REG - IP Group PLC - IP Group plc Annual Results Release <Origin Href="QuoteRef">IPO.L</Origin> - Part 4
07/03/2017 07:07
- Part 4: For the preceding part double click ID:nRSG6795Yc
oversight of upcoming capital requirements of portfolio from both the
Group and third parties.
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. Changes could result in universities and researchers no longer being able to own, exploit or protect intellectual property on attractive terms. Changes to tax legislation or the nature of the Group's activities, in particular in relation to the Substantial Shareholder Exemption, may adversely affect the Group's tax position and accordingly its value and operations. Regulatory changes or breaches could ultimately lead to withdrawal of regulatory permissions for the Group's FCA-authorised subsidiary resulting in loss of fund management contracts, reputational damage or fines. A material adverse event could occur during an MBS clinical trial. A data security or cyber breach could occur or the Group could otherwise fail to adhere to data protection regulations. University partners are incentivised to protect their IP for exploitation Decreased Proposed changes to UK Substantial Shareholding Exemption rules reduce the level of uncertainty around the exemption of disposal gains. Ongoing focus on regulatory compliance including third party reviews. UK Government has committed to university funding and has emphasised the importance of science and innovation. Specialist therapeutics advisory panel continually consulted. Increased focus on cyber security including further development of the Group's controls using the UK Government's 'ten steps' approach and review of the Cyber Essentials regime and how this applies to the Group. CreateDeliver Total equity ("net assets").
as the partnership agreements share returns between universities,
academic founders and the Group. 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 and these are subject to external review. MBS utilises an
experienced specialist advisory panel covering all aspects of clinical
trial design and delivery. The Group maintains D&O, professional
indemnity and clinical trial insurance policies. The Group reviews its
data and cyber-security processes with its external outsourced IT
provider and applies the UK Government's 'ten steps' framework.
The Group's portfolio companies raised approximately £230m of capital.
The Group maintained board representation on approximately 80% of companies by
number.
2016 saw significant volatility in equity markets, particularly around the
timing of the Brexit referendum.
Deliver
Change in fair value of equity and debt investments.
Purchase of equity and debt investments.
Proceeds from the sale of equity investments.
3 Universities or other research-intensive institutions may terminate their
partnerships or other collaborative relationships with the Group.The Group's
business, results of operations and prospects are at least partially dependent
on competitive advantage gained from access to leading scientific research
through partnerships and other collaborative arrangements with
research-intensive institutions and commercial partners such as Oxford
Sciences Innovation plc, Technikos LLP and Cambridge Innovation Capital. The
Group may be unable to recreate these elements of its competitive advantage in
other geographies in which it may seek to operate (such as the US).
Termination or non-renewal of arrangements through failure to perform
obligations may result in the loss of exclusive rights.
The loss of exclusive rights may limit the Group's ability to secure
attractive IP opportunities to commercialise.
This could potentially have a material adverse effect on the Group's long-term
business, results of operations, performance and prospects.
With several new entrants to our market, this may reduce our opportunities to
create new spin-out businesses.
Dedicated New Business & Partnerships team to service existing partnerships
and source new opportunities.
The Group continues to consider and, where appropriate, enter into new and
innovative partnerships and collaborations with research institutions.
The Group has been able to source opportunities through non-exclusive
relationships and other sources.
Members of the Group's senior team work closely with partner institutions to
ensure that each commercial relationship is mutually beneficial and
productive.
The Group's track record in IP commercialisation may make the Group a partner
of choice for other institutions, acting as a barrier to entry to
competitors.
No change
Completed agreements with two additional US university partners.
The Group announced the proposed acquisition of Parkwalk Advisors Ltd.
Parkwalk's investment vehicles include the University of Cambridge Enterprise
Funds, the University of Oxford Innovation Funds and the University of Bristol
Enterprise Funds. The Directors believe that Parkwalk's strong links to
university partners will be beneficial to the Group.
Completed seed investments with both Oxford Sciences Innovation and Cambridge
Innovation Capital as co-investors, demonstrating the value of our strategic
stakes in these partners.
Create
Number of new portfolio companies.
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. Given the relatively small size of the Group, its
operations are reliant on a small number of key individuals. Scaling the team,
particularly into foreign jurisdictions such as the US, presents an additional
potential risk.
Loss of key executives and employees of the Group or an inability to attract,
retain and integrate appropriately skilled and experienced staff could have an
adverse effect on the Group's competitive advantage, business, financial
condition, operational results and/or future prospects.
Senior team succession plans are in place and updated regularly.
The Group's corporate culture and values are well-articulated and consistently
promoted.
The Group carries out regular market comparisons for staff and executive
remuneration and seeks to offer a balanced incentive package comprising a mix
of salary, benefits, performance-based long-term incentives and benefits such
as flexible working and salary sacrifice arrangements.
The Group encourages staff development and inclusion through coaching and
mentoring and carries out regular objective setting and appraisal.
No change
The Group continues to promote an open culture of communication and provides
an inspiring and challenging workplace where people are given autonomy to do
their jobs. We are fully supportive of flexible working and have enabled
employees with technology to work flexibly. The Group also continues to
dedicate resources to remuneration and incentivisation.
Staff attrition increased slightly during the year, albeit at 4%, it remained
at low absolute levels. Approximately 45% of staff have been with the Company
for at least five years.
DevelopDeliver
Total equity
("net assets").
Number of new portfolio companies.
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 raise third party funds, develop
profitable businesses or achieve increases in value or exits.Political
uncertainty, including impacts from Brexit or similar scenarios, could have a
number of potential impacts, including changes to the labour market available
to the Group for recruitment or regulatory environment in which the Group
operates.
The UK's recession has had (and may continue to have) an adverse effect on
trading conditions and availability of capital in the UK, particularly for
smaller businesses.
The success of those portfolio companies which require significant external
funding may be influenced by the market's appetite for investment in early
stage companies, which may not be sufficient.
A significant proportion of the Group's portfolio value is held in companies
quoted on the AIM market and decreases in values to this market could result
in a material fair value impact to the portfolio as a whole.
Management team receives regular capital market and economic updates from the
Group's capital markets team and its brokers.
Six-monthly budget and capital allocation process and monitoring against
agreed budget.
Regular oversight of upcoming capital requirements of portfolio from both the
Group and third parties.
No change
Macroeconomic and geopolitical conditions remain uncertain in the UK, Europe
and the rest of the world.
Both the Brexit referendum and the US presidential election were a source of
uncertainty in the year, with negotiations around the exit from the EU likely
to be a source of volatility through 2017 and 2018.
DevelopDeliver
Change in fair value of equity and debt investments.
Total equity
("net assets").
Profit/loss attributable to equity holders.
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.
Changes could result in universities and researchers no longer being able to
own, exploit or protect intellectual property on attractive terms.
Changes to tax legislation or the nature of the Group's activities, in
particular in relation to the Substantial Shareholder Exemption, may adversely
affect the Group's tax position and accordingly its value and operations.
Regulatory changes or breaches could ultimately lead to withdrawal of
regulatory permissions for the Group's FCA-authorised subsidiary resulting in
loss of fund management contracts, reputational damage or fines.
A material adverse event could occur during an MBS clinical trial.
A data security or cyber breach could occur or the Group could otherwise fail
to adhere to data protection regulations.
University partners are incentivised to protect their IP for exploitation as
the partnership agreements share returns between universities, academic
founders and the Group.
The Group utilises professional 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 and these are subject to external review.
MBS utilises an experienced specialist advisory panel covering all aspects of
clinical trial design and delivery.
The Group maintains D&O, professional indemnity and clinical trial insurance
policies.
The Group reviews its data and cyber-security processes with its external
outsourced IT provider and applies the UK Government's 'ten steps' framework.
Decreased
Proposed changes to UK Substantial Shareholding Exemption rules reduce the
level of uncertainty around the exemption of disposal gains.
Ongoing focus on regulatory compliance including third party reviews.
UK Government has committed to university funding and has emphasised the
importance of science and innovation.
Specialist therapeutics advisory panel continually consulted.
Increased focus on cyber security including further development of the Group's
controls using the UK Government's 'ten steps' approach and review of the
Cyber Essentials regime and how this applies to the Group.
CreateDeliver
Total equity ("net assets").
Viability statement
The Directors have carried out a robust assessment of the viability of the
Group over a three-year period to December 2019, considering its strategy, its
current financial position and its principal risks.
The strategy and associated principal risks underpin the Group's three-year
financial plan and scenario testing, which the Directors review at least
annually. The three-year plan is built using a bottom up model. The three-year
plan makes certain 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, and the level
of the Group's net overheads.
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 but plausible
downside scenarios as part of the Board's review of the principal risks of the
business. These scenarios envisage the impact of adverse outcomes in the
Group's principal risk areas, primarily through reducing the fair value of the
Group's portfolio company interests, reducing the amount of capital that the
Group can raise, lowering the deployment of capital and decreasing portfolio
company divestment proceeds. The scenarios also consider the impact of
available mitigating actions.
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 2019.
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 2016 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 2017, 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 Mike Humphrey Alan Aubrey
Chairman Chief Executive Officer
6 March 2017
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Note 2016£m 2015£m
Portfolio return and revenue
Change in fair value of equity and debt investments 14 7.0 86.4
Loss on disposal of equity investments (0.5) (0.2)
Change in fair value of limited and limited liability partnership interests 22 (0.3) 0.4
Change in fair value of contingent value right 16 (1.4) -
Other portfolio income - 0.2
Licensing income 0.2 8.1
Revenue from services and other income 2.6 3.4
7.6 98.3
Administrative expenses
Research and development costs (1.0) (2.0)
Share-based payment charge 21 (1.5) (1.5)
Change in fair value of Oxford Equity Rights asset - (1.3)
Amortisation of intangible assets 12 (5.6) (6.0)
Acquisition costs (0.4) -
Other administrative expenses (14.5) (13.7)
(23.0) (24.5)
Operating (loss)/profit 7 (15.4) 73.8
Finance income - interest receivable 1.1 1.3
Finance costs - interest payable (0.5) -
(Loss)/profit before taxation (14.8) 75.1
Taxation 9 - -
(Loss)/profit for the year (14.8) 75.1
Other comprehensive income
Exchange differences on translating foreign operations 0.1 0.1
Total comprehensive (loss)/income for the period (14.7) 75.2
Attributable to:
Equity holders of the parent (13.5) 73.9
Non-controlling interest (1.2) 1.3
(14.7) 75.2
Earnings per share
Basic (p) 10 (2.39) 13.66
Diluted (p) 10 (2.39) 13.63
Consolidated statement of financial position
As at 31 December 2016
Note 2016£m 2015£m
ASSETS
Non-current assets
Intangible assets:
Goodwill 11 57.1 57.1
Acquired intangible assets 12 5.1 10.5
Property, plant and equipment 0.2 0.2
Portfolio:
Equity investments 14 594.9 543.1
Debt investments 14 19.1 9.1
Limited and limited liability partnership interests 22 4.2 4.4
Contingent value rights 16 - 1.4
Total non-current assets 680.6 625.8
Current assets
Trade and other receivables 15 2.6 3.2
Deposits - 70.0
Cash and cash equivalents 112.3 108.8
Total current assets 114.9 182.0
Total assets 795.5 807.8
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Called up share capital 19 11.3 11.3
Share premium account 504.7 504.7
Merger reserve 12.8 12.8
Retained earnings 239.6 251.6
Total equity attributable to equity holders 768.4 780.4
Non-controlling interest 0.3 1.5
Total equity 768.7 781.9
Current liabilities
Trade and other payables 17 2.1 3.9
Non-current liabilities
EIB debt facility 18 14.9 14.9
Loans from limited partners of consolidated funds 18 9.8 7.1
Total equity and liabilities 795.5 807.8
Approved by the Board of Directors and authorised for issue on 6 March 2017
and signed on its behalf by:
Greg Smith
Chief Financial Officer
Alan Aubrey
Chief Executive Officer
Consolidated statement of cash flows
For the year ended 31 December 2016
Note 2016£m 2015£m
Operating activities
Operating (loss)/profit for the period (15.4) 73.8
Adjusted for:
Change in fair value of equity and debt investments 14 (7.0) (86.4)
Change in fair value of limited and limited liability partnership interests 0.3 (0.4)
Change in fair value of contingent value right 1.4 -
Loss on disposal of equity investments 0.5 0.2
Depreciation of property, plant and equipment 0.1 0.1
Amortisation of intangible non-current assets 12 5.6 6.0
Change in fair value of Oxford equity rights asset - 1.3
Fees settled in the form of equity (0.4) (0.7)
Share-based payment charge 1.5 1.5
Other portfolio income classified as investing activities cash flows - (0.1)
Changes in working capital
Decrease in trade and other receivables 0.2 2.2
(Decrease)/Increase in trade and other payables (1.8) 1.9
Increase in non-current liabilities 2.7 2.2
Net cash flow to deposits 70.0 (40.0)
Other operating cash flows
Net interest received 0.9 0.7
Net cash inflow/(outflow) from operating activities 58.6 (37.7)
Investing activities
Purchase of property, plant and equipment (0.1) -
Purchase of equity and debt investments 14 (69.7) (115.9)
Investment in limited and limited liability partnerships (0.1) -
Proceeds from sale of equity investments 14.7 0.6
Distributions from limited and limited liability partnerships - 0.6
Other portfolio income - 0.1
Net cash outflow from investing activities (55.2) (114.6)
Financing activities
Proceeds from the issue of share capital - 178.8
Proceeds from drawdown of EIB facility 18 - 14.9
Net cash inflow from financing activities - 193.7
Net (decrease)/increase in cash and cash equivalents 3.4 41.4
Cash and cash equivalents at the beginning of the year 108.8 67.3
Effect of foreign exchange rate changes 0.1 0.1
Cash and cash equivalents at the end of the year 112.3 108.8
Consolidated statement of changes in equity
For the year ended 31 December 2016
Attributable to equity holders of the parent
Share capital £m Share premium(i)£m Merger reserve(ii)£m Retained earnings(iii)£m Total £m Non-controlling interest(iv)£m Total equity £m
At 1 January 2015 9.6 327.6 12.8 176.2 526.2 - 526.2
Comprehensive income - - - 73.9 73.9 1.3 75.2
Issue of equity 1.7 177.1 - - 178.8 0.2 179.0
Equity settled share based payments - - - 1.5 1.5 - 1.5
At 1 January 2016 11.3 504.7 12.8 251.6 780.4 1.5 781.9
Comprehensive income - - - (13.5) (13.5) (1.2) (14.7)
Equity-settled share-based payments - - - 1.5 1.5 - 1.5
At 31 December 2016 11.3 504.7 12.8 239.6 768.4 0.3 768.7
i. Share premium - Amount subscribed for share capital in excess of
nominal value, net of directly attributable issue costs.
ii. Merger reserve - Amount subscribed for share capital in excess of
nominal value in relation to the qualifying acquisition of subsidiary
undertakings.
iii. Retained earnings - Cumulative net gains and losses recognised in
the consolidated statement of comprehensive income net of associated
share-based payments credits.
iv. Non-controlling interest - Share of profits attributable to the
Limited Partners of IP Venture Fund II LP - a consolidated fund which was
created in May 2013, as well as the equity invested in partially owned
subsidiaries that is held by third parties.
Notes to the consolidated financial information
1. Accounting Policies
Basis of preparation
The consolidated financial information is based on the Group financial
statements, which have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and the International Financial
Reporting Interpretations Committee's interpretations as adopted by the
European Union, and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. This release does not include all of the
information required for full annual financial statements. Copies of the 2016
Annual Report and Accounts will be published on the Group's website and will
be available upon request.
The financial statements are prepared on a going concern basis, as the
directors are satisfied that the Group and parent Company have the resources
to continue in business for the foreseeable future. In making this assessment,
the directors have considered a wide range of information relating to present
and future conditions, including future projections of profitability, cash
flows and capital resources.
The accounting policies are consistent with those applied by the Group in its
2015 annual report and accounts. No new standards, interpretations and
amendments effective for the first time from 1 January 2016 have had a
material effect on the Group's financial statements.
2. Financial Risk Management
As set out in the Principal risks and uncertainties section above, the Group
is exposed, through its normal operations, to a number of financial risks, the
most significant of which are market, liquidity and credit risks.
In general, risk management is carried out throughout the Group under policies
approved by the Board of Directors. The following further describes the
Group's objectives, policies and processes for managing those risks and the
methods used to measure them. Further quantitative information in respect of
these risks is presented throughout these financial statements.
(a) Market risk
(i) Price risk
The Group is exposed to equity securities price risk as a result of the equity
and debt investments, and investments in Limited Partnerships held by the
Group and categorised as at fair value through profit or loss.
The Group mitigates this risk by having established investment appraisal
processes and asset monitoring procedures
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