REG - IP Group PLC - Final Results <Origin Href="QuoteRef">IPO.L</Origin> - Part 2
01/03/2016 07:12
- Part 2: For the preceding part double click ID:nRSA5517Qa
portfolio companies that are the subject of its mandates, the majority of these fees (£0.7m) were received
as equity. This ensures that as much as possible of the cash raised through such financings can be deployed in the
development of the portfolio companies while increasing the Group's exposure to such companies.
The remainder of other income comprises fund management fees as well as consulting and similar fees typically chargeable to
its portfolio companies for services including executive search and selection, legal and administrative support. Fund
management fees are received from the Group's three managed funds, two of which also have the potential to generate
performance fees from successful investment performance (IP Venture Fund and the NETF). As a result of an extension by its
Limited Partner during the period, the NETF's "investment period" is now anticipated to continue until the end of 2016,
while that of IP Venture Fund ceased in 2012. The fund management fees for both funds reduce following the cessation of
their investment periods. The results of the Group's third managed fund, IPVFII, are consolidated into those of the Group
and accordingly the fund management fees received are not reflected in the statement of comprehensive income.
The Group continued to receive milestone payments as a result of Modern Biosciences plc's R&D alliance and global option
and licence agreement with Janssen Biotech, Inc. ("Janssen"). £8.0m was received on the achievement of three milestones
during 2015 (2014: £3.0m; one initial payment). The Group allocated an increased level of capital to the evaluation and
development of certain early-stage therapeutic programmes, including through its subsidiary Modern Biosciences plc ("MBS"),
during the year. The majority of these costs related to the OxteoRx programme that is the subject of the R&D alliance with
Janssen. All development costs are expensed to the income statement as they are incurred. MBS continued to benefit from the
recovery of a proportion of the OsteoRx costs through a Biomedical Catalyst grant, with the net expense being reflected in
the statement of comprehensive income. The Group intends to continue developing a small number of early-stage therapeutic
assets.
The Group's administrative expenses, excluding those relating to MBS, increased during the period to £14.7m (2014: £9.9m),
predominantly due to increased headcount, the first full year of the increased cost base following the Fusion IP plc
acquisition in 2014 and the cost of the Group's 2015 Annual Incentive Scheme following the achievement of the 18% maximum
target increase in Hard NAV. The administrative expenses are inclusive of an IFRS 2 share-based payments charge totalling
£1.5m (2014: £0.9m) relating to the Group's Long-Term Incentive Plan and Deferred Bonus Share Plan awards. This non-cash
charge reflects the fair value of services received from employees, measured by reference to the fair value of the
share-based payments at the date of award, but has no net impact on the Group's total equity or "net assets".
As a result of the Group's two equity capital raisings in the first half of the year which raised £178.8m net of expenses,
and the resultant increased average cash balance during the year, the Group's interest receivable during the period
increased to £1.3m (2014: £0.6m).
Statement of financial position
The Group ended the period with net assets attributable to shareholders of £780.4m, representing an increase of £254.2m
from the position at 1 January 2015 (£526.2m). As described above, the most significant contributing factors to the
increase in net assets during the period were the £178.8m capital raising and the performance of the Group's portfolio of
holdings in spin-out companies. "Hard" net assets, i.e. those excluding intangible assets and the Oxford Equity Rights
asset, totalled £714.3m at 31 December 2015 (2014: £451.3m).
At 31 December 2015, the Group held gross cash and deposits of £178.8m (2014: £97.3m) and a diversified portfolio of equity
and debt investments in 99 private and publicly listed technology companies (2014: 90).
The value of the Group's holdings in portfolio companies increased to £552.2m at year end (2014: £349.9m) after net
unrealised fair value gains of £86.4m and net investment of £115.3m (2014: £20.7m net unrealised fair value gain; £37.1m
net investment). The Portfolio review on above contains a detailed description of the Group's portfolio of equity and debt
investments including key developments and movements during the year.
The Group's statement of financial position includes goodwill of £57.1m (2014: £57.1m) and acquired intangible assets of
£10.5m (2014: £16.5m). £38.7m of the goodwill and entirety of the acquired intangible assets values arose as a result of
the Group's acquisition of Fusion IP in 2014. The remainder of the goodwill balance arose from historical acquisitions of
Techtran Group Limited (university partnership business, £16.3m; 2014: £16.3m) and Top Technology Ventures Limited (venture
capital fund management business, £2.1m; 2014: £2.1m). The intangible assets are separately identifiable assets resulting
from Fusion IP's agreements with its partner universities. The fair value of the intangible assets are to be amortised on a
straight line basis over each partnership's useful economic life.
Due to the nature of its activities, the Group has limited current assets or current liabilities other than its cash and
short-term deposit balances, which are considered in more detail below.
Cash, cash equivalents and short-term deposits ("Cash")
The principal constituents of the movement in Cash during the year are summarised as follows:
Net cash generated/(used) by operating activities (excluding cash flows from deposits) 2.4 (6.4)
Net cash used in investing activities (114.6) (35.4)
Issue of share capital 178.8 97.4
Draw down of debt facility 14.9 -
Acquisition of subsidiary - 17.6
Movement during period 81.5 (73.2)
Movement during period
81.5
(73.2)
At 31 December 2015, the Group's Cash totalled £178.8m, an increase of £81.5m from a total of £97.3m at 31 December 2014
predominantly due to a net £178.8m increase from the issue of new equity capital and £15.0m through the part drawdown of
the £30m debt facility provided by the European Investment Bank (£14.9m net of expenses), and offset by net investment in
the Group's spin-out companies.
In July, the Group secured a £30m, 8-year debt facility from the European Investment Bank ("the EIB"). The facility is to
be disbursed in two tranches, with the first tranche of £15m having been drawn down in December 2015. The facility provides
IP Group with an additional source of long-term capital and represents an evolution in the Group's capital structure to
support its future growth and development.
The Group's net cash used in investing activities increased during 2015, reflecting an increase in investments (2015:
£115.9m; 2014: £46.8m) but a decrease in realisations (2015: £0.6m; 2014: £9.7m). As described in more detail in the
Portfolio review, the Group allocated a total of £75.9m across 53 portfolio companies during the period (2014: £46.8m; 51
companies) and made a £40m strategic investment into OSI.
No further funds were committed to IP Venture Fund during 2015 (2014: £0.3m), which in turn made no investments during the
period (2014: £2.7m; eight companies). The Group received a distribution of £0.6m following IP Venture Fund realising £5.7m
from two exits and one partial disposal (2014: £1.1m received on a total £11.1 distributed).
Overall, net cash used in investing activities totalled £114.6m (2014: £35.4m).
Primarily as a result of the income from the milestone payments received by the Group as a result of MBS's agreement with
Janssen as noted above, Cash generated by operating activities increased to £2.4m (2014: £6.4m of Cash used by operating
activities).
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 "A" or above. The Group's treasury policy is described in detail in note 2 to the Group financial statements
alongside details of the credit ratings of the Group's cash and deposit counterparties.
At 31 December 2015, the Group recognised £7.1m of loans (2014: £4.5m) from the Limited Partners of IPVFII, a fund raised
during 2013 that is consolidated by the Group. These loans are repayable only upon IPVFII generating sufficient returns to
repay the Limited Partners. A further £15.0m of non-current liabilities are recognised which arise from the Group's use of
the EIB debt facility described above.
At 31 December 2015, the Group had a total of £1.3m (2014: £1.2m) held in US Dollars to meet the short-term working capital
requirements of its US operations, including capital anticipated to be required by new and existing spin-out company
opportunities.
Taxation
Since the Group's activities, including its activities in the US, are substantially trading in nature, the Directors
continue to believe that the Group qualifies for the Substantial Shareholdings Exemption ("SSE") on chargeable gains
arising on the disposal of qualifying holdings and, as such, the Group has continued not to recognise a provision for
deferred taxation in respect of uplifts in value on those equity stakes which meet the qualifying criteria. The Group's
unrecognised deferred tax assets and liabilities are set out in note 9 to the financial statements.
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."
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. Risk
identification, using a structured risk framework, is carried out primarily by the management team with non-executive
review being primarily carried out by the audit committee. All of the Group's employees have an important role to play in
the identification and management of risk. In this way, a comparison of bottom up and top down risks is used to ensure
emerging risks are captured and managed appropriately by the Group.
Ranking of the Group's risks is carried out by combining the economic, operational or environmental impact of risks and the
likelihood that they may occur, both before and after the controls and mitigants in place to reduce each risk. Those risks
that are considered to pose the greatest threat to the Group and score the highest pre-mitigation are identified as
'principal risks'. 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 key controls over the Group's identified principal risks are reviewed by management, the audit committee and the Board
at least twice a year. The design and ongoing effectiveness of these controls are reviewed using an 'assurance map'.
However, the Group's risk management programme can only provide reasonable, not absolute, assurance that principal risks
are managed to an acceptable level.
Summary of principal risks
A summary of the principal risks affecting the Group and the steps taken to manage these is set out below.
1)
It may be difficult for the Group and its early-stage companies to attract capital.The Group's operations are reliant on capital markets, particularly those in the UK. As the Group's operations, and the operations of the majority of its portfolio companies, are based in the UK, the financial and operational performance of the Group and particularly the ability of its portfolio companies to attract development capital is influenced by the general economic climate and trading conditions in the UK. The success of those portfolio companies which require significant funding in the future may be influenced by the market's appetite for investment in early stage companies, which may not be sufficient.Failure of companies within the Group's portfolio may make it more difficult for the Group or its spin-out companies to raise additional capital. The Group has significant balance sheet and managed funds capital to Decrease The Group raised £178.8m (net of expenses) through the issue of new equity capital in the year, secured a £30m, 8-year debt facility from the European Investment Bank and increased capital deployment into the portfolio.The Group hosted investor relations roadshows in the UK and US during the year including its first US technology summit. Develop, Deliver Change in fair value of equity and debt investmentsTotal equity ("net assets").Profit/loss attributable to equity holders.
deploy in attractive portfolio opportunities.The Group operates a
corporate finance function which carries out fundraising mandates for
portfolio companies. The Group maintains close relationships with a wide
variety of co-investors that focus on companies at differing stages of
development.The Group frequently forecasts cash requirements of the
portfolio and ensures all capital allocations are compliant with
budgetary limits, treasury policy guidelines and transaction
authorisation controls.
2)
The returns and cash proceeds from the Group's early-stage companies can be very uncertain.The following risks are typically associated with early-stage companies:may not be able to secure later rounds of funding;may not be able to source or retain appropriately skilled staff;competing technologies may enter the market;technology can be materially unproven and may fail; IP may be infringed, copied or stolen;may be more susceptible to cyber-crime; andother administrative, taxation or compliance issues may lead to company failure. Portfolio company failure directly impacts the Group's value and profitability.At any time, a large proportion of the Group's portfolio value may be accounted for by one, or very few, companies, which could exacerbate the impact of any impairment or failure of one or more of these companies. Oxford Nanopore is an example of such a portfolio company that has the potential to materially impact the Group's results. Cash realisations from the Group's portfolio through trade sales and IPOs could vary significantly from year to year. The Group's staff have significant experience in sourcing, developing and Unchanged The Group increased its rate of capital deployment into its portfolio in the year and portfolio companies raised approximately £300m of capital.The Group maintained board representation on more than 70% of companies by number.Some increasing volatility and reduced liquidity was observed in the capital markets during late 2015 and 2016. Deliver Change in fair value of equity and debt investments.Purchase of equity and debt investments.Proceeds from the sale of equity investments.
growing early-stage technology companies to significant value, including
use of the Group's systematic opportunity evaluation and business
building methodologies within delegated board authorities. Members of the
Group's senior team often serve as non-executive directors or advisers to
portfolio companies to help identify and remedy critical issues
promptly.Support on operational, legal and company secretarial matters is
offered to minimise failures due to common administrative factors.The
Group has spin-out company holdings across different sectors managed by
experienced sector-specialist teams to reduce the impact of a single
- More to follow, for following part double click ID:nRSA5517QcRecent news on IP
See all newsREG - IP Group PLC - Transaction in Own Shares
AnnouncementREG - IP Group PLC - Transaction in Own Shares
AnnouncementREG - IP Group PLC - Transaction in Own Shares
AnnouncementREG - IP Group PLC - Transaction in Own Shares
AnnouncementREG - IP Group PLC - Transaction in Own Shares
Announcement