REG - IP Group PLC - IP Group plc Annual Results Release <Origin Href="QuoteRef">IPO.L</Origin> - Part 5
07/03/2017 07:07
- Part 5: For the preceding part double click ID:nRSG6795Yd
which are subject to overall review
by the Board. The Group has also established corporate finance and
communications teams dedicated to supporting portfolio companies with
fundraising activities and investor relations.
The Group holds investments which are publicly traded on AIM (17 companies)
and investments which are not traded on an active market.
The net increase in fair value of the Group's equity and debt investments
during 2016 of £6.5m represents a 1.2% change against the opening balance
(2015: net increase of £86.2m, 25%) and a similar increase or decrease in the
prices of quoted and unquoted investments is considered to be reasonably
possible. The table below summarises the impact of a 1% increase/decrease in
the price of both quoted and unquoted investments on the Group's post-tax
profit for the year and on equity.
2016 2015
Quoted£m Unquoted£m Total£m Quoted£m Unquoted£m Total£m
Equity investments and investments in limited partnerships 1.6 4.6 6.2 2.0 3.6 5.6
(ii) Interest rate risk
The EIB debt facility bears interest at a fixed rate of 1.98% with an
additional variable spread equal to the six month GBP Libor rate as at the
first date of each six-month interest period. The first £15.0m tranche was
disbursed on 17 December 2015 and the average floating interest rate
(including the fixed element) for 2016 was 2.66% (2015: 2.48%).
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 believe 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.
2016 2015
Fixed rate £m Floating rate £m Interest free £m Total £m Fixed rate £m Floating rate £m Interest free £m Total £m
Financial assets
Equity investments - - 594.9 594.9 - - 543.1 543.1
Debt investments 0.2 - 18.9 19.1 0.2 - 8.9 9.1
Limited and limited liability partnership interests - - 4.2 4.2 - - 4.4 4.4
Contingent value rights - - - - - - 1.4 1.4
Deposits - - - - 70.0 - - 70.0
Cash and cash equivalents 30.0 82.3 - 112.3 - 108.8 - 108.8
Trade receivables - - 2.3 2.3 - - 3.0 3.0
Other receivables - - 0.3 0.3 - - 0.2 0.2
30.2 82.3 620.6 733.1 70.2 108.8 561.0 740.0
Financial liabilities
Trade payables - - (0.7) (0.7) - - (0.7) (0.7)
Other accruals and deferred income - - (1.4) (1.4) - - (3.2) (3.2)
EIB debt facility - (14.9) - (14.9) - (14.9) - (14.9)
Loans from limited partners of consolidated funds - - (9.8) (9.8) - - (7.1) (7.1)
- (14.9) (11.9) (26.8) - (14.9) (11.0) (25.9)
At 31 December 2016, if interest rates had been 1% higher/lower, post-tax
profit for the year, and other components of equity, would have been £0.8m
(2015: £1.1m) 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 below. All other financial assets are unrated.
Credit rating 2016 £m 2015 £m
P1 76.7 126.3
P2 35.6 52.5
Total deposits and cash and cash equivalents 112.3 178.8
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 deposits at 31 December
2016 was £50m (2015: £50m).
The Group's exposure to credit risk on debt investments is managed in a
similar way to equity price risk, as described earlier, through the Group's
investment appraisal processes and asset monitoring procedures which are
subject to overall review by the Board.
The maximum exposure to credit risk for debt investments, receivables and
other financial assets is represented by their carrying amount.
3. Significant Accounting Estimates and Judgements
The directors make judgements and estimates concerning the future. Estimates
and judgements are continually evaluated and are based on historical
experience and other factors, such as expectations of future events, and are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. The estimates and assumptions, which have the most
significant effects on the carrying amounts of the assets and liabilities in
the financial statements, are discussed below.
(i) Valuation of unquoted equity investments
The judgements required, in order to determine the appropriate valuation
methodology of unquoted equity investments, have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities. These
judgements include making assessments of the future earnings potential of
portfolio companies, appropriate earnings multiples to apply, and
marketability and other risk discounts.
(ii) Impairment of goodwill
The Group is required to test, at least annually, whether goodwill has
suffered any impairment. The recoverable amount is determined using a number
of value-in-use and fair-value-less-costs-to-sell calculations. The use of
these methods requires the estimation of future cash flows, and the selection
of a suitable discount rate, in order to calculate the present value of these
cash flows as well as the selection of applicable and reasonable multiples.
Discussion of sensitivity analyses is included in the relevant note for each
of the above estimates and judgements.
4. Revenue from Services
All revenue from services is derived from either the provision of advisory and
venture capital fund management services or the licensing of internally
developed therapeutic compounds.
5. Operating Segments
For both the year ended 31 December 2016 and the year ended 31 December 2015,
the Group's revenue and profit/loss before taxation were derived almost
entirely from its principal activities within the UK. Though the Group has
initiated operations in the US, the associated revenues and costs are
currently immaterial and accordingly, no additional geographical disclosures
are given. For management reporting purposes, the Group is currently organised
into three operating segments: (i) the commercialisation of intellectual
property via the formation of long-term partner relationships with
universities; (ii) the management of venture funds focusing on early-stage UK
technology companies; and (iii) the in-licensing of drugable intellectual
property from research intensive institutions. These activities are described
in further detail in the Strategic report above.
Year ended 31 December 2016 University partnership business £m Venture capital fund management £m In-licensing activity £m Consolidated £m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments 7.0 - - 7.0
Loss on disposal of equity investments (0.5) - - (0.5)
Change in fair value of limited and limited liability partnership interests (0.3) - - (0.3)
Change in fair value of contingent value right (1.4) (1.4)
Other portfolio income
Licensing income 0.2 - - 0.2
Revenue from services and other income 0.8 0.9 - 1.7
Revenue from fund management services - 0.9 - 0.9
Amortisation of intangible assets (5.6) - - (5.6)
Acquisition costs (0.4) - - (0.4)
Administrative expenses (14.9) (0.7) (1.4) (16.9)
Operating loss (15.1) 1.1 (1.4) (15.4)
Finance income - interest receivable 0.6 - - 0.6
Loss before taxation (14.5) 1.1 (1.4) (14.8)
Taxation - - - -
Loss for the year (14.5) 1.1 (1.4) (14.8)
STATEMENT OF FINANCIAL POSITION
Assets 778.4 10.9 6.2 795.5
Liabilities (26.5) (0.1) (0.2) (26.8)
Net assets 751.9 10.8 6.0 768.7
Other segment items
Capital expenditure 0.1 - - 0.1
Depreciation (0.1) - - (0.1)
Year ended 31 December 2015 University partnership business £m Venture capital fund management £m In-licensing activity £m Consolidated £m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments 86.4 - - 86.4
Gain on disposal of equity investments (0.2) - - (0.2)
Change in fair value of limited and limited liability partnership interests 0.4 - - 0.4
Other portfolio income 0.2 - - 0.2
Licensing income 0.1 - 8.0 8.1
Revenue from services and other income 0.9 1.1 - 2.0
Revenue from fund management services - 1.4 - 1.4
Change in fair value of Oxford Equity Rights asset (1.3) - - (1.3)
Amortisation of intangible assets (6.0) - - (6.0)
Administrative expenses (13.9) (0.8) (2.5) (17.2)
Operating profit 66.6 1.7 5.5 73.8
Finance income - interest receivable 1.3 - - 1.3
Profit before taxation 67.9 1.7 5.5 75.1
Taxation - - - -
Profit for the year 67.9 1.7 5.5 75.1
STATEMENT OF FINANCIAL POSITION
Assets 788.8 11.3 7.7 807.8
Liabilities (25.5) (0.1) (0.3) (25.9)
Net assets 763.3 11.2 7.4 781.9
Other segment items
Capital expenditure - - - -
Depreciation (0.1) - - (0.1)
6. Auditor's Remuneration
Details of the auditor's remuneration are set out below:
2016 £'000s 2015 £'000s
Fees payable to the Company's auditor for the audit of the Company's annual accounts 74 73
The audit of the Company's subsidiaries, pursuant to legislation 87 87
Total fees for audit services 161 160
Audit-related assurance services 21 20
Total assurance services 182 180
Tax compliance services - -
Taxation advisory services - -
All other services 18 -
Total non-assurance services - -
200 180
7. Operating Profit
Operating profit has been arrived at after charging:
2016 £m 2015 £m
Amortisation of intangible assets (5.6) (6.0)
Depreciation of tangible assets (0.1) (0.1)
Employee costs (see note 8) (9.5) (10.3)
Operating leases - property (0.5) (0.4)
Loss on disposal of equity investments (0.5) (0.2)
8. Employee Costs
Employee costs (including directors) comprise:
2016 £m 2015 £m
Salaries 7.0 5.5
Defined contribution pension cost 0.4 0.3
Share-based payment charge (see note 21) 1.5 1.5
Other bonuses accrued in the year - 2.2
Social security 0.6 0.8
9.5 10.3
The average monthly number of persons (including Executive Directors) employed
by the Group during the year was 70, all of whom were involved in management
and administration activities (2015: 64). Details of the Directors'
remuneration can be found in the Directors' Remuneration Report in the full
Annual Report and Accounts.
9. Taxation
2016 £m 2015 £m
Current tax - -
Deferred tax - -
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'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").
This exemption provides that gains arising on the disposal of qualifying
holdings are not chargeable to UK corporation tax and, as such, the Group has
continued not to recognise a provision for deferred taxation in respect of
uplifts in value on those equity holdings that meet the qualifying criteria.
Gains arising on sales of non-qualifying holdings would ordinarily give rise
to taxable profits for the Group, to the extent that these exceed the Group's
operating losses from time to time.
The amount for the year can be reconciled to the profit per the statement of
comprehensive income as follows:
2016 £m 2015 £m
Profit before tax (14.8) 75.1
Tax at the UK corporation tax rate of 20.0% (2015: 20.3%) (3.0) 15.2
Expenses not deductible for tax purposes 0.9 1.4
Fair value movement on investments qualifying for SSE (1.3) (18.8)
Movement on share-based payments 0.1 (0.6)
Unrecognised other temporary differences - 1.3
Movement in tax losses arising not recognised 3.3 1.5
Total tax charge - -
At 31 December 2016, deductible temporary differences and unused tax losses,
for which no deferred tax asset has been recognised, totalled £141.7m (2015:
£105.5m). An analysis is shown below:
2016 2015
Amount £m Deferred tax £m Amount £m Deferred tax £m
Share-based payment costs and other temporary differences 14.1 2.4 6.0 1.1
Unused tax losses 127.6 21.7 99.5 17.9
141.7 24.1 105.5 19.0
At 31 December 2016, deductible temporary differences and unused tax losses,
for which a deferred tax asset/(liability) has been recognised, totalled £nil
(2015: £nil). An analysis is shown below:
2016 2015
Amount £m Deferred tax £m Amount £m Deferred tax £m
Temporary timing differences 2.6 0.4 (4.4) (0.8)
Unused tax losses (2.6) (0.4) 4.4 0.8
- - - -
10. Earnings per Share
Earnings 2016 £m 2015 £m
Earnings for the purposes of basic and dilutive earnings per share (13.5) 73.9
Number of shares 2016 Number of shares 2015Number of shares
Weighted average number of ordinary shares for the purposesof basic earnings per share 565,056,171 540,681,647
Effect of dilutive potential ordinary shares:
Options or contingently issuable shares - 1,237,274
Weighted average number of ordinary shares for the purposesof diluted earnings per share 565,056,171 541,918,921
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). As the Group
made a loss for the period the potentially dilutive shares outstanding at the
period end are not considered when calculating the diluted earnings per
share.
11. Goodwill
£m
At 1 January 2016 57.1
At 31 December 2016 57.1
The Group conducts annual impairment tests on the carrying value of goodwill,
based on the recoverable amount of the CGUs to which the goodwill has been
allocated. The goodwill allocated to each CGU is summarised in the table
below. A number of both value-in-use and fair-value-less-costs-to-sell
calculations are used to assess the recoverable values of the CGUs, details of
which are specified below.
2016£m 2015£m
University partnership CGU 55.0 55.0
Fund management CGU 2.1 2.1
57.1 57.1
Impairment review of venture capital fund management CGU
The key assumptions of the DCF model used to assess the value in use, and the
range of multiples applied in calculating the fair-value-less-costs-to-sell
based on a percentage of assets under management are shown below:
2016 2015
Discount rate 9%-11% 9%-11%
Number of funds under management 4 3
Management fee 2%-3.25% 2%-3.5%
Cost inflation 1.5% 2%
Percentage of assets under management 2%-7.5% 2%-7%
A number of different value-in-use models were assessed in order to evaluate
the recoverable value of the CGU, none of which resulted in an impairment
being required.
Impairment review of the university partnership CGU
The key assumptions of the DCF models used to assess the value in use are
shown below.
For the purposes of impairment testing, the university partnership CGU
comprises those elements connected with the Group's university partnership
business. The Directors consider that for each of the key variables which
would be relevant in determining a recoverable value for the university
partnership CGU, there is a range of reasonably possible alternative values.
The key variable ranges are set out below:
Number of spin-out companies per year 10-15 10-15
Annual investment rate £40-£75m £40m-£60m
Rate of return achieved 15%-22% 18%-22%
Initial equity stake acquired by the Group under the university partnership 12%-30% 15%-35%
Proportion of spin-out companies failing 38%-54% 32%-45%
Weighted average holding period (years) 4-6 3-5
Dilution rates prior to exit as a result of financing for spin-out companies 40%-60% 40%-60%
Proportion of IPO exits 25%-35% 25%-35%
IPO exit valuations £30m-£40m £30m-£40m
Proportion of disposal exits 25%-32% 28%-32%
Disposal valuations £25m-£35m £25m-£35m
Discount rate 9%-11% 9%-11%
Discount rate
9%-11%
9%-11%
When determining the key variables, management has, where possible and
appropriate, used historical performance data as a basis. In instances where
the forecasted volumes and scale of activity do not align with the Group's
prior performance, management applies its judgement in determining said
variables. A number of different value-in-use models were assessed in order to
evaluate the recoverable value of the CGU, none of which resulted in an
impairment being required.
12. Intangible Assets
£m
Cost
At 1 January 2016 21.4
Additions 0.2
At 31 December 2016 21.6
Accumulated amortisation
At 1 January 2016 10.9
Charge for the year 5.6
At 31 December 2016 16.5
Net book value
At 31 December 2016 5.1
At 31 December 2015 10.5
The intangible assets represent contractual arrangements and memorandums of
understanding with four UK universities acquired through acquisition of a
subsidiary. The contractual arrangements have fixed terms and, consequently,
the intangible assets have a finite life which align with the remaining terms
which, at the end of the period, range from 14 months to 19 months. The
individual contractual arrangements are amortised in a straight line over the
remainder of their terms with the expense being presented directly on the
primary statements.
13. Categorisation of Financial Instruments
At fair value through
profit or loss
Financial assets Held for trading £m Designated upon initial recognition £m Loans and receivables £m Total £m
At 31 December 2016
Equity investments - 594.9 - 594.9
Debt investments - 19.1 - 19.1
Other financial assets - - - -
Limited and limited liability partnership interests - 4.2 - 4.2
Trade and other receivables - - 2.6 2.6
Deposits - - - -
Cash and cash equivalents - - 112.3 112.3
Total - 618.2 114.9 733.1
At 31 December 2015
Equity investments - 543.1 - 543.1
Debt investments - 9.1 - 9.1
Other financial assets - - - -
Contingent value rights - 1.4 - 1.4
Limited and limited liability partnership interests - 4.4 - 4.4
Trade and other receivables - - 3.2 3.2
Deposits - - 70.0 70.0
Cash and cash equivalents - - 108.8 108.8
Total - 558.0 182.0 740.0
All financial liabilities are categorised as other financial liabilities and
recognised at amortised cost.
The Group does not consider that any change in fair value of financial assets
in the year is attributable to credit risk (2015: £nil).
All net fair value gains in the year are attributable to financial assets
designated at fair value through profit or loss on initial recognition (2015:
all net fair value gains 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.
14. Investment Portfolio
Level 1 Level 2 Level 3
Equity investments in quoted spin-out companies £m Equity investments in unquoted spin-out companies £m Unquoted debt investments in spin-out companies £m Equity investments in unquoted spin-out companies £m Total £m
At 1 January 2016 201.3 308.6 9.1 33.2 552.2
Investments during the year 10.9 50.9 6.2 1.7 69.7
Transaction-based reclassifications during the year - 0.7 (0.7) - -
Other transfers between hierarchy levels during the year - (39.8) 6.7 33.1 -
Disposals (15.0) (0.2) (0.1) - (15.3)
Fees settled via equity - 0.4 - - 0.4
Change in fair value in the year(i) (36.1) 47.4 (2.1) (2.2) 7.0
At 31 December 2016 161.1 368.0 19.1 65.8 614.0
At 1 January 2015 138.2 193.2 4.0 14.5 349.9
Investments during the year 26.2 82.3 7.1 0.3 115.9
Transaction-based reclassifications during the year 2.3 (1.4) (0.9) - -
Other transfers between hierarchy levels during the year 24.6 (50.9) 0.1 26.2 -
Disposals - - (0.3) (0.5) (0.8)
Fees settled via equity - 0.7 - - 0.7
Change in fair value in the year(i) 10.0 84.7 (0.9) (7.3) 86.5
At 31 December 2015 201.3 308.6 9.1 33.2 552.2
i. (i)The change in fair value in the year includes a gain of
£0.7m (2015: £0.1m) in exchange differences on translating foreign currency
investments, which is entirely attributable to Level 2 equity.
The Group's policy is to classify equity investments in unquoted spin-out
companies as Level 2 where prices have been determined from recent investments
in the last twelve months. The impact of changing the qualifying criteria for
Level 2 to be determined from recent investments in the last six months would
mean 4.4% (2015: 29.9%) of the equity investments in unquoted spin-out
companies would be re-classed to Level 3.
Fair values of unquoted spin-out companies classified as Level 3 in the fair
value hierarchy have been determined, in part or in full, by valuation
techniques that are not supported by observable market prices or rates.
Investments in 32 (2015: 21) companies have been classified as Level 3 and the
individual valuations for each of these have been arrived at using a variety
of valuation techniques and assumptions.
Where fair values are based upon the most recent market transaction, but that
transaction occurred more than twelve months prior to the balance sheet date,
the investments are classified as Level 3 in the fair value hierarchy. The
fair values of investments categorised as Level 3 are analysed on a monthly
basis to determine business factors which may make the most recent investment
rate no longer a representation of fair value.
There are no identified unobservable inputs to which the Level 3 fair values
would be materially sensitive. This is represented by the fact that if the
fair value of all Level 3 investments were to decrease by 10%, the net assets
figure would decrease by £6.6m (2015: £3.3m), with a corresponding increase if
the unobservable inputs were to increase by 10%.
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 tiers 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 tier 2, and those changes post are attributed to tier 1.
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.
Transfers between Level 2 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 £nil.
Transfers between Level 1 and Level 2 would occur when a quoted investment's
market becomes inactive, or the portfolio company elects to delist. There has
been one such instance in the current period which amounted to £nil (2015:
£nil).
Transfers between Level 3 and Level 2 occur when an investment which
previously had a most recent investment of over twelve months ago undertakes
an investment, resulting in an observable market rate. In the current period,
transfers of this nature amounted to £7.3m (2015: £2.1m).
Transfers between Level 2 and Level 3 occur when an investment's recent
investment becomes more than twelve months old, with the price being deemed
unobservable. In the current period, transfers of this nature amounted to
£45.3m (2015: £28.4m).
Fair value changes in Level 3 investments have been a loss of £2.2m (2015:
£7.3m) in the period, recognised within change in fair value of equity and
debt investments in the condensed consolidated statement of comprehensive
income.
Change in fair value in the year
2016 £m 2015 £m
Fair value gains 57.3 115.4
Fair value losses (50.3) (29.0)
7.0 86.4
The Company's interests in subsidiary undertakings are listed in note 2 to the
Company's financial statements.
15. Trade and Other Receivables
2016 £m 2015 £m
Trade debtors 2.3 3.0
Prepayments 0.3 0.2
Other receivables - -
2.6 3.2
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. Contingent Value Rights
As a result of the disposal of Proximagen Group plc in August 2012, the Group
received contingent consideration, in the form of contingent value rights
("CVRs"), based upon future net revenues of two associated drug programmes. In
line with the Group's policies, these have previously been recognised as
financial assets at fair value through profit and loss. The Group re-evaluated
the likelihood of receiving the contingent consideration in relation to the
CVRs at the reporting date and no longer consider that it is realisable. The
financial asset has been fair valued at £nil (2015: £1.4m) and the associated
fair value movement has been charged to the consolidated statement of
comprehensive income. The Group considers this asset to be Level 3 in the fair
value hierarchy throughout the current and previous financial years.
17. Trade and Other Payables
Current liabilities 2016 £m 2015 £m
Trade payables 0.7 0.7
Social security expenses 0.3 0.2
Other accruals and deferred income 1.1 3.0
2.1 3.9
18. Borrowings
Non-current liabilities 2016 £m 2015 £m
EIB debt facility 14.9 14.9
Loans drawn down from the Limited Partners of consolidated funds 9.8 7.1
24.7 22.0
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.
EIB debt facility
On 8 July 2015 the Group secured a £30m, 8-year debt facility from the
European Investment Bank. The facility is to be disbursed in two tranches. The
Group will use the proceeds to continue to fund UK university spin-out
companies as they develop and mature. A non-utilisation fee of 0.15% is
charged over the undrawn element of the facility, which in 2016 was £nil
(2015: £nil).
The first tranche of £15.0m was drawn down on 16 December 2015. There were
£0.1m of initial transaction costs incurred in the arrangement of the
facility. This balance was set against the loan amount and is to be
subsequently amortised over the term of the loan. The associated charge to the
statement of comprehensive income for 2016 was £nil (2015: nil). The capital
is repayable in ten equal payments over a five-year period with the first
payment due on 7 January 2019.
The drawn down element of the facility bears interest at a fixed rate of 1.98%
with an additional variable spread equal to the six month GBP Libor rate as at
the first date of each six-month interest period. The first £15.0m tranche was
disbursed on 17 December 2015 and the average floating interest rate
(including the fixed element) for 2016 was 2.66% (2015: 2.48%). The interest
charged in 2016 was £0.4m (2015: £nil).
The Group must ensure that the ratio between the value of the portfolio along
with the value of the Group's cash net of any outstanding liabilities, and the
outstanding debt facility does not fall below 6:1. The Group must maintain
that the amount of unencumbered funds freely available to the Group is not
less than £15.0m. The Group is also required to maintain a separate bank
account which must at any date maintain a minimum balance equal to that of all
payments due to the EIB in the forthcoming six months.
19. Share Capital
2016 2015
Issued and fully paid: Number £m Number £m
Ordinary Shares of 2p each
At 1 January 564,648,168 11.3 479,524,397 9.6
Issued under share placings - - 83,388,888 1.7
Issued under employee share plans 573,799 - 1,734,883 -
At 31 December 565,221,967 11.3 564,648,168 11.3
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.
In April 2016, the Group issued 457,877 new Ordinary Shares in order to settle
the 2013 LTIP scheme for which the vesting conditions were fully achieved and
consequently the resulting shares became issuable to the Group's employees.
The Group issued 101,622 new Ordinary Shares in order to settle the exercise
of certain options that had been issued under the Group's Deferred Bonus Share
Plan ("DBSP", see Note 21). Finally, in November 2016, the Group issued 14,300
new Ordinary Shares in order to settle the exercise of options by a former
Group employee.
20. Operating Lease Arrangements
2016 £m 2015 £m
Payments under operating leases recognised in the statementof comprehensive income for the year 0.5 0.4
At the reporting date, the Group had outstanding commitments for future
minimum lease payments under non-cancellable operating leases, which fall due
as follows:
2016 £m 2015 £m
Within one year 0.6 0.3
In the second to fifth years inclusive 3.1 0.1
3.7 0.4
Operating lease payments represent rentals and other charges payable by the
Group for its office properties. Leases are negotiated for an average term of
five years and rentals are fixed for an average of one year.
In December 2016 the Group entered into a lease for new head office premises
with an initial rent free period of twelve months and a total 5-year
commitment of £3.1m in lease and service charge payments.
21. Share-Based Payments
In 2016, the Group continued to incentivise employees through its LTIP and
AIS. Both are described in more detail in the Directors' Remuneration Report
in the full Annual Report and Accounts.
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 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:
2016 2015
At 1 January 187,869 362,608
AIS deferral shares award during the year 781,148 -
Exercised during the year (101,622) (174,739)
Lapsed during the year (29,400) -
At 31 December 837,995 187,869
No associated expense has been incurred for the 2016 AIS as the financial
performance targets were not achieved.
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 2016 LTIP awards were made on 16 May 2016. The awards will ordinarily vest
on 31 March 2019, 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
2016 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 2015 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 2016 to 31 December 2018, and
TSR increasing by 15% per year on a cumulative basis from the date of award to
31 March 2019, 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 2015 LTIP awards were made on 21 May 2015. The awards will ordinarily vest
on 31 March 2018, 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
2016 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 2015 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 2015 to 31 December 2017, and
TSR increasing by 15% per year on a cumulative basis from the date of award to
31 March 2018, 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 2014 LTIP award was made on 31 March 2014. The awards will ordinarily vest
on 31 March 2017, 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
2016 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 2014 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 2014 to 31 December 2016, and
TSR increasing by 15% per year on a cumulative basis from the date of award to
31 March 2017, 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 2013 LTIP awards vested on 31 March 2016 and thereafter shares in IP Group
were issued via the Group's employee benefit trust to the relevant members of
the Group's staff accordingly. The table below sets out the performance
measures relating to the 2013 LTIP awards and the actual performance
achieved.
Performance condition Target performance Actual performance
Hard NAV (at 31 Dec 2015)(i) 8%: £624m15%: £712m £714.3m(15.2% p.a. growth)
Annual TSR(ii)(share price) 8%: 180p15%: 217p 175.1p(7.2% p.a. growth
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