FOR RELEASE ON
|
13 March
2024
|
("IP
Group" or "the Group" or "the Company")
IP Group plc 2023 Annual
Results Release
Focused and well positioned
for the future;
significant inflection points expected over the short
term.
IP Group plc (LSE: IPO), which
invests in breakthrough science and innovation companies with the
potential to create a better future for all, today announces its
annual financial results for the year ended 31 December
2023.
Highlights
Maturing portfolio with multiple near-term value creation
opportunities
- Significant portfolio
inflection points, including over 10 companies now in clinical
studies and expecting key data by the end of 2025, expected to
evidence strong value creation
- Capital allocation
prioritised to high-growth sectors where we have deep expertise and
experience
o Healthier future (Life Sciences): Istesso on track to deliver Phase 2b data for Leramistat
(MBS2320) in rheumatoid arthritis in H1 2024; Pulmocide Phase 3
study of novel anti-fungal for invasive pulmonary Aspergillus
underway
o Tech-enriched future (Deeptech): Featurespace posts double-digit revenue growth; significant
fundraisings completed for Quantum Motion, Accelercomm &
Garrison, portfolio poised to benefit from growth in
2024
o Regenerative future (Cleantech): Significant capital ($15m) committed to Hysata Series B
fund raise, which will complete in 2024. Technical milestone
achieved in 2023
- £0.7bn of total capital
raised by portfolio in 2023 alongside leading co-investors
including Bosch Ventures, BP Ventures, Clean Energy Ventures,
L&G, M&G, Merck Ventures, Morningside, Pfizer, Roche and
Sofinnova (2022 £1.0bn)
- Decisive action to
focus on the highest-growth opportunities, deprioritising future
investment in our US platform and cessation of plans for China
growth fund
Financial strength maintained during challenging
markets
- Strong balance sheet
and liquidity with gross cash of £226.9m (2022: £241.5m)
- £73.2m portfolio
investment into 33 companies across our three high-growth sectors
(2022: £93.5m, 46 companies) representing around 10% of capital
raised by our portfolio (2022: 9% of total capital
raised)
- Cash proceeds in line
with expectations at £38.6m (2022 £28.1m)
- NAV per share declined
to 114.8p (-13%), driven primarily by adjustments to the carrying
values of First Light Fusion, our US platform, Hinge Health and
Akamis Bio and reflecting a fair value decrease of listed holding
Oxford Nanopore, Since year-end, further reduction in listed
portfolio of £45.4m.
- Third party managed
funds of £650m (2022: £700m), with more than £100m available for
investment
Continued commitment to shareholder returns
- Launched further £20m
share buyback fulfilling our commitment to regular cash returns
from realisations
- As announced on 18
December 2023, future cash returns are expected to be in the form
of share buybacks when the share price discount to NAV exceeds
20%
- Over £75m of total cash
returned to shareholders through dividends and share buybacks since
2021
Summary financials
|
FY 2023
|
FY
2022
|
Net Asset Value (NAV)
(i)
|
£1,190.3m; 114.8pps
|
£1,376.1m; 132.9pps
|
Return on NAV
(i)
|
-13%:
(£172.2m)
|
-20%;
(£341.1m)
|
Loss for the year
|
(£174.4m)
|
(£344.5m)
|
Total portfolio
(i)
|
£1,164.9m
|
£1,258.5m
|
Gross cash and deposits
(i)
|
£226.9m
|
£241.5m
|
Cash proceeds(i)
|
£38.6m
|
£28.1m
|
Portfolio investment
(i)
|
£73.2m
|
£93.5m
|
(i)
Note 29 details the Alternative Performance
Measures ("APM")
Greg Smith, Chief Executive of IP Group,
said:
"The market environment for
early-stage investing remained challenging
in 2023. In response, we have prioritised and
heavily focused our activities and capital on developing leading
portfolio opportunities in the high-growth sectors where our teams
have deep expertise. The Group's portfolio successfully raised a
total of £0.7bn, with the Group
investing £73m alongside more than fifty co-investors. Having
appropriately managed our level of portfolio investment, the Group
finished the year in a strong financial position with £227m gross
cash - an important strategic asset in the current
environment.
The Board remains committed to delivering shareholder returns
that include a regular cash component from realisations. This is
now anticipated to be solely in the form of share buybacks while
the share price discount to NAV exceeds 20%.
I believe the Group is well positioned for
2024. We have an excellent team that combines university
relationships with deep sector experience and networks, allowing us
to access highly differentiated dealflow.
We are one of
the companies most closely aligned with the UK's 'science
superpower' ambition, which we intend to build on this year. In
pursuing our purpose to accelerate the power of science for a
better future by starting and growing businesses driving the energy
transition, the digital transformation and improved health
outcomes, we can make a significant dent in some of society's
biggest needs and deliver compelling financial returns for our
shareholders."
Webinar
IP Group will host a webinar for analysts and
investors today, 13 March, at 09:00am. For more details or to
register as a participant please visit
https://www.investormeetcompany.com/ip-group-plc/register-investor.
For more information, please
contact:
IP Group
plc
|
www.ipgroupplc.com
|
Greg Smith, Chief Executive Officer
David Baynes, Chief Financial and Operating
Officer
Liz Vaughan-Adams, Communications
|
+44 (0) 20 7444 0050
+44 (0) 20 7444 0062/+44 (0) 7967
312125
|
Portland
|
Tristan Peniston-Bird
Alex Donaldson
|
+44 (0) 7772 031886
+44 (0) 7516 729702
|
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 13 March 2024.
The financial information set out
in this Annual Results Release does not constitute the Company's
statutory accounts for 2023 or 2022. Statutory accounts for the
years ended 31 December 2023 and 31 December 2022 have been
reported on by the Independent Auditor. The Independent Auditor's
Reports on the Annual Report and Financial Statements for 2023 and
2022 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 2022 have been filed with the Registrar of Companies. The
statutory accounts for the year ended 31 December 2023 will be
delivered to the Registrar following the Company's Annual General
Meeting.
The 2023 Annual Report and
Accounts will be published in April 2024 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 that 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
Rarely has the expression 'may you
live in interesting times' been more apposite than when applied to
the world in which we live today. Often expressed as a 'curse' to
denote times of trouble and uncertainty, its accuracy in describing
the geopolitical, economic and market backdrops that set the
context for our activities in 2023 and our expectations for the
current year is indisputable. The carry-over from 2022 of the
re-rating downwards of listed technology companies, outside of
those involved in AI, was progressively reflected in reduced
appetite for venture investment in private market funds. This
impacted valuations as funding rounds became more challenging to
close, with fresh money able to negotiate advantageous terms often
to the detriment of existing investors unable to fund follow-on
investment.
Fortunately, the balance sheet
strength that we established in mid-2022 through raising long-term
debt capital ahead of the subsequent series of interest rate rises
in the UK, provided the capacity to support our portfolio companies
selectively where required. Once again, we progressively pared back
our initial investment plans to ensure we retained capacity to
support our priority portfolio companies into 2024 and ended the
year with £227m gross cash.
The mix of our portfolio,
substantially in life sciences and energy transition, plus leading
companies in virtual reality, cyber resilience and fraud detection,
remains highly relevant to the future desired by the societies we
serve.
Increasing public policy support for science and
innovation
We are increasingly encouraged by
evidence of growing public policy support for science and
innovation, given that we are one of the UK's leading companies
supporting the transition of academic discovery and innovation to
successful commercial realisation. We welcomed the Chancellor's
announcement in June of a comprehensive package of policies
spanning regulation, research and development ("R&D"),
infrastructure, skills and planning, all aimed at driving
investment, growth and innovation.
Investment capital to meet these
objectives is key to delivering the economic growth and jobs needed
to secure the improved lifestyle we desire to leave for future
generations. Investing to enhance existing technologies and to
bring through transformative new technologies aligns fully with our
mission to deliver a better future for people and the
planet.
Thus, we are also highly
supportive of the initiatives announced by the Chancellor in the
Spring Budget, the Autumn Statement and the Mansion House reforms
to increase investment through UK retirement savings schemes into
unlisted equities. The UK has an enviable, indeed leading, position
in academic-led innovation and these reforms have highlighted the
opportunities available both to scale-up investment support for
such business and increase returns to retirees over their
investment horizon. Once implemented, we stand to gain from the
resulting investment flows.
Investment and Financial Performance in
2023
Notwithstanding the 'risk-off'
sentiment across much of the market in 2023, we enjoyed some
significant successes and achieved a number of critical milestones;
let me draw attention to two.
In our energy transition
portfolio, Hysata marked a year of outstanding progress,
culminating in being recognised by the COP28 Presidency with an
Energy Transition Changemaker award. Hysata's revolutionary
high-efficiency electrolyser is designed to deliver the world's
lowest cost green hydrogen, a key enabler of the clean energy
transition. In December, the Group committed US$15m (£11.8m)
to the first close of a fresh funding round for Hysata, which was
externally priced at a substantial uplift to its previous round,
resulting in our existing stake almost tripling in value, with a
fair value uplift of £46.5m.
Istesso completed recruitment for
its Phase 2b trial of Leramistat (MBS2320), its lead drug in
rheumatoid arthritis, which represents a $25bn market, and expects
the data by the first half of this year.
There were also disappointments;
Oxford Nanopore (ONT), in which the Group owns a 9.8% stake, saw
its share price fall markedly over the year, notwithstanding
revenue growth just below the lower end of guidance. While the
price decline reduced the value of our holding by £31.9m, we remain
convinced of the long-term value of this investment.
Finally, First Light Fusion, which
had successfully achieved fusion in 2022, has not yet completed a
planned funding round given market conditions and, as a result, we
wrote down our investment by £49.6m, or 43%, essentially reversing
much of the unrealised gain recognised in 2022 following their
announcement of achieving a fusion result.
Driven by write-downs in the
portfolio, we recorded a loss of £174.4m for the year; (2022:
£344.5m loss). As at 31 December 2023, our Net Asset Value stood at
£1,190.3m (2022: £1,376.1m) or 114.8 pence/share (2022:
132.9pence/share). In 2023 we invested £73.2m into the portfolio,
out of a total amount raised by the portfolio of £667m and we
realised cash from disposals, including deferred cash from prior
year disposals of £38.6m (2022 comparatives were respectively
£93.5m, approximately £1bn and £28.1m). Our share price ended the
year at 58.1p, marginally lower than its entry point to the year of
61.2p.
Addressing the discount to Net Asset Value
('NAV')
The Board set one of its
objectives at the outset of 2023 to take steps designed to narrow
the discount at which our shares trade, versus the stated NAV per
share. We recognise that continuation of this discount is of
considerable disappointment to our shareholders.
In conjunction with our advisors
and brokers, management significantly increased the outreach made
to current and potential shareholders, both in the UK and
internationally. Additionally, the Board considered a wide range of
alternative structures through which we could conduct our business
and discussed these with advisers and, in principle, with a number
of our larger shareholders. The outcome of these actions was
successful in broadening interest in the Group from those who were
not already invested but that has not yet resulted in material new
investment. It was also clear that structural change did not offer
an obvious route to a valuation uplift, and we concluded, with
broad shareholder support, to continue to concentrate management
effort on working with our priority portfolio companies, given the
many critical events and milestones expected over the coming year.
That concentration also resulted in scaling back on some of our
international activities and Greg discusses this more fully in his
report.
We also concluded that we should
pause paying a dividend while our shares stood at a significant
discount to NAV and should embark upon a modest share buyback
programme, both to capture the discount and evidence whether such
market intervention would meaningfully narrow the discount. We
announced a buyback programme of up to £20m on 18 December 2023. To
date we have bought 5,225,207 shares at an average price of
51.4p.
Director retirement
Our Non-executive colleague, Dr.
Elaine Sullivan, will this year have (substantially) completed her
third term of three years and, accordingly, the Company announces
that she will not be standing for re-election at its annual general
meeting ("AGM") on 12 June 2024 and will step down from the
Company's board of directors effective from the close of the
AGM.
Looking forward to 2024
2024 sees elections in more than
50 countries representing close to half of the world's population
and GDP, with many outcomes likely to bring significant change. Two
major wars are continuing with no sign of resolution and indeed
risk drawing others into conflict. Inflation seems to have peaked
in major Western economies, but expectations now are for a more
measured pattern of interest rate reductions. Cost of living
challenges remain elevated and all of the above contribute to
migration patterns that are difficult to control.
As a result, it is likely that
risk appetite will remain cautious until at least the electoral map
has settled and potential policy changes are digested. The areas in
which we invest remain critical to building the future we desire to
leave to future generations so we will continue to ensure that we
have the people and financial resources to support our portfolio
companies as they scale up their contributions to that future. Once
again, I look forward to updating you on progress at the end of a
year that we anticipate will see many milestones
reached.
Sir Douglas
Flint
Chairman
13 March 2024
CHIEF EXECUTIVE'S OPERATIONAL
REVIEW
Overview
The overall market environment for
growth companies and early-stage investing remained challenging
during 2023, as Douglas has articulated above. In this context, the
Group has made encouraging progress, focusing our capital and time
on the most promising opportunities within the three high-growth
sectors where we have deep expertise and experience, maintaining
our financial strength and taking further action to deliver
shareholder returns. Our overall financial performance for the
year, a negative return of 13% on NAV per share, was disappointing
and below our longer-term aspirations.
Our recent strategy has been one
of increased focus, under which around half of our investment over
the last two years has been into eight priority companies, while we
have deprioritised future investment in the US and ceased plans to
raise a fund in China. Nearly 80% of our portfolio value is now
concentrated in 20 companies and more than 90% in 40 companies. I
remain confident that this increased focus, combined with a
significant number of portfolio inflection points in 2024 and
beyond, has the potential to deliver compelling returns.
The
market opportunity for our investment themes
The Group's overall investment thesis remains
that scientific and technological innovation with a clear focus on
the three thematic areas where the Group has deep expertise and
experience, will address significant societal need and market
opportunity allowing us to deliver financial returns with
real-world impact.
For a healthier future (life sciences), rapid
advancements in biotechnology, pharmaceuticals, and healthcare
delivery are driving transformative changes in how we understand,
treat, and prevent diseases, presenting a huge economic opportunity
for innovation. Worldwide prescription drug sales are estimated to
be $1.4tn in 2026, with the well-documented 'patent cliff' for
blockbuster drugs putting $10bns of this at risk. EY estimates
Biopharma companies have a record-equalling $1.4tn 'firepower' for
business development and licencing of potential new drugs. IP Group
is strategically positioned to capitalise on this megatrend, with
over ten companies now in clinical studies and expecting key data
by the end of 2025, including a number of later stage clinical
trials.
For a tech-enriched future (deeptech), the
global "digital transformation", characterised by the comprehensive
integration and relentless increase in sophistication of digital
technologies in every aspect of society and business, is the most
profound and pervasive megatrend shaping the future of our world.
Spending in this area is forecast to reach $3.4 trillion by 2026.
IP Group has been investing for many years in the fundamental
technologies enabling this transition including artificial
intelligence, future computing, human-machine interface and next
generation communication innovations. Embracing the digital
transformation megatrend not only presents lucrative investment
opportunities but also reinforces our commitment to fostering
innovation and driving positive change in the global
economy.
For a regenerative future (cleantech), the
global trajectory continues to converge towards adoption of clean
energy solutions. Global investment in the energy transition hit
$1.8 trillion in 2023, up 17% on the previous year. Our foresight
in recognising this market opportunity has positioned us to
capitalise on the accelerating transition towards clean energy,
resource efficiency, and environmental sustainability. Leveraging
our expertise and networks through our Kiko Ventures brand, we are
actively identifying and nurturing disruptive startups and
visionary entrepreneurs driving impactful solutions that generate
attractive financial returns.
Portfolio focused on high potential
opportunities reaching maturity
As noted in our RNS on 30 January 2024, we
have made a number of fair value reductions in the portfolio,
primarily as a result of a more difficult funding environment. This
resulted in a negative return on NAV of 13% or £172.2m (2022:
negative return of 20%, £341.1m). As of 31 December 2023, the value
of the Group's portfolio was £1,164.9m (2022: £1,258.5m). This is
summarised as follows, with further commentary in the Portfolio
Review below.
All £m unless stated
|
Invested
|
Cash
proceeds
|
Net
portfolio gain/(loss)
|
Fair
value
at 31
December 2023
|
Simple
return on capital (%)
|
|
Healthier future: Life Sciences
(ex ONT)
|
33.9
|
3.7
|
(73.9)
|
393.8
|
(17%)
|
Healthier future: ONT
|
-
|
-
|
(31.9)
|
173.6
|
(16%)
|
Tech-enriched future:
Deeptech
|
11.9
|
33.2
|
(4.9)
|
231.4
|
(2%)
|
|
Regenerative future: Cleantech
(Kiko Ventures)
|
17.6
|
0.1
|
(8.7)
|
275.3
|
(3%)
|
|
Platform investments
|
9.8
|
1.6
|
(41.1)
|
90.8
|
(33%)
|
|
Total Portfolio
|
73.2
|
38.6
|
(160.5)
|
1,164.9
|
(13%)
|
|
· Healthier future (life
sciences): Disappointing financial performance
in a difficult funding environment for Life Sciences companies was
balanced by underlying progress within the portfolio, with ten
companies expecting key clinical data in the next two years. Most
notable is Istesso, which expects Phase 2b data for Leramistat
(MBS2320) in rheumatoid arthritis in the first half of this year,
and Pulmocide, whose Phase 3 study of its novel anti-fungal for
invasive pulmonary Aspergillus is well underway. Key notable
non-clinical milestones included Genomics plc's £35m financing
(which closed in 2024) to help develop its advanced genetic
screening business build-out, and Apollo Therapeutics' $227m Series
C financing. The largest fair value reductions were Oxford Nanopore
and Hinge Health where, despite continued double-digit revenue
growth for both companies, lower revenue multiples
applied.
· Tech-enriched future
(deeptech): Our most valuable
deeptech holding, Featurespace, continues to impress, posting
double-digit revenue growth even at a time of a slowdown in the
market more generally. Our early, maturing portfolio of assets
attracted large amounts of growth capital including Accelercomm in
a £21m series B and Quantum Motion Technologies closed the largest
ever funding round for a European quantum computing start-up with
over £40m raised. The portfolio did see some impairments caused by
specific issues but as 2024 progresses it is, on the whole, well
placed to capture growth.
· Regenerative future
(cleantech): the majority of the Kiko portfolio
performed well this year, with successful funding rounds for
C-Capture, OxCCU, Hysata and Mixergy despite worsening funding
conditions. We have grown the Kiko team in anticipation of
softening prices for new cleantech investments and anticipate an
attractive environment for new investments in the coming
year. First close of Hysata Series B generated a fair
value uplift of £46.5m in our holding, following significant
technical progress. First Light Fusion has not yet
completed its planned Series C funding round, and we have reversed
the fair value increase from 2022 to reflect this, while noting
that the inertial confinement fusion landscape remains buoyant. We
take the outcome of COP28 climate conference as broadly positive,
with agreement to transition away from fossil fuels entering the
final text for the first time and agreement to triple renewables
capacity by 2030.
Geographic focus
Over the last 20 years, the Group has played a
leading role in creating a vibrant ecosystem for science and
technology commercialisation in the UK. We took a pioneering role
in partnering with the University of Oxford, were founder investors
in dedicated investment vehicles such as Oxford Science
Enterprises, Cambridge Innovation Capital and the UCL Technology
Fund and remain the most active backer of university spin-outs in
the UK, primarily through our market-leading EIS fund manager,
Parkwalk Advisors. To this end, 84% of the Group's portfolio by
value is UK-based, although many companies provide their products
and services to an international customer base.
Our operation in Australia is much younger.
However, driven largely by the success of Hysata, a spin-out from
the University of Wollongong in New South Wales, the portfolio had
another strong year and has delivered the strongest returns since
it was established in 2017. Australian portfolio companies are
included within the relevant sectors in the portfolio analyses
below.
In North America, where the Group
has a 58% holding in a fund managed by Longview Innovation, the
funding environment for LP funds has remained difficult. Having
been unable to secure significant additional funding alongside $10m
committed by the Group during 2022, the Longview team has scaled
back its overheads and is focused on maximising value from its
current portfolio. As part of our strategy, we have deprioritised
any further capital to the US platform. While there are a number of
potential value inflection points in the Longview portfolio this
year, the Group has reduced the value of its holding in the US
platform by around 50% to reflect these circumstances.
Further, consistent with our
strategy to focus on the highest-growth opportunities, we have
decided not to proceed with our plans to raise a fund in China,
although continue to actively pursue co-investment from the wider
Asia region.
Financial strength during challenging
markets
The Group has proactively managed
its level of investment during the year and, as a result, remains
in a strong financial position with gross cash and deposits of
£227m at year end. The Directors took proactive steps to maintain
financial strength by securing a private market debt issue in 2022
and reducing investment levels to £73.2m in 2023 from £93.5m in
2022. £38.6m of cash proceeds were received in 2023. In addition,
the Group's portfolio remains generally well-funded, having
raised £667m in
2023.
Third-party funds under
management
The Group has a flexible approach
to capital that combines balance sheet monies with earlier-stage,
tax-advantaged funds as well as later-stage private capital and now
manages or advises £650m (2022: £700m). Having appointed a new Head of Global Capital to focus on
third-party funds, the team has more than doubled its engagements
with public and private investors in 2023 and continues to pursue
further capital in our third-party funds platform.
Approximately three-quarters of
the Group's private capital, £469m, is managed by Parkwalk, the
Group's specialist EIS fund management subsidiary (2022: £477m).
This includes funds managed in conjunction with the universities of
Oxford, Cambridge, Bristol and Imperial College London.
The Group has further integrated Parkwalk
Advisors into the Group as a source of distinctive deal flow and
strengthened relationships with industry peers to surface
co-investment opportunities. Market data provider Beauhurst again
named Parkwalk as the most active investor in the
sector.
In May 2023, we received FCA
approval for Parkwalk to be a full-scope AIFM (alternative
investment fund manager). Parkwalk invested £45.1m in 2023 (2022:
£57.4m) in the university spin-out sector across 27 companies
(2022: 28). Eight new companies joined the Parkwalk portfolio, two
successful exits were completed, returning £24.9m to investors,
while two investments were sold for a loss and two were
written-off. Parkwalk liaised closely with BEIS, the newly formed
DSIT, HMT and HMRC on the financial ecosystem for
knowledge-intensive spinout companies and the UK Government's
'science superpower' agenda.
The majority of our remaining
funds are managed by our Australian team. The IP Group Hostplus
Innovation Fund, managed for top-ten Australian Superannuation
fund, Hostplus, now totals A$310m (£163m) and has invested in
several of the Group's portfolio companies including Oxford
Nanopore, Wave Optics, Oxa and Hysata, providing additive growth
capital for companies as they scale. TelstraSuper is also investing
alongside IP Group through a co-investment mandate.
Impact
The Group's purpose is to
accelerate the impact of science for a better future, delivering
financial returns alongside positive, real-world impact. Our
strategy to do so is organised around five pillars of activity -
'accelerate value creation'; 'have an impact on the world that
counts'; 'develop our unique insight, expertise and access'; 'build
a truly distinctive reputation'; and 'be a home for exceptional
talent' - underpinned by class-leading internal processes,
services, and controls.
We have successfully refreshed the
Group's brand identity, aimed at highlighting our expertise and
clearly aligning around our impactful purpose. In terms of impact,
we have partnered with the Value Balancing alliance to co-create an
impact framework and approach for developing KPIs for VCs and have
built an impact approach for life sciences and
co-convened a working group for VC firms
with the Operating Principles for Impact Management (OPIM), to
provide a platform that will allow for the sharing of best practice
and key learnings around impact. The Group is AAA rated by MSCI,
ranked first for our industry group by Sustainalytics and has PRIME
status in the ISS ESG corporate rating.
Talent as a key driver of success
The talent and capability within
in our investment teams is a key asset for the Group. Strengthening
the professional capabilities of our investment teams has been a
key focus since the formation of the investment partnerships in
2018. Our investment partners have considerable experience across
venture and in their respective domains of commercial
specialisation, complemented by strong operational experience. The
teams each have a wide network of co-investors, innovators, and
entrepreneurs, which brings high-quality pipeline opportunities,
complimentary capital and portfolio management talent. We continue
to work hard to build stronger networks amongst potential acquirers
and to expand our geographical network to help our companies with
international reach.
We are also improving the external
visibility and reputation of our investment teams, notably with the
Kiko brand but also across all our divisions by marketing our
thought leadership on social media and speaking at events. All our
investment teams have now worked together for an extended period.
Team processes have been professionalised and are continuously
improving, with investment decision-making delegated appropriately
to practitioners.
During 2023 the Group has seen
exceptionally low unplanned talent turnover and added a small
number of Investment Associates into our Kiko team. We have
maintained a 'high' eNPS score, completed our 'values' project and
delivered on the second year of our employee-led Inclusion and
Diversity (IDP) masterplan. The Group was placed first in the 2024
Honordex Inclusive PE & VC index.
The
Artificial Intelligence opportunity
As outlined above, one of the
Group's investment areas includes identifying, backing and growing
businesses that apply artificial intelligence and machine learning
to significant market opportunities as well as the deep technology
solutions that will enable the realisation of these opportunities,
such as future compute and next generation networks.
We are also taking a proactive
approach to the use of generative artificial intelligence (Gen AI)
within our business processes, both through the deployment of
market leading off-the-shelf solutions to improve team
productivity, and the development of in-house, proprietary toolsets
for improving efficiency across all our workstreams. We expect that
the development of Gen AI tools will have a positive impact on
opportunity sourcing, due diligence and market analysis in the
shorter term. As an example, we have developed a proprietary IP
landscaping tool that leverages the inherent power of large
language models to rapidly analyse and deliver insights from bulk
data, which is being used initially in our Australian business. We
are also actively monitoring the use of Gen AI across the venture
capital ecosystem, employing our deep understanding of technology
to identify, employ and invest in differentiated solutions that
align with our tech-enriched future/digital transformation
investment theme.
Continued commitment to shareholder
returns
The Group aims to deliver returns
to shareholders primarily in the form of long-term capital
appreciation. Subject to the Group's capital allocation policy, the
majority of cash proceeds will be typically reinvested with a
smaller proportion used to deliver a cash return to shareholders.
Since the introduction of this approach in 2021, the Group has
delivered more than £75m of cash returns to our shareholders via
dividends and share buybacks.
Given the continued discount
between the Company's share price and its NAV per share, which
the Directors believe significantly
undervalues the Group's portfolio, we
launched a share buyback of up to £20m in
December 2023. The Board remains committed to
utilising a proportion of realisations to make regular cash returns
to shareholders, which will typically be made in the form of share
buybacks when the share price discount to NAV exceeds 20%. As
previously announced, regular dividend payments will be suspended
under such conditions, and accordingly the Board is not
recommending a final dividend for 2023.
During 2023, the Group purchased
220,302 shares for £0.1m and a further
5,004,905 shares for £2.6m have been purchased in 2024.
In 2023, the Group paid
the final 2022 dividend of 0.76 pence per share
and an interim dividend of 0.51 pence per share, a total of £13.0m
for the year.
In addition, we have more than
doubled our investor relations activities with further
investor-focussed events as well as our flagship 'Scale it up'
event at London's Science Museum in May where we hosted a debate on
how the UK can help support more UK innovation to become
world-leading companies, showcasing a number of our portfolio
companies. We have also increased the number of roadshows the Group
undertakes, meeting with shareholders and non-holders in the UK,
Europe, US and Middle East.
Outlook
As the UK's most active investor
in university spin-outs, we continue to see huge opportunity for
the Group to benefit from increasing public policy support for
science and innovation with £109m
capital across our third party managed funds
including Parkwalk still to invest
alongside balance sheet funding.
While the current macro environment remains
challenging, we see continued interest in
our portfolio and remain confident that investor appetite for
growth companies will return. The Group
and its portfolio remain well-funded and we are confident the Group
will reap the benefits of our maturing portfolio given the number
of key milestones anticipated over the next 12-18 months,
particularly in life sciences. The Group is committed to delivering
value for all stakeholders and anticipates that the next 18 months
could be transformational to fair value growth.
Greg Smith
Chief Executive Officer
13 March
2024
PORTFOLIO REVIEW BY
SECTOR
Overview
The Group has a focused and maturing portfolio
of companies that contribute to a healthier future (life sciences),
a tech-enriched future (deeptech) and a regenerative future
(cleantech, through our Kiko Ventures platform).
In addition, a small number of investments are
categorised as platform investments, which are funds or portfolio
companies that invest in other opportunities.
|
As at
31 December 2023
|
As at
31 December 2022
|
Sector
|
£m
|
%
|
£m
|
%
|
Healthier future: Life sciences
(ex-ONT)
|
393.8
|
33%
|
435.6
|
35%
|
Healthier future: Life sciences
(ONT)
|
173.6
|
15%
|
205.5
|
16%
|
Tech-enriched future: Deeptech
|
231.4
|
20%
|
227.3
|
18%
|
Regenerative future: Cleantech (Kiko
Ventures)
|
275.3
|
24%
|
266.4
|
21%
|
Platform investments
|
90.8
|
8%
|
123.7
|
10%
|
Total portfolio
|
1,164.9
|
100%
|
1,258.5
|
100%
|
Portfolio Review: Healthier future: Life
sciences
IP Group's Life Sciences portfolio
comprises holdings in 33 companies valued at £567.4m at 31 December
2023.
Company name
|
Description
|
Group Stake at 31 December
2023
%
|
Net
investment/ (divestment)
£m
|
Unrealised + realised fair value
movement
£m
|
Fair value
of Group
holding
at 31 December 2023
£m
|
Oxford Nanopore Technologies plc
|
Enabling the analysis of any living thing, by
any person, in any environment
|
9.8%
|
-
|
(31.9)
|
173.6
|
Istesso Limited
|
Reprogramming metabolism to treat autoimmune
disease
|
56.5%
|
15.0
|
3.1
|
113.8
|
Hinge Health, Inc.
|
The World's First Digital Clinic for Back and
Joint Pain
|
1.8%
|
-
|
(19.6)
|
34.0
|
Crescendo Biologics Limited
|
Biologic therapeutics eliciting the immune
system against solid tumours
|
14.4%
|
0.8
|
-
|
19.6
|
Pulmocide Limited
|
Novel inhaled treatment for life-threatening
fungal lung infections
|
12.6%
|
-
|
4.5
|
19.2
|
Ieso Digital Health Limited
|
Digital therapeutics for psychiatry
|
31.6%
|
0.6
|
(3.5)
|
18.9
|
Artios Pharma Limited
|
Novel oncology therapies
|
7.3%
|
-
|
(0.9)
|
17.4
|
Microbiotica Limited
|
Gut-microbiome based therapeutics and
diagnostics
|
17.7%
|
-
|
-
|
16.1
|
Mission Therapeutics Limited
|
Targeting deubiquitylating enzymes for the
treatment of CNS and mitochondrial disorders
|
18.2%
|
3.9
|
(6.3)
|
15.8
|
Centessa Pharmaceuticals plc
|
Discovery and development of medicines that are
transformational for patients
|
2.6%
|
-
|
9.2
|
15.7
|
Other companies (23 companies)
|
|
|
9.9
|
(60.4)
|
123.3
|
Total
|
|
|
30.2
|
(105.8)
|
567.4
|
Oxford Nanopore continues to
underperform on a results and share-price basis, culminating in a
disappointing results announcement in March, having warned that its
2023 revenues would be lower than its previous guidance range in
January 2024. With core growth of 16% in 2023, and revised guidance
towards underlying core growth of 20-30% in 2024 and 30% in the
mid-term, we continue to believe that the company's long-term
fundamentals remain intact. We believe that the company has now rebased its forecast, margins and growth
outlook to what we feel is a realistic level, with room for
outperformance.
The largest transaction in 2023
for the Group was a £15.0m investment into Istesso, primarily via a
convertible note, with a further £10m convertible loan invested in
January 2024. We continue to see good progress at Istesso with its
Phase 2b study of Leramistat in rheumatoid arthritis due to read
out in the first half of 2024. The largest funding round within the
portfolio was Apollo Therapeutics' $226.5m Series C financing
while, in early 2024, Genomics plc completed a £35m funding round
which will help the company build upon its initial commercial
traction in the field of advanced genetic screening.
In terms of clinical progress
across the portfolio, we saw Mission and Artios Pharma announcing
positive Phase 1 data for their lead programmes, and Artios Pharma,
Mission, Kynos and Pulmocide all initiating important clinical
studies, including Pulmocide's Phase 3 study in invasive pulmonary
Aspergillus. We now have ten companies in clinical studies that
could provide key value-driving data over the coming two years.
We also saw positive outcomes for Autifony, which
announced a global licensing deal worth up to $770m with Nasdaq's
Jazz Pharmaceuticals which resulted in a £6.1m fair value
uplift.
In terms of NAV performance, the
value of the portfolio declined by £73.9m (-17%) over the year,
driven largely by significant fair value reductions in some key
assets, including Hinge Health £17.8m (-33%), Akamis Bio £15.9m
(-75%), Oxular £14.1m (-88%), Enterprise Therapeutics £7.9m (-39%),
Mission Therapeutics £6.3m (-35%) and Oxehealth £5.2m (-50%). These
write-downs resulted from independent valuation reappraisals
informed by the more difficult funding and pricing environment,
fundraising conducted at depressed prices or, in the case of
Oxular, from clinical setbacks.
We expect a more positive year in
2024, with downward pressure on valuations reducing, and evidence
that the pharma industry's appetite for acquiring the best clinical
assets is only increasing, as witnessed by some very significant
transactions announced in late 2023/early 2024.
Portfolio Review: Tech-enriched
future: Deeptech
IP Group's Technology portfolio
comprises holdings in 32 companies valued at £231.4m at
31 December 2023.
Company name
|
Description
|
Group Stake at 31 December
2023
%
|
Net
investment/ (divestment)
£m
|
Unrealised + realised fair value
movement
£m
|
Fair value
of Group
holding
at 31 December 2023
£m
|
Featurespace Limited
|
Leading predictive analytics company
|
20.1
|
-
|
8.8
|
73.0
|
Garrison Technology Limited
|
Anti-malware solutions for enterprise cyber
defences
|
23.6
|
3.9
|
-
|
31.6
|
Ultraleap Holdings Limited
|
Contactless haptic technology
"feeling without touching"
|
16.9
|
-
|
(6.9)
|
31.0
|
Accelercomm Limited
|
Developing a high-performance decoding solution
for 5G mobile communication
|
26.5
|
3.6
|
0.4
|
12.5
|
Other companies (28 companies)
|
|
|
(28.8)
|
(7.2)
|
83.3
|
Total
|
|
|
(21.3)
|
(4.9)
|
231.4
|
The IP Group Deeptech team invests
in breakthrough technologies across four high growth sectors of
future compute, applied AI, next generation networks and the
human-machine interface, areas in which the UK excels and is
increasingly becoming a dominant global force.
While 2023 was a challenging year
for the global technology venture market, impacting both the
availability of new capital as well as the price of funding rounds,
the technology portfolio proved resilient, and we were pleased to
have completed all of our key targeted transactions at uplifted or
flat valuations. These included a £42m round for Quantum Motion
Technologies, the largest ever single investment into a quantum
computing startup in the UK, a £21.5m series B round for
Accelercomm and a £15.5m round for Garrison Technologies. While
there were some impairments to valuations, either where comparator
valuation benchmarks reduced and/or where progress was a little
slower than planned, we are pleased with the overall performance
and firmly believe the deeptech portfolio remains poised
for growth in 2024 and stands to benefit both
from the continued acceleration of digital transformation across
the economy and specifically from the huge potential of new
technologies such as generative AI.
In 2023, Featurespace continued to
deliver healthy growth with double-digit increases to revenue, a
trend which was replicated elsewhere in the portfolio in companies
including Itaconix. Garrison, which eliminates cyber threats whilst
delivering full web access without putting an organisation's
sensitive data and systems at risk, hit its revenue targets to the
year ended March 2023 and raised £15.5m of new investment from
Legal and General and British Patient Capital, alongside existing
investors including IP Group. The company has grown rapidly over
the last 4 years, compounding revenues at 64% year on year over
this period, with continued attractive growth expected this
year.
It was also pleasing to see the
completion of a £21.5m series B investment round at our portfolio
company Accelercomm, which is supercharging the world's wireless
infrastructure. The round was led by Swisscom Ventures and Parkwalk
Advisors alongside Hostplus with follow-on funding from all the
existing investors. Accelercomm's technology, which can halve the
cost of spectrum and power in 5G networks by increasing throughput
and reducing latency, is already being used by several of the
world's largest corporates, and the company continues to grow
through evolving partnerships with the likes of AMD, Vodafone and
Lockheed Martin.
Quantum Motion Technologies closed
a £42m funding round, the largest ever single investment into a
quantum computing startup in the UK. The investment, which the
company will use to develop its silicon-based approach to building
a cost-effective and scalable quantum computer, was provided by
Robert Bosch Venture Capital alongside Porsche SE and British
Patient Capital. IP Group and Parkwalk participated alongside all
of the company's other existing investors (Inkef, NSSIF, Octopus
Ventures and OSE). Another of our quantum computing portfolio
companies, Oxford Quantum Circuits, announced its $100m funding
round and the public availability of "OQC Toshiko", the world's
first enterprise-ready quantum computing platform. IP Group was
instrumental in the formation of both these quantum computing
companies, and we are proud of their progress in this pioneering
field that has the potential to shape the future of
computing.
Elsewhere in the portfolio,
Audioscenic launched its first commercial product at CES 2023 as
the power behind Razer's latest gaming soundbar, the Leviathon V2
Pro (which won a dozen awards), and they showcased new products in
both laptops and PC monitors at CES 2024. Intrinsic Semiconductor
Technologies, a game-changing company with technology aiming to
revolutionise the $100bn non-volatile memory market, far exceeded
its technical milestones and will now greatly accelerate its
commercial development.
In terms of fair value reductions,
we reduced the value of our holding in Teya by £4.5m due to
stronger than expected market headwinds although we continue to
believe the business has strong growth prospects and excellent
fundamentals. Ultraleap also faced challenging conditions in the
key eXtended Reality (XR) market which has been slow to
materialise, and we have reduced the fair value of our holding by
£6.9m. Ultraleap has, nonetheless, secured several key licence
agreements in the period with well-recognised names and we remain
bullish on the longer-term adoption of XR technologies.
In 2023, the team backed two new
opportunities including one in Australia as well as a £3m
investment into DeepRender which is developing the next generation
of image and video compression technology using an AI-first
approach. DeepRender already has commercial engagement with several
of the world's top content streamers and looks set to significantly
disrupt this market in the years to come. As 2024 unfolds, we
expect to see strong growth across our focus portfolio as software
sales rebound in the more mature assets, and technologies deployed
into new products in our mid and early-stage portfolio. Together
this positions the asset base well for value accrual provided the
market provides continued access to additional growth and expansion
capital.
Portfolio
Review: Regenerative future: Cleantech (Kiko Ventures)
The Cleantech (Kiko Ventures) portfolio
comprises holdings in 16 companies valued at £275.3m at 31 December
2023.
Company name
|
Description
|
Group Stake at 31 December
2023
%
|
Net
investment/ (divestment)
£m
|
Unrealised + realised fair value
movement
£m
|
Fair value
of Group holding
at 31 December 2023
£m
|
Hysata Pty Limited
|
Developing a new type of breakthrough hydrogen
electrolyser and accelerating the global transition to net
zero
|
36.8
|
4.7
|
46.5
|
70.0
|
Oxa Autonomy Limited
|
Software to enable every vehicle to
become autonomous
|
11.8
|
-
|
(0.2)
|
65.7
|
First Light Fusion Limited
|
Solving fusion with the simplest possible
machine
|
27.5
|
-
|
(49.6)
|
64.9
|
Bramble Energy Limited
|
The fuel cell company with
Gigafactories
|
31.4
|
-
|
-
|
20.9
|
Nexeon Limited
|
Silicon anodes for next generation
lithium-ion batteries
|
5.2
|
-
|
(4.7)
|
11.8
|
Other companies (11 companies)
|
|
|
12.8
|
(0.7)
|
42.0
|
Total
|
|
|
17.5
|
(8.7)
|
275.3
|
An early highlight of the year was the $140m
Series C fund raise by autonomous vehicle pioneer Oxa in January
2023. The fundraising, which saw new investor Google join the share
register, was the largest by a cleantech company in IP Group's
history. Google and Oxa have already worked together on simulation
and testing technology, and it was highly encouraging to see one of
the world's most valuable technology companies take a stake in one
of our cleantech assets. Another highlight was electrolyser company
Hysata achieving its Series A technical milestone months ahead of
schedule, triggering the second tranche of its oversubscribed £24m
Series A. The technical progress was impressive with Hysata
demonstrating stacks operating at the same exceptionally high 95%
efficiency as the single cell experiment reported in Nature in
2021. Hysata subsequently launched its Series B funding round,
achieving a first close in January 2023, supported by both Kiko and
IP Group Australia. The round achieved a significant uplift to the
Series A, reflecting the impressive technical progress made by the
company. This resulted in a fair value gain of £46.5m. It is
encouraging to see large up-rounds in our cleantech companies
against a backdrop of falling valuations in the wider venture
ecosystem.
Earlier-stage assets were also successful in
fund raising with Oxford spin-outs OxCCU and Mixergy both raising
up-rounds. In May, OxCCU, which has breakthrough technology for the
synthesis of sustainable aviation fuels (SAFs), raised an
oversubscribed £18m Series A. The round was led by well-established
US cleantech VC Clean Energy Ventures and was their first
investment in a UK company. In January, smart home heating company
Mixergy completed a £9m Series B raise, led by OSE, with new
investors Nesta and EDP Ventures joining the share register.
Mixergy has continued to make good progress and has doubled revenue
each year for the past three years. In addition to the four new
investments made in 2022, the team completed one new investment in
2023 into smart home energy pioneer Tado°. Tado° is the European
leader in smart home energy technology and its smart thermostats,
protected by a strong patent portfolio, lead to reductions in home
energy costs of 22% on average. The company's offerings are
particularly welcome and impactful at the current time of high
energy prices and it has now sold a total of 3 million thermostats.
Kiko jointly led a €43m
funding round in January 2023 to help the company expand its
offering into home energy management, combining its thermostats
with time-of-use energy tariffs.
In less welcome news, First Light Fusion has
not yet completed its Series C funding round, which was planned to
conclude in 2023, leveraging momentum following its fusion result
in 2022. While there is still activity in the fusion funding
market, there has been a decline in multi-hundred-million funding
rounds like those seen in 2021 and targeted by First Light. Given
this delay to funding and the change to fusion market sentiment, we
have carried out a re-evaluation of our holding in First Light
using expert third party input. This has led to a reduction in our
holding value of £49.6m. Following the announcement this year of
further improvement to net positive gain achieved at the National
Ignition Facility lab in the US, there is growing interest in
inertial confinement fusion (ICF) technology, as pursued for
commercialisation by First Light. The company recently
entered into a technology collaboration on ICF with the Sandia
federal lab in the US giving access to the Z-machine, the world's
most powerful pulse power driver. First Light is the first
privately-funded fusion company to fire a shot on the Z-machine and
its amplifier technology enabled a new pressure record to be set
for the facility.
We have also continued to build the ecosystem
around the Kiko brand with a wide range of speaking and clean
energy innovation engagement policy activities. As one of the
founders of Cleantech for UK, a new cleantech policy initiative,
backed by Bill Gates' Breakthrough Energy Ventures, Kiko helped
convene a total of £6bn of funds to support the initiative.
Cleantech for UK aims to promote UK cleantech champions, drawing on
the country's world-class research facilities and investor base,
and was launched at Imperial College in February at an event
attended by Bill Gates and the Prime Minister. We continue to be a
member of the leading energy think tank, the Energy Transitions
Commission (ETC), which published an assessment of the role of
fossil fuels in the transition ahead of the UN climate change
conference COP28 in Dubai. Our view of the COP28 outcome was that
the acknowledgement of the need to transition away from fossil
fuels represents an important step in the right direction. ETC
analysis shows that coal use can and must fall by 85% by 2050, gas
by 70% and oil by 95% in order to meet the UN climate goals of
limiting global heating to safe levels. The agreements to triple
renewables and double the rate of energy efficiency improvement
also follow longstanding ETC recommendations. Despite wider
headwinds in the venture ecosystem, the need for clean energy
technology remains clear and was reiterated at COP28.
Portfolio review: Platform
Investments
IP Group's Platform Investments portfolio
comprises holdings in two companies and three interests in Limited
Partnerships, valued at £90.8m at 31 December 2023.
The Platform Investments portfolio
contains holdings in funds and companies that operate in a similar
way to IP Group, most significantly our interest in our US
platform, managed by Longview Innovation, Oxford Science
Enterprises Limited, Cambridge Innovation Capital Limited, and the
UCL Technology Fund in all of which IP Group was a founding
investor.
Company name
|
Description
|
Group Stake at 31 December
2023
%
|
Net
investment/ (divestment)
£m
|
Unrealised and realised fair value
movement
£m
|
Fair value
of Group
holding
at 31 December 2023
£m
|
US platform (managed by Longview
Innovation)
|
Commercialising world class research in the
US
|
58.1
|
8.1
|
(42.1)
|
46.0
|
Interest in UCL Technology Fund L.P.
|
Commercialising world class research from
UCL
|
46.7
|
0.8
|
3.0
|
20.7
|
Oxford Science
Enterprises plc
|
University of Oxford preferred IP partner under
15-year framework agreement
|
1.8
|
-
|
(2.3)
|
18.3
|
|
|
|
|
|
|
Other companies (2 companies/LPs)
|
|
|
(0.7)
|
0.3
|
5.8
|
Total
|
|
|
8.2
|
(41.1)
|
90.8
|
Having been unable to secure
additional significant funding from third parties other than $10m
which the Group committed in 2022, Longview Innovation has taken
proactive steps to focus its resources on a smaller number of its
most promising portfolio companies, resulting in a rationalisation
of the portfolio and a corresponding portfolio fair value reduction
of £42.1m.
Portfolio review: Additional
Analysis
Number of investments by sector
|
As at
31 December 2023
|
As at 31 December
2022
|
Sector
|
Number
|
%
|
Number
|
%
|
Healthier future: Life sciences
(ex-ONT)
|
32
|
37%
|
38
|
40%
|
Healthier future: Life sciences
(ONT)
|
1
|
1%
|
1
|
1%
|
Tech-enriched future: Deeptech
|
32
|
37%
|
34
|
36%
|
Regenerative future: Cleantech (Kiko
Ventures)
|
16
|
19%
|
15
|
16%
|
Platform investments
|
5
|
6%
|
7
|
7%
|
Total number of portfolio
investments 1
|
86
|
100%
|
95
|
100%
|
1 Excludes de
minimis holdings, which
have a small value to the Group and are not actively managed to the
same extent as core holdings
Number of Investments
|
United Kingdom
|
North America
|
Australia & New Zealand
|
Total
|
1 January 2023
|
81
|
1
|
13
|
95
|
Additions
|
1
|
-
|
2
|
3
|
Exited & acquired
|
(1)
|
-
|
-
|
(1)
|
Being closed/liquidated
|
-
|
-
|
(1)
|
(1)
|
Reclassified to de minimis1
|
(6)
|
-
|
(4)
|
(10)
|
31 December 2023
|
75
|
1
|
10
|
86
|
1 De minimis holdings have a small value to the Group and are
not actively managed to the same extent as core holdings, and are
accordingly not included in the stated number of
companies
Co-investment analysis
Including the £73.2m of capital invested by the
Group, the Group's portfolio raised £667m during 2023 (2022:
£1.0bn). Co-investment from parties or funds with a greater than 1%
shareholding in IP Group plc totalled £1.0m (2022: £24.9m). An
analysis of this co-investment by source is as follows:
|
2023
|
2022
|
Portfolio capital raised
|
£m
|
%
|
£m
|
%
|
IP Group1
|
73.2
|
11%
|
89.8
|
9%
|
IP Group managed funds2
|
12.9
|
2%
|
35.6
|
4%
|
IP Group plc shareholders (>1%
holdings)
|
1.0
|
0%
|
24.9
|
2%
|
Institutional investors
|
317.7
|
48%
|
249.7
|
25%
|
Corporate, other EIS, individuals, universities
and other
|
262.2
|
39%
|
364.0
|
35%
|
Capital into multi-sector platforms
|
-
|
0%
|
250.0
|
25%
|
Total
|
667.0
|
100%
|
1,014.0
|
100%
|
1 Reflects primary investment only;
during 2023 the Group invested £nil via secondary purchase of
shares (2022: £3.7m).
2 Includes Parkwalk Advisors and other
funds managed by IP Group.
Portfolio funding position
The following table lists
information on the expected cash-out dates for portfolio companies
IP Group's investment holding value is greater than £4m.
Company name
|
Fair value
of
Group
holding
at 31 December
2023
£m
|
%
|
Funded to breakeven
|
345.8
|
35%
|
2024 H1
|
69.8
|
7%
|
2024 H2
|
57.7
|
6%
|
2025
|
410.8
|
41%
|
2026
|
104.2
|
10%
|
2027
|
10.7
|
1%
|
Total companies > £4m value
|
999.0
|
100%
|
Companies < £4m
value
|
75.1
|
|
Interest in Limited Partnerships
and Platforms
|
90.8
|
|
Total portfolio
|
1,164.9
|
|
FINANCIAL REVIEW
"We continue to navigate carefully
through difficult markets. With £227m gross cash and only 13% of
our portfolio needing to raise money in 2024, we are
well-positioned for an improvement in investor
appetite."
David Baynes,
Chief Financial and Operating Officer
· Loss for the
period of (£174.4m) (2022: loss of £344.5m)
· Net assets were
£1,190.3m (2022: £1,376.1m)
· Net assets per
share were 114.8p (2022: 132.9p)
· Final 2022
dividend of 0.76pps and 2023 interim dividend of 0.51pps paid in
period, talking total cumulative dividends and share buy-backs
since 2021 to over £75m
· £60m second
tranche of long-term private loan notes drawn
Consolidated statement of comprehensive
income
A summary analysis of the Group's performance
is provided below:
|
Year
ended
31 December
2023
£m
|
Year ended
31 December 2022
£m
|
Net portfolio (loss)1
|
(160.5)
|
(309.1)
|
Net overheads2
|
(22.1)
|
(20.2)
|
Administrative expenses - consolidated
portfolio companies
|
-
|
(0.1)
|
Administrative expenses -share-based payments
charge
|
(2.6)
|
(2.9)
|
Carried interest plan provision credit
/(charge)
|
4.7
|
(12.0)
|
Net finance income
|
4.2
|
0.8
|
Taxation
|
1.9
|
(1.0)
|
Loss for the
year
|
(174.4)
|
(344.5)
|
Other comprehensive (expense)/income
|
(0.4)
|
0.5
|
Total
comprehensive loss for the year
|
(174.8)
|
(344.0)
|
Exclude:
|
|
|
Share-based payment charge
|
2.6
|
2.9
|
Return on
NAV1
|
(172.2)
|
(341.1)
|
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 portfolio companies.
Fair value movements
A summary of the unrealised and realised fair
value gains and losses is as follows:
|
2023
£m
|
2022
£m
|
Quoted equity & debt investments
|
(31.8)
|
(428.5)
|
Private equity & debt
investments
|
(83.8)
|
101.4
|
Investments in Limited Partnerships
|
(36.5)
|
(6.4)
|
Foreign exchange movements
|
(8.4)
|
24.4
|
Net portfolio losses
|
(160.5)
|
(309.1)
|
A summary of the largest unrealised and
realised fair value gains and losses by portfolio investment is as
follows:
Gains
|
£m
|
|
Losses
|
£m
|
Hysata Pty Ltd
|
46.5
|
|
First Light Fusion Limited
|
(49.6)
|
Centessa Pharmaceuticals plc
|
9.7
|
|
Platform (managed by Longview
Innovation)
|
(39.8)
|
Featurespace Limited
|
8.8
|
|
Oxford Nanopore Technologies plc
|
(31.9)
|
Autifony Therapeutics Limited
|
6.1
|
|
Hinge Health, Inc.
|
(17.8)
|
Pulmocide Limited
|
5.0
|
|
Akamis Bio Limited
|
(15.9)
|
Apollo Therapeutics Group Limited
|
3.3
|
|
Oxular Limited
|
(14.1)
|
Other quoted
|
1.2
|
|
Other quoted
|
(10.8)
|
Other private
|
22.8
|
|
Other private
|
(75.7)
|
Foreign exchange
|
0.1
|
|
Foreign exchange
|
(8.5)
|
Total
|
103.5
|
|
Total
|
(264.1)
|
Net overheads
|
Year
ended
31 December
2023
£m
|
Year ended
31 December 2022
£m
|
Other income
|
5.9
|
7.1
|
Administrative expenses - all other
expenses
|
(25.8)
|
(24.3)
|
Administrative expenses - annual incentive
scheme
|
(2.6)
|
(3.0)
|
Net
overheads
|
(22.5)
|
(20.2)
|
Other income
Other income comprises fund management fees
and licensing and patent income. In 2023 other income totalled
£5.9m (2022: £7.1m), a decrease from 2022, primarily due to a £0.6m
decrease in revenues from the Group's patent and license portfolio,
and a £0.4m reduction in corporate finance fees due to our decision
to largely cease this activity.
Other central administrative
expenses
Other central administrative expenses,
excluding performance-based staff incentives and share-based
payments charges, have increased by £1.6m from the prior year to
£25.8m (2022: £24.3m) as a result of increases in non-staff cost
across a number of expense categories.
The charge of £2.6m (2022: £3.0m) in respect
of the Group's Annual Incentive Scheme, reflects a provisional
assessment of performance against 2023 AIS targets which include
Group, Team, and Individual performance elements as described in
the Directors Remuneration Report.
Other income statement items
The share-based payments charge of £2.6m
(2022: £2.9m) reflects the accounting charge for the Group's
Restricted Share Plan, 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.
Carried interest plan charge
The carried interest plan credit of £4.7m
(2022: £12m charge) relates to the recalculation of liabilities
under the Group's carry schemes, with the credit in the year
reflecting this year's reduction in value of assets within the
scheme. As at 31 December 2023, 70% by value of the Group's equity
& debt investments were included within carry scheme
arrangements (2022: 67%). 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 via cash
realisations and are only paid on the event of a cash
realisation.
Consolidated statement of financial
position
A summary analysis of the Group's assets and
liabilities is provided below:
|
Year
ended
31 December
2023
£m
|
Year ended
31 December 2022
£m
|
Portfolio
|
1,164.9
|
1,258.5
|
Other non-current assets
|
10.2
|
7.7
|
Other net current
assets/(liabilities)
|
(7.5)
|
33.2
|
Cash and deposits
|
226.9
|
241.5
|
Borrowings
|
(135.2)
|
(81.4)
|
Other non-current liabilities
|
(69.0)
|
(83.4)
|
Total Equity
or Net Assets ("NAV")
|
1,190.3
|
1,376.1
|
NAV per
share
|
114.8p
|
132.9p
|
The composition of, and movements in, the
Group's portfolio are described in the portfolio review
above.
Portfolio valuations
Given the public market valuation
reductions in the year and slowdown in private company fundraise
activity, we have carried our year-end private portfolio valuations
against a backdrop of heightened valuation uncertainty. As a
response, we have carried out an enhanced valuation process in the
period, including obtaining external valuations for eleven (2022:
ten) of our largest private assets (Istesso, Featurespace, Oxa,
First Light Fusion, Hinge Health, Ultraleap, Ieso Digital Health,
Artios Pharma, Mission Therapeutics, Akamis Bio and MOBILion)
accounting for 46% (2022: 44%) of the private portfolio
value.
In the case of Featurespace, our
third-party valuers recommended an increase in valuation in the
year, because of strong performance against milestones. In the case
of First Light Fusion, Hinge Health, Ultraleap, Ieso Digital Health
and Mission Therapeutics they recommended a reduction in our
carrying values, reflecting the
impact of reduced public market valuations the more challenging
fundraise environment and company-specific performance. Valuations
of Istesso, Oxa, MOBILion and Artios Pharma were broadly unchanged.
In all cases, our carrying values reflect the mid-point or below of
the valuation ranges we received from our external valuation
consultants.
Although we saw an increase in the proportion
of down rounds within our portfolio (i.e. where a funding round is
agreed at a lower valuation than the previous funding round price),
most of our portfolio fundraises were at higher valuations than the
previous funding round. An analysis of funding rounds within our
portfolio is as follows:
Analysis of priced funding rounds in private
portfolio
|
Year
ended
31 December
2023
|
Year ended
31 December 2022
|
|
No.
|
%
|
No.
|
%
|
Up round
|
13
|
62%
|
18
|
62%
|
Flat round
|
3
|
14%
|
8
|
28%
|
Down round
|
5
|
24%
|
3
|
10%
|
Total
|
21
|
100%
|
29
|
100%
|
The above table reflects priced funding rounds
in the private portfolio (excluding organic and de minimis
companies) and excludes debt funding and funding transactions where
a subsequent tranche is drawn based on pre-agreed
pricing.
Most of our portfolio remains well funded,
with many of our more mature companies evidencing commercial
progress or anticipating technical or funding milestones in the
next 12-24 months, therefore we remain confident around the
resilience of our portfolio.
The table below summarises the valuation basis
for the Group's portfolio. Further details on the Group's valuation
policy and approach can be found in notes 13 and 14.
|
Year
ended
31 December
2023
£m
|
Audited
Year ended
31 December
2022
£m
|
Quoted
|
203.8
|
228.7
|
Financing transaction (<12
months)
|
187.9
|
289.8
|
Financing transaction (>12
months)
Other: Future market/commercial
events
Other: Adjusted financing price based on past
performance - upwards
|
162.7
25.0
99.9
|
117.8
40.7
151.8
|
Other: Adjusted financing price based on past
performance - downwards
|
203.9
|
154.5
|
Other: Discounted cash flow (DCF)
|
126.6
|
97.7
|
Other: Revenue multiple
|
85.4
|
77.9
|
Statements from LP
|
69.7
|
99.6
|
Total
Portfolio
|
1,164.9
|
1,258.5
|
Further context: Parkwalk portfolio
valuations
Thirteen portfolio companies closed
funding rounds at uplifts in valuation, six unchanged and nine at
lower valuations than the previously held value.
Other assets
The majority of other long-term and short-term
assets relate to amounts receivable on sale of equity and debt
investments, representing deferred and contingent consideration
amounts to be received in more than one year. Property, plant and
equipment includes the lease asset relating to the Group's Kings
Cross head office, which increased in the period due to an
extension of the lease.
Other long-term liabilities relate to carried
interest and revenue share payables, and loans from LPs of
consolidated funds. The Group consolidates the assets of a fund in
which it has a significant economic interest, IP Venture Fund II
LP. Loans from third parties of consolidated funds represent
third-party loans into this partnership. These loans are repayable
only upon these funds generating sufficient realisations to repay
the Limited Partners.
Borrowings
On 2 August 2022, the Group signed a Note
Placing Agreement ("NPA") to issue a £120m debt private placement
to London-based institutional investors (primarily Phoenix
Group). £60m of this was drawn in December 2022 and the
balance was drawn in June 2023, with three equal repayment
maturities in December in 2027, 2028 and 2029. The interest rate is
fixed at an average of 5.25%. Approximately £15m of the
proceeds were used to repay early the shorter-dated portion of our
EIB debt, leaving £15.6m of EIB debt to be progressively repaid
between now and January 2026 (£6.3m of the EIB debt will be repaid
within twelve months of the period end).
Under the terms of the NPA, the Group is
required to maintain a minimum cash balance of £25m at any time,
equity must be at least £500m and gross debt less restricted cash
must not exceed 25% of total equity as at the Group's 30 June and
31 December reporting dates. The NPA also includes 'Cash Trap'
provisions which stipulate that the Group is required to maintain
cash and cash equivalents of not less than £50m at any time and
equity must be at least £750m, gross debt less restricted cash must
not exceed 20% of total equity as at the Group's 30 June and 31
December reporting dates. In the event of the Cash Trap being
triggered, the Group is not permitted to pay or declare a dividend
or purchase any of its shares. In addition, investments are
restricted to £2.5m per calendar quarter other than those legally
committed to. The Group is also required to place the net proceeds
of all realisations (over a threshold of £1m) into a blocked bank
account. Entering a Cash Trap does not constitute a default under
the NPA.
For further details of the Group's loans
including covenant details see note 18.
Cash and deposits
At 31 December 2023, the Group's cash and
deposits totalled £226.9m, a decrease of £14.6m from a total of
£241.5m at 31 December 2022, predominantly due to outflows from
portfolio investment of £73.2m, a £19.3m net cash outflow from
operations, £13.1m of dividend payments and share buy-backs, offset
by net drawdown of debt of £53.8m and realisations of
£38.6m.
The principal constituents of the movement in
cash and deposits during the period are as follows:
|
Year
ended
December
2023
£m
|
Year ended
31 December 2022
£m
|
Net cash (used) in operating
activities
|
(19.3)
|
(24..3)
|
|
|
|
Investments
|
(73.2)
|
(93.5)
|
Realisations
|
38.6
|
28.1
|
Other investing
|
(0.6)
|
(0.3)
|
Interest received on
deposits
|
4.1
|
-
|
Net cash
(outflow) from investing activities
|
(31.1)
|
(65.7)
|
|
|
|
Dividends paid
|
(13.0)
|
(12.3)
|
Purchase of treasury shares
|
(0.1)
|
(8.0)
|
Interest paid
|
(5.5)
|
-
|
Repayment of debt facility
|
(6.2)
|
(30.4)
|
Drawdown of loan notes
|
60.0
|
60.0
|
Other financing activities
|
(0.5)
|
(0.5)
|
Net cash
inflow from financing activities
|
34.7
|
8.8
|
Effect of foreign exchange rate
changes
|
(0.2)
|
-
|
Movement
during period
|
(14.5)
|
(80.4)
|
Investments
and realisations
The Group invested a total of £73.2m across 33
portfolio companies during the year (2022: £93.5m; 46), and
realised cash proceeds of £38.6m (2022: £28.1m).
Largest investments and realisations by
portfolio company:
Investments
|
£m
|
|
Cash Realisations
|
£m
|
Istesso Limited
|
15.0
|
|
Wave Optics Limited
|
30.8
|
US platform (managed by Longview
Innovation)
|
8.1
|
|
Zihipp Limited1
|
3.4
|
Hysata Pty Ltd
|
4.7
|
|
Reinfer Limited
|
1.5
|
Tado GmbH
|
4.4
|
|
UCL Technology Fund L.P.
|
0.9
|
Mission Therapeutics Limited
|
3.9
|
|
Cambridge Innovation Capital Limited
|
0.7
|
Other
|
37.1
|
|
Other
|
1.3
|
Total
|
73.2
|
|
Total
|
38.6
|
1. Plus, deferred consideration valued at £1.5m
(2022: £nil)
Deferred consideration estimated at
£9.1m was outstanding at year end (2022: £48.2m), relating to the
Group's realisation of Enterprise Therapeutics (£7.6m, exited in
2020) and Zihipp Limited (£1.5m, exited in 2023).
Treasury policy
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. On 31 December 2023, the Group had a total
of £0.1m (2022: £0.1m) held in US Dollars, £nil (2022: £nil) held
in Euros, £0.8m (2022: £0.7m) held in Australian Dollars and £0.9m
(2022: £0.7m) held in Hong Kong Dollars
Dividend and share buyback
As announced in the Group's half-yearly
results, an interim 2023 dividend of 0.51p per ordinary share was
paid in September 2023, totalling £5.3m.
On 18 December 2023 the Group announced that,
in light of the prevailing discount between the Company's share
price and its NAV per share, it had initiated a share buyback
of up to £20m. The Board remains committed to making regular
cash returns to shareholders from realisations. In future these
regular cash returns will normally be made in the form of share
buybacks when the share price discount to NAV exceeds 20%. Regular
dividend payments will be suspended under such conditions,
including consideration of any final dividend for 2023.
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 more than 10% in its portfolio companies and
those companies are themselves trading, the majority of the
portfolio will qualify for the Substantial Shareholdings Exemption
("SSE") on disposal.
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 holdings which do not qualify
for SSE will ordinarily give rise to taxable profits for the Group,
to the extent that these exceed the Group's ability to offset gains
against current and brought forward tax losses (subject to the
relevant restrictions on the use of brought-forward losses). In
such cases, a deferred tax liability is recognised in respect of
estimated tax amount payable.
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 NAV
per share and Return on 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,
including the details of a new APM for Cash proceeds is set out in
note 29.
risk
management
Managing risk: our framework for balancing risk and
reward
Governance
Overall responsibility for the risk
framework and definition of risk appetite rests with the Board who,
through regular review of risks, ensure that risk exposure is
balanced 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 to oversee
the effective application of the framework across the business. The
Risk Council is chaired by the CFOO, its members include the
Company Secretary, Finance Director and Senior Compliance and Risk
Manager and it has representation from operational business units
as required during the year. 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 biannually, with additional top-down
input from the Executive Committee and with a non-executive review
carried out by the Audit and Risk Committee at least
annually.
Risk management process
Ranking of the Group's risks is
carried out by combining the financial, strategic, operational,
reputational, regulatory and employee impact of risks and the
likelihood that they may occur. Operational risks are collated into
strategic risks, which identifies key themes and emerging risks,
and ultimately informs our principal risks, which are detailed in
the Principal Risk and Uncertainties 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 and 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.
The risk management activity in
2023 included updating the Group's risk appetite statements and key
risk indicators, refreshing the Group's existing operational,
strategic and principal risk registers, performing a full refresh
of the key controls and an assessment of the strategic risks and
the appropriateness of our principal risks via executive team and
Board risk workshops.
Risk Council activity
During 2023, the Risk Council
continued to build on the Group's 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.
While awaiting further updates with
detail of the exact requirements and confirmed dates in relation to
the proposed legislation and updates to the UK Corporate Governance
Code outlined in the BEIS response statement in June 2022, the Risk
Council considered an existing programme of 'no-regrets'
workstreams identified in a previous scoping review which would
support the Group's transition to the expected internal controls
regime once announced in H1 2023. This included a financial
reporting focused 'record to report' review, an entity level
controls review and a treasury controls review to identify and
remediate any controls gaps to the expected standard. The Risk
Council reviewed a consultation on proposed changes to the UK
Corporate Governance Code released in May and facilitated the
Group's response to the FRC's consultation with input from
Executive and Non-Executive Directors, Company Secretary and People
Director. The Risk Council reviewed the proposed changes to the
Code and considered an appropriate implementation timeline and
resourcing plan to meet the flagged effective date and continue to
update our plans in light of emerging guidance. The Risk Council
will review the final changes and associated guidance once
published and reconsider its existing implementation
plan.
The Group adopted a 'Cyber Response
Guide' and 'Strategic Ransomware Response Playbook' in 2021 which
details how the Group would respond to a cyber crisis addressing
the threat that cyber attacks now pose to businesses in every
sector. In 2023, the Risk Council onboarded senior external
communications support to provide strategic level support and
additional resources to supplement a crisis scenario in the future,
a 'Crisis Communications Manual' was developed as part of this
workstream training was provided to the relevant individuals within
the Group. The Risk Council also updated all existing policies,
procedures and reference materials and provided refresher training
to all staff on plans in place at the Group to respond to a cyber
attack, support available, examples of what a ransomware attack
might look like and the appropriate steps to take if they identify
signs of a compromise. The Risk Council
held two communications-focused scenario-based training sessions
with the internal and external communications teams and Silver
Response Team (SRT) Chair in the year and held an externally
facilitated cyber crisis simulation for all members of the SRT
including external legal and communications supports. The Risk
Council received a formal report from the Baker Mackenzie team who
facilitated the all-parties training session noting multiple
effective procedures were in place to respond to issues raised in
the training scenario, which the SRT were obviously familiar with,
excellent engagement from the SRT and other attendees,
demonstration of good awareness of many cybersecurity issues and
also noted a common-sense approach to responding to complex issues
raised and considered practical ways to minimise effects and
severity of the simulated cyber attack scenario. Areas for
improvement were also identified and the Risk Council is leading
the implementation of the actions identified which are expected to
supplement current procedures in place.
Other projects in the year
included:
· Monitoring the set-up of an RMB fund from ICCV,
· The
Group's joint venture with China Everbright, to be operated by the
Group's Hong Kong subsidiary and obtaining the requisite licencing
authorities from the local regulator to allow this
activity,
· Reviewing risk management disclosures in the Annual Report and
Accounts,
· Updating the Group's Business Continuity Plans,
· Monitoring training and testing completion rates by
employees,
· Testing of key controls over the Group's principal
risks,
· Monitoring key risk indicators,
· Performing a control investment review to ensure the desired
levels of controls agreed by the Board were in place,
· Continued monitoring of internal audit remediation
points,
· Monitoring progress of the Risk Council against its agreed
objectives,
· Reviewing a cyber compliance monitoring programme,
· Providing project management support to the ARC in relation to
the audit tender process,
· The
launch of a formal compliance-focused onboarding programme for new
joiners,
· Monitoring of the Group's conflicts procedures,
· Considering the Group's relevant fraud risk categories
alongside their relevant controls and potential likelihood and
impact
· 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 the following areas:
(i)
Cybersecurity review: an 'ethical hacking' type review which
consisted of a time-bound collaborative assumed compromise
assessment across all IT infrastructures in operation across the
Group;
(ii)
Investment process review: a review of the investment approval
process in the Group's Australian business which
considered:
(a) Due diligence and risk
assessment,
(b) Review, approval and execution
of investment documentation
(c) Regulation and
compliance
(iii)
ESG review: a review of high-level governance arrangements
surrounding internal and external ESG reporting and processes
related to data collection and monitoring to inform internal and
external ESG reporting.
Priorities for 2024 include further
business reviews by the internal audit function, review of the
finalised UK Governance Code and associated preparation for updated
internal controls requirements, delivering training and
scenario-based testing programmes for operational resilience
workstreams, and continued enhancement of Group risk reporting and
communication across the business. We continue to monitor the
impact of the ongoing wars in Ukraine and the Middle East,
heightened geopolitical tension, supply chain disruption, inflation
and interest rate trends, elevated levels of the cost of living and
volatile capital markets and note the greatest impact to the Group
has been the marked decline in the valuation of technology and Life
Sciences sector listed companies, which we consider heighten our
principal risks of macroeconomic environment and access to capital
risks.
Emerging risk
The Group's management and Board
regularly consider 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
annual risk workshop at the Board Strategy Day in October and
continue to consider emerging risks throughout the year. Set out
below are examples of some of the potential emerging risks that are
currently being monitored by management and the Board:
Near term
|
Medium term
|
Longer term
|
Economic and geopolitical uncertainty
War in Europe and the Middle East
is impacting cost of raw materials and potentially global inflation
and there is considerable uncertainty over policymaking given that
eight of the ten most populous countries in the world are expected
to hold elections in 2024. Despite interest rate increases across
the world in 2023 the global economy has shown considerable
resilience and the IMF currently forecast global growth for 2023 to
be 3% and predict a similar level of expansion in 2024. However,
capital market volatility has persisted and continues to impact
growth and technology stocks such as IP Group and its
portfolio.
|
Global government spending on healthcare and drug
development
Government spending on new
healthcare technology, drug development and related regulators and
investment policy decisions would impact the speed of progress for
the industry as a whole which could encourage more financial and
human capital to the sector and ultimately there would be a greater
opportunity for meaningful impact for all participants including
investors such as the Group and its stakeholders.
|
Climate change transition and technology
risks
Transition risks can occur when
moving towards a less polluting, greener economy. Such transitions
could mean that the Group could face higher costs of doing business
for example; new climate-related legislation, regulations and
reporting requirements, such as TCFD and SECR reporting, will pose
additional costs as the Group seeks to manage these risks by
investing additional resources to ensure compliance.
Climate change continues to be a
key concern of the Group and its stakeholders. IP Group invests in
technology that 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 reported
against the TCFD recommendations in monitoring risks and
opportunities to the business as presented by climate
change.
|
NEW Cyber, IT security and AI threats
Cyber and IT security continue to
be areas of risk for the Group and its portfolio 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 legislation such as GDPR. The industry saw the
exponential rise in AI-based threats in 2023 with increasing levels
of sophistication available to bad actors to launch more
sophisticated cyber attacks. The Group continued to invest in
mitigating controls, regular staff training and cyber incident
exercising to support our response to this risk area.
|
Competition and the use of ai tools
AI tools could be used more
effectively by competitors increasing competition for deals and
driving up valuations or be used incorrectly leading to bias in
decision making.
|
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 is given in the Corporate Governance
Statement and in the Audit and Risk Committee report, while further
disclosure of the Group's financial risk management is set out in
note 3 to the consolidated financial statements. Following the 2023
annual review process, the heatmap below describes the relative
potential risks posed by each of the Group's identified principal
risks i.e. how the principal risks are ranked against each
other.
Consideration of risk appetite
The Group accepts that certain
risks are inherent in achieving its strategic aims, which are set
out in the strategy section of the report. 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
risk/reward balance. The Board has determined its risk appetite in
relation to each of its principal risks and considered appropriate
metrics to monitor performance relative to defined
thresholds.
The Board's assessment of risk
appetite is provided in the summary of each principal risk
below.
Risk appetite ratings defined:
Very low
Following a marginal-risk,
marginal-reward approach that represents the safest strategic route
available
|
Low
Seeking to integrate sufficient
control and mitigation methods in order to accommodate a low level
of risk, though this will also limit reward potential
|
Balanced
An approach which brings a moderate
chance of success, considering the risks, along with reasonable
rewards, economic and otherwise
|
High
Willing to consider bolder
opportunities with higher levels of risk in exchange for increased
business payoffs
|
Very high
Pursuing high-risk, inherently
uncertain options that carry with them the potential for high-level
rewards
|
risk management.
Principal risks and
uncertainties
1
It may be difficult for the Group to maintain the required level of
capital to continue to operate at planned levels of investment
activity and overheads
|
The Group's funding model has
historically been reliant on capital markets, particularly those in
the UK; however, the Group is moving towards self-sustainability
with realisations from the portfolio contributing significantly to
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.
|
Link to strategy
Access to sufficient levels of
capital allows the Group to invest in its investment assets,
develop early-stage investment opportunities and invest in its most
exciting companies to ensure attractive future financial
returns.
3 4
|
Actions taken by management
• The Group has
significant balance sheet capital and managed funds capital to
deploy in portfolio opportunities
• The Group
regularly forecasts cash requirements of the portfolio and ensures
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
|
Risk appetite
Low
|
Examples of risk
• The Group may
not be able to provide the necessary capital to key priority
assets, which may affect the portfolio companies' performance or
dilute future returns of the Group
• The Group may
not be able to realise capital from its portfolio to fund the
desired level of investment activity in the portfolio
|
Development during the year
• The Group
appointed a Managing Director of Global Capital in January 2023 to
develop greater levels of access to strategic third-party
capital
• The Group's
share price continued to trade below NAV during the
year.
• A sub-group of
the Executive Committee met regularly throughout the year to
oversee workstreams focused on narrowing the gap between NAV and
the share price
• Cash proceeds
totalled £38.6m in 2023
• Capital
allocation group met monthly in 2023 in response to the volatile
capital market environment and we continue to develop the capital
allocation process to support optimal decision making
• The quoted
portfolio value reduced by £32.4m in the year
|
Change from 2022
No change
|
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 additional 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 also 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.
|
Link to strategy
Access to sufficient levels of
capital allows the Group's portfolio companies to invest in-
technology and commercial opportunities to ensure future financial
returns.
3 4
|
Actions taken by management
• The Group
operates a corporate finance function, which is experienced in
carrying out fundraising mandates for portfolio
companies
• 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 and monitors
those with a heightened funding risk
• Parkwalk
Advisors continue to have independent investment decision making
and is anticipated to continue to be an important co-investor with
the Group, supporting shared portfolio companies
|
Risk appetite
Low
|
Examples of risk
• The success of
those portfolio companies that 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
|
Development during the year
• IP Group
hosted a flagship "scale it up" investor event at London's Science
Museum and included a panel discussion on how best the UK can
support more innovation which showcased seven of the Group's most
exciting companies and was attended by over 180 guests.
• IP Group
hosted two portfolio company events in 2023 to showcase the Group's
portfolio companies. These included an in-person Deeptech event to
showcase recent portfolio company performance and key focus areas
for investment and an-person Life Sciences investor update
outlining key value inflection points for the portfolio over the
next 12-18 months and included presentations from Genomics plc and
Oxford Nanopore Technologies plc CEOs
• Increased
number of targeted international investor roadshows in the year in
the US, UK, EU and Middle East
• Continued
management of an A$310m trust and a separate mandate for an
Australian Super Fund which has a mandate to co-invest with IP
Group plc portfolio companies. In the year, six Group portfolio
companies received funding from these investment vehicles. Total
assets at the year end for the managed trust plus undrawn
commitments totalled A$307m
• Obtained
regulatory permissions in Hong Kong for a licence to raise capital
from Hong Kong in the year
• Parkwalk
raised £32m in 2023 and had total AUM of £469m at the end of 2023
and obtained full-scope AIFM permissions from the FCA allowing the
firm to manage greater levels of third-party capital
|
Change from 2022
No change
|
3
The returns and cash proceeds from the Group's early-stage
companies may be insufficient
|
Early-stage companies typically
face a number of risks, including being unable to secure later
rounds of funding at crucial development inflection points, being
unable to source or retain appropriately skilled staff, competing
technologies entering 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. At the
portfolio level, a reduction in NAV and realisation potential could
impact shareholder returns or negatively impact specific strategic
initiatives.
|
Link to strategy
Uncertain or insufficient cash
returns could impact the Group's ability to deliver attractive
returns to shareholders when our ability to react to portfolio
company funding requirements is negatively impacted or where
budgeted cash proceeds are delayed.
3 4
|
Actions taken by management
• The Group's
employees have significant experience in sourcing, developing and
growing early-stage technology companies to significant value,
including use of the Group's systematic opportunity evaluation and
business building methodologies within delegated board
authorities
• Members of the
Group's investment partnership teams typically serve as
non-executive directors or advisors to portfolio companies to help
identify and remedy critical issues
• 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 decline
• 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
|
Risk appetite
Balanced
|
Examples of risk
• 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
|
Development during the year
• The Group's
portfolio companies raised approximately £655m of capital in
2023
• Excluding the
Oxford Nanopore holding, the Group held board seats on 89.5% of
portfolio companies valued at greater than £5m by value
• The Group
hired four investment professionals across the UK Deeptech and
Cleantech teams, one investment profession at Parkwalk Advisors and
one investment professional in the Australian Physical Sciences
team in 2023. Two investment professionals left the business, of
which one took up a senior role at an IP Group portfolio
company
|
Change from 2022
No change
|
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 Australia and New Zealand and Hong
Kong, presents an additional potential risk.
|
Link to strategy
The Group's strategic objectives
of developing and supporting a portfolio of compelling intellectual
property-based opportunities into robust businesses capable of
delivering attractive financial returns on our assets is dependent
on the Group's employees who work with the portfolio companies and
those who support them.
2 4 5
|
Actions taken by management
• Senior team
succession plans in place
• Formal
learning and development programme for all employees in
place
• The Group
carries out regular market comparisons for staff and executive
remuneration and seeks to offer a balanced incentive package
comprising a mix of salary, benefits, performance-based long-term
incentives, and 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
• An employee
forum, "IP Connect" with an appointed designated Non-executive
Director to facilitate dialogue with the 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
• An inclusion
and diversity committee the "ID Project", sponsored by the CEO is
in place to support an inclusive environment to work
|
Risk appetite
Low
|
Examples of risk
• 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
|
Development during the year
• Continued
excellent employee engagement (net promoter) scores obtained in the
year from employee engagement surveys
• Continued to
dedicate senior team time and resources to the development of the
Group's inclusion and diversity programme, the ID Project. Progress
against key IDP Masterplan objectives and a firmwide inclusive
communications training was provided to all employees in
2023
• More than 90%
of employees attended a L&D programme sponsored training
course
• Continued high
frequency of employee communications from Executive Directors and
the Head of HR via regular virtual and in-person all-staff
meetings
• The labour
market was resilient in 2023 however quit rates, a key feature of
tight pandemic labour markets are now thought to be below 2019
levels. This, alongside moderated labour market demand in response
to the weakened economic activity globally means that while talent
acquisition and retention is still competitive the impact of the
wider market has reduced this risk somewhat for the
Group
• Unplanned staff attrition was
2%
• Approximately
59% of employees have been with the Company for at least five
years
|
Change from 2022
No change
|
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, the COVID-19 pandemic or similar scenarios,
could have a number of potential impacts, including global
conflicts impacting the cost of raw materials required by portfolio
companies, changes to the labour market available to the Group for
recruitment or regulatory environment in which the Group and its
portfolio companies operate.
|
Link to strategy
The Group's strategic objectives
of developing a portfolio of commercially successful portfolio
companies and delivering attractive financial returns on our assets
and third-party funds can be materially impacted by the current
macroeconomic environment.
3
|
Actions taken by management
• Senior
management receive regular capital market and economic updates from
the Group's capital markets team and its brokers
• Monthly
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 monitors key macroeconomic trends that may impact the
Group
|
Risk appetite
High
|
Examples of risk
• The success of
those portfolio companies that require significant external funding
may be influenced by the market's appetite for investment in
early-stage companies, which may not be sufficient
• Of the Group's
portfolio value, 17.5% is held in companies quoted on public
markets and decreases in values to these markets could result in a
material fair value impact to the portfolio as a whole
|
Development during the year
•
Macroeconomic and geopolitical conditions remain
uncertain in the UK. Inflation in the UK fell in 2023 to 4.0%
and interest rate rises were seen across the UK, Eurozone, US and
elsewhere, ending an era of low interest rates. In early 2024 the
market is anticipating moderate decreases to interest rates in the
short term however the expectation is that interest rates will not
revert to the lower interest rates experienced in the recent
past
• Russia's
invasion of Ukraine continued in the year and conflict in the
Middle East began in Q4
• The Group has
maintained significant cash reserves available for investment and
as such is well placed to respond to macroeconomic
uncertainty
|
Change from 2022
No change
|
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.
|
Link to strategy
The Group's strategic objectives
of creating and maintaining a portfolio of compelling opportunities
to deliver attractive returns for shareholders could be materially
impacted by failure to comply with, or adequately plan for, a
change in legislation, government policy or regulation.
2
|
Actions taken by management
• University
partners are incentivised to protect their IP for exploitation as
the partnership agreements share returns between universities,
academic founders and the Group
• The Group
utilises professional advisors as 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 regulations
• The Group
maintains directors and officers (D&O) and professional
indemnity insurance policies
|
Risk appetite
Low
|
Examples of risk
• 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 authorised subsidiaries,
resulting in loss of fund management contracts, reputational damage
or fines
|
Development during the year
• Ongoing focus
on regulatory compliance, including third-party reviews and
utilisation of specialist advisors
• Parkwalk
Advisors Ltd received regulatory permissions from the FCA in the
year to allow them to increase the level of assets under management
in response to their success as an EIS investment
manager
• An application
for Type 1 and Type 9 regulatory licences from the Securities and
Futures Commission ("SFC") in Hong Kong was obtained in the year.
The licences allow the Group's Hong Kong subsidiary to raise
capital for the Group's portfolio companies and other similar
companies and manage a PRC-based fund
|
Change from 2022
No change
|
7
The Group and its portfolio companies 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.
|
Link to strategy
The Group's strategic objectives
of creating and maintaining a portfolio of compelling opportunities
to deliver attractive returns for shareholders could be materially
impacted by a serious cybersecurity breach at a corporate or
portfolio company level.
2
|
Actions taken by management
• The Group
reviews its data and cybersecurity processes with its external
outsourced IT providers and applies the UK Government's "ten steps"
framework or other national equivalents where relevant
• 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
• Annual Cyber
and IT training is supplemented by regular bite-sized and
interactive cybersecurity training
• Network and
infrastructure security systems to respond to emerging
threats
|
Risk appetite
Low
|
Examples of risk
• 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
|
Development during the year
• Ongoing focus
on IT security and staff training
• Continued
programme of phishing and penetration testing
• Implementation
of additional cybersecurity systems to provide enhanced threat
detection
• Internal Audit
completed an "ethical hacking" style review
• Onboarded
strategic level external communications resource to supplement
response resources to a serious cyber incident
• Three cyber
attack simulations were undertaken in the year to allow executive
management to practice their planned response to a serious cyber
incident, including two externally facilitated sessions
• Extensive
training and testing of the Group's cyber response plans in the
year
|
Change from 2022
No change
|
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.
|
Link to strategy
The Group's strategy includes
building a portfolio of compelling intellectual property-based
companies across the UK and Australia and New Zealand. The scale of
the Group's operations, including internationally represents
increased importance of successful execution of its
operations.
2 5
|
Actions taken by management
• Local legal
and regulatory advisors have been engaged in the establishment
phase of overseas operations. International teams typically have
their own in-house legal teams and regularly report to the UK-based
General Counsel
• Business
continuity plans are in place for the Group and tested
regularly
• Our executive
recruitment function 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 supplements 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
• The Group's
Executive Committee includes senior representatives from Australia
and Hong Kong. Other key committees and working groups also include
team members from international offices
|
Risk appetite
Balanced
|
Examples of risk
• A legal or
regulatory breach could ultimately lead to the withdrawal of
regulatory permissions overseas, 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
|
Development during the year
• Continued
coordination of risk reporting across Australia, New Zealand and
Hong Kong
• Hong Kong
regulatory permissions obtained from local regulator and Group risk
and compliance reporting programme commenced
• Reviewed
disaster recovery plans in the year
|
Change from 2022
No change
|
KEY
STRATEGIC PILLARS
1 Have an impact on the world that
counts
2 Develop our unique insights,
expertise and access
3 Accelerate value
creation
4 Build a truly differentiated
reputation
5 Be a home for exceptional
talent
Viability statement
The Directors have carried out a
robust assessment of the viability of the Group over a three-year
period to December 2026, considering its strategy, its current
financial position and its principal risks. The three-year period
reflects the time horizon reviewed by the Board, and 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 and approve at least
annually. As a business which seeks to accelerate the impact of
science for a better future through our portfolio companies, our
business model seeks to balance cash investments, the generation of
portfolio returns and portfolio realisations. The three-year plan
is built using a bottom-up model using assumptions over:
· the level of portfolio investment
· the level of realisations from the portfolio (net of carried
interest payments)
· the financial performance (and valuation) of the underlying
portfolio companies
· the Group's drawdown and repayment of its debt
· the Group's ability to raise further capital
· the level of the Group's net overheads and
· the level of dividends and share buybacks
Of the Group's principal risks,
those relating to insufficient capital (both Group and portfolio
companies), insufficient investment returns and macroeconomic
conditions are deemed to be the most relevant to the Group's
viability assessment due to their potential to impact the Group's
liquidity position and net asset position, both of which directly
impact the level of headroom over the Group's debt covenants. Other
principal risks including; personnel risk; legislation, governance
and regulation; cyber and IT and international operations could
have an impact on the Group's performance but are less likely to
have a direct impact on viability within the assessment
period.
To assess the impact of the
principal risks highlighted above on the prospects of the Group,
the financial plan is stress-tested by modelling severe but
plausible and intermediate downside scenarios where adverse impacts
across the Group's principal risks relating to insufficient
capital, insufficient investment returns and macroeconomic
conditions were considered as part of the review. Under the severe
downside scenario, a 70% reduction in planned realisations and a
35% decline in portfolio fair values which were considered together
with a series of mitigating actions, including reducing planned
levels of investment.
Under these stress-testing
scenarios, significant reductions to portfolio investments are made
to preserve the Group's remaining cash balances. In all scenarios
modelled, the Group remains solvent throughout the three-year
period with no breach of debt covenants of a "cash trap period"
occurring. See Note 19 for further details on cash trap
arrangements.
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 2026.
Strategic Report approval
The Strategic Report as set out
above has been approved by the Board.
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 2023 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 2024, 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 UK-adopted International
Financial Reporting Standards ("UK-adopted IFRS") and give a true
and fair view of the assets, liabilities, financial position and
profit and loss of the Group.
• The Annual Report and Accounts
includes a fair review of the development and performance of the
business and the financial position of the Group and the parent
company, together with a description or the principal risks and
uncertainties that they face.
On behalf of The Board
Sir Douglas
Flint
Greg Smith
Chairman
Chief Executive Officer
13 March 2023
Consolidated statement of comprehensive
income.
For the year ended 31 December
2023
|
Note
|
2023
£m
|
2022
£m
|
Portfolio return and revenue
|
|
|
|
Change in fair value of equity and
debt investments
|
13
|
(110.9)
|
(303.4)
|
(Loss) on disposal of equity and
debt investments
|
15
|
(10.8)
|
(7.8)
|
Change in fair value of limited
and limited liability partnership interests
|
14
|
(38.8)
|
2.1
|
Revenue from services and other
income
|
4
|
5.9
|
7.1
|
|
|
(154.6)
|
(302.0)
|
Administrative expenses
|
|
|
|
Carried interest plan
credit/(charge)
|
23
|
4.7
|
(12.0)
|
Share-based payment
charge
|
22
|
(2.6)
|
(2.9)
|
Other administrative
expenses
|
8
|
(28.0)
|
(27.4)
|
|
|
(25.9)
|
(42.3)
|
Operating loss
|
7
|
(180.5)
|
(344.3)
|
Finance income
|
|
9.8
|
2.2
|
Finance costs
|
|
(5.6)
|
(1.4)
|
Loss before taxation
|
|
(176.3)
|
(343.5)
|
Taxation
|
10
|
1.9
|
(1.0)
|
Loss for the year
|
|
(174.4)
|
(344.5)
|
|
|
|
|
Other comprehensive income
|
|
|
|
Exchange differences on
translating foreign operations
|
|
(0.4)
|
0.5
|
Total comprehensive loss for the year
|
|
(174.8)
|
(344.0)
|
|
|
|
|
Attributable to:
|
|
|
|
Equity holders of the
parent
|
|
(171.3)
|
(341.5)
|
Non-controlling
interest
|
|
(3.5)
|
(2.5)
|
|
|
(174.8)
|
(344.0)
|
Loss per share
|
|
|
|
Basic (p)
|
11
|
(16.53)
|
(33.01)
|
Diluted (p)
|
11
|
(16.53)
|
(33.01)
|
Consolidated statement of financial
position.
As at 31 December 2023
|
Note
|
2023
£m
|
2022
£m
|
ASSETS
|
|
|
|
Non-current assets
|
|
|
|
Goodwill
|
|
0.4
|
0.4
|
Property, plant and
equipment
|
|
1.4
|
0.4
|
Joint venture investment
|
|
0.6
|
-
|
Portfolio:
|
|
|
|
Equity
investments
|
13
|
1,011.5
|
1,120.8
|
Debt investments
|
13
|
83.7
|
38.1
|
Limited and limited
liability partnership interests
|
14
|
69.7
|
99.6
|
Receivable on sale of debt and
equity investments
|
15,17
|
7.8
|
6.9
|
Total non-current assets
|
|
1,175.1
|
1,266.2
|
Current assets
|
|
|
|
Trade and other
receivables
|
16
|
8.2
|
8.8
|
Receivable on sale of debt and
equity investments
|
15,17
|
1.4
|
41.3
|
Deposits
|
3
|
126.0
|
152.8
|
Cash and cash
equivalents
|
3
|
100.9
|
88.7
|
Total current assets
|
|
236.5
|
291.6
|
Total assets
|
|
1,411.6
|
1,557.8
|
EQUITY AND LIABILITIES
|
|
|
|
Equity attributable to owners of
the parent
|
|
|
|
Called up share capital
|
21
|
21.3
|
21.3
|
Share premium account
|
|
102.5
|
102.5
|
Retained earnings
|
|
1,075.6
|
1,257.9
|
Total equity attributable to equity
holders
|
|
1,199.4
|
1,381.7
|
Non-controlling interest
|
|
(9.1)
|
(5.6)
|
Total equity
|
|
1,190.3
|
1,376.1
|
Current liabilities
|
|
|
|
Trade and other payables
|
18
|
17.1
|
16.9
|
Borrowings
|
19
|
6.3
|
6.3
|
Total current
liabilities
|
|
23.4
|
23.2
|
Non-current liabilities
|
|
|
|
Borrowings
|
19
|
128.9
|
75.1
|
Carried interest plan
liability
|
23
|
38.0
|
44.1
|
Deferred tax liability
|
10
|
4.8
|
6.8
|
Loans from limited partners of
consolidated funds
|
19
|
19.8
|
19.5
|
Revenue share liability
|
20
|
6.4
|
13.0
|
Total non-current
liabilities
|
|
197.9
|
158.5
|
Total liabilities
|
|
221.3
|
181.7
|
Total equity and
liabilities
|
|
1,411.6
|
1,557.8
|
Registered number:
04204490
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
13 March 2024 and were signed on its behalf by:
Greg Smith
Chief Executive Officer
David Baynes
Chief Financial Officer
Consolidated statement of cash flows.
For the year ended 31 December
2023
|
Note
|
2023
£m
|
2022
£m
|
Operating activities
|
|
|
|
Loss before taxation for the
period
|
|
(176.3)
|
(343.5)
|
Adjusted for:
|
|
|
|
Change in fair value of equity and
debt investments
|
13
|
110.9
|
303.4
|
Change in fair value of limited
and limited liability partnership interests
|
14
|
38.8
|
(2.1)
|
Loss on disposal of equity
investments
|
15
|
10.8
|
7.8
|
Long term incentive carry scheme
(credit)/charge
|
23
|
(4.7)
|
12.0
|
Carried interest scheme
payments
|
23
|
(1.3)
|
(1.0)
|
Share-based payment
charge
|
22
|
2.6
|
2.9
|
Finance income
|
|
(9.8)
|
(2.2)
|
Finance costs
|
|
5.6
|
1.4
|
Depreciation of right of use
asset, property, plant and equipment
|
|
0.6
|
0.6
|
Corporate finance fees settled in
the form of portfolio company equity
|
|
(0.1)
|
(0.5)
|
Changes in working capital
|
|
|
|
Decrease/(Increase) in trade and
other receivables
|
16
|
1.3
|
(0.5)
|
Decrease in trade and other
payables
|
18
|
(0.3)
|
(2.8)
|
Drawdowns from limited partners of
consolidated funds
|
|
0.3
|
0.8
|
Other operating cash flows
|
|
|
|
Interest
received1
|
|
3.7
|
-
|
Net interest received
|
|
-
|
0.2
|
Net cash outflow from operating activities
|
|
(17.9)
|
(23.5)
|
Investing activities
|
|
|
|
Purchase of property, plant and
equipment
|
|
-
|
(0.3)
|
Purchase of equity and debt
investments
|
13
|
(63.4)
|
(88.9)
|
Investment in limited and limited
liability partnership funds
|
14
|
(9.8)
|
(4.6)
|
Investment in joint
venture
|
|
(0.6)
|
-
|
Cash flow to deposits
|
|
(191.7)
|
(208.7)
|
Cash flow from deposits
|
|
218.4
|
272.1
|
Proceeds from sale of equity and
debt investments
|
15
|
37.7
|
28.1
|
Interest received on
deposits1
|
|
4.1
|
-
|
Distribution from limited
partnership funds
|
14
|
0.9
|
-
|
Net cash outflow from investing activities
|
|
(4.4)
|
(2.3)
|
Financing activities
|
|
|
|
Dividends paid
|
28
|
(13.0)
|
(12.3)
|
Repurchase of own shares -
treasury shares
|
21
|
(0.1)
|
(8.0)
|
Lease principal payment
|
|
(0.5)
|
(0.5)
|
Interest
paid1
|
|
(5.5)
|
-
|
Repayment of EIB loan
facility
|
19
|
(6.2)
|
(29.8)
|
Drawdown of loan facility (net of
costs)
|
19
|
60.0
|
59.4
|
Net cash inflow from financing activities
|
|
34.7
|
8.8
|
Net decrease in cash and cash equivalents
|
|
12.4
|
(17.0)
|
Cash and cash equivalents at the
beginning of the year
|
|
88.7
|
105.7
|
Effect of foreign exchange rate
changes
|
|
(0.2)
|
-
|
Cash and cash equivalents at the end of the
year
|
|
100.9
|
88.7
|
1 In the
current year interest paid and interest received on deposits have
been shown separately. The directors have chosen not to represent
the prior year comparatives as the amounts are
immaterial.
The accompanying notes form an
integral part of the financial statements.
Consolidated statement of changes in
equity.
For the year ended 31
December 2023
|
Attributable to equity holders of the parent
|
|
Share
capital
|
Share
premium1
£m
|
Retained
earnings2
£m
|
Total
£m
|
Non-controlling
interest3
£m
|
Total
equity
£m
|
At 1 January 2022
|
21.3
|
102.4
|
1,617.5
|
1,741.2
|
(3.1)
|
1,738.1
|
Loss for the year
|
-
|
-
|
(342.0)
|
(342.0)
|
(2.5)
|
(344.5)
|
Issue of
shares4
|
-
|
0.1
|
-
|
0.1
|
-
|
0.1
|
Purchase of treasury
shares5
|
-
|
-
|
(8.0)
|
(8.0)
|
-
|
(8.0)
|
Equity-settled share-based
payments6
|
-
|
-
|
2.9
|
2.9
|
-
|
2.9
|
Ordinary
dividends7
|
-
|
-
|
(12.7)
|
(12.7)
|
-
|
(12.7)
|
Currency
translation8
|
-
|
-
|
0.2
|
0.2
|
-
|
0.2
|
At 1 January 2023
|
21.3
|
102.5
|
1,257.9
|
1,381.7
|
(5.6)
|
1,376.1
|
Loss for the year
|
-
|
-
|
(170.9)
|
(170.9)
|
(3.5)
|
(174.4)
|
Purchase of treasury
shares5
|
-
|
-
|
(0.1)
|
(0.1)
|
-
|
(0.1)
|
Equity-settled share-based
payments6
|
-
|
-
|
2.6
|
2.6
|
-
|
2.6
|
Ordinary
dividends7
|
-
|
-
|
(13.0)
|
(13.0)
|
-
|
(13.0)
|
Currency
translation8
|
-
|
-
|
(0.9)
|
(0.9)
|
-
|
(0.9)
|
At 31 December 2023
|
21.3
|
102.5
|
1,075.6
|
1,199.4
|
(9.1)
|
1,190.3
|
1. Share premium
- Amount subscribed for share capital in excess of nominal value,
net of directly attributable issue costs.
2. Retained
earnings - Cumulative net gains and losses recognised in the
consolidated statement of comprehensive income net of associated
share-based payments credits and distributions to
shareholders.
3.
Non-controlling interest - Share of profits attributable to the
Limited Partners of IP Venture Fund II LP.
4. Issue of
shares - Share premium in connection with the Interim Scrip
Dividend, the Group has received valid elections from shareholders
resulting in a requirement to issue new ordinary shares of 2p each
("New Shares").
5. Purchase of
treasury shares - Reflects the issue of 220,302 ordinary shares,
with an aggregate value of £0.1m, these were purchased by the
Company during the year and are held in treasury. Total value
including costs was £0.1m. (2022: 7,429,494 shares purchased for
total value of £8.0m, total including costs of £8.0m). These shares
were purchased for the £20m share buyback share buyback approved by
the Board in December 2023.
6. Equity-settled
share-based payments - amounts recognised in respect of the Group's
share-based payments schemes recognised as a subsidiary investment
in the Company accounts with a corresponding entry against
equity.
7. Ordinary dividends
- Of the £13.0m dividends paid in 2023, £13.0m was settled in cash
(2022: £12.7m total, £12.3m cash, £0.4m Scrip). No new shares were
issued in respect of scrip dividends in 2023 (2022: 485,569 shares
issued).
8. Currency
translation - Reflects currency translation differences on reserves
non-GBP functional currency subsidiaries. Exchange differences on
translating foreign operations are presented before tax.
Notes to the consolidated financial
statements.
1. Basis of preparation
A) 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 2023. 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. The Group financial statements have been
prepared and approved by the directors in accordance with
UK-adopted international accounting standards ("UK-adopted
IFRS").
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 2.
Going concern
The financial statements are
prepared on a going concern basis. The directors 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.
At the balance sheet date, the
Group had cash and deposits of £226.9m, providing liquidity for at
least two years' operating expenses, portfolio investment and debt
repayments at recent levels. Furthermore, the Group has a portfolio
of investments valued at around £1.2bn, which is anticipated to
provide further liquidity over the forecast period. 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 twelve
months from the approval date of the accounts. For further details
see the Group's viability statement above.
Changes in accounting policies
(i) New standards,
interpretations and amendments effective from 1 January
2023
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.
(B) Basis of consolidation
IFRS 10 Investment Entity Exemption
IFRS 10 defines an investment
entity as one which:
a. Obtains funds from
one or more investors for the purpose of providing those investors
with investment management services
b. Commits to its
investors that its business purpose is to invest funds solely for
returns from capital appreciation, investment income or
both
c. Measures and
evaluates the performance of substantially all of its investments
on a fair value basis
We believe that IP Group plc does
not meet this definition of an investment entity with the key
factors behind this conclusion being:
• the
absence of specific exit strategies for early-stage assets
(indicating condition (b) above is not satisfied)
• the
ability to hold investments indefinitely (indicating condition (b)
above is not satisfied)
• the
flexibility to explore the direct commercialisation of intellectual
property within the Group if that is determined to be the most
attractive means of generating value for shareholders. (indicating
condition (a) above is not satisfied)
Accordingly, we have applied IFRS
10 consolidation principles for each group of entities as
follows:
(i) 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.
(ii) Associates/portfolio companies
The majority of the Group's
portfolio companies are deemed to be Associates, as the Group has
significant influence (generally accompanied by a shareholding of
between 20% and 50% of the voting rights) but not control. A small
number of the Group's portfolio companies are controlled and hence
consolidated, as per section (i) above.
As permitted under IAS 28, the
Group elects to hold investments in Associates 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 operating business. During 2023, the Group made a
£0.6m investment into a Joint Venture established in preparation
for potential fund operations in China. Joint ventures are held at
fair value with any change in value recognised through the income
statement.
The disclosures required by
Section 409 of the Companies Act 2006 for associated undertakings
are included in note 13 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 disclosures of the Companies Act
2006 are included in note 11 of the Company financial
statements.
(iii) Limited Partnerships and Limited Liability Partnerships
("Limited Partnerships")
a) Consolidated Limited Partnership fund
holdings
The Group has a holding in the
following Limited Partnership fund, which it determines that it
controls and hence consolidates on a line by line basis:
Name
|
Interest
in Limited partnership
%
|
IP Venture Fund II LP
("IPVFII")
|
33.3
|
In order to determine whether the
Group controls the above funds, it has considered the IFRS 10
control model and related application guidance. In respect of
IPVFII, the Group has power via its role as fund manager of the
partnership, and exposure to variable returns via its 33.3%
ownership interest, resulting in the conclusion that the Group
controls and hence consolidates the fund.
b) Other non-consolidated Limited Partnership fund
holdings
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 managed by third parties:
Name
|
Interest
in Limited partnership
%
|
IPG Cayman LP
|
58.1
|
UCL Technology Fund LP ("UCL
Fund")
|
46.4
|
Technikos LLP
("Technikos")
|
17.7
|
The rationale for IPG Cayman LP's
categorisation as a non-consolidated fund is considered a
significant accounting judgment and is set out in note
2.
The Group has a 46.4% interest in
the total capital commitments of the UCL Fund. The Group has
committed £24.8m 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.
See note 27 for disclosure of
outstanding commitments in respect of Limited
Partnerships.
iv) Other third party funds under
management
In addition to the Limited
Partnership fund IPVFII, described above, the Group also manages
other third-party funds, including within its Parkwalk business
unit, described in further detail in the portfolio review section
above, and on behalf of Australian superannuation fund Hostplus. In
both cases, the Group has no direct beneficial interest in the
assets being managed, and its sole exposure to variable returns
relates to performance fees payable on exits above a specified
hurdle. As a result, the Group is not deemed to control these
managed assets under IFRS10 and they are not
consolidated.
v) Non-controlling interests
The total comprehensive income,
assets and liabilities of non-wholly owned entities are attributed
to owners of the parent and to the non-controlling interests in
proportion to their relative ownership interests.
vi) Business combinations
The Group accounts for business
combinations using the acquisition method from the date that
control is transferred to the Group (see (i) Subsidiaries above).
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.
c) Other accounting policies
Regulated
capital
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"). Similarly, the Group's subsidiary in Hong Kong
IP Group Greater China Services Limited is subject to external
capital requirements imposed by the Securities and Futures
Commission of Hong Kong ("SFC"). As such these entities must ensure
that they have sufficient capital to satisfy their respective
requirements. The Group ensures it remains compliant with these
requirements as described in their respective financial
statements.
Cash flow statement
classification of portfolio investments
Cash flow relating to portfolio
investments have been presented as investing cash flows as opposed
to cash flows from operating activities. Management considers this
to be an appropriate classification representing the fact that the
relevant cashflows are allocated towards resources intended to
generate future income and cash flows.
2. 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 and
limited partnership interests (significant
estimate)
The Group's accounting policy in
respect of the valuation of unquoted equity and debt investments is
set out in note 13, and in respect of limited partnership interests
in note 14. In applying this policy, the key areas over which
judgement 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 an
upwards or downwards calibration adjustment to a funding
transaction valuation to reflect positive or negative developments
within the company in question, the size of the adjustment
made.
• 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.
• Where
valuations are based on future events such as sales processes or
future funding rounds, the appropriate level of execution risk to
be applied to the anticipated event when assessing its valuation
impact as at the balance sheet date.
• Debt
investments typically represent convertible debt; in such cases
judgement is exercised in respect of the estimated equity value
received on conversion of the loan.
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. Note 13 provides disclosure details
on sensitivity and estimation uncertainty.
(ii) Application of IFRS 10 in respect of Istesso Limited and
IPG Cayman LP (significant judgement)
Istesso Limited
In respect of Istesso Limited,
although the Group has a 56.5% undiluted economic interest in the
company, the Group holds a significant proportion of its equity via
non-voting shares resulting in it holding less than 50% of the
voting rights at the company. Under Istesso's Articles of
Association, strategic and day-to-day decisions over running of the
business rest with Istesso's board of directors rather than through
shareholder voting rights attached to direct ownership of equity
interests held in the entity. In this respect, power over Istesso
is exercised predominantly through directors' meetings, on which IP
Group is not deemed to have majority representation. As such, the
relationship between Istesso and IP Group is designed in such a way
that "shareholder" voting rights are not the dominant factor in
deciding who directs the investee's relevant activities, but it is
the directors who do so. IP Group does not control the board of
Istesso Limited via a majority of board directors, and is
specifically prevented from appointing additional directors to gain
control of the board via restrictions in Istesso's Articles of
Association.
During the year, the Group
provided a £13.5m convertible loan to Istesso Limited. This was in
addition to a £10m convertible loan which was provided in 2022. The
terms of the loans contain specific provisions preventing their
conversion where this would result in IP Group obtaining control of
Istesso. In addition, the Group provided £1.5m equity funding to
Istesso in 2023. As part of this transaction, convertible loans
advanced by IP Group and a third party in 2020 converted into
equity, leading to a marginal increase in IP Group's economic
interest (from 56.4% to 56.5%), but a decrease in IP Group's voting
rights as a result of IP Group's debt conversion being into
non-voting shares.
Based on an updated control
assessment, including considerations around whether IP Group has
'de facto' control of Istesso including inter alia the number of
voting shares held by the Group and its connected parties and the
dispersion of other parties' voting rights, we have concluded that
the Group does not control Istesso Limited under IFRS
10.
Had we concluded that
consolidation in the current year was appropriate, the impact on
the Group Balance Sheet would have been to recognise Istesso
Limited's assets and liabilities and to recognise additional
intangible assets including goodwill based on the fair value of the
company at acquisition. The impact on the Group Income Statement
would have been the recognition of Istesso Limited's costs from the
point of acquisition. Furthermore, any subsequent fair value
movements in the debt and equity of Istesso Limited would not be
recognised until the point where IP Group was no longer deemed to
control Istesso Limited.
IPG Cayman LP
The Group's US portfolio is held
via a limited partnership fund, IPG Cayman LP, which was set up in
2018 to facilitate third party investment into this portfolio. The
fund is managed by Longview Innovations Inc., formerly an operating
subsidiary of the Group. Prior to 2021, the Group was judged to
control both IPG Cayman LP and Longview innovations Inc. under IFRS
10 and hence both entities were consolidated.
In 2021, several events took place
which caused us to reassess the Group's control of both
entities:
• IPG
Cayman LP raised additional third-party funds in the first half of
2021, which reduced the Group's stake in the fund from 80.7% to
58.1% and revised the fund's Limited Partnership Agreement to
reduced the Group's rights to replace the fund manager.
•
Investors in the 2021 IPG Cayman LP funding round hold an option to
subscribe additional funds which, if exercised, would result in IP
Group holding less than 50% in the fund.
• In
November 2021 the Group disposed of its equity in IPG Cayman LP's
fund manager, Longview Innovations Inc. and hence no longer
controls the fund manager.
As a result of these changes, our
control assessment concluded that Longview Innovations Inc, is
acting as an agent on behalf of all investors in the Cayman LP and
not solely IPG plc, therefore the Group no longer controls IPG
Cayman LP. The Group therefore ceased to consolidate it from
November 2021.
Arriving at this conclusion
required the application of judgement, most significantly in
assessing the application guidance contained in IFRS 10 B19 which
suggests that in some instances a special relationship may exist
(such as the fact that we remain the largest individual investor in
the fund), implying that an investor has a more than passive
interest in the investee. Having considered this guidance we have
concluded that on balance the Group does not have power over IPG
Cayman LP and hence does not control it.
During 2023, the Group advanced
$10m into IPG Cayman LP via a Simple Agreement for Future Equity
("SAFE"). The terms of this SAFE were consistent with those of
another third party who entered into a SAFE with IPG Cayman LP in
the year and did not confer any additional substantive rights to
the Group in the normal course of business and as a result did not
change the consolidation conclusion in respect of IPG Cayman
LP.
Had we concluded that
consolidation was appropriate in the current year, the impact on
the Group Balance Sheet would have been a gross-up adjustment to
reflect the full value of IPG Cayman LP's assets and liabilities,
with no impact on the Group's net assets. The impact on the Group
Income Statement would have been to recognise IPG's gross portfolio
fair value movements and costs from the date of acquisition, with
profits attributable to minority interest in IPG Cayman LP being
reflected as a movement in Minority Interest.
3. Financial risk management
As set out in the principal risks
and uncertainties section above, the Group is exposed, through its
normal operations, to a number of financial risks, the most
significant of which are market, liquidity and credit
risks.
In general, risk management is
carried out throughout the Group under policies approved by the
Board of Directors. The following further describes the Group's
objectives, policies and processes for managing those risks and the
methods used to measure them. Further quantitative information in
respect of these risks is presented throughout these financial
statements.
A) Market risk
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 recognised 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 ten investments
valued at £203.8m which are publicly traded (2022: 13, £228.7m),
and the remainder of its investments are not traded on an active
market.
The net portfolio loss in 2023 of
£160.5m represents a 13% decrease against the opening balance
(2022: loss of £304.3m, 21.5%). Sensitivity analysis showing the
impact of movements in quoted equity and debt investments is
disclosed in Note 13, and movements in Limited and Limited
Liability interests is shown in Note 14.
(ii) Foreign exchange risk
The Groups' main exposure to
foreign currency risk is via its investment portfolio, which is
partially denominated in US dollars, Australian dollars, Euros and
Swedish Krona. Further details of currency exposure in the
portfolio are given in notes 13 and 14.
The Group's US dollar-denominated
proceeds included in deferred consideration at December 2023 was
£9.4m (2022: £35.5m). The reduction is largely due to the receipt
of US dollar-denominated proceeds totalling £30.8m in the first
half of 2023 relating to the disposal of WaveOptics.
The Group periodically enters into
forward foreign exchange contracts to mitigate risk of exchange
rate exposure in respect of non GPD-denominated proceeds. As at 31
December 2023 the notional amount of the forward foreign exchange
contracts held by the Company was £nil (2022: $26.3m). The
settlement date of the contacts outstanding in 2022 was 30 June
2023.
(iii) Interest rate risk
The Group holds a debt facility
with the European Investment Bank and a loan note facility
primarily with Phoenix Group with the overall balance as at 31
December 2023 amounting to £135.6m (excluding setup costs). These
loans are all subject to fixed rate interest (following the
repayment of variable rate loans in the year) being subject to an
average fixed rate interest of
4.99% (2022: 4.65%).
For further details of the Group's
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.
(iv) 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. In recent years, the Group has decreased the scale of
its operations in the US as a result of the dilution of its holding
in IPG Cayman LP. The group has, however, the scale of its
operations in Australia have increased as a result of additional
investment in this geography and portfolio value gains.
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.
|
2023
|
2022
|
|
Fixed
rate
£m
|
Floating
rate
£m
|
Interest
free
£m
|
Total
£m
|
Fixed
rate
£m
|
Floating
rate
£m
|
Interest
free
£m
|
Total
£m
|
Financial assets
|
|
|
|
|
|
|
|
|
Equity investments
|
-
|
-
|
1,011.5
|
1,011.5
|
-
|
-
|
1,120.8
|
1,120.8
|
Debt investments
|
-
|
-
|
83.7
|
83.7
|
-
|
-
|
38.1
|
38.1
|
Limited and limited liability
partnership interests
|
-
|
-
|
69.7
|
69.7
|
-
|
-
|
99.6
|
99.6
|
Trade receivables
|
-
|
-
|
0.6
|
0.6
|
-
|
-
|
2.1
|
2.1
|
Other receivables
|
-
|
-
|
7.6
|
7.6
|
-
|
-
|
6.7
|
6.7
|
Receivable on sale of debt and
equity investments
|
-
|
-
|
9.2
|
9.2
|
-
|
-
|
48.2
|
48.2
|
Deposits
|
126.0
|
-
|
-
|
126.0
|
152.8
|
-
|
-
|
152.8
|
Cash and cash
equivalents
|
16.8
|
83.9
|
0.2
|
100.9
|
-
|
88.7
|
-
|
88.7
|
|
142.8
|
83.9
|
1,182.5
|
1,409.2
|
152.8
|
88.7
|
1,315.5
|
1,557.0
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Trade payables
|
-
|
-
|
(0.5)
|
(0.5)
|
-
|
-
|
(1.3)
|
(1.3)
|
Other accruals and deferred
income
|
-
|
-
|
(16.5)
|
(16.5)
|
-
|
-
|
(15.6)
|
(15.6)
|
Borrowings
|
(135.2)
|
-
|
-
|
(135.2)
|
(81.4)
|
-
|
-
|
(81.4)
|
Carried interest plan
liability
|
-
|
-
|
(38.0)
|
(38.0)
|
-
|
-
|
(44.1)
|
(44.1)
|
Deferred tax liability
|
-
|
-
|
(4.8)
|
(4.8)
|
-
|
-
|
(6.8)
|
(6.8)
|
Loans from Limited Partners of
consolidated funds
|
-
|
-
|
(19.8)
|
(19.8)
|
-
|
-
|
(19.5)
|
(19.5)
|
Revenue share liability
|
-
|
-
|
(6.4)
|
(6.4)
|
-
|
-
|
(13.0)
|
(13.0)
|
|
(135.2)
|
-
|
(86.0)
|
(221.2)
|
(81.4)
|
-
|
(100.3)
|
(181.7)
|
At 31 December 2023, if interest
rates had been 1% higher/lower, post-tax loss for the year, and
other components of equity, would have been £2.2m (2022: £2.0m)
higher/lower as a result of higher interest received on 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 £5bn 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.
Credit rating
|
2023
£m
|
2022
£m
|
P1
|
158.9
|
177.4
|
AAAMMF1
|
66.7
|
54.6
|
Other2
|
1.3
|
9.5
|
Total deposits and cash and cash
equivalents
|
226.9
|
241.5
|
1. The
Group holds £66.7m (2022: £54.6m) with JP Morgan GBP liquidity
fund, which has a AAAMMF credit rating with Fitch.
2. The
Group holds £1.3m (2022: £9.5m) 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 0.020408% (2022:
0.2107%).
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 single counterparty limit for
fixed term deposits in excess of 3 months at 31 December 2023 was
the greater of 60% of total group cash or £50m (2022: 60%, £50m).
In addition, no single institution may hold more than the higher of
50% of total cash or £50m. (2022: 50%, £50m).
The group's exposure to credit
risk on debt investments is managed in a similar way to equity
security price risk, as described above, 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.
4. Revenue from services
Accounting Policy:
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 operations. Revenue is recognised when the Group
satisfies its performance obligations, in line with IFRS 15.
Revenue breakdown and disclosure requirements under IFRS 15 have
not been presented as they are considered immaterial. Revenue from
services and other income comprises:
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 Intellectual Property
licences 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
licence, which can include sales-based, usage-based or
milestone-based royalties.
Advisory and corporate finance fees
Fees earned from the provision of
business support services including executive search 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 of the financing round to which the advisory fees
apply.
|
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 2023 and the year ended 31 December 2022, the Group's
revenue and profit before taxation were derived largely from its
principal activities within the UK.
For management reporting purposes,
the Group is currently organised into five operating
segments:
i. Venture
Capital investing within our 'Healthier future' thematic
area
ii. Venture Capital
investing within our 'Tech-enriched future' thematic
area
iii. Venture Capital
investing within our 'Regenerative future' thematic area
iv. Venture Capital
investing: Other, representing investments not included within our
three thematic areas above, including platform
investments
v. the
management of third party funds and the provision of corporate
finance advice
Reporting line items within
Venture Capital investing which are not allocated by thematic
sector are presented in the 'Venture Capital investing: other'
segment. The element of our 'Healthier future' thematic area
relating to Oxford Nanopore Technologies Limited is disclosed
separately given its size.
These activities are described in
further detail in the strategic report above.
Year ended 31 December 2023
|
|
|
|
|
|
|
|
|
STATEMENT OF COMPREHENSIVE INCOME
|
Venture capital investing:
Healthier future
£m
|
Of which Oxford
Nanopore
£m
|
Venture capital investing:
Tech-enriched future
£m
|
Venture capital investing:
Regenerative future
£m
|
Venture capital investing:
Other
£m
|
Venture capital investing:
Total
£m
|
Third party
fund
management
£m
|
Consolidated
£m
|
Portfolio return and revenue
|
|
|
|
|
|
|
|
|
Change in fair value of equity and
debt investments
|
(92.9)
|
(31.9)
|
(7.0)
|
(8.7)
|
(2.3)
|
(110.9)
|
-
|
(110.9)
|
(Loss)/gain on disposal of equity
and debt investments
|
(12.9)
|
-
|
2.1
|
-
|
-
|
(10.8)
|
-
|
(10.8)
|
Change in fair value of limited
and limited liability partnership interests
|
|
|
|
|
(38.8)
|
(38.8)
|
-
|
(38.8)
|
Revenue from services and other
income
|
|
|
|
|
1.3
|
1.3
|
4.6
|
5.9
|
|
(105.8)
|
(31.9)
|
(4.9)
|
(8.7)
|
(39.8)
|
(159.2)
|
4.6
|
(154.6)
|
Administrative expenses1
|
|
|
|
|
|
|
|
|
Carried interest plan
charge1
|
|
|
|
|
4.7
|
4.7
|
-
|
4.7
|
Share-based payment
charge1
|
|
|
|
|
(2.3)
|
(2.3)
|
(0.3)
|
(2.6)
|
Other administrative
expenses1
|
|
|
|
|
(22.6)
|
(22.6)
|
(5.4)
|
(28.0)
|
|
|
|
|
|
(20.2)
|
(20.2)
|
(5.7)
|
(25.9)
|
Operating loss
|
(105.8)
|
(31.9)
|
(4.9)
|
(8.7)
|
(60.0)
|
(179.4)
|
(1.1)
|
(180.5)
|
Finance
income1
|
|
|
|
|
9.4
|
9.4
|
0.4
|
9.8
|
Finance
costs1
|
|
|
|
|
(5.6)
|
(5.6)
|
-
|
(5.6)
|
Loss before taxation
|
(105.8)
|
(31.9)
|
(4.9)
|
(8.7)
|
(56.2)
|
(175.6)
|
(0.7)
|
(176.3)
|
Taxation1
|
|
|
|
|
1.9
|
1.9
|
-
|
1.9
|
Loss for the year
|
(105.8)
|
(31.9)
|
(4.9)
|
(8.7)
|
(54.3)
|
(173.7)
|
(0.7)
|
(174.4)
|
|
|
|
|
|
|
|
|
|
STATEMENT OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
Assets
|
576.5
|
173.6
|
231.4
|
275.3
|
310.2
|
1,393.4
|
18.2
|
1,411.6
|
Liabilities1
|
|
|
|
|
(214.7)
|
(214.7)
|
(6.6)
|
(221.3)
|
Net Assets
|
576.5
|
173.6
|
231.4
|
275.3
|
95.5
|
1,178.7
|
11.6
|
1,190.3
|
Other segment items
|
|
|
|
|
|
|
|
|
Portfolio Investment
|
(33.9)
|
-
|
(11.9)
|
(17.6)
|
(9.8)
|
(73.2)
|
-
|
(73.2)
|
Proceeds from sale of equity and
debt investments
|
3.7
|
-
|
33.2
|
0.1
|
1.6
|
38.6
|
-
|
38.6
|
Year ended 31 December 2022
|
STATEMENT OF COMPREHENSIVE INCOME
|
Venture capital investing:
Healthier future
£m
|
Of which Oxford
Nanopore
£m
|
Venture capital investing:
Tech-enriched future
£m
|
Venture capital investing:
Regenerative future
£m
|
Venture capital investing:
Other
£m
|
Venture capital investing:
Total
£m
|
Third party
fund
management
£m
|
Consolidated
£m
|
Portfolio return and revenue
|
|
|
|
|
|
|
|
|
Change in fair value of equity and
debt investments
|
(400.9)
|
(369.7)
|
(22.2)
|
121.7
|
2.0
|
(303.4)
|
-
|
(303.4)
|
(Loss)/gain on disposal of equity
and debt investments
|
(12.0)
|
-
|
4.0
|
-
|
0.2
|
(7.8)
|
-
|
(7.8)
|
Change in fair value of limited
and limited liability partnership interests
|
|
|
|
|
2.1
|
2.1
|
-
|
2.1
|
Revenue from services and other
income
|
|
|
|
|
1.1
|
1.1
|
6.0
|
7.1
|
|
(412.9)
|
(369.7)
|
(18.1)
|
121.7
|
1.4
|
(308.0)
|
6.0
|
(302.0)
|
Administrative expenses1
|
|
|
|
|
|
|
|
|
Carried interest plan
charge1
|
|
|
|
|
(12.0)
|
(12.0)
|
-
|
(12.0)
|
Share-based payment
charge1
|
|
|
|
|
(2.6)
|
(2.6)
|
(0.3)
|
(2.9)
|
Other administrative
expenses1
|
|
|
|
|
(22.1)
|
(22.1)
|
(5.3)
|
(27.4)
|
|
|
|
|
|
(36.7)
|
(36.7)
|
(5.6)
|
(42.3)
|
Operating loss
|
(412.9)
|
(369.7)
|
(18.1)
|
121.7
|
(35.3)
|
(334.7)
|
0.4
|
(344.3)
|
Finance
income1
|
|
|
|
|
2.1
|
2.1
|
0.1
|
2.2
|
Finance
costs1
|
|
|
|
|
(1.4)
|
(1.4)
|
-
|
(1.4)
|
Loss before taxation
|
(412.9)
|
(369.7)
|
(18.1)
|
121.7
|
(34.6)
|
(344.0)
|
0.5
|
(343.5)
|
Taxation1
|
|
|
|
|
(1.0)
|
(1.0)
|
-
|
(1.0)
|
Loss for the year
|
(412.9)
|
(369.7)
|
(18.1)
|
121.7
|
(35.6)
|
(345.0)
|
0.5
|
(344.5)
|
|
|
|
|
|
|
|
|
|
STATEMENT OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
Assets
|
659.2
|
205.5
|
257.3
|
266.4
|
357.1
|
1,540.0
|
17.8
|
1,557.8
|
Liabilities1
|
|
|
|
|
(176.0)
|
(176.0)
|
(5.7)
|
(181.7)
|
Net Assets
|
659.2
|
205.5
|
257.3
|
266.4
|
181.1
|
1,364.0
|
12.1
|
1,376. 1
|
Other segment items
|
|
|
|
|
|
|
|
|
Portfolio Investment
|
(40.9)
|
(3.2)
|
(21.7)
|
(26.2)
|
(4.7)
|
(93.5)
|
-
|
(93.5)
|
Proceeds from sale of equity and
debt investments
|
15.6
|
-
|
4.0
|
3.5
|
0.3
|
28.1
|
-
|
28.1
|
1. These amounts cannot be
apportioned to the individual segments of the venture capital
investing business.
6. Auditor's remuneration
Details of the auditor's
remuneration are set out below:
|
2023
£000
|
2022
£000
|
Audit of these financial
statements (KPMG LLP)
|
525.3
|
470.0
|
Audit of financial statements of
funds and subsidiaries of the companies (KPMG LLP)
|
139.2
|
123.9
|
Audit related assurance services
(KPMG LLP)
|
72.3
|
60.0
|
Total assurance
services
|
736.8
|
653.9
|
7. Operating loss
Operating loss has been arrived at
after charging:
|
2023
£000
|
2022
£000
|
Depreciation of right of use
asset, property, plant and equipment
|
(0.6)
|
(0.6)
|
Total staff costs (see note
9)
|
(19.0)
|
(20.0)
|
8.
Other administrative expenses
Other administrative expenses
comprise:
|
2023
£000
|
2022
£000
|
Employee costs (less share-based
payment charge)
|
16.4
|
17.1
|
Professional services
|
4.2
|
4.0
|
Consolidated portfolio company
costs
|
-
|
0.1
|
Depreciation of tangible
assets
|
0.6
|
0.6
|
Other expenses
|
6.8
|
5.6
|
|
28.0
|
27.4
|
9. Employee costs
Accounting Policy
Employee benefits
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.
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 the Directors' Remuneration
Report and note 22 for further details.
|
Employee costs (including
Executive Directors) comprise:
|
|
2023
£000
|
2022
£000
|
|
Salaries
|
11.3
|
11.6
|
|
Defined contribution pension
cost
|
1.1
|
1.0
|
|
Other bonuses accrued in the
year
|
2.6
|
3.0
|
|
Social security
|
1.4
|
1.5
|
|
Employee costs
|
16.4
|
17.1
|
Share-based payment charge (see
note 22)
|
2.6
|
2.9
|
|
Total staff costs
|
19.0
|
20.0
|
|
|
| |
The average monthly number of
persons (including executive directors) employed by the Group
during the year was 101, all of whom were involved in management
and administration activities (2022: 99). General details of the
directors' remuneration can be found in the Directors' Remuneration
Report.
10. Taxation
Accounting Policy:
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.
|
|
2023
£000
|
2022
£000
|
Current tax
|
|
|
UK corporation tax on profits for
the year
|
-
|
-
|
Foreign tax
|
-
|
-
|
|
-
|
-
|
Deferred tax
|
(1.9)
|
1.0
|
Total tax
|
(1.9)
|
1.0
|
The Group primarily seeks to
generate capital gains from its holdings in spin-out companies over
the longer-term. The majority of these capital gains qualify for UK
Substantial Shareholding Exemption ("SSE") and are therefore not
taxable, resulting in the Group making annual net operating losses
from its operations from a UK tax perspective.
Gains arising on sales of holdings
which do not qualify for SSE will ordinarily give rise to taxable
profits for the Group, to the extent that these exceed the Group's
ability to offset gains against current and brought forward tax
losses (subject to the relevant restrictions on the use of
brought-forward losses). In such cases, a deferred tax liability is
recognised in respect of estimated tax amount payable.
The amount for the year can be
reconciled to the profit per the statement of comprehensive income
as follows:
|
2023
£000
|
2022
£000
|
Loss before tax
|
(176.3)
|
(343.5)
|
Tax at the UK corporation tax rate
of 23.52% (2022: 19%)
|
(41.5)
|
(65.3)
|
Expenses not deductible for tax
purposes
|
(1.1)
|
2.3
|
Income not taxable
|
2.5
|
1.5
|
Prior year adjustment on deferred
tax
|
-
|
0.4
|
Fair value movement on investments
qualifying for SSE
|
40.9
|
58.4
|
Movement on share-based
payments
|
0.6
|
0.4
|
Movement in tax losses arising not
recognised
|
0.1
|
2.9
|
CIR reactivation
|
(3.1)
|
-
|
Foreign tax
|
0.1
|
-
|
Rate change on deferred
tax
|
(0.4)
|
0.4
|
Total tax
charge/(credit)
|
(1.9)
|
1.0
|
At 31 December 2023, deductible
temporary differences and unused tax losses, for which no deferred
tax asset has been recognised, totalled £298.3m (2022: £278.7m). An
analysis is shown below:
|
2023
|
2022
|
|
Amount
£m
|
Deferred
tax
£m
|
Amount
£m
|
Deferred
tax
£m
|
Accelerated capital
allowances
|
-
|
-
|
(0.5)
|
(0.1)
|
Share-based payment costs and
other temporary differences
|
(48.1)
|
(12.0)
|
(15.5)
|
(3.9)
|
Unused tax losses
|
(250.2)
|
(62.6)
|
(262.7)
|
(65.7)
|
|
(298.3)
|
(74.6)
|
(278.7)
|
(69.7)
|
At 31 December 2023, deductible
temporary differences and unused tax losses, for which a deferred
tax liability has been recognised, totalled £18.9m (2022: £27.3m).
An analysis is shown below:
|
2023
|
2022
|
|
Amount
£m
|
Deferred
tax
£m
|
Amount
£m
|
Deferred
tax
£m
|
Temporary timing
differences
|
54.1
|
13.5
|
79.7
|
19.9
|
Unused tax losses
|
(35.2)
|
(8.7)
|
(52.4)
|
(13.1)
|
|
18.9
|
4.8
|
27.3
|
6.8
|
11. Earnings per share
Earnings
|
2023
£m
|
2022
£m
|
Earnings for the purposes of basic
and dilutive earnings per share
|
(171.3)
|
(341.5)
|
Number of shares
|
2023
Number of
shares
|
2022
Number
of shares
|
Weighted average number of
ordinary shares for the purposes of basic
earnings per share
|
1,036,400,406
|
1,034,483,278
|
Effect of dilutive potential
ordinary shares:
|
|
|
Options or contingently issuable
shares
|
-
|
-
|
Weighted average number of
ordinary shares for the purposes of diluted
earnings per share
|
1,036,400,406
|
1,034,483,278
|
|
2023
pence
|
2022
pence
|
Basic
|
(16.53)
|
(33.01)
|
Diluted
|
(16.53)
|
(33.01)
|
No adjustment has been made to the
basic loss per share in the years ended 31 December 2023 and 31
December 2022, as the exercise of share options would have the
effect of reducing the loss per ordinary share, and therefore is
not dilutive.
Potentially dilutive ordinary
shares include contingently issuable shares arising under the
Group's LTIP arrangements, and options issued as part of the
Group's Sharesave schemes and Deferred Bonus Share Plan (for annual
bonuses deferred under the terms of the Group's Annual Incentive
Scheme).
12. Categorisation of financial instruments
Accounting policy:
Financial assets and liabilities
Financial assets and liabilities
are recognised in the balance sheet when the relevant Group entity
becomes a party to the contractual provisions of the instrument.
De-recognition occurs when rights to cash flows from a financial
asset expire, or when a liability is extinguished.
Derivative financial instruments
are accounted for at fair value through profit and loss in
accordance with IFRS 9. They are revalued at the balance sheet date
based on market prices, with any change in fair value being
recorded in profit and loss. Derivatives are recognised in the
Consolidated statement of financial position as a financial asset
when their fair value is positive and as a financial liability whey
their fair value is negative. The Group's derivative financial
instruments are not designated as hedging instruments.
Financial assets
In respect of regular way
purchases or sales, the Group uses trade date accounting to
recognise or derecognise financial assets.
The Group classifies its financial
assets into one of the categories listed below, depending on the
purpose for which the asset was acquired.
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.
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
investments in, and maturities of amounts held on deposit are
presented within investing activities in the consolidated statement
of cash flows. Interest income related to deposits is included
within cashflows from operating activities.
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.
Interest income related to cash is included within cashflows from
operating activities.
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, loan notes provided by Phoenix Group,
carried interest plans liabilities, and revenue share liabilities
arising as a result of the Group's former Technology Pipeline
Agreement with University College London.
|
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.
Financial assets
|
At
fair
value through profit or loss
£m
|
Amortised cost
£m
|
Total
£m
|
Equity investments
|
1,011.5
|
-
|
1,011.5
|
Debt investments
|
83.7
|
-
|
83.7
|
Limited and limited liability
partnership interests
|
69.7
|
-
|
69.7
|
Trade and other
receivables
|
-
|
8.2
|
8.2
|
Receivables on sale of debt and
equity investments
|
9.2
|
-
|
9.2
|
Deposits
|
-
|
126.0
|
126.0
|
Cash and cash
equivalents
|
-
|
100.9
|
100.9
|
At 31 December 2023
|
1,174.1
|
235.1
|
1,409.2
|
|
|
|
|
Equity investments
|
1,120.8
|
-
|
1,120.8
|
Debt investments
|
38.1
|
-
|
38.1
|
Limited and limited liability
partnership interests
|
99.6
|
-
|
99.6
|
Trade and other
receivables
|
-
|
8.8
|
8.8
|
Receivables on sale of debt and
equity investments
|
48.2
|
-
|
48.2
|
Deposits
|
-
|
152.8
|
152.8
|
Cash and cash
equivalents
|
-
|
88.7
|
88.7
|
At 31 December 2022
|
1,306.7
|
250.3
|
1,557.0
|
In light of the credit ratings
applicable to the Group's cash and cash equivalent and deposits,
(see note 3 for further details), we estimate expected credit
losses on the Group's receivables to be under £0.1m and therefore
not disclosed further (2022: less than £0.1m), 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 (2022: all net fair
value gains in the year are attributable to financial assets
designated at fair value through profit or loss on initial
recognition).
Interest income of £nil 2022:
£nil) is attributable to financial assets classified as fair value
through profit and loss.
13. Portfolio: Equity and debt investments
Accounting policy:
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
2022).
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 December 2022 IPEV guidelines. The selection of
appropriate valuation techniques is considered on an individual
basis in light of the nature, facts and circumstances of the
investment and in the expected view of market participants. The
Group selects valuation techniques which make maximum use of
market-based inputs. Techniques are applied consistently from
period to period, except where a change would result in better
estimates of fair value. Several 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 bid price: The fair values of quoted investments are
based on bid prices in an active market at the reporting
date.
· Funding transaction: The fair value of unquoted investments
which have recently raised equity financing may be calculated with
reference to the price of the recent investment. For investments
for which the capital structure involves different class rights in
a sale or liquidity event, a full scenario analysis via the use of
the probability-weighted expected return method (PWERM) is used to
calculate the implied values of the existing share
classes.
· Other: Future market/commercial events: Scenario analysis is
used, which is 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. The PWERM method
may be utilised for this valuation technique for investments which
have an equity structure which involves different class rights in a
sale or liquidity event.
· Other: Adjusted funding transaction price based on past
performance - upwards/downwards: The milestone approach involves
making an assessment 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.
· Other: Discounted cash flows: deriving the value of a
business by calculating the present value of expected future cash
flows.
· Other: Revenue multiple: 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 funding transaction, the Group refers to the valuation
basis as 'Funding transaction'.
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.
Disclosure of unrealised and realised gains and
losses
'Change in fair value of equity
and debt investments' per the Group Income Statement represents
unrealised revaluation gains and losses on the Group's portfolio of
investment.
Gains on disposal of equity
investments represents the difference between the fair value of
consideration received and the carrying value at the start of the
accounting period for the investment in question.
Changes in fair values of
investments do not constitute revenue
|
Equity and Debt Investments within the Top 20 by holding
value
The following table lists
information on the debt and equity investments within the most
valuable 20 portfolio company investments, which constitute 18 of
the top 20 portfolio investments (the other two being holdings in
Limited Partnerships), representing 70% of the total portfolio
value (2022: 71%). Detail on the performance of these companies is
included in the Life Sciences, Deeptech and Cleantech portfolio
reviews.
The Group engages third-party
valuation specialists to provide valuation support where required;
during the period we commissioned third-party valuations on nine
out of the top 20 holdings (2022: nine).
Company name
|
Primary valuation basis
|
Fair value of Group holding
at 31 Dec 2023
£m
|
Fair
value of Group holding at 31 Dec 2022
£m
|
Oxford Nanopore Technologies
plc
|
Quoted bid price
|
173.6
|
205.5
|
Istesso Limited *
|
DCF
|
113.8
|
95.6
|
Featurespace Limited *
|
Revenue multiple
|
73.0
|
64.1
|
Hysata Pty Ltd
|
Funding transaction < 12
months, PWERM
|
70.0
|
18.7
|
Oxa Autonomy Limited *
|
Funding transaction > 12
months, PWERM
|
65.7
|
65.9
|
First Light Fusion Limited
*
|
Other: Adjusted financing price
based on past performance - Upwards
|
64.9
|
114.5
|
Hinge Health, Inc. *
|
Other: Adjusted financing price
based on past performance - Downwards
|
34.0
|
53.6
|
Garrison Technology
Limited
|
Funding transaction < 12
months
|
31.6
|
27.7
|
Ultraleap Holdings Limited
*
|
Other: Adjusted financing price
based on past performance - Downwards
|
31.0
|
37.9
|
Bramble Energy Limited
|
Funding transaction > 12
months, PWERM
|
20.9
|
20.9
|
Crescendo Biologics
Limited
|
Funding transaction > 12
months, PWERM
|
19.6
|
18.7
|
Pulmocide Limited
|
Other: Adjusted financing price
based on past performance - Upwards
|
19.2
|
14.7
|
Ieso Digital Health Limited
*
|
Other: Adjusted financing price
based on past performance - Downwards
|
18.9
|
21.8
|
Oxford Science Enterprises
plc
|
Other: Adjusted financing price
based on past performance - Downwards
|
18.3
|
20.6
|
Artios Pharma Limited *
|
Other: Adjusted financing price
based on past performance - Downwards
|
17.4
|
18.3
|
Microbiotica Limited
|
Funding transaction > 12
months, PWERM
|
16.1
|
16.1
|
Mission Therapeutics Limited
*
|
Other: Adjusted financing price
based on past performance - Downwards
|
15.8
|
18.1
|
Centessa Pharmaceuticals
plc
|
Quoted bid price
|
15.7
|
6.5
|
Total
|
|
819.5
|
839.2
|
* Third-party valuation
specialists used for 31 December 2023 valuation. In these
instances, the valuation basis is management's assessment of the
primary valuation input used by the third-party valuation
specialist.
|
Level
1
|
Level
3
|
|
|
Equity
investments in quoted spin-out companies
£m
|
Unquoted
equity investments in spin-out companies
£m
|
Debt
investments in unquoted spin-out companies
£m
|
Total
£m
|
At 1 January 2023
|
228.7
|
892.1
|
38.1
|
1,158.9
|
Investments
|
-
|
32.8
|
30.6
|
63.4
|
Transaction-based
reclassifications
|
-
|
7.8
|
(7.8)
|
-
|
Other transfers between hierarchy
levels
|
1.8
|
(1.8)
|
-
|
-
|
Disposals
|
(1.6)
|
(7.6)
|
(0.3)
|
(9.5)
|
Fees settled via equity
|
-
|
0.1
|
-
|
0.1
|
Change in revenue
share1
|
-
|
(6.8)
|
-
|
(6.8)
|
Change in fair
value2
|
(24.5)
|
(103.7)
|
23.5
|
(104.7)
|
Change in
FX2
|
(0.6)
|
(5.2)
|
(0.4)
|
(6.2)
|
At 31 December 2023
|
203.8
|
807.7
|
83.7
|
1,095.2
|
At 1 January 2022
|
662.7
|
729.1
|
22.8
|
1,414.6
|
Investments
|
7.3
|
61.4
|
20.2
|
88.9
|
Transaction-based
reclassifications
|
-
|
8.4
|
(8.4)
|
-
|
Other transfers between hierarchy
levels
|
-
|
-
|
-
|
-
|
Disposals
|
(27.5)
|
(14.2)
|
-
|
(41.7)
|
Fees settled via equity
|
-
|
0.5
|
-
|
0.5
|
Change in revenue
share1
|
-
|
-
|
-
|
-
|
Change in fair
value2
|
(416.0)
|
93.6
|
3.1
|
(319.3)
|
Change in
FX2
|
2.2
|
13.3
|
0.4
|
15.9
|
At 31 December 2022
|
228.7
|
892.1
|
38.1
|
1,158.9
|
1. For
description of revenue share arrangement see description in note
19.
2. The
total unrealised change in fair value and FX in respect of Level 3
investments was a loss of £85.8m (2022: gain of
£110.4m).
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. Where relevant, several valuation approaches are
used in arriving at an estimate of fair value for an individual
asset.
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 £1.8m (2022: £nil). 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 has been one
instance in the current year, totalling £0.0m (2022: no
instances).
Transfers between level 3 debt and
level 3 equity occur upon conversion of convertible debt into
equity. In the current year, transfers of this nature amounted to
£7.8m (2022: £8.4m).
The Group has considered the
impact of ESG and climate change issues on its portfolio, including
performing a materiality assessment which suggested the
Group's portfolio has a relatively low level of climate change
risk, and clear areas of opportunity via the Group's Cleantech
investments. For an overview of the portfolio split by sector,
please refer to the portfolio analysis by sector above. We believe
our current valuation approach, based largely on quoted valuations,
and funding transactions, reflects market participant assessment of
the ESG and climate risks and opportunities of our
portfolio.
Valuation inputs and sensitivities
Unobservable inputs are typically
portfolio company-specific and, based on a materiality assessment,
are not considered significant either at an individual company
level or in aggregate where relevant for common factors such as
discount rates.
The sensitivity analysis table
below has been prepared in recognition of the fact that some of the
valuation methodologies applied by the Group in valuing the
portfolio investments involve subjectivity in their significant
unobservable inputs. The table illustrates the sensitivity of the
valuations to these inputs. The inputs of investments valued using
techniques which involve significant subjectivity have been flexed,
as below.
Valuation
Technique
|
Fair value of
investments
|
Variable
inputs
|
Variable input
sensitivity
|
Positive
impact
|
Negative
impact
|
Fair value of
investments
|
|
2023
£m
|
|
%
|
£m
|
% of
NAV
|
£m
|
% of
NAV
|
2022
£m
|
Quoted
|
203.8
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
228.7
|
Funding transaction
<12 months
|
187.9
|
n/a
|
+/-5
|
9.4
|
0.8
|
(9.4)
|
(0.8)
|
289.8
|
Funding transaction
>12 months
|
162.7
|
n/a
|
+/-5
|
8.1
|
0.7
|
(8.1)
|
(0.7)
|
117.8
|
Other: Future market/commercial
events
|
25.0
|
Estimated impact of future
event
Execution risk discount applied to
future event (where positive)
Scenario probabilities
Discount rates
Extent to which future event is
indicative of facts and circumstances in existence at the balance
sheet date
|
+/-10
|
2.5
|
0.2
|
(2.5)
|
(0.2)
|
40.7
|
Other: Adjusted financing price
based on past performance - Upwards*
|
99.9
|
Company-specific milestone
analysis resulting in a positive calibration adjustment versus the
previous funding transaction price
|
+/-10
|
10.0
|
0.8
|
(10.0)
|
(0.8)
|
149.8
|
Other: Adjusted financing price
based on past performance - Downwards*
|
203.9
|
Company-specific milestone
analysis resulting in a negative calibration adjustment versus the
previous funding transaction price
|
+/-10
|
20.4
|
1.7
|
(20.4)
|
(1.7)
|
156.5
|
Other: Revenue
multiple*
|
85.4
|
Estimate of future recurring
revenues
Selection of comparable
companies
Discount/premium to
multiple
|
+/-10
|
8.5
|
0.7
|
(8.5)
|
(0.7)
|
77.9
|
Other: DCF*
|
126.6
|
Discount rate
Clinical trial and drug approval
success rates
Estimate of likelihood, value and
structure of a potential pharmaceutical partnership
Estimate of addressable
market
Market share and royalty
rates
Probability estimation of
liquidity event
Estimate of forward exchange
rates
|
+/-20
|
25.3
|
2.1
|
(25.3)
|
(2.1)
|
97.7
|
Total
|
1,095.2
|
|
|
84.3
|
7.1
|
(84.3)
|
(7.1)
|
1,158.9
|
* Due to the large number of
inputs used in the valuation of these assets, unobservable inputs
are below a size threshold that would warrant disclosure under IFRS
13, paragraph 93(d). Due to the large number of inputs, any range
of reasonably possible alternative assumptions does not
significantly impact the fair value and hence no valuation
sensitivity is required under IFRS 13 paragraph
93(h)(ii).
Within the 'Other: DCF' category
on above is Istesso Limited, in which we value the equity of IP
Group's holding at £86.7m as at 31 December 2023 (2022: £80.8m).
The valuation of the equity in this company is based on a DCF model
in which the key inputs include the discount rate, probability of
clinical trial success, market share and royalty rates and the
selection of relevant comparable deal sizes. The DCF model assesses
the value of the future cash flows which would arise from the
successful development of the company's lead asset Leramistat,
which is in a PhIIb trial, within Rheumatoid Arthritis. Our
estimated range for the value of the Group's equity investment as
at 31 December 2023 is £80m to £120m (2022: £65m to £105m). A
valuation range was not calculated in respect of the Group's debt
investment in Istesso Limited, which totals £27.0m (2022:
£14.8m)
Within the 'Adjusted valuation'
category on above is First Light Fusion Limited, whose equity is
valued at £64.9m as at 31 December 2023 (2022: £114.5m). The
valuation of this company is based on the last financing round
price, calibrated upwards to reflect (inter alia) its achievement
of fusion subsequent to the fundraise, and an assessment of recent
comparable company financing transactions. Our estimated range for
the value of the Group's equity investment in First Light Fusion
based on this model as at 31 December 2023 is £48m to £99m (2022:
£93m to £186m).
In addition to Istesso Limited and
First Light Fusion Limited, nine other assets were reviewed by
external valuers, using a broad range of relevant inputs. The
aggregate of the range of valuations they concluded upon for these
nine assets was £252.2m-£317.5m, and we have selected points within
these ranges which in aggregate total £267.3m (2022:
£234.7m-286.5m, £246.7m).
Change in fair value in the year
(including fx)
|
2023
£m
|
2022
£m
|
Fair value gains
|
97.4
|
183.3
|
Fair value losses
|
(208.3)
|
(486.7)
|
|
(110.9)
|
(303.4)
|
The Company's interests in
subsidiary undertakings are listed in note 10 to the Company's
financial statements.
Currency risk
Exposure to currency risk through
asset allocation, which is calculated by reference to the currency
in which the asset or liability is quoted, is shown below. A +/-1%
sensitivity has been included to demonstrate the effect of
fluctuations in foreign exchange rates. 1% is (£considered to be
appropriate due to the stable currencies in which we hold
cash.
At 31 December 2023
|
Investments
£m
|
Sensitivity
+/- 1%
£m
|
US dollar
|
85.5
|
0.8
|
Australian dollar
|
99.9
|
1.0
|
Euro
|
6.7
|
0.1
|
Swedish Krona
|
1.6
|
-
|
Total
|
193.7
|
1.9
|
At 31 December 2022
|
Investments
£m
|
Sensitivity
+/- 1%
£m
|
US dollar
|
102.2
|
1.0
|
Australian dollar
|
49.6
|
0.5
|
Euro
|
3.0
|
-
|
Swedish Krona
|
1.5
|
-
|
Total
|
156.3
|
1.5
|
14. Portfolio: Limited and limited liability partnership
interests
Accounting Policy:
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 judgements 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.
'Changes in fair value of Limited
Partnership investments' per the Group Income Statement represents
revaluation gains and losses on the Group's investment in Limited
Partnership funds.
|
Fund interests are valued on a net
asset basis, estimated based on the managers' NAVs. Manager's NAVs
apply valuation techniques consistent with IFRS and are subject to
audit. Where audited accounts are received in arrears of the
publication of the Group's results hence these are marked as
unaudited in the table below, however a retrospective review of
audited accounts versus earlier unaudited results is carried out.
Managers' NAVs are usually published quarterly, two to four months
after the quarter end. The below table analyses the fund valuations
with reference to manager NAV dates used at 31 December.
Limited & Limited Liability
Partnerships
|
Functional currency
|
Status
|
2023
£m
|
2022
£m
|
IPG Cayman Fund L.P. (Longview
Innovation)
|
USD
|
Unaudited & Adjusted downwards
|
46.0
|
80.0
|
UCL Technology Fund
L.P.
|
GBP
|
Unaudited
|
20.7
|
16.9
|
Technikos LLP
|
GBP
|
Unaudited & Adjusted downwards
|
3.0
|
2.7
|
Total
|
|
|
69.7
|
99.6
|
We reviewed the underlying
valuation methodologies adopted by our Fund managers for all Fund
investments of material value.
Following our review of valuation
methodologies we were satisfied that the techniques utilised were
appropriate, other than in respect of IPG Cayman Fund L.P. where a
downwards adjustment was made to the fund manager's NAV
estimate.
Limited & Limited Liability
Partnerships movements in year
|
£m
|
At 1 January 2023
|
99.6
|
Investments during the
year
|
9.8
|
Distribution from Limited
Partnership funds
|
(0.9)
|
Change in fair value during the
year
|
(36.5)
|
Currency revaluation
|
(2.3)
|
At 31 December 2023
|
69.7
|
At 1 January 2022
|
92.9
|
Investments during the
year
|
4.6
|
Distribution from Limited
Partnership funds
|
-
|
Change in fair value during the
year
|
8.5
|
Currency revaluation
|
(6.4)
|
At 31 December 2022
|
99.6
|
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.
The valuation of the Group's
interests in limited and limited liability partnerships is a
significant accounting estimate, as management has applied judgment
in adjusting the NAV estimates provided by the fund manager. Such
adjustments were based on an assessment of the valuations of
specific equity and debt investments in portfolio companies held
within the fund in question. In making these assessments, the Group
has applied a valuation methodology consistent with that set out in
Note 13. Unobservable inputs are were portfolio company-specific
and, based on a materiality assessment, are not considered
individually significant either at an individual company level or
in aggregate where relevant for common factors such as discount
rates.
If no adjustment had been made to
the NAV estimates provided by the fund manager, the carrying value
of Limited Liability investments would be higher by
£9.8m.
15. (Loss)/gain on disposal of equity
investments
|
2023
£m
|
2022
£m
|
Proceeds from sale of equity and
debt investments
|
37.7
|
28.1
|
Movement in amounts receivable on
sale of debt and equity investments
|
(39.0)
|
5.8
|
Carrying value of
investments
|
(9.5)
|
(41.7)
|
(Loss)/profit on
disposal
|
(10.8)
|
(7.8)
|
(Loss)/profit on disposal of
investments is calculated as disposal proceeds plus deferred and
contingent consideration receivable in respect of the sale, less
the carrying value of the investment at the point of
disposal.
The subsequent receipt of deferred
and contingent consideration amounts is reflected in the above
table as a positive amount of disposal proceeds and a negative
movement in amounts receivable on sale of debt and equity
investments, resulting in no overall movement in profit on
disposal.
16. Trade and other receivables
Current assets
|
2023
£m
|
2022
£m
|
Trade debtors
|
0.6
|
2.1
|
Prepayments
|
0.8
|
0.8
|
Right of use
asset1
|
-
|
0.7
|
Interest receivable
|
2.9
|
-
|
Other receivables
|
6.8
|
5.2
|
Trade and other receivables
|
8.2
|
8.8
|
1 Now presented under long term assets on the Group Balance
Sheet.
The directors consider the
carrying amount of trade and other receivables at amortised cost to
approximate their fair value. All receivables are interest free,
repayable on demand and unsecured.
17. Receivable on sale of debt and equity
investments
Accounting Policy:
Consideration in respect of the
sale of debt and equity investments may include elements of
deferred consideration where payment is received at a pre-agreed
future date, and/or elements of contingent consideration where
payment is received based on, for example, achievement of specific
drug development milestones. In such instances, these amounts are
designated at fair value through profit and loss on initial
recognition. Any subsequent remeasurement will be recognised as
changes in fair value in the statement of comprehensive
income.
|
|
2023
£m
|
2022
£m
|
Deferred and contingent
consideration (non-current)
|
7.8
|
6.9
|
Deferred and contingent
consideration (current)
|
1.4
|
41.3
|
Total deferred and contingent consideration
|
9.2
|
48.2
|
The following table summarises the
primary valuation basis used to value the deferred and contingent
consideration:
Investment
|
Primary Valuation Basis
|
2023
£m
|
2022
£m
|
WaveOptics Limited
|
Discounted sale amount
|
-
|
28.8
|
Enterprise Therapeutics Holdings
Limited
|
Probability-weighted DFC model
reflecting potential milestone payments
|
7.7
|
12.5
|
Athenex, Inc.
|
Probability-weighted DFC model
reflecting potential milestone payments
|
-
|
5.6
|
Reinfer Limited
|
Discounted sale amount
|
-
|
1.1
|
Perpetuum Limited
|
Discounted sale amount
|
-
|
0.2
|
Zihipp Limited
|
Probability-weighted DFC model
reflecting potential milestone payments
|
1.5
|
-
|
Total
|
|
9.2
|
48.2
|
During 2023, consideration of
£30.8m was received in 2023 relating to WaveOptics Limited, £1.5m
was received relating to Reinfer and £0.1m was received relating to
Perpetuum. Athenex, Inc. entered liquidation in 2023 and the fair
value estimate of contingent consideration (triggered by future
milestones) was reduced to £nil (2022: £5.6m).
18. Trade and other payables
Current liabilities
|
2023
£m
|
2022
£m
|
Trade payables
|
0.5
|
1.3
|
Social security
expenses
|
0.6
|
0.6
|
Bonus accrual
|
3.0
|
2.8
|
Lease liability
|
1.4
|
0.9
|
Payable to Imperial College and
other third parties under revenue share obligations (see note
20)
|
6.9
|
7.1
|
Other accruals and deferred
income
|
4.7
|
4.2
|
Trade and other payables
|
17.1
|
16.9
|
19. Borrowings and Loans from Limited Partners of
consolidated funds
Current liabilities
|
2023
£m
|
2022
£m
|
Borrowings
|
6.3
|
6.3
|
Total
|
6.3
|
6.3
|
Non-current liabilities
|
2023
£m
|
2022
£m
|
Loans drawn down from the Limited
Partners of consolidated funds
|
19.8
|
19.5
|
Borrowings
|
128.9
|
75.1
|
Total
|
148.7
|
94.6
|
Loans drawn down from the Limited Partners of consolidated
funds
Accounting Policy:
The Group consolidates the assets
of a co-investment fund, IP Venture Fund II LP, which it manages.
Loans from third parties of consolidated funds represent
third-party LP loans into this partnership. Under the terms of the
Limited Partnership Agreement, 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 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.
As at 31 December, loans from
Limited Partners of consolidated funds comprised loans into IP
Venture Fund II LP £19.8m (2022: £19.5m).
Borrowings
Accounting Policy:
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. Costs incurred in the course of
issuing additional debt are recognised on the balance sheet and
charged to the income statement on a straight line basis over the
term of the borrowings.
|
In 2023, the Group drew a second
£60m tranche of the £120m private placing it agreed with investors
including Phoenix Group in 2022. The terms of the facilities are
summarised below:
Description
|
Initial
amount
|
Outstanding amount
|
Date
drawn
|
Interest
rate
|
Repayment terms
|
Repayment commencement date
|
EIB Facility
|
£50.0m
|
£15.6m
|
Feb
2017
|
Fixed
3.026%
|
8
years
|
Jul
2018
|
IP Group Series A Notes
|
£20.0m
|
£20.0m
|
Dec
2022
|
Fixed
5.230%
|
5
years
|
Dec
2027
|
IP Group Series B Notes
|
£20.0m
|
£20.0m
|
Dec
2022
|
Fixed
5.210%
|
6
years
|
Dec
2028
|
IP Group Series C Notes
|
£20.0m
|
£20.0m
|
Dec
2022
|
Fixed
5.300%
|
7
years
|
Dec
2029
|
IP Group Series D Notes
|
£20.0m
|
£20.0m
|
Jun
2023
|
Fixed
5.230%
|
5
years
|
Dec
2027
|
IP Group Series E Notes
|
£20.0m
|
£20.0m
|
Jun
2023
|
Fixed
5.210%
|
6
years
|
Dec
2028
|
IP Group Series F Notes
|
£20.0m
|
£20.0m
|
Jun
2023
|
Fixed
5.30%
|
7
years
|
Dec
2029
|
Total
|
£170.0m
|
£135.6m
|
|
|
|
|
Loans totalling £135.6m (2022:
£81.9m) are subject to fixed interest rates and are recognised at
amortised cost. The fair value of these loans as at 31 December
2023 is £125.3m (2022: £76.9m).
In December 2022, the Group drew
down the first Tranche of £60m of a £120m loan Note Purchase
Agreement ("NPA") and a further £60m in June 2023. The NPA contains
the following covenants:
• Total
equity must be at least £500m as at the Group's 30 June and 31
December reporting dates
• Gross
debt less restricted cash must not exceed 25% of total equity as at
the Group's 30 June and 31 December reporting dates
• The
Group must maintain cash and cash equivalents of not less than £25m
at any time
Breach of any of the above
covenants constitutes default under the NPA.
The NPA also includes the concept
of a 'Cash Trap', which is triggered based on conditions listed
below. In the event of the Cash Trap being triggered, the Group is
not permitted to pay or declare a dividend or purchase any of its
shares. In addition, investments are restricted to £2.5m per
calendar quarter other than those legally committed to. The Group
is also required to place the net proceeds of all realisations
(over a threshold of £1m) into a blocked bank account. Entering a
Cash Trap does not constitute a default under the NPA.
A Cash Trap period is entered if
any of the following conditions are breached.
• Total
equity must be at least £750m as at the Group's 30 June and 31
December reporting dates
• Gross
debt less restricted cash must not exceed 20% of total equity as at
the Group's 30 June and 31 December reporting dates
• The
Group must maintain cash and cash equivalents of not less than £50m
at any time.
A cash trap period can be remedied
by:
•
Transferring sufficient cash into the restricted cash account so
that gross debt less restricted cash is less than 20% of total
equity
• If
because of low equity of high leverage, once these are restored at
a subsequent 30 June or 31 December measurement date
• If
because of low liquidity, once two month-ends have passed with
liquidity > £50m
The EIB loan contains a debt
covenant requiring that the ratio of the total fair value of IP
Group investments plus cash and qualifying liquidity to debt should
at no time fall below 6:1. The Group must maintain that the amount
of unencumbered funds freely available to the Group set with
reference to the outstanding EIB facility which was
£15.6m at December 2023 (2022: £21.9m).
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,
which totalled £3.3m on 31 December 2023
(2022: £3.4m) The Group is required to maintain a minimum cash
balance of £9.4m (2022: £13.1m).
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.
The 2023 NPA includes fixed and
floating charges over the Company's assets, details of which are
available on Companies House.
The maturity profile of the
borrowings including undiscounted cash flows and fixed interest is
as follows:
|
2023
£m
|
2022
£m
|
Due within 6 months
|
6.4
|
4.8
|
Due 6 to 12 months
|
6.4
|
4.8
|
Due 1 to 5 years
|
112.4
|
48.4
|
Due after 5 years
|
42.1
|
43.1
|
Total1
|
167.3
|
101.1
|
The maturity profile of the
borrowings was as follows:
|
2023
£m
|
2022
£m
|
Due within 6 months
|
3.1
|
3.1
|
Due 6 to 12 months
|
3.1
|
3.2
|
Due 1 to 5 years
|
89.4
|
35.6
|
Due after 5 years
|
40.0
|
40.0
|
Total1
|
135.6
|
81.9
|
1. These
are gross amounts repayable and exclude amortised costs of £0.4m
(2022: £0.5) incurred on obtaining the Phoenix loans, these are
amortised on a straight line basis over the life of the
borrowings.
A reconciliation in the movement
in borrowings is as follows:
|
2023
£m
|
2022
£m
|
At 1 January
|
81.4
|
51.8
|
Amortisation of costs
|
-
|
-
|
Capitalised loan costs
|
-
|
(0.6)
|
Repayment of debt
|
(6.2)
|
(29.8)
|
New borrowings
|
60.0
|
60.0
|
At 31 December
|
135.2
|
81.4
|
There were no non-cash movements
in debt.
20. Revenue share liability
Accounting Policy:
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).
|
|
2023
£m
|
2022
£m
|
Current liabilities: revenue
share liability (note 18)
|
6.9
|
7.1
|
Non-current liabilities: revenue share liability (note 13)
|
6.4
|
13.0
|
Revenue share liability
|
13.3
|
20.1
|
Prior to 2018, the Group operated
the Technology Transfer Office of Imperial College, under a
contract referred to as the Technology Pipeline Agreement ("TPA").
Under the terms of this TPA, the Group owns licences, patents and
equity in spin-out companies generated through Intellectual
Property commercialised from Imperial College but is subject
to various revenue-sharing arrangements whereby income generated
from this Intellectual Property is shared with Imperial College
(and other third parties where they have provided funding to
research which is subsequently commercialised). These are
categorised into short-term and long-term liabilities as
follows:
Short-term liabilities: Revenue share
arrangement
These represent a share of
invoiced revenue in respect of licences and patents governed by the
TPA, and a share of proceeds from the disposal of equity where a
disposal of equity which is subject to revenue share (see further
details below) has taken place. The maturity date on such
liabilities is typically less than six months.
Long-term liabilities: Revenue share
arrangement
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 2023, £6.4m
(2022: £13.0m) of our equity investments were payable on their
disposal to Imperial College and other third parties under these
arrangements (i.e. 50% of a gross investment amount of
approximately £13m) (2022: £26m). A corresponding non-current
liability is recognised in respect of these revenue sharing
obligations based on the fair value of the related assets. There is
no fixed maturity on the liability as it becomes payable following
the sale of the related portfolio equity investment.
Movements in long term revenue
share are as follows:
|
2023
£m
|
2022
£m
|
At 1 January
|
13.0
|
13.1
|
Movements in value of equity
investments where revenue share is payable
|
(0.3)
|
(0.1)
|
Disposals in year resulting in
transfer to short term revenue share
|
(6.3)
|
-
|
At 31 December
|
6.4
|
13.0
|
21. Share capital
Accounting policy:
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.
|
|
2023
|
2022
|
Issued and fully paid:
|
Number
|
£m
|
Number
|
£m
|
Ordinary shares of 2p each
|
|
|
|
|
At 1 January
|
1,063,188,005
|
21.3
|
1,063,033,287
|
21.3
|
Issued in respect of scrip
dividend
|
-
|
-
|
154,718
|
-
|
Share capital at 31 December
|
1,063,188,005
|
21.3
|
1,063,188,005
|
21.3
|
Existing treasury shares at 1 January
|
(28,110,373)
|
(0.6)
|
(22,279,127)
|
(0.4)
|
Purchase of treasury
shares
|
(220,302)
|
-
|
(7,429,494)
|
(0.1)
|
Transfer of shares in respect of
scrip dividend
|
-
|
-
|
330,851
|
-
|
Shares transferred out of treasury
for SAYE
|
285,335
|
-
|
497,249
|
-
|
Settlement of employee share-based
payments
|
1,551,820
|
-
|
770,148
|
-
|
Outstanding at 31 December
|
1,036,694,485
|
20.7
|
1,035,077,632
|
20.8
|
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.
During 2023, the Company purchased
220,302 ordinary shares (2022: 7,429,494 ordinary shares), with an
aggregate value of £0.2k (2022 - £8.0m), and they are held in
treasury. Retained profits have been reduced by £0.2k (2022:
£7.9m), being the net consideration paid for these shares,
including the expenses directly relating to the treasury share
purchase.
22. Share-based payments
In 2023, the Group continued to
incentivise employees through its LTIP and AIS. The main terms of
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:
|
Number
of
options
2023
|
Weighted-average exercise price
2023
|
Number
of
options
2022
|
Weighted-average
exercise price
2022
|
At 1 January
|
2,556,682
|
-
|
1,311,615
|
-
|
AIS deferral shares award during
the year
|
1,120,292
|
-
|
2,066,174
|
-
|
Exercised during the
year
|
(1,523,595)
|
-
|
(821,107)
|
-
|
At 31 December
|
2,153,379
|
-
|
2,556,682
|
-
|
Exercisable at 31
December
|
-
|
-
|
2,881
|
-
|
1,551,820 shares were transferred
from treasury in respect of DBSP scheme during the year, comprising
1,523,595 DBSP options exercised on 14th April 2023 and
28,25 relating to dividends accrued on those options.
The options outstanding at 31
December 2023 had an exercise price of £nil (2022: £nil) and a
weighted-average remaining contractual life of 0.5 years (2022: 0.6
years).
The weighted average share price
at the date of exercise for share options exercised in 2023 was
61.0p (2022: 84.4p). The aggregate gain made by directors on the
exercise of options in the year (all of which related to the DBSP)
was £0.2m.
As the 2023 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
2023.
IP Group Restricted Share Plan ("RSP")
As set out in the Remuneration
Policy approved by shareholders in 2022, a Restricted Share Plan
was introduced in 2022 to replace the previous LTIP structure.
Vesting of these awards will take place over a three-year period
commencing on 1 April 2023. Any RSP awards that vest will be
subject to a further two-year holding period. Vesting may be
subject to a financial underpin based on NAV growth over the
vesting period. For 2022 awards, the financial underpin has been
set such that NAV per share on the vesting date must be no lower
than 100% of NAV per share on the award date, after making
appropriate adjustments for dividends, buy-backs and any other
distributions. Further information on the Group's RSP is set out in
the Directors' Remuneration Report.
The 2023 RSP awards were made on
13 April 2023. The awards will ordinarily vest on 31 March 2026, to
the extent that the performance conditions have been
met.
The movement in the number of
shares conditionally awarded under the RSP is set out
below:
|
Number
of
options
2023
|
Weighted-average exercise price
2023
|
Number
of
options
2022
|
Weighted-average
exercise price
2022
|
At 1 January
|
3,458,509
|
-
|
-
|
-
|
Lapsed during the year
|
-
|
-
|
-
|
-
|
Forfeited during the
year
|
(16,367)
|
-
|
(74,235)
|
-
|
Notionally awarded during the
year
|
6,796,721
|
-
|
3,532,744
|
-
|
At 31 December
|
10,238,863
|
-
|
3,458,509
|
-
|
Exercisable at 31
December
|
-
|
-
|
-
|
-
|
The options outstanding at 31
December 2023 had an exercise price in the range of £nil (2022:
£nil) and a weighted-average remaining contractual life of 3.9
years (2022: 4.2 years).
The fair value of the RSP shares
notionally awarded in 2023 was calculated using the Finnerty
pricing model with the following key assumptions:
|
2023
|
2022
|
IP Group share price as of
valuation date
|
£0.602
|
£0.558
|
Exercise price
|
£nil
|
£nil
|
Indicated Discount for Lack of
Marketability
|
15%
|
15%
|
Adjusted probability assigned for
performance conditions
|
20%
|
20%
|
Fair value at grant
date
|
£0.24
|
£0.21
|
Pre-2022 IP Group 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. General information on
the Group's LTIP is set out in the Directors' Remuneration
Report.
The 2021 LTIP awards were made on
6 May 2021. The awards will ordinarily vest on 31 March 2024, to
the extent that the performance conditions have been met. The
awards are based on the performance of the Group's 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 2021 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 2021 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
NAV increasing by 15% per year on a cumulative basis, from 1
January 2021 to 31 December 2023, and TSR increasing by 15% per
year on a cumulative basis from the date of award to 31 March 2024,
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 2020 awards partially met the
threshold performance target and 1,066,196 vested, 6,759,628 lapsed
on 31 March 2023. NAV growth to 31 December 2022 was above the
minimum threshold and below the maximum threshold. The one-month
average share price at 31 March 2023 was below the minimum TSR
target. As a result 13.67% of the 2020 LTIP awards vested on 31
March 2023.Vested shares are subject to a further two-year holding
period until 31/03/2025 and will be issued to participants only at
the end of this period.
The table below sets out the
performance measures relating to the 2020 LTIP awards and the
actual performance achieved.
Performance condition
|
Target
Performance
|
Actual
Performance
|
NAV (at 31 Dec 2022)
|
8%:
£1.37bn
|
£1.38bn
|
|
15%:
£1.66bn
|
(+8.1%
p.a.)
|
Annual TSR (share
price)
|
8%:
69.9p
|
57.6p
|
|
15%:
82.3p
|
(+0.2%
p.a. growth)
|
Comparative TSR
|
FTSE
250
-3.7%
|
IP Group
0.2%
|
The movement in the number of
shares conditionally awarded under the LTIP is set out
below:
|
Number
of
options
2023
|
Weighted-average exercise price
2023
|
Number
of
options
2022
|
Weighted-average
exercise price
2022
|
At 1 January
|
14,490,039
|
-
|
17,113,631
|
-
|
Lapsed during the year
|
(6,759,628)
|
-
|
(2,534,571)
|
-
|
Forfeited during the
year
|
(1,918)
|
-
|
(89,021)
|
-
|
Notionally awarded during the
year
|
-
|
-
|
-
|
-
|
At 31 December
|
7,728,493
|
-
|
14,490,039
|
-
|
Exercisable at 31
December
|
4,596,014
|
-
|
3,529,818
|
-
|
The options outstanding at 31
December 2023 had an exercise price in the range of £nil (2022:
£nil) and a weighted-average remaining contractual life of 0.8
years (2022: 2.0 years).
The fair value of LTIP shares
awarded in 2021 for which a charge has been recognised in the year
was calculated using Monte Carlo pricing models with the following
key assumptions:
|
2021
|
Share price at date of
award
|
£1.254
|
Exercise price
|
£nil
|
Fair value at grant
date
|
£0.35
|
Expected volatility (median of
historical 50-day moving average)
|
39%
|
Expected life (years)
|
3.0
|
Expected dividend yield
|
0%
|
Risk-free interest rate
|
0.3%
|
The fair value charge recognised
in the statement of comprehensive income during the year in respect
of all share-based payments, including the DBSP, RSP and LTIP was
£2.6m (2022: £2.9m).
23. Long-term incentive carry scheme - Carried interest plan
liability
Accounting Policy:
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 an agreed hurdle rate, scheme
participants receive a share of excess returns. Of the Group's
total equity and debt investments, 69.0% are included in LTICS
arrangements (2022: 66.6%).
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 judgement (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.
|
|
2023
£m
|
2022
£m
|
At 1 January
|
44.1
|
33.1
|
Charge for the year
|
(4.7)
|
12.0
|
Payments made in the
year
|
(1.3)
|
(1.0)
|
Foreign exchange rate
movement
|
(0.1)
|
-
|
At 31 December
|
38.0
|
44.1
|
24. Related party transactions
The Group has various related
parties arising from its key management, subsidiaries and equity
stakes in portfolio companies.
A) Key management transactions
(i) Key management personnel transactions
The following key management held
shares in the following spin-out companies as at 31 December
2023:
Director/ PDMR
|
Company name
|
Number
of
shares held at
1
January
2023
|
Number
of shares acquired/ (disposed of) in the period
|
Number
of
shares held at
31
December 2023
|
%
|
Greg Smith
|
Alesi Surgical Limited
|
2
|
-
|
2
|
<0.1%
|
|
Crysalin
Limited1
|
149
|
-
|
149
|
<0.1%
|
|
Emdot
Limited1
|
4
|
-
|
4
|
0.23%
|
|
Istesso Limited
|
313,425
|
-
|
313,425
|
0.37%
|
|
Itaconix plc
|
4,500
|
-
|
4,500
|
<0.1%
|
|
Mirriad Advertising plc
|
16,667
|
-
|
16,667
|
<0.1%
|
|
Oxa Autonomy
Limited2
|
8
|
-
|
8
|
<0.1%
|
|
Oxford Nanopore Technologies
plc
|
27,008
|
-
|
27,008
|
<0.1%
|
|
Rio AI Limited
|
144,246
|
-
|
144,246
|
<0.1%
|
|
Surrey Nanosystems
Limited
|
88
|
-
|
88
|
<0.1%
|
|
Tissue Regenix Group
plc3
|
5,000
|
-
|
5,000
|
<0.1%
|
|
Xeros Technology plc
|
13
|
-
|
13
|
<0.1%
|
David Baynes
|
Alesi Surgical Limited
|
4
|
-
|
4
|
<0.1%
|
|
Arkivum Limited
|
377
|
-
|
377
|
<0.1%
|
|
Creavo Medical Technologies
Limited1
|
46
|
-
|
46
|
<0.1%
|
|
Mirriad Advertising plc
|
16,667
|
-
|
16,667
|
<0.1%
|
|
Oxford Nanopore Technologies
plc
|
2,784
|
-
|
2,784
|
<0.1%
|
|
Ultraleap Holdings
Limited
|
2,600
|
-
|
2,600
|
<0.1%
|
|
Zeetta Networks Limited
|
424
|
-
|
424
|
0.11%
|
Mark Reilly
|
Actual Experience
plc1
|
28,000
|
-
|
28,000
|
<0.1%
|
|
AudioScenic Limited
|
53
|
-
|
53
|
<0.1%
|
|
Bramble Energy Limited
|
16
|
-
|
16
|
<0.1%
|
|
Diffblue Limited
|
8,038
|
-
|
8,038
|
<0.1%
|
|
Itaconix plc
|
377,358
|
-
|
377,358
|
<0.1%
|
|
Mirriad Advertising plc
|
66,666
|
-
|
66,666
|
<0.1%
|
|
Mixergy Limited
|
-
|
126
|
126
|
<0.1%
|
|
Oxa Autonomy
Ltd2
|
8
|
-
|
8
|
<0.1%
|
|
Ultraleap Holdings
Limited
|
1,700
|
-
|
1,700
|
<0.1%
|
Sam Williams
|
Accelercomm Limited
|
127
|
-
|
127
|
<0.1%
|
|
Alesi Surgical Limited
|
1
|
-
|
1
|
<0.1%
|
|
Centessa Pharmaceuticals
plc
|
3,247
|
-
|
3,247
|
<0.1%
|
|
Creavo Medical Technologies
Limited1
|
23
|
-
|
23
|
<0.1%
|
|
Genomics plc
|
333
|
-
|
333
|
<0.1%
|
|
Ibex Innovations
Limited
|
1,701
|
-
|
1,701
|
<0.1%
|
|
Istesso Limited
|
7,048,368
|
-
|
7,048,368
|
8.29%
|
|
Microbiotica Limited
|
7,000
|
-
|
7,000
|
<0.1%
|
|
Mirriad Advertising plc
|
3,333
|
-
|
3,333
|
<0.1%
|
|
Oxa Autonomy
Ltd2
|
3
|
-
|
3
|
<0.1%
|
|
Oxehealth Limited
|
33
|
32
|
65
|
<0.1%
|
|
Oxford Nanopore Technologies
plc
|
25,609
|
-
|
25,609
|
<0.1%
|
|
Topivert
Limited1
|
1,000
|
-
|
1,000
|
<0.1%
|
|
Ultraleap Holdings
Limited
|
558
|
-
|
558
|
<0.1%
|
1. Company
being closed down
2.
Previously called Oxbotica Limited
3. Opening
position restated to reflect 100:1 share consolidation during the
period
Policy for Executive Director holdings in Portfolio
Companies
The policy for Executive Director
shareholdings in portfolio companies specifies:
• New
direct investments in portfolio companies by executive directors
are prohibited, with the exception of the take-up of pre-emption
rights which relate to existing portfolio company shareholdings.
Both Mr Smith and Mr Baynes are covered by
this policy.
• Mr Smith
and Mr Baynes have voluntarily submitted to an additional binding
condition such that any net proceeds received
as a result of realisations from direct holdings in portfolio
companies that exceed £250,000 will be used to purchase shares
in
IP Group, until such time as they meet the Minimum Shareholding
Requirement set for their role (currently 350% of annual salary for
Mr Smith, 250% for Mr Baynes).
(ii) Key management personnel compensation
Key management personnel
compensation comprised the following:
|
2023
£000
|
2022
£000
|
Short-term employee
benefits1
|
3,091
|
3,918
|
Post-employment
benefits2
|
108
|
99
|
Other long-term
benefits
|
-
|
-
|
Termination benefits
|
-
|
-
|
Share-based
payments3
|
1,161
|
1,374
|
Total
|
4,360
|
5,391
|
1.
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.
2.
Represents employer contributions to defined contribution pension
and life assurance plans.
3.
Represents the accounting charge for share-based payments,
reflecting LTIP and DBSP options currently in issue as part of
these schemes. See note 23 for a detailed description of these
schemes.
B) 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 arm's length transactions. The following
amounts have been included in respect of these fees:
Statement of comprehensive
income
|
2023
£m
|
2022
£m
|
Revenue from services
|
-
|
0.2
|
Statement of financial
position
|
2023
£m
|
2022
£m
|
Trade receivables
|
0.1
|
-
|
(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:
Statement of comprehensive
income
|
2023
£m
|
2022
£m
|
Net portfolio gains
|
31.7
|
75.0
|
Statement of financial
position
|
2023
£m
|
2022
£m
|
Equity and debt
investments
|
566.4
|
651.6
|
C) Subsidiary companies
Subsidiary companies that are not
100% owned either directly or indirectly by the parent company have
intercompany balances (which are eliminated at a consolidated
level) with other Group companies which are disclosed as
follows:
|
2023
£m
|
2022
£m
|
Intercompany balances with other
Group companies
|
2.1
|
2.1
|
These intercompany balances
represent funding loans provided by Group companies that are
interest free, repayable on demand and unsecured.
25. 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 employees 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 share capital,
issue or repay debt and dispose of interests in portfolio
companies.
During 2023, the Group's strategy,
which was unchanged from 2022, was to maintain an appropriate level
of cash and short-term deposit balances in line with the Group's
capital allocation plans, whilst having sufficient cash reserves to
meet working capital requirements in the foreseeable
future.
The Group has external borrowings
with associated covenants that are described in note 19. These
include covenants around the Group's minimum equity and maximum
debt/equity ratio. Consideration is given to the level of headroom
against these covenants as part of the Group's capital allocation
process where planning corporate actions such as dividends and
share buy-backs which have an impact on the headroom
level.
26. 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
2023:
Year ended 31 December 2023
|
Year of
commencement of commitment
|
Commitment £m
|
Invested
to date
£m
|
Remaining commitment £m
|
IP Venture Fund II LP
|
2013
|
10.0
|
9.9
|
0.1
|
UCL Technology Fund LP
|
2016
|
24.8
|
23.2
|
1.6
|
Total at 31 December 2023
|
|
34.8
|
33.1
|
1.7
|
Year ended 31 December
2022
|
Year of commencement of
commitment
|
Commitment £m
|
Invested to date
£m
|
Remaining commitment £m
|
|
IP Venture Fund II LP
|
2013
|
10.0
|
9.8
|
0.2
|
|
UCL Technology Fund LP
|
2016
|
24.8
|
22.4
|
2.4
|
|
IP Cayman LP
|
2021
|
8.3
|
8.3
|
-
|
|
Total at 31
December 2022
|
|
43.1
|
40.5
|
2.6
|
|
|
|
|
|
|
|
|
|
|
| |
In December 2023 the Group signed
a Subscription Share Agreement to invest US$15m in Hysata Pty Ltd.
In May 2023, the Group signed a Convertible Loan Agreement whose
terms included a commitment to invest £10m in Istesso Limited in
2024 following the issue of a drawdown notice by the company. Both
these investments were made in January 2024
27. Dividends
|
2023 pence
per share
|
£m
|
2022
pence
per share
|
£m
|
Ordinary shares:
|
|
|
|
|
Interim dividend
|
0.51
|
5.3
|
0.50
|
5.3
|
Final dividend
|
0.76
|
7.7
|
0.72
|
7.4
|
Dividends paid to equity owners in
the financial year
|
1.27
|
13.0
|
1.22
|
12.7
|
|
|
|
|
|
Proposed final dividend at
financial year end
|
-
|
-
|
0.76
|
7.9
|
Of the £13.0m dividends paid in
2023, £13.0m was settled in cash (2022: £12.7m dividends, £12.3m
settled in cash, £0.4m settled via the issue of equity). Due to the
limited take up of scrip dividends the scheme has been
discontinued.
On 18th December 2023
the Group announced that, in light of the prevailing discount
between the Company's share price and its NAV per share, it had
initiated a share buyback of up to £20 million. The Board
remains committed to making regular cash returns to shareholders
from realisations. In future these regular cash returns will
normally be made in the form of share buybacks when the share price
discount to NAV exceeds 20%. Regular dividend payments will be
suspended under such conditions, including consideration of any
final dividend for 2023.
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
|
APM
|
Reference for
reconciliation
|
Definition and purpose
|
|
2023
£m
|
2022
£m
|
NAV per share1
|
Primary statements, note
21
|
NAV per share is defined as Net
Assets divided by the number of outstanding shares.
The measure shows net assets
managed on behalf of shareholders by the Group per outstanding
share.
NAV per share is a standard measure
used within our peer group and can be directly compared with the
Group's share price.
|
NAV
|
£1,190.3m
|
£1,376.1m
|
Shares in issue
|
1,036,694,485
|
1,035,077,632
|
NAV per share
|
114.8p
|
132.9p
|
Return on NAV
|
Primary statements
note 4
|
Return on NAV is defined as the
total comprehensive income or loss for the year excluding charges
which do not impact on net assets, specifically share-based payment
charges.
The measure shows a summary of the
income statement gains and losses which directly impact
NAV.
|
Total comprehensive
income
|
(174.8)
|
(344.0)
|
|
|
Excluding:
|
|
|
|
|
Share-based payment
charge
|
2.6
|
2.9
|
|
|
Return on NAV
|
(172.2)
|
(341.1)
|
Net portfolio gains/(losses)
|
note 13, 15, 22
|
Net portfolio gains are defined as
the movement in the value of holdings in the portfolio due as a
result of realised and unrealised gains and losses.
The measure shows a summary of the
income statement gains and losses which are directly attributable
to the Total Portfolio (see definition above), which is a headline
measure for the Group's portfolio performance.
This is a key driver of the Return
on NAV which is a performance metric for directors' and employees'
incentives.
|
Change in fair value of equity and
debt investments
|
(110.9)
|
(303.4)
|
|
|
Gain on disposal of equity
investments
|
(10.8)
|
(7.8)
|
|
|
Change in fair value of LP
interests2
|
(38.8)
|
2.1
|
|
|
Net portfolio gains/(losses)
|
(160.5)
|
(309.1)
|
Total portfolio
|
Consolidated statement of financial
position,
note 13,14
|
Total portfolio is defined as the
total of equity investments, debt investments and investments in
LPs.
This measure represents the
aggregate balance sheet amounts which the Group considers to be its
investment portfolio, and which is described in further detail
within the portfolio review section of the strategic
report.
|
Equity investments
|
1,011.5
|
1,120.8
|
Debt investments
|
83.7
|
38.1
|
LP interests
|
69.7
|
99.6
|
|
|
|
Total Portfolio
|
1,164.9
|
1,258.5
|
Portfolio investment
|
Primary statements
|
Portfolio investment is defined as
the purchase of equity and debt investments plus investments into
limited participation interests.
This gives a combined measure of
investment into the Group's portfolio.
|
Purchase of equity and debt
investments
|
(63.4)
|
(88.9)
|
|
|
|
|
Investment in limited and limited
liability partnerships
|
(9.8)
|
(4.6)
|
|
|
|
|
Portfolio investment
|
(73.2)
|
(93.5)
|
|
Cash proceeds1
|
Primary statements
|
Cash proceeds is defined as the
proceeds from the disposal of equity and debt investments plus
distributions received from limited participation
interests.
|
Proceeds from the sale of equity
investments
|
37.7
|
28.1
|
|
|
Distributions from limited
partnership funds
|
0.9
|
-
|
|
|
Cash proceeds
|
38.6
|
28.1
|
Net overheads2
|
Financial review,
note 8
|
Net overheads are defined as the
Group's core overheads less operating income. The measure reflects
the Group's controllable net operating "cash-equivalent" central
cost base.
Net overheads exclude items such as
share-based payments and consolidated portfolio company
costs.
|
Other income
|
5.9
|
7.1
|
Other administrative
expenses
|
(28.0)
|
(27.4)
|
Excluding:
|
|
|
|
|
|
Non-portfolio foreign exchange
movements
|
(0.4)
|
0.1
|
|
|
|
Administrative expenses:
consolidated portfolio companies
|
-
|
0.1
|
|
|
|
Net overheads
|
(22.5)
|
(20.1)
|
Gross cash and deposits
|
Primary statements
|
Cash and deposits is defined as
cash and cash equivalents plus deposits.
The measures give a view of the
Group's liquid resources on a short-term timeframe. The Group's
Treasury Policy has a maximum maturity limit of 13 months for
deposits.
|
Cash and cash
equivalents
|
100.9
|
88.7
|
Deposit
|
126.0
|
152.8
|
Cash
|
226.9
|
241.5
|
Loss excluding ONT
|
Primary statements
|
(Loss)/profit excluding ONT is
defined as the Groups (loss)/profit for the year (after tax)
excluding the (loss)/profit on the investment held in Oxford
Nanopore publicly quoted shares both realised and
unrealised.
This measure gives a view of the
results of this business excluding this single investment which,
given its size and recent share price volatility, may be helpful to
users of the accounts as a view of the underlying
business.
|
(Loss) for the year
|
(174.4)
|
(344.5)
|
Excluding:
|
|
|
Change in fair value of equity
investment in Oxford Nanopore
|
31.9
|
369.7
|
(Loss)/profit excluding ONT
|
(142.5)
|
25.2
|
Simple return on capital (%)3
|
Note 29
|
Defined as net portfolio
gains/losses divided by the opening total portfolio
value.
This measure gives a view of the
size of portfolio gains or losses relative to the opening portfolio
value, giving useful additional context for the value of gains or
losses.
|
Net portfolio (losses)
|
(160.5)
|
(303.4)
|
Opening total portfolio
value
|
1,258.5
|
1,507.5
|
Simple return on capital (%)
|
-13%
|
-20%
|
%
Return on NAV (%)3
|
Note 29 (return on NAV)
Primary statements (Net Asset
Value)
|
Defined as return on NAV divided by
the opening Net Asset Value.
This measure gives a view of the
size of Return on NAV relative to the opening Net Asset Value,
giving useful additional context for the value of
returns.
|
Return on NAV
|
(172.2)
|
(341.1)
|
Opening Net Asset Value
|
1,376.1
|
1,738.1
|
Return on NAV (%)
|
-13%
|
-20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1. For consistency with how we report
investments as the purchase of equity and debt investments plus
investment in limited and limited liability
partnerships, the directors believe that this new measure
showing cash proceeds is defined as the proceeds from the disposal
of equity and debt
investments plus distributions received from limited liability
partnerships interests profit represents a useful additional
measure for users of the accounts.
2. For clarity non-portfolio foreign
exchange movements have been excluded from net overheads, These
exchange movements are on intercompany loans
and other
balance sheet items including cash, and which do not represent an
ongoing overhead cost for the group. Their exclusion is therefore
considered to give a more accurate view of the underlying net
overhead costs of the business.
3.
New APMs in the period, showing % Return on Capital and %
Return on NAV, which we believe provide useful additional context
on the relative size of the income statement
movements
30. Post balance sheet events
As of the reporting date,
unrealised fair value losses in respect of the Group's quoted
portfolio totalled £45.4m, largely in respect of Oxford Nanopore
Technologies plc, which has seen a fair value loss of £50.2m since
31 December 2023.