REG - IP Group PLC - Annual Results
16/03/2022 07:00
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RNS Number : 9116E IP Group PLC 16 March 2022
FOR RELEASE ON 16 March 2022
("IP Group" or "the Group" or "the Company")
IP Group plc Annual Results Release
Strong returns, significant cash realisations, capital recycled for growth
alongside shareholder returns
IP Group plc (LSE: IPO), the developer of world-changing science and
technology businesses, today announces its annual financial results for the
year ended 31 December 2021.
2021 highlights
· Profit after tax increase of 142% to £449.3m (2020: £185.4m)
with strong performance across all sectors
· NAV(1) of £1,738.1m, up 30%, or 167.0 pence per share (2020:
£1,331.9m or 125.3pps)
· Cash realisations(2) of £213.4m (2020: £191.0m)
· Sustained investment into portfolio: £103.7m into 65 companies
(2020: £67.5m)
· Recommended final dividend of 0.72p per share (interim dividend
of 0.48p per share) and £27.2m of shares bought back of the £35m allocated
to the buyback programme; £42.8m total capital returned to shareholders in
the year.
· Board changes including Greg Smith appointed as CEO, and David
Baynes as CFOO
· Evolved strategy focussed on next generation of portfolio
companies within key thematic areas
Portfolio highlights
· Total portfolio value increase of 27% to £1,507.5m(3) (2020:
£1,184.9m)
· Net portfolio gains of £497.4m(3) or 43%(4) (2020: £231.4m or
22%)
· Flotation of Oxford Nanopore Technologies plc on the London Stock
Exchange, priced at £3.4bn and cash realisation of £84.1m
· Sales of Inivata Ltd to NeoGenomics, Inc, WaveOptics Ltd to Snap,
Inc and Kuur Therapeutics Inc. to Athenex, Inc.
· Total primary funds raised by portfolio companies: approximately
£2.4bn (FY20: £1.1bn; HY21: £1.0bn) including Oxford Nanopore Technologies
plc (£645m), Hinge Health ($400m/£290m), Centessa Pharmaceuticals Ltd
($630m/£457m), Artios Pharma ($153m/£110m), Pulmocide Ltd ($92m/£67m
committed, $25m/£18m invested) and Ultraleap (£60m)
Other financial and operational highlights
· Strong Return on NAV of £452.2m, or 34.0% (2020: £189.5m or
16.6%)
· Strong liquidity with gross cash and deposits at 31 Dec 2021 of
£321.9m (2020: £270.3m) and net cash(5) of £270.1m (2020: £203.0m)
· North American platform secured additional funding, bringing
total raised in the year to $59m (£43m)
· Joint venture formed with China Everbright Ltd to launch first
third-party fund in China
Post period-end update
· Bramble Energy Ltd completed £35m investment round
· First Light Fusion Ltd completed $45m (£33m*) Series C fund
raise
· Microbiotica Ltd completed £50m Series B financing round
· Completed £35 million share buyback programme; £7.8m purchased
in January 2022
· Significant correction in global stock prices, compounded by the
war in Ukraine. ONT has fallen from £6.98 at the year end to £4.13 on the 14
of March. A reduction in carrying value of £233m.
(1) Net Assets i.e. total assets less total liabilities
(2) Proceeds from sale of equity and debt investments per Group Cash Flow
Statement
(3) Alternative Performance Measure as described in Note 30.
(4) 43% return on opening portfolio value of £1,162.7m
(5 )Net Cash is defined as gross cash and deposits less EIB debt
Greg Smith, Chief Executive Officer of IP Group, said: "2021 was a landmark
year for IP Group as we celebrated our 20(th) anniversary by recording our
best set of financial results to date, including record profits, cash
realisations, portfolio investment, and a return on NAV of almost
half-a-billion pounds. It was fitting that some of our most exciting portfolio
companies also completed landmark corporate transactions, with the highlight
being Oxford Nanopore's multi-billion-pound flotation. Science as a driver for
innovation is now widely understood and there is widespread recognition that
scientific solutions, and the new technologies they inspire, are needed to
address the major challenges facing the world. IP Group's strategy is to
increasingly focus on companies tackling those challenges and contribute to a
more sustainable, healthier future that is enriched by technological
advances. On a personal level, I was proud to take over as CEO from Alan
Aubrey towards the end of last year and I am excited about the prospects for
what is a quality portfolio of companies with real potential to have
significant global impact. We will continue to back them to succeed and,
given the current geo-political climate, I am pleased to report that we do so
from a very strong financial position."
Webinar
IP Group will host a webinar for analysts and investors today, 16 March, at
10:00am GMT. For more details or to register as a participant please visit
https://www.ipgroupplc.com/events.
For more information, please contact:
IP Group plc www.ipgroupplc.com
Greg Smith, Chief Executive Officer +44 (0) 20 7444 0050
David Baynes, Chief Financial Officer
Liz Vaughan-Adams, Communications +44 (0) 20 7444 0062/+44 (0) 7967 312125
Charlotte Street Partners
David Gaffney +44 (0) 7854 609998
Andrew Wilson +44 (0) 7810 636995
Further information on IP Group is available on our website:
www.ipgroupplc.com
Notes
(i) Nature of announcement
This Annual Results Release was approved by the directors on 15 March 2021.
The financial information set out in this Annual Results Release does not
constitute the company's statutory accounts for 2021 or 2020. Statutory
accounts for the years ended 31 December 2021 and 31 December 2020 have been
reported on by the Independent Auditor. The Independent Auditor's Reports on
the Annual Report and Financial Statements for 2021 and 2020 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 2020 have been filed with the
Registrar of Companies. The statutory accounts for the year ended 31 December
2021 will be delivered to the Registrar following the Company's annual general
meeting.
The 2021 Annual Report and Accounts will be published in April 2022 and a copy
will be posted on the Group's website (www.ipgroupplc.com
(http://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 (http://www.Hemscott.com/nsm.do) from that time.
Throughout this Annual Results Release the Group's holdings in portfolio
companies reflect the undiluted beneficial equity interest excluding debt,
unless otherwise explicitly stated.
(ii) Forward looking statements
This Annual Report and Accounts may contain forward looking statements. These
statements reflect the Board's current view, are subject to a number of
material risks and uncertainties and could change in the future. Factors which
could cause or contribute to such changes include, but are not limited to, the
general economic climate and market conditions, as well as specific factors
relating to the financial or commercial prospects or performance of individual
companies within the Group's portfolio.
strategic report
Chairman's Summary
2021 was a transformational year for IP Group in many ways, capped by
celebrating our 20(th) year of existence.
Notwithstanding the continuing COVID-19 constraints, resulting in our
colleagues largely working from home during the year, we carefully shepherded
our largest investment, Oxford Nanopore Technologies, to its much anticipated
and highly successful IPO, generated record profits and cash realisations and
paid our first ever dividends.
All this success can be traced back to the careful nurturing of the
investments within our portfolio over an extended time period, overcoming many
challenges along the way, by an exceptional executive team led by Alan Aubrey,
whose individual contribution to the Group's success as its CEO cannot be
over-estimated. It is a further reflection of Alan's immense contribution
that, as he stood down as CEO in October following the Oxford Nanopore IPO,
the Board was delighted to announce Greg Smith, the then CFO, as his
successor, marking a smooth leadership transition to an outstanding internal
candidate, and one who had worked alongside Alan for over 14 years.
Record Financial Performance in 2021
Financial performance in 2021 surpassed all prior years. While the standout
contribution came from the uplift in value from Oxford Nanopore which
delivered fair value gains of £297.1m and cash realisations of £84.1m from
the sale of a portion of our shareholding at the IPO, our Life Sciences and
Technology businesses generated extremely strong performances delivering fair
value gains of £78.1m and £103.3m respectively and cash realisations of
£83.5m and £44.5m respectively.
In aggregate, Net Asset Value (NAV), the measure that we believe best reflects
management performance, rose from £1.3bn at the beginning of the year to
£1.7bn as at 31 December, 2021 representing a return of 34%. Within this
figure, net cash amounted to £270.1m (2020: £203.0 m).
IP Group is therefore financially strong and liquid and, rare in our sector,
almost entirely funded by permanent capital. We believe this gives us
strategic advantages in attracting both talent to the firm and encouraging
young entrepreneurial companies to join the portfolio, given our ability to
commit to long term support where warranted. This permanent capital,
essentially, the equity you, our shareholders, entrust to us, also places a
significant responsibility on us to invest wisely and with conviction, both to
protect and enhance the value of shareholder interests in the Group. We take
this responsibility extremely seriously and much of the Board agenda in 2021
was spent giving detailed consideration to the disposition of the value
likely, and then actually, to be realised from the Oxford Nanopore flotation,
on top of the substantial proceeds derived from realisations elsewhere in the
portfolio. These Board discussions were informed by detailed reviews of the
main opportunities for further investment in the existing portfolio where many
of our portfolio companies raised additional funding in 2021, both from IP
Group and co-investors. In 2021, IP Group invested a further £103.7m in the
portfolio out of a total of £2.4bn invested from all sources.
We see considerable future value to be realised from the portfolio given its
concentration in areas highly relevant to the attainment of the UN's
Sustainable Development Goals (SDGs) particularly in cleantech and life
sciences where the impact of scientific contribution to addressing challenges
like climate change, COVID-19 and ageing demographics is well recognised.
By way of illustration, we have portfolio companies exploring possible
solutions to clean energy including nuclear fusion, carbon
capture and storage, clean and green hydrogen production, and long-duration
battery technology. In deeptech we have portfolio companies with leading
products working to make the internet safer and developing 'virtual touch'
technology to make the digital world more human. In the life sciences space,
we have exciting opportunities in treating autoimmune diseases, digital
solutions to mental health and a range of solutions around early detection of
disease and developing immunotherapy and other approaches to improve cancer
outcomes.
Greg develops further in his CEO Report the capital allocation framework
philosophy we have been discussing as a Board during 2021. We are excited
about the opportunities inherent both within the existing portfolio and the
investment pipeline and are confident we have the financial resources and
talent to make the most of them.
Oxford Nanopore
Clearly the most important event for the Group in 2021 was the IPO of Oxford
Nanopore, an event that had been widely anticipated. IP Group was a founding
shareholder of Oxford Nanopore in 2005 and held a 14.4% stake in the company
in the run up to the flotation; our stake was valued at £359m at 30 June 2021
ahead of the flotation, at the equivalent of £3.50/share. In September,
Oracle Corporation committed to become a cornerstone investor in the IPO and
invest £150m of new shares at the Offer Price. This interest cemented
investor confidence in the IPO which went ahead on 30 September 2021 at an
initial price of £4.25/share. IP Group took the opportunity to realise part
of its investment alongside other existing shareholders realising
approximately £84m. The IPO was successful, with the shares trading up to
£6.13 on the day. IP Group has retained just over 82m shares in Oxford
Nanopore, representing 10.0% of the company with a market value based on the
latest available price of £338.9m.
Other developments
Outside of portfolio company capital raising and realisations, the Group made
good progress in developing its international network and access in 2021. IP
Group operations both in the US and in Australia and New Zealand reported
strong portfolio performances. Building on its track record, IP Group Inc in
the US raised an additional $49m from blue chip external institutional
investors. In China, where the Group has been exploring how to develop its
business, we concluded a joint venture with China Everbright Limited to launch
a fund in China aimed, inter alia, at providing growth capital to China-based
subsidiaries of IP Group's UK portfolio companies; the fund is planned to
increase to RMB1.5 bn (c £167m) over the next three years.
Shareholder Returns
In my report last year, I noted the improvement in share price during 2020
from 71p to 98.9p with the discount to NAV reducing from 34% to 16%. The Board
spent considerable time during 2021 monitoring this relationship and
considering what further actions could be taken to narrow the gap further. We
paid our first dividend of 1p per share following shareholder approval at the
AGM and followed this with an interim dividend of 0.48p per share announced
with our interim results in August alongside a share buyback programme of
£20m, to be actioned when the discount to NAV exceeded a pre-agreed
threshold. We added a further £15m to the share buyback program following
realisation of approximately £84m of proceeds from the partial sale of our
holding in Oxford Nanopore at the IPO in September. During 2021, we completed
the buyback of 22 million shares for consideration of £27.2m and a further
6.4 million shares for a consideration of £7.8m have been purchased in 2022.
We were pleased to see the share price rise during 2021 to 123.8p giving a
total shareholder return of 26.8% for the year. However, since the year end
the share price has retreated in common with many other science-based
companies and at the most recent price of 94 pence the discount to NAV based
on quoted portfolio values at 14 March has widened to 34%. Narrowing this
discount remains a key focus of the Board as it monitors application of the
Capital Allocation policy.
Final dividend
The Board is recommending a final dividend of 0.72 pence per share taking the
2021 full-year dividend to 1.2 pence per share (2020:1 pps).
Board Changes
As noted above, Alan Aubrey stepped down as CEO and as a director on 6 October
last year, as did CIO Mike Townend, following the successful IPO of Oxford
Nanopore. With service to the Group of 16 and 14 years respectively, their
contributions to its success have been immense, with the portfolio increasing
in value more than 28-fold to over £1.2bn during Alan's tenure as CEO. Mike
led some of the most important and complex financings for the Group and its
portfolio companies during his time as CIO and he marked his final year by
concluding the joint venture with China Everbright which had long been in
negotiation, in part to provide an avenue for portfolio companies to access
finance for expansion in China. We are delighted that both Alan and Mike
will continue to serve as consultants to the Group for at least twelve months
from April 2022.
We also bade farewell to Professor David Begg at the 2021 AGM after nine years
of service as an independent Non-executive Director. David joined the Board
following the acquisition of Touchstone and served as Senior Independent
Director, in which capacity he was an exceptional mentor and sounding board
for the executive team, his Board colleagues and indeed myself as Chairman.
On behalf of the Board, our executive colleagues, and shareholders I want to
record our deep appreciation of the commitment and dedicated service of Alan,
Mike and David and wish them well in the next chapters of their careers.
Following an extensive process facilitated by an external executive search
firm Greg Smith emerged as the standout candidate to succeed Alan as CEO and
took on these responsibilities on 6 October. David Baynes added the Board
finance role vacated by Greg to become Chief Financial and Operating Officer.
As of today's date, the Board comprises two executive directors, four
non-executive directors and the Chairman: four men and three women.
Outlook
As I write this report, the world is confronting the horrors of military
aggression within Europe, a scenario that many had thought was consigned to
history books. How this plays out is well beyond our control or
understanding. While difficult times lie ahead, many of our areas of focus,
in particular cleantech, have even greater relevance in a scenario where
Europe seeks to reduce dependency on Russian oil and gas. Reassuringly, we
entered 2022 in a very strong financial position and with a maturing portfolio
offering considerable opportunities for future value delivery. Management
succession has been secured and a revised executive leadership structure put
in place with greater diversity which is operating well. Science-led
investment is a core part of UK Government policy to play to the strengths of
the country's academic and science institutions, a policy that plays also to
IP Group's interests and strengths. The major challenges facing the world -
climate change, a lower carbon future, biodiversity loss and health concerns
all require science-led solutions to which we aspire to contribute.
Our colleagues have proved hugely resilient throughout the coronavirus
restrictions and challenges and on behalf of shareholders I want to formally
recognise their commitment and dedication which together delivered the results
we are now reporting.
Sir Douglas Flint
Chairman
15 March 2022
chief executive's operational review
Introduction
This is my first Chief Executive's report to shareholders having taken on the
role in October. As I remarked then, it is an exciting time to be taking on
the role of CEO and I am honoured to lead the Group into its next phase of
growth.
In 2021, the year in which the Group marked its 20(th) anniversary, some of
our most exciting companies completed landmark corporate transactions, the
highlight being the multi-billion-pound flotation of Oxford Nanopore on the
London Stock Exchange in the Autumn, proving our business model. As a result,
2021 was an extremely strong year in terms of financial performance, with the
Group generating a return on NAV of almost half a billion pounds and ending
the year with net cash of £270m.
Coming off a record year and a position of real strength, I have spent time
working with the leadership team to reflect on what we have learnt and define
how we will take on the next two decades and build the next generation of
companies that will change the world. The short-term backdrop has brought a
greater level of uncertainty and volatility caused by current macro-economic
trends and geopolitical turbulence, not least the horrific situation in
Ukraine. Longer-term, we continue to believe that the Group is extremely well
placed to benefit from the increased recognition, stimulated by the
international response to COVID-19, that scientific innovations are required
to address many of the world's most pressing challenges and opportunities. I
am pleased to be able to outline the main elements of our strategy that I
believe will be essential to building on IP Group's successes and driving
value for all stakeholders as we look to the next 20 years.
I would like to echo Sir Douglas' comments and express my, and the Group's,
thanks to both Alan and Mike for the significant contributions they have made
to the Group's development during their tenures. I would also like to thank
David Baynes, who has taken on the combined role of Chief Financial and
Operating Officer. David and I have enjoyed working closely with Alan and Mike
to shape and deliver the Group's strategy over many years and will take
forward the benefits of that experience during the Group's next chapter. In
addition to the changes at Board level, this year we constituted a wider
Executive Committee, including two new Employee Executive appointments.
Finally, I would like to formally record my thanks to all of my colleagues at
IP Group who, for another year, showed extraordinary resilience throughout
2021 and continued to operate very effectively whilst working remotely for
most of the year.
In 2021, we took the opportunity to reduce our UK head office footprint and
relocate to London's Knowledge Quarter in Kings Cross. My colleagues and I
look forward to welcoming and working closely with our stakeholders, hopefully
increasingly in person again, in 2022 and beyond.
Purpose, vision & strategy: increasing focus
The Group's purpose has been founded on the principle of evolving science and
innovation into world-changing businesses. Doing so will remain a fundamental
part of the Group's approach. Our vision is a better future through the impact
of science and technology-based businesses we have identified, backed, and
grown together as long-term partners.
An underlying theme in our strategy to achieve this is one of increasing
focus. Firstly, we are increasingly focussing our capital, resources, and
expertise on clear thematic areas. These areas are driven by seeking to have a
meaningful impact on the world.
Secondly, our greatest returns and impact have come where we have created and
accelerated companies addressing the biggest societal need and investment
opportunity. We will focus more of our capital and resource to support the
acceleration of those businesses whose addressable market, differentiators,
and progress we consider most compelling. This will include supporting our
businesses to access capital across the funding spectrum, including through
increasing levels of third-party capital being managed by the Group. This will
enable us to be more proactive and systematic in our value creation.
Thirdly, we will continue the work that I have led over recent years to evolve
and successfully apply our Capital Allocation Policy to build the business
sustainably for the next 20 years. Our shareholder value proposition comprises
primarily capital growth over the medium term, alongside the return of a
proportion of cash realisations in the form of growing dividends and, where
appropriate, other mechanisms such as buybacks. Narrowing the discount to our
NAV/share is a key focus of the Board in applying this approach.
This thematic focus and acceleration of leading businesses is strengthened by
the Group's international footprint. Our presence in four major markets in the
UK, US, Australia and New Zealand, and China provides us with unique global
insight into the technology and market themes that will shape markets, and
access to the best new technology-based businesses wherever they originate.
This international presence provides a capability to support our existing
businesses as they scale and grow globally, and access to international
sources of capital to accelerate this growth.
Thematic focus areas
The Group is increasingly focusing on companies whose products and services
will meaningfully contribute to a:
· sustainable future,
· healthier future, and
· tech-enriched future.
Given the breadth of fundamental innovation in science and technology these
themes will not be exhaustive. We will build on and leverage our networks and
the insight generated from 20 years of identifying, backing, and growing
science-based businesses to continue to evaluate new areas of opportunity.
In five years', time, IP Group aspires to be tackling some of the world's
biggest problems and will have significant investments, presence, and
influence in our focus sectors. We aspire to have contributed to the building
of many more category-leading businesses and to have created at least one
valued at more than $10bn.
As an example of this strategy, this year we plan to accelerate the Group's
successful track record in building companies contributing to a sustainable
future through the launch of the first evergreen platform focussed on
cleantech. This strategic initiative will be owned and funded by the Group and
will build on the Group's existing portfolio, currently valued at
approximately £100m. We currently envisage an investment opportunity of
approximately £200m over five years, with the potential for a significant
proportion to be invested into our maturing portfolio companies.
Three focus holdings
Further detail on the approaches being followed by our teams in each thematic
area is set out in the Portfolio Review. To further exemplify the potential
for the creation of further category-defining businesses, we have highlighted
one company within each thematic area and articulated the nearer term
milestones and opportunity. A short summary is as follows:
Theme and company Ownership, IP Group value, Total company value Milestones achieved Value creation milestones
Tech-enriched future 19.5% Completion of $45m Series C Customer acquisition and revenue growth
Featurespace Limited £51.6m 2020 revenues: £21m Faster growth rate than projected market growth of 30%
Leading predictive analytics for fraud and cybercrime prevention £278m(1) 5-year compound annual growth rate in recurring revenue of 74%
68 customers (Dec 2021)
Healthier future 56.4% 200 subjects dosed with lead product MBS 2320 MBS 2320 Phase 2b data H12024
Istesso Limited £85.6m Expansion of programme into multiple diseases areas/proof of concept studies
Reprogramming metabolism to treat autoimmune disease £150m Positive Phase 2 proof of concept data achieved Second product into clinic
Start Phase 3 trial early 2025
Sustainable future 28.4% Commissioning of hyper-velocity gas gun reactor Validated fusion reaction
First Light Fusion £57.2m Series D fundraise
Solving fusion power with the simplest machine possible £200m High impact scientific publication
Specify gain reactor (Machine 4)
(1 )Company funding round value as at May 2020
Business model
Our core business model continues to be to acquire equity holdings, typically
at an early stage, and to grow the value of those holdings, before selling
down in whole or part over time to maximise returns. Where appropriate, the
Group will also seek to leverage more capital and resources to facilitate the
acceleration of individual companies, sectors or geographies. This will
continue to include a proportionate level of debt and building the fund
management side of our business to capture more of the investment value chain
as our portfolio companies mature and scale.
Our people
The success of IP Group depends on the quality of our people across a broad
range of disciplines and across our portfolio companies. We are committed to
building an environment which allows us to attract, retain and engage
exceptional people. Flexibility is a key driver of our approach, and we
empower our people to choose the environment most appropriate to achieving
their targets and goals, and to best support their colleagues. Our new smaller
and more modern UK head office is consistent with this. We continue to place
huge importance on the value of inclusion and diversity in all its forms in
our team and culture, and this was considered when establishing our Executive
Committee last year. Its composition included a pioneering move to create two
new 'Employee Executive' positions to increase diversity of thought. I have
personally sponsored the launch of our ID Project (Inclusion and Diversity) as
we have ambitions to be market-leading in this field.
Recent market context
There has been significant short-term uncertainty with rising inflation and
interest rates as well as geopolitical concerns, greatly exacerbated by
Russia's recent invasion of Ukraine, which is causing volatility in equity
markets globally including a reduction in risk appetite, particularly for
fast-growth companies. This has also exacerbated reductions in appetite for,
and valuations of, companies in specific sectors that had commenced during
2021, a notable example being biotech. The Group's recent share price
performance has been disappointing. Oxford Nanopore's share price has fallen
41% since the start of the year, translating to a £233m fall in value for IP
Group, while the value of our quoted portfolio has fallen 40% in total.
Increased protectionism and nationalism around funding, owning, and developing
'innovations of strategic importance' also remains a theme and there is
evidence of increased competition for investment opportunities and talent.
Having acted to ensure that the Group has a strong level of liquidity, IP
Group remains well placed to support its portfolio companies through this
period of uncertainty and is confident that appetite for growth companies will
return.
Financial results
In terms of financial performance, the Group had a very strong year,
generating a Return on NAV of £452.2m, or 34% (2020: £189.5 or 17%). In
addition, the Group again achieved record cash realisations totalling £213.4m
(2020: £191.0m) and finished the year with £270m of net cash (2020:
£203.0m).
Overview of Portfolio and Business unit performance
The performance of our Portfolio and Business Units is summarised below with
more detail in the portfolio review:
Invested Realisations Net Portfolio Gains/(losses) FY as at 31 December 2021 Simple return on capital %
Strategic £21.3m £84.6m £300.7m £607.8m 81%
Life Sciences £33.5m £83.5m £78.1m £414.9m 20%
Deeptech £6.7m £41.7m £72.4m £226.3m 34%
Cleantech £11.9m £2.8m £30.9m £100.9m 52%
United States* £12.5m - £7.9m - 12%
Australia and New Zealand £10.4m - £7.5m £25.2m 103%
Organic, De minimis & third parties £7.4m £0.8m (£0.1m) £39.5m n/m*
LP funds n/a n/a n/a £92.9m n/m*
Gross Portfolio £103.7m £213.4m £497.4m £1,507.5m 27%
* Prior to de-consolidation in November 2021, now reflected within LP funds.
As result, movements in third parties and LP funds are not measurable
Strategic
The principal strategic portfolio company holding is Oxford Nanopore. Oxford
Nanopore has had an incredibly successful couple of years, playing a key role
in the COVID-19 pandemic response by helping identify new strains of the virus
as it mutates, and completing a successful listing on the London Stock
Exchange. We are incredibly proud of all that Gordon Sanghera and his team
have done in growing Oxford Nanopore to the company that it is today. Having
provided the initial seed funding to the business in 2005, we are pleased to
have played a key role in its development and to be the largest single
shareholder post-IPO, with a holding of 10%.
Due to its materiality, the Executive Committee (ExCo) and Board ultimately
oversee our holding in Oxford Nanopore and have developed a considered
approach to the holding, aimed at capturing value for stakeholders and
ensuring stakeholders benefit from the time and capital invested in that
company. Given the differentiation of Oxford Nanopore's product offering and
the size and anticipated growth of their addressable markets, we believe the
company has the potential to become one of the largest and most profitable
technology businesses listed on the London market, notwithstanding the recent
reduction in the company's share price. From a financial perspective, the
company had a very strong 2021 and issued three upgrades to its revenue
guidance post-IPO, the most recent of which noted that the company expected to
report core Life Science Research Tools ("LSRT") revenues above £120m,
compared to LSRT revenue of £65.5m in 2020, annual growth of more than 80%.
As a result of this, as well as the opportunity to build value from our
experience and relationship with the team, Oxford Nanopore will remain a
significant part of the Group's story for the foreseeable future.
Life Sciences: a healthier future
The portfolio saw a second year of strong gains with an uplift of £78.1m
(2020: £85.1m) representing a simple return on opening portfolio value of
22%. The largest single contributors to this full year result were Hinge
Health (+£32 million), Inivata (+£31m) and Athenex/Kuur (+£11m). While
there were some write-downs in the portfolio, totalling £24m, these are
inevitable as we have adopted a more focussed investment approach in recent
years.
Deeptech: a tech-enriched future
Deeptech also had a very strong year, delivering uplifts in value of £72.4m
(2020: £6.6m). This included significant realisations from WaveOptics,
Perpetuum and Inflowmatix. The valuation uplift included contributions from
WaveOptics, Ultraleap, Featurespace and SaltPay, the latter of which tripled
its value during the year.
Cleantech: a sustainable future
Our cleantech portfolio had a strong year with uplifts of £30.9m. This was
primarily due to First Light Fusion, which completed a financing after
continuing to make strong technical progress during the period. Post
period-end, Bramble Energy, our next fuel cell business after our successful
exit of Ceres Power during 2020, also made significant advances, completing a
substantial funding round in early 2022. We will use our expertise, experience
and networks in the fuel cell market to support the acceleration of the
company. More broadly, the team have now mapped out the key technologies which
it believes will represent the best venture-backed opportunities as we
transition to net zero.
North America
With IP Group Inc, we believe we have created a vehicle that is fit for being
the leader in the US market, with blue-chip, long-term local capital
providers, deep relationships with a number of research institutions and a
great team with years of experience of building science-based companies. The
scale of US markets and research output suggest that the opportunity and
capital requirement could be substantially larger than the UK market alone.
The portfolio saw net gains of £7.9m and the total value of the platform is
now nearly $200m. Key events included MOBILion's $60m crossover funding in
July, and Exyn who completed an interim funding, with plans for a more
significant funding early in 2022. During the year the platform also secured a
total of $59m in new capital, including $10m from IP Group. On a fully diluted
basis the Group now owns 58% of this platform and, given the shared influence
of the other owners of the platform, it was determined that the holding should
be deconsolidated and presented as a fund investment. We do not envisage this
significantly affects the strategic relationships and collaboration
opportunities between the US and other Group teams.
Australia and New Zealand
The Australian portfolio delivered fair value uplifts of A$14.6m against an
opening portfolio of A$12.9m, which included significant funding rounds at
Canopus and Alimetry. There are currently 15 investments in the portfolio,
including the recently established Hysata, which is developing a highly
effective electrolyser as a key enabling technology for the hydrogen
transition. Further detail on Hysata, an opportunity that we believe has the
potential to become one of our most compelling companies, is provided in the
full annual report.
Third-party Fund Management
The Group continues to view the management of third-party funds as an
important element of our business model, and we now manage or advise over
£540m in third party capital across our Parkwalk, UK and Australian business
units. Parkwalk, the Group's specialist EIS fund management subsidiary, now
has assets under management of £388m (FY20: £350m) including alumni funds
managed in conjunction with the universities of Oxford, Cambridge, Bristol,
and Imperial College London. In Australia, the Group agreed an additional
commitment of A$75m (c.£40m) from HostPlus, increasing the total size of the
IP Group HostPlus Innovation Fund to A$210m (c.£110m). This fund has invested
in several of IP Group's portfolio companies around the world, providing
additive growth capital for companies as they scale. The team also intends to
support our portfolio companies by introducing them to investors in the
Greater China region once the necessary regulatory permissions have been
obtained. We are aiming to continue growing the level of funds under
management in the coming years.
Shareholder value creation, capital allocation and returns
The Board recognises that share price volatility and the discount or premium
to NAV per share has been a major issue for shareholders over the years and so
was pleased to receive almost unanimous shareholder support for its
recommended maiden dividend, which was paid to shareholders in June, and the
authority to make market purchases of up to 10% of the Group's shares,
provided those shares are trading at a discount to NAV per share.
Following another successful year of realisations in 2021, the Board allocated
a proportion of the capital from these realisations for return to shareholders
through dividends and a £35m share buyback programme, which commenced in
October 2021 and finished in January 2022. The Group now holds 29,708,621 of
its ordinary shares in treasury. The Group announced and paid its first
interim dividend of 0.48p per share in August and September respectively,
bringing total dividend payments during 2021 to 1.48p per share. This
represented 1p per share for 2020 and 0.48p per share for 2021.
The Board continues to consider that shareholder returns will be driven
primarily by long-term capital appreciation. The Board remains committed to
delivering a regular dividend income, which is intended to comprise a
relatively small component of total shareholder return. We will also continue
to consider share buyback programmes and other capital return tools as we
generate further realisations from our portfolio.
Consistent with this approach, the Board is recommending a final dividend of
0.72p per share, to be approved at the Company's forthcoming AGM, with an
optional scrip dividend programme allowing shareholders to choose to receive
dividends in the form of fully paid shares in IP Group plc in lieu of cash.
Further, the Board will seek shareholder approval to renew the authority to
purchase up to 10% of the Ordinary Shares in issue from the date of grant of
the authority to the date of the Annual General Meeting in 2023. Such
purchases will only be made at a discount to the prevailing NAV per share. Any
such shares that are bought back may be held in treasury and may subsequently
then either be sold for cash or cancelled.
Outlook
While the macro-economic trends and geopolitical concerns are causing
significant short-term uncertainty and volatility, IP Group is in a strong
financial position with net cash and deposits of £270.1m and the Group's
portfolio companies are typically well funded, having raised approximately
£2bn in aggregate in 2021.
Maintaining a strong level of liquidity remains extremely important in this
environment to ensure that the Group can support its high conviction companies
and existing portfolio companies, as well as invest in promising new
opportunities.
The Group is committed to further growing its NAV per share, as the next
generation of impactful science-based companies grow to increasing maturity
and prominence alongside our current lead company, Oxford Nanopore. We are
also committed to closing the current discount to NAV and to creating further
value for stakeholders and are excited by the significant number of
opportunities within the existing portfolio.
Greg Smith
Chief Executive Officer
15 March 2022
portfolio review
Our portfolio: Substantial realisations and significant portfolio progression
Overview
As at 31 December 2021, the value of the Group's portfolio (excluding LP fund
investments) was £1,414.6m (2020: £1,162.7m) reflecting a net portfolio gain
of £497.4m (2020: gain £231.4m) and net cash realisations of £109.7m (2020:
£123.5m). The portfolio consists of interests in 44 'focus' companies,
representing 89% of the portfolio value, and 56 other companies (2020: 43,
84%, 88).
Performance summary
Summary of the Income Statement gains and losses that are directly
attributable to the portfolio:
2021 2020
£m £m
Unrealised gains on the revaluation of investments 474.4 224.8
Unrealised losses on the revaluation of investments (63.1) (71.3)
Effects of movement in exchange rates 4.6 (4.6)
Change in fair value of equity and debt investments 415.9 148.9
Gain on disposals of equity investments 81.5 82.5
Net portfolio gains/(losses) 497.4 231.4
Summary of the largest unrealised & realised gains and losses by portfolio
company:
Gains £m Losses £m
Oxford Nanopore Technologies plc 297.1 Azuri Technologies Limited (8.6)
Hinge Health, Inc. 32.3 Actual Experience plc (8.1)
First Light Fusion Limited 31.7 Creavo Medical Technologies Limited (7.1)
Inivata Limited 30.7 Mirriad Advertising plc (5.5)
Wave Optics Limited 27.2 Karus Therapeutics Limited (3.2)
Other quoted 14.8 Other quoted (10.1)
Other private 128.6 Other private (22.4)
Total 562.4 Total (65.0)
Investments and realisations
The Group deployed a total of £103.7m across 65 new and existing projects
during the period (2020: £67.5m, 65 projects), versus realisations of
£213.4m (2020: £191.0m), resulting in overall net realisations for the year
of £109.7m (2020: £123.5m).
An analysis of amounts invested by company focus is as follows:
2021 2020
£m £m
Top 20 51.4 23.6
Focus 14.1 14.5
Other (including companies exited by year end) 8.7 14.6
Total United Kingdom 74.2 52.7
United States(1) 19.1 11.5
Australia and New Zealand 10.4 3.3
Total purchase of investments 103.7 67.5
Less cash proceeds from sales of investments (213.4) (191.0)
Net realisations (109.7) (123.5)
(1) United States investment total includes £6.0m (2020: £2.1) invested in
MOBILion Systems, Inc. and £1.1m (2020: £1.8m) invested in Uniformity Labs,
Inc., which are in the Top 20 holdings by value.
Largest investments and realisations by portfolio company:
Investments £m Cash Realisations £m
Oxford Nanopore Technologies plc 18.7 Oxford Nanopore Technologies plc 84.1
MOBILion Systems, Inc. 6.0 Inivata Limited 64.6
First Light Fusion Limited 5.0 Wave Optics Limited* 29.5
Pulmocide Limited 4.7 Hinge Health, Inc. 10.9
Carisma Therapeutics Limited 4.3 Inflowmatix Limited 4.9
Other 65.0 Other 19.4
Total 103.7 Total 213.4
*Plus deferred consideration valued at £23.9m
Deferred consideration of £42.3m was outstanding at year end (2020: £15.0m),
predominantly relating to the Group's realisation of WaveOptics (£23.9m),
Enterprise Therapeutics (£14.0m, exited in 2020) and Kuur Therapeutics
(acquired by Athenex) (£4.3m).
Portfolio company numbers
United Kingdom United States Australia & New Zealand Total
1 January 2021 92 27 12 131
Additions 4 2 2 8
Transfer of Apollo Therapeutics from LP interests 1 - - 1
Exited (7) - - (7)
Deconsolidation of United States portfolio - (29) - (29)
Reclassified to de minimis & organic (4) - - (4)
31 December 2021 86 - 14 100
Co-investment analysis
Including the £103.7m invested by the Group, the Group's portfolio raised a
total of £2.4bn during the year to 31 December 2021 (2020: £1.1bn).
Co-investment in 2021 came from more than 230 different investors, excluding
individuals, and only 6% of the funding came from parties with a greater than
1% shareholding in IP Group plc (2020: more than 170 investors, 2%). An
analysis of this co-investment by source is as follows:
Portfolio capital raised 2021 2020
£m % £m %
IP Group (1) 102.6 4% 67.5 6%
Funds managed by Parkwalk Advisors 0.3 0% 6.0 1%
IP Group plc shareholders (>1% holdings) 147.1 6% 20.0 2%
Institutional investors 658.0 28% 575.0 54%
Corporate, other EIS, individuals, universities and other 1,473.3 61% 365.9 35%
Capital into multi-sector platforms 25.1 1% 20.0 2%
Total 2,406.4 100% 1,054.4 100%
(1) Reflects primary investment only; in 2021 the Group made £1.1m investment
via secondary purchase of shares (2020: £nil).
Portfolio analysis by focus
At 31 December 2021, the Group's portfolio fair value of £1,414.6m was
distributed across the portfolio as follows:
As at 31 December 2021 As at 31 December 2020
Fair value Number Fair value Number
Stage £m % % £m % %
Top 20 by value 1,129.5 82% 20 20% 813.6 74% 20 15%
Focus 122.3 9% 24 24% 114.0 10% 23 18%
Other 123.3 9% 56 56% 178.6 16% 88 67%
Total 1,375.1 100% 100 100% 1,106.2 100% 131 100%
De minimis and organic holdings 10.4 11.9
Total Portfolio 1,385.5 1,118.1
Attributable to third parties(1) 29.1 44.6
Gross Portfolio 1,414.6 1,162.7
(1) Amounts attributable to third parties consist of £16.0m attributable to
minority interests represented by third party limited partners in the
consolidated fund, IP Venture Fund II (2020: £16.3m), £11.7m attributable to
Imperial College London (2020: £10.3m), £1.4m attributable to other third
parties (2020: £2.7m) and £0.0m attributable to minority interests
represented by third party limited partners in the United States portfolio,
which was consolidated until November 2021 (2020: £15.3m).
Top 20 investments consist of the 20 most valuable holdings in the Group's
portfolio by the period-end value. Focus investments are those investments
that are not within the 20 most valuable, but on which the investment teams
focus a significant proportion of their resources and capital. Outside of
these companies, the portfolio contains a broad selection of exciting
opportunities, categorised as 'other'. Many of these opportunities are at an
early stage, and they typically receive a lower level of capital and
management resource.
Companies that are at a very early stage or in which the Group's holding is of
minimal value, but remain as operating businesses, are classed as de minimis
holdings. Organic holdings are investments in which the Group has acquired a
shareholding upon creating the company because of its technology transfer
relationship with Imperial College London, but in which it has not actively
invested.
The total value of the Group's portfolio companies (excluding Oxford Science
Enterprises ("OSE") and Cambridge Innovation Capital ("CIC"), organic
investments and de minimis holdings) is approximately £20bn (2020: £7bn).
Portfolio analysis by sector
The Group splits its core opportunity evaluation, investment and
business-building team into specialist divisions, Life Sciences, Deeptech and
Cleantech within the UK, with geographically focussed investment teams based
in the United States and Australia. A small number of investments are
categorised as strategic, which principally includes Oxford Nanopore
Technologies, and portfolio companies which also invest in other
opportunities.
As at 31 December 2021 As at 31 December 2020
Fair value Number Fair value Number
Sector £m % % £m % %
Strategic 607.8 45% 4 4% 370.6 34% 4 3%
Life Sciences 414.9 30% 36 36% 392.5 35% 40 31%
Deeptech 226.3 16% 34 34% 212.5 19% 36 27%
Cleantech 100.9 7% 12 12% 58.8 5% 12 9%
United States - 0% - 0% 64.5 6% 27 21%
Australia and New Zealand 25.2 2% 14 14% 7.3 1% 12 9%
Total 1,375.1 100% 100 100% 1,106.2 100% 131 100%
De minimis and organic holdings 10.4 11.9
Total portfolio 1,385.5 1,118.1
Attributable to third parties(1) 29.1 44.6
Gross portfolio 1,414.6 1,162.7
(1) Amounts attributable to third parties consist of £16.0m attributable to
minority interests represented by third party limited partners in the
consolidated fund, IP Venture Fund II (2020: £16.3m), £11.7m attributable to
Imperial College London (2020: £10.3m), £1.4m attributable to other third
parties (2020: £2.7m) and £0.0m attributable to minority interests
represented by third party limited partners in the United States portfolio,
which was consolidated until November 2021 (2020: £15.3m).
Portfolio Review: Strategic
Greg Smith
Chief Executive Officer
The strategic portfolio is a cross-country and cross-sector portfolio. Its
principal asset is the Group's holding in Oxford Nanopore Technologies which,
due to its size and significance, is managed directly by the Chief Executive
Officer with assistance from the leadership team. This fund also contains some
smaller holdings in multi-sector platform companies that operate in a similar
way to IP Group but focus on a specific university, such as Oxford Sciences
Enterprises (Oxford) and Cambridge Innovation Capital (Cambridge), and a small
number of other holdings where the Group has made additional strategic
investments. A summary of the key holdings is as follows:
Company name Description Group Stake at 31 Dec 2021(I) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 Dec 2021
£m
Oxford Nanopore Technologies plc Enabling the analysis of any living thing, by any person, in any environment 10.0 (53.1) 297.1 572.0
Oxford Science University of Oxford preferred IP partner under 15-year framework agreement 2.3 - 2.7 23.3
Enterprises plc
Other companies (2 companies) 2.0 0.9 12.5
Total (51.1) 300.7 607.8
mm
Oxford Nanopore
2021 was another incredible year for Oxford Nanopore, a company that IP Group
co-founded in 2005 and which remains our most valuable holding. Shares in
Oxford Nanopore were admitted to trading on the London Stock Exchange in
October, valuing it at approximately £3.4bn. The flotation was extremely well
supported, garnering strong global interest from blue chip investors, and
provides strong validation of IP Group's approach to creating and supporting
world-changing businesses.
IP Group sold approximately £84m of shares at the IPO price and, consistent
with the Group's Capital Allocation Policy, allocated £15m of that amount
towards buybacks of its own shares. Following the sale, IP Group continues to
hold 82,062,144 shares, or 10% of Oxford Nanopore, valued at £339m as at 14
March 2022.
Oxford Nanopore is behind a new generation of nanopore-based sensing
technology, whose products enable the real-time, high-performance, scalable
analysis of DNA and RNA - the analysis of anything, by anyone, anywhere. Its
sequencing technology has been used for rapid, distributed sequencing of
SARS-CoV-2, the virus that causes COVID-19, in both local and national public
health systems in more than 85 countries. From initial characterisation of the
SARS-CoV-2 virus genome to the rapid identification and tracking of variants,
researchers worldwide have been utilising nanopore sequencing to generate data
essential to combating the spread of COVID-19. This work came after a history
of nanopore sequencing being used to sequence a broad range of pathogens from
viruses to drug resistant bacteria.
Since the flotation, Oxford Nanopore has issued three upgrades to revenue
guidance, the most recent of which noted that it expected to report core Life
Science Research Tools ("LSRT") revenues above £120m, compared to LSRT
revenue of £65.5m in FY20, representing annual growth more than 83%. Previous
guidance for LSRT revenue was £105-111m. Further, the Group announced it
expected to report total revenue above £126m, compared to total revenue of
£113.9m in FY20.
Other highlights
Oxford Nanopore has continued to make excellent technical progress and
announced in January 2022 that the fastest DNA sequencing of a human genome
had been recorded using its technology. In one case, it took five hours and
two minutes, setting the first Guinness World Records title for fastest DNA
sequencing technique. Scientists from Oxford Nanopore Technologies, NVIDIA,
Google, and others worked with a research team led by Euan Ashley, MB ChB,
DPhil, professor of medicine, of genetics and of biomedical data science at
the Stanford University School of Medicine, to develop a whole genome nanopore
sequencing approach that can characterise pathogenic variants in as little as
7 hours and 18 minutes - faster than any previously published approach in
clinical samples.
The company also announced several technical advances, including a range of
product releases and upgrades, in December at its 'community meeting'. These
included the announcement of PromethION 2 (P2) - a palm-sized,
high-throughput sequencer that delivers the most accessible
low-cost, high-output sequencer that can run up to two
high-throughput PromethION Flow Cells.
Multi-sector platform companies
The Group has shareholdings in two multi-sector platform companies, Oxford
Science Enterprises ("OSE") (formerly Oxford Science Innovation (OSI)) and
Cambridge Innovation Capital ("CIC"). As at 31 December 2021, IP Group has a
2.3% holding in OSE valued at £23.3m and a 0.9% holding in CIC valued at
£2.7m (2020: 2.3%, £20.6m, 1.0%, £3.1m).
As a result of its 15-year framework agreement with the University of Oxford,
OSE is the preferred intellectual property partner for the provision of
capital to, and development of, Oxford spin-out companies and is entitled to
50% of the university's founder equity in spin-out companies. In 2021 OSE has
continued to support its existing portfolio, and as of 31 December 2021
£146.3m further investment had been made during the year (2020: £93.0m),
taking the total invested by OSE since inception close to £450m. Total
portfolio value at 31 December 2021 was £618m (2020: £425m), up 45% in the
year, and net cash was £242m (2020: £412m). Net asset value per share had
risen 2% to 147.5p. Profit for the year was £21.2m (2020: £168.2m).
Other holdings
In addition to the holdings described above, the strategic unit includes
certain other portfolio companies. 2021 saw an additional strategic investment
of £0.9m in MOBILion Systems, Inc. alongside the Group's North American
platform, reflecting an additional capital allocation based on the compelling
opportunity that this company presents. MOBILion is covered in further detail
in the North American portfolio review.
PORTFOLIO REVIEW: LIFE SCIENCES
Dr Sam Williams
Managing Partner, Life Sciences
"The Life Sciences division enjoyed another year of strong performance in
2021, with a closing portfolio value of £415m and net portfolio gains of
£78m, representing a 20% return. This builds on 2020's 27% return. We believe
we are seeing several factors contribute to this performance: First, the
benefit of the hard work taken in 2018 and 2019 to consolidate the Touchstone
and IP Group portfolios, with companies now on a more stable budgetary and
strategic footing; second, fundamental performance of some of our focus
assets, most obviously manifested in two successful exits during the year; and
third, IPG's early approach to seed investment across a wide range of
businesses bearing fruit in the form of Hinge Health."
In life sciences, we are working towards a healthier future with a view to
cure and prevention of disease rather than simply treating symptoms, while
creating a healthier - rather than just longer - life. The three pillars of
our approach are: a) reprogramming cells to change their behaviour from the
diseased mode to healthy mode; b) reconditioning tissues to improve response
to existing therapies; and c) redirecting patient behaviour to reduce risk.
Companies that exemplify this are Istesso (reprogramming cells to treat
autoimmunity), PsiOxus (reconditioning tumours to enhance cancer
immunotherapy), Genomics plc (redirecting patient behaviour to mitigate the
risk of, for example, cardiovascular disease). Underpinning all of these
approaches is a better understanding of the root drivers of disease, such as
the human microbiome, in which we are invested via Microbiotica, and genetics
where, of course, Oxford Nanopore plays a critical role via the provision of
tools for reading the genomes of patients and pathogens, alike. Finally, in
terms of our ultimate goal of finding cures rather than symptomatic relief, a
perfect example lies in Pulmocide Limited's novel antifungicide, PC945, which
promises to save the life of patients with invasive, life-threatening
pulmonary Aspergillus infection. A summary of the key holdings is as follows:
Company name Description Group Stake at 31 Dec 2021(I) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 Dec 2021
£m
Istesso Limited Reprogramming metabolism to treat autoimmune disease 56.4 - - 85.6
Hinge Health, Inc. The World's First Digital Clinic for Back and Joint Pain 1.8 (6.0) 32.3 63.5
Diurnal Group plc Novel products for the treatment of rare endocrine disorders 29.5 4.1 (1.3) 27.5
Ieso Digital Health Limited Digital therapeutics for psychiatry 32.2 2.9 2.2 21.8
Centessa Pharmaceuticals plc Advancing a portfolio of high conviction programs with strong biological 2.8 - 2.0 21.1
validation
Crescendo Biologics Limited Biologic therapeutics eliciting the immune system against solid tumours 17.5 2.8 3.7 18.8
Artios Pharma Limited Novel oncology therapies 7.6 3.6 (3.1) 17.8
Mission Therapeutics Limited Targeting deubiquitylating enzymes for the treatment of CNS and mitochondrial 19.0 1.6 - 15.4
disorders
PsiOxus Therapeutics Limited Gene and viral therapies for cancer 25.2 3.3 - 15.4
Oxular Limited Treatments and delivery technology for sight-threatening diseases 27.2 2.7 - 14.6
Other companies (26 companies) (23.8) 42.3 113.4
Total (8.8) 78.1 414.9
i. Represents the Group's undiluted beneficial economic equity interest
(excluding debt), including only the Group's portion of IPVF II. Voting
interest is below 50%.
Review of the Year
During the year, the life sciences portfolio saw net portfolio gains of £78m
or 20%. This strong performance was driven largely by four major events:
1. the £30.7m gain from the sale of Inivata Ltd to NeoGenomics, Inc.,
which in May announced it had decided to exercise its option to acquire the
remainder of the company for a total consideration of US$390m, returning
£64.6m in cash to the Group.
2. the £32.3m gain from Hinge Health's Series E financing in
November, in which it raised $400m at a value of $5.7bn, valuing IPG's 2%
stake at £63.5m.
3. the £9.3m gain from the sale of Kuur Therapeutics Inc. to Athenex,
Inc., which acquired the company for a total potential consideration of
US$185m; and
4. the £5.8m gain from Iksuda's Series A financing, in which it
raised $47m in a round led by Korea-based Mirae Asset Capital and its
subsidiaries, with Celltrion Inc. and Premier Partners, and as part of which
the Group agreed to sell $5m of its stake in Iksuda to Celltrion, resulting in
a £5.8m uplift in value.
Other notable events in the portfolio included:
1. Pulmocide Ltd's Series C investment round with US$92m of
commitments and US$25m invested in the first tranche, to which IP Group
committed $10m; following completion and investment of the second tranche of
£2.5m we hold a 14% undiluted beneficial stake in the company, valued at
£10.6m.
2. EMA approval of Diurnal Group plc's Efmody for the treatment of
congenital adrenal hyperplasia (CAH) and its launch across various European
territories.
3. Artios Pharma Ltd's collaboration with Novartis to discover and
validate next generation DDR targets to enhance Novartis's Radioligand
Therapies, signed in April, and the company's announcement in July of the
completion of a US$153m Series C investment round.
4. Ieso Digital Health Ltd's £39m Series B investment round to
develop clinical software treatments built on the world's largest mental
health treatment data set. IP Group committed £6.1m to the funding round and
now holds an undiluted beneficial holding of 32.2%, valued at £21.8m.
The above successes reflect positive portfolio company progress as well as an
attractive environment for life sciences businesses, particularly from a
capital markets perspective in the first half of the year. While the
environment hardened somewhat in the final quarter of the year (and into early
2022), we believe the fundamentals of the Life Sciences division provide for a
positive outlook in 2022. Key potential milestones anticipated include:
· the start of Phase 2b studies for Istesso Limited's rheumatoid
arthritis drug MBS2320;
· the start of Phase 3 for Pulmocide Limited's novel anti-fungal
PC945; and
· at least one potential NASDAQ IPO, depending on the markets.
portfolio review: technology
Mark Reilly
Managing Partner, Technology
In our deeptech team, we are working towards a tech enriched future. Investing
in assets that will enable digital resilience, create prosperity, and enable
new human capability. We target differentiated, defensible innovations with a
strong value proposition and the potential to disrupt a multibillion-dollar
global market. Key focus areas include cybercrime and fintech (Featurespace
and Garrison), next gen networks, (Accelercomm), human-machine interface
(Ultraleap and WaveOptics) and neuromorphic and quantum computing (Oxford
Quantum Circuits and Quantum Motion). A summary of the key holdings is as
follows:
Company name Description Group Stake at 31 Dec 2021(I) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 Dec 2021
£m
Featurespace Limited Leading predictive analytics company 19.5 - 14.8 51.6
Ultraleap Holdings Limited Contactless haptic technology 17.4 2.0 9.6 35.5
"feeling without touching"
Garrison Technology Limited Anti-malware solutions for enterprise cyber defences 23.4 - 2.1 25.7
Salt Pay Co. Limited Mobile payments with integrated loyalty schemes Not disclosed - 16.8 24.6
Other companies (30 companies) (35.3) 29.1 88.9
Total (33.3) 72.4 226.3
i. Represents the Group's undiluted beneficial economic equity interest
(excluding debt), including only the Group's portion of IPVF II. Voting
interest is below 50%.
Deeptech Portfolio
2021 has been a successful year for the Deeptech portfolio, which delivered
net fair value gains of £72.4m, or 34% and £41.7m of realisations.
In May 2021, the US-listed social media company Snap, Inc. acquired our
portfolio company WaveOptics for a consideration in excess of US$0.5bn, which
we believe to be one of the UK's largest ever venture-backed deeptech exits,
delivering an immediate uplift of £24.6m in the value of our holding. The
consideration was split into two equal tranches, the first of which was paid
upon completion in May and the second will become due 24 months from
completion. The first tranche of consideration was paid in Snap, Inc. shares
and IP Group sold these shares shortly afterwards at a premium to their issue
price, delivering initial cash proceeds of £29.4m.
World-leading interface company Ultraleap completed a £60m Series D round of
investment in a round led by new investor Tencent with additional significant
participation from British Patient Capital through their Future Fund,
Breakthrough and CMB International. Existing investor Mayfair Equity Partners
also supported the round and IP Group invested £2.5m. The transaction
resulted in an £11.6m 1 fair value uplift to our holding. The fundraise
reflects Ultraleap's continued good commercial progress with strong demand
from AR/VR and Out-Of-Home markets for licensing the company's technology.
Following the multi-year co-operation agreement signed in late 2020 to
pre-integrate Ultraleap technology into Qualcomm's Snapdragon XR2 5G reference
design, high-performance VR/XR market leader Varjo™ launched two of its
latest headsets integrated with Ultraleap's fifth generation hand tracking.
Elsewhere in the portfolio, the Group registered an uplift in the value of our
holding in Artificial Intelligence fraud prevention company Featurespace
reflecting the company's continued strong commercial growth. We were pleased
to see our cybersecurity company Garrison announce sales growth of over 150%
in the year to March 2021 despite pandemic disruption. Continued strong demand
from Garrison's government customers (including the UK Government and US
Federal Government) and significant expansion with key commercial accounts
including UK retail bank Lloyds Banking Group contributed to revenues of more
than US$10m.
Our portfolio company Navenio, which is tackling the rising cost of healthcare
by deploying its ground-breaking indoor location technology to increase
productivity by up to 100% in healthcare institutions, freeing up clinical
resources to focus on patient care, announced a $12.6m fundraise late in 2021.
In June, it was announced that our portfolio asset Inflowmatix, a water data
analytics spinout from Imperial College London, had been acquired by the
utility company Suez, returning a modest profit on our £4m invested capital.
Despite encountering an increasingly competitive environment for early-stage
opportunities, the Deeptech team invested a total of £3.7m in three new
pipeline opportunities during 2021, two of which were sourced from the
University of Oxford: Diffblue Limited and Quantum Dice Limited, and a third,
Monolith AI an Imperial College spin-out into which we made our first
investment this year.
During the period, we saw a £8.1m fair value reduction in our holding of
Actual Experience plc and a £5.5m fair value reduction in our holding of
Mirriad plc, reflecting a reduction in the quoted share price of those two
companies. We realised £4.7m through a partial sale of our holding in Actual
Experience in early 2021 prior to the substantial drop in its share price
later in the year.
Cleantech Portfolio
In our Cleantech team we are working towards a sustainable future; investing
in assets that address the global climate challenge. We target breakthrough
innovators creating scalable climate technology solutions. Our focus areas
include, renewable electricity and alternative fuels, mobility and transport,
land use, greenhouse gas capture/removal and storage, climate risk and change
management, food, and agriculture. A summary of the key holdings is as
follows:
Company name Description Group Stake at 31 Dec 2021(I) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 Dec 2021
£m
First Light Fusion Limited Solving fusion with the simplest possible machine 28.4 5.0 31.8 57.3
Oxbotica Limited Software to enable every vehicle to become autonomous 14.3 0.9 0.4 16.3
Other companies (10 companies) 5.7 (1.3) 27.3
Total 11.6 30.9 100.9
i. Represents the Group's undiluted beneficial economic equity interest
(excluding debt), including only the Group's portion of IPVF II. Voting
interest is below 50%.
The Cleantech portfolio again delivered substantial value growth in 2021 with
overall net fair gains of £30.9m or 52%, predominantly driven by the
successful fundraise at our portfolio company First Light Fusion, which is
researching energy generation by inertial confinement fusion. The company
announced in May that it had commissioned the UK's largest two-stage gas gun
at its facility near Oxford. The 22-metre-long asset can launch a projectile
at hyper velocities of up to 6.5 kilometres per second (20 times the speed of
sound). The gun launches projectiles into a vacuum chamber that impact
"targets" containing fusion fuel. The targets are designed to focus impacts to
create the conditions for fusion. Gas guns are a relatively well characterised
experimental technology for plasma physics research, and the new gun will
complement First Light's electromagnetic propulsion device "Machine 3"
allowing engineers to explore a different parameter space by launching larger
but slower projectiles. First Light has successfully fired its first test
shots and has begun fusion experimental shots on the new device.
In January, Oxbotica, the Oxford spin-out which has become a global leader in
autonomous vehicle software, raised a US$47m Series B round from investors
across the globe including Australia, China, UK, and the USA. The funding will
accelerate Oxbotica's deployment of its world-class autonomy software across
multiple industries and key markets. The backing is an endorsement of
Oxbotica's distinctive proposition, with its 'universal autonomy' that can be
deployed in multiple different use cases, rather than being tied to a
particular use case as some competitors are. The funding was followed in April
by the announcement of a commercial collaboration with leading online grocery
platform Ocado focusing on hardware and software interfaces for autonomous
vehicles, enhancing and integrating Oxbotica's autonomy software platform into
a variety of vehicles.
In February, C-Capture, our portfolio company with ground-breaking technology
for carbon capture, completed an £8m convertible debt funding round from a
syndicate comprising existing shareholders IP Group, Drax and BP Ventures and
joined by the UK Government's Future Fund. The investment reflects the
confidence of C-Capture shareholders in the company's technology, and the
government's support for companies that have the potential to help solve the
climate crisis. The investment will be used to optimise the company's carbon
capture technology, improving performance whilst driving down costs. C-Capture
has been working on its patented chemistry for over a decade and is becoming
seen as a leader in the emerging sector of carbon removal, with applications
across a wide range of sectors in clean energy.
In November, the Cleantech team attended the first week of the COP26 Climate
Summit in Glasgow, which was a busy and productive week involving meetings
with climate investors, corporates, policy makers and the press. Our work as a
member of the Energy Transitions Commission (ETC) was influential in key
achievements arising from the Summit, including agreements on methane
emissions and reforestation. We also hosted a live showcase of IP Group's
cleantech portfolio companies including Bramble Energy, First Light Fusion,
C-Capture, RFC Power and Mixergy with Lord Adair Turner, chair of the Energy
Transitions Commission, providing a keynote speech. We used COP26 to announce
a new investment: the formation of a joint venture with advanced propulsion
technology company Reaction Engines and the Science and Technology Facilities
Council (STFC). The venture will leverage breakthroughs in heat exchanger and
catalyst science to develop catalytic cracker reactors to enable ammonia as a
zero-carbon fuel for hard to decarbonise sectors. Sticking with the
hard-to-abate sectors, in December we also completed a seed investment in
OxCCU, a spin-out from the University of Oxford with technology to synthesise
"green" hydrocarbon fuels directly from carbon dioxide and hydrogen. These new
pipeline investments are part of our plan to build a branded climate
investment initiative, focussing on technologies fundamental to the transition
to net zero. We will announce further details of this ambitious initiative in
2022.
In a less welcome development, 2021 was a very challenging year for our
portfolio company Azuri Technologies which provides consumer electronics
powered by solar to customers in Africa. COVID-19 has hit the countries in
which Azuri operates hard with a much deeper and longer-lasting detrimental
economic impact than has so far been seen in Europe. We have reduced the value
of our holding by £8.6m as a result.
Post period-end, in February 2022 fuel cell company, Bramble Energy completed
a £35m investment round.
PORTFOLIO REVIEW: NORTH AMERICA
Company name Description Group Stake at 31 Dec 2021(I) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 Dec 2021
£m
MOBILion Systems, Inc. A platform technology for conducting ion mobility separations 17.1 0.9 6.7 23.0
Uniformity Labs, Inc. Equipment, materials and software for additive manufacturing 17.3 (3.4) 0.2 11.4
Other companies (27 companies(ii)) 10.5 0.9 50.9
Total 8.0 7.8 85.3
(i) Represents the Group's undiluted beneficial economic
equity interest (excluding debt), including only the Group's portion of IPVF
II and interest in the United States portfolio, which is no longer
consolidated. Voting interest is below 50%.
(ii) No longer included within reported companies number post
de-consolidation of IPG Cayman LP
It's been a transformational year for IP Group, Inc., and its portfolio
investments. The team completed a funding round totalling $59m, led by a new
US institutional investor, following which the Group owns approximately 58% of
the US platform. It strengthened its board with appointment of Varun Chandra,
Managing Partner of Hakluyt & Company. Greg Smith also joined the Board in
October, when Alan Aubrey stood down as CEO of the Group. He joins David
Baynes, who has sat on the Board since 2015. As it looks to 2022, the
company is seeing strong interest in its platform from institutional investors
and is well positioned to continue to make transformative investments. As
outlined above, we no longer consolidate this platform but hold it as an
investment more consistent with our other portfolio holdings.
The US portfolio companies continued to make progress, achieving many
developmental and financial milestones over the year. The team completed three
portfolio company investment rounds and two new proof of concept investments
from Johns Hopkins and the University of Washington, bringing the total number
of US investments to 29.
Carisma Therapeutics announced a clinical study collaboration with Merck to
evaluate their proprietary targeted chimeric antigen receptor macrophages. The
company was also granted Fast Track designation by the U.S. Food and Drug
Administration for its treatment of patients with solid tumours. Uniformity
Labs completed a $38.35m Series B, which included an investment to finance
plant construction from a fund managed by Orion Resource Partners. MOBILion
Systems closed a $60m Series C financing round and announced its first
commercial High-Resolution Ion Mobility (HRIM) product, MOBIE, which addresses
characterization challenges faced during biopharmaceutical drug development
and quality monitoring. Exyn Technologies announced a partnership with NSS
(Northern Survey Supply) in Canada and Tunoptix appointed veteran technology
entrepreneur and venture capitalist George Lauro to its board of directors.
i. Represents the Group's undiluted beneficial economic equity interest
(excluding debt), including only the Group's portion of IPVF II and interest
in the United States portfolio, which is no longer consolidated. Voting
interest is below 50%.
PORTFOLIO REVIEW: AUSTRALIA AND NEW ZEALAND
In Australia and New Zealand, the Group has continued to make significant
progress, with positive progress in the portfolio and a new A$75m commitment
from Hostplus to the IP Group Hostplus Innovation Fund.
Over the course of the year the team invested a total of A$19.3m and achieved
fair value gains of A$14.6m across the portfolio.
The portfolio now stands at 14 companies in total. Selected financings and
operational milestones include:
- Canopus Networks, a company developing AI-based real time
network analytics, raised A$10m+ in December to expand into 5G, gaming and
international markets.
- Additive Assurance, which has developed AMiRIS to provide
quality assurance for additive manufacturing, announced a partnership with
Volkswagen in November.
- Alimetry, developers of a pioneering device for the diagnosis of
gastric diseases by non-invasively sensing the activity of the stomach from
the body surface, raised NZ$16m in a funding round led by Movac.
- Hysata, a company developing a new type of hydrogen
electrolyser, continue to make strong progress towards their goal of bringing
A$2/kg green hydrogen within reach; and
- RAGE Biotech and Jetra Therapeutics announced follow-on funding
rounds led by IP Group.
COVID-19 has continued to impact the Australian team and the Group's
university partners in the region, and the team have been working to support
companies and partners through these challenges. The university sector in
Australia stands to benefit from the announcement of the A$1.6bn Australia's
Economic Accelerator package by the Federal Government which will provide
significant support for commercialisation activities.
In terms of capital, the Group continues to work with Hostplus, one of
Australia's largest superannuation funds with over A$73bn in funds under
management through the A$100m IP Group Hostplus Innovation Fund. Since the
year-end, the Group announced a new commitment of A$75m (c.£40m) from
HostPlus, increasing the total commitment to A$210m (c.£110m*). The IP Group
HostPlus Innovation Fund has invested in several IP Group's portfolio
companies around the world, providing additive growth capital for companies as
they scale. These include Oxford Nanopore Technologies, WaveOptics and
Ultraleap in the UK, MOBILion Systems in the US and Canopus Networks in
Australia.
THIRD PARTY FUND MANAGEMENT: PARKWALK ADVISORS
Parkwalk, the Group's specialist EIS fund management subsidiary, now has
assets under management of £388m (2020: £350m) including funds managed in
conjunction with the universities of Oxford, Cambridge, Bristol and Imperial
College London. Parkwalk has managed the largest EIS fund (by monies raised)
in each of the last four years.
Investments were made across a range of technologies including multiple
cleantech subsectors, mobility, sensors, healthcare, med-tech, digital health,
AI and quantum software, fibre optics and materials.
Parkwalk invested £52.2m (2020: £29.7m) in the university spin-out sector
across 39 companies (2020: 35 investments). Twenty-one new companies joined
the Parkwalk portfolio, and seven exits were achieved, four for positive
returns and three for losses. This brings Parkwalk's total cumulative exit
proceeds to £95.0m (2020: £44.6m) which have been distributed to investors.
In November, Parkwalk won the Growth Investor Awards 'Most Impactful
Investment' and 'Best New Product' awards.
Over the year, Parkwalk liaised closely with BEIS and HMT on improving the
financial ecosystem for knowledge-intensive spin-out companies post-COVID-19.
The fund's strategy is aligned with the government's goal of the UK becoming a
'science superpower' and commercialising the committed increase in R&D
spend.
Within Parkwalk, and more broadly, the Group continues to explore potential
fund management opportunities.
Over the year, Parkwalk continued to see some of its larger investments mature
with larger funding rounds closing with new and existing investors.
Since the period end, Parkwalk has launched its second HMRC-approved Knowledge
Intensive EIS Fund following the successful raise of Fund I in 2021.
Portfolio review: Additional portfolio analysis
Deeptech Cleantech Life Strategic Organic and Total UK
Sciences
De minimis
Portfolio
Value of companies in the portfolio £226.3m £100.9m £414.9m £607.8m £10.4m £1,360.3m
2021 net portfolio gain/(loss) (realised and unrealised) £72.4m £30.9m £78.1m £300.7m (£4.9m) £477.2m
Number of portfolio companies(1) 34 12 36 4 n/a 86
Proceeds from holdings sold in 2021 £41.7m £2.8m £83.5m £84.6m £0.8m £213.4m
Attention:
Top 20 £137.4m £73.6m £301.5m £602.7m - £1,115.2m
Focus £56.1m £23.0m £45.0m - - £124.1m
Other £32.8m £4.3m £68.4m £5.1m - £110.6m
Organic and De minimis - - - - £10.4m £10.4m
United States Australia and New Zealand Total Net Portfolio Attributable to third party investors in Revenue Total Gross Portfolio
VF II
share
- £25.2m £1,385.5m £29.1m £13.1m £1,414.6m Value of companies in the portfolio
£7.9m £7.5m £492.6m £4.8m - £497.4m 2021 net portfolio gain/(loss) (realised and unrealised)
- 14 100 - - 100 Number of portfolio companies(1)
- - £213.4m - - £213.4m Proceeds from holdings sold in 2021
Attention:
- - £1,115.2m £7.9m £0.1m £1,123.2m Top 20
- £3.3m £127.4m £5.3m £2.8m £135.5m Focus
- £21.9m £132.5m £2.8m £2.4m £137.7m Other
- - £10.4m - £7.8m £18.2m Organic and De minimis
Financial review
David Baynes
Chief Financial and Operating Officer
"Another outstanding year of portfolio performance and realisations, with
strong contributions from across the Group in addition to the impact of the
listing of Oxford Nanopore. However total performance should also be viewed in
light of a significant weakening of technology values in the New Year,
including in Oxford Nanopore itself."
· Profit for the year of £449.3m (2020: £185.4m).
· Net assets of £1,738.1m (2020: £1,331.9m),
representing 167.0p per share (2020: 125.4p).
· Final 2020 dividend of 1pps and 2021 interim
dividend of 0.48pps.
Consolidated statement of comprehensive income
A summary analysis of the Group's financial performance is provided below:
2021 2020
£m £m
Net portfolio gains ((1)) 497.4 231.4
Change in fair value of limited and limited liability partnership interests 1.8 (3.4)
Net overheads ((2)) (19.5) (21.6)
Administrative expenses - consolidated portfolio companies (0.1) (0.4)
Loss on disposal of subsidiary (3.8) -
Administrative expenses - share-based payments charge (2.6) (2.9)
IFRS 3 charge in respect of acquisition of subsidiary - (1.2)
Carried interest plan charge (17.2) (14.3)
Net finance expense (1.4) (1.5)
Taxation (5.3) (0.7)
Profit for the year 449.3 185.4
Other comprehensive income 0.3 -
Total comprehensive income for the year 449.6 185.4
Exclude:
Share-based payment charge 2.6 2.9
IFRS charge in respect of acquisition of subsidiary - 1.2
Return on NAV(1) 452.2 189.5
(1) Defined in note 30 Alternative Performance Measures.
(2) See net overheads table below and definition in note 30 Alternative
Performance Measures.
Net portfolio gains consist primarily of realised and unrealised fair value
gains and losses from the Group's equity and debt holdings in spin-out
companies, which are analysed in detail in the portfolio review on pages 8 to
17.
Net overheads
2021 2020
£m £m
Other income 13.6 6.2
Administrative expenses - all other expenses (28.3) (24.8)
Administrative expenses - Annual Incentive Scheme (4.8) (3.0)
Net overheads (19.5) (21.6)
Year ended 31 December 2021 UK Non-UK Consolidated
£m £m £m
Other income 10.6 3.0 13.6
Administrative expenses - all other expenses (21.9) (6.4) (28.3)
Administrative expenses - Annual Incentive Scheme (3.9) (0.9) (4.8)
Net overheads (15.2) (4.3) (19.5)
Year ended 31 December 2020 UK Non-UK Consolidated
£m £m £m
Other income 5.8 0.4 6.2
Administrative expenses - all other expenses (18.7) (6.1) (24.8)
Administrative expenses - Annual Incentive Scheme (1.9) (1.1) (3.0)
Net overheads (14.8) (6.8) (21.6)
Other income
Other income comprises fund management fees, licensing and patent income from
Imperial Innovations, corporate finance fees as well as consulting and similar
fees, typically chargeable to portfolio companies for services including
executive search and selection as well as legal and administrative support. In
2021 Other income totalled £13.6m (2020: £6.2m), a 118% increase from 2020
primarily due to increased fund management revenues within Parkwalk, the
Group's EIS fund management business, which saw a successful year's
performance in 2021 and which in the previous year had been constrained by the
impact of COVID-19. Additionally; £1.8m of the increase in revenue was due to
an increase in license income from the Group's portfolio of IP from its
previous role as the Tech Transfer Office of Imperial College and £2.7m due
to performance fees in respect of third-party funds managed within our
Australian business.
Other central administrative expenses
Other central administrative expenses excluding performance-based staff
incentives and share-based payments charges, have increased to £28.3m during
the period (2020: £24.8m), primarily because of additional payroll costs and
the one-off non-cash impact of the termination of the Group's lease on its
former office at 25 Walbrook, which will be offset in future years from
savings from the new 3 Pancras Square office.
The charge of £4.8m in respect of the Group's Annual Incentive Scheme (2020:
£3.0m), reflects performance against 2021 AIS targets as described in the
Directors Remuneration Report.
Other income statement items
The share-based payments charge of £2.6m (2020: £2.9m) reflects the
accounting charge for the Group's Long-Term Incentive Plan and Deferred Bonus
Share Plan. This non-cash charge reflects the value of services received from
employees, measured by reference to the fair value of the share-based payments
at the date of award, but has no net impact on the Group's total equity or net
assets.
Included within the Group's administrative expenses are costs in respect of a
small number of other portfolio companies. Typically, the Group owns a
non-controlling interest in its portfolio companies; however, in certain
circumstances, the Group takes a controlling stake and hence consolidates the
results of a portfolio company into the Group's financial statements. The
administrative expenses included in the Group's results for such companies
primarily comprise staff costs, R&D and other operating expenses. These
represent an increasingly small number as it relates either to dormant or new
early-stage businesses with a low level of overheads.
Carried interest plan charge
The carried interest plan charge of £17.2m (2020: £14.3m) relates to the
recalculation of liabilities under the Group's long-term incentive carry
schemes ('LTICS'), which include the current UK scheme, as well as historic IP
Group and Touchstone schemes. The liabilities are calculated based upon any
excess of current fair value above cost and hurdle rate of return within each
scheme or vintage. Any payments will only be made following the full
achievement of cost and hurdle in cash and, accordingly, actual payments under
these schemes, if any, may be materially different to those set out above. As
a result of realisations at a Group level in 2021, payments of £3.5m were
made to scheme participants (2020: £0.5m).
Consolidated statement of financial position
A summary analysis of the Group's assets and liabilities is provided below:
Year ended Year ended
31 December 2021 31 December 2020
£m £m
Total portfolio 1,507.5 1,184.9
Other non-current assets 32.0 1.2
Cash and deposits 321.9 270.3
EIB debt facility (51.8) (67.3)
Other net current liabilities (6.4) 7.9
Other non-current liabilities (65.1) (65.1)
Total Equity or Net Assets ("NAV") 1,738.1 1,331.9
NAV per share 167.0p 125.4p
The composition of, and movements in, the Group's portfolio is described in
the Portfolio review on pages 8 to 17.
Total portfolio
Our total portfolio consists of equity and debt investments that we control
and consolidate directly, our 'Investment Portfolio', plus interests in LP
funds, most significantly our holding in IPG Cayman LP, our US platform, which
is now reflected within this category following its deconsolidation in
November 2021 (see further detail below).
Investment Portfolio Valuation Basis
The table above summarises the valuation basis for the Group's portfolio.
Further details on the Group's valuation policy can be found in notes 1 and
13. The Group seeks to use observable market data as the primary basis for
determining asset fair values where appropriate. Other valuation methods
include market-derived valuations adjusted to reflect considerations including
(inter alia) technical measures, financial measures and market and sales
measures; discounted cash flows and price-earnings multiples.
Year ended Year ended
31 December 2021 31 December 2020
£m £m
Quoted 662.7 83.4
Recent financing <12 months (2020: <9 months) 383.4 286.9
Recent financing >12 months (2020: >9 months) 65.6 118.1
Future market/commercial events 37.8 438.9
Adjusted recent financing price based on past performance 142.3 92.4
DCF / Revenue multiple 100.0 104.3
Debt 22.8 38.7
Investment portfolio 1,414.6 1,162.7
Top 20 Portfolio Companies by holding value
The following table lists information on the 20 most valuable portfolio
company investments, which represent 75% of the total portfolio value (2020:
69%). Detail on the performance of these companies is included in the Life
Sciences, Deeptech and Cleantech portfolio reviews.
Company name Significant named co-investors Primary valuation basis Fair value of Group holding at 31 Dec 2021
£m
Oxford Nanopore Technologies plc LSE quoted Quoted bid price 572.0
Istesso Limited Puhua Capital *DCF 85.6
Hinge Health, Inc. Atomico Advisors, Bessemer, Coatue, Insight, Lead Edge, Tiger Global Recent financing (< 12 months) 63.5
First Light Fusion Limited OSI, Hostplus, Tencent, Braavos Recent financing (< 12 months) 57.3
Featurespace Limited Highland Europe, Insight, Invoke, MissionOG, TTV Capital, Robert Sansom, *Adjusted funding 51.6
Merian Chrysalis
Ultraleap Holdings Limited Cornes, Dolby Ventures, Hostplus, Mayfair Partners Recent financing (< 12 months) * 35.5
Diurnal Group plc AIM quoted Quoted bid price 27.4
Garrison Technology Limited BGF, Dawn Capital, NM Capital *Adjusted funding 25.7
Salt Pay Co. Limited Not disclosed Recent financing (< 12 months) 24.6
Oxford Science Enterprises plc Blue Pool, Fosun Pharma, Invesco, Lansdowne, Redmine, Sequoia, Temasek, Recent financing (< 12 months) 23.3
Tencent
Ieso Digital Health Limited Morningside, Molten Ventures Recent financing (< 12 months) 21.8
Centessa Pharmaceuticals plc NASDAQ quoted Quoted bid price 21.1
Crescendo Biologics Limited Soffinova Capital, BioDiscovery 5, Millennium Pharmaceuticals, Quan Venture Upcoming financing 18.7
Funds
Artios Pharma Limited Arix Bioscience, BioDiscovery 5, SV Life Sciences, Pfizer, Merck Ventures Recent financing (< 12 months) 17.8
Oxbotica Limited Fundamental Insurance Investments, BT Technology Ventures, BGF, bp venture, Recent financing (< 12 months) 16.3
Ocado
PsiOxus Therapeutics Limited SR One, Lundbeckfond Ventures, Invesco, Sedgwick Yard *Adjusted funding 15.4
Mission Therapeutics Limited Pfizer, Roche, Sofinnova Partners, SR one Recent financing (> 12 months) 15.4
Oxular Limited Forbion, NeoMed, V-Bio Ventures Recent financing (< 12 months) 14.6
Nexeon Limited Invesco, Nortrust, SKC, Wacker Chemie Expected funding 11.3
Pulmocide Limited. Jeito capital, Adjuvant Capital, Asahi Kasei Pharma, Fidelity, F-Prime, Recent financing (< 12 months) 10.6
J&J, Longwood, SR One, SVLS
Total 1,129.5
* Third party valuation specialists used for 31 December 2021 valuation
Other Portfolio
Included within the Total portfolio in the table above are holdings in LP and
LLP funds, namely IPG Cayman LP, UCL Technology Fund LP, Apollo Therapeutics
LLP and Technikos LLP. These funds give us both economic interest and direct
investment opportunities in a portfolio of early-stage companies, as well as
relationships with high-quality institutional co-investors.
Other non-current assets/liabilities
Non-current assets relates to amounts receivable on sale of equity and debt
investments, representing deferred and contingent consideration amounts to be
received in more than one year.
Both IP Group and Touchstone Innovations plc arranged debt facilities with the
European Investment Bank (the "EIB"), total borrowings under which totalled
£51.8m at the period end (2020: £67.3m). Of these facilities, £15.4m is due
to be repaid within twelve months of the period end (2020: £15.4m). The
facility provides the Group with an additional source of long-term capital to
support the development of the portfolio.
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.
Cash and deposits
On 31 December 2021, the Group held gross cash and deposits of £321.9m (2020:
£270.3m). 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 2021, the Group had a total of £1.5m (2020: £10.3m) held in
US Dollars, £7.5m (2020: £nil) held in Euros and £0.7m (2020: £0.3m) held
in Australian Dollars.
The principal constituents of the movement in cash and deposits during the
year are summarised as follows:
Year ended Year ended
31 December 2021 31 December 2020
£m £m
Net cash generated/(used) by operating activities 10.0 (27.5)
Investments (106.7) (72.1)
Disposals 213.4 191.0
Other investing 0.3 0.4
Cash disposed via disposal of subsidiary undertaking (7.1) -
Dividends Paid (14.9) -
Purchase of treasury shares (27.2) -
Repayment of debt facility (15.4) (15.3)
Other financing activities (0.8) (1.1)
Effect of foreign exchange rate changes 0.1 -
Movement during period 51.7 75.4
Under the terms of its term loans with the EIB, the Group is required to
maintain a minimum cash balance of £30m. The Group is also required to hold
six months of debt service costs (interest and capital repayments) in a
separate bank account, which totalled £9.4m on 31 December 2021 (2020:
£8.7m).
Deconsolidation of US platform
During 2021, several changes were made to our US platform IPG Cayman LP, which
was set up in 2018 to facilitate third party investment into our US portfolio.
The most significant of these were:
· the sourcing of additional third-party funds in the first half of
2021, which reduced our holding % in the platform from 80.7% to 58.1% and
included an option to subscribe additional funds which, if exercised, would
result in IP Group holding less than 50% in the fund.
· The disposal of the US platform's fund manager, IP Group, Inc. in
November 2021.
As a result, we have concluded that we no longer control the US platform which
has therefore been deconsolidated with effect from November 2021 onwards.
Dividends and Share buy-backs
During 2021, the Group paid its maiden dividend, a final 2020 dividend of 1
pence per share, in June 2021. Of the total 2020 final dividend amount of
£10.6m, £10.0m was settled in cash, and £0.6m was settled via the issue of
scrip shares. Additionally, the Group paid an interim dividend of 0.48 pence
per share in September 2021; of the total amount of £5.1m, £4.8m was settled
in cash and £0.3m in shares. A final 2021 dividend of 0.72 pence per share
has been proposed, with the Directors proposing to offer shareholders the
opportunity to elect to receive dividends in the form of fully paid shares in
IP Group plc in lieu of cash under the Scrip Dividend Scheme. Subject to its
approval at the 2022 AGM to be held on 14 June 2022, this will be paid on 30
June 2022 to shareholders on the register on 27 May 2022. The deadline for
shareholders to take up the scrip alternative is 9 June 2022.
Within the Group's half-yearly results, we announced that the Board had
allocated a proportion of the capital received from exits in the first half of
the year towards a £20m share buy-back programme. This was extended to £35m
in September 2021 following the realisation of £84.1m at the Oxford Nanopore
IPO. The Group commenced its buyback programme on 8 October 2021 and during
the year purchased 22.3m ordinary shares with an aggregate value of £27.0m
(plus £0.2m costs). The remainder of the £35m buyback programme was
completed in early 2022.
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 directors continue
to believe that most of its holdings will qualify for the Substantial
Shareholdings Exemption ("SSE").
This exemption provides that gains arising on the disposal of qualifying
holdings are not chargeable to UK corporation tax and, as such, the Group has
continued not to recognise a provision for deferred taxation in respect of
uplifts in value on those equity holdings that meet the qualifying criteria.
Gains arising on sales of 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 is set out in note 30.
RISK MANAGEMENT
Managing risk: our framework for balancing risk and reward
A robust and effective risk management framework is essential for the Group to
achieve its strategic objectives and to ensure that the directors are able to
manage the business in a sustainable manner, which protects its employees,
partners, shareholders and other stakeholders. Ongoing consideration of, and
regular updates to, the policies intended to mitigate risk enable the
effective balancing of risk and reward.
Governance
Overall responsibility for the risk framework and definition of risk appetite
rests with the Board, who, through regular review of risks ensure, that risk
exposure is matched with an ability to achieve the Group's strategic
objectives. The IP Group Risk Council is the executive body that operates to
establish, recommend, and maintain a fit-for-purpose risk management framework
appropriate for the Group and oversees the effective application of the
framework across the business. The Risk Council is chaired by the CFOO, has
representation from operational business units as required during the year,
and is supported in its operation by PwC. Risk identification is carried out
through a bottom-up process via operational risk registers maintained by
individual teams, which are updated and reported to the Risk Council at least
bi-annually, with additional top-down input from the management team with
non-executive review being carried out by the Audit & Risk Committee at
least annually.
Risk management process
Ranking of the Group's risks is carried out by combining the financial,
strategic, operational, reputational, regulatory and employee impact of risks
and the likelihood that they may occur. Operational risks are collated into
strategic risks, which identifies key themes and emerging risks, and
ultimately informs our principal risks which are detailed in the Principal
Risk and Uncertainty section of this report. The operations of the Group, and
the implementation of its objectives and strategy, are subject to a number of
principal risks and uncertainties. Were more than one of the risks to occur
together, the overall impact on the Group may be compounded.
The design and ongoing effectiveness of the key controls over the Group's
principal risks are documented using a "risk and control matrix", which
includes an assessment of the design and operating effectiveness of the
controls in question. The key controls over the Group's identified principal
risks are reviewed as part of the Group's risk management process, by
management, the Audit & Risk Committee and the Board during the year.
However, the Group's risk management programme can only provide reasonable,
not absolute, assurance that principal risks are managed to an acceptable
level.
During 2021 we have continued to build on our existing risk management
framework, enhancing risk management and internal control processes and
working with PwC in an outsourced internal audit capacity and in doing so
supported the Board in exercising its responsibility surrounding risk
management.
The Risk Council has continued to support the Board in exercising its
responsibility surrounding risk management through its regular meetings. The
risk management activity in the year included the development of an
operational risk register for the Group's climate related risks and refreshing
the Group's existing operational, strategic, and principal risk registers and
an assessment of the strategic risks and the appropriateness of our principal
risks.
The Risk Council facilitated a "look-back" review to assess how the Group's
Crisis Response Group performed during the initial phases of the COVID-19
pandemic covering the period March 2020 - March 2021 to ensure that future
crisis response teams can benefit from lessons learned. The review assessed
that the Group had performed well, noting strengths in internal communication
and supporting employees' mental and physical wellbeing. The key
recommendation from the review was to invest additional resources into
planning for other events that could disrupt the Group's business continuity
and therefore strengthen our operational resilience. It was agreed that given
the growing external threat posed by cyber-attacks, the Risk Council would
work with management to develop detailed response plans for such an event. A
sub-group of the Executive Committee led by the Risk Council developed a
detailed cyber response plan and ransomware playbook which was adopted by the
Executive Committee in December. Plans are in place to commence the training
and testing phases of these plans in early 2022.
Other projects completed in the year included responding to the Government's
consultation "Restoring trust in audit and corporate governance: proposals
on reforms" performing a related internal controls maturity assessment and an
initial scoping exercise in preparation for the expected changes which are yet
to be announced, reviewing annual report disclosures, receiving updates on the
Group's ESG workstreams with particular emphasis on TCFD disclosures, testing
of key controls over our principal risks, monitoring key risk indicators, 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 and continued communication of key outputs of the risk management
programme to operational business heads and the wider employee Group.
Internal audit reviews were conducted over IT General Controls, Valuations and
HR processes. Additionally, the PwC internal audit cyber team have reviewed
completed control remediations originating from the 2020 cyber maturity
assessment review to confirm all areas highlighted for improvement have been
implemented to the required standard.
Priorities for 2022 include further business reviews by the internal audit
function, preparation for anticipated UK governance reform changes, delivering
training and scenario-based testing programmes for operational resilience
workstreams and continued enhancement of Group risk reporting and
communication across the business. The impact of the war in Ukraine and
subsequent humanitarian, economic and foreign policy developments in early
2022 are being reviewed by the Group and consideration is being given to how
these combined events could impact our current risks or create new risks.
Initially we consider that situation heightens our principal risks of
macro-economic risk and access to capital most acutely. The Group is actively
monitoring developments and will update our capital allocation plans as
required. Additionally, we are responding to the updated sanctions imposed by
the UK government in response to the war and ensuring we have complied with
the OFSI regime in full.
emerging risks
The Group's management and Board regularly considers emerging risks and
opportunities, both internal and external, which may affect the Group in the
near, medium, and long term. The Board considered this subject in detail at
its annual risk workshop at the Board in December and continue to consider
emerging risks throughout the year. Most notably in 2022 the conflict in
Ukraine and subsequent geopolitical uncertainty across markets and supply
chains is being monitored by the Group. Set out below are examples of some of
the potential emerging risks that are currently being monitored by management
and the Board:
Near term - Economic and geopolitical uncertainty
The Group operated against a backdrop of bullish capital markets in 2021
however there is increasing uncertainty about the macro-economic environment
as we enter 2022. Capital markets saw significant volatility and uncertainty
at the start of 2022, most notably in growth stocks. The continued record
levels of inflation, recorded at 5.4% in December 2021, is believed will lead
central banks to increase interest rates which tend to impact faster growth
businesses, such as IP Group and its portfolio companies more than other, low
growth stocks. The UK and global economies continue to be impacted by the
COVID-19 pandemic and economic recovery will depend on the emergence of new
variants, roll-out of vaccine programmes and consumer confidence. More
recently geopolitical concerns, most notably Russia's recent invasion of
Ukraine, are causing additional global market volatility.
Near term - Cyber and IT security
Cyber and IT security continue to be areas of risk for the Group and its
portfolio as we continue to invest in intellectual property-based portfolio
companies which could be targets for hackers or competitors and the regulatory
landscape which is evolving rapidly around data security and the increasing
powers of regulators to impose significant fines on companies who
inadvertently breach new legislation such as GDPR. The industry continued to
see an increase in cyber-attacks in 2021 and it is against this backdrop that
the Group continued to increase its investment in mitigating controls, staff
training and specific cyber incident response plans to support our response to
this risk area.
Medium term - climate change transition 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. (Read more about this reporting on Pg x)
Longer term - climate change technology risks
Climate change continues to be a key concern of the Group and all its
stakeholders. IP Group invests in technology which has the potential to have
positive impacts on the environment and the Group is well positioned to take
advantage of the changing preferences of governments, businesses and
individuals - see case study on IP Group Cleantech Showcase at COP26. In
addition, IP Group reported against the TCFD recommendations in monitoring
risks and opportunities to the business as presented by climate change.
Summary of principal risks and mitigants
A summary of the principal risks affecting the Group and the steps taken to
manage these is set out below. Further discussion of the Group's approach to
principal risks and uncertainties is given in the Corporate Governance
Statement and the Report of the Audit & Risk Committee, while further
disclosure of the Group's financial risk management is set out in note 2 to
the consolidated financial statements on pages 33 to 66 Following the 2021
annual review process the heatmap below describes the relative potential risks
posed by each of the Group's identified principal risks.
IP Group principal risks heatmap
5/3
Impact
1 2
7
6 4
8
Likelihood
Principal risks
1 Insufficient capital: Group
2 Insufficient capital: portfolio companies
3 Insufficient investment returns
4 Personnel risk
5 Macroeconomic conditions
6 Legislation, governance, and regulation
7 Cyber and IT security
8 Group operations including international operations
Risk appetite ratings defined:
VL Very low
Following a marginal-risk, marginal-reward approach that represents the safest
strategic route available
L Low
Seeking to integrate sufficient control and mitigation methods to accommodate
a low level of risk, though this will also limit reward potential
B Balanced
An approach which brings a high chance of success, considering the risks,
along with reasonable rewards, economic and otherwise
H High
Willing to consider bolder opportunities with higher levels of risk in
exchange for increased business payoffs
VH Very high
Pursuing high-risk, inherently uncertain options that carry with them the
potential for high-level rewards
Consideration of risk appetite:
The industry the Group operates in inherently involves accepting risk to
achieve the Group's strategic aims of creating and maintaining a pipeline of
compelling intellectual property-based opportunities, developing, and
supporting its portfolio companies into a diversified portfolio of robust
businesses and delivering attractive financial returns on those assets and
third-party funds. The Group accepts risk only as it is consistent with the
Group's purpose and strategy and where they can be appropriately managed and
offer a sufficient reward. The Board has determined its risk appetite in
relation to each of its principal risks and considered appropriate metrics to
monitor performance to ensure it remains within the defined thresholds. The
Board's assessment of risk appetite is provided in the summary of each
principal risk below.
1 It may be difficult for the Group to maintain the required level of capital
to continue to operate at optimum levels of investment activity and overheads
The Group's business has historically been reliant on capital markets,
particularly those in the UK, however the Group's business model is moving
towards self-sustainability with realisations from the portfolio funding the
Group's ongoing capital needs. The ability of the Group to raise further
capital through realisations, or potentially through equity issues or debt, is
influenced by the general economic climate and capital market conditions,
particularly in the UK.
link to strategy Actions taken by management
RISK
APPETITE
Access to sufficient levels of capital allows the Group to invest in its • The Group has significant internal capital and managed funds capital Low
investment assets, develop early-stage investment opportunities and invest in to deploy in portfolio opportunities.
its most exciting companies to ensure attractive future financial returns.
• The Group regularly forecasts cash requirements of the portfolio and
ensures all capital allocations are compliant with budgetary limits, treasury
and capital allocation policies and guidelines and transaction authorisation
controls.
• The Group ensures that minimum cash is available to maintain
sufficient headroom over debt covenants and regulatory capital requirements.
KPI development during the year
• Change in fair value of equity and debt investments • Significant proceeds from sale of equity and debt investments in the
year (£213.4m).
• Total equity ("Net Assets")
• The Group's share price continued to trade below NAV during the
• Profit/loss attributable to equity holders year. The Group launched a share buyback programme to purchase its own shares
up to an aggregate consideration of £35m and announced a maiden dividend of
1p per share.
examples of risk change from 2020
• The Group may not be able to provide the necessary capital to key Decreased
strategic assets which may affect the portfolio companies' performance or
dilute future returns of the Group.
2 It may be difficult for the Group's portfolio companies to attract
sufficient capital
The Group's portfolio companies are typically in their development or growth
phases and therefore require new capital to continue operations. While a
proportion of this capital will generally be forthcoming from the Group,
subject to capital allocation and company progress, additional third-party
capital will usually be necessary. The ability of portfolio companies to
attract further capital is influenced by their financial and operational
performance and the general economic climate and trading conditions,
particularly (for many companies) in the UK.
link to strategy Actions taken by management RISK
APPETITE
Access to sufficient levels of capital allows the Group's portfolio companies • The Group operates a corporate finance function which is experienced Low
to invest in its technology and commercial opportunities to ensure future in carrying out fundraising mandates for Life Sciences and Tech portfolio
financial returns. 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 focus companies approaching cash out.
• While Parkwalk Advisors continues to have independent investment
decision making it has been and is anticipated to continue to be an important
co-investor with the Group, supporting shared portfolio companies.
KPI development during the year
• Change in fair value of equity and debt investments • IP Group hosted seven virtual events in 2021 as part of the 20in21
programme. These included one focussed on the Australian portfolio and one on
• Total equity ("Net Assets") the US portfolio. Australia also hosted a separate showcase event, split over
two days by sector.
• Profit/loss attributable to equity holders
• Continued management of an A$100m+ trust and a new mandate taken on
in the year for an additional A$45m for an Australian Super Fund which has a
mandate to co-invest with IP Group plc portfolio companies. In the year, five
Group portfolio companies received funding from this investment vehicle. Total
funds under management at the end of the year totalled A$220m
· Parkwalk raised £79m in 2021 and had total AUM of £388m at the end of
2021.
examples of risk change from 2020
• The success of those portfolio companies which require significant No change
funding in the future may be influenced by the market's appetite for
investment in early-stage companies, which may not be sufficient.
• Failure of companies within the Group's portfolio may make it more
difficult for the Group or its spin-out companies to raise additional capital.
3 The returns and cash proceeds from the Group's early-stage companies may be
insufficient
Early-stage companies typically face a number or risks, including not being
able to secure later rounds of funding at crucial development inflection
points and not being able to source or retain appropriately skilled staff.
Other risks arise where competing technologies enter the market, technology
can be materially unproven and may ultimately fail, IP may be infringed,
copied or stolen, may be more susceptible to cybercrime and other
administrative taxation or compliance issues. These factors may lead to the
Group not realising a sufficient return on its invested capital at an
individual company or overall portfolio level.
link to strategy Actions taken by management RISK
APPETITE
Uncertain or insufficient cash returns could impact the Group's ability to • The Group's employees have significant experience in sourcing, High
deliver attractive returns to shareholders when our ability to react to developing, and growing early-stage technology companies to significant value,
portfolio company funding requirements is negatively impacted or where including use of the Group's systematic opportunity evaluation and business
budgeted cash proceeds are delayed. building methodologies within delegated board authorities.
• Members of the Group's investment partnership teams often serve as
non-executive directors or advisers to portfolio companies to help identify
and remedy critical issues promptly.
• Support on operational and legal matters is offered to minimise
failures due to common administrative factors.
• The Group has portfolio company holdings across different sectors
managed by experienced sector-specialist teams to reduce the impact of a
single company failure or sector demise.
• The Group maintains significant cash balances and seeks to employ a
capital efficient process deploying low levels of initial capital to enable
identification and mitigation of potential failures at the earliest possible
stage.
KPI development during the year
• Change in fair value of equity and debt investments • The Group's portfolio companies raised approximately £2.4bn of
capital in 2021.
• Purchase of equity and debt investments
• The Group maintained board representation on 71% of its "focus"
• Proceeds from the sale of equity investments companies by number.
• The Group hired five investment professionals across the Deeptech,
Cleantech and Life Sciences sectors in 2021.
examples of risk change from 2020
• Portfolio company failure directly impacts the Group's value and No change
profitability.
• At any time, a large proportion of the Group's portfolio may be
accounted for by very few companies which could exacerbate the impact of any
impairment or failure of one or more of these companies.
• The value of the Group's drug discovery and development portfolio
companies may be significantly impacted by a negative clinical trial result.
• Cash realisations from the Group's portfolio through trade sales and
IPOs could vary significantly from year to year.
4 The Group may lose key personnel or fail to attract and integrate new
personnel
The industry in which the Group operates is a specialised area and the Group
requires highly qualified and experienced employees. There is a risk that the
Group's employees could be approached and solicited by competitors or other
technology-based companies and organisations or could otherwise choose to
leave the Group. Scaling the team, particularly in foreign jurisdictions such
as Australia and New Zealand and Hong Kong, presents an additional potential
risk.
link to strategy Actions taken by management RISK
APPETITE
The Group's strategic objectives of developing and supporting a portfolio of • Senior team succession plans have been developed. Balanced
compelling intellectual property-based opportunities into robust businesses
capable of delivering attractive financial returns on our assets is dependent • The Group carries out regular market comparisons for staff and
on the Group's employees who work with the portfolio companies and those who executive remuneration and seeks to offer a balanced incentive package
support them. 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.
· IP Connect is the employee forum with an appointed designated
non-executive director to facilitate dialogue with Board in both directions.
Part of IP Connect's remit is also to support the evolution of the culture and
continuous improvement of working life at the Group.
KPI development during the year
• Total equity • The 'Great Resignation' was an economic trend in 2021 which saw an
increased number of employees voluntarily resign from their jobs which created
• "Net Assets" pressure in the talent acquisition market. This pressure was acutely felt for
the Group as front-office investment professionals were in particularly high
• Number of new portfolio companies demand given the recent record levels of fund raising.
• Employee engagement and diversity Continued local lock downs and new variants of COVID-19 saw continued
pressures on employees which has meant the Group continued to invest in
employee wellness during the year.
The HR team launched a formal learning and development programme for all
employees during the year.
Continued to dedicate senior team time and resources to the development of the
Group's inclusion and diversity programme, the ID Project.
• Continued high frequency of employee communications from Executive
directors, investment teams and the Head of HR. High levels of engagement from
employees noted in quarterly "pulse" surveys.
• Continued to dedicate resources to remuneration and incentivisation.
• Staff attrition was 5.3%.
• Approximately 40.3% of employees have been with the Company for at
least five years.
examples of risk change from 2020
• Loss of key executives and employees of the Group or an inability to No change
attract, retain and integrate appropriately skilled and experienced employees
could have an adverse effect on the Group's competitive advantage, business,
financial condition, operational results and future prospects
5 Macroeconomic conditions may negatively impact the Group's ability to
achieve its strategic objectives
Adverse macroeconomic conditions could reduce the opportunity to deploy
capital into opportunities or may limit the ability of such portfolio
companies to receive third party funding, develop profitable businesses or
achieve increases in value or exits. Political uncertainty, including impacts
from Brexit, COVID-19 pandemic or similar scenarios, could have a number of
potential impacts, including changes to the labour market available to the
Group for recruitment or regulatory environment in which the Group and its
portfolio companies operate.
link to strategy Actions taken by management RISK
APPETITE
The Group's strategic objectives of developing a portfolio of commercially • Senior management receive regular capital market and economic High
successful portfolio companies and delivering attractive financial returns on updates from the Group's capital markets team and its brokers.
our assets and third-party funds can be materially impacted by the current
macroeconomic environment. • Quarterly capital allocation process and on-going monitoring against
agreed budget.
• Regular oversight of upcoming capital requirements of portfolio from
both the Group and third parties.
• The Group's Risk Council conducts horizon scanning for upcoming
events which may impact the Group such as climate change.
KPI development during the year
• Change in fair value of equity and debt investments • Macroeconomic and geopolitical conditions remain uncertain in the
UK. Record levels of inflation in the UK were recorded in December (5.4%) and
• Total equity the market anticipates increased interests rates in the short term.
• "Net Assets" The UK's Brexit transition period ended in January 2021 and we await the
outcome of the UK trade negotiations with trading partners to develop new
• Profit or loss attributable to equity holders international trade agreements.
• The UK and global economy continued to be impacted by the on-going
COVID-19 pandemic in 2021. The Omicron variant, success of the vaccine
roll-out and ever-changing travel restrictions as well as widespread supply
chain issues all continue to impact the wider economy.
The Group has maintained significant cash reserves and as such is well placed
to respond to any shocks in the economy.
The Group operated against a backdrop of bullish capital markets in the first
half of the year however there was increasing uncertainty about the economic
environment in the last quarter of 2021 and significant weakening during the
first 2 months of 2022 due to rising interest rates, inflation, and
geopolitical tension.
examples of risk change from 2020
• The success of those portfolio companies which require significant No change
external funding may be influenced by the market's appetite for investment in
early-stage companies, which may not be sufficient.
• 46.8% of the Group's portfolio value 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.
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 Actions taken by management RISK
APPETITE
The Group's strategic objectives of creating and maintaining a portfolio of • University partners are incentivised to protect their IP for Low
compelling opportunities to deliver attractive returns for shareholders could exploitation as the partnership agreements share returns between universities,
be materially impacted by failure to comply with or adequately plan for a academic founders and the Group.
change in legislation, government policy or regulation.
• The Group utilises professional advisers 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 FCA regulations.
• The Group maintains D&O, professional indemnity and clinical
trial insurance policies.
KPI development during the year
• Total equity • Ongoing focus on regulatory compliance, including third party
reviews and utilisation of specialist advisers.
• "Net Assets"
• The Group responded to two government consultations in the year
which propose changes relevant to the Group's operations which were "Restoring
trust in audit and corporate governance: proposals on reforms" and the
"National Security & Investment Act".
examples of risk change from 2020
• Changes could result in universities and researchers no longer being No change
able to own, exploit or protect intellectual property on attractive terms.
• Changes to tax legislation or the nature of the Group's activities,
in particular in relation to the Substantial Shareholder Exemption, may
adversely affect the Group's tax position and accordingly its value and
operations.
• Regulatory changes or breaches could ultimately lead to withdrawal
of regulatory permissions for the Group's FCA-authorised subsidiaries,
resulting in loss of fund management contracts, reputational damage or fines.
7 The Group may be subjected to phishing and ransomware attacks, data leakage
and hacking.
This could include taking over email accounts to request or authorise
payments, GDPR breaches and access to sensitive corporate and portfolio
company data.
link to strategy Actions taken by management RISK
APPETITE
The Group's strategic objectives of creating and maintaining a portfolio of • The Group reviews its data and cyber-security processes with its Low
compelling opportunities to deliver attractive returns for shareholders could external outsourced IT providers and applies the UK Government's "ten steps"
be materially impacted by a serious cyber security breach at a corporate or framework or other national equivalents where relevant.
portfolio company level.
• Regular IT management reporting framework in place.
• Internal and third-party reviews of policies and procedures in place
to ensure appropriate framework in place to safeguard data.
• Assessment of third-party suppliers of cloud-based and on-premises
systems in use.
KPI development during the year
• Total equity • Ongoing focus on IT security and staff training, including
implementing remediations agreed from internal audit reviews and utilisation
• "Net Assets" of specialist advisers.
• Implementation of network and infrastructure security systems to
respond to emerging threats.
• Continued programme of penetration testing.
• Developed detailed cyber incident response framework and reviewed
business continuity and disaster recovery plans in the year.
• Additional, regular, bite-sized and interactive cyber security
training provided to staff to supplement formal annual cyber security training
launched in the year.
• Completion of the remaining, lower priority remediation actions from the
2020 internal audit cyber maturity review were delayed in the year as the team
acquired additional team resources to implement them to the required standard.
examples of risk change from 2020
• The Group or one or a combination of its portfolio companies could Increased
face significant fines from a data security breach.
• The Group or one of its portfolio companies could be subjected to a
phishing attack which could lead to invalid payments being authorised or a
sensitive information leak.
• A malware or ransomware attack could lead to systems becoming
non-functioning and impair the ability of the business to operate in the short
term.
8 The Group may be negatively impacted by operational issues both from a UK
central and international operations perspective
The potential for a negative impact to the Group arising from operational
issues such as business continuity and the overseas operations through
non-compliance with local laws and regulations, failure to integrate overseas
operations with the Group, an inability to foresee territory-specific risks
and macro-events. The Group may also fail to establish effective control
mechanisms, considering different working culture and environment, leading to
significant senior management time requirement, distracting from core
day-to-day business.
Actions taken by management RISK
APPETITE
link to strategy
The Group's strategy includes building a portfolio of compelling • Local legal and regulatory advisers have been engaged in the Balanced
intellectual-property based companies across the UK, US and Australia and New establishment phase of overseas operations. US and Australia and New Zealand
Zealand. The scale of the Group's operations, including internationally teams have their own in-house legal teams who regularly report to the UK-based
represents increased importance of successful execution of its operations. General Counsel.
• Business continuity plans are in place for the Group and tested
regularly.
• IP Exec and HR are involved in senior hires for new territories.
Senior international personnel include current and former UK employees,
encouraging a shared culture across territories.
•Video conferencing has temporarily replaced regular travel between the UK
and other territories to ensure the Group is aligned in its strategy and
culture. It is likely that video conferencing will continue to be used in
place of some travel post pandemic.
• The risk management framework in place across each business unit has
been established in each international territory and is integrated into the
Group's regular risk management processes and reporting.
• Third party suppliers are used for international accounting and
payroll services to reduce the risk of fraud within smaller teams.
KPI development during the year
• Total equity • Continued coordination of risk reporting across Australia, New
Zealand, Hong Kong, and USA.
• "Net Assets"
• Application for Hong Kong regulatory permissions being prepared with
specialist local advisors.
EXAMPLES OF RISK CHANGE FROM 2020
• A legal or regulatory breach could ultimately lead to the withdrawal No change
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.
Viability statement: The directors have carried out a robust assessment of the
viability of the Group over a three-year period to December 2024, considering
its strategy, its current financial position and its principal risks. The
three-year period reflects the time horizon over which the Group places a
higher degree of reliance over the forecasting assumptions used.
The strategy and associated principal risks underpin the Group's three-year
financial plan and scenario testing, which the directors review at least
annually. As a business which seeks to develop great ideas into world-changing
businesses, our business model seeks to balance cash investments, the
generation of portfolio returns and ultimately portfolio realisations. The
three-year plan is built using a bottom-up model and makes assumptions about
the level of capital deployed into, and realisations from, its portfolio of
companies, the financial performance (and valuation) of the underlying
portfolio companies, the Group's utilisation of its debt finance facility and
ability to raise further capital, the level of the Group's net overheads and
the level of dividends.
To assess the impact of the Group's principal risks on the prospects of the
Group, the plan is stress-tested by modelling several severe downside
scenarios as part of the Board's review of the principal risks of the
business. The severe downside scenarios model situations where at the end of
2022 the Group has been unable generate significant portfolio realisations and
sees a significant reduction in portfolio values, stress-testing the Group's
minimum cash and portfolio coverage covenants (see Note 18 for details of the
Group's debt covenants). These downside scenarios reflect the most likely and
potentially significant adverse impacts from COVID-19, over the three-year
period under consideration to be reduced availability of capital and a weaker
macroeconomic environment
Under these stress-testing scenarios, significant reductions to portfolio
investments are made in the following two years to preserve the Group's
remaining cash balances. In all scenarios modelled the Group remains solvent
at the end of the three-year period and no breach of EIB financial covenants
occur.
Based on this assessment, the directors have a reasonable expectation that the
Group will continue to operate and meets its liabilities, as they fall due, up
to December 2024.
STRATEGIC REPORT APPROVAL
The Strategic Report as set out above has been approved by the Board.
CONSOLIDATED FINANCIAL INFORMATION
The financial information set out below has been extracted from the Annual
Report and Accounts of IP Group plc for the year ended
31 December 2021 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 2022, and relates to
that document and not this announcement.
Each of the directors confirms to the best of their knowledge:
- The Group financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS Regulation and give a true and fair
view of the assets, liabilities, financial position and profit and loss of the
Group.
- The Annual Report and Accounts includes a fair review of the
development and performance of the business and the financial position of the
group and the parent company, together with a description or the principal
risks and uncertainties that they face.
ON BEHALF OF THE BOARD
Sir Douglas Flint Greg Smith
Chairman Chief Executive Officer
15 March 2022
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Note 2021 2020
£m £m
Portfolio return and revenue
Change in fair value of equity and debt investments 13 415.9 148.9
Gain on disposal of equity and debt investments 14 81.5 82.5
Loss on deconsolidation and disposal of subsidiary 21 (3.8) -
Change in fair value of limited and limited liability partnership interests 24 1.8 (3.4)
Revenue from services and other income 4 13.6 6.2
508.9 234.2
Administrative expenses
Carried interest plan charge 23 (17.2) (14.3)
Share-based payment charge 22 (2.6) (2.9)
Other administrative expenses 8 (33.2) (29.4)
(53.0) (46.6)
Operating profit 7 456.0 187.6
Finance income 0.4 0.9
Finance costs (1.8) (2.4)
Profit before taxation 454.6 186.1
Taxation 10 (5.3) (0.7)
Profit for the year 449.3 185.4
Other comprehensive income
Exchange differences on translating foreign operations 0.3 -
Total comprehensive profit for the year 449.6 185.4
Attributable to:
Equity holders of the parent 448.5 185.4
Non-controlling interest 25 1.1 -
449.6 185.4
Profit per share
Basic (p) 11 42.33 17.47
Diluted (p) 11 41.68 17.36
The accompanying notes form an integral part of the financial statements.
Consolidated statement of financial position
As at 31 December 2021
Note 2021 2020
£m £m
ASSETS
Non-current assets
Intangible assets:
Goodwill 0.4 0.4
Property, plant and equipment 0.3 0.8
Portfolio:
Equity investments 13 1,391.8 1,124.0
Debt investments 13 22.8 38.7
Limited and limited liability partnership interests 24 92.9 22.2
Receivable on sale of debt and equity investments 14,16 31.3 -
Total non-current assets 1,539.5 1,186.1
Current assets
Trade and other receivables 15 6.9 3.6
Receivable on sale of debt and equity investments 14,16 11.0 15.3
Deposits 2 216.2 142.7
Cash and cash equivalents 2 105.7 127.6
Total current assets 339.8 289.2
Total assets 1,879.3 1,475.3
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Called up share capital 20 21.3 21.3
Share premium account 102.4 101.6
Retained earnings 1,617.5 1,208.5
Total equity attributable to equity holders 1,741.2 1,331.4
Non-controlling interest (3.1) 0.5
Total equity 1,738.1 1,331.9
Current liabilities
Trade and other payables 17 18.7 11.0
EIB debt facility 18 15.4 15.4
Total current liabilities 34.1 26.4
Non-current liabilities
EIB debt facility 18 36.4 51.9
Carried interest plan liability 23 33.1 19.3
Deferred tax liability 10 5.8 -
Loans from limited partners of consolidated funds 18 18.7 32.9
Revenue share liability 19 13.1 12.9
Total non-current liabilities 107.1 117.0
Total liabilities 141.2 143.4
Total equity and liabilities 1,879.3 1,475.3
Registered number: 4204490
The accompanying notes form an integral part of the financial statements. The
financial statements on pages 33 to 66 were approved by the Board of Directors
and authorised for issue on 15 March 2022 and were signed on its behalf by:
Greg Smith
Chief Executive Officer
David Baynes
Chief Financial and Operating Officer
Consolidated statement of cash flows
For the year ended 31 December 2021
Note 2021 2020
£m £m
Operating activities
Operating profit for the period 456.0 187.6
Adjusted for:
Change in fair value of equity and debt investments 13 (415.9) (148.9)
Change in fair value of limited and limited liability partnership interests 24 (1.8) 3.4
Gain on disposal of equity investments 14 (81.5) (82.5)
Loss on deconsolidation of subsidiary 21 3.8 -
Depreciation of property, plant and equipment 1.6 1.4
Long term incentive carry scheme charge 23 17.2 14.3
IFRS3 charge in respect of acquisition of subsidiary - equity-settled - 2.0
Corporate finance fees settled in the form of portfolio company equity (0.5) (0.2)
Share-based payment charge 22 2.6 2.9
Changes in working capital
Carry scheme payments 23 (3.4) (0.5)
Decrease/(increase) in trade and other receivables 15 (3.0) 2.1
Increase/(decrease) in trade and other payables 17 8.8 (14.3)
Drawdowns from limited partners of consolidated funds 27.7 6.8
Other operating cash flows
Net interest paid (1.5) (1.6)
Net cash inflow/(outflow) from operating activities 10.0 (27.5)
Investing activities
Purchase of property, plant and equipment (0.2) -
Purchase of equity and debt investments 13 (103.7) (67.5)
Investment in limited and limited liability partnership funds 24 (3.0) (4.5)
Distribution from limited partnership funds 24 0.5 0.3
Cash flow to deposits (230.5) (240.2)
Cash flow from deposits 156.9 170.5
Cash disposed via deconsolidation of subsidiary 21 (7.1) -
Proceeds from sale of equity and debt investments 14 213.4 191.0
Net cash inflow from investing activities 26.3 49.6
Financing activities
Dividends paid 29 (15.0) -
Repurchase of own shares - treasury shares 20 (27.2) -
Lease principal payment (0.7) (1.1)
Repayment of EIB facility 18 (15.4) (15.3)
Net cash outflow from financing activities (58.3) (16.4)
Net (decrease)/increase in cash and cash equivalents (22.0) 5.7
Cash and cash equivalents at the beginning of the year 127.6 121.9
Effect of foreign exchange rate changes 0.1 -
Cash and cash equivalents at the end of the year 105.7 127.6
The accompanying notes form an integral part of the financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2021
Attributable to equity holders of the parent
Share Share Retained Total Non-controlling Total
capital
equity
premium((i)) earnings((ii)) £m interest((iii))
£m
£m
£m £m £m
At 1 January 2020 21.2 99.7 1,020.5 1,141.4 0.5 1,141.9
Comprehensive income - - 185.4 185.4 - 185.4
Issue of shares((iv)) 0.1 1.9 - 2.0 - 2.0
Equity-settled share-based payments - - 2.9 2.9 - 2.9
Currency translation((v)) - - (0.3) (0.3) - (0.3)
At 1 January 2021 21.3 101.6 1,208.5 1,331.4 0.5 1,331.9
Comprehensive income - - 448.2 448.2 1.1 449.3
Deconsolidation of subsidiary((vi)) - - 0.9 0.9 (4.7) (3.8)
Issue of shares((ix)) - 0.8 - 0.8 - 0.8
Purchase of treasury shares((vii)) - - (27.2) (27.2) - (27.2)
Equity-settled share-based payments - - 2.6 2.6 - 2.6
Ordinary Dividends((viii)) - - (15.8) (15.8) - (15.8)
Currency translation((v)) - - 0.3 0.3 - 0.3
At 31 December 2021 21.3 102.4 1,617.5 1,741.2 (3.1) 1,738.1
(i) Share premium - Amount subscribed for share capital
in excess of nominal value, net of directly attributable issue costs.
(ii) Retained earnings - Cumulative net gains and losses
recognised in the consolidated statement of comprehensive income net of
associated share-based payments credits.
(iii) Non-controlling interest - Share of profits
attributable to the Limited Partners of IP Venture Fund II LP and IPG Cayman
LP prior to its de-consolidation, see note 25.
(iv) Issue of Shares - Reflects issue of 3,209,139 new ordinary shares to
satisfy the final proportion of the consideration which has become due in
respect of the acquisition of Parkwalk Advisors Limited. The increase in
share capital is based on the par value of 2p per ordinary share, while the
increase in share premium is equal to 60.79p per ordinary share issued. This
issue of shares relates to costs recognised in relation to contingent
consideration payable to the sellers of Parkwalk Advisors Limited deemed under
IFRS 3 to be a payment for post-acquisition services.
(v) Currency translation - Reflects currency translation differences on
reserves non-GBP functional currency subsidiaries. Exchange differences on
translating foreign operations are presented before tax.
(vi) Deconsolidation of subsidiary - during the year IPG Cayman LP was
deconsolidated, resulting in the disposal of NCI and the recycling of £0.9m
currency translation reserve through the Income Statement. See note 21.
(vii) Ordinary Dividends - Of the £15.8m total dividend paid during the year,
£15.0m was paid in cash and £0.8m was settled via the issue of equity under
the Group's scrip programme. 679,553 such new shares were issued.
(viii) Purchase of treasury shares - Reflects the issue of 22,279,127 ordinary
shares, with an aggregate value of £27.0m, these were purchased by the
company during the period and are held in treasury. Total value including
costs was £27.2m.
The accompanying notes form an integral part of the financial statements.
Notes to the consolidated financial statements
1. Accounting policies
Basis of preparation
The Annual Report and Accounts of IP Group plc ("IP Group" or the "Company")
and its subsidiary companies (together, the "Group") are for the year ended 31
December 2021. 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 international accounting standards 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 3.
Going Concern
The financial statements are prepared on a going concern basis. The directors
have considered the impact of the of COVID-19 pandemic on the Group, and have
completed a detailed financial forecast alongside severe but plausible
scenario-based downside stress-testing, including the impact of declining
portfolio values and a reduced ability to generate portfolio realisations.
Consideration of the risks arising from the COVID-19 pandemic have been
included within this assessment.
At the balance sheet date, the Group had cash and deposits of £321.9m,
providing liquidity for in excess of two years' operating expenses, portfolio
investment and debt repayments at recent levels. Furthermore, the group has a
portfolio of investments valued at over £1.5bn, providing further
opportunities for liquidity if required. Accordingly, our forecasting
indicates that the Group has adequate resources to enable it to meet its
obligations including its debt covenants and to continue in operational
existence for at least the next 12 months from the approval date of the
accounts. For further details see the Group's viability statement on page 32.
Changes in accounting policies
(i) New standards, interpretations and amendments effective from 1 January
2021
No new standards, interpretations and amendments effective in the year have
had a material effect on the Group's financial statements.
(ii) New standards, interpretations and amendments not yet effective
No new standards, interpretations and amendments not yet effective are
expected to have a material effect on the Group's future financial statements.
Basis of consolidation
IFRS10 Investment Entity Exemption
We believe that IP Group plc does not meet the definition of an investment
entity under IFRS 10. The rationale behind this conclusion includes:
· the absence of specific exit strategies for early-stage assets
· the ability to hold investments indefinitely
· 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.
Accordingly, we have applied IFRS10 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.
The disclosures required by Section 409 of the Companies Act 2006 for
associated undertakings are included in note 11 of the Company financial
statements. Similarly, those investments which may not have qualified as an
Associate but fall within the wider scope of significant holdings and so are
subject to Section 409 disclosure acts are also included in note 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 IFRS10 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.
Further disclosures in respect of these consolidated Limited Partnership
holdings are included in Note 24.
(b) Other 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 re-categorisation as a non-consolidated fund
is set out in Note 3.
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.
At the beginning of 2021 the Group had an 8.3% interest in the total capital
commitments of Apollo Therapeutics LLP ("Apollo"), a £40.0m venture between
AstraZeneca, GlaxoSmithKline, Johnson & Johnson and the technology
transfer offices of Imperial College London, University College London and the
University of Cambridge. During the year, the portfolio of programmes
developed by the Apollo was restructured in a new portfolio company, Apollo
Therapeutics Limited, concurrent with a $145m funding round. The Group now
holds a 1.9% holding in the Apollo Therapeutics Group Limited, which was
transferred into the equity investment portfolio.
See note 28 for disclosure of outstanding commitments in respect of Limited
Partnerships.
Valuations in respect of Limited and Limited Liability Funds are based on IP
Group's share of the Net Asset Value of the fund as per the audited financial
statements prepared by the fund manager. The key judgments in the preparation
of these accounts relate to the valuation of unquoted investments. Investments
in these Limited and Limited Liability Partnerships are recognised at fair
value through profit and loss in accordance with IFRS 9.
(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, specifically 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 therefore 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 asset 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. See further
disclosure in note 25.
(vi) Business combinations
The Group accounts for business combinations using the acquisition method from
the date that control is transferred to the Group (see (ii) Subsidiaries
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.
Portfolio return and revenue
Change in fair value
Change in fair value of equity and debt investments represents revaluation
gains and losses on the Group's portfolio of investments. Gains on disposal of
equity investments represent the difference between the fair value of
consideration received and the carrying value at the start of the accounting
period on the disposal of equity investments. Change in fair value of Limited
Partnership investments represents revaluation gains and losses on the Group's
investments in Limited Partnership funds. Changes in fair values of assets do
not constitute revenue.
Revenue from services and other income
All revenue from services is generated primarily from within the United
Kingdom and is stated exclusive of value added tax, with further revenue
generated in the Group's Australian and US operations. Revenue is recognised
when the Group satisfies its performance obligations, in line with IFRS 15.
Revenue breakdown and disclosure requirements under IFRS15 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 IP licenses typically constitute separate performance obligations,
being separate from other promised goods or services. Revenue is recognised in
line with the performance obligations included in the license, which can
include sales-based, usage-based on milestone-based royalties.
Advisory and corporate finance fees
Fees earned from the provision of business support services including IP Exec
services and fees for IP Group representation on portfolio company boards are
recognised as the related services are provided. Corporate finance advisory
fees are generally earned as a fixed percentage of total funds raised and
recognised at the time the related transaction is successfully concluded. In
some instances, these fees are settled via the issue of equity in the company
receiving the corporate finance services at the same price per share as equity
issued as part the financing round to which the advisory fees apply.
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
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.
(i) At fair value through profit or loss
Held for trading and financial assets are recognised at fair value through
profit and loss. This category includes equity investments, debt investments
and investments in limited partnerships. Investments in associated
undertakings, which are held by the Group with a view to the ultimate
realisation of capital gains, are also categorised as at fair value through
profit or loss. This measurement basis is consistent with the fact that the
Group's performance in respect of investments in equity investments, limited
partnerships and associated undertakings is evaluated on a fair value basis in
accordance with an established investment strategy.
Financial assets at fair value through profit or loss are initially recognised
at fair value and any gains or losses arising from subsequent changes in fair
value are presented in profit or loss in the statement of comprehensive income
in the period which they arise.
Fair value hierarchy
The Group classifies financial assets using a fair value hierarchy that
reflects the significance of the inputs used in making the related fair value
measurements. The level in the fair value hierarchy, within which a financial
asset is classified, is determined on the basis of the lowest level input that
is significant to that asset's fair value measurement. The fair value
hierarchy has the following levels:
Level 1 - Quoted prices in active markets.
Level 2 - Inputs other than quoted prices that are observable, such as prices
from market transactions.
Level 3 - One or more inputs that are not based on observable market data.
Equity investments
Fair value is the underlying principle and is defined as "the price that would
be received to sell an asset in an orderly transaction between market
participants at the measurement date" (IPEV guidelines, December 2018).
Where the equity structure of a portfolio company involves different class
rights in a sale or liquidity event, the Group takes these different rights
into account when forming a view on the value of its investment.
Valuation techniques used
The fair value of unlisted securities is established using appropriate
valuation techniques in line with IPEV guidelines and including IPEV's special
guidance issued in March 2020 in response to COVID-19. The selection of
appropriate valuation techniques is considered on an individual basis in light
of the nature, facts and circumstances of the investment and in the expected
view of market participants. The Group selects valuation techniques which make
maximum use of market-based inputs. Techniques are applied consistently from
period to period, except where a change would result in better estimates of
fair value. 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 investments: the fair values of quoted investments are
based on bid prices in an active market at the reporting date.
• Milestone approach: an assessment is made as to whether there is
an indication of change in fair value based on a consideration of the relevant
milestones typically agreed at the time of making the investment decision.
• Scenario analysis: a forward-looking method that considers one or
more possible future scenarios. These methods include simplified scenario
analysis and relative value scenario analysis, which tie to the fully diluted
("post-money") equity value, as well as full scenario analysis vie the use of
the probability-weighted expected return method (PWERM).
• Current value method: the estimation and allocation of the equity
value to the various equity interests in a business as though the business
were to be sold on the Measurement Date.
• Discounted cash flows: deriving the value of a business by
calculating the present value of expected future cash flows.
• Multiples: the application of an appropriate multiple to a
performance measure (such as earnings or revenue) of the Investee Company in
order to derive a value for the business.
The fair value indicated by a recent transaction is used to calibrate inputs
used with valuation techniques including those noted above. At each
measurement date, an assessment is made as to whether changes or events
subsequent to the relevant transaction would imply a change in the
investment's fair value. The Price of a Recent Investment is not considered a
standalone valuation technique (see further considerations below). Where the
current fair value of an investment is unchanged from the price of a recent
financing, the group refers to the valuation basis as 'Recent Financing'.
Price of recent investment as an input in assessing fair value
The Group considers that fair value estimates which are based primarily on
observable market data will be of greater reliability than those based on
assumptions. Given the nature of the Group's investments in seed, start-up and
early-stage companies, where there are often no current and no short-term
future earnings or positive cash flows, it can be difficult to gauge the
probability and financial impact of the success or failure of development or
research activities and to make reliable cash flow forecasts. Consequently, in
many cases the most appropriate approach to fair value is a valuation
technique which is based on market data such as the price of a recent
investment, and market participant assumptions as to potential outcomes.
Calibrating such scenarios or milestones may result in a fair value equal to
price of recent investment for a limited period of time. Often qualitative
milestones provide a directional indication of the movement of fair value.
In applying a calibrated scenario or milestone approach to determine fair
value consideration is given to performance against milestones that were set
at the time of the original investment decision, as well as taking into
consideration the key market drivers of the investee company and the overall
economic environment. Factors that the Group considers include, inter alia,
technical measures such as product development phases and patent approvals,
financial measures such as cash burn rate and profitability expectations, and
market and sales measures such as testing phases, product launches and market
introduction.
Where the Group considers that there is an indication that the fair value has
changed, an estimation is made of the required amount of any adjustment from
the last price of recent investment.
Where a deterioration in value has occurred, the Group reduces the carrying
value of the investment to reflect the estimated decrease. If there is
evidence of value creation the Group may consider increasing the carrying
value of the investment; however, in the absence of additional financing
rounds or profit generation it can be difficult to determine the value that a
market participant may place on positive developments given the potential
outcome and the costs and risks to achieving that outcome and accordingly
caution is applied.
Debt investments
Debt investments are generally unquoted debt instruments which are convertible
to equity at a future point in time. Such instruments are considered to be
hybrid instruments containing a fixed rate debt host contract with an embedded
equity derivative. The Group designates the entire hybrid contract at fair
value through profit or loss on initial recognition and, accordingly, the
embedded derivative is not separated from the host contract and accounted for
separately. The price at which the debt investment was made may be a reliable
indicator of fair value at that date depending on facts and circumstances. Any
subsequent remeasurement will be recognised as changes in fair value in the
statement of comprehensive income.
Deferred and contingent consideration
Consideration in respect of the sale of debt and equity investments may
include elements of deferred consideration where payment if 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 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.
(ii) At amortised cost
These assets are non-derivative financial assets with fixed and determinable
payments that are not quoted in an active market. They arise principally
through the provision of services to customers (trade receivables) and are
carried at cost less provision for impairment.
Deposits
Deposits comprise longer-term deposits held with financial institutions with
an original maturity of greater than three months and, in line with IAS 7 are
not included within cash and cash equivalents. Cash flows related to amounts
held on deposit are presented within investing activities in the consolidated
statement of cash flows.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and short-term deposits held
with financial institutions with an original maturity of three months or less.
Financial liabilities
Current financial liabilities are composed of trade payables and other
short-term monetary liabilities, which are recognised at amortised cost.
Non-current liabilities are composed of loans from Limited Partners of
consolidated funds, outstanding amounts drawn down from a debt facility
provided by the European Investment Bank, carried interest plans liabilities,
and revenue share liabilities arising as a result of the Group's former
Technology Pipeline Agreement with University College London.
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the consolidated statement of comprehensive income over
the period of the borrowing using the effective interest rate method.
The Group consolidates the assets of a managed funds in which it has a
significant economic interest, specifically co-investment fund 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. Management
anticipates that the funds will generate the required returns and consequently
recognises the full associated liabilities.
The Group operates a number of Long Term Incentive Carry Schemes ("LTICS") for
eligible employees which may result in payments to scheme participants
relating to returns from investments. Under the Group's LTICS arrangements, a
profit-sharing mechanism exists whereby if a specific vintage delivers returns
in excess of the base cost of investments together with a hurdle rate of 8%
per annum compound, scheme participants receive a 20% share of excess returns.
The calculation of the liability in respect of the Group's LTICS is derived
from the fair value estimates for the relevant portfolio investments and does
not involve significant additional judgment (although the fair value of the
portfolio is a significant accounting estimate). The actual amounts of carried
interest paid will depend on the cash realisations of individual vintages, and
valuations may change significantly in the next financial year. Movements in
the liability are recognised in the consolidated statement of comprehensive
income. (see note 23 for further details)
The Group provides for liabilities in respect of revenue sharing obligations
arising under the former Technology Pipeline Agreement with Imperial College
London. Under this agreement, the Group received founder equity in spin out
companies from Imperial College, and following a sale of such founder equity,
a pre-specified 'revenue share' (typically 50%) is payable to Imperial College
and other third parties. The liability for this revenue share, based on fair
value, is recognised as part of the movement in fair value through profit or
loss (see note 13 for further details).
Unless otherwise indicated, the carrying amounts of the Group's financial
liabilities are a reasonable approximation to their fair value. Non-current
liabilities are recognised initially at fair value net of transaction costs
incurred, and subsequently at amortised cost.
Share capital
Financial instruments issued by the Group are treated as equity if the holders
have only a residual interest in the Group's assets after deducting all
liabilities. The objective of the Group is to manage capital so as to provide
shareholders with above- average returns through capital growth over the
medium to long-term. The Group considers its capital to comprise its share
capital, share premium, merger reserve and retained earnings.
Top Technology Ventures Limited and Parkwalk Advisors Ltd, are Group
subsidiaries which are subject to external capital requirements imposed by the
Financial Conduct Authority ("FCA") and as such must ensure that it has
sufficient capital to satisfy these requirements. The Group ensures it remains
compliant with these requirements as described in their respective financial
statements.
Employee benefits
(i) Pension obligations
The Group operates a company defined contribution pension scheme for which all
employees are eligible. The assets of the scheme are held separately from
those of the Group in independently administered funds. The Group currently
makes contributions on behalf of employees to this scheme or to employee
personal pension schemes on an individual basis. The Group has no further
payment obligations once the contributions have been paid. The contributions
are recognised as employee benefit expenses when they are due.
(ii) Share-based payments
The Group engages in equity-settled share-based payment transactions in
respect of services receivable from employees, by granting employees
conditional awards of ordinary shares subject to certain vesting conditions.
Conditional awards of shares are made pursuant to the Group's Long Term
Incentive Plan ("LTIP") awards and/or the Group's Annual Incentive Scheme
("AIS"). The fair value of the shares is estimated at the date of grant,
taking into account the terms and conditions of the award, including
market-based performance conditions.
The fair value at the date of grant is recognised as an expense over the
period that the employee provides services, generally the period between the
start of the performance period and the vesting date of the shares. The
corresponding credit is recognised in retained earnings within total equity.
The fair value of services is calculated using the market value on the date of
award and is adjusted for expected and actual levels of vesting. Where
conditional awards of shares lapse the expense recognised to date is credited
to the statement of comprehensive income in the year in which they lapse.
Where the terms for an equity-settled award are modified, and the modification
increases the total fair value of the share-based payment, or is otherwise
beneficial to the employee at the date of modification, the incremental fair
value is amortised over the vesting period.
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.
2. Financial Risk Management
As set out in the principal risks and uncertainties section on pages 22 to 32,
the Group is exposed, through its normal operations, to a number of financial
risks, the most significant of which are market, liquidity and credit risks.
In general, risk management is carried out throughout the Group under policies
approved by the Board of Directors. The following further describes the
Group's objectives, policies and processes for managing those risks and the
methods used to measure them. Further quantitative information in respect of
these risks is presented throughout these financial statements.
(a) Market risk
(i) Price risk
The Group is exposed to equity securities price risk as a result of the equity
and debt investments, and investments in Limited Partnerships held by the
Group and categorised as at fair value through profit or loss.
The Group mitigates this risk by having established investment appraisal
processes and asset monitoring procedures which are subject to overall review
by the Board. The Group has also established corporate finance and
communications teams dedicated to supporting portfolio companies with
fundraising activities and investor relations.
The Group holds investments which are publicly traded, 10 on AIM, 2 on NASDAQ,
1 on LSE (2020: 11, nil, nil) and investments which are not traded on an
active market.
The net portfolio gain in 2021 of £497.4m represents a 42.8% increase against
the opening balance (2020: gain of £231.4m, 22.1%). The table below
summarises the impact of a 1% increase/decrease in the price of both quoted
and unquoted investments on the Group's post-tax profit for the year and on
equity.
2021 2020
Quoted Unquoted Total Quoted Unquoted Total
£m £m £m £m £m £m
Equity and debt investments and investments in limited partnerships 6.6 8.4 15.0 0.8 11.0 11.8
(ii) Interest rate risk
The Group holds three EIB debt facilities with the overall balance as at 31
December 2021 amounting to £51.8m (2020: £67.3m) with £11.0m being subject
to variable rate interest (2020: £15.6m) and £40.8m (2020: £51.7m) being
subject to fixed interest rate averaging 3.1% (2020: 3.1%).
The variable rate consists of two elements. A facility of £6m which includes
a fixed element of 1.98% with an additional variable spread equal to the
six-month GBP SONIA rate as at the first date of each six-month interest
period. The average floating interest rate (including the fixed element) for
2021 was 2.14% (2020: 2.42%). The second facility of £5.0m is based on a
floating interest rate including SONIA and the average interest in the year
was 2.87% (2020: 3.14%). There are no hedging instruments in place to cover
against interest rate fluctuation as exposure is deemed insignificant. For
further details of the Group's EIB loans including covenant details see note
18.
The other primary impact of interest rate risk to the Group is the impact on
the income and operating cash flows as a result of the interest-bearing
deposits and cash and cash equivalents held by the Group.
(iii) Concentrations of risk
The Group is exposed to concentration risk via the significant majority of the
portfolio being UK-based companies and thus subject to the performance of the
UK economy. The Group is increasing its operations in the US and the
determination of the associated concentrations is determined by the number of
investment opportunities that management believes represent a good investment.
The Group mitigates this risk, in co-ordination with liquidity risk, by
managing its proportion of fixed to floating rate financial assets. The table
below summarises the interest rate profile of the Group.
2021 2020
Fixed rate Floating rate Interest free Total Fixed rate Floating rate Interest free Total
£m £m
£m £m £m £m £m £m
Financial assets
Equity investments - - 1,391.8 1,391.8 - - 1,124.0 1,124.0
Debt investments - - 22.8 22.8 - - 38.7 38.7
Limited and limited liability partnership interests - - 92.9 92.9 - - 22.2 22.2
Trade receivables - - 1.7 1.7 - - 1.5 1.5
Other receivables - - 5.2 5.2 - - 2.1 2.1
Receivable on sale of debt and equity investments - - 42.3 42.3 - - 15.3 15.3
Deposits 216.2 - - 216.2 142.7 - - 142.7
Cash and cash equivalents - 105.7 - 105.7 - 127.6 - 127.6
216.2 105.7 1556.7 1,878.6 142.7 127.6 1,203.8 1,474.1
Financial liabilities
Trade payables - - (0.6) (0.6) - - (0.8) (0.8)
Other accruals and deferred income - - (18.1) (18.1) - - (10.3) (10.4)
EIB debt facility (40.8) (11.0) - (51.8) (51.7) (15.6) - (67.3)
Carried interest plan liability - - (33.1) (33.1) - - (19.3) (19.3)
Deferred tax liability - - (5.8) (5.8) - - - -
Loans from limited partners of consolidated funds - - (18.7) (18.7) - - (32.9) (32.9)
Revenue share liability - - (13.1) (13.1) - - (12.9) (12.9)
(40.8) (11.0) (89.4) (141.2) (51.7) (15.6) (76.1) (143.4)
At 31 December 2021, if interest rates had been 1% higher/lower, post-tax
profit for the year, and other components of equity, would have been £1.4m
(2020: £1.3m) higher/lower as a result of higher interest received on
floating rate cash deposits.
(b) Liquidity risk
The Group seeks to manage liquidity risk, to ensure sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably. The Group's Treasury Management Policy asserts that at any one
point in time no more than 60% of the Group's cash and cash equivalents will
be placed in fixed-term deposits with a holding period greater than three
months. Accordingly, the Group only invests working capital in short-term
instruments issued by reputable counterparties. The Group continually monitors
rolling cash flow forecasts to ensure sufficient cash is available for
anticipated cash requirements.
(c) Credit risk
The Group's credit risk is primarily attributable to its deposits, cash and
cash equivalents, debt investments and trade receivables. The Group seeks to
mitigate its credit risk on cash and cash equivalents by making short-term
deposits with counterparties, or by investing in treasury funds with an "AA"
credit rating or above managed by institutions. Short-term deposit
counterparties are required to have most recently reported total assets in
excess of £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 2021 2020
£m £m
P1 292.3 221.3
AAAMMF(1) 20.2 43.2
Other(2) 9.4 5.8
Total deposits and cash and cash equivalents 321.9 270.3
1 The Group holds £20.2m (2020: £43.2m) with JP
Morgan GBP liquidity fund, which has a AAAMMF credit rating with Fitch.
2 The Group holds £9.4m (2020 £5.8m) 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 0.1401% (2020: 0.2173%).
The Group has no significant concentration of credit risk, with exposure
spread over a large number of counterparties and customers. The Group has
detailed policies and strategies which seek to minimise these associated risks
including defining maximum counterparty exposure limits for term deposits
based on their perceived financial strength at the commencement of the
deposit. The maximum single counterparty limit for fixed term deposits in
excess of 3 months at 31 December 2021 was the greater of 60% of total group
cash or £50.0m (2020: 25%, £50m). In addition, no single institution may
hold more than the higher of 50% of total cash and deposits or £75m. (2020:
50%, £50m)
The Group's exposure to credit risk on debt investments is managed in a
similar way to equity investment price risk, as described earlier, through the
Group's investment appraisal processes and asset monitoring procedures which
are subject to overall review by the Board. The maximum exposure to credit
risk for debt investments, receivables and other financial assets is
represented by their carrying amount.
3. Significant accounting estimates and judgements
The directors make judgements and estimates concerning the future. Estimates
and judgements are continually evaluated and are based on historical
experience and other factors, such as expectations of future events, and are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. The estimates and assumptions which have the most
significant effects on the carrying amounts of the assets and liabilities in
the financial statements are discussed below.
(i) Valuation of unquoted equity and debt investments (significant estimate)
The group's accounting policy in respect of the valuation of unquoted equity
investments is set out in note 1. In applying this policy, the key areas over
which judgment are exercised include:
• Consideration of whether a funding round is at arm's length and
therefore representative of fair value
• The relevance of the price of recent investment as an input to
fair value, which typically becomes more subjective as the time elapsed
between the recent investment date and the balance sheet date increases.
• In the case of companies with complex capital structures, the
appropriate methodology for assigning value to different classes of equity
based on their differing economic rights.
• Where using valuation methods such as discounted cash flows or
revenue multiples, the assumptions around inputs including the probability of
achieving milestones and the discount rate used, and the choice of comparable
companies used within revenue multiple analysis.
• Debt investments typically represent convertible debt, in such
cases judgment is exercised in respect of the estimated equity value received
on conversion of the loan.
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.
(ii) Application of IFRS 10 in respect of IPG Cayman LP and Istesso Limited
(significant judgment)
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 IP Group, Inc., formerly our US operating
subsidiary which employs our US team. Prior to 2021, the Group has been judged
to control both IPG Cayman LP and IP Group, Inc. under IFRS 10 and hence
consolidated both entities.
During the course of the 2021, several events took place which have 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%.
· 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, IP Group, Inc. and hence no longer controls the fund manager.
As a result of these we have concluded that IPG Inc is acting as an agent on
behalf of all investors in the Cayman LP and not just IPG plc, therefore the
Group no longer controls IPG Cayman LP, and have ceased to consolidate it from
November 2021. See note 21 for further details on the accounting impact of the
deconsolidation. Arriving at this conclusion has required the application of
judgment, most significantly in assessing the application guidance contained
in IFRS 10 B19 which suggests that in some instances a special relationship
may exist (e.g. 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 conclude that on balance the Group does not
have power over IPG Cayman LP. and hence does not control it.
In respect of Istesso Limited, although the Group has a 56.4% undiluted
economic interest in the company, the Group holds a significant proportion of
its equity via non-voting shares results in it holding less than 50% of the
voting rights at the company. Additionally, the Group does not control the
board of Istesso Limited via a majority of board directors, and has no
mechanism whereby it can do so. As a result, we conclude that the Group does
not control Istesso Limited under IFRS 10.
4. Revenue from services
Revenue from services is derived from the provision of advisory and venture
capital fund management services or from licensing activities, royalty
revenues and patent cost recoveries.
5. Operating segments
For both the year ended 31 December 2021 and the year ended 31 December 2020,
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 two
operating segments:
i. the commercialisation of intellectual property via the formation of
long-term partner relationships with universities;
ii. the management of venture capital funds focusing on early-stage UK
technology companies and the provision of corporate finance advice;
Within the University Partnerships segment, the Life Sciences, Technology,
Strategic, North American and Australia & New Zealand business units
represent discrete operating segments. In line with the quantitative
thresholds and aggregation criteria set out in IFRS 8, we have aggregated the
activities of these business units as a single reporting segment.
The economic indicators which have been assessed in determining that the
operating segments within the University Partnership reporting segment noted
above have similar economic characteristics and can therefore be aggregated
include:
· the application of a common business model across the operating
segments
· the global nature of the commercial operations of the Group's
portfolio companies
· the global nature of current and prospective shareholders and
potential acquirers of the Group's portfolio companies.
These activities are described in further detail in the strategic report.
Year ended 31 December 2021 University partnership business Venture capital fund management Consolidated
£m £m £m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments 415.9 - 415.9
Gain on disposal of equity investments 81.5 - 81.5
Loss on deconsolidation of subsidiary (3.8) - (3.8)
Change in fair value of limited and limited liability partnership interests 1.8 - 1.8
Revenue from services and other income 5.7 7.9 13.6
501.1 7.9 509.0
Administrative expenses
Carried interest plan charge (17.2) - (17.2)
Share-based payment charge (2.5) (0.1) (2.6)
Administrative expenses (28.7) (4.5) (33.2)
(48.4) (4.6) (53.0)
Operating profit 452.7 3.3 456.0
Finance income 0.4 - 0.4
Finance costs (1.8) - (1.8)
Profit before taxation 451.3 3.3 454.6
Taxation (5.3) - (5.3)
Profit for the year 446.0 3.3 449.3
STATEMENT OF FINANCIAL POSITION
Assets 1,862.1 17.2 1,879.3
Liabilities (137.4) (3.8) (141.2)
Net assets 1,724.7 13.4 1738.1
Other segment items
Capital expenditure 0.2 - 0.2
Depreciation (1.6) - (1.6)
Year ended 31 December 2021 UK Non-UK Consolidated
£m £m £m
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue 484.4 24.6 509.0
Administrative expenses (46.0) (7.0) (53.0)
Operating profit 438.4 17.6 456.0
Net interest (1.4) - (1.4)
Profit before taxation 437.0 17.6 454.6
Taxation (5.2) (0.1) (5.3)
Profit for the year 431.8 17.5 449.3
Year ended 31 December 2021 UK Non-UK Consolidated
£m £m £m
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets 336.2 3.6 339.8
Non-current assets 1,515.0 24.5 1,539.5
Current liabilities (33.8) (0.3) (34.1)
Non-current liabilities (107.1) - (107.1)
Total equity 1,710.3 27.8 1,738.1
Year ended 31 December 2020 University partnership business Venture capital fund management Consolidated
£m £m £m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments 148.9 - 148.9
Gain on disposal of equity investments 82.5 - 82.5
Loss on deconsolidation of subsidiary - - -
Change in fair value of limited and limited liability partnership interests (3.4) - (3.4)
Revenue from services and other income 1.1 5.1 6.2
229.1 5.1 234.2
Administrative expenses
Carried interest plan charge (14.3) - (14.3)
Share-based payment charge (2.9) - (2.9)
Administrative expenses (25.1) (4.3) (29.4)
Operating profit 186.8 0.8 187.6
Finance income 0.9 - 0.9
Finance costs (2.4) - (2.4)
Profit before taxation 185.3 0.8 186.1
Taxation (0.4) (0.3) (0.7)
Profit for the year 184.9 0.5 185.4
Year ended 31 December 2020 University partnership business Venture capital fund management Consolidated
£m £m £m
STATEMENT OF FINANCIAL POSITION
Assets 1,461.6 13.7 1,475.3
Liabilities (141.8) (1.6) (143.4)
Net assets 1,319.8 12.1 1,331.9
Other segment items
Capital expenditure - - -
Depreciation (1.3) (0.1) (1.4)
Year ended 31 December 2020 UK Non-UK Consolidated
£m £m £m
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue 230.8 3.4 234.2
Administrative expenses (39.1) (7.5) (46.6)
Operating profit/ (loss) 191.7 (4.1) 187.6
Net interest (1.5) - (1.5)
Profit/(loss) before taxation 190.2 (4.1) 186.1
Taxation (0.7) - (0.7)
Profit/(loss) for the year 189.5 (4.1) 185.4
Year ended 31 December 2020 UK Non-UK Consolidated
£m £m £m
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets 287.1 2.1 289.2
Non-current assets 1,099.7 86.4 1,186.1
Current liabilities (26.1) (0.3) (26.4)
Non-current liabilities (101.7) (15.3) (117.0)
Total equity 1,259.0 72.9 1,331.9
6. Auditor's remuneration
Details of the auditor's remuneration are set out below:
2021 2020(1)
£'000s £'000s
Audit fees in respect of Group and subsidiaries, audited by KPMG LLP 398 321
Interim review fee, for review performed by Group auditor KPMG LLP 55 53
Audit fees in respect of Funds, audited by KPMG LLP 108 89
Audit fees in respect of subsidiary companies, audited by Moore Northern Home 62 58
Counties Limited
Total assurance services 623 521
All other services performed by Group auditor KPMG LLP 5 9
Total non-assurance services performed by Group auditor KPMG LLP 5 9
(1 )Prior year amounts re-presented to include the audit of IPG Cayman LP
within audit fees in respect of funds, audited by KPMG LLP (previously
included within audit fees in respect of Group and subsidiaries, audited by
KPMG LLP.
The 2021 audit fee in respect of IPG Cayman LP has been pro-rated to reflects
its de-consolidation in November 2021.
7. Operating profit
Operating profit/(loss) has been arrived at after (charging) or crediting:
2021 2020
£m £m
Depreciation of tangible assets (1.6) (1.4)
Employee costs (see note 9) (22.5) (20.6)
Loss on disposal or deconsolidation of subsidiary (see note 21) (3.8) -
8. Other administrative expenses
Other administrative expenses comprise:
2021 2020
£m £m
Employee costs (see note 9) 22.5 20.6
IFRS3 charge in respect of acquisition of subsidiary(1) - 1.2
Professional Services 5.5 5.4
Consolidated portfolio company costs 0.1 0.4
Depreciation of tangible assets 1.6 1.4
Other expenses 3.5 0.4
33.2 29.4
1 Costs of £nil (2020: £1.2m) were recognised in
relation to contingent consideration payable to the sellers of Parkwalk
Advisors Limited deemed under IFRS 3 to be a payment for post-acquisition
services.
9. Employee Costs
Employee costs (including executive directors) comprise:
2021 2020
£m £m
Salaries 12.6 11.9
Defined contribution pension cost 1.0 1.0
Share-based payment charge (see note 22) 2.6 2.9
Other bonuses accrued in the year 4.8 3.4
Social security 1.4 1.3
22.4 20.5
The average monthly number of persons (including executive directors) employed
by the Group during the year was 104, all of whom were involved in management
and administration activities (2020: 103).
10. Taxation
2021 2020((i))
£m £m
Current tax
UK corporation tax on profits for the year - -
Foreign tax 0.1 0.1
0.1 0.1
Deferred tax 5.2 0.6
Total tax 5.3 0.7
(i) The 2020 deferred tax balance of £0.7m was included in 'Trade and
other payables' and in note 17 'Other accruals and Deferred income'. In the
current year deferred tax is disclosed separately in the Consolidated
statement of financial position.
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. 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:
2021 2020
£m £m
Profit before tax 454.6 186.1
Tax at the UK corporation tax rate of 19% (2020: 19%) 86.4 35.4
Expenses not deductible for tax purposes 3.3 2.8
Income not taxable (15.4) (15.7)
Amortisation on goodwill arising on consolidation 0.1 -
Non-taxable income on deconsolidation of Mobilion 0.1 -
Fair value movement on investments qualifying for SSE (79.0) (27.4)
Movement on share-based payments 0.4 0.5
Movement in tax losses arising not recognised 8.0 5.1
Rate change on foreign tax 1.4 -
Total tax charge 5.3 0.7
At 31 December 2021, deductible temporary differences and unused tax losses,
for which no deferred tax asset has been recognised, totalled £264.4m (2020:
£267.1m). An analysis is shown below:
2021 2020
Amount Deferred Amount Deferred
£m tax £m tax
£m £m
Accelerated capital allowances (0.2) (0.1) (0.3) (0.1)
Share-based payment costs and other temporary differences (25.8) (6.4) (8.7) (1.6)
Unused tax losses (238.4) (59.6) (258.1) (49.0)
(264.4) (66.1) (267.1) (50.7)
At 31 December 2021, deductible temporary differences and unused tax losses,
for which a deferred tax asset/(liability) has been recognised, totalled
£23.7m (2020: £4.0m). An analysis is shown below:
2021 2020
Amount Deferred Amount Deferred
£m tax £m tax
£m £m
Temporary timing differences 78.4 19.5 39.5 7.5
Unused tax losses (54.7) (13.7) (35.5) (6.8)
23.7 5.8 4.0 0.7
11. Earnings per share
Earnings 2021 2020
£m £m
Earnings for the purposes of basic and dilutive earnings per share 448.5 185.4
Number of shares 2021 2020
Number of shares Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings 1,059,547,189 1,061,538,297
per share
Effect of dilutive potential ordinary shares:
Options or contingently issuable shares 16,431,907 6,664,196
Weighted average number of ordinary shares for the purposes of diluted 1,075,979,096 1,068,202,493
earnings per share
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).
2021 2020
pence pence
Basic 42.33 17.47
Diluted 41.68 17.36
12. Categorisation of financial instruments
Financial assets At fair value through profit or loss Amortised cost Total
£m £m £m
At 31 December 2021
Equity investments 1,391.8 - 1,391.8
Debt investments 22.8 - 22.8
Limited and limited liability partnership interests 92.9 - 92.9
Trade and other receivables - 6.9 6.9
Receivable on sale of debt and equity investments 42.3 - 42.3
Deposits - 216.2 216.2
Cash and cash equivalents - 105.7 105.7
At 31 December 2021 1,549.8 328.8 1,878.6
At 31 December 2020
Equity investments 1,124.0 - 1,124.0
Debt investments 38.7 - 38.7
Limited and limited liability partnership interests 22.2 - 22.2
Trade and other receivables - 3.6 3.6
Receivable on sale of debt and equity investments - 15.3 15.3
Deposits - 142.7 142.7
Cash and cash equivalents - 127.6 127.6
Total 31 December 2020 1,184.9 289.2 1,474.1
All financial liabilities are categorised as other financial liabilities and
recognised at amortised cost.
In light of the credit ratings applicable to the Group's cash and cash
equivalent and deposits, (see note 2 for further details), we estimate
expected credit losses on the Group's receivables to be under £0.1m and
therefore not disclosed further (2020: 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 (2020:
all net fair value gains in the year are attributable to financial assets
designated at fair value through profit or loss on initial recognition).
All interest income is attributable to financial assets not classified as fair
value through profit and loss.
13. Equity and Debt Investments
Note 1 includes a description of the fair value hierarchy used.
Level 1 Level 3 Total £m
Equity investments in quoted spin-out companies Unquoted equity investments in spin-out companies Debt investments in unquoted spin-out companies
£m £m £m
At 1 January 2021 83.4 1,040.6 38.7 1,162.7
Investments during the year 4.8 89.7 9.2 103.7
Transaction-based reclassifications during the year - 23.8 (23.8) -
Deconsolidation of United States portfolio - (109.4) (3.3) (112.7)
Transfers from investment in Limited Partnership funds - 3.5 - 3.5
Other transfers between hierarchy levels during the year 383.2 (383.2) - -
Disposals during period (80.8) (76.7) (1.6) (159.1)
Fees settled via equity - 0.5 - 0.5
Change in revenue share((i)) - 0.1 - 0.1
Change in fair value in the year((ii)) 272.1 140.2 3.6 415.9
At 31 December 2021 662.7 729.1 22.8 1,414.6
At 1 January 2020 117.5 904.4 23.7 1,045.6
Investments during the year 6.0 38.9 22.6 67.5
Transaction-based reclassifications during the year - 4.9 (4.9) -
Other transfers between hierarchy levels during the year 0.4 3.2 (3.6) -
Disposals (80.7) (17.0) (0.9) (98.6)
Fees settled via equity - 0.2 - 0.2
Change in revenue share((i)) - (0.9) - (0.9)
Change in fair value in the year((ii)) 40.2 106.9 1.8 148.9
At 31 December 2020 83.4 1,040.6 38.7 1,162.7
(i) For description of revenue share arrangement see
description in Note 19.
(ii) The change in fair value in the year includes a gain
of £4.6m (2020: loss of £4.6m) in exchange differences on translating
foreign currency investments. The total unrealised change in fair value in
respect of Level 3 investments was a gain of £143.8m (2020: gain of
£108.7m).
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.
In terms of the valuation techniques used in arriving at our fair value
estimate, the following table provides an analysis of the portfolio by primary
valuation basis, with an associated sensitivity analysis by valuation
category. Note that in light of the onset of the COVID-19 pandemic in early
2020, we amended our analysis of recent financing transactions in 2020 to show
transactions within 9 months. In 2021, we have reverted to the using 12
months.
2021 2020
£m £m
Quoted 662.7 83.4
Recent financing <12 months (2020: <9 months) 383.4 286.9
Recent financing >12 months (2020: >9 months) 65.6 118.1
Other: Future market/commercial events 37.8 438.9
Other: Adjusted recent financing price based on past performance 142.3 92.4
Other: DCF / Revenue multiple 100.0 104.3
Debt 22.8 38.7
Investment portfolio 1,414.6 1,162.7
In addition to recent financing transactions, significant unobservable inputs
used in the fair value measurement include:
For valuations based primarily Future market/commercial events
· Financing & sale transactions, other market input or
commercial events occurring after the valuation date but which are judged to
be wholly or partially indicative of facts and circumstances in existence at
the balance sheet date
· Scenario probabilities
For valuations based primarily on adjusted recent financing price based on
past performance
· Portfolio-company specific milestone analysis
For valuations based primarily on DCF or Revenue Multiples
· Estimated clinical trial success rates
· Estimated pharmaceutical collaboration milestone and royalty
payments
· Discount factors
· Range of appropriate revenue multiples
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 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. We believe our
current valuation approach, based largely on quoted valuations and recent
financing transactions reflect market participant assessment of the ESG and
climate risks and opportunities of our portfolio.
Valuation sensitivities
The largest individual asset within the 'DCF / Revenue multiple' category
above is Istesso Limited, whose equity is valued at £82.0m as at 31 December
2021 (2020: £82.0m). The primary valuation basis for this company is a DCF
model, whose key inputs include: clinical trial & drug approval success
rates, the estimated value and structure of a potential pharmaceutical
partnership post successful Ph2b clinical trial data including quantum and
timing of milestone payments, an estimate of addressable Rheumatoid Arthritis
market for Istesso's drug and associated market share and royalty rates, and
relevant discount rates. Our estimated range for the value of the Group's
equity investment in Istesso based on this DCF model is £66m to £103m.
Other than as noted above for Istesso, for assets valued on 'other' methods in
the table above, due to the large number of inputs used in the valuation of
these assets, any range of reasonably possible alternative assumptions does
not significantly impact the fair value and hence does not require disclosure.
The table below summarises the impact of a 10% increase/decrease in the price
of unquoted investments by primary valuation basis on the Group's post-tax
profit for the year and on equity.
2021 2020
£m £m
Recent financing <12 months (2020: <9 months) 38.3 28.7
Recent financing >12 months (2020: >9 months) 6.6 11.8
Future market/commercial events 3.8 43.9
Adjusted recent financing price based on past performance 14.2 9.2
DCF / Revenue multiple 10.0 10.4
Debt 2.3 3.9
Total unquoted portfolio 75.2 107.9
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 £380.2m (2020: £0.4m). Transfers between level 1 and
level 3 would occur when a quoted investment's market becomes inactive, or the
portfolio company elects to delist. There have been no instances in the
current year (2020: no such instances).
Transfers between level 3 debt and level 3 equity occur upon conversion of
convertible debt into equity.
Change in fair value in the year 2021 2020
£m £m
Fair value gains 479.0 224.8
Fair value losses (63.1) (75.9)
415.9 148.9
The Company's interests in subsidiary undertakings are listed in note 10 to
the Company's financial statements.
14. Gain on disposal of equity investments
2021 2020
£m £m
Disposal proceeds 213.4 191.0
Movement in amounts receivable on sale of debt and equity investments 27.2 (9.9)
Carrying value of investments (159.1) (98.6)
Profit on disposal 81.5 82.5
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 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.
15. Trade and other receivables
Current assets 2021 2020
£m £m
Trade debtors 1.7 1.5
Prepayments 0.4 0.6
Right of use asset 1.2 0.8
Other receivables 3.6 0.7
6.9 3.6
The directors consider the carrying amount of trade and other receivables to
approximate their fair value. All receivables are interest free, repayable on
demand and unsecured.
16. Receivable on sale of debt and equity investments
2021 2020
£m £m
Deferred and contingent consideration (non-current) 31.3 -
Deferred and contingent consideration (current) 11.0 15.3
42.3 15.3
Deferred and contingent consideration relates to amounts receivable respect of
the sale of portfolio investments WaveOptics limited (£23.9m), Enterprise
Therapeutics Limited (£14.0m), Athenex Inc. (£4.3m) and Perpetuum Limited
(£0.2m). (2020: Enterprise Therapeutics Limited (£13.0m) and Dukosi Limited
(£2.0m)).
17. Trade and other payables
Current liabilities 2021 2020
£m £m
Trade payables 0.5 0.6
Social security expenses 1.0 0.8
Bonus accrual 3.3 2.8
Lease liability 1.3 0.9
Payable to Imperial College and other third parties under revenue share 8.4 2.1
obligations (see note 19)
Other accruals and deferred income 4.2 3.8
18.7 11.0
18. Borrowings
Current liabilities 2021 2020
£m £m
EIB debt facility 15.4 15.4
15.4 15.4
Non-current liabilities 2021 2020
£m £m
Loans drawn down from the Limited Partners of consolidated funds 18.7 32.9
EIB debt facility 36.4 51.9
55.1 84.8
Loans drawn down from the Limited Partners of consolidated funds
The loans from Limited Partners of consolidated funds are interest free and
repayable only upon the applicable funds generating sufficient returns to
repay the Limited Partners. Management anticipates that the funds will
generate the required returns and consequently recognises the full associated
liabilities. The classification of these loans as non-current reflects the
forecast timing of returns and subsequent repayment of loans, which is not
anticipated to occur within one year.
As at 31 December, loans from Limited Partners of consolidated funds comprised
loans into IP Venture Fund II LP £18.7m (2020: £17.5m) and in the prior year
into IPG Cayman LP (2020: £15.4).
EIB debt facility
The Group has a number of debt facilities with the European Investment Bank
which it has used to fund UK university spin-out companies as they develop and
mature. The terms of the facilities are summarised below:
Description Initial amount Outstanding amount Date drawn Interest rate Repayment terms Repayment commencement date
IP Group Facility, tranche 1 £15.0m £6.0m Dec 2015 Floating, linked to SONIA 5 years Jan 2019
IP Group Facility, tranche 2 £15.0m £6.0m Dec 2017 Fixed 3.016% 5 years Jan 2019
Touchstone Facility A, tranche 1 £15.0m £5.0m Jul 2013 Floating, linked to SONIA 12 years Jan 2015
Touchstone Facility A, tranche 2 £15.0m £6.7m Jul 2015 Fixed 4.235% 10 years Jan 2017
Touchstone Facility B £50.0m £28.1m Feb 2017 Fixed 3.026% 8 years Jul 2018
Total £110.0m £51.8m
Loans totalling £40.8m (2020: £51.7) are subject to fixed interest rates and
are recognised at amortised cost. The fair value of these loans as at 31
December 2021 is £43.0m (2020: £53.9m).
The IP Group loans contain covenants requiring that the ratio between the
value of the portfolio along with the value of the Group's cash net of any
outstanding liabilities, and the outstanding debt facility does not fall below
6:1. The Group must maintain that an amount of unencumbered funds freely
available to the Group set with reference to the outstanding EIB facility
which was £6m in December 2021 (2020 £15m). The Group is also required to
maintain a separate bank account which must at any date maintain a minimum
balance equal to that of all payments due to the EIB in the forthcoming six
months.
The Touchstone loans contain a debt covenant requiring that the ratio of the
total fair value of investments plus cash and qualifying liquidity to debt
should at no time fall below 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 £16.9m in December 2021 (2020 £30m). The
loan also stipulates that on any date, the aggregate of all amounts scheduled
for payment to the EIB in the following six months should be kept in a
separate bank account.
The Group closely monitors that the covenants are adhered to on an ongoing
basis and has complied with these covenants throughout the year. The Group
will continue to monitor the covenants' position against forecasts and budgets
to ensure that it operates within the prescribed limits.
The maturity profile of the borrowings including undiscounted cash flows and
fixed interest was as follows:
2021 2020
£m £m
Due within 6 months 8.3 8.5
Due 6 to 12 months 8.2 8.4
Due 1 to 5 years 38.5 51.4
Due after 5 years - 3.2
Total ((i)) 55.0 71.5
The maturity profile of the borrowings was as follows:
2021 2020
£m £m
Due within 6 months 7.7 7.7
Due 6 to 12 months 7.7 7.7
Due 1 to 5 years 36.4 48.8
Due after 5 years - 3.1
Total ((i)) 51.8 67.3
A reconciliation in the movement in debt is as follows:
2021 2020
£m £m
At 1 January 67.3 82.7
Amortisation of costs (0.1) -
Repayment of debt (15.4) (15.4)
At 31 December((i)) 51.8 67.3
(i) These are gross amounts repayable and exclude costs
of £nil (2020: £0.1m) incurred on obtaining the loans and amortised over the
life of the loans.
There were no non-cash movements in debt.
19. Revenue share liability
2021 2020
£m £m
Current liabilities: revenue share liability (note 17) 8.4 2.1
Non-current liabilities: revenue share liability (note 13) 13.1 12.9
21.5 15.0
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 licenses, patents and
equity in spin-out companies generated through IP commercialised from Imperial
College but is subject to various revenue-sharing arrangements whereby income
generated from this IP 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 licenses 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 2021, equity investments which were subject to
revenue sharing obligations totalled £13.1m (2020: £12.9m). 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 its value is crystalised on sale of the linked
portfolio equity investment.
20. Share capital
2021 2020
Issued and fully paid: Number £m Number £m
Ordinary shares of 2p each
At 1 January 1,062,353,734 21.3 1,059,144,595 21.2
Issued in respect of post-acquisition services - - 3,209,139 0.1
Issued in respect of scrip dividend 679,553 - - -
Share Capital at 31 December 1,063,033,287 - 1,062,353,734 21.3
Purchase of treasury shares (22,279,127) - - -
Outstanding At 31 December 1,040,754,160 21.3 1,062,353,734 21.3
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 the year the Company purchased 22,279,127 ordinary shares, with an
aggregate value of £27.0m, and they are held in treasury. Retained profits
have been reduced by £27.2m, being the net consideration paid for these
shares, including the expenses directly relating to the treasury share
purchase.
21 Deconsolidation and disposal of subsidiaries
Total loss on deconsolidation/disposal:
2021 2020
£m £m
Deconsolidation of IPG Cayman LP (3.0) -
IPG Cayman LP (0.8) -
Total income statement amount (3.8) -
In November the Group sold the subsidiary IP Group Inc to the local management
team for nil consideration. The net assets on disposal were £0.8m, of which
£0.6m was cash. The transaction gave rise to a £0.8m loss on disposal. No
shares were retained in IP Group inc.
During the year, the group determined that it no longer controlled IPG Cayman
LP. The rationale for IPG Cayman LP's re-categorisation as a non-consolidated
fund is set out in note 3. The impact of this change is to de-recognise the
underlying assets and liabilities of IPG Cayman LP from November 2021, and
instead recognise the Group's 58.1% share in the fund, with the following
impact on the financial statements:
IPG Cayman LP net assets de-recognised 2021
£m
Equity investments 109.4
Debt investments 3.3
Trade and other receivables 0.2
Cash and cash equivalents 6.6
Non-controlling interest (4.7)
Trade and other payables (0.6)
Loans from limited partners of consolidated funds (41.5)
Net assets de-recognised 72.7
Amounts recognised: Limited liability partnership interest as at 30 November 69.7
2021 (see note 24)
Loss on deconsolidation: (3.0)
22. Share-based payments
In 2020, the Group continued to incentivise employees through its LTIP and
AIS.
Deferred bonus share plan ("DBSP")
Awards made to employees under the Group's AIS above a certain threshold
include 50% deferred into IP Group equity through the grant of nil-cost
options under the Group's DBSP. The number of nil-cost options granted under
the Group's DBSP is determined by the share price at the vesting date. The
DBSP options are subject to further time-based vesting over two years
(typically 50% after year one and 50% after year two).
An analysis of movements in the DBSP options outstanding is as follows:
Number of Weighted-average exercise price Number of Weighted-average exercise price
options
options
2021
2020
2021 2020
At 1 January 743,489 - 462,440 -
AIS deferral shares award during the year 975,254 - 651,324 -
Exercised during the year (407,128) - (370,275) -
Forfeit during the year - - - -
At 31 December 1,311,615 - 734,489 -
Exercisable at 31 December 10,699 - 8,938 -
The options outstanding at 31 December 2021 had an exercise price of £nil
(2020: £nil) and a weighted-average remaining contractual life of 0.6 years
(2020: 0.7 years).
The weighted average share price at the date of exercise for share options
exercised in 2021 was 121.3p (2020: 63.0p).
As the 2021 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 2021.
Long-Term Incentive Plan ("LTIP")
Awards under the LTIP take the form of conditional awards of ordinary shares
of 2p each in the Group which vest over the prescribed performance period to
the extent that performance conditions have been met. The Remuneration
Committee imposes objective conditions on the vesting of awards and these take
into consideration the guidance of the Group's institutional investors from
time to time.
The 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 Hard NAV and Total
Shareholder Return ("TSR"). Both performance measures are combined into a
matrix format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the Group's
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 2020 LTIP matrix is
designed such that up to 100% of the award (prior to the application of the
underpin) will vest in full in the event of both Hard NAV increasing by 15%
per year on a cumulative basis, from 1 January 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 LTIP awards were made on 19 June 2020. The awards will ordinarily
vest on 31 March 2023, to the extent that the performance conditions have been
met. The awards are based on the performance of the Group's Hard NAV and Total
Shareholder Return ("TSR"). Both performance measures are combined into a
matrix format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the Group's
2020 Annual Report and Accounts. The total award is subject to an underpin
based on the relative performance of the Group's TSR to that of the FTSE 250
index, which can reduce the awards by up to 50%. The 2020 LTIP matrix is
designed such that up to 100% of the award (prior to the application of the
underpin) will vest in full in the event of both Hard NAV increasing by 15%
per year on a cumulative basis, from 1 January 2020 to 31 December 2022, and
TSR increasing by 15% per year on a cumulative basis from the date of award to
31 March 2023, using an industry-standard average price period at the
beginning and end of the performance period. Further, the matrix is designed
such that 30% of the award shall vest (again prior to the application of the
underpin) if the cumulative increase is 8% per annum for both measures over
their respective performance periods ("threshold performance"). A
straight-line sliding scale is applied for performance between the distinct
points on the matrix of vesting targets.
The 2019 LTIP awards were made on 26 April 2019. The awards will ordinarily
vest on 31 March 2022, to the extent that the performance conditions have been
met. The awards are based on the performance of the Group's Hard NAV and Total
Shareholder Return ("TSR"). Both performance measures are combined into a
matrix format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the Group's
2019 Annual Report and Accounts. The total award is subject to an underpin
based on the relative performance of the Group's TSR to that of the FTSE 250
index, which can reduce the awards by up to 50%. The 2019 LTIP matrix is
designed such that up to 100% of the award (prior to the application of the
underpin) will vest in full in the event of both Hard NAV increasing by 15%
per year on a cumulative basis, from 1 January 2019 to 31 December 2021, and
TSR increasing by 15% per year on a cumulative basis from the date of award to
31 March 2022, using an industry-standard average price period at the
beginning and end of the performance period. Further, the matrix is designed
such that 30% of the award shall vest (again prior to the application of the
underpin) if the cumulative increase is 8% per annum for both measures over
their respective performance periods ("threshold performance"). A
straight-line sliding scale is applied for performance between the distinct
points on the matrix of vesting targets.
The 2018 LTIP awards did not meet the threshold performance target and lapsed
on 31 March 2021.
The movement in the number of shares conditionally awarded under the LTIP is
set out below:
Number of Weighted-average exercise price Number of Weighted-average exercise price
options
options
2021
2020
2021 2020
At 1 January 18,853,309 - 15,659,755 -
Lapsed during the year (4,753,071) - (4,372,492) -
Forfeited during the year (1,790,049) - (357,136) -
Notionally awarded during the year 4,803,442 - 7,923,182 -
At 31 December 17,113,631 - 18,853,309 -
Exercisable at 31 December - - - -
The options outstanding at 31 December 2021 had an exercise price in the range
of £nil (2020: £nil) and a weighted-average remaining contractual life of
1.1 years (2020: 1.4 years).
The fair value of LTIP shares notionally awarded during the year was
calculated using Monte Carlo pricing models with the following key
assumptions:
2021 2020
Share price at date of award £1.254 £0.614
Exercise price £nil £nil
Fair value at grant date £0.35 £0.20
Expected volatility (median of historical 50-day moving average) 39% 38%
Expected life (years) 3.0 3.0
Expected dividend yield 0% 0%
Risk-free interest rate 0.3% (0.1%)
Former Touchstone LTIP
In 2017, as a result of the combination with Touchstone, award holders under
existing Touchstone long term incentive share schemes were entitled to receive
2.2178 new IP Group shares in exchange for each Touchstone share, an exchange
ratio set out in the offer document for the acquisition (the "exchange
ratio").
2016 schemes:
It was proposed that, given the short period of time since grant, awards would
not become exercisable in connection with the Offer and therefore that no
progress towards meeting performance targets had been made. Instead award
holders were offered the opportunity to release their awards in exchange for
the grant of a replacement award of equivalent value over shares in IP Group
and the exercise price was set at 3.33 pence divided by the exchange ratio.
The vesting dates on the replacement awards remained the same as the original
award, being 1 December 2020, 1 December 2021 and 1 December 2022. The
replacement awards are subject to performance conditions adjusted from those
attaching to the original Touchstone award as follows: a) the Net Asset Value
("NAV") condition will be adjusted to reflect Touchstone's portfolio being
part of the enlarged group following the acquisition and b) the Total
Shareholder Return ("TSR") condition will be adjusted so that TSR shall be
measured by reference to the performance of IP Group shares over the
performance period with the starting share price for such purpose being
adjusted by dividing the existing starting share price of 290 pence by the
exchange ratio detailed above. The TTO specific targets remain the same.
Number of Weighted-average exercise price Number of Weighted-average exercise price
options
options
2021
2020
2021 2020
At 1 January 386,794 0.01 740,056 0.01
Forfeited during the year - 0.01 (54,452) 0.01
Lapsed during the year (258,958) 0.01 (267,105) 0.01
Vested during the year (25,803) 0.01 (31,705) 0.01
At 31 December 102,033 0.01 386,794 0.01
Exercisable at 31 December - - - -
The options outstanding at 31 December 2021 had an exercise price of 1.366p
(2020: 1.366p) and a weighted-average remaining contractual life of 0.9 years
(2020: 1.2 years).
2006 schemes:
Holders of 2006 Touchstone awards were offered the opportunity to release each
of their awards in exchange for the grant of a replacement award of equivalent
value over shares in IP Group. The exercise period and time-based vesting
provisions for the replacement awards remained the same as the original
Touchstone awards but the shareholder return performance condition will be
updated by reference to the exchange ratio. Awards under the 2006 scheme were
exercisable to some extent at the time of the grant of replacement awards,
subject to meeting the applicable vesting conditions.
Number of Weighted-average exercise price Number of Weighted-average exercise price
options
options
2021
2020
2021 2020
At 1 January 1,078,099 2.13 1,078,099 2.13
At 31 December 1,078,099 2.13 1,078,099 2.13
Exercisable at 31 December 1,078,099 2.13 1,078,099 2.13
The options outstanding at 31 December 2021 had an exercise price of £2.13
(2020: £2.13) and a weighted-average remaining contractual life of 2.9 years
(2020: 3.9 years).
The fair value charge recognised in the statement of comprehensive income
during the year in respect of all share-based payments, including the DBSP,
LTIP and Former Touchstone LTIP, was £2.6m (2020: £2.9m).
23. Long-Term incentive carry scheme - Carried interest plan liability
2021 2020
£m £m
At 1 January 19.3 5.5
Charge for the year 17.2 14.3
Payments made in the year (3.4) (0.5)
At 31 December 33.1 19.3
The carry scheme accrual is the combined total of the following carry schemes:
2021 2020
£m £m
IP Group historic scheme 16.6 10.7
IP Group current scheme 6.8 2.4
Touchstone scheme 9.7 6.2
At 31 December 33.1 19.3
The IP Group historic carry scheme was in place between the creation of the
scheme in 2011 and January 2018. Portfolio companies were allocated to carry
vintages based on the date of IP Group's first investment into each company,
and follow-on investments into companies all fell within the same carry
vintage. Within this scheme there were vintages for years 2011-2013, 2014-2015
and 2016-2017.
The IP Group current carry scheme started from February 2018 and is the scheme
still in place at the reporting date. Under this scheme, the individual
investments made by IP Group are allocated to carry vintages based on the date
of each investment, and so investments within one portfolio company can fall
within several different vintages. Within this scheme there are vintages
2018-2020 and 2021-2023.
The Touchstone carry scheme was operated by Touchstone Innovations plc prior
to its acquisition by IP Group plc in October 2017. Investments within this
scheme relate to the former Touchstone companies, several of which fall within
the IP Group current scheme as well.
See accounting policies note 1 for further details on the on the Group's Long
Term Incentive Carry Scheme.
24. Limited and limited liability partnership interests
£m
At 1 January 2020 21.4
Investments during the year 4.5
Distributions in the year (0.3)
Change in fair value during the year (3.4)
At 1 January 2021 22.2
Investments during the year 3.0
Distribution from limited partnership funds (0.5)
Transfer to equity investments (3.5)
Recognition of interest in IPG Cayman LP following deconsolidation (see notes 69.7
3 and 21)
Change in fair value during the year 1.8
At 31 December 2021 92.9
The Group considers interests in limited and limited liability partnerships to
be level 3 in the fair value hierarchy throughout the current and previous
financial years. If the assumptions used in the valuation techniques for the
Group's holding in each company are varied by using a range of possible
alternatives, there is no material difference to the carrying value of the
respective spin-out company. The effect on the consolidated statement of
comprehensive income for the period is also not expected to be material
Limited and limited liability partnership interests carrying values
2021 2020
£m £m
Apollo Therapeutics LLP - 2.8
Technikos LLP 2.6 2.1
UCL Technology Fund LP 17.7 17.3
IPG Cayman LP 72.6 -
At 31 December 92.9 22.2
See note 1 for the valuation policy in respect of limited and limited
liability partnership interests.
25. Non-Controlling interests
As described in Note 1, IP Venture Fund II LP is deemed to be controlled by IP
Group and is accordingly consolidated in the group financial statements. IP
Group has a 33.3% holding in the fund (2020: 33.3%).
The following is summarised financial information for IP Group, prepared in
accordance with IFRS. The information is before inter-company eliminations
with other companies in the Group.
IP Venture Fund II LP
2021 2020
£m £m
Loss for the year (2.4) (3.0)
Loss attributable to NCI (1.6) (2.0)
Current assets 0.1 0.1
Non-current assets 24.0 24.4
Current liabilities (0.6) (0.3)
Non-current liabilities (28.1) (26.4)
Net liabilities (4.6) (2.2)
Net liabilities attributable to NCI (3.1) (1.5)
Cash flows from operating activities 1.4 0.5
Cash flows from investing activities (1.4) (1.1)
Cash flows from financing activities - -
Net increase in cash and cash equivalents - (0.6)
NCI balance sheet amounts:
2021 2020
£m £m
IP Venture Fund II LP as per above (3.1) (1.5)
IPG Cayman LP - 2.0
Balance at 31 December (3.1) 0.5
NCI income statement amounts:
2021 2020
£m £m
IP Venture Fund II LP (1.6) (2.0)
IPG Cayman LP 2.7 2.0
Total income statement amount 1.1 -
26. Related party transactions
The Group has various related parties arising from its key management,
subsidiaries, 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 2021:
Director/ PDMR Company name Number of Number of shares acquired/ (disposed of) in the period Number of %
shares held at shares held at
1 January 31 December 2021
2021
Greg Smith Alesi Surgical Limited 2 - 2 <0.1%
Crysalin Limited 149 - 149 <0.1%
Deepverge plc (1,2,4) 725 - 725 <0.1%
Ditto AI Limited 144,246 - 144,246 <0.1%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 4 - 4 0.23%
Istesso Limited - A Shares 313,425 - 313,425 0.28%
Itaconix plc 4,500 - 4,500 <0.1%
Perachem Holdings plc (1,6) 4,830 (4,830) - 0.0%
Mirriad Advertising plc 16,667 - 16,667 <0.1%
Oxbotica Limited 8 - 8 <0.1%
Oxford Nanopore Technologies plc (5) 1,600 25,408 27,008 <0.1%
Surrey Nanosystems Limited 88 - 88 <0.1%
Tissue Regenix Group plc 50,000 - 50,000 <0.1%
Xeros Technology Group plc (3) 13 - 13 <0.1%
David Baynes Alesi Surgical Limited 4 - 4 <0.1%
Arkivum Limited 377 - 377 <0.1%
Creavo Medical Technologies Limited 46 - 46 <0.1%
Diurnal Group plc 73,000 - 73,000 <0.1%
Mirriad Advertising plc 16,667 - 16,667 <0.1%
Oxford Nanopore Technologies plc (5) 174 2,610 2,784 <0.1%
Ultraleap Holdings Limited 2,600 - 2,600 <0.1%
Zeetta Networks Limited 424 - 424 0.11%
Mark Reilly Actual Experience plc 65,500 (37,500) 28,000 <0.1%
Bramble Energy Limited 16 - 16 <0.1%
Diurnal Group plc 7,500 - 7,500 <0.1%
Itaconix plc 377,358 - 377,358 <0.1%
Mirriad Advertising plc 66,666 - 66,666 <0.1%
Oxbotica Limited 8 - 8 <0.1%
Ultraleap Holdings Limited 1,700 - 1,700 <0.1%
WaveOptics Limited (1) 308 (308) - 0.0%
Sam Williams Accelercomm Limited 127 - 127 <0.1%
Alesi Surgical Limited 1 - 1 <0.1%
Creavo Medical Technologies Limited 23 - 23 <0.1%
Diurnal Group plc 85,248 28,571 113,819 <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 8.89%
Microbiotica Limited 7,000 - 7,000 <0.1%
Mirriad Advertising plc 3,333 - 3,333 <0.1%
Oxbotica Limited 3 - 3 <0.1%
Oxehealth Limited 27 6 33 <0.1%
Oxford Nanopore Technologies plc (5) 785 17,755 18,540 <0.1%
Topivert Limited 1,000 - 1,000 <0.1%
Ultraleap Holdings Limited 558 - 558 <0.1%
Joyce Xie Bramble Energy Limited 88 - 88 <0.1%
Creavo Medical Technologies Limited 21 - 21 <0.1%
Istesso Limited 4,504 - 4,504 <0.1%
Mirriad Advertising plc 4,839 - 4,839 <0.1%
Ultraleap Holdings Limited 1,585 - 1,585 <0.1%
WaveOptics Limited (1) 462 (462) - 0.0%
Lisa Patel Alesi Surgical Limited 1 - 1 <0.1%
Creavo Medical Technologies Limited 23 - 23 <0.1%
Diurnal Group plc 37,500 - 37,500 <0.1%
Istesso Limited 3,477,833 - 3,477,833 4.39%
Microbiotica Limited 3,000 - 3,000 <0.1%
Mirriad Advertising plc 3,333 - 3,333 <0.1%
Oxford Nanopore Technologies plc (5) 340 9,113 9,453 <0.1%
Topivert Limited 1,000 - 1,000 <0.1%
Ultraleap Holdings Limited 1,317 - 1,317 <0.1%
Elizabeth Vaughan-Adams Amaethon Limited - Ordinary Shares 2 - 2 <0.1%
Amaethon Limited - A Ordinary Shares 8 - 8 <0.1%
Amaethon Limited - B Shares 929 - 929 <0.1%
Creavo Medical Technologies Limited 23 - 23 <0.1%
Crysalin Limited 100 - 100 <0.1%
Deep Matter Group plc 82,393 - 82,393 <0.1%
Deepverge plc (1,2,4) 1,078 - 1,078 <0.1%
Ditto AI Limited 758,185 1,500,000 2,258,185 <0.1%
Diurnal Group plc 4,844 - 4,844 <0.1%
Emdot Limited 3 - 3 <0.1%
First Light Fusion Limited 77 - 77 <0.1%
Istesso Limited - A Shares 218,448 - 218,448 0.19%
Mirriad Advertising plc 4,941 - 4,941 <0.1%
Oxford Nanopore Technologies plc (5) 200 4,300 4,500 <0.1%
Perachem Holdings plc (1,6) 14,285 (14,285) - 0.00%
Surrey Nanosystems Limited 53 - 53 <0.1%
Tissue Regenix Group plc 75,599 - 75,599 <0.1%
Ultraleap Holdings Limited 400 - 400 <0.1%
Angela Leach Amaethon Limited - Ordinary Shares 2 - 2 <0.1%
Amaethon Limited - B Shares 1,394 - 1,394 <0.1%
Amaethon Limited - A Ordinary Shares 12 - 12 <0.1%
Alesi Surigcal Limited 2 - 2 <0.1%
Boxarr Limited 102 - 102 <0.1%
Bramble Energy Limited 8 - 8 <0.1%
Creavo Medical Technologies Limited 23 - 23 <0.1%
Crysalin Limited 149 - 149 <0.1%
Deep Matter Group plc 68,101 - 68,101 <0.1%
Deepverge plc (1,2,4) 1,557 - 1,557 <0.1%
Ditto AI Limited 180,308 - 180,308 <0.1%
Diurnal Group plc 11,500 - 11,500 <0.1%
Emdot Limited 4 - 4 0.23%
First Light Fusion Limited 27 - 27 <0.1%
Ieso Digital Health Limited - B2 Preferred Shares - 29 29 <0.1%
Istesso Limited - A Shares 322,923 - 322,923 0.29%
Itaconix plc 4,500 - 4,500 <0.1%
Mixergy Limited - 206 206 0.03%
Mirriad Advertising plc 16,667 - 16,667 <0.1%
Oxbotica Limited 3 - 3 <0.1%
Oxford Nanopore Technologies plc (5) 1,795 36,085 37,880 <0.1%
Surrey Nanosystems Limited 78 - 78 <0.1%
Tissue Regenix Group plc 146,791 - 146,791 <0.1%
Ultraleap Holdings Limited 500 - 500 <0.1%
Xeros Technology Group plc 16 - 16 <0.1%
Anthony York No holdings in IP Group portfolio companies
Individuals who became key management personnel on 6(th) October 2021
Key management personnel Company name Number of shares held at 6(th) October 2021 Number of shares acquired/(disposed) in the period Number of shares held at 31(st) December 2021 %
Chris Glasson 8Power Limited 400 - 400 <0.1%
Audioscenic Limited 967 - 967 <0.1%
Creavo Medical Technologies Limited 105 - 105 <0.1%
Istesso Limited 9,009 - 9,009 <0.1%
Mirriad Advertising plc 8,064 - 8,064 <0.1%
Oxbotica Limited 34 - 34 <0.1%
Oxehealth Limited 328 - 328 <0.1%
Topivert Limited - B2 Preferred Shares 3,000 - 3,000 <0.1%
Ultraleap Holdings Limited 1,585 - 1585 <0.1%
Moray Wright Mirriad Advertising plc 73,664 - 73,664 <0.1%
OxSyBio Limited 20 - 20 <0.1%
Individuals who ceased to be key management personnel on 6(th) October 2021
Key management personnel Company name Number of shares held at 1(st) January 2021 Number of shares acquired/(disposed) in the period Number of shares held at 6(th) October 2021 %
Alan Aubrey Accelercomm Limited 638 - 638 0.12%
Alesi Surgical Limited 18 - 18 <0.1%
Amaethon Limited - A Ordinary Shares 104 - 104 3.12%
Amaethon Limited - B Shares 11,966 - 11,966 1.04%
Amaethon Limited - Ordinary shares 21 - 21 0.32%
Boxarr Limited 1,732 - 1,732 0.24%
Crysalin Limited 1,447 - 1,447 0.14%
Deep Matter Group plc 1,425,000 - 1,425,000 0.15%
Deepverge plc (1,2,4) 51,927 - 51,927 0.42%
Ditto AI Limited - Ordinary Shares 1,097,912,028 823,794,068 1,921,706,096 13.62%
Ditto AI Limited - B Shares 98,876,568 - 98,876,568 0.70%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 15 - 15 0.87%
Istesso Limited - A Shares 1,185,150 - 1,185,150 1.05%
Itaconix plc 88,890 - 88,890 <0.1%
Karus Therapeutics Limited 223 - 223 <0.1%
Microbiotica Limited 10,000 - 10,000 <0.1%
Mirriad Advertising plc 33,333 - 33,333 <0.1%
Oxbotica Limited 29 - 29 <0.1%
Oxford Advanced Surfaces Limited 1 - 1 <0.1%
Oxford Nanopore Technologies plc (5) 92,725 1,390,875 1,483,600 0.18%
Perachem Holdings plc (1,6) 108,350 (108,350) - 0%
Salunda Limited 53,639 - 53,639 <0.1%
Surrey Nanosystems Limited 453 - 453 0.22%
Tissue Regenix Group plc 12,174,859 - 12,174,859 0.17%
Xeros Technology Group plc 228 - 228 <0.1%
Zeetta Networks Limited 424 - 424 0.11%
Mike Townend Amaethon Limited - A Ordinary Shares 104 - 104 3.12%
Amaethon Limited - B Shares 11,966 - 11,966 1.04%
Amaethon Limited - Ordinary shares 21 - 21 0.32%
Applied Graphene Materials plc 22,619 - 22,619 <0.1%
Creavo Medical Technologies Limited 117 - 117 <0.1%
Crysalin Limited 1,286 - 1,286 0.13%
Deep Matter Group plc 932,944 - 932,944 0.10%
Deepverge plc (1,2,4) 66,549 (66,549) - 0.00%
Ditto AI Limited 613,048 - 613,048 <0.1%
Diurnal Group plc 15,000 - 15,000 <0.1%
EmDot Limited 14 - 14 0.81%
Istesso Limited - A Shares 1,185,150 - 1,185,150 1.05%
Itaconix plc 64,940 - 64,940 <0.1%
Mirriad Advertising plc 25,000 - 25,000 <0.1%
Oxbotica Limited 26 - 26 <0.1%
Oxford Advanced Surfaces Limited 1 - 1 <0.1%
Oxford Nanopore Technologies plc (5) 28,651 435,349 464,000 <0.1%
Perachem Holdings plc (1,6) 113,222 (113,222) - 0.00%
Surrey Nanosystems Limited 404 - 404 0.19%
Tissue Regenix Group plc 11,550,862 - 11,550,862 0.14%
Ultraleap Holdings Limited 1,224 - 1,224 <0.1%
Xeros Technology Group plc 355 - 355 <0.1%
1 No longer a portfolio company at the balance sheet
date.
2 Deepverge plc acquired Modern Water plc. Shares
were issued 10:1, Modern Water plc : Deepverge plc. Deepverge plc opening
position restated post acquisition of Modern Water plc.
3 Xeros Technology Group plc opening position
restated following 100:1 share consolidation.
4 Disclosed number reflects position at the point
that the company ceased to be an IP Group holding.
5 Oxford Nanopore Technologies plc underwent a 1:20
share split and reorganisation pre-IPO in September 2021
6. Perachem Holdings plc was liquidated in August 2021
ii) Key management personnel compensation
Key management personnel compensation comprised the following:
2021 2020
£000 £000
Short-term employee benefits((i)) 4,016 3,206
Post-employment benefits((ii)) 72 65
Other long-term benefits - -
Termination benefits - -
Share-based payments((iii)) 1,325 1,515
Total 5,413 4,786
((i)) Represents key management personnel's base
salaries, benefits including cash in lieu of pension where relevant, and the
cash-settled element of the Annual Incentive Scheme.
((ii)) Represents employer contributions to defined
contribution pension and life assurance plans
((iii)) Represents the accounting charge for
share-based payments, reflecting LTIP and DBSP options currently in issue as
part of these schemes. See note 22 for a detailed description of these
schemes.
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 arms-length transactions. The following amounts have
been included in respect of these fees:
Statement of comprehensive income 2021 2020
£m £m
Revenue from services 0.3 0.2
Statement of financial position 2021 2020
£m £m
Trade receivables 0.2 0.3
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 2021 2020
£m £m
Net portfolio gains 56.5 20.9
Statement of financial position 2021 2020
£m £m
Equity and debt investments 444.6 500.8
c) Subsidiary companies
Subsidiary companies that are not 100% owned either directly or indirectly by
the parent Company have intercompany balances with other Group companies
totalling as follows:
2021 2020
£m £m
Intercompany balances with other Group companies 2.4 2.6
These intercompany balances represent funding loans provided by Group
companies that are interest free, repayable on demand and unsecured.
27. Capital management
The Group's key objective when managing capital is to safeguard the Group's
ability to continue as a going concern so that it can continue to provide
returns for shareholders and benefits for other stakeholders.
The Group sets the amount of capital in proportion to risk. The Group manages
the capital structure, and makes adjustments to it, in light of changes in
economic conditions and the risk characteristics of its underlying assets. In
order to maintain or adjust the capital structure, the Group may adjust the
amount of issued new shares or dispose of interests in more mature portfolio
companies.
During 2021, the Group's strategy, which was unchanged from 2020, was to
maintain healthy cash and short-term deposit balances that enable it to
provide capital to all portfolio companies, as determined by the Group's
investment committees, whilst having sufficient cash reserves to meet all
working capital requirements in the foreseeable future.
The Group has an external debt facility with associated covenants that are
described in note 18.
28. Capital commitments
Commitments to limited partnerships
Pursuant to the terms of their limited partnership agreements, the Group has
committed to invest the following amounts into limited partnerships as at 31
December 2021:
Year of commencement of commitment Commitment £m Invested to date £m Remaining commitment £m
IP Venture Fund II LP 2013 10.0 8.2 1.8
UCL Technology Fund LP 2016 24.8 20.7 4.1
IP Cayman LP 2021 7.5 4.7 2.8
Total 42.3 33.6 8.7
29. Dividends
2021 pence per share £m 2020 pence per share £m
Ordinary shares
Interim dividend 0.48 5.1 - -
Final dividend 1.0 10.7 - -
Dividends paid to equity owners in the financial year 1.48 15.8 - -
Proposed final dividend at financial year end 0.72 7.5
Of the £15.8m dividends paid on 2021, £15.0m was settled in cash and £0.8m
was settled via the issue of equity under the Group's scrip programme (2020:
nil, nil).
The proposed final dividend was approved by the Board of Directors on 8 March
2022 and is subject to the approval of shareholders at the 2022 AGM to be held
on 14 June 2022. The proposed dividend has not been included as a liability as
at 31 December 2021, in accordance with IAS 10 'Events after the reporting
period'. It will be paid on 30 June 2022 to shareholders who are on the
Register of members at close of business on 27 May 2022.
2021 pence per share £m 2020 pence per share £m
Ordinary shares
Interim dividend 0.48 5.1 - -
Final dividend 1.0 10.7 - -
30. 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 Definition and purpose 2021 £m 2020 £m
reconciliation
NAV per share((i)) Primary Statements, note 20 NAV per share is defined as Net Assets divided by the number of outstanding NAV £1,738.1m £1,331.9m
shares in issue.
The measure shows net assets managed on behalf of shareholders by the Group
per share in issue. It is a useful measure to compare to the Group's share
price.
Outstanding Shares 1,040,754,160 1,062,353,734
NAV 167.0p 125.3p
per share
Return on NAV Primary statements Return on NAV is defined as the total Total comprehensive income 449.6 185.4
note 4 comprehensive income or loss for the year
excluding charges which do not impact on
Net Assets, specifically amortisation of intangible
assets, share-based payment charges and the
charge in respect of consideration deemed to
represent post-acquisition services under IFRS 3
which is anticipated to be a non-recurring item.
Return on NAV is defined as the total
comprehensive income or loss for the year
excluding charges which do not impact on
NAV, specifically amortisation of intangible
assets, share-based payment charges and the
charge in respect of consideration deemed to
represent post-acquisition services under IFRS 3.
The measure shows a summary of the income
statement gains and losses which directly impact
NAV.
Excluding:
Share based payment charge 2.6 2.9
IFRS3 charge in respect of acquisition of subsidiary - 1.2
Return on 452.2 189.5
NAV
Net portfolio gains note 13, 14, 21 Net portfolio gains are defined as the movement in the value of holdings in Change in fair value of equity and debt investments 415.9 148.9
the portfolio due to share price movements or impairments in value, gains or
losses on realisation of investments and gains or losses on disposals of
subsidiaries.
The measure shows a summary of the income statement gains and losses which are
directly attributable to the portfolio, which is a headline measure for the
Group's performance. This is a key driver of the Return on NAV which is a
performance metric for directors' and employees' incentives.
Gain on disposal of equity investments 81.5 82.5
Net portfolio gains 497.4 231.4
Total Portfolio Consolidated statement of financial position Total portfolio is defined as equity and debt investments that we control and Equity investments 1,391.8 1,124.0
consolidate directly, our 'Investment Portfolio', plus interests in LP funds,
note 13,24 most significantly our holding in IPG Cayman LP, our US platform, which is now
reflected within this category following its deconsolidation in November 2021.
Debt investments 22.8 38.7
Limited and limited liability partnership interests
92.9 22.2
Total Portfolio 1,507.5 1,184.9
Net (realisations)/ investment Portfolio review Net realisations is defined as the net amount realised/invested from/into the Purchase of equity and debt investments (103.7) (67.5)
portfolio. It is calculated by taking the net amount of the purchases of
equity and debt investments, less the proceeds from the sale of equity and
debt investments. The measure is used as a KPI for the relative generation or
Consolidated statement of cash flows, Note 13, 14 use of cash by the portfolio.
Proceeds from sale of equity and debt investments 213.4 191.0
Net realisations/(investment) 109.7 123.5
Net overheads Financial review: Net overheads are defined as the Group's core overheads less operating income. Other income 13.6 6.2
note 8 The measure reflects the Group's controllable net operating "cash-equivalent"
central cost base and is used as a performance metric in the Group's Annual
Incentive Scheme. Core overheads exclude items such as share-based payments,
amortisation of intangibles and consolidated portfolio company costs.
Other administrative expenses (33.2) (29.4)
Excluding:
Administrative expenses - consolidated portfolio companies 0.1 0.4
IFRS3 charge in respect of acquisition of subsidiary - 1.2
Net overheads (19.5) (21.6)
Cash and deposits Primary statements Cash is defined as cash and cash equivalents plus deposits. Cash and cash equivalents 105.7 127.6
The measures gives a view of the Group's liquid resources on a short-term Deposits 216.2 142.7
timeframe. The Group's Treasury Policy has a maximum maturity limit of 13
months for deposits.
Cash 321.9 270.3
((i) )In prior years Hard NAV was used to measure performance,
now due to the immaterial size of intangible assets this has been replaced
by NAV as the most appropriate measure.
31. Post balance sheet events
As of the reporting date, unrealised fair value losses in respect of the
Group's quoted portfolio totalled £265m, largely in respect of Oxford
Nanopore Technologies plc, which has seen a fair value loss of £233m since 31
December 2021.
( 1 )Of the fair value movement noted above £2.2m is attributable to the
third-party limited partner in the consolidated fund, IP Venture Fund II
L.P.
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