Phase 2b studies for Istesso Limited's rheumatoid
arthritis drug MBS2320, the possible acquisition of Inivata by
NeoGenomics Inc., proof-of-concept clinical data in Q4 for Apcintex
Limited's novel haemophilia drug SerpinPC, and the start of Phase 3
for Pulmocide Limited's novel anti-fungal PC945.
portfolio review: technology
Mark Reilly
Managing Partner, Technology
"In addition to our focus on driving value from the more mature
portfolio, we continue to develop potentially ground-breaking
earlier-stage assets."
Review of the year
IP Group's Technology portfolio comprises holdings in 48
companies valued at GBP271m as at 31 December 2020.
Our companies were quick to respond to the COVID-19 pandemic,
prioritising the health and wellbeing of their staff whilst
adopting prudent cash management measures. We saw several instances
of private investors pulling out of portfolio company deals in the
early stages of lockdown and in some cases the crisis has had an
impact on asset value, but we have worked hard to ensure our assets
are financially secure throughout the crisis and beyond. The
portfolio has performed well despite the circumstances and is
well-positioned for future growth.
Deeptech Portfolio
Our highest value holding in the Deeptech portfolio,
Featurespace, which is a world leader in enterprise financial crime
prevention for fraud and anti-money laundering, raised GBP30m in a
funding round led by Merian Chrysalis Investment Company in May
which generated a GBP6.4m uplift in the value of IP Group's
holding. Featurespace, whose machine learning models have
automatically adapted to the shift in consumer and criminal
behaviour during lockdown, continues to expand its customer base
and the fact that this financing was achieved during the height of
the first lockdown demonstrates the strength of the company's
investment case.
2020 has been a transformative year for WaveOptics Limited,
which makes waveguides and projectors for augmented reality
glasses. Despite COVID-19, the company exceeded order forecasts
during the year, reflecting the imminent emergence of mass market
augmented reality products. WaveOptics now counts eight of the
world's top ten tech and social media companies as customers and we
are optimistic about the prospects for this asset. We have written
up the value of our holding in Wave Optics by GBP10.0m to reflect
the positive commercial developments and expectations for an
upcoming funding round.
In a similar field, Ultraleap experienced COVID-related
headwinds in some of its target markets but also saw strong demand
for its hand tracking software both in retrofitting or replacing
public touchscreen displays to reduce the potential for surface
transmission of viral particles, and in emerging virtual and
augmented reality products. Ultraleap signed a multi-year
co-operation agreement with Qualcomm that will see Ultraleap's hand
tracking pre-integrated into the Qualcomm(R) Snapdragon(TM) XR2 5G
platform and further development deals with major consumer
electronics companies have already begun to stem from that
partnership.
Our computer vision and artificial intelligence (AI) platform
company Mirriad Advertising plc announced a contract with a
US-based "tier one media giant" in October and this news, coupled
with the launch of Mirriad's offering to the music video industry,
drove strong growth in value at that asset. The company completed a
very successful placing in December, raising GBP26m of new
investment, which leaves Mirriad well positioned to capitalise on
the global opportunity for its video advertising product.
COVID-19 has brought challenges to all our portfolio companies,
but we are confident that several can also make a meaningful
contribution in helping the world adapt to, and deal with, the
crisis. University of Oxford spin-out Navenio, for example, is
deploying its infrastructure-free indoor location and workforce
artificial intelligence solution in UK hospitals to help alleviate
the pressures brought on by reduced or changing staff availability,
whilst Actual Experience plc was cited in a white paper published
by Verizon and Boston Consulting Group as delivering a key tool for
managing the changes in working patterns brought about by
lockdown.
In addition to our focus on driving value from the more mature
portfolio, we continue to develop potentially ground-breaking
earlier-stage assets. In that domain, portfolio company Quantum
Motion-which IP Group has nurtured alongside our co-investor, OSI,
from the laboratory benches of University College London and the
University of Oxford-raised an oversubscribed GBP8m Series A round
to fund its growth.
On the negative side, we unfortunately saw a significant
write-down in the value of Econic Technologies, which develops
catalyst technologies that incorporate waste carbon dioxide into
polyols to bring benefits to the plastics industry, due to
difficulties in securing third-party funding. The other significant
write-down was for Garrison due to slower than anticipated
commercial progress since its last funding round; we have recently
seen signs of the company regaining momentum and so remain
optimistic for its prospects. A handful of other assets were also
written down by smaller sums, mostly due to delayed commercial
progress, in many cases due to Covid-related market slowdowns.
Cleantech
The Cleantech portfolio has delivered outstanding performance
this year with net portfolio gains of GBP54.2m and realisations of
GBP131.4m, primarily due to the rapid growth in value of Ceres
Power and our divestment of that asset over the course of the year.
The Group first invested in Ceres in 2012 and we are incredibly
proud of the success it has achieved. Ceres is a great example of
how we have helped to develop and support a world-leading company
based on scientific research carried out in the UK. Its
market-leading fuel cell technology has attracted investment from
Bosch and Weichai Power and we were pleased to see the company's
potential reflected in its customer progress and share price growth
this year. The success of this asset provided the opportunity for
IP Group to realise its holding, including facilitating the
expansion of Bosch's, a key industrial partner, shareholding in the
company at the start of 2020. In total, the Group realised cash
proceeds of GBP128.0m against a total investment of GBP18.3m. Our
average price per share purchased has been GBP0.64 so the gross
realised and IRR of this investment 48%, with a multiple of
7.0.
Our autonomous vehicle company Oxbotica secured new funding in a
GBP27m round led by BP Ventures, leaving the company well
positioned to continue its commercialisation of software originally
developed at the University of Oxford that can automate any
vehicle, in any environment at any time.
Our pioneering portfolio asset First Light Fusion, which is
researching energy generation by inertial confinement fusion,
experienced engineering issues late in 2019. The company is
confident of overcoming these challenges and has developed a
revised roadmap to demonstrating nuclear fusion using its radical
new approach. The roadmap has been endorsed by First Light's
world-renowned Scientific Advisory Board, and the company was able
to raise GBP19m of new funding this year to pursue it.
Bramble Energy, our new fuel cell company spun out from UCL and
Imperial College London, raised a GBP5m Series A round this year.
Following in the footsteps of Ceres Power, Bramble has unique
technology developed in UK universities that could play a
significant role in the rapidly growing hydrogen economy. Bramble's
focus is in polymer (PEM) fuel cells that use pure hydrogen for
transport and portable power applications. It has developed the
only technology capable of producing gigawatts of hydrogen fuel
cells using existing manufacturing facilities (specifically printed
circuit board fabs), dramatically reducing the time to market and
investment needed.
Outside of day-to-day portfolio management, the IP Group
Cleantech team has been heavily involved in the "Making Mission
Possible" report from the Energy Transitions Commission which has
been influential upon the UK, EU, Chinese and Indian government
plans for net zero.
PORTFOLIO REVIEW: NORTH AMERICA
In the challenging environment caused by the ongoing economic
impact of the COVID-19 pandemic, IP Group, Inc. and its portfolio
companies continued to make significant progress. In early 2021,
the team secured an additional $50.0m of capital for the platform,
comprising $40.0m from a new US blue-chip institutional investor
alongside $10.0m from IP Group plc. This brings the total funds
raised by the team over the past twelve months to $63.5m, including
$15.0m from IP Group plc. The funds will support the continued
growth of IP Group, Inc's maturing portfolio as well as its
pipeline of new opportunities.
Its portfolio companies have realised a number of financial and
operational achievements over the course of the year, among
them:
o MOBILion closed a $35m Series B funding round to expand its
product portfolio and advance the commercial efforts for its SLIM
technology for biotherapeutics characterization and novel biomarker
discovery;
o Carisma Therapeutics closed a $59.0m Series B round. It also
achieved a ground-breaking milestone achieving clearance by U.S.
Food and Drug Administration of its investigative new drug (IND)
application for its lead candidate, CT-0508, an anti-human
epidermal growth factor receptor 2 (HER2) targeted chimeric antigen
receptor macrophage (CAR-M). The company recently initiated trial
enrollment and patient screening for the first-of-its-kind,
first-in-human study of CAR-M at Penn and the University of North
Carolina. They also entered into a scientific research and
licensing agreement with Nathaniel R. Landau, PhD, and NYU Langone
Health through which Carisma will attain exclusive rights to
develop and commercialize their Vpx lentiviral vector for all
indications;
o Uniformity Labs completed a $38.35m Series B funding round to
expand its growth in the additive manufacturing industry;
o Exyn Technologies entered into a partnership agreement with
Sandvik Mining and Rock Technology that is expected to set the
standard in autonomous underground mining. They launched in
Australia with C.R. Kennedy, one of the largest providers of survey
equipment for mining and government needs in Australia, and also
appointed Dr. Shay Badie, an experienced investment professional
and Goldman Sachs alumnus, and government acquisition and
procurement expert, Katharina McFarland, to their board of
directors;
o TrekIT raised $1m in a seed round to continue the development
of their in-patient workflow application designed to combine a
patient's health data with clinician communications, documents and
data analytics in one place, to greatly improve patient care.
Rising to the challenge of the COVID-19 pandemic, IP Group,
Inc's portfolio made a number of contributions in the battle to
control and eliminate the outbreak. MOBILion Systems, partnered
with pioneering researchers at the Complex Carbohydrate Research
Center at the University of Georgia, to conduct -19 glycan analysis
using their technology. This provides better and faster glycan
analysis to give researchers valuable insight into how to fight the
virus. Optimeos is providing a potentially game-changing solution
to delivering a COVID-19 vaccine efficiently and effectively into
the body - a point that has been recognized by the US Small
Business Administration's (SBA) Small Business Innovation Research
(SBIR) programme, with the approval of a grant to help further
develop the technology. Chip Diagnostics, is using its ExoTENPO
technology to try to identify and categorise the vastly different
symptom presentations and patient outcomes of COVID-19. This will
give doctors critical information to see who is going to respond to
what treatment or even who is more susceptible to catching
COVID-19.
At 31 December 2020, the Group has a 80.7% ownership interest in
the North American portfolio. Following completion of the funding
round in January 2021, its interest is now 61.3%.
PORTFOLIO REVIEW: AUSTRALIA AND NEW ZEALAND
In Australia and New Zealand, the Group continued to make
significant progress on the solid foundation of its partnerships
with the Group of Eight and the University of Auckland. Investments
were completed into four new companies, bringing the portfolio to
twelve companies in total.
Selected highlights from the portfolio include:
- AMSL Aero (University of Sydney) is developing Vertiia, the
world's most efficient eVTOL. In November the company unveiled the
vehicle and launched a partnership with Australian air ambulance
company CareFlight to develop aeromedical applications of
Vertiia.
- Canopus Networks (University of New South Wales) is developing
AI-based real time network analytics. In October it was listed in
the global 'top 20 university spin-offs you should know' by
VentureRadar. It also announced collaborations with Leading Edge
Data Centres and Redfig Networks.
- Kira Biotech (University of Queensland) is developing a
first-in-class, selective, immune cell depleting monoclonal
antibody which targets activated immune cells and aims to induce
immune tolerance. The company announced the appointment of Chair
Michael Grissinger, formerly Vice President and Head, Worldwide
Pharmaceutical Licensing at Johnson & Johnson.
- RAGE Biotech (Monash University and University of Western
Australia) was launched in July to develop treatments to help
people with chronic inflammatory lung diseases, including cystic
fibrosis, severe asthma and chronic obstructive pulmonary
disease.
The Group continues to build a strong pipeline of new projects
from across its partners.
Throughout the COVID-19 pandemic, the Group has continued to
work closely with its university partners in Australia and New
Zealand. In early December, together with the Group of Eight, the
Group co-convened a roundtable with leading figures from industry,
academia and investment to discuss the topic 'Research-led
Recovery: how can Australia best leverage its university research
excellence to drive increased sustainable growth?'.
In terms of capital, the Group continues to work with Hostplus,
one of Australia's largest superannuation funds with over
AUD$47.8bn in funds under management through the AUD$100m IP Group
Hostplus Innovation Fund, which is invested in a number of
companies across the global portfolio.
THIRD PARTY FUND MANAGEMENT: PARKWALK ADVISORS
Parkwalk, the Group's specialist EIS fund management subsidiary,
now has assets under management of GBP350m (FY19: GBP300m)
including funds managed in conjunction with the universities of
Oxford, Cambridge, Bristol and Imperial College London. Parkwalk
has managed the largest EIS fund (by monies raised) in each of the
last four years.
Despite the difficult macro-economic climate in 2020, Parkwalk
invested GBP29.7m (FY19: GBP65.0m) in the university spin-out
sector across 35 companies (FY19: 44 investments), including five
companies also held directly by IP Group. A further twelve
portfolio companies received GBP17.0m of government support through
the Future Fund. Thirteen new companies joined the Parkwalk
portfolio and five exits were achieved, three for positive returns
and two for losses. This brings Parkwalk's total exits to GBP44.6m
which have been distributed to investors. In October, Parkwalk won
the EIS Association's 'Best EIS Fund Manager' for the fourth year
in a row. Over the year, Parkwalk liaised closely with BEIS and HMT
on improving the financial ecosystem for knowledge-intensive
spin-out companies post-COVID-19 and with the arrival of Brexit.
The fund's strategy is aligned with the government's goal of the UK
becoming a 'science superpower' and commercialising the committed
increase in R&D spend. Within Parkwalk, and more broadly, the
Group continues to explore potential fund management
opportunities.
Investments were made across a range of technologies including
agtech, cleantech, mobility, sensors, healthcare, AI and quantum
hardware, and security.
Over the year, Parkwalk saw some of its larger investments
mature with funding rounds of up to GBP50m closing, as some
portfolio companies started to commercialise in areas such as
genomic analysis and cleantech. Seven investments were written down
due to COVID-19 related impairments. However, ten companies closed
funding rounds at increased valuations. Some of those are involved
in diagnosing, treating and analysing Covid-19 issues.
Since the period end, Parkwalk has launched one of the first
HMRC-approved Knowledge Intensive EIS Funds, a new type of fund
proposed by the UK Government following the Patient Capital
Review.
Portfolio review: Additional portfolio analysis
Organic
Life and Total UK
Tech Cleantech Sciences Strategic De minimis Portfolio
-------------------------------- --------- --------- --------- --------- ----------- -----------
Value of companies in the GBP212.5m GBP58.8m GBP392.5m GBP370.6m GBP11.9m GBP1,046.3m
portfolio
-------------------------------- --------- --------- --------- --------- ----------- -----------
2020 net portfolio gain/(loss) GBP6.6m GBP54.2m GBP85.1m GBP83.2m (GBP2.2m) GBP226.9m
(realised and unrealised)
-------------------------------- --------- --------- --------- --------- ----------- -----------
Number of portfolio companies(1) 36 12 40 4 n/a 92
-------------------------------- --------- --------- --------- --------- ----------- -----------
Cost of holdings sold in GBP15.7m GBP24.9m GBP33.8m GBP6.2m - GBP80.6m
2020
-------------------------------- --------- --------- --------- --------- ----------- -----------
Proceeds from holdings GBP4.9m GBP131.4m GBP22.7m GBP29.3m GBP2.7m GBP191.0m
sold in 2020
-------------------------------- --------- --------- --------- --------- ----------- -----------
Attention:
Top 20 GBP139.0m GBP35.6m GBP250.4m GBP363.2m - GBP788.2m
-------------------------------- --------- --------- --------- --------- ----------- -----------
Focus GBP36.8m GBP21.7m GBP45.1m - - GBP103.6m
-------------------------------- --------- --------- --------- --------- ----------- -----------
Other GBP36.7m GBP1.6m GBP97.0m GBP7.4m - GBP142.7m
-------------------------------- --------- --------- --------- --------- ----------- -----------
Organic and De minimis - - - - GBP11.9m GBP11.9m
-------------------------------- --------- --------- --------- --------- ----------- -----------
Attributable
to third
party investors
in
Australia Total Net VF II Revenue Total Gross
United States & NZ Portfolio & US share Portfolio
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
GBP64.5m GBP7.3m GBP1,118.1m GBP31.6m GBP13.0m GBP1,162.7m Value of companies in
the portfolio
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
GBP4.7m GBP0.3m GBP231.9m (GBP1.0m) GBP0.5m GBP231.4m 2020 net portfolio gain/(loss)
(realised and unrealised)
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
27 12 131 - - 131 Number of portfolio companies(1)
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
- - GBP80.6m - - GBP80.6m Cost of holdings sold
in 2020
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
- - GBP191.0m - - GBP191.0m Proceeds from holdings
sold in 2020
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
Attention:
GBP25.4m - GBP813.6m GBP11.2m - GBP824.8m Top 20
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
GBP8.6m GBP1.7m GBP113.9m GBP4.4m - GBP118.3m Focus
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
GBP30.4m GBP5.6m GBP178.7m GBP16.0m GBP13.0m GBP207.7m Other
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
- - GBP11.9m - - GBP11.9m Organic and De minimis
------------- --------- ----------- ---------------- -------- ----------- --------------------------------
Financial review
Greg Smith
Chief Financial Officer
"A transformative year for the Group in which we delivered a
return to profitability, generated over GBP190m of realisations
from our portfolio and our confidence in the portfolio's maturity
profile enabled the Board to recommend a maiden dividend."
-- Profit for the year of GBP185.4m (2019: loss of GBP78.9m);
-- Return on Hard NAV of GBP189.5m or 17% (2019: -GBP73.7m or -6%);
-- Net assets of GBP1,331.9m (2019: GBP1,141.9m);
-- Hard NAV of GBP1,331.5m (2019: GBP1,141.5m), representing 125.3p per share (2019: 107.8p).
-- Recommended maiden final dividend of 1p per share
Consolidated statement of comprehensive income
A summary analysis of the Group's financial performance is
provided below:
2020 2019
GBPm GBPm
------------------------------------------------------ ------ ------
Net portfolio gains/(losses) (1) 231.4 (43.9)
Change in fair value of limited and limited liability
partnership interests (3.4) (0.7)
Net overheads (2) (21.6) (22.6)
Administrative expenses - consolidated portfolio
companies (0.4) (5.4)
Administrative expenses - share-based payments
charge (2.9) (2.3)
IFRS 3 charge in respect of acquisition of subsidiary (1.2) (2.5)
Carried interest plan (charge)/release (14.3) 1.3
Amortisation of intangible assets - (0.3)
Goodwill impairment - -
Net finance expense (1.5) (2.4)
Taxation (0.7) (0.1)
====================================================== ====== ======
Profit/ (loss) for the year 185.4 (78.9)
Other comprehensive income - 0.1
====================================================== ====== ======
Total comprehensive income/(loss) for the year 185.4 (78.8)
====================================================== ====== ======
Exclude:
Amortisation of intangible assets - 0.3
Goodwill impairment - -
Share-based payment charge 2.9 2.3
IFRS charge in respect of acquisition of subsidiary 1.2 2.5
====================================================== ====== ======
Return on Hard NAV 189.5 (73.7)
------------------------------------------------------ ------ ------
(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.
Net overheads
2020 2019
GBPm GBPm
-------------------------------------------------- ------ ------
Other income 6.2 8.6
Administrative expenses - all other expenses (24.8) (29.2)
Administrative expenses - Annual Incentive Scheme (3.0) (2.0)
================================================== ====== ======
Net overheads (21.6) (22.6)
================================================== ====== ======
UK Non-UK Consolidated
Year ended 31 December 2020 GBPm GBPm GBPm
-------------------------------------------------- ------ ------ ------------
Other income 5.8 0.4 6.2
Administrative expenses - all other expenses (18.7) (6.1) (24.8)
Administrative expenses - Annual Incentive Scheme (1.9) (1.1) (3.0)
================================================== ====== ====== ============
Net overheads (14.8) (6.8) (21.6)
================================================== ====== ====== ============
UK Non-UK Consolidated
Year ended 31 December 2019 GBPm GBPm GBPm
-------------------------------------------------- ------ ------ ------------
Other income 8.3 0.3 8.6
Administrative expenses - all other expenses (23.0) (6.2) (29.2)
Administrative expenses - Annual Incentive Scheme (1.1) (0.9) (2.0)
================================================== ====== ====== ============
Net overheads (15.8) (6.8) (22.6)
================================================== ====== ====== ============
Other income totalled GBP6.2m (2019: GBP8.6m), reduced from 2019
primarily due to reduced fund management revenues within Parkwalk,
the Group's EIS fund management business, which saw its fundraising
constrained compared to the previous year due to the impact of
COVID-19. Additionally, GBP0.6m of the decline in revenue was due
to the transfer of the Group's Technology Transfer Office to
Imperial College London in February 2019, resulting in a reduction
in full year revenue and costs in comparison with 2020.
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 GBP24.8m during the period (2019:
GBP29.2m), primarily as a result of cost savings realised from the
transfer of the TTO noted above, as well the full year effect of
other cost reduction measures taken in late 2019, including a small
number of UK redundancies.
The charge of GBP3.0m in respect of the Group's Annual Incentive
Scheme (2019: GBP2.0m), reflects performance against 2020 AIS
targets.
Other income statement items
The share-based payments charge of GBP2.9m (2019: GBP2.3m)
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. In the prior year, 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 charge of GBP14.3m (2019: release of
GBP1.3m) relates to the recalculation of liabilities under the
Group's long-term incentive carry schemes ('LTICS'), which include
the current UK scheme, as well as historic IP Group and Touchstone
schemes. The liabilities are calculated based upon any excess of
current fair value above cost and hurdle rate of return within each
scheme or vintage. Any payments will only be made following the
full achievement of cost and hurdle in cash and, accordingly,
actual payments under these schemes, if any, may be materially
different to those set out above. Our success in generating
realisations at a Group level in 2020 resulted in proceeds
exceeding cost and hurdle within two scheme pools, leading to
payments of GBP0.5m being made to the scheme participants (2019:
nil)
Costs of GBP1.2m (2019: GBP2.5m) were recognised in relation to
a final tranche of contingent consideration payable to the sellers
of Parkwalk Advisors Limited, deemed under IFRS 3 to be a payment
for post-acquisition services.
Consolidated statement of financial position
A summary analysis of the Group's assets and liabilities is
provided below:
Year ended Year ended
31 December 2020 31 December 2019
GBPm GBPm
------------------------------------- ----------------- -----------------
Goodwill and other intangible assets 0.4 0.4
Portfolio 1,162.7 1,045.6
Other non-current assets 23.0 22.5
Cash and deposits 270.3 194.9
EIB debt facility (67.3) (82.5)
Other net current liabilities 7.9 6.3
Other non-current liabilities (65.1) (45.3)
===================================== ================= =================
Total Equity or Net Assets 1,331.9 1,141.9
Exclude:
Goodwill and other intangible assets (0.4) (0.4)
Hard NAV 1,331.5 1,141.5
Hard NAV per share 125.3p 107.8p
------------------------------------- ----------------- -----------------
The composition of, and movements in, the Group's portfolio is
described in the Portfolio review.
Portfolio Valuation Basis
Year ended Year ended
31 December 2020 31 December 2019
GBPm GBPm
----------------------------- ----------------- -----------------
Quoted 83.4 117.7
Recent financing (<9 months) 286.9 426.7
Recent financing (>9 months) 118.1 279.7
Other valuation methods 635.6 197.8
Debt 38.7 23.7
----------------- -----------------
Total portfolio 1,162.7 1,045.6
----------------------------- ----------------- -----------------
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 13. 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.
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.
Both IP Group and Touchstone Innovation plc arranged debt
facilities with the European Investment Bank ("the EIB"), total
borrowings under which totalled GBP67.3m at the period end (2019:
GBP82.5m). Of these facilities, GBP15.4m is due to be repaid within
twelve months of the period end (2019: GBP15.4m). The facility
provides the Group with an additional source of long-term capital
to support the development of the portfolio.
Cash and deposits
At 31 December 2020, the Group held gross cash and deposits of
GBP270.3m (2019: GBP194.9m). 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 2020, the Group had a total of GBP10.3m (2019:
GBP16.6m) held in US Dollars and GBP0.3m (2019: GBP0.2m) held in
AUS Dollars.
The principal constituents of the movement in cash and deposits
during the year are summarised as follows:
Year ended Year ended
31 December 2020 31 December 2019
GBPm GBPm
-------------------------------------------------- ----------------- -----------------
Net cash generated/(used) by operating activities (27.5) (17.3)
Net cash generated/(used) in investing activities
(excluding cash flows from deposits) 119.3 9.3
Cash acquired on acquisition of subsidiary
undertakings (net of cash acquired) - (2.5)
Repayment/drawdown of debt facility (15.3) (15.3)
Other financing activities (1.1) 1.7
Effect of foreign exchange rate changes - -
================================================== ================= =================
Movement during period 75.4 (24.1)
-------------------------------------------------- ----------------- -----------------
A categorisation of the Group's cash and deposits is provided
below:
Year ended Year ended
31 December 2020 31 December 2019
GBPm GBPm
--------------------------------------------- ----------------- -----------------
Held within Group subsidiaries 269.5 188.1
Held by consolidated funds - US 0. 7 5.8
Held by consolidated funds - all other funds 0.1 0.5
Held by consolidated portfolio companies - 0.5
============================================= ================= =================
Total cash and deposits 270.3 194.9
--------------------------------------------- ----------------- -----------------
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
GBP8.7m at 31 December 2020 (2019: 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
A robust and effective risk management framework is essential
for the Group to achieve its strategic objectives and to ensure
that the directors are able to manage the business in a sustainable
manner, which protects its employees, partners, shareholders and
other stakeholders. Ongoing consideration of, and regular updates
to, the policies intended to mitigate risk enable the effective
balancing of 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 & 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 2020 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 and in doing so supported the Board in exercising
its responsibility surrounding risk management.
The Risk Council has continued to support the Board in
exercising its responsibility surrounding risk management through
its regular meetings. The risk management activity in the year
included refreshing the Group's operational, strategic and
principal risk registers and an assessment of the strategic risks
and the appropriateness of our principal risks which resulted in
the removal of one existing principal risk and the expansion of
another, as described below.
As a result of the COVID-19 pandemic, the approach to the
bi-annual and annual operational risk register reviews was revised
and an exercise was conducted to capture both the key changes in
each team's operational risk registers, as well as capturing
specific COVID-19 impacts, controls which may be operating less
effectively as a result of COVID-19 impacts and other significant
changes in team priorities impacting their risk landscape. The
outcome of this review found that existing controls continued to
operate effectively.
Other projects completed in the year included testing of key
controls over our principal risks, a refresh of the Group's risk
appetite statements over the principal risks, monitoring key risk
indicators, assessments of the risks posed by a Hard-Brexit and
COVID-19, a control investment review to ensure the desired levels
of controls agreed by the Board were in place and continued
communication of key outputs of the risk management programme to
operational business heads and the wider employee Group.
Internal audit reviews were conducted over GDPR, our Capital
Allocation process, payments processes and Cyber & IT security.
Additionally, the PwC internal audit cyber team hosted a workshop
to review the Group's resilience to cyber threats in the new,
full-time remote working environment.
Priorities for 2021 include further business reviews by the
internal audit function, enhancing risk reporting and communication
across the business, reviewing the Group's assessment of climate
related risks and opportunities and preparation for the UK Internal
Controls requirements for listed companies in the UK currently
expected to be implemented by December 2023.
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
considered this subject in detail at its strategy day in December.
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
The COVID-19 pandemic has impacted our business operations, our portfolio
companies and the society and economy in which the Group operates. The
Group's day-to-day operations have been largely able to continue as normal
albeit remotely. We enacted our business continuity plan in March 2020,
primarily centred around remote working and employee and portfolio company
support. In line with this plan, a Crisis Response Group comprising members
of the Group's management team continues to regularly monitor the risks
identified, taking such actions as are necessary to ensure that the Group
can continue to operate as effectively as possible. The Group has adapted
well to the pandemic and the Board does not consider that COVID-19 constitutes
a principal risk to the business at this time. A number of the Group's
portfolio companies have been involved in the response to the pandemic
including virus testing and vaccines showcasing the valuable impact the
Group's portfolio companies are having on the world. However, while the
pandemic persists the Crisis Response Group continues to monitor the impacts
and support our employees and portfolio companies through this difficult
time.
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. In 2020 the industry saw a wholescale
increase in cyber attacks, likely in response to the global move to remote
working, and it is against this backdrop that the Group increased both
its risk rating for Cyber and IT Security and its investment in mitigating
controls, staff training and expert advisors to support our response to
this risk area.
Medium term - the UK's withdrawal from the EU
The UK left the EU on 31 January 2020 and the UK agreed a trade deal with
the EU ahead of the transition period ending on 31 December 2020. While
the Group has considered that the risk posed 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
Performance and management
Access to capital of portfolio companies People
Macroeconomic environment The performance and The macroeconomic
could cause a short-term management of portfolio environment has an
UK recession which companies is crucial impact on long-term
would reduce investor to the success of recruitment and planning
confidence and impact the Group and, as for companies. Additional
access to capital for a result, the preparation visa restrictions
both IP Group and its that portfolio company could also impact
portfolio companies. management teams academics and student
Uncertainty over grant have undertaken to movement to the UK,
funding capital available address key Brexit thus affecting the
for the Group's early-stage risks will be central pool for potential
portfolio companies to the successful portfolio companies.
could cause funding navigation of operational
risks for university and other issues
spin out companies that may impact their
in the UK. performance.
------------------------------ --------------------------- --------------------------
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.
In addition IP Group has started the process of reporting against the TCFD
recommendations in monitoring risks and opportunities to the business as
presented by climate change.
-----------------------------------------------------------------------------------------
Summary of principal risks and mitigants
A summary of the principal risks affecting the Group and the
steps taken to manage these is set out below. Further discussion of
the Group's approach to principal risks and uncertainties are
detailed in the Corporate Governance Statement and the Report of
the Audit & Risk Committee, while further disclosure of the
Group's financial risk management is set out in note 2 to the
consolidated financial statements below.
Following the 2020 annual review process, the Group's principal
risks were updated to expand the definition of the "international
operations" risk to include general group operational risks such as
business continuity and this updated risk is labelled "group
operations including international operations". Failure of
university relationships risk is no longer considered a principal
risk to the Group as no strategic risks relating to the principal
risk were identified in the 2020 risk consolidation process.
Opportunity sourcing remains a strategic risk and this is now
captured within the insufficient investment returns principal risk.
The heatmap below describes the relative potential risks posed by
each of the Group's identified principal risks.
IP Group principal risks heatmap
Impact
5/3
---- ----- ----
1/2
4 6
---- ---- ----- ----
7/8
---- ---- ----- ----
Likelihood
Principal risks
1 Insufficient capital: Group
2 Insufficient capital: portfolio companies
3 Insufficient investment returns
4 Personnel risk
5 Macroeconomic conditions
6 Legislation, governance and regulation
7 Cyber and IT security
8 Group operations including international operations
Risk appetite ratings defined:
VL Very low
Following a marginal-risk, marginal-reward approach that
represents the safest strategic route available
L 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
B Balanced
An approach which brings a high chance of success, considering
the risks, along with reasonable rewards, economic and
otherwise
H High
Willing to consider bolder opportunities with higher levels of
risk in exchange for increased business payoffs
VH Very high
Pursuing high-risk, inherently uncertain options that carry with
them the potential for high-level rewards
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 provided in the summary of each principal risk
below.
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, however the Group's business model is moving
towards self-sustainability with realisations from the portfolio funding
the Group's ongoing capital needs. The ability of the Group to raise further
capital through realisations, or potentially through equity issues or debt,
is influenced by the general economic climate and capital market conditions,
particularly in the UK.
------------------------------------------------------------------------------------------------------------------------------------
RISK
link to strategy Actions taken by management APPETITE
Access to sufficient levels of Low
capital allows the Group to invest * The Group has significant internal capital and
in its investment assets, develop managed funds capital to deploy in portfolio
early-stage investment opportunities opportunities
and invest in its most exciting
companies to ensure attractive
future financial returns. * The Group regularly forecasts cash requirements of
the portfolio and ensures all capital allocations are
compliant with budgetary limits, treasury and capital
allocation policies and guidelines and transaction
authorisation controls
* The Group ensures that minimum cash is available to
maintain sufficient headroom over debt covenants and
regulatory capital requirements
KPI development during the year
* Change in fair value of equity and debt investments * Significant proceeds from sale of equity and debt
investments in the year (GBP191.0m)
* Total equity ("Net Assets")
* The Group's share register further diversified in the
year and saw significant changes in the constitution
* Profit/loss attributable to equity holders of its major shareholders.
* The Group's share price continued to trade below NAV
during the year which makes it less attractive to
raise new capital through share issues
examples of risk change from 2019
No change
* The Group may not be 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
link to strategy Actions taken by management APPETITE
Access to sufficient levels of Low
capital allows the Group's portfolio * The Group operates a corporate finance function which
companies to invest in its technology carries out fundraising mandates for portfolio
and commercial opportunities to companies
ensure future financial returns.
* The Group maintains close relationships with a wide
variety of co-investors that focus on companies at
differing stages of development
* The Group regularly forecasts cash requirements of
the portfolio
* While Parkwalk Advisors continues to have independent
investment decision making it has been and is
anticipated to continue to be an important
co-investor with the Group, supporting shared
portfolio companies
KPI development during the year
* Change in fair value of equity and debt investments * IP Group hosted virtual investor events in 2020
including a Deeptech Forum for China investors, three
Australian portfolio showcases and a UK capital
* Total equity ("Net Assets") markets event "human health is the new wealth".
* Profit/loss attributable 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.
Parkwalk's planned 2020 fundraising
was constrained against expectations
due to the impact of COVID-19
examples of risk change from 2019
No change
* The success of those 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
may be insufficient
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
link to strategy Actions taken by management APPETITE
Uncertain or insufficient cash High
returns could impact the Group's * The Group's employees have significant experience in
ability to deliver attractive returns sourcing, developing and growing early-stage
to shareholders when our ability technology companies to significant value, including
to react to portfolio company funding use of the Group's systematic opportunity evaluation
requirements is negatively impacted and business building methodologies within delegated
or where budgeted cash proceeds board authorities
are delayed.
* 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 and legal matters is offered
to minimise failures due to common administrative
factors
* The Group has portfolio 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 development during the year
* Change in fair value of equity and debt investments * The Group's portfolio companies raised approximately
GBP1.1bn of capital in 2020
* Purchase of equity and debt investments
* The Group maintained board representation on 89% of
its "focus" companies by number
* Proceeds from the sale of equity investments
examples of risk change from 2019
Increased
* Portfolio company failure directly 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 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
link to strategy Actions taken by management APPETITE
The Group's strategic objectives Balanced
of developing and supporting a * Senior team succession plans have been developed
portfolio of compelling intellectual
property-based opportunities into
robust businesses capable of delivering * The Group carries out regular market comparisons for
attractive financial returns on staff and executive remuneration and seeks to offer a
our assets is dependent on the balanced incentive package comprising a mix of salary
Group's employees who work with ,
the portfolio companies and those benefits, performance-based long-term incentives and
who support them. benefits such as flexible working and salary
sacrifice arrangements
* The Group encourages employee development and
inclusion through 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.
* IP Connect is the employee forum with an 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.
KPI development during the year
* Total equity * Additional strain on employees as a result of the
pandemic. Employee wellness heavily invested in
during the year. Virtual fitness classes, mental
* "Net Assets" health and resilience workshops were made available
to all staff.
* Number of new portfolio companies
* Significant increase in frequency of employee
communications from Executive directors, investment
* Employee engagement and diversity teams and the Head of HR. High levels of engagement
from employees noted in quarterly "pulse" surveys.
* Continued to dedicate resources to remuneration and
incentivisation.
* Staff attrition was 6.1%
* Approximately 40.2% of employees have been with the
Company for at least five years.
examples of risk change from 2019
Increased
* Loss of key executives and 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
----------------------------------------------------------- =========================================================== ----------
5 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, COVID-19 pandemic 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
link to strategy Actions taken by management APPETITE
The Group's strategic objectives Very High
of developing a portfolio of commercially * Senior management receive regular capital market and
successful portfolio companies economic updates from the Group's capital markets
and delivering attractive financial team and its brokers
returns on our assets and third-party
funds can be materially impacted
by the current macroeconomic environment. * Quarterly capital allocation process and on-going
monitoring against agreed budget
* Regular oversight of upcoming capital requirements of
portfolio from both the Group and third parties
* The Group's Risk Council conducts horizon scanning
for upcoming events which may impact the Group such
as climate change.
KPI development during the year
* Change in fair value of equity and debt investments * Macroeconomic and geopolitical conditions remain
uncertain in the UK. The UK negotiated a Brexit deal
with the EU in December 2020 and shortly afterward
* Total equity the transition period ended. Uncertainty remains on
the medium and long-term impacts of Brexit and
anticipated future trade deals.
* "Net Assets"
-- The COVID-19 pandemic has increased
* Profit or loss attributable to equity holders uncertainty in the global economy
with unprecedented levels of government
intervention, job losses and industry
closures.
The Group has materially increased
its cash reserves in the year and
as such is better placed to respond
to any shocks in the economy.
* The general macro-economic environment has become
more uncertain in the year however specific sectors
such as the life sciences tools and biotech markets,
in which the Group has significant portfolio holdings
in, have experienced significant market buoyancy.
examples of risk change from 2019
No change
* The success of those portfolio 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
* 7% 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
----------------------------------------------------------- =========================================================== ----------
6 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
link to strategy Actions taken by management APPETITE
The Group's strategic objectives Low
of creating and maintaining a portfolio * University partners are incentivised to protect their
of compelling opportunities to IP for exploitation as the partnership agreements
deliver attractive returns for share returns between universities, academic founders
shareholders could be materially and the Group
impacted by failure to comply with
or adequately plan for a change
in legislation, government policy * The Group utilises professional advisers as
or regulation. appropriate to support its monitoring of, and
response to changes in, tax, insurance or other
legislation
* The Group has internal policies and procedures to
ensure its compliance with applicable FCA regulations
* The Group maintains D&O, professional indemnity and
clinical trial insurance policies
KPI development during the year
* Total equity * Ongoing focus on regulatory compliance, including
third party reviews and utilisation of specialist
advisers
* "Net Assets"
* Unprecedented legislative changes in response to the
COVID-19 pandemic including insolvency legislation,
the Enterprise Act, the UK Future Funding and
employee furlough and VAT deferral schemes, US
COVID-19 business support scheme, and changes to the
Australian Foreign Investments and Takeovers Act
occurred in the year. The Group's legal teams shared
legislative changes with the relevant teams across
the business to ensure the Group and its portfolio
could benefit from supports available.
examples of risk change from 2019
No change
* Changes could result in 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 leaving 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.
----------------------------------------------------------- =========================================================== ----------
7 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
link to strategy Actions taken by management APPETITE
The Group's strategic objectives Low
of creating and maintaining a portfolio * The Group reviews its data and cyber-security
of compelling opportunities to processes with its external outsourced IT providers
deliver attractive returns for and applies the UK Government's "ten steps" framework
shareholders could be materially or other national equivalents where relevant
impacted by a serious cyber security
breach at a corporate or portfolio
company level. * Regular IT management reporting framework in place
* Internal and third-party reviews of policies and
procedures in place to ensure appropriate framework
in place to safeguard data
* Assessment of third-party suppliers of cloud-based
and on-premises systems in use
KPI development during the year
* Total equity * Ongoing focus on IT security and staff training,
including internal audit reviews and utilisation of
specialist advisers
* "Net Assets"
* 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
* Cyber security training provided to staff
specifically to address the increased risks that were
caused by extended periods of remote working due to
the global pandemic in the year
* Lower priority remediation actions from the 2019
internal audit cyber maturity review were delayed in
the year as the team's priorities shifted to
facilitating a seamless move to remote working and
increasing efforts to prevent the increased risk of
cyber-attacks seen in the year due to the pandemic
examples of risk change from 2019
Increased
* The Group or one or a combination 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
----------------------------------------------------------- =========================================================== ----------
8
The Group may be negatively impacted by operational issues both from a
UK central and international operations perspective
The potential for a negative impact to the Group arising from operational
issues such as business continuity and 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
link to strategy Actions taken by management APPETITE
The Group's strategy includes building Balanced
a portfolio of compelling intellectual-property * Local legal and regulatory advisers have been engaged
based companies across the UK, in the establishment phase of overseas operations. US
US and Australasia. The scale of and Australasian teams have their own in-house legal
the Group's operations, including teams who regularly report to the UK-based General
internationally represents increased Counsel
importance of successful execution
of its operations.
* Business continuity plans are in place for the Group
and tested regularly
* IP Exec and HR are involved in senior hires for new
territories. Senior international personnel include
current and former UK employees, encouraging a shared
culture across territories
* Video conferencing has temporarily replaced 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 international
accounting and payroll services to reduce the risk of
fraud within smaller teams
KPI development during the year
* Total equity * Continued coordination of risk reporting across
Australia, Hong Kong and USA
* "Net Assets"
* Application for Hong Kong regulatory permissions
being prepared with specialist local advisors
* Busines continuity plans put in place across all
territories in response to the global pandemic and
public health advise to work from home.
EXAMPLES OF RISK CHANGE FROM 2019
No change
* A legal or regulatory breach 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
----------------------------------------------------------- =========================================================== ----------
Viability statement
The directors have carried out a robust assessment of the
viability of the Group over a three-year period to December 2023,
considering its strategy, its current financial position and its
principal risks. The three-year period reflects the time horizon
over which the Group places a higher degree of reliance over the
forecasting assumptions used.
The strategy and associated principal risks underpin the Group's
three-year financial plan and scenario testing, which the directors
review at least annually. As a business which seeks to develop
great ideas into world-changing businesses, our business model
seeks to balance cash investments, the generation of portfolio
returns and ultimately portfolio realisations. The three-year plan
is built using a bottom-up model and makes assumptions about the
level of capital deployed into, and realisations from, its
portfolio of companies, the financial performance (and valuation)
of the underlying portfolio companies, the Group's utilisation of
its debt finance facility and ability to raise further capital, the
level of the Group's net overheads and the level of dividends.
To assess the impact of the Group's principal risks on the
prospects of the Group, the plan is stress-tested by modelling
several severe downside scenarios as part of the Board's review of
the principal risks of the business. The severe downside scenarios
model situations where at the end of 2021 the Group has been unable
generate significant portfolio realisations and sees a significant
reduction in portfolio values, stress-testing the Group's minimum
cash and portfolio coverage covenants (see Note 19 for details of
the Group's debt covenants). These downside scenarios reflect the
most likely and potentially significant adverse impacts from
Covid-19, over the three-year period under consideration to be
reduced availability of capital and a weaker macroeconomic
environment
Under these stress-testing scenarios, significant reductions to
portfolio investments are made in the following two years to
preserve the Group's remaining cash balances. In all scenarios
modelled the Group remains solvent at the end of the three-year
period and no breach of EIB financial covenants occur.
Based on this assessment, the directors have a reasonable
expectation that the Group will continue to operate and meets its
liabilities, as they fall due, up to December 2023.
STRATEGIC REPORT APPROVAL
The Strategic Report as set out above has been approved by the
Board.
DIVID
The Board is pleased to recommend a final dividend of 1p per
share, to be approved at the Annual General Meeting to be held on 9
June 2021 ("2021 AGM") and to be paid on 16 June 2021 to
shareholders on the register on 14 May 2021.
Subject to shareholder approval at the 2021 AGM, the Board also
proposes to introduce an optional scrip dividend programme,
allowing shareholders to choose to receive dividends in the form of
new issued fully paid shares in IP Group plc in lieu of cash.
Further details of this proposal will be published with the notice
of meeting for the 2021 AGM on or around 27 April 2021 and
elections must be received by 28 May 2021.
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 2020 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 2021, 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
Alan Aubrey
Sir Douglas Flint
Chairman Chief Executive Officer
9 March 2021
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
------------------------------------------------------- ---- ------ ------
Portfolio return and revenue
Change in fair value of equity and debt investments 13 148.9 (70.6)
Gain on disposal of equity investments 14 82.5 16.1
Gain on deconsolidation of subsidiary 15 - 10.6
Change in fair value of limited and limited liability
partnership interests 24 (3.4) (0.7)
Revenue from services and other income 4 6.2 8.6
======================================================= ==== ====== ======
234.2 (36.0)
Administrative expenses
Carried interest plan (charge)/release 23 (14.3) 1.3
Share-based payment charge 22 (2.9) (2.3)
Amortisation of intangible assets - (0.3)
Other administrative expenses 8 (29.4) (39.1)
======================================================= ==== ====== ======
(46.6) (40.4)
Operating profit/(loss) 7 187.6 (76.4)
Finance income 0.9 1.2
Finance costs (2.4) (3.6)
======================================================= ==== ====== ======
Profit/(loss) before taxation 186.1 (78.8)
Taxation 10 (0.7) (0.1)
======================================================= ==== ====== ======
Profit(loss) for the year 185.4 (78.9)
======================================================= ==== ====== ======
Other comprehensive income
Exchange differences on translating foreign operations - 0.1
======================================================= ==== ====== ======
Total comprehensive profit/(loss) for the year 185.4 (78.8)
------------------------------------------------------- ---- ------ ------
Attributable to:
Equity holders of the parent 185.4 (75.4)
Non-controlling interest - (3.4)
------------------------------------------------------- ---- ------ ------
185.4 (78.8)
Profit/(loss) per share
Basic (p) 11 17.47 (7.12)
Diluted (p) 11 17.36 (7.12)
------------------------------------------------------- ---- ------ ------
The accompanying notes form an integral part of the financial
statements.
Consolidated statement of financial position
As at 31 December 2020
2020 2019
Note GBPm GBPm
---------------------------------------------------- ----- ------- -------
ASSETS
Non-current assets
Intangible assets:
Goodwill 0.4 0.4
Property, plant and equipment 0.8 1.1
Portfolio:
Equity investments 13 1,124.0 1,021.9
Debt investments 13 38.7 23.7
Limited and limited liability partnership interests 24 22.2 21.4
==================================================== ===== ======= =======
Total non-current assets 1,186.1 1,068.5
==================================================== ===== ======= =======
Current assets
Trade and other receivables 16 3.6 5.0
Receivable on sale of debt and equity investments 14,17 15.3 27.3
Deposits 142.7 73.0
Cash and cash equivalents 127.6 121.9
==================================================== ===== ======= =======
Total current assets 289.2 227.2
==================================================== ===== ======= =======
Total assets 1,475.3 1,295.7
==================================================== ===== ======= =======
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Called up share capital 20 21.3 21.2
Share premium account 101.6 99.7
Retained earnings 1,208.5 1,020.5
==================================================== ===== ======= =======
Total equity attributable to equity holders 1,331.4 1,141.4
==================================================== ===== ======= =======
Non-controlling interest 0.5 0.5
==================================================== ===== ======= =======
Total equity 1,331.9 1,141.9
==================================================== ===== ======= =======
Current liabilities
Trade and other payables 18 11.0 26.0
EIB debt facility 19 15.4 15.4
==================================================== ===== ======= =======
Non-current liabilities
EIB debt facility 19 51.9 67.1
Carried interest plan liability 22 19.3 5.5
Loans from limited partners of consolidated funds 19 32.9 26.0
Revenue share liability 13 12.9 13.8
==================================================== ===== ======= =======
Total equity and liabilities 1,475.3 1,295.7
---------------------------------------------------- ----- ------- -------
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 09 March 2021 and were signed
on its behalf by:
Greg Smith
Chief Financial Officer
Alan Aubrey
Chief Executive Officer
Consolidated statement of cash flows
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
--------------------------------------------------------- ---- ------- -------
Operating activities
Operating profit/(loss) for the period 187.6 (76.4)
Adjusted for:
Change in fair value of equity and debt investments 13 (148.9) 70.6
Change in fair value of limited and limited liability
partnership interests 24 3.4 0.7
Gain on disposal of equity investments 14 (82.5) (16.1)
Gain on deconsolidation of subsidiary 15 - (10.6)
Depreciation of property, plant and equipment 1.4 1.2
Amortisation of intangible non-current assets - 0.3
Long term incentive carry scheme charge/(release) 23 14.3 (1.3)
IFRS3 charge in respect of acquisition of subsidiary
- equity-settled 2.0 -
Fees settled in the form of equity (0.2) -
Share-based payment charge 22 2.9 2.3
Changes in working capital
Decrease in trade and other receivables 2.1 1.6
Increase/ (decrease) in trade and other payables (14.8) 9.5
Drawdowns from limited partners of consolidated
funds 6.8 3.0
Other operating cash flows
Net interest paid (1.6) (2.1)
========================================================= ==== ======= =======
Net cash outflow from operating activities (27.5) (17.3)
========================================================= ==== ======= =======
Investing activities
Purchase of property, plant and equipment - (0.7)
Purchase of equity and debt investments 13 (67.5) (64.7)
Investment in limited and limited liability partnership
funds 24 (4.5) (6.8)
Distribution from limited partnership funds 24 0.3 2.0
Cash flow to deposits (240.2) (217.5)
Cash flow from deposits 170.5 234.5
Cash disposed via deconsolidation of subsidiary 15 - (2.5)
Proceeds from sale of equity and debt investments 14 191.0 79.5
========================================================= ==== ======= =======
Net cash inflow from investing activities 49.6 23.8
========================================================= ==== ======= =======
Financing activities
Proceeds from the issue of share capital by consolidated
portfolio company 15 - 2.9
Lease principal payment 21 (1.1) (1.2)
Repayment of EIB facility 19 (15.3) (15.3)
========================================================= ==== ======= =======
Net cash outflow from financing activities (16.4) (13.6)
========================================================= ==== ======= =======
Net increase/(decrease) in cash and cash equivalents 5.7 (7.1)
Cash and cash equivalents at the beginning of
the year 121.9 129.0
Effect of foreign exchange rate changes - -
========================================================= ==== ======= =======
Cash and cash equivalents at the end of the year 127.6 121.9
--------------------------------------------------------- ---- ------- -------
The accompanying notes form an integral part of the financial
statements.
Consolidated statement of changes in equity
For the year ended 31 December 2020
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 2019 21.2 684.7 372.6 135.8 1,214.3 3.9 1,218.2
Comprehensive income - - - (75.4) (75.4) (3.4) (78.8)
Capital reduction (v) - (585.0) (372.6) 957.6 - - -
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 1 January 2020 21.2 99.7 - 1,020.5 1,141.4 0.5 1,141.9
Comprehensive income - - - 185.4 185.4 - 185.4
Issue of shares (vii) 0.1 1.9 - - 2.0 - 2.0
Equity-settled share-based
payments - - - 2.9 2.9 - 2.9
Currency translation(viii) - - - (0.3) (0.3) - (0.3)
=========================== ======== =========== ============ ============== ======= ============= =======
At 31 December 2020 21.3 101.6 - 1,208.5 1,331.4 0.5 1,331.9
--------------------------- -------- ----------- ------------ -------------- ------- ------------- -------
(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 and IPG Cayman LP,
see note 25.
(v) In 2019 Group effected a reduction of capital and
cancellation of share premium account, which was count approved on
17th 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 issue of 3,209,139 new ordinary shares to satisfy
the final proportion of the consideration which has become due in
respect of the acquisition of Parkwalk Advisors Limited. The
increase in share capital is based on the par value of 2p per
ordinary share, while the increase in share premium is equal to
60.79p per ordinary share issued. This issue of shares relates to
costs 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.
(viii) 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 2020. 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
accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
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.
Going Concern
The financial statements are prepared on a going concern basis.
The directors have considered the impact of the of COVID-19
pandemic on the Group, and have completed a detailed financial
forecast alongside severe but plausible scenario-based downside
stress-testing, including the impact of declining portfolio values
and a reduced ability to generate portfolio realisations.
Consideration of the risks arising from the COVID-19 pandemic have
been included within this assessment.
At the balance sheet date, the Group had cash and deposits of
GBP270.3m, providing liquidity for in excess of two years'
operating expenses, portfolio investment and debt repayments at
recent levels. Furthermore, the group has a portfolio of
investments valued at over GBP1.1bn, providing further
opportunities for liquidity if required. Accordingly, our
forecasting indicates that the Group has adequate resources to
enable it to meet its obligations including its debt covenants and
to continue in operational existence for at least the next 12
months from the date of the accounts.
Changes in accounting policies
(i) New standards, interpretations and amendments effective from
1 January 2020
No new standards, interpretations and amendments effective in
the year have had a material effect on the Group's financial
statements.
(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 categorises 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 the 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 80.7
IP Venture Fund II LP ("IPVFII") 33.3
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 both
Limited Partnerships, 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, both
Limited Partnerships meet the criteria in IFRS 10 Consolidated
Financial Statements and are consequently consolidated. Further
disclosures in respect of these subsidiaries are included in Note
25.
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") 17.7
Apollo Therapeutics LLP ("Apollo") 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 17.7% 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.
See note 28 for disclosure of outstanding commitments in respect
of Limited Partnerships.
Valuations in respect of Limited and Limited Liability Funds are
based on IP Group's share of the Net Asset Value of the fund as per
the audited financial statements prepared by the fund manager. The
key judgments in the preparation of these accounts relate to the
valuation of unquoted investments. 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. See further disclosure in note
25.
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 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 and 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.
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.
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 and
including IPEV's special guidance issued in March 2020 in response
to Covid-19. 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. 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 number of Long Term Incentive Carry Schemes
("LTICS") for eligible employees which may result in payments to
scheme participants relating to returns from investments. Under the
Group's LTICS arrangements, a profit-sharing mechanism exists
whereby if a specific vintage delivers returns in excess of the
base cost of investments together with a hurdle rate of 8% per
annum compound, scheme participants receive a 20% share of excess
returns. The calculation of the liability in respect of the Group's
LTICS is derived from the fair value estimates for the relevant
portfolio investments and does not involve significant additional
judgment (although the fair value of the portfolio is a significant
accounting estimate). The actual amounts of carried interest paid
will depend on the cash realisations of individual vintages, and
valuations may change significantly in the next financial year.
Movements in the liability are 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 13 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 and Parkwalk Advisors Ltd, 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.
See note 22 for further details.
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
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, 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 (11
companies, 2019: 13 companies) and investments which are not traded
on an active market.
The net portfolio gain in 2020 of GBP231.4m represents a 22.1%
increase against the opening balance (2019: net loss of GBP43.9m, a
4.4% 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.
2020 2019
----------------------- -----------------------
Quoted Unquoted Total Quoted Unquoted Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ -------- ----- ------ -------- -----
Equity and debt investments
and investments in limited
partnerships 0.8 11.0 11.8 1.2 9.5 10.7
---------------------------- ------ -------- ----- ------ -------- -----
(ii) Interest rate risk
The Group holds three EIB debt facilities with the overall
balance as at 31 December 2020 amounting to GBP67.3m (2019:
GBP82.7m) with GBP15.6m being subject to variable rate interest
(2019: GBP20.1m) and GBP51.7m (2019: GBP62.6m) being subject to
fixed interest rate averaging 3.1% (2019: 3.2%).
The variable rate consists of two elements. A facility of GBP9m
which includes a fixed element 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 2.42% (2019:
2.90%). The second facility of GBP6.6m is based on a floating
interest rate including LIBOR and the average interest in the year
was 3.14% (2019: 3.64%). There are no hedging instruments in place
to cover against interest rate fluctuation as exposure is deemed
insignificant. For further details of the Group's EIB loans
including covenant details see note 19.
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.
2020 2019
----------------------------------- -----------------------------------
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 - - 1,124.0 1,124.0 - - 1,021.9 1,021.9
Debt investments - - 38.7 38.7 - - 23.7 23.7
Limited and limited liability
partnership interests - - 22.2 22.2 - - 21.4 21.4
Deposits 137.5 - - 137.5 73.0 - - 73.0
Cash and cash equivalents - 132.8 - 132.8 - 121.9 - 121.9
Trade receivables - - 1.5 1.5 - - 1.4 1.4
Other receivables - - 2.1 2.1 - - 3.6 3.6
Receivable on sale of
debt and equity investments - - 15.3 15.3 - - 27.3 27.3
============================== ====== ======== ======== ======= ====== ======== ======== =======
137.5 132.8 1,203.8 1,474.1 73.0 121.9 1,099.3 1,294.2
------------------------------ ------ -------- -------- ------- ------ -------- -------- -------
Financial liabilities
Trade payables - - (0.6) (0.6) - - (1.4) (1.4)
Other accruals and deferred
income - - (10.4) (10.4) - - (24.5) (24.5)
EIB debt facility (51.7) (15.6) - (67.3) (62.6) (19.9) - (82.5)
Carried interest plan
liability - - (19.3) (19.3) - - (5.5) (5.5)
Revenue share liability - - (12.9) (12.9) - - (13.7) (13.7)
Loans from limited partners
of consolidated funds - - (32.9) (32.9) - - (26.0) (26.0)
============================== ====== ======== ======== ======= ====== ======== ======== =======
(51.7) (15.6) (76.1) (143.4) (62.6) (19.9) (71.3) (153.8)
------------------------------ ------ -------- -------- ------- ------ -------- -------- -------
At 31 December 2020, if interest rates had been 1% higher/lower,
post-tax profit for the year, and other components of equity, would
have been GBP1.3m (2019: GBP1.6m) 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.
2020 2019
Credit rating GBPm GBPm
--------------------------------------------- ----- -----
P1 221.3 176.1
AAAMMF(1) 43.2 13.2
Other(2) 5.8 5.6
============================================= ===== =====
Total deposits and cash and cash equivalents 270.3 194.9
--------------------------------------------- ----- -----
(1) The Group holds GBP43.2m (2019: GBP13.2m) with JP Morgan GBP
liquidity fund, which has a AAAMMF credit rating with Fitch
(2) The Group holds GBP5.8m (2019 GBP5.6m) 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 0.2173% (2019: 0.1127%).
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 2020 was the greater of 25% of
total group cash or GBP50.0m (2019: 25%, GBP50.0m). In addition, no
single institution may hold more than the higher of 50% of total
cash and deposits or GBP50m. (2019: 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 at arm's length
and therefore representative of fair value
-- The relevance of the price of recent investment as an input
to fair value, which typically becomes more subjective as the time
elapsed between the recent investment date and the balance sheet
date increases.
-- In the case of companies with complex capital structures, the
appropriate methodology for assigning value to different classes of
equity based on their differing economic rights.
-- Where using valuation methods such as discounted cash flows
or revenue multiples, the assumptions around inputs including the
probability of achieving milestones and the discount rate used, and
the choice of comparable companies used within revenue multiple
analysis.
-- 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 management's judgement
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 2020 and the year ended 31
December 2019, the Group's revenue and profit/(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 and the provision of corporate
finance advice;
Within the University Partnerships segment, the Life Sciences,
Technology, Strategic, North American and Australia & New
Zealand business units represent discrete operating segments. In
line with the quantitative thresholds and aggregation criteria set
out in IFRS 8, we have presented the activities of these busines
units as a single reporting segment. The economic indicators which
have been assessed in determining that the aggregated operating
segments have similar economic characteristics include the
application of a common business model across the operating
segments within the University Partnerships segment and the global
nature of the commercial operations, shareholders and potential
acquirers of the Group's portfolio companies.
These activities are described in further detail in the
strategic report.
Venture
University capital
partnership fund
business management Consolidated
Year ended 31 December 2020 GBPm GBPm GBPm
------------------------------------------------------ ------------ ----------- ------------
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments 148.9 - 148.9
Gain on disposal of equity investments 82.5 - 82.5
Change in fair value of limited and limited liability
partnership interests (3.4) - (3.4)
Revenue from services and other income 1.1 5.1 6.2
====================================================== ============ =========== ============
229.1 5.1 234.2
Administrative expenses
Carried interest plan charge (14.3) - (14.3)
Share-based payment charge (2.9) - (2.9)
Administrative expenses (25.1) (4.3) (29.4)
====================================================== ============ =========== ============
Operating profit 186.8 0.8 187.6
Finance income 0.9 - 0.9
Finance costs (2.4) - (2.4)
====================================================== ============ =========== ============
Profit before taxation 185.3 0.8 186.1
Taxation (0.4) (0.3) (0.7)
====================================================== ============ =========== ============
Profit for the year 184.9 0.5 185.4
------------------------------------------------------ ------------ ----------- ------------
STATEMENT OF FINANCIAL POSITION
Assets 1,461.6 13.7 1,475.3
Liabilities (141.8) (1.6) (143.4)
====================================================== ============ =========== ============
Net assets 1,319.8 12.1 1,331.9
====================================================== ============ =========== ============
Other segment items
Capital expenditure - - -
Depreciation (1.3) (0.1) (1.4)
------------------------------------------------------ ------------ ----------- ------------
UK Non-UK Consolidated
Year ended 31 December 2020 GBPm GBPm GBPm
----------------------------------------------- ------ ------ ------------
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue 230.8 3.4 234.2
Administrative expenses (39.1) (7.5) (46.6)
=============================================== ====== ====== ============
Operating profit/ (loss) 191.7 (4.1) 187.6
Net interest (1.5) - (1.5)
=============================================== ====== ====== ============
Profit/(loss) before taxation 190.2 (4.1) 186.1
Taxation (0.7) - (0.7)
=============================================== ====== ====== ============
Profit/(loss) for the year 189.5 (4.1) 185.4
----------------------------------------------- ------ ------ ------------
UK Non-UK Consolidated
Year ended 31 December 2020 GBPm GBPm GBPm
--------------------------------------------- ------- ------ --------------
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets 287.1 2.1 289.2
Non-current assets 1,099.7 86.4 1,186.1
Current liabilities (26.1) (0.3) (26.4)
Non-current liabilities (101.7) (15.3) (117.0)
============================================= ======= ====== ==============
Total equity 1,259.0 72.9 1,331.9
--------------------------------------------- ------- ------ --------------
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)/profit (77.8) 1.4 (76.4)
Finance income 1.1 0.1 1.2
Finance costs (3.6) - (3.6)
====================================================== ============ =========== ============
(Loss)/profit before taxation (80.3) 1.5 (78.8)
Taxation (0.1) - (0.1)
====================================================== ============ =========== ============
(Loss)/profit for the year (80.4) 1.5 (78.9)
------------------------------------------------------ ------------ ----------- ------------
Venture
University capital
partnership fund
business management Consolidated
Year ended 31 December 2019 GBPm GBPm GBPm
-------------------------------- ------------ ----------- ------------
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
--------------------------------------------- ------- ------ --------------
6. Auditor's remuneration
Details of the auditor's remuneration are set out below:
2020 2019
GBP'000s GBP'000s
---------------------------------------------------------- --------- ---------
Audit fees in respect of Group and subsidiaries, audited
by KPMG LLP 396 323
Interim review fee, for review performed by Group auditor
KPMG LLP 53 40
Audit fees in respect of Funds, audited by KPMG LLP 14 10
Audit fees in respect of subsidiary companies, audited
by Moore Northern Home Counties Limited 58 -
========================================================== ========= =========
Total assurance services 521 373
All other services performed by Group auditor KPMG LLP 9 9
========================================================== ========= =========
Total non-assurance services performed by Group auditor
KPMG LLP 9 9
---------------------------------------------------------- --------- ---------
7. Operating profit/(loss)
Operating profit/(loss) has been arrived at after (charging) or
crediting:
2020 2019
GBPm GBPm
---------------------------------------------------- ------ ------
Amortisation of intangible assets - (0.3)
Depreciation of tangible assets (1.4) (1.2)
Employee costs (see note 9) (20.6) (19.6)
Gain on deconsolidation of subsidiary (see note 15) - 10.6
---------------------------------------------------- ------ ------
8. Other administrative expenses
Other administrative expenses comprise:
2020 2019
GBPm GBPm
--------------------------------------------------------- ----- -----
Employee costs (see note 9) 20.6 19.6
IFRS 3 charge in respect of acquisition of subsidiary(1) 1.2 2.5
Professional services 5.4 5.0
Consolidated portfolio costs 0.4 5.4
Depreciation of tangible assets 1.4 1.2
Other expenses 0.4 5.4
========================================================= ===== =====
29.4 39.1
--------------------------------------------------------- ----- -----
(1) Costs of GBP1.2m (2019: GBP2.5m) 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:
2020 2019
GBPm GBPm
----------------------------------------- ----- -----
Salaries 12.0 13.0
Defined contribution pension cost 1.0 1.1
Share-based payment charge (see note 22) 2.9 2.3
Other bonuses accrued in the year 3.4 2.0
Social security 1.3 1.2
========================================= ===== =====
20.6 19.6
----------------------------------------- ----- -----
The average monthly number of persons (including executive
directors) employed by the Group during the year was 103, all of
whom were involved in management and administration activities
(2019: 130). Details of the Directors' remuneration can be found in
the Directors' Remuneration Report.
10. Taxation
2020 2019
GBPm GBPm
------------------------------------------- ----- -----
Current tax
UK corporation tax on profits for the year - -
Foreign tax 0.1 0.1
=========================================== ===== =====
0.1 0.1
Deferred tax 0.6 -
=========================================== ===== =====
Total tax 0.7 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 profit/(loss)
per the statement of comprehensive income as follows:
2020 2019
GBPm GBPm
------------------------------------------------------ ------ ------
Profit/(loss) before tax 186.1 (78.8)
====================================================== ====== ======
Tax at the UK corporation tax rate of 19% (2019: 19%) 35.4 (15.0)
Expenses not deductible for tax purposes 2.8 4.0
Income not taxable (15.7) (3.3)
Amortisation on goodwill arising on consolidation - 0.1
Non-taxable income on deconsolidation of Mobilion - (2.0)
Fair value movement on investments qualifying for SSE (27.4) 9.5
Movement on share-based payments 0.5 0.4
Movement in tax losses arising not recognised 5.1 6.3
Rate change on foreign tax - 0.1
====================================================== ====== ======
Total tax charge 0.7 0.1
------------------------------------------------------ ------ ------
At 31 December 2020, deductible temporary differences and unused
tax losses, for which no deferred tax asset has been recognised,
totalled GBP267.1m (2019: GBP285.4m). An analysis is shown
below:
2020 2019
----------------- -----------------
Deferred Deferred
Amount tax Amount tax
GBPm GBPm GBPm GBPm
---------------------------------------------- ------- -------- ------- --------
Accelerated capital allowances (0.3) (0.1) (0.7) (0.1)
Share-based payment costs and other temporary
differences (8.7) (1.6) (13.8) (2.3)
Unused tax losses (258.1) (49.0) (270.9) (46.1)
============================================== ======= ======== ======= ========
(267.1) (50.7) (285.4) (48.5)
---------------------------------------------- ------- -------- ------- --------
At 31 December 2020, deductible temporary differences and unused
tax losses, for which a deferred tax asset/(liability) has been
recognised, totalled GBP4.0m (2019: GBPnil). An analysis is shown
below:
2020 2019
---------------- ----------------
Deferred Deferred
Amount tax Amount tax
GBPm GBPm GBPm GBPm
----------------------------- ------ -------- ------ --------
Temporary timing differences 39.5 7.5 6.1 1.0
Unused tax losses (35.5) (6.8) (6.1) (1.0)
============================= ====== ======== ====== ========
4 .0 0.7 - -
----------------------------- ------ -------- ------ --------
11. Earnings/ (Loss) per share
2020 2019
Earnings/ (Loss) GBPm GBPm
-------------------------------------------------------- ----- ------
Earnings/ (Loss) for the purposes of basic and dilutive
earnings per share 185.4 (75.4)
2020 2019
Number Number
Number of shares of shares of shares
------------------------------------------------------------ ------------- -------------
Weighted average number of ordinary shares for the purposes
of basic earnings per share 1,061,538,297 1,059,144,595
Effect of dilutive potential ordinary shares:
Options or contingently issuable shares 6,664,196 -
============================================================ ============= =============
Weighted average number of ordinary shares for the purposes
of diluted earnings per share 1,068,202,493 1,059,144,595
------------------------------------------------------------ ------------- -------------
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).
2020 2019
Earnings per share pence pence
------------------- ------ ------
Basic 17.47 (7.12)
Diluted 17.36 (7.12)
------------------- ------ ------
12. Categorisation of financial instruments
At fair
value through
profit or Amortised
loss cost Total
Financial assets GBPm GBPm GBPm
---------------------------------------------------- -------------- --------- -------
At 31 December 2020
Equity investments 1,124.0 - 1,124.0
Debt investments 38.7 - 38.7
Limited and limited liability partnership interests 22.2 - 22.2
Trade and other receivables - 3.6 3.6
Receivable on sale of debt and equity investments - 15.3 15.3
Deposits - 142.7 142.7
Cash and cash equivalents - 127.6 127.6
==================================================== ============== ========= =======
Total 1,184.9 289.2 1,474.1
---------------------------------------------------- -------------- --------- -------
At 31 December 2019
Equity investments 1,021.9 - 1,021.9
Debt investments 23.7 - 23.7
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
---------------------------------------------------- -------------- --------- -------
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),
we estimate expected credit losses on the Group's receivables to be
under GBP0.1m and therefore not disclosed further (2019: 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 (2019: 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.
13. Net investment portfolio
Note 1 includes a description of the fair value hierarchy
used.
Level 1 Level 3 Total 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 2020 117.5 23.7 904.4 1,045.6
Investments during the year 6.0 22.6 38.9 67.5
Transaction-based reclassifications during
the year - (4.9) 4.9 -
Other transfers between hierarchy levels
during the year 0.4 (3.6) 3.2 -
Disposals (80.7) (0.9) (17.0) (98. 6)
Fees settled via equity - - 0.2 0.2
Change in revenue share(i) - - (0.9) (0.9)
Change in fair value in the year(ii) 40.2 1.8 106.9 148.9
=============================================== ================== ================= ================== ==========
At 31 December 2020 83.4 38.7 1,040.6 1,162.7
----------------------------------------------- ------------------ ----------------- ------------------ ----------
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 -
Disposals (9.0) (0.1) (81.6) (90.7)
Other transfers between hierarchy levels
during the year - (1.0) 1.0 -
Fair value of investment in Mobilion recognised
on deconsolidation - - 11.2 11.2
Fees settled via equity - - - -
Change in revenue share(i) (0.6) - 3.4 2.8
Change in fair value in the year(ii) (12.4) (20.2) (38.0) (70.6)
=============================================== ================== ================= ================== ==========
At 31 December 2019 117.5 23.7 904.4 1,045.6
----------------------------------------------- ------------------ ----------------- ------------------ ----------
(i) For description of revenue share arrangement see description
below.
(ii) The change in fair value in the year includes a loss of
GBP4.6m (2019: loss of GBP1.4m) in exchange differences on
translating foreign currency investments. The total unrealised
change in fair value in respect of Level 3 investments was a gain
of GBP108.7m (2019: loss of GBP58.2m).
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 are
used in arriving at an estimate of fair value for an individual
asset. Unobservable inputs are typically portfolio-company
specific, and therefore cannot be aggregated for the purposes of
portfolio-level sensitivity analysis.
In terms of the valuation techniques used in arriving at our
fair value estimate, the following table provides an analysis of
the portfolio by primary valuation basis, with an associated
sensitivity analysis by valuation category. Note that in light of
the onset of the COVID-19 pandemic in early 2020, we have amended
our analysis of recent financing transactions (formerly 12 months)
to reflect the additional judgment required in assessing the
continued relevance of financing transactions where more than 9
months has elapsed.
2020 2019
GBPm GBPm
----------------------------- ------- -------
Quoted 83.4 117.7
Recent financing (<9 months) 286.9 426.7
Recent financing (>9 months) 118.1 279.7
Other valuation methods 635.6 197.8
Debt 38.7 23.7
------- -------
Total portfolio 1,162.7 1,045.6
----------------------------- ------- -------
The table below summarises the impact of a 1% increase/decrease
in the price of unquoted investments by primary valuation basis on
the Group's post-tax profit for the year and on equity.
2020 2019
GBPm GBPm
----------------------------- ----- -----
Recent financing (<9 months) 2.9 4.3
Recent financing (>9 months) 1.2 2.8
Other valuation methods 6.4 2.0
Debt 0.4 0.2
----- -----
Total unquoted portfolio 10.9 9.3
----------------------------- ----- -----
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 GBP0.4m (2019:
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 (2019: no such instances).
Transfers between level 3 debt and level 3 equity occur upon
conversion of convertible debt into equity.
2020 2019
Change in fair value in the year GBPm GBPm
--------------------------------- ------ -------
Fair value gains 224.8 86.3
Fair value losses (75.9) (156.9)
================================= ====== =======
148.9 (70.6)
--------------------------------- ------ -------
The Company's interests in subsidiary undertakings are listed in
note 2 to the Company's financial statements.
Revenue share arrangement and corresponding liability
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 any 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 2020, equity investments which were subject to revenue
sharing obligations totalled GBP12.9m (2019: GBP13.8m). A
corresponding non-current liability is recognised in respect of
these revenue sharing obligations.
14. Gain on disposal of equity investments
2020 2019
GBPm GBPm
---------------------------------------------------------- ------ ------
Disposal proceeds 191.0 79.5
Movement in amounts receivable on sale of debt and equity
investments (9.9) 27.3
Carrying value of investments (98.6) (90.7)
========================================================== ====== ======
Profit on disposal 82.5 16.1
---------------------------------------------------------- ------ ------
15. 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 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:
2020 2019
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
---------------------------------------------- ----- -----
16. Trade and other receivables
2020 2019
Current assets GBPm GBPm
------------------- ----- -----
Trade debtors 1.5 1.4
Prepayments 0.6 0.6
Right of use asset 0.8 2.1
Other receivables 0.7 0.9
=================== ===== =====
3.6 5.0
------------------- ----- -----
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.
17. Receivable on sale of debt and equity investments
2020 2019
GBPm GBPm
----------------------- ----- -----
Deferred consideration 15.0 5.3
Short-term receivables 0.3 22.0
======================= ===== =====
15.3 27.3
----------------------- ----- -----
Deferred & contingent consideration relates to amounts
receivable respect of the sale of Enterprise Therapeutics Limited
(GBP13.0m) and Dukosi Limited (GBP2.0m) (2019: Dukosi Limited
(GBP5.0m), Process Systems Enterprise Limited (GBP0.3m).
The 2019 short-term receivables relates to GBP22.0m receivable
in respect of shares in Oxford Nanopore Technologies Limited sold
on 31 December 2019 and for which payment was received in February
2020.
18. Trade and other payables
2020 2019
Current liabilities GBPm GBPm
---------------------------------------------------------- ----- -----
Trade payables 0.6 1.4
Social security expenses 0.8 0.5
Bonus accrual 2.8 2.1
Lease liability 0.9 2.1
Payable to Imperial College and other third parties under
revenue share obligations (short term) 2.1 11.2
Current tax payable - 0.1
Other accruals and deferred income 3.8 8.6
========================================================== ===== =====
11.0 26.0
---------------------------------------------------------- ----- -----
The 2019 amounts payable to Imperial College and other third
parties to settle revenue share obligations include GBP9.7m payable
in respect of the disposal proceeds of Process Systems Enterprise
Limited, which were settled in January 2020.
19. Borrowings
2020 2019
Non-current liabilities GBPm GBPm
----------------------------------------------------------- ----- -----
Loans drawn down from the Limited Partners of consolidated
funds 32.9 26.0
EIB debt facility 51.9 67.1
----------------------------------------------------------- ----- -----
84.8 93.1
----------------------------------------------------------- ----- -----
2020 2019
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 Outstanding Repayment Repayment commencement
Description amount amount Date drawn Interest rate terms date
------------------- --------- ----------- ---------- ---------------- --------- ------------------------
IP Group Facility, GBP9.0m Floating, linked
tranche 1 GBP15.0m Dec 2015 to LIBOR 5 years Jan 2019
IP Group Facility, GBP9.0m
tranche 2 GBP15.0m Dec 2017 Fixed 3.016% 5 years Jan 2019
Touchstone Facility GBP6.6m Floating, linked
A, tranche 1 GBP15.0m Jul 2013 to LIBOR 12 years Jan 2015
Touchstone Facility GBP8.3m
A, tranche 2 GBP15.0m Jul 2015 Fixed 4.235% 10 years Jan 2017
Touchstone Facility GBP34.4m
B GBP50.0m Feb 2017 Fixed 3.026% 9 years Jul 2018
Total GBP110.0m GBP67.3m
------------------- --------- ----------- ---------- ---------------- --------- ----------------------
Loans totalling GBP51.7 (2019: GBP62.6m) are subject to fixed
interest rates and are recognised at amortised cost. The fair value
of these loans as at 31 December 2020 is GBP53.9m (2019
GBP64.5m).
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.
2020 2019
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 48.8 64.2
Due after 5 years 3.1 3.1
======================================================= ===== =====
Total (i) 67.3 82.7
------------------------------------------------------- ----- -----
2020 2019
A reconciliation in the movement in debt is as follows: GBPm GBPm
-------------------------------------------------------- ------ ------
At 1 January 82.7 98.1
Repayment of debt (15.4) (15.4)
======================================================== ====== ======
At 31 December (i) 67.3 82.7
-------------------------------------------------------- ------ ------
(i) These are gross amounts repayable and exclude costs of
GBPnil (2019: GBP0.2m) incurred on obtaining the loans and
amortised over the life of the loans.
There were no non-cash movements in debt.
20. Share capital
2020 2019
------------------- -------------------
Issued and fully paid: Number GBPm Number GBPm
-------------------------------------- ------------- ---- ------------- ----
Ordinary shares of 2p each
At 1 January 1,059,144,595 21.2 1,059,144,595 21.2
Issued in respect of post-acquisition
services 3,209,139 0.1 - -
Issued under employee share plans - - - -
====================================== ============= ==== ============= ====
At 31 December 1,062,353,734 21.3 1,059,144,595 21.2
-------------------------------------- ------------- ---- ------------- ----
During the year the Company issued 3,209,139 new ordinary shares
to satisfy the final proportion of the consideration which has
become due in respect of the acquisition of Parkwalk Advisors
Limited. The increase in share capital is based on the par value of
2p per ordinary share, while the increase in share premium is equal
to 60.79p per ordinary share issued. This issue of shares relates
to costs 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.
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.
21. Operating lease arrangements
The Group leases office premises. Information about leases for
which the Group is a lessee is presented below.
2020 2019
Right of use asset GBPm GBPm
------------------------------------------- ----- -----
At 1 January 2.1 2.7
Additions - 0.5
Depreciation charge for right of use asset (1.2) (1.1)
=========================================== ===== =====
At 31 December 0.9 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
2020 2019
Maturity analysis - contractual undiscounted cash flows GBPm GBPm
-------------------------------------------------------- ----- -----
Within one year 0.8 1.3
In the second to fifth years inclusive 0.1 0.9
More than five years - -
======================================================== ===== =====
Total undiscounted lease liabilities at 31 December 0.9 2.2
-------------------------------------------------------- ----- -----
2020 2019
Statement of financial position GBPm GBPm
-------------------------------- ----- -----
Current 0.8 1.2
Non-current 0.1 0.9
================================ ===== =====
At 31 December 2020 0.9 2.1
-------------------------------- ----- -----
2020 2019
Statement of comprehensive income GBPm GBPm
---------------------------------- ----- -----
Interest on lease liabilities 0.1 0.1
---------------------------------- ----- -----
2020 2019
Amounts recognised in the statement of cash flows GBPm GBPm
-------------------------------------------------- ----- -----
Total cash outflow for leases 1.1 1.2
-------------------------------------------------- ----- -----
22. Share-based payments
In 2020, the Group continued to incentivise employees through
its LTIP and AIS. Both are described in more detail in the
Directors' Remuneration Report.
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 -average
Number of exercise Number of exercise
options price options price
2020 2020 2019 2019
------------------------------------------ --------- --------- --------- ---------
At 1 January 462,440 - 605,641 -
AIS deferral shares award during the year 651,324 - 192,106 -
Exercised during the year (370,275) - (63,370) -
Lapsed during the year - - (271,937) -
========================================== ========= ========= ========= =========
At 31 December 734,489 - 462,440 -
========================================== ========= ========= ========= =========
Exercisable at 31 December 8,938 - 114,028 -
------------------------------------------ --------- --------- --------- ---------
The options outstanding at 31 December 2020 had an exercise
price of GBPnil (2019: GBPnil) and a weighted-average remaining
contractual life of 0.7 years (2019: 0.5 years).
The weighted average share price at the date of exercise for
share options exercised in 2020 was 63.0p (2019: 98.6p).
As the 2020 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 2020.
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. Further information on the Group's LTIP is set
out in the Directors' Remuneration Report.
The 2020 LTIP awards were made on 19 June 2020. The awards will
ordinarily vest on 31 March 2023, 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 2020 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 2020 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 2020 to 31 December 2022, and TSR
increasing by 15% per year on a cumulative basis from the date of
award to 31 March 2023, 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 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 2019 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 2019 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 TSR ("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 did not meet the threshold performance
target and lapsed on 31 March 2020.
The movement in the number of shares conditionally awarded under
the LTIP is set out below:
Weighted-average Weighted-average
Number of exercise Number of exercise
options price options price
2020 2020 2019 2019
----------------------------------- ----------- ---------------- ----------- ----------------
At 1 January 15,659,755 - 12,376,238 -
Lapsed during the year (4,372,492) - (2,971,286) -
Forfeited during the year (357,136) - (764,103) -
Vested during the year - - - -
Notionally awarded during the year 7,923,182 - 7,018,906 -
=================================== =========== ================ =========== ================
At 31 December 18,853,309 - 15,659,755 -
----------------------------------- ----------- ---------------- ----------- ----------------
Exercisable at 31 December - - - -
=================================== =========== ================ =========== ================
The options outstanding at 31 December 2020 had an exercise
price in the range of GBPnil (2019: GBPnil) and a weighted-average
remaining contractual life of 1.4 years (2019: 1.4 years).
The fair value of LTIP shares notionally awarded during the year
was calculated using Monte Carlo pricing models with the following
key assumptions:
2020 2019
-------------------------------------------------------- -------- --------
Share price at date of award GBP0.614 GBP0.991
Exercise price GBPnil GBPnil
Fair value at grant date GBP0.20 GBP0.34
Expected volatility (median of historical 50-day moving
average) 38% 37%
Expected life (years) 3.0 3.0
Expected dividend yield 0% 0%
Risk-free interest rate (0.1%) 1.0%
-------------------------------------------------------- -------- --------
Former Touchstone LTIP
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 of exercise Number of exercise
options price options price
2020 2020 2019 2019
--------------------------- --------- ---------------- --------- ----------------
At 1 January 740,056 - 1,146,810 -
Forfeited during the year (54,452) - (406,754) -
Lapsed during the year (267,105) - - -
Vested during the year (31,705) - - -
=========================== ========= ================ ========= ================
At 31 December 386,794 0.01 740,056 0.01
--------------------------- --------- ---------------- --------- ----------------
Exercisable at 31 December - - - -
=========================== ========= ================ ========= ================
The options outstanding at 31 December 2019 had an exercise
price of 1.366p (2019: 1.366p) and a weighted-average remaining
contractual life of 1.2 years (2019: 1.9 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 of exercise Number of exercise
options price options price
2020 2020 2019 2019
--------------------------- --------- ---------------- --------- ----------------
At 1 January 1,078,099 - 1,278,834 -
Forfeited during the year - - (200,735) -
=========================== ========= ================ ========= ================
At 31 December 1,078,099 2.13 1,078,099 2.13
--------------------------- --------- ---------------- --------- ----------------
Exercisable at 31 December 1,078,099 2.13 1,078,099 2.13
=========================== ========= ================ ========= ================
The options outstanding at 31 December 2019 had an exercise
price of GBP2.13 (2019: GBP2.13) and a weighted-average remaining
contractual life of 3.9 years (2019: 4.9 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 Touchstone LTIP, was
GBP2.9m (2019: GBP2.3m).
23. Long Term Incentive Carry Scheme
2020 2019
GBPm GBPm
-------------------------- ----- -----
At 1 January 5.5 6.8
Charge for the year 14.3 (1.3)
Payments made in the year (0.5) -
========================== ===== =====
At 31 December 19.3 5.5
-------------------------- ----- -----
See accounting policies note 1 for further details on the on the
Group's Long Term Incentive Carry Scheme.
24. Limited and Limited Liability Partnership interests
GBPm
------------------------------------- -----
At 1 January 2019 17.3
Investments during the year 6.8
Distributions in the year (2.0)
Change in fair value during the year (0.7)
===================================== =====
At 1 January 2020 21.4
Investments during the year 4.5
Distributions in the year (0.3)
Change in fair value during the year (3.4)
===================================== =====
At 31 December 2020 22.2
------------------------------------- -----
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
See note 1 for the valuation policy in respect of Limited and
Limited Liability Partnership interests.
25. Non-controlling interests
As described in Note 1, IPG Cayman LP and IP Venture Fund II LP
are funds which are deemed to be controlled by IP Group, and are
accordingly consolidated in the group financial statements. These
funds have non-controlling interests of 20% (2019: 11%) and 67%
(2019: 67%) respectively.
The following is summarised financial information for IP Group,
prepared in accordance with IFRS and modified for differences in
the Group's accounting policies. The information is before
inter-company eliminations with other companies in the Group.
IPG Cayman LP IP Venture Fund II LP
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------- ----------- -----------
Profit/(loss) for the year 2.7 0.2 (3.0) (3.2)
------------------------------------------- ------- ------- ----------- -----------
Profit attributable to NCI 0.5 - (2.0) (2.2)
Current assets 0.7 7.2 0.1 0.5
Non-current assets 82.3 63.3 24.4 25.9
Current liabilities (0.1) - (0.3) (0.6)
Non-current liabilities (77.8) (70.7) (26.4) (25.0)
------------------------------------------- ------- ------- ----------- -----------
Net assets 5.1 (0.2) (2.2) 0.8
------------------------------------------- ------- ------- ----------- -----------
Net assets attributable to NCI 1.0 - (1.5) 0.5
Cash flows from operating activities 5.4 (4.6) 0.5 1.0
Cash flows from investing activities (10.6) (5.5) (1.1) (2.3)
Cash flows from financing activities - - - -
------- ------- ----------- -----------
Net increase in cash and cash equivalents (5.2) (10.1) (0.6) (1.3)
------------------------------------------- ------- ------- ----------- -----------
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:
2020 2019
Statement of comprehensive income GBPm GBPm
---------------------------------- ----- -----
Revenue from services - 0.1
---------------------------------- ----- -----
2020 2019
Statement of financial position GBPm GBPm
----------------------------------- ----- -----
Investment in Limited Partnerships - 5.6
=================================== ===== =====
Amounts due from related parties - -
----------------------------------- ----- -----
b) Key management transactions
i) Key management personnel transactions
The following key management held shares in the following
spin-out companies as at 31 December 2020:
Number of Number of Number of
shares held shares acquired/ shares held
at (disposed at
Director/ 1 January of) in the 31 December
PDMR Company name 2020 period 2020 %
-------------- ----------------------------- ------------- ----------------- ------------- ------
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 2, 6,
7 271,334 - 271,334 <0.1%
Boxarr Limited 1,732 - 1,732 0.24%
Crysalin Limited 1,447 - 1,447 0.13%
Deep Matter Group plc 2,172,809 - 2,172,809 0.30%
Deepverge plc 4 51,927 - 51,927 0.42%
Ditto AI Limited - Ordinary
Shares 1,097,912,028 - 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%
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%
Open Orphan plc 2, 3, 6 91,785 - 91,785 <0.1%
Oxbotica Limited 29 - 29 <0.1%
Oxford Advanced Surfaces
Limited 1 - 1 <0.1%
Oxford Nanopore Technologies
Limited 92,725 - 92,725 0.31%
Perachem Holdings plc 108,350 - 108,350 0.29%
Salunda Limited 53,639 - 53,639 <0.1%
Surrey Nanosystems Limited 453 - 453 0.22%
Tissue Regenix Group plc 2,389,259 9,785,600 12,174,859 0.17%
Xeros Technology Group
plc 5 228 - 228 <0.1%
Zeetta Networks Limited 424 - 424 0.13%
Mike Townend 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%
Applied Graphene Materials
plc 22,619 - 22,619 <0.1%
Avacta Group plc 2, 6 20,001 - 20,001 <0.1%
Creavo Medical Technologies
Limited 117 - 117 <0.1%
Crysalin Limited 1,286 - 1,286 0.11%
Deep Matter Group plc 932,944 - 932,944 0.13%
Deepverge plc (4) 66,549 - 66,549 0.46%
Ditto AI Limited 613,048 - 613,048 <0.1%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 14 - 14 0.81%
Istesso Limited 1,185,150 - 1,185,150 1.05%
Itaconix plc 64,940 - 64,940 <0.1%
Mirriad Advertising plc 25,000 - 25,000 <0.1%
Oxbotica Limited 26 - 26 <0.1%
Oxford Advanced Surfaces
Limited 1 - 1 <0.1%
Open Ophan Plc 2, 3, (6) 91,785 - 91,785 <0.1%
Oxford Nanopore Technologies
Limited 28,651 - 28,651 <0.1%
Perachem Holdings plc 113,222 - 113,222 0.30%
Surrey Nanosystems Limited 404 - 404 0.20%
Tissue Regenix Group plc 1,950,862 9,600,000 11,550,862 0.16%
Ultraleap Holdings Limited
1 1,224 - 1,224 <0.1%
Xeros Technology Group
plc 5 355 - 355 <0.1%
Greg Smith Alesi Surgical Limited 2 - 2 <0.1%
Avacta Group plc 2, 6 3,904 (1,487) 2,417 <0.1%
Crysalin Limited 149 - 149 <0.1%
Deepverge plc 4 73 - 73 <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%
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%
Open Orphan plc 2, 3, 6 151,510 - 151,510 <0.1%
Oxbotica Limited 8 - 8 <0.1%
Oxford Nanopore Technologies
Limited 1,537 63 1,600 <0.1%
Surrey Nanosystems Limited 88 - 88 <0.1%
Tissue Regenix Group plc 50,000 - 50,000 <0.1%
Xeros Technology Group
plc 5 14 - 14 <0.1%
David Baynes Alesi Surgical Limited 4 - 4 <0.1%
Arkivum Limited 377 - 377 <0.1%
Creavo Medical 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%
Ultraleap 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%
Bramble Energy Limited - 16 16 <0.1%
Ceres Power Holdings plc
2, 6 5,697 (5,697) - <0.1%
Diurnal Group plc 7,500 - 7,500 <0.1%
Itaconix plc - 377,358 377,358 0.09%
Mirriad Advertising plc 66,666 - 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 2, 6 19,537 (19,537) - <0.1%
Creavo Medical Technologies
Limited 23 - 23 <0.1%
Diurnal Group plc 52,248 33,000 85,248 <0.1%
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 340 445 785 <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.
(3) Open Orphan plc acquired hVivo plc. Shares were issued
1:2.47, hVivo plc : Open Orphan plc. Open Orphan plc opening
position restated post acquisition of hVivo plc.
(4) Deepverge plc acquired Modern Water plc. Shares were issued
10:1, Modern Water plc : Deepverge plc. Deepverge plc opening
position restated post acquisition of Modern Water plc.
(5) Xeros Technology Group plc opening position restated
following 100:1 share consolidation.
(6) Disclosed number reflects position at the point that the
company ceased to be an IP Group holding.
(7) Restated opening position.
ii) Key management personnel compensation
Key management personnel compensation comprised the
following:
2020 2019
GBPm GBPm
-------------------------------- ----- -----
Short-term employee benefits(i) 3,206 2,776
Post-employment benefits(ii) 65 93
Other long-term benefits - -
Termination benefits - -
Share-based payments(iii) 1,515 1,195
================================ ===== =====
Total 4,786 4,064
-------------------------------- ----- -----
(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 22 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:
2020 2019
Statement of comprehensive income GBPm GBPm
---------------------------------- ----- -----
Revenue from services 0.2 0.5
---------------------------------- ----- -----
2020 2019
Statement of financial position GBPm GBPm
-------------------------------- ----- -----
Trade receivables 0.3 0.2
-------------------------------- ----- -----
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:
2020 2019
Statement of comprehensive income GBPm GBPm
---------------------------------- ----- ------
Net portfolio gains/(losses) 20.9 (54.2)
---------------------------------- ----- ------
2020 2019
Statement of financial position GBPm GBPm
-------------------------------- ----- -----
Equity and debt investments 500.8 532.7
-------------------------------- ----- -----
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:
2020 2019
Statement of financial position GBPm GBPm
------------------------------------------------- ----- -----
Intercompany balances with other Group companies 2.6 1.5
------------------------------------------------- ----- -----
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 2020, the Group's strategy, which was unchanged from
2019, 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 19.
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 2020:
Original Invested Remaining
Year of commencement commitment to date commitment
Partnership of partnership GBPm GBPm GBPm
------------------------ --------------------- ----------- -------- -----------
IP Venture Fund II LP 2013 10.0 7.6 2.4
UCL Technology Fund LP 2016 24.8 18.1 6.7
Apollo Therapeutics LLP 2016 3.3 3.0 0.3
======================== ===================== =========== ======== ===========
Total 38.1 28.7 9.4
----------------------------------------------- ----------- -------- -----------
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 2020 2019
APM reconciliation Definition and purpose GBPm GBPm
-------------------------- --------------- ---------------------------------- -------------------------- ------------- -------------
Hard NAV Primary Hard NAV is defined as the Total equity 1,331.9 1,141.9
statements total equity of the Group less Excluding:
intangible assets. Excluding Goodwill 0.4 0.4
intangible assets highlights Other intangible
the Group's assets that management assets - -
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.
The measure shows tangible
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.
========================== =============== ================================== ========================== ============= =============
Hard NAV 1,331.5 1,141.5
======================================================================================================== ============= =============
Hard NAV Primary Hard NAV per share is defined Hard NAV GBP1,331.5m GBP1,141.5m
per share statements as Hard NAV, as defined above,
Note 20 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 1,062,353,734 1,059,144,595
======================================================================================================== ============= =============
Hard NAV
per share 125.3p 107.8p
======================================================================================================== ============= =============
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. The measure shows a summary
Return Primary of the income statement gains
on Hard statements, and losses which directly impact Total comprehensive
NAV Note 8 Hard NAV. income 185.4 (78.8)
========================== =============== ==================================
Excluding:
========================== =============== ==================================
Amortisation
of intangible
assets - 0.3
Goodwill - -
impairment
Share-based
payment charge 2.9 2.3
IFRS 3 charge
in respect
of acquisition
of subsidiary
(note 8) 1.2 2.5
======================================================================================================== ============= =============
Return on
Hard NAV 189.5 (73.7)
======================================================================================================== ============= =============
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.
This is a key driver of the Change in
Return on Hard NAV which is fair value
a performance metric for of equity
Net portfolio directors' and debt
gains/(losses) Note 13 and employees' incentives. investments 148.9 (70.6)
========================== =============== ==================================
Gain on disposal
of equity
investments 82.5 16.1
Gain on deconsolidation
of subsidiary - 10.6
======================================================================================================== ============= =============
Net portfolio
gains/(losses) 231.4 (43.9)
======================================================================================================== ============= =============
Net realisations is defined
as the net amount
realised/invested
from/into the portfolio. It
is calculated by taking the
net amount of the purchases
of equity and debt investments,
less the proceeds from the
sale of equity and debt
investments. Purchase
The measure is used as a KPI of equity
Net Portfolio for the relative generation and debt
(realisations)/investment review or use of cash by the portfolio. investments ( 67.5) (64.7)
========================== =============== ==================================
Proceeds
from sale
of equity
and debt
investments 191.0 79.5
Net realisations/(investment) 123.5 14.8
Net overheads Financial Net overheads are defined as Other income 6.2 8.6
review: note the Group's core overheads
8 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, amortisation of intangib
les
and consolidated portfolio
company costs
Other administrative (29.4) (39.1)
expenses
(see statement
of comprehensive
income)
========================== =============== ==================================
Excluding:
========================== =============== ==================================
Administrative
expenses
-consolidated
portfolio
companies 0.4 5.4
IFRS 3 charge
in respect
of acquisition
of subsidiary
(note 8) 1.2 2.5
======================================================================================================== ============= =============
Net overheads (21.6) (22.6)
======================================================================================================== ============= =============
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
deposits statements of 13 months for deposits. cash equivalents 127.6 121.9
-------------------------- --------------- ----------------------------------
Deposits 142.7 73.0
======================================================================================================== ============= =============
Cash 270.3 194.9
-------------------------------------------------------------------------------------------------------- ------------- -------------
30. Post balance sheet events
In February 2021 IP Group, Inc., the Group's North American
platform, secured an additional $50.0m (GBP36.5m*) of funding,
including $40.0m from a new US blue-chip institutional investor. IP
Group plc committed $10.0m of funding and now has a 61.3% interest
in the North American platform. This brings the total funds raised
by the team over the past twelve months to $63.5m, including $15.0m
from IP Group plc. This additional funding is consistent with the
Group's strategy of financing IP Group, Inc. alongside third-party
strategic investors. The funds will support the continued growth of
the platform's maturing portfolio as well as its pipeline of new
opportunities.
*GBP equivalent using 1.37 USD/GBP
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