REG - IP Group PLC - IP Group plc - Annual Results
08/03/2023 07:15
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RNS Number : 2226S IP Group PLC 08 March 2023
FOR RELEASE ON 8 March 2023
("IP Group" or "the Group" or "the Company")
IP Group plc Annual Results Release
Group well financed and focused on delivering returns for stakeholders;
resilient portfolio, well-funded & aligned to three world-changing themes
IP Group plc (LSE: IPO), which invests in breakthrough science and innovation
companies with the potential to create a better future for all, today
announces its annual financial results for the year ended 31 December 2022.
2022 highlights
Significant progress in key themes & companies
· Regenerative future (Cleantech): Strong return in the period delivered by
uplifts at First Light Fusion, which achieved world-first fusion result with
'projectile fusion', externally validated by the UK Atomic Energy Authority;
and Oxbotica which completed a $140m Series C financing round at significant
uplift
· Healthier future (Life Sciences): Istesso commenced Phase 2b trial for
its lead drug MBS2320 in rheumatoid arthritis; MBS2320 granted Fast Track
designation by the US FDA for the treatment of patients with idiopathic
pulmonary fibrosis ("IPF") & also designated it an orphan drug for the
treatment of IPF
· Tech-enriched future (Deeptech): Featurespace, Garrison, SaltPay,
Ultraleap all posted double-digit revenue growth; sale of Re:Infer to global
leader UiPath, delivering IRR of 29%
Delivering evolved strategy
· Deeper thematic focus which included the launch of dedicated cleantech
platform Kiko Ventures
· Third-party capital funds under management increased to £697m vs £575m
in 2021, in line with long-term strategy
· Increased impact, together with Parkwalk, IP Group is one of the largest
investors in university and other research-based companies in the world; the
most prolific investor in deeptech companies in the UK and the second most
prolific in Europe
Well financed & resilient portfolio
· Strong balance sheet and liquidity to support new and follow-on
investment in the portfolio with gross cash and deposits at 31 December 2022
of £241.5m (2021: £321.9m); total potential liquidity (including quoted
shares and undrawn debt) of over £500m
· Loss in the period of £344.5m (2021: profit of £449.3m). Driven
primarily by a reduction in the value of our public companies of £428.5m and
in the value of ONT in particular, which reduced by £369.7m
· Portfolio companies well-funded; total funds raised by portfolio £1.0bn
(2021: £2.4bn)
· Private portfolio company valuations remained robust with 90% of our
portfolio funding rounds in 2022 taking place at or above previous funding
round valuations
· Recommended final dividend of 0.76p per share to give a total 1.26p for
FY22 (interim dividend of 0.50p per share; 2021 total dividend of 1.2p per
share), completion of £35m share buyback; £20.3m total capital returned to
shareholders in the year
Post period-end update
· Appointment of Anita Kidgell, Head of Corporate Strategy at GSK plc, as
independent Non-executive Director
· The fair value of the Group's holdings in listed companies experienced a
net fair value decrease of £26.2m in the period since 31 December, including
ONT decreasing by £28.3m.
Summary financials
FY 2022 FY 2021
Net Asset Value (NAV) £1,376.1m; 132.9pps £1,738.1m; 167.0pps
Loss/profit Loss of (£344.5m) Profit of £449.3m
Loss/profit excluding ONT ((i)) Profit of £25.2m Profit of £202.1m
Total portfolio ((i)) £1,258.5m £1,507.5m
Net portfolio loss/profit ((i)) £309.1m loss £499.2m gain
Gross cash and deposits ((i)) £241.5m £321.9m
Realisations £28.1m £213.9m
Portfolio investment ((i)) £93.5m £106.8m
Total dividend((ii)) 1.26pps 1.20pps
(i) Note 29 details the Alternative Performance Measures ("APM")
(ii) Total dividend for 2022 subject to approval of final dividend of
0.76pps at the Group's 2023 AGM
Greg Smith, Chief Executive of IP Group, said: "We have continued to see
strong commercial progress and interest in our portfolio this year despite the
economic headwinds and prevailing geopolitical environment. IP Group is well
financed and our strong balance sheet allows us to continue to capitalise on
opportunities in the UK and internationally. Our portfolio is also well funded
which, together with our decades of experience in supporting fast growing
companies, ensures our companies are well-placed to navigate this environment.
While the share prices of our publicly listed companies and that of the Group
have come under pressure, we remain focussed on generating returns for all
stakeholders and are confident that our high-quality portfolio will generate
significant value over time."
Webinar
IP Group will host a webinar for analysts and investors today, 8 March, at
10:00am. For more details or to register as a participant please visit
https://www.investormeetcompany.com/ip-group-plc/register-investor
(https://www.investormeetcompany.com/ip-group-plc/register-investor) .
For more information, please contact:
IP Group plc www.ipgroupplc.com
Greg Smith, Chief Executive Officer +44 (0) 20 7444 0050
David Baynes, Chief Financial and Operating Officer
Liz Vaughan-Adams, Communications +44 (0) 20 7444 0062/+44 (0) 7967 312125
Portland
Vic Wallin +44 (0) 7973 823119
Alex Donaldson +44 (0) 7516 729702
Further information on IP Group is available on our website:
www.ipgroupplc.com
Notes
(i) Nature of announcement
This Annual Results Release was approved by the Directors on 07 March 2023.
The financial information set out in this Annual Results Release does not
constitute the Company's statutory accounts for 2022 or 2021. Statutory
accounts for the years ended 31 December 2022 and 31 December 2021 have been
reported on by the Independent Auditor. The Independent Auditor's Reports on
the Annual Report and Financial Statements for 2022 and 2021 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 2021 have been filed with the
Registrar of Companies. The statutory accounts for the year ended 31 December
2022 will be delivered to the Registrar following the Company's Annual General
Meeting.
The 2022 Annual Report and Accounts will be published in April 2023 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 that
could cause or contribute to such changes include, but are not limited to, the
general economic climate and market conditions, as well as specific factors
relating to the financial or commercial prospects or performance of individual
companies within the Group's portfolio.
STRATEGIC REPORT
CHAIRMAN'S SUMMARY
IP Group's performance and the resilience of its portfolio companies in 2022
was impressive given the degree to which unanticipated events dominated the
year. Our agility and willingness to adjust to market conditions speaks
volumes for the strength of our executive leadership during challenging times.
2022 turned out to be a year in which unanticipated and unexpected events
dominated, from the geopolitical to the economic, from financial market
volatility and correction to pandemic response. War in Europe, heightened
geopolitical tension, supply chain disruption and reconfiguration, increased
inflationary expectations, accelerating interest rate rises, energy and
cost-of-living crises, unprecedented political turmoil in the UK, fragile
capital markets and inconsistent COVID responses all impacted. Of most direct
relevance to IP Group was the dramatic valuation decline of technology driven
listed companies whose growth prospects post-pandemic were reappraised
downwards, with that decline amplified by the impact of significantly higher
interest rates applied to discount future returns. The aggregate of all these
conditions contributed to a significant tightening of risk appetite amongst
investors and it was against this backdrop that we navigated the year just
ended.
The resilience of the vast majority of our unlisted portfolio companies, in a
year in which the availability of venture funding for scale-up financing was
heavily cut back, was reassuring and where funding rounds were concluded, 90%
of these were at valuations consistent with or ahead of the last funding round
price. The £93.5 million we invested in the portfolio in 2022 was broadly in
line with the prior year £106.8m, enabled by portfolio realisations over the
past two years; put into context that investment accounted for just 9% of the
£1.0 billion that was raised in the portfolio from all sources, providing
external support for valuations.
During 2022 we adjusted our investment appetite to reflect the new economic
and market realities, investing less than we had planned to invest at the
beginning of the year. We also prioritised support in the year for the
companies we have designated as priority opportunities. Timely and prudent
adjustments to investment criteria are essential to maintaining capacity to be
able to offer long-term support to our portfolio companies. Pursuant to this,
we successfully raised private long term fixed-rate debt in the summer of
2022, fortuitously ahead of the sudden interest rate increases seen in the
second half of the year. The £120m raised protects our ability to support our
portfolio without having to dispose of listed investments at prices below our
evaluation of their future potential.
Looking to the future, we remained active in reviewing a strong pipeline of
investment opportunities across all sectors but held fire while we waited to
see whether the significant valuation downgrades seen in public markets for
technology-related companies would flow through to early-stage unlisted
companies. It is, however, worth noting that the 'froth' now recognised in the
valuation of certain high profile listed tech companies was not such a feature
in early-stage companies in the sectors we cover.
Inevitably, after two very strong years of divestment success, we had many
fewer opportunities to take money out of the portfolio, realising some £28.1m
in 2022 versus £213.9m and £191.0m in the two prior years.
Financial Performance
Our financial results in 2022 were dominated by the change in valuation of our
stake in Oxford Nanopore ("ONT") essentially reversing the unrealised gain
booked in 2021. Loss for the year amounted to £344.5m, of which £369.7m
related to ONT. (2021 profit £449.3m of which £297.1m related to ONT).
Excluding ONT, the profit for 2022 was £25.2m, which was largely attributable
to mark to market gains in the private portfolio, offset by some valuation
declines in our other quoted companies. Our unlisted portfolio performed
satisfactorily with two sizeable gains recorded in the year; in the first half
we recognised a fair value uplift of £57.3m in respect of First Light Fusion
following its successful achievement of fusion; and in the second half we
recognised a £45.4m valuation uplift following a successful funding round by
Oxbotica in which they raised $140m. Greg and the investment team discuss
these companies in more detail in their reviews, but I want to highlight three
points.
First, the decline in the share price of ONT over the year primarily reflects
a re-rating of the life science tools sector; ONT's performance and announced
forecasts have exceeded the projections made at the time of its flotation in
October 2021. We remain highly positive on the company's prospects, which we
expect to see reflected in its share price in due course.
Second, the fusion event which led to the valuation uplift at First Light
Fusion ("FLF") and was validated by the UK Atomic Energy Authority was
generated using physics consistent with that deployed by the Lawrence
Livermore National Laboratory ("LLNL") in the United States in December who
were the first to generate 'net gain' to great public acclaim. Although the
approach being used by FLF uses a different method of inertial confinement to
that of LLNL, their success has greatly encouraged the team at FLF.
Third, the fundraise at Oxbotica is evidence of the great progress made in the
last year and means the company is well-capitalised and, we believe, on a path
to significant future value.
Two other portfolio events in 2022 are also important to highlight here.
First, Istesso began its Phase2b trials for its core metabolic reprogramming
agent MBS2320 and in addition attracted FDA Fast Track and Orphan Drug
designation for the same agent for the treatment of patients with IPF. Second,
we launched Kiko Ventures as the Group's dedicated cleantech platform.
As at the end of 2022, valuation of the Group's portfolio stood at £1,258.5m
(2021 £1,507.5m) and our cash resources amounted to £241.5 million gross and
£160.1m net of debt. (2021 £321.9m gross and £270.1m net of debt). Our
financial position and liquidity remain strong, both being areas of key focus
for the Board.
Net Asset Value at the end of 2022 stood at £1.4bn, down from £1.7bn at the
end of 2021 and ahead of the position at the end of 2020; most of this decline
reflected the fall in the ONT share price over the year. In terms of NAV per
share, our key performance metric, at the end of 2022 this stood at 132.9p per
share. This compares to our share price as at the same date of 55.1p
evidencing a discount to NAV of 59%. We have intensified our investor
relations engagement as one of the measures designed to narrow this gap,
delivery of which remains a core objective of the Board.
Board changes
We were delighted to welcome Anita Kidgell to the Board with effect from 18
January 2023. Anita brings a wealth of experience gained at one of the leading
pharmaceutical and healthcare companies, GSK plc. Currently Head of Corporate
Strategy at GSK, she brings to the Board a rare combination of a scientific
background together with strategic, investor relations and communication
experience. Following her appointment the Board comprises two executive
directors, five NEDs and the Chairman: equal representation of both male and
female.
Outlook
In many ways the outlook for IP Group is encouraging, notwithstanding the
general economic landscape. Support for science-based research and development
is a key priority of the UK Government as it seeks to enable UK-based business
to capture leading positions in the investment waves of the future. Delivery
of climate transition commitments will require trillions of dollars of
investment including in the science needed to decarbonise energy production
and distribution. Improving health outcomes for an ageing population will
remain a high priority for all governments, through early diagnosis and
technology that keeps people out of hospital or allows them to be looked after
at home or in a social care environment. Harnessing the power of deep tech to
improve the quality-of-life experience and keep data secure in an ever more
digitalised world will become ever more important within society. These are
areas where IP Group is heavily invested and seeks to contribute.
We enter 2023 with a clear plan of action to build on past portfolio successes
through investing in what is a maturing and exciting range of investment
opportunities. We have the financial capacity, the capital allocation
discipline and the human talent needed to be successful. I look forward to
updating you on progress in due course.
Sir Douglas Flint
Chairman
7 March 2023
CHIEF EXECUTIVE'S OPERATIONAL REVIEW
Introduction
In my first full year as Chief Executive Officer, I am pleased to report that
the Group has made excellent progress in its purpose of accelerating the
impact of science for a better future. IP Group, including Parkwalk, is one of
the largest investors in university and other research-based companies in the
world, backing science and innovation that shapes our future. Having already
helped create three unicorns (Oxford Nanopore, Ceres Power, Hinge Health), the
Group is well placed to support the 'science superpower' agenda and we aim to
replicate our success to date by growing and supporting more businesses to
values in excess of $1bn. This is being done through an increased focus of our
capital and resource on thematic areas where we have experienced and
specialist investment teams with track record, a maturing portfolio and a
clearly articulated approach to sourcing, growing, supporting and exiting
businesses. The Group is currently focused on businesses and opportunities
that contribute to a healthier future (biotech and healthcare), a
tech-enriched future (deeptech) and a regenerative future (cleantech).
The work that the leadership team has carried out over the last twelve months
has resulted in a clearly articulated strategy to deliver value, which is
built on five pillars - value creation, impact, insight and access,
distinctive reputation and exceptional talent, which are described in more
detail below. Today, in line with this strategy, we launch our new brand
identity which more accurately reflects who and what our business is today. By
articulating our clear sense of purpose, expertise and track record, we aim to
differentiate ourselves for investors, founders and co-funders.
As Douglas has described above, and as highlighted in our most recent
half-yearly report, 2022 saw a high level of macro uncertainty with rising
inflation and interest rates, fears of recession and ongoing geopolitical
concerns, greatly exacerbated by Russia's invasion of Ukraine. Like others,
the Group is not immune to geopolitical events and the resultant volatile
equity markets, and our public portfolio was impacted by the reaction of
global stock markets, particularly by the rotation out of growth and
technology stocks. This impacted both the Group's share price as well as that
of Oxford Nanopore and our other quoted investments.
IP Group was quick to respond to the challenging market environment, securing
a private market debt issue to provide additional funding flexibility, while
lowering the level of capital allocated for investment into the portfolio, and
the Group ended the year with gross cash and deposits of £241.5m. This
financial strength enabled us to continue to invest into our leading companies
over the period as well as continue to return a proportion of all cash exits
to shareholders. This year, cash returns to shareholders totalled £20.3m,
more than half of the £28.1m generated from portfolio realisations.
We recorded an overall loss in 2022 of £344.5m (2021: profit of £449.3m),
driven by a reduction in the value of our public companies of £428.5m, and in
the value of ONT in particular which reduced by £369.7m. However, despite the
worsening market conditions, IP Group has seen strong underlying progress in
the portfolio, contributing to our vision of a future enhanced by the impact
of transformative businesses we have identified, backed, and grown as
long-term partners. Among the many highlights in the portfolio were First
Light Fusion's world-first projectile-based inertial confinement fusion
result, which was externally validated by the UK Atomic Energy Authority,
Oxbotica's $140m Series C financing and Istesso starting a Phase 2b trial for
its drug MBS2320 in rheumatoid arthritis, with MBS2320 also being granted Fast
Track and orphan drug designation by the US FDA for a second indication, the
treatment of patients with idiopathic pulmonary fibrosis (IPF).
It is also important to note that our portfolio remains well funded. Despite
the more difficult portfolio company funding environment in 2022, our
portfolio raised financing at similar levels to those seen in 2020 and higher
than years before that. Some fundings were, however, delayed or took longer
than anticipated to complete. In terms of valuations, our private portfolio
company valuations remained robust with considerably more (90%) of our
companies who raised money in the current period doing so at or above previous
funding round valuations. While we have continued to see little direct
evidence of the public market correction impacting valuations in our private
portfolio, we are mindful of the higher level of uncertainty around private
valuations and have responded by obtaining independent external valuations for
ten of our largest private companies and have reduced the valuation of several
of our later stage holdings where appropriate. Further details of our approach
are set out in the financial review section.
IP Group continues to be well financed and is well placed to support its
exciting portfolio of high-growth companies that are at the heart of the
'innovation nation' agenda. Delivering returns for shareholders, alongside
impact, is a core principle of the Group and narrowing the discount to our NAV
per share remains a key focus. Our shareholder value proposition comprises
primarily capital growth over the medium and long term, alongside the return
of a proportion of cash realisations through dividends and other mechanisms
such as share buybacks.
Strategy
As the leading investor in impactful early-stage innovation with a proven
track record, differentiated access to innovation and deep sector expertise,
we believe there is enormous opportunity for IP Group to deliver significant
financial return through tackling some of the world's most significant unmet
needs. We will, of course, continue to work in partnership, particularly with
providers of long-term capital.
Our strategy to deliver financial returns and impact is built around five
strategic pillars - 'accelerate value creation'; 'have an impact on the world
that counts'; 'develop our unique insight, expertise and access'; 'build a
truly distinctive reputation'; and 'be a home for exceptional talent' -
underpinned by class-leading internal processes, services, and controls. The
launch of our updated brand today is one element of that plan.
There are two distinct phases to our strategy. The first, from now to the end
of 2025, will see us focus on 'putting IP Group on the map', aligned to our
purpose (we accelerate the impact of science for a better future) and our
vision (a future enhanced by the impact of transformative businesses we have
identified, backed, and grown as long-term partners).
Performance is essential and over the next three years, our strategic
priorities comprise demonstrating tangible success through the most
significant companies in our current portfolio, delivering measurable impact
and financial returns for our shareholders and wider stakeholders and
maintaining our financial strength by judiciously balancing investment as well
as delivering realisations. We are also building our access to private
capital, developing relationships with new capital providers, as we did this
year with Phoenix Group, to leverage our differentiated deal flow.
Our investment approach, the keystone of our overall approach, sees an
increased focus of our capital and resource on thematic areas where we have
experienced and specialist investment teams with track record and a clearly
articulated approach to sourcing, growing, supporting and exiting businesses.
Our technical acumen and sector insights are differentiators that enable us to
more effectively judge the value of early-stage innovation. The Group is
currently focused on businesses and opportunities that contribute to a
healthier future (life sciences), a regenerative future (cleantech) and a
tech-enriched future (deeptech). We see our flexible approach as a key
advantage: we can back companies with longer time to market than more
time-limited venture funds. We aim to initially hold sufficient equity to be
an influential shareholder, typically taking a board seat and working closely
with our portfolio company leadership teams.
The launch in 2022 of Kiko Ventures, the Group's wholly-owned platform
dedicated to supporting transformative climate technology, was a clear example
of this strategy. The Kiko team has delivered a strong track record, with a
gross IRR of over 30% since the establishment of the cleantech theme and more
than £150m of gross realisations. The Group envisages investment of around
£200m into this space over a five-year period.
The Group, through its sector and geographic teams, will drive short- to
medium-term returns via focusing resource and, where appropriate, capital onto
fewer more developed existing 'priority' portfolio companies that have the
potential to disproportionately impact our returns and underpin our
self-sustaining model. We will also continue to curate a differentiated
pipeline of future opportunities, using our combination of deep science
expertise, networks and investment track record to source and de-risk
investments in early-stage companies. We will continue to be an active and
influential shareholder, with Board presence on most of our most valuable
companies.
The strategy has also given consideration to which of our activities should be
deemphasised or ceased. In the UK for example, having returned the technology
transfer activities of Imperial College to the university in recent years, we
no longer directly carry out university technology transfer activities. We do
however remain very active in business building and backing the earliest
innovations from universities, particularly through Parkwalk's managed funds,
as well as from the Group's balance sheet. In North America, we have incubated
a vehicle that is fit for being a leader in the US market, with deep
relationships with a number of research institutions and a great team with
years of experience of building science-based companies. However, the scale of
US markets and research output suggest that the opportunity and capital
requirement will be substantially larger than the UK market and we are now the
largest strategic investor in the vehicle, Longview Innovation (formerly IP
Group, Inc.), alongside blue-chip, long-term US capital providers, rather than
being its sole funder. From a broader co-investment perspective, we have also
deemphasised carrying out brokerage-style fund-raising engagements for
individual portfolio companies, instead refocusing the Group's personnel and
relationships towards strategic capital partnerships and managed funds, such
as that with Hostplus in Australia. We will continue to review the Group's
business model in light of its evolved strategy.
The quality of our team, and having the right combination of scientific
rigour, venture experience and public market skills, is central to our ability
to deliver. The talent and experience we have in the business, and that we aim
to attract, will help drive higher returns.
The second phase of our strategy, from 2026 onwards, will see the Group having
demonstrated significant value creation and a clear impact on key unmet needs;
building from significant scale with a clear presence in sub-sector ecosystems
and being recognised as a market leader.
I am confident that this approach strikes the right balance, building on the
track record we have carefully built over the last 20 years with the
additional ambition, focus and purpose that will generate success over the
coming decade and beyond, maximising the potential for all the Group's
stakeholders.
Overview of business performance including thematic focus & holdings
The performance of the Group's business units is summarised below with further
detail on the performance of each in the Portfolio Review.
All £m unless stated Invested Realisations Net portfolio gain/(loss) Fair value Simple return on capital (%)
at 31 Dec 2022
Healthier future: Oxford Nanopore 3.2 - (369.7) 205.5 (65%)
Healthier future: Life Sciences 35.7 15.6 (41.8) 390.8 (10%)
Tech-enriched future: Deeptech 20.4 8.7 (18.0) 201.0 (8%)
Regenerative future: Kiko Ventures (Cleantech) 22.3 3.5 114.6 243.8 111%
North America 2.9 - 4.2 87.1 5%
Australia and New Zealand 6.8 - 10.8 42.8 43%
Platform investments 1.7 0.2 (4.3) 43.6 (9%)
Organic and De minimis 0.3 0.1 (3.5) 17.0 (25%)
Total Net Portfolio 93.3 28.1 (306.7) 1,231.6 (21%)
Attributable to third parties 0.2 - (2.4) 26.9 (8%)
Gross Portfolio 93.5 28.1 (309.1) 1,258.5 (21%)
During the next one to two years, the focus in each of our thematic areas is
anticipated to be as follows:
- Healthier future: having consolidated the life sciences
portfolio into approximately 20 'core' holdings, there are eight companies
that are targeting key clinical milestones, including Istesso, Mission
Therapeutics, Akamis, Pulmocide and Crescendo. The team envisages focusing
resource and capital to support the delivery of these milestones and driving
commercial value for each company while also assessing an appropriate level of
new opportunities. On the non-therapeutics side, delivering continued
significant revenue growth is the focus for Oxford Nanopore and Hinge Health,
with companies such as Genomics plc targeting commercial validation.
- Tech-enriched future: a number of our leading deeptech
companies, such as Featurespace, SaltPay and Garrison are targeting value
accretion through continued double-digit revenue growth, with earlier
companies such as Diffblue, Audioscenic and Ultraleap seeking to grow early
revenues. The team also continues to assess an appropriate level of new
opportunities.
- Regenerative future: the Kiko portfolio is in a period of asset
number growth following the commitment of increased allocation to cleantech
last year. A focus for 2023 will be adding new companies to the portfolio, and
there is a strong pipeline of opportunities sourced from university and team
networks. Despite dry powder remaining in the market, prices are now starting
to soften, and this will allow the Kiko team to take advantage of investment
timing flexibility afforded by balance sheet capital. In the existing
portfolio First Light Fusion plans to raise further capital following its
inertial fusion result last year, and Hysata is expected to deliver
significant technical progress de-risking its breakthrough new hydrogen
electrolysis technology.
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
approximately £700m in third-party capital across our Parkwalk, UK and
Australian business units, an increase of more than 20% compared to 2021.
Shareholder value creation, capital allocation and returns
The Board continues to recognise that share price volatility and the discount
to NAV per share remains a major issue for shareholders and therefore remains
focused on shareholder value creation, having introduced an updated approach
during 2021. Under this approach, shareholder returns will continue to be
driven primarily by long-term capital appreciation. Subject always to the
Group's capital allocation policy, the majority of cash realisations will be
typically reinvested, and a proportion will now be used to deliver a cash
return to shareholders.
The Board remains committed to delivering a regular dividend income, which is
intended to comprise a relatively small component of total shareholder return
and will also continue to consider share buyback programmes and other capital
return tools as realisations are generated from our portfolio. Accordingly,
the Board has recommended a final dividend of 0.76p per share (2021: 0.72pps),
to be approved at the Company's forthcoming AGM, which would represent a total
dividend for 2022 of 1.26p (2021: 1.20pps).
In addition, 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 2024.
Outlook
Support for science-based research and development is a key priority of the UK
Government and governments in the other key territories in which we operate.
With a proven track record, built over more than two decades, we firmly
believe there is enormous opportunity to play an even greater role in the
'science superpower/innovation nation' agenda. We also continue to see
increased interest in our main thematic areas and remain confident that
investor appetite for growth companies will return. IP Group, which is a
leading value-add backer of impactful early-stage innovation, is well financed
with the right strategy and expertise to deliver growth and maximise value for
all our stakeholders.
Greg Smith
Chief Executive Officer
7 March 2023
PORTFOLIO REVIEW
Overview
As of 31 December 2022, the value of the Group's portfolio was £1,258.5m
(2021: £1,507.5m) reflecting a net portfolio loss of £309.1m (2021: gain
£499.2m). Cash invested during the year totalled £93.5m (2021: £106.8m) and
cash from realisations totalled £28.1m (2021: £213.9m).
The portfolio consists of interests in 95 companies (excluding de minimis and
organic holdings), of which the top 20 by value comprise 76% of the portfolio
value (2021: 100, 76%).
Fair value movements
A summary of the unrealised and realised fair value gains and losses is as
follows:
2022 2021
£m
£m
Quoted equity & debt investments (428.5) 286.4
Private equity & debt investments 101.4 206.3
Investments in Limited Partnerships (6.4) 1.8
Foreign exchange movements 24.4 4.7
Net portfolio (losses)/gains (309.1) 499.2
A summary of the largest unrealised and realised fair value gains and losses
by portfolio investment is as follows:
Gains £m Losses £m
First Light Fusion Limited 57.3 Oxford Nanopore Technologies plc (369.7)
Oxbotica Limited 45.4 Centessa Pharmaceuticals plc (14.8)
Nexeon Limited 8.4 Diurnal Group plc (13.7)
Hysata Pty Ltd 8.4 Import.IO, Inc. (10.4)
Akamis Bio Limited(1) 5.7 Hinge Health, Inc. (9.9)
Other quoted 0.3 Other quoted (42.0)
Other private 59.5 Other private (33.6)
Total 185.0 Total (494.1)
1 Previously called PsiOxus Therapeutics Limited
Investments and realisations
The Group deployed a total of £93.5m across 46 new and existing investments
during the year (2021: £106.8m, 65 projects), versus realisations of £28.1m
(2021: £213.9m), resulting in overall net investment for the year of £65.4m
(2021: net realisations £109.7m).
Largest investments and realisations by portfolio company:
Investments £m Cash Realisations £m
Featurespace Limited 10.0 Diurnal Group plc 13.7
Istesso Limited 10.0 Reinfer Limited(1) 8.6
Bramble Energy Limited 9.5 Nexeon Limited 3.5
Hysata Pty Ltd 5.7 Enterprise Therapeutics Holdings Ltd 1.8
Oxbotica Limited 4.2 Cambridge Innovation Capital Limited 0.2
Other 54.1 Other 0.3
Total 93.5 Total 28.1
1 Plus, deferred consideration valued at £1.1m (2021: £23.9m)
Deferred consideration estimated at £48.2m was outstanding at year end (2021:
£42.3m), predominantly relating to the Group's realisation of WaveOptics
(£28.8m, exited in 2021), Enterprise Therapeutics (£12.5m, exited in 2020)
and Kuur Therapeutics (£5.6m, acquired by Athenex in 2021).
Number of Investments
United Kingdom North America Australia & New Zealand Total
1 January 2022 88 1 14 103
Additions 8 - 1 9
Exited & acquired (3) - - (3)
Being closed/liquidated (3) - - (3)
Reclassified to de minimis (9) - (2) (11)
31 December 2022 79 1 13 95
Co-investment analysis
Including the £89.8m of primary capital invested by the Group (the Group also
invested £3.7m via secondary purchases), the Group's portfolio raised
approximately £1.0bn during 2022 (2021: £2.4bn). Co-investment from parties
or funds with a greater than 1% shareholding in IP Group plc totalled £24.9m.
An analysis of this co-investment by source is as follows:
2022 2021
Portfolio capital raised £m % £m %
IP Group(1) 89.8 9% 102.6 4%
IP Group managed funds(2) 35.6 4% 9.9 0%
IP Group plc shareholders (>1% holdings) 24.9 2% 147.1 6%
Institutional investors 249.7 25% 648.4 27%
Corporate, other EIS, individuals, universities and other 364.0 35% 1,473.3 62%
Capital into multi-sector platforms 250.0 25% 25.1 1%
Total 1,014.0 100% 2,406.4 100%
1 Reflects primary investment only; during 2022 the Group invested £3.7m via
secondary purchase of shares (2021: £1.1m).
2 Includes Parkwalk Advisors and other funds managed by IP Group.
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 focused investment teams based in
the United States and Australia. A small number of investments are categorised
as platform investments, which are portfolio companies which also invest in
other opportunities.
As at 31 December 2022 As at 31 December 2021
Fair value Number Fair value Number
Sector £m % % £m % %
Healthier future: Oxford Nanopore 205.5 17% 1 1% 572.0 40% 1 1%
Healthier future: Life Sciences 390.8 32% 33 35% 414.9 28% 36 35%
Tech-enriched future: Deeptech 201.0 17% 28 29% 226.3 15% 34 33%
Regenerative future: Cleantech 243.8 20% 15 16% 103.3 7% 12 12%
United States 87.1 7% 1 1% 80.1 5% 1 1%
Australia and New Zealand 42.8 3% 13 14% 25.2 2% 14 14%
Platform investments 43.6 4% 4 4% 46.2 3% 5 4%
Total 1,214.6 100% 95 100% 1,468.0 100% 103 100%
De minimis and organic holdings 17.0 10.4
Total portfolio 1,231.6 1,478.4
Attributable to third parties(1) 26.9 29.1
Gross portfolio 1,258.5 1,507.5
1 Amounts attributable to third parties consist of £13.9m attributable to
minority interests represented by third-party limited partners in the
consolidated fund, IP Venture Fund II (2021: £16.0m), £12.2m attributable to
Imperial College London (2021: £11.7m) and £0.8m attributable to other third
parties (2021: £1.4m).
Portfolio Review: Healthier future: Oxford Nanopore
While the IPO in October 2021 and after-market performance for the remainder
of that year was a great success, providing fair value gains of £297m on 31
December 2021, shares in Oxford Nanopore performed less well throughout 2022,
closing down 65%. We believe that this decline in price largely reflected the
general investor uncertainty in global stock markets and the Life Science
tools sector, rather than fundamental performance. In this respect, the
company reported Life Sciences Research Tools ("LSRT") revenue of £127m in
2021, representing a 94% increase over 2020, and increasing LSRT revenue
guidance for 2022 to £145-160m from the previous £135-145m. Half-year LSRT
revenue was £71m, up 34% year-on-year. This compares to US peers that reduced
their growth guidance to less than 10% or withdrew it altogether. While the
company's trading update in January suggested full-year 2022 LSRT revenue of
£147m, representing 16% growth and at the bottom end of the updated guidance
range (£145-160m), we continue to consider that this represents stronger
fundamental performance than the peers and we continue to believe in the
long-term prospects for the company.
Company name Description Group Stake at 31 December 2022 Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 December 2022
£m
Oxford Nanopore Technologies plc Enabling the analysis of any living thing, by any person, in any environment 10.1% 3.2 (369.7) 205.5
Portfolio Review: Healthier future: Life sciences
IP Group's Life Sciences portfolio comprises holdings in 33 companies valued
at £391m at 31 December 2022.
Company name Description Group Stake at 31 December 2022(1) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 December 2022
£m
Istesso Limited Reprogramming metabolism to treat autoimmune disease 56.4% 10.0 - 95.6
Hinge Health, Inc. The World's First Digital Clinic for Back and Joint Pain 1.8% - (9.9) 53.6
Ieso Digital Health Limited Digital therapeutics for psychiatry 32.1% - - 21.8
Akamis Bio Limited(2) Gene and viral therapies for cancer 25.0% - 5.7 21.2
Crescendo Biologics Limited Biologic therapeutics eliciting the immune system against solid tumours 14.6% - - 18.7
Artios Pharma Limited Novel oncology therapies 7.1% - 0.4 18.3
Mission Therapeutics Limited Targeting deubiquitylating enzymes for the treatment of CNS and mitochondrial 18.4% 2.7 - 18.1
disorders
Microbiotica Limited Gut-microbiome based therapeutics and diagnostics 18.0% 4.1 1.7 16.1
Oxular Limited Treatments and delivery technology for sight-threatening diseases 25.6% 1.3 - 15.9
Other companies (24 companies) (9.9) (39.7) 111.5
Total 8.2 (41.8) 390.8
1 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%.
2 Previously called PsiOxus Therapeutics Limited.
During the year, the value of the portfolio declined by 10%, driven largely by
declines in the share prices of the division's publicly listed stocks, with
Diurnal declining £13.7m, Centessa down £14.8m and Athenex down £7.2m.
These declines reflected both fundamental performance/pipeline setback and
broader investor uncertainty towards the public biotech sector. While we are
passive investors in Centessa and Athenex, with no representation on the board
of either company, we exercised our more active role in Diurnal by supporting
a strategic process which led to a sale of the business to Neurocrine for
27.5p/share in November, returning £13.7m to the Group. While we are
disappointed with the overall performance of Diurnal since flotation in 2015,
we believe the sale to Neurocrine represents a reasonably satisfactory outcome
given the situation the company found itself in during 2022, which involved a
precipitous decline in the share price following pricing and reimbursement
setbacks for the company's largest potential product, Efmody.
Elsewhere, we saw considerable progress across the portfolio, with Istesso
initiating its Phase 2b study of MBS2320 in rheumatoid arthritis ("RA") and
receiving Fast Track designation for the drug in idiopathic pulmonary fibrosis
("IPF"). Recruitment into the RA study is ongoing while a Phase 2 in IPF could
start in 2023. The Group showed its continuing support for this core asset by
way of a £10m investment during the year.
Hinge Health continues to significantly grow revenues and expand its customer
base. The company raised a $400m Series E round in October 2021 at a $5.8bn
company valuation, led by Coatue Management and Tiger Global. However,
considering public market performance in the first half of 2022 we engaged a
third-party valuation specialist to assess the company's current value. We
have valued our holding to the low-end of their suggested valuation range, a
27% reduction to the Series E price, which equates to a £17.0m reduction in
the value of the Group's holding. This was partially offset by FX gains,
resulting in a net £9.9m decrease in the carrying value of our investment.
There have been some significant developments at several of our other key
portfolio names, including Microbiotica's £50m Series B financing and
Crescendo Biologics' $750m collaboration with BioNTech, which is designed to
combine Crescendo's Humabody technology with BioNtech's mRNA platform in the
creation of novel therapeutic agents.
We are pleased to have made several new investments during the year,
including £3.5m into a Series A financing for GripAble, an Imperial
College-originated company developing digitally enabled rehabilitation
programmes and devices for people with neurological and musculoskeletal
conditions, and Kynos, an Edinburgh University spinout developing novel drugs
against kynurenine 3-monooxygenase ("KMO"), a pivotal enzyme in the mediation
of autoimmunity and cancer. In addition, the Group invested £2.4m into
Abliva AB, a Stockholm-listed biotech company developing novel agents for the
treatment of rare mitochondrial diseases. Abliva's lead drug, KL1333, has been
approved by the FDA to enter a potentially pivotal study in primary
mitochondrial disease ("PMD") and the company's recent c.£16m financing
round, in which the Group participated, is designed to enable the company to
reach a key inflexion point in this study. There are currently 14 companies in
the portfolio that have drugs in clinical trials.
During 2023, we expect key data for several of our companies' clinical studies
to drive valuation, new financings and/or possible business development
activity, including that for Crescendo, Akamis Bio and Mission.
Portfolio Review: Tech-enriched future: Deeptech
IP Group's Technology portfolio comprises holdings in 28 companies valued at
£201m at 31 December 2022.
Deeptech Portfolio
The IP Group Deeptech portfolio covers a breadth of areas aimed at delivering
value through growing trailblazing companies that enable and secure the
digital economy, create new human capability, and generate prosperity for all
in four key focus areas: Applied Artificial Intelligence, Next Generation
Networks, Human-Machine Interfaces and Future Computing.
Company name Description Group Stake at 31 December 2022(1) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 December 2022
£m
Featurespace Limited Leading predictive analytics company 20.5 10.0 2.6 64.1
Ultraleap Holdings Limited Contactless haptic technology 17.0 - (4.5) 31.0
"feeling without touching"
Garrison Technology Limited Anti-malware solutions for enterprise cyber defences 23.4 - 2.0 27.7
Salt Pay Co. Limited Mobile payments with integrated loyalty schemes Not disclosed - (8.1) 16.5
Other companies (24 companies) (0.3) (10.0) 61.7
Total 9.7 (18.0) 201.0
1 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%.
2022 was a challenging year in the global technology sector as public
technology markets declined and the rate of private investment slowed. Median
revenue multiples in the European listed venture sector fell steeply from
18.6x to 5.4x.
Considering this, we have been prudent in reducing the holding value of some
of our larger assets simply to reflect the fact that external comparators and
benchmarks imply a lower market valuation. That is not to say that those
companies are experiencing unexpected difficulties. On the contrary, our top
four portfolio companies, which make up 70% of the value of the £200.4m
Deeptech portfolio, continue to perform very well on the commercial front and
each is delivering revenue growth. Featurespace, Ultraleap, Garrison and
SaltPay all posted double-digit year-on-year revenue growth, whilst the sale
of Re:Infer to global leader UiPath was a stand-out success, delivering an
Internal Rate of Return on our investment of 29%.
Our most valuable asset holding, Artificial Intelligence fraud prevention
company Featurespace, continues to go from strength-to-strength in terms of
revenue growth and securing new blue-chip customers. The company is now at a
scale where it is having a substantial positive impact on society, protecting
millions of consumers from experiencing the catastrophic effects of fraud and
defending our global banking systems. The value of our 20.5% holding in
Featurespace increased in value by £2.6m over the period and we have strong
expectations for further growth in this asset as it expands its customer base.
Our second largest holding, world-leading hand tracking and haptics company
Ultraleap, continues to make good progress following its £60m series D
funding round in 2021. The company, which is enabling intuitive, touchless
gesture control in AR/VR, interactive kiosks, digital out-of-home and
automotive, delivered healthy revenue growth over the period and continues to
gain traction with enterprise customers that have the potential to deliver
significant royalty revenue through integration of the Ultraleap technology
into consumer products. In an important milestone, the Lynx R1 Augmented
Reality headset, which incorporates Ultraleap hand tracking technology, has
now begun shipping to customers.
Our third largest holding, Garrison Cybersecurity, which powers
enterprise-wide protection from phishing attacks and malware, had a very
strong year with healthy revenue growth powered by good traction with US and
UK governmental customers. The company also launched its Garrison Ultra
product, which allows customers to access their technology using a cloud
delivery model, which should add further to the bottom line.
Other major highlights in the portfolio in 2022 included the sale of
University College London spin-out Re:Infer. This company, which uses machine
learning technology to interpret massive volumes of conversational data and
identify efficiencies through automating processes, was sold to the global
market leader in Robotic Process Automation, UiPath, yielding £8.6m cash
proceeds to IP Group and delivering an Internal Rate of Return on our
investment of 29.0%.
On the less positive side, some of our lower value holdings felt the effects
of market headwinds and, in some cases, commercial setbacks. Mirriad, which
uses AI to place advertising naturally into video content, saw its share price
fall despite announcing an 800% increase in US campaign revenues for the 2021
holiday season compared to 2020. The other major losses this year came in the
form of a significant write down in the value of our holding in Import.io due
to shifting market conditions severely affecting the company's commercial
position, and an £8.1m reduction in the value of our holding in payment
processing company SaltPay, where macroeconomic and scaling challenges led to
some short-term underperformance which triggered a downwards valuation
adjustment (albeit we remain confident of this company's long-term prospects).
Portfolio Review: Regenerative future: Kiko Ventures (Cleantech)
Company name Description Group Stake at 31 December 2022(1) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group holding
at 31 December 2022 (1)
£m
£m
First Light Fusion Limited Solving fusion with the simplest possible machine 27.5 - 57.3 114.5
Oxbotica Limited Software to enable every vehicle to become autonomous 12.1 4.2 45.4 65.9
Bramble Energy Limited The fuel cell company with Gigafactories 31.5 9.5 3.5 20.7
Nexeon Limited Silicon anodes for next generation 5.5 (3.5) 8.4 16.3
lithium-ion batteries
Other companies (11 companies) 8.5 - 26.4
Total 18.7 114.6 243.8
1 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 Kiko Ventures portfolio comprises holdings in 15 companies valued at
£244m at 31 December 2022.
We were delighted to launch Kiko Ventures, the Group's first sector-specific
investment platform dedicated to cleantech, in 2022. With Kiko we are
demonstrating our strategy to increasingly focus our capital and resource on
the opportunities that we consider to represent the most attractive
risk/reward and our commitment to action on climate change with a substantial
investment budget of approximately £200m over the next five years. Kiko is a
wholly owned IP Group platform, with our cleantech team continuing to manage
existing cleantech assets and make new investments in this dynamic space. Kiko
is differentiated from other climate investors by its ability to leverage the
Group balance sheet to be an evergreen venture investor, providing flexibility
that is very useful in the development of clean energy and other climate
solutions and creating long-term alignment with climate tech entrepreneurs.
Our cleantech team has delivered a gross IRR of over 30% since the
establishment of the cleantech theme and gross exit proceeds of over £160m.
The team, led by partners Robert Trezona, Jamie Vollbracht and Arne Morteani,
will, under the Kiko Ventures brand, continue to support and build
category-leading companies in the field as well as managing the existing
cleantech portfolio, which was valued at over £175m at launch.
Global investment in cleantech reached an all-time high of $40bn in 2021 and
events during 2022 have further increased momentum for new energy
technologies. We intend to capitalise on this market with Kiko as the world's
first evergreen cleantech investor, leveraging the flexibility enabled by the
Group's balance sheet capital. This evergreen structure provides exceptional
flexibility and strong, long-term alignment with climate tech entrepreneurs.
Kiko Ventures' portfolio performance has been strong in 2022, primarily
because of progress in First Light Fusion and Oxbotica. The value of the Kiko
portfolio more than doubled in 2022, from £114.8m to £245.8m, reflecting net
investment of £19.2m and a fair value increase of £111.6m. In addition, the
portfolio has been expanded with investments in five new cleantech companies.
In April, First Light Fusion announced that it had achieved fusion, the first
time that the reaction has been demonstrated using projectile-based inertial
confinement. First Light achieved their result having spent less than £45m,
and with a rate of performance improvement faster than any other fusion scheme
in history. The result led to a revaluation of our stake in the company, and
based on recent comparatives and third-party valuation, the Group recorded a
net fair value gain of £57.3m. Including our participation in the Company's
(pre-fusion) Series C funding round, the Kiko Ventures stake in First Light is
now valued at £114.5m. Following its fusion breakthrough, the company is
working with UBS Investment Bank to raise a substantial Series D to take the
technology towards a demonstration of gain (net energy generation). If
successful, this would be one of the biggest-ever funding rounds by a British
energy start-up. In December 2022 researchers at the National Ignition
Facility ("NIF") at the Lawrence Livermore labs announced that they had
achieved gain using inertial confinement, the same underlying physics as First
Light. Gain from inertial fusion has significant implications for the fusion
sector, and for First Light in particular. First Light's approach leverages
the physics now proven by NIF but uses new engineering that can achieve a
competitive cost for energy generation. Pursuing inertial fusion using a
projectile - instead of the expensive ($4bn) laser used by NIF - is simpler,
lower-cost and has an easier pathway to a power plant.
In December, Kiko company Oxbotica, a global leader in autonomous vehicle
software, raised $140m (£115m) in a Series C investment round. Kiko supported
the round with an investment of £4.2m joined by other investors including bp
ventures, Hostplus, Ocado Group, Tencent and ZF. The Series C takes total
funds raised by Oxbotica to $225m. The new funding will drive Oxbotica's
geographical expansion in North America, EMEA and APAC, and accelerate the
deployment of its autonomy operating system in domains such as agriculture,
airports, energy, goods delivery, mining and shared passenger transportation.
The Group recorded a net fair value gain of approximately £45m following the
round. Parkwalk, IP Group's wholly owned EIS fund manager, has also invested
£9.9m in Oxbotica to date on behalf of its clients.
Other significant transactions included fund raises for Bramble Energy, Nexeon
and Hysata. In February, hydrogen fuel cell company Bramble completed a £35m
Series B with Kiko committing approximately £10m, one of the Group's largest
cleantech investments to date. Nexeon, an Imperial College spin-out developing
materials for lithium-ion battery anodes, also raised significant funding in
this period with a strategic consortium led by SKC investing $80m (£67m) in
the company, which led to an £8.4m increase in the fair value of our holding.
Kiko also invested alongside IP Group Australia in hydrogen electrolyser
company Hysata. In August, the company completed an oversubscribed $A42.5m
(£24.3m) Series A round, of which £5.1m was committed by Kiko. Funds will be
used to develop a pilot manufacturing facility aimed at delivering the world's
lowest cost green hydrogen. Hysata is developing a completely new type of
electrolyser using the world's most efficient electrolysis cell. The Hysata
electrolyser operates at 95% system efficiency (41.5 kWh/kg), delivering a
leap in performance and cost over incumbent technologies, which typically
operate at 75% or less. We also made five investments in new companies in the
period across a range of cleantech application areas from heat pumps to green
ammonia.
In less welcome developments, we took an impairment totalling £3.5m in three
of the smaller assets in the Kiko portfolio. These followed setbacks in
commercial progress and in two cases strategic interest from a large corporate
falling away.
Portfolio Review: North America
The Group's activities in North America are carried out through a 58%
strategic holding in a dedicated evergreen fund which we formed as a
wholly-owned subsidiary in 2013 and deconsolidated in 2021 following its
incubation within the Group. The Group's holding is now treated as a single
investment in our financial statements. 2022 was a strong year for the North
American platform. The team announced five external funding rounds totalling
more than $111m from new and existing blue-chip institutional investors. The
platform's investment and operational teams were strengthened to support
growth. This year saw the resumption of the annual Hard Science Innovation
Forum in-person in Philadelphia, which hosted a series of informative panels
and portfolio presentations to an audience that included investors, partners,
and founders. Following its deconsolidation from the Group and concurrent with
the overall rebranding, the platform has changed its name to Longview
Innovation.
The developments within Longview Innovation's portfolio include:
Carisma Therapeutics, Inc. entered into a definitive merger agreement with
publicly traded Sesen Bio, Inc., an all-stock transaction. Carisma
shareholders will own over 75% of the combined company, which will remain
listed on the NASDAQ following completion. Sesen Bio will be contributing
approximately $70 million to the combined company, while Carisma and its
investors will be contributing approximately $74 million, including $30
million from concurrent financing by Carisma, which is expected to fund the
combined company through multiple potential value inflection points over the
next 18 months.
Exyn Technologies, Inc. completed a $35 million Series B round led by
Reliance Industries. Exyn will utilize this investment to expand its global
footprint into India, Latin America, Australia, and Africa and build out its
new market verticals.
As it looks to 2023, Longview Innovation is seeing encouraging interest in its
platform from institutional investors, despite anticipated economic headwinds
and is well-positioned to continue to make transformative investments.
Company name Description Fair value
of Group
holding
at 31 December 2022(1)
£m
MOBILion Systems, Inc. A platform technology for conducting ion mobility separations with lossless 20.4
ion transfer and manipulation
Carisma Therapeutics, Inc. Cancer immunotherapy treatments 13.8
Uniformity Labs, Inc. Equipment, materials, and software for additive manufacturing 13.6
Exyn Technologies, Inc. Unmanned aerial systems 13.3
Other companies (26 companies) 26.0
Total 87.1
1 Represents the Group's undiluted beneficial economic equity interest
(excluding debt), including only the Group's interest in IPG Cayman LP, 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 strong progress
across the portfolio and building third-party funds under management. The
Australian portfolio delivered a net fair value uplift of £10.8m which
included major funding rounds at Hysata, AMSL Aero and Additive Assurance
alongside write-downs in a small number of assets, and the portfolio is now
valued at a total of £42.8m. The pipeline of opportunities from our
partnership with the Group of Eight and Auckland Universities continues to be
strong. We believe that the platform is well-positioned for continued growth
and returns over the next 3-5 years.
The ANZ portfolio now stands at 13 portfolio companies with an active pipeline
of prospective investments, with a number achieving significant operational
and financial milestones. Hysata continued to make strong progress in the
development of its novel capillary-fed electrolyser with market-leading
efficiency, announcing major additions to its team including former Chief
Commercial Officer of BHP Dean Dalla Valle as Chair, and former Australian
Chief Scientist Alan Finkel to Chair the Global Advisory Council. These
announcements follow on from the A$42.5m Series A funding round announced in
July. AMSL Aero, the developer of the world's most efficient eVTOL, announced
an A$23m Series B funding round led by St Baker Energy Innovation Fund.
Additive Assurance announced an A$4.1m funding round to continue the
commercial development of its product providing quality assurance for additive
manufacturing.
Portfolio review: Platform Investments
IP Group's Platform Investments portfolio comprises holdings in two companies
and two interests in Limited Partnerships, valued at £43.6m at 31 December
2022.
The Platform Investments portfolio contains holdings in multi-sector platform
companies that operate in a similar way to IP Group, but focus on a specific
university, such as OSE and CIC, and the UCL Technology Fund ("UCL") all three
of which IP Group was a founding investor of. As at 31 December 2022, IP Group
has a 1.8% holding in OSE valued at £20.6m and a 1.0% holding in CIC valued
at £3.5m (2021: 2.3%, £23.3m, 0.9%, £2.7m), and a 46.7% stake in the UCL
fund, valued at £16.9m (2021: 46.7%, £17.7m).
Company name Description Group Stake at 31 December 2022(1) Net Unrealised + realised fair value movement Fair value
% investment/ (divestment) £m of Group
£m holding
at 31 December 2022
£m
Oxford Science University of Oxford preferred IP partner under 15-year framework agreement 1.8 - (2.7) 20.6
Enterprises plc
Interest in UCL Technology Fund L.P. Commercialising world class research from UCL 46.7 1.7 (2.6) 16.9
Other companies (2 companies/LPs) - 1.0 6.1
Total 1.7 (4.3) 43.6
1 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%.
Third-party fund management
We are aiming to continue growing the level of funds under management in the
coming years. As of 1 January 2023, we have appointed Joyce Xie as Managing
Director, Global Capital, to lead the Group's strategic capital initiatives
with global capital partners and further build our third-party funds platform.
PARKWALK ADVISORS
Parkwalk, the Group's specialist EIS fund management subsidiary, now has
assets under management of £477m (2021: £388m) including alumni funds
managed in conjunction with the universities of Oxford, Cambridge, Bristol,
and Imperial College London. Parkwalk raised £64m in 2022 compared with £76m
in 2021 (which was a record year for the firm), despite somewhat difficult
global macroeconomic conditions and some UK-specific issues with both
government and tax rate changes. A particularly strong fundraising in Q1
helped the year overall. Parkwalk invested £57.4m in 2022 compared with
£52.2m in 2021 and Parkwalk EIS Funds returned £21.9m to investors during
2022 from three exits, generating returns of between 3x and 10x (excluding EIS
reliefs), and several companies were written off. The firm has now generated
cash returns to investors of more than £120m since inception.
In March 2022 Parkwalk closed its second HMRC-approved Knowledge Intensive EIS
Fund, and the first Knowledge Intensive EIS Fund was fully invested by May
2022.
Parkwalk invested £57.4m in 2022 (HY22: £38.0m; 2021: £52.2m) in the
university spin-out sector across 31 companies (2021: 40 investments).
Beauhurst named Parkwalk as the most active investor in the sector. In
November Parkwalk won 'Best EIS Investment Manager' at the Growth Investor
Awards.
Ten new companies joined the Parkwalk portfolio, and three successful exits
were achieved generating returns of between 3x and 10x. Parkwalk has now
generated over £120m in realisations for investors in total. Several
portfolio companies were wound down over the year. Fifteen portfolio companies
closed funding rounds at uplifts in valuation, one unchanged and two at lower
valuations than previously held value. The portfolio raised in excess of
£350m in funding this year.
Through Parkwalk, we liaised closely with BEIS, HMT and HMRC on the financial
ecosystem for knowledge-intensive spinout companies and the UK Government's
'science superpower' agenda.
AUSTRALIA
We were pleased to announce the commitment of a further A$100m from Hostplus
late in the year, reflecting the strong performance of the existing portfolio
and potential for further growth. The Group now manages a total of (A$310m) on
behalf of Hostplus. The IP Group HostPlus Innovation Fund has invested in
several of IP Group's portfolio companies in Australia and around the world,
providing additive growth capital for companies as they scale. We also
continue to extend our relationship with TelstraSuper through a co-investment
mandate.
GREATER CHINA
In China, we expect the first close of Fund I from ICCV, our Joint Venture
with China Everbright in the first half of 2023.
FINANCIAL REVIEW
David Baynes
Chief Financial and Operating Officer
"A strong financial position, with £242m of gross cash, £60m of undrawn debt
and a further £229m of listed securities giving total potential liquidity of
over £0.5bn.
Delighted to secure a new relationship with Phoenix Group as long-term capital
partners"
· Loss for the period of (£344.5m) (2021: profit of £449.3m)
· Net assets were £1,376.1m (2021: £1,738.1m)
· Net assets per share were 132.9p (2021: 167p)
· Final 2022 dividend of 0.76pps and 2022 interim dividend of 0.5pps
· New debt placing of £120m agreed primarily with Phoenix Group
Financial results
As at 31 December, the Group's Net Asset Value was £1,376.1m, or 132.9p per
share, compared with £1,738.1m, or 167.0p per share, at 31 December 2021. IP
Group's public portfolio recorded a fair value reduction of £428.5m in the
year (2021: gain of £286.4m), of which £369.7m related to the fall in the
share price of Oxford Nanopore Technologies plc (2021: gain of £297.1m). In
the private portfolio, the Group has seen fair value gains of £108.6m (2021:
£206.3m). Overall, the Group therefore recorded a net loss of £344.5m in the
period (2021: profit of £449.3m).
At year end, IP Group had gross cash and deposits of £241.5m (2021: 321.9m),
having deployed £93.5m of capital during the year including investments into
portfolio companies Istesso Ltd (£10m) and Bramble Ltd (£9.5m) as well as
several smaller size investments into current and new opportunities across all
three of our thematic areas.
The prevailing market conditions also impacted realisations which reduced to
£28.1m from a record of £213.9m in 2021. The Group closed the year with net
cash (i.e., gross cash and deposits less borrowings) of £160.1m (2021:
£270.0m).
Consolidated statement of comprehensive income
A summary analysis of the Group's performance is provided below:
Year ended Year ended
31 December 2022 31 December 2021
£m £m
Net portfolio (loss)/gain(1) (309.1) 499.2
Net overheads(2) (20.2) (19.5)
Administrative expenses - consolidated portfolio companies (0.1) (0.1)
Loss on disposal of subsidiary - (3.8)
Administrative expenses -share-based payments charge (2.9) (2.6)
Carried interest plan provision charge (12.0) (17.2)
Net finance income/(expense) 0.8 (1.4)
Taxation (1.0) (5.3)
(Loss)/profit for the year (344.5) 449.3
Other comprehensive income 0.5 0.3
Total comprehensive (loss)/profit for the year (344.0) 449.6
Exclude:
Share-based payment charge 2.9 2.6
Return on NAV(1) (341.1) 452.2
1 Defined in note 29 Alternative Performance Measures.
2 See net overheads table below and definition in note 29 Alternative
Performance Measures.
Net portfolio gains/(losses) consist primarily of realised and unrealised fair
value gains and losses from the Group's equity and debt holdings in spin-out
businesses, which are analysed in detail in the portfolio analysis above.
Net overheads
Year ended Year ended
31 December 2022 31 December 2021
£m £m
Other income 7.1 13.6
Administrative expenses - all other expenses (24.3) (28.3)
Administrative expenses - annual incentive scheme (3.0) (4.8)
Net overheads (20.2) (19.5)
Other income
Other income comprises fund management fees and licensing and patent income.
In 2022 other income totalled £7.1m (2021: £13.6m), a decrease from 2021,
primarily due to a £3.3m decrease in performance fees in respect of
third-party funds managed within our Australian business, a £1.4m decrease in
fund management revenues within Parkwalk, and a £1.3m decrease in revenues
from the Group's patent and license portfolio. Across all three areas, these
decreases were largely because of the strong revenues delivered in 2021, which
have reverted to average levels in 2022.
Other central administrative expenses
Other central administrative expenses, excluding performance-based staff
incentives and share-based payments charges, have reduced by £3.9m from the
prior year to £24.4m (2021: £28.3m). Most of this reduction resulted from
the deconsolidated of the US division, whose cost base was £4.0m in 2021,
this reduction has been partially offset by other inflationary cost increases
and some increases in our team size.
The charge of £3.0m in respect of the Group's Annual Incentive Scheme,
reflects a provisional assessment of performance against 2022 AIS targets
which include Group, Team, and Individual performance elements as described in
the Directors Remuneration Report (2021: £4.8m).
Other income statement items
The share-based payments charge of £2.9m (2021: £2.6m) reflects the
accounting charge for the Group's Restricted Share Plan, Long-Term Incentive
Plan and Deferred Bonus Share Plan. This non-cash charge reflects the fair
value of services received from employees, measured by reference to the fair
value of the share-based payments at the date of award, but has no net impact
on the Group's total equity or net assets.
Carried interest plan charge
The carried interest plan charge of £12.0m (2021: £17.2m charge) relates to
the recalculation of liabilities under the Group's carry schemes. As at 31
December 2022, 67% of the Group's equity & debt investments were included
within carry scheme arrangements (2021: 44.8%). The liabilities are calculated
based upon any excess of current fair value above cost and hurdle rate of
return within each scheme or vintage. Any payments will only be made following
the full achievement of cost and hurdle via cash realisations and are only
paid on the event of a cash realisation.
Consolidated statement of financial position
A summary analysis of the Group's assets and liabilities is provided below:
Year ended 31 December 2021
31 December 2022 £m
£m
Portfolio 1,258.5 1,507.5
Other non-current assets 7.7 32.0
Other net current assets/(liabilities) 33.2 (6.4)
Cash and deposits 241.5 321. 9
Borrowings (81.4) (51.8)
Other non-current liabilities (83.4) (65.1)
Total Equity or Net Assets ("NAV") 1,376.1 1,738.1
NAV per share 132.9p 167.0p
The composition of, and movements in, the Group's portfolio are described in
the portfolio review above.
Portfolio valuations
Given the public market valuation reductions in the year (particularly notable
in the first half) and slowdown in private company fundraise activity, we have
carried our year-end private portfolio valuations against a backdrop of
heightened valuation uncertainty. As a response, we have carried out an
enhanced valuation process in the period, including obtaining external
valuations for ten of our largest private assets (First Light Fusion, Istesso,
Featurespace, Hinge Health, SaltPay, Ultraleap, Garrison, Mission
Therapeutics, MOBILion and Akamis Bio) accounting for 44% of the private
portfolio value.
In the case of First Light Fusion, Featurespace, Garrison and Akamis Bio, our
third-party valuers recommended an increase in valuation in the year, because
of strong performance against milestones including revenues and technical
progress. In the case of Hinge Health, SaltPay, Ultraleap and MOBILion they
recommended a reduction in our carrying values, largely reflecting the impact
of reduced public market valuations. Valuations of Istesso and Mission were
unchanged. In all cases, our carrying values reflect the mid-point or below of
the valuation ranges we received from our external valuation consultants.
To date we have seen limited evidence of the public market correction
impacting earlier-stage private valuations both within broader market data,
and in our portfolio. While funding activity in the period was weaker than in
2021, our portfolio continued to raise significant amounts of capital in
funding rounds, the majority of which happened at higher valuations than the
previous funding round. An analysis of funding rounds within our portfolio is
as follows:
Year ended Year ended
31 December 2022 31 December 2021
No. % No. %
Up round 18 62% 16 56%
Flat round 8 28% 10 34%
Down round 3 10% 3 10%
Total 29 100% 29 100%
Most of our portfolio remains well funded, with many of our more mature
companies evidencing commercial progress or anticipating technical or funding
milestones in the next 12-18 months, therefore we remain confident around the
resilience of our portfolio.
The table below summarises the valuation basis for the Group's portfolio.
Further details on the Group's valuation policy and approach can be found in
notes 13 and 14.
Year ended Audited
Year ended
31 December 2022
31 December
£m
2021
£m
Quoted 228.7 662.7
Recent financing (<12 months) 289.8 388.6
Recent financing (>12 months) 117.8 71.6
Other: Future market/commercial events 40.7 39.5
Other: Adjusted recent financing price based on past performance 306.3 147.4
Other: DCF 97.7 85.6
Other: Revenue Multiple 77.9 19.2
Statements from LP 99.6 92.9
Total Portfolio 1,258.5 1,507.5
Other assets
The majority of other long-term and short-term assets relate to amounts
receivable on sale of equity and debt investments, representing deferred and
contingent consideration amounts to be received in more than one year.
Other long-term liabilities relate to carried interest and revenue share
payables, and loans from LPs of consolidated funds. The Group consolidates the
assets of a fund in which it has a significant economic interest, IP Venture
Fund II LP. Loans from third parties of consolidated funds represent
third-party loans into this partnership. These loans are repayable only upon
these funds generating sufficient realisations to repay the Limited Partners.
Borrowings
On 2 August 2022, the Group signed a Note Placing Agreement ("NPA") to issue a
£120m debt private placement to London-based institutional investors
(primarily Phoenix Group). £60m of this was drawn in December 2022 and the
balance will be drawn in June 2023, with three equal maturities in December in
2027, 2028 and 2029. The interest rate is fixed at an average of
5.25%. Approximately £15m of the proceeds was used to repay early the
shorter-dated portion of our EIB debt, leaving £22m of EIB debt to be
progressively repaid between now and January 2026 (£6.3m of the EIB debt will
be repaid within twelve months of the period end).
Under the terms of the NPA, the Group is required to maintain a minimum cash
balance of £25m at any time, equity must be at least £500m and gross debt
less restricted cash must not exceed 25% of total equity as at the Group's 30
June and 31 December reporting dates. The NPA also includes 'Cash Trap'
provisions which stipulate that the Group is required to maintain cash and
cash equivalents of not less than £50m at any time equity must be at least
£750m, gross debt less restricted cash must not exceed 20% of total equity as
at the Group's 30 June and 31 December reporting dates. In the event of the
Cash Trap being triggered, the Group is not permitted to pay or declare a
dividend or purchase any of its shares. In addition, investments are
restricted to £2.5m per calendar quarter other than those legally committed
to. The Group is also required to place the net proceeds of all realisations
(over a threshold of £1m) into a blocked bank account. Entering a Cash Trap
does not constitute a default under the NPA.
For further details of the Group's loans including covenant details see note
18.
Cash and deposits
At 31 December 2022, the Group's cash and deposits totalled £241.5m, a
decrease of £80.4m from a total of £321.9m at 31 December 2021,
predominantly due to outflows of investing activities of £93.5m, a £23.6m
net cash outflow from operations and a £30.4m cash outflow from the repayment
of debt, £20.3m of dividend payments and share buy-backs, offset by a
drawdown of loan notes if £60m and realisations of £28.1m.
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.
The principal constituents of the movement in cash and deposits during the
period are as follows:
Year ended Year ended
31 December 2022 31 December 2021
£m £m
Net cash (used)/generated in operating activities (23.5) 10.0
Investments (93.5) (106.7)
Realisations 28.1 213.4
Other investing (0.3) 0.3
Cash disposed via disposal of subsidiary undertaking - (7.1)
Net cash (outflow)/inflow from investing activities (65.7) 99.9
Dividends paid (12.3) (14.9)
Purchase of treasury shares (8.0) (27.2)
Repayment of debt facility (30.4) (15.4)
Drawdown of loan notes 60.0 -
Other financing activities (0.5) (0.8)
Net cash inflow/(outflow) from financing activities 8.8 (58.3)
Effect of foreign exchange rate changes - 0.1
Movement during period (80.4) 51.7
On 31 December 2022, the Group had a total of £0.1m (2021: £1.5m) held in US
Dollars, £nil (2021: £7.5m) held in Euros, £0.7m (2021: £0.7m) held in
Australian Dollars and £0.7m (2021: £nil) held in Hong Kong Dollars
Dividend
In addition to the interim dividend of 0.50p per ordinary share paid in
September 2022, the Board of Directors is recommending a final dividend of
0.76p per share, subject to the approval of shareholders at the Company's
forthcoming annual general meeting to be held on 15 June 2023. If approved,
the proposed dividend will be paid on 22 June 2023 to shareholders who are on
the register of members at close of business on 26 May 2023. The proposed
dividend has not been included as a liability as at 31 December 2022, in
accordance with IAS 10 "Events after the reporting period".
The Directors have exercised their discretion to terminate the Company's Scrip
Dividend Programme, based on historic low numbers of shareholders electing to
receive the scrip dividend together with the fact that a significant
proportion of the Company's shareholders were unable to make such an election
as they hold their shares via a nominee arrangement that does not provide a
scrip election service. The Directors are therefore of the view that the
administrative cost burden to the Company of running the scrip programme
cannot be justified, therefore all shareholders will receive the proposed
final dividend in cash. As set out in the Terms and Conditions of the Scrip
Dividend, any residual cash balance accrued by a shareholder under a previous
scrip dividend, will be paid to a charity of the Company's choice on
termination of the Scrip Dividend Programme.
Taxation
The Group's business model seeks to deliver long-term value to its
stakeholders through the commercialisation of fundamental research carried out
at its partner universities. To date, this has been largely achieved through
the formation of, and provision of services and development capital to,
spin-out companies formed around the output of such research. The Group
primarily seeks to generate capital gains from its holdings in spin-out
companies over the longer term but has historically made annual net operating
losses from its operations from a UK tax perspective. Capital gains achieved
by the Group would ordinarily be taxed upon realisation of such holdings;
however, since the Group typically holds more than 10% in its portfolio
companies and those companies are themselves trading, the majority of the
portfolio will qualify for the Substantial Shareholdings Exemption ("SSE") on
disposal.
This exemption provides that gains arising on the disposal of qualifying
holdings are not chargeable to UK corporation tax and, as such, the Group has
continued not to recognise a provision for deferred taxation in respect of
uplifts in value on those equity holdings that meet the qualifying criteria.
Gains arising on sales of holdings which do not qualify for SSE will
ordinarily give rise to taxable profits for the Group, to the extent that
these exceed the Group's ability to offset gains against current and brought
forward tax losses (subject to the relevant restrictions on the use of
brought-forward losses). In such cases, a deferred tax liability is recognised
in respect of estimated tax amount payable.
The Group complies with relevant global initiatives including the US Foreign
Account Tax Compliance Act ("FATCA") and the OECD Common Reporting Standard.
Alternative Performance Measures ("APMs")
The Group discloses alternative performance measures, such as NAV per share
and Return on NAV, in this Annual Report. The Directors believe that these
APMs assist in providing additional useful information on the underlying
trends, performance, and position of the Group. Further information on APMs
utilised in the Group is set out in note 29.
Risk Management.
Managing risk: our framework for balancing risk and reward
Governance
Overall responsibility for the risk framework and definition of risk appetite
rests with the Board, who, through regular review of risks ensure that risk
exposure is balanced with an ability to achieve the Group's strategic
objectives. The IP Group Risk Council is the executive body that operates to
establish, recommend, and maintain a fit-for-purpose risk management framework
appropriate for the Group and to oversee the effective application of the
framework across the business. The Risk Council is chaired by the CFOO, its
members include the Company Secretary and Finance Director and has
representation from operational business units as required during the year.
Risk identification is carried out through a bottom-up process via operational
risk registers maintained by individual teams, which are updated and reported
to the Risk Council at least biannually, with additional top-down input from
the Executive Committee and Non-executive review being carried out by the
Audit and Risk Committee at least annually.
Risk management process
Ranking of the Group's risks is carried out by combining the financial,
strategic, operational, reputational, regulatory and employee impact of risks
and the likelihood that they may occur. Operational risks are collated into
strategic risks, which identifies key themes and emerging risks, and
ultimately informs our principal risks, which are detailed in the Principal
Risk and Uncertainties section of this report. The operations of the Group,
and the implementation of its objectives and strategy, are subject to a number
of principal risks and uncertainties. Were more than one of the risks to occur
together, the overall impact on the Group may be compounded.
The design and ongoing effectiveness of the key controls over the Group's
principal risks are documented using a "risk and control matrix", which
includes an assessment of the design and operating effectiveness of the
controls in question. The key controls over the Group's identified principal
risks are reviewed as part of the Group's risk management process, by
management, the Audit and Risk Committee and the Board during the year.
However, the Group's risk management programme can only provide reasonable,
not absolute, assurance that principal risks are managed to an acceptable
level.
During 2022, the Risk Council has continued to build on the Group's existing
risk management framework, enhancing risk management and internal control
processes and working with PwC in an outsourced internal audit capacity, and
in doing so supported the Board in exercising its responsibility surrounding
risk management. 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 updating the
Group's risk appetite statements and key risk indicators incorporating the
updated Group strategy launched in the year, refreshing the Group's existing
operational, strategic, and principal risk registers, performing a full
refresh of the key controls and an assessment of the strategic risks and the
appropriateness of our principal risks.
The Group adopted a "Cyber Response Guide" and "Strategic Ransomware Response
Playbook" in December 2021 detailing how the Group would respond to a cyber
crisis following a project led by the Risk Council to address the growing
threat of cyber-attacks. In 2022, the Risk Council facilitated extensive
one-to-one and group training sessions for all those individuals identified in
the Group's Cyber Response Guide as having a role in driving the Group's
business response to such an incident. In total, the Group's response team,
led by the CFOO, took part in three simulations in the year to embed the
response plans and practice senior leadership's readiness. Two of these
simulations were externally facilitated. Each simulation saw response teams
react well to increasingly difficult scenarios; however areas for improvement
have been identified and the Risk Council is leading the implementation of the
actions identified that focus on increasing our internal communications
capacity and a commitment to more regular and increasingly challenging
training simulations. In addition, the Risk Council implemented an "out of
bounds" communications platform which will allow the cyber response team to
securely communicate with each other and all employees in the event that our
network security is compromised and provided training to all staff on what a
cyber-attack might look like and the appropriate steps to take if they
identify signs of a compromise.
The Risk Council reviewed the Government's Response Statement following its
consultation in 2021 "Restoring trust in audit and corporate governance" and
undertook "no regrets" activities to ensure the transition to the new regime
will be smooth while we await the final guidelines. This included drafting an
Audit and Assurance Policy ("AAP") based on the minimum standards outlined by
the Government and seeking engagement from senior leadership as to the key
areas of focus and direction of travel for external engagement if the AAP is
adopted. This review has identified a priority workstream for the Risk Council
in 2023 will be reviewing the processes for ensuring ESG-related information
reported by the Group is robust and designing a fit-for-purpose process that
provides suitable assurance going forward.
Other projects in the year included monitoring the set-up of an RMB fund from
ICCV, the Group's joint venture with China Everbright, to be operated by the
Group's Hong Kong subsidiary, reviewing risk management disclosures in the
annual report and accounts, updating the Group's Business Continuity Plans,
monitoring training and testing completion rates by employees, testing of key
controls over the Group's principal risks, monitoring key risk indicators,
performing a control investment review to ensure the desired levels of
controls agreed by the Board were in place, continued monitoring of internal
audit remediation points, monitoring progress of the Risk Council against its
agreed objectives, implementing a cyber compliance monitoring program 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 the following areas: (i) Follow up
review: all high and medium risk actions identified in the ten reviews
completed since 2019 were reviewed to provide comfort that completed
remediations remained in place; (ii) Business Continuity review: a specialist
team facilitated the development and delivery of a simulated exercise to
practise the executive leadership's crisis response readiness in the face of a
serious cyber incident such as a ransomware attack; and (iii) Key Financial
Controls review: following on from earlier reviews of the design and operating
effectiveness of the key financial controls covering treasury, Group financial
reporting, budget and planning, investment valuation, revenue and receivables,
purchases and payments, the approval of expenses and a review of the valuation
process, internal audit performed a review of the financial close and
reporting processes. Additionally, at the request of management, 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 2023 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, overseeing the set-up of a regulated business in Hong Kong and
continued enhancement of Group risk reporting and communication across the
business. We continue to monitor the impact of the war in Ukraine, heightened
geopolitical tension, supply chain disruption, high levels of inflation,
increasing interest rate rises, energy and cost-of-living crisis and volatile
capital markets and note the greatest impact to the Group has been the marked
decline in the valuation of technology sector listed companies, which we
consider heighten our principal risks of macroeconomic environment and access
to capital risks.
IP GROUP RISK MANAGEMENT FRAMEWORK
01 First Line Of Defence
IP Exec
Australia
Parkwalk
Hong Kong
IP Capital
Front Line Operations
Life Sciences
Technology
Cleantech
02 Second Line Of Defence
Oversight and challenge by the Risk Council, Central Functions and Management
Board
Executive Management
Risk Council
Collated risk registers
Central Functions
HR
Finance
IT
Legal & Cosec
Communications & Investor Relations
ESG
03 Third Line Of Defence
Independent assurance
Audit & Risk Committee
Internal audit
Committees
The Group has a number of committees in place to manage specific risks being:
· Valuation Committee
· Capital Allocation Committee
· Group Cyber Forum
· ESG Committee
· Ethics Committee
Emerging risk
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 Strategy Day in November and continue to
consider emerging risks throughout the year. Set out below are examples of
some of the potential emerging risks that are currently being monitored by
management and the Board:
Economic and geopolitical uncertainty Climate change transition risks Climate change technology risks
The economic and geopolitical environment has changed dramatically since the Transition risks can occur when moving towards a less polluting, greener Climate change continues to be a key concern of the Group and all its
beginning of 2022 and the Group is now operating against a backdrop of greater economy. Such transitions could mean that the Group could face higher costs of stakeholders. IP Group invests in technology that has the potential to have
geopolitical instability, surging inflation recorded at 9.2% in December 2022 doing business for example new climate-related legislation, regulations, and positive impacts on the environment and the Group is well positioned to take
down from its peak of 11.1%in the year, and the potential for a global reporting requirements, such as TCFD and SECR reporting, will pose additional advantage of the changing preferences of governments, businesses and
recession. The volatility in capital markets has continued, most notably costs as the Group seeks to manage these risks by investing additional individuals.
interest rate rises, which have particularly impacted growth and technology resources to ensure compliance.
stocks, such as IP Group and its portfolio.
In addition, IP Group reported against the TCFD recommendations in monitoring
risks and opportunities to the business as presented by climate change.
Cyber and IT security Access to talent and diversity
Cyber and IT security continue to be areas of risk for the Group and its The industry in which the Group operates is a specialised area and the Group
portfolio as we continue to invest in intellectual property-based portfolio requires highly qualified and experienced employees to deliver its strategy.
companies, which could be targets for hackers or competitors and the The Group's access to the right talent is, therefore, of paramount importance.
regulatory landscape, which is evolving rapidly around data security and the Increasing shortages across the full spectrum of the labour market seen in
increasing powers of regulators to impose significant fines on companies who recent years and trends such as the "Great Resignation" were considered by the
inadvertently breach legislation such as GDPR. The industry saw an increase in Board and access to alternative pools of talent and engaging with those pools
cyber-attacks in 2022 and it is against this backdrop that the Group continued of talent was discussed.
to increase its investment in mitigating controls, staff training and cyber
incident exercising to support our response to this risk area.
Summary of principal risks and mitigants
A summary of the principal risks affecting the Group and the steps taken to
manage these is set out below. Further discussion of the Group's approach to
principal risks and uncertainties is given in the Corporate Governance
Statement and in the Report of the Audit & Risk Committee, while further
disclosure of the Group's financial risk management is set out in note 3 to
the consolidated financial statements]. Following the 2022 annual review
process, the heatmap below describes the relative potential risks posed by
each of the Group's identified principal risks i.e. how the principal risks
are ranked against each other.
Consideration of risk appetite
The industry the Group operates in inherently involves accepting risk to
achieve the Group's strategic aims of building a future enhanced by the impact
of transformative businesses we have identified, backed and grown as long-term
partners 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.
Risk appetite ratings defined:
1 Very low
Following a marginal-risk, marginal-reward approach that represents the safest
strategic route available
2 Low
Seeking to integrate sufficient control and mitigation methods in order to
accommodate a low level of risk, though this will also limit reward potential
3 Balanced
An approach which brings a high chance of success, considering the risks,
along with reasonable rewards, economic and otherwise
4 High
Willing to consider bolder opportunities with higher levels of risk in
exchange for increased business payoffs
5 Very high
Pursuing high-risk, inherently uncertain options that carry with them the
potential for high-level rewards
Principal risks and uncertainties
01 It may be difficult for the Group to maintain the required level of capital The Group's business has historically been reliant on capital markets,
to continue to operate at optimum levels of investment activity and overheads 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 balance sheet capital and managed funds Balanced
investment assets, develop early-stage investment opportunities and invest in capital
its most exciting companies to ensure attractive future financial returns.
to deploy in portfolio opportunities
• 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
Examples of risk Development during the year Change from 2021
• The Group may not be able to provide the necessary capital to key • The Group created a key role to develop greater levels of access to No change
priority assets, which may affect the portfolio companies' performance or strategic third-party capital in 2022. The Group appointed a Managing Director
dilute future returns of the Group of Global Capital following a robust process of role definition and
recruitment an appointment was made in December 2022
• The Group may not be able to realise capital from its portfolio to fund
the desired level of investment activity in the portfolio • The Group's share price continued to trade below NAV during the year.
The Group completed a share buyback programme to purchase its own shares up to
an aggregate consideration of £35m and announced interim and final dividends
of 0.5p and 0.76p per share respectively
• A sub group of the Executive Committee met regularly throughout the year
to oversee workstreams focused on narrowing the gap between NAV and the share
price
• Perception study completed in the year
• Debt placement of £120m
• Capital allocation group met monthly in 2022 responding to the volatile
capital market environment
• The quoted portfolio value reduced by £428.5m in the year
02 It may be difficult for the Group's portfolio companies to attract The Group's portfolio companies are typically in their development or growth
sufficient capital phases and, therefore, require additional capital to continue operations.
While a proportion of this capital will generally be forthcoming from the
Group, subject to capital allocation and company progress, additional
third-party capital will usually also be necessary. The ability of portfolio
companies to attract further capital is influenced by their financial and
operational performance and the general economic climate and trading
conditions, particularly (for many companies) in the UK.
Link to strategy 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 in Low
to invest in its technology and commercial opportunities to ensure future 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 those with a heightened funding risk
• Parkwalk Advisors continues to have independent investment decision
making and is anticipated to continue to be an important co-investor with the
Group, supporting shared portfolio companies
Examples of risk Development during the year Change from 2021
• The success of those portfolio companies that require significant • IP Group hosted two portfolio company events in 2022 to showcase the No Change
funding in the future may be influenced by the market's appetite for Group's portfolio companies. These included a virtual Deeptech Showcase and an
investment in early-stage companies, which may not be sufficient investor update to highlight three of IP Group's focus companies, Istesso Ltd,
First Light Fusion Ltd and Featurespace Limited
• 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 • Continued management of an A$210m+ trust and a separate mandate for
A$45m for an Australian Super Fund that has a mandate to co-invest with IP
Group plc portfolio companies. In the year, six Group portfolio companies
received funding from these investment vehicles. Total assets at the end of
the year for the managed trust totalled A$199.7m
• Submitted an application for regulatory permissions in Hong Kong for a
licence to raise capital from Hong Kong
• Parkwalk raised £64m in 2022 and had total AUM of £478m at the end of
2022
03 The returns and cash proceeds from the Group's early-stage companies may be Early-stage companies typically face a number of risks, including not being
insufficient 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 typically serve as
non-executive directors or advisors to portfolio companies to help identify
and remedy critical issues promptly
• The Group has portfolio company holdings across different sectors
managed by experienced sector-specialist teams to reduce the impact of a
single company failure or sector decline
• The Group maintains significant cash balances and seeks to employ a
capital efficient process deploying low levels of initial capital to enable
identification and mitigation of potential failures at the earliest possible
stage
Examples of risk Development during the year Change from 2021
· Portfolio company failure directly impacts the Group's value and • The Group's portfolio companies raised approximately £1.0bn of capital No Change
profitability in 2022
· At any time, a large proportion of the Group's portfolio may be accounted • Excluding the Oxford Nanopore holding, the Group held board seats on
for by very few companies, which could exacerbate the impact of any impairment 74.0% of portfolio companies valued at greater than £5m by value
or failure of one or more of these companies
• The Group hired two investment professionals across the Deeptech,
· The value of the Group's drug discovery and development portfolio Cleantech and Life Sciences sectors in 2022. Three investment professionals
companies may be significantly impacted by a negative clinical trial result left the business, of which two took up senior roles at IP Group portfolio
companies
· Cash realisations from the Group's portfolio through trade sales and IPOs
could vary significantly from year to year
04 The Group may lose key personnel or fail to attract and integrate new The industry in which the Group operates is a specialised area and the Group
personnel 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 Balanced
compelling intellectual property-based opportunities into robust businesses
capable of delivering attractive financial returns on our assets is dependent • Formal learning and development programme for all employees in place
on the Group's employees who work with the portfolio companies and those who
support them. • The Group carries out regular market comparisons for staff and executive
remuneration and seeks to offer a balanced incentive package comprising a mix
of salary, benefits, performance-based long-term incentives, and benefits such
as flexible working and salary sacrifice arrangements
• The Group encourages employee development and inclusion through coaching
and mentoring and carries out annual objective setting and appraisals
• The Group promotes an open culture of communication and provides an
inspiring and challenging workplace where people are given autonomy to do
their jobs. The Group is fully supportive of flexible working and has enabled
employees to work flexibly
• An employee forum, "IP Connect" with an appointed designated
Non-executive Director to facilitate dialogue with the Board in both
directions. Part of IP Connect's remit is also to support the evolution of the
culture and continuous improvement of working life at the Group
• An inclusion and diversity committee the "ID Project", sponsored by the
CEO is in place to support an inclusive environment to work
Examples of risk Development during the year Change from 2021
• Loss of key executives and employees of the Group or an inability to • Launched new remuneration policy, which simplified longer-term No Change
attract, retain and integrate appropriately skilled and experienced employees performance rewards replacing previous LTIP awards with RSPs
could have an adverse effect on the Group's competitive advantage, business,
financial condition, operational results and future prospects • Record employee engagement (net promoter) scores obtained in the year
from employee engagement surveys
• Continued to dedicate senior team time and resources to the development
of the Group's inclusion and diversity programme, the ID Project. The IDP
Masterplan was launched and all staff received training in the year
• More than 90% of employees attended a L&D programme sponsored
training course
• Continued high frequency of employee communications from Executive
Directors and the Head of HR via bi-weekly all-staff meetings.
• The labour market generally remained supply constrained in 2022, which
saw resignations rise in the market creating pressure in the talent
acquisition and retention market. This pressure is acutely felt by the Group
as front-office investment professionals were in particularly high demand.
• Staff attrition was 16.0%
• Approximately 50.0% of employees have been with the Company for at least
five years
05 Macroeconomic conditions may negatively impact the Group's ability to Adverse macroeconomic conditions could reduce the opportunity to deploy
achieve its strategic objectives capital into opportunities or may limit the ability of such portfolio
companies to receive third-party funding, develop profitable businesses or
achieve increases in value or exits. Political uncertainty, including impacts
from Brexit, the COVID-19 pandemic or similar scenarios, could have a number
of potential impacts, including 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 updates High
successful portfolio companies and delivering attractive financial returns on 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. • Monthly capital allocation process and on-going monitoring against
agreed budget
• Regular oversight of upcoming capital requirements of portfolio from
both the Group and third parties
• The Group's Risk Council conducts horizon scanning for upcoming events
that may impact the Group
Examples of risk Development during the year Change from 2021
• The success of those portfolio companies that require significant • Macroeconomic and geopolitical conditions remain uncertain in the UK. No change
external funding may be influenced by the market's appetite for investment in Inflation peaked in the year at 11.2% in the UK and interest rate rises were
early-stage companies, which may not be sufficient seen across the UK, Eurozone, US and elsewhere, ending an era of low interest
rates. The market anticipates further increases to interest rates in the short
• Of the Group's portfolio value 18.1% is held in companies quoted on term, albeit at a slower rate than seen in 2022 and continued challenges to
public markets and decreases in values to these markets could result in a economic growth in the short and medium term
material fair value impact to the portfolio as a whole
• The Group has maintained significant cash reserves and agreed a debt
placing in 2022 raising an additional £120m available for investment and as
such is well placed to respond to macroeconomic uncertainty
06 There may be changes to, impacts from, or failure to comply with, There may be unforeseen changes in, or impacts from, government policy,
legislation, government policy and regulation 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 advisors as appropriate to support its
monitoring of, and response to changes in, tax, insurance or other legislation
• The Group has internal policies and procedures to ensure its compliance
with applicable regulations
• The Group maintains D&O and professional indemnity insurance
policies
Examples of risk Development during the year Change from 2021
• Changes could result in universities and researchers no longer being • Ongoing focus on regulatory compliance, including third-party reviews Decrease
able to own, exploit or protect intellectual property on attractive terms and utilisation of specialist advisors
• Changes to tax legislation or the nature of the Group's activities, in • Parkwalk Advisors Ltd applied to the FCA to vary their regulatory
particular in relation to the Substantial Shareholder Exemption, may adversely permissions with the FCA in the year to allow them to increase the level of
affect the Group's tax position and accordingly its value and operations assets under management in response to their success as an EIS investment
manager
• Regulatory changes or breaches could ultimately lead to withdrawal of
regulatory permissions for the Group's authorised subsidiaries, resulting in • The Group adopted a conflicts of interest policy in the year documenting
loss of fund management contracts, reputational damage or fines the Group's approach to identifying and managing conflicts of interest
relating to investment and divestment decisions
• Submitted an application for a Type 1 and Type 9 regulatory licence to
the Securities and Futures Commission ("SFC") in Hong Kong. The licences, if
granted, will allow the Group's Hong Kong subsidiary to raise capital for the
Group's portfolio companies and other similar companies and manage a PRC-based
fund
07 The Group and its portfolio companies may be subjected to phishing and This could include taking over email accounts to request or authorise
ransomware attacks, data leakage and hacking 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
• Annual Cyber & IT training is supplemented by regular bite-sized and
interactive cyber security training
• Network and infrastructure security systems to respond to emerging
threats
Examples of risk Development during the year Change from 2021
• The Group, or one, or a combination of, its portfolio companies could • Ongoing focus on IT security and staff training, including completing No change
face significant fines from a data security breach the implementation of remediations agreed from internal audit reviews and
utilisation of specialist advisers
• 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 • Continued programme of phishing and penetration testing
sensitive information leak
• Three cyber-attack simulations were undertaken in the year to allow
• A malware or ransomware attack could lead to systems becoming executive management to practice their planned response to a serious cyber
non-functioning and impair the ability of the business to operate in the short incident, including two externally facilitated sessions
term
• Additional, regular, bite-sized and interactive cyber security training
provided to staff to supplement formal annual cyber security training launched
in the year
• Reviewed disaster recovery plans in the year
08 The Group may be negatively impacted by operational issues both from a UK The potential for a negative impact to the Group arising from operational
central and international operations perspective issues such as business continuity and the overseas operations through
non-compliance with local laws and regulations, failure to integrate overseas
operations with the Group, an inability to foresee territory-specific risks
and macro-events. The Group may also fail to establish effective control
mechanisms, considering different working culture and environment, leading to
significant senior management time requirement, distracting from core
day-to-day business.
Link to strategy Actions taken by management Risk appetite
The Group's strategy includes building a portfolio of compelling intellectual • Local legal and regulatory advisors have been engaged in the Balanced
property-based companies across the UK, US and Australia and New Zealand. The establishment phase of overseas operations. US and Australia and New Zealand
scale of the Group's operations, including internationally represents teams have their own in-house legal teams who regularly report to the UK-based
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
Examples of risk Development during the year Change from 2021
• A legal or regulatory breach could ultimately • Continued coordination of risk reporting across Australia, New Zealand, No change
lead to the withdrawal of regulatory permissions overseas, resulting in loss Hong Kong, and USA
of trust management contracts, reputational damage and fines
• Application for Hong Kong regulatory permissions submitted to local
• Divergent Group cultures may lead to difficulties in achieving the regulator
Group's strategic aims
• UK, US and Australian travel restrictions generally lifted making travel
• A major control failure could lead to a successful fraudulent attack on between the Group's offices possible, which included a CEO visit to Australia
the Group's IT infrastructure or access to bank accounts to celebrate the Australian team's fifth birthday. China relaxed its COVID-19
policy at the end of the year allowing our colleagues based in Hong Kong to
• Senior management may spend a significant amount of time in setting up travel more easily within Greater China and to the UK
and establishing new territories, which could detract from central Group
strategy and operations • Extensive training and testing of the Group's cyber response plans in
the year
• An internal audit review of the Group's business continuity plans was
undertaken in the year.
Viability statement
The Directors have carried out a robust assessment of the viability of the
Group over a three-year period to December 2025, considering its strategy, its
current financial position and its principal risks. The three-year period
reflects the time horizon reviewed by the Board, and over which the Group
places a higher degree of reliance over the forecasting assumptions used.
The strategy and associated principal risks underpin the Group's three-year
financial plan and scenario testing, which the Directors review and approve at
least annually. As a business which seeks to accelerate the impact of science
for a better future through our portfolio companies, our business model seeks
to balance cash investments, the generation of portfolio returns and
ultimately portfolio realisations. The three-year plan is built using a
bottom-up model using assumptions over:
· the level of portfolio investment
· the level of realisations from the portfolio (net of carried interest
payments)
· the financial performance (and valuation) of the underlying portfolio
companies
· the Group's drawdown and repayment of its debt
· the Group's ability to raise further capital
· the level of the Group's net overheads and
· the level of dividends and share buybacks
Of the Group's principal risks, those relating to insufficient capital (both
Group and portfolio companies), insufficient investment returns and
macroeconomic conditions are deemed to be the most relevant to the Group's
viability assessment due to their potential to impact the Group's liquidity
position and balance sheet position, both of which directly impact the level
of headroom over the Group's debt covenants. Other principal risks including;
personnel risk; legislation, governance and regulation; cyber and IT and
international operations could have an impact on viability within the
assessment period.
To assess the impact of the Group's principal risks on the prospects of the
Group, the plan is stress-tested by modelling severe but plausible and
intermediate downside scenarios where adverse impacts across the Group's
principal risks relating to insufficient capital, insufficient investment
returns and macroeconomic conditions were considered as part of the review.
Under the severe downside scenario, a 70% reduction in planned realisations
and a 35% decline in portfolio fair values that were considered together with
a series of mitigating actions, including reducing planned levels of
investment.
Under these stress-testing scenarios, significant reductions to portfolio
investments are made in the following two years to preserve the Group's
remaining cash balances. In all scenarios modelled, the Group remains solvent
throughout the three-year period with no breach of debt covenants of a "cash
trap period" occurring. See Note 19 for further details on cash trap
arrangements.
Based on this assessment, the Directors have a reasonable expectation that the
Group will continue to operate and meets its liabilities, as they fall due, up
to December 2025.
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 2022 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 2023, 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
7 March 2023
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Note 2022 2021
£m £m
Portfolio return and revenue
Change in fair value of equity and debt investments 13 (303.4) 415.9
(Loss)/gain on disposal of equity and debt investments 15 (7.8) 81.5
Change in fair value of LP interests 14 2.1 1.8
Loss on deconsolidation and disposal of subsidiary 22 - (3.8)
Revenue from services and other income 4 7.1 13.6
(302.0) 508.9
Administrative expenses
Carried interest plan charge 24 (12.0) (17.2)
Share-based payment charge 23 (2.9) (2.6)
Other administrative expenses 8 (27.4) (33.2)
(42.3) (53.0)
Operating (loss)/profit 7 (344.3) 456.0
Finance income 2.2 0.4
Finance costs (1.4) (1.8)
(Loss)/profit before taxation (343.5) 454.6
Taxation 10 (1.0) (5.3)
(Loss)/profit for the year (344.5) 449.3
Other comprehensive income
Exchange differences on translating foreign operations 0.5 0.3
Total comprehensive (loss)/profit for the year (344.0) 449.6
Attributable to:
Equity holders of the parent (341.5) 448.5
Non-controlling interest (2.5) 1.1
(344.0) 449.6
(Loss)/profit per share
Basic (p) 11 (33.01) 42.33
Diluted (p) 11 (33.01) 41.68
The accompanying notes form an integral part of the financial statements.
Consolidated statement of financial position
As at 31 December 2022
Note 2022 2021
£m £m
ASSETS
Non-current assets
Goodwill 0.4 0.4
Property, plant and equipment 0.4 0.3
Portfolio:
Equity investments 13 1,120.8 1,391.8
Debt investments 13 38.1 22.8
Limited and limited liability partnership interests 14 99.6 92.9
Receivable on sale of debt and equity investments 15,17 6.9 31.3
Total non-current assets 1,266.2 1,539.5
Current assets
Trade and other receivables 16 8.8 6.9
Receivable on sale of debt and equity investments 15,17 41.3 11.0
Deposits 3 152.8 216.2
Cash and cash equivalents 3 88.7 105.7
Total current assets 291.6 339.8
Total assets 1,557.8 1,879.3
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Called up share capital 21 21.3 21.3
Share premium account 102.5 102.4
Retained earnings 1,257.9 1,617.5
Total equity attributable to equity holders 1,381.7 1,741.2
Non-controlling interest (5.6) (3.1)
Total equity 1,376.1 1,738.1
Current liabilities
Trade and other payables 18 16.9 18.7
Borrowings 19 6.3 15.4
Total current liabilities 23.2 34.1
Non-current liabilities
Borrowings 19 75.1 36.4
Carried interest plan liability 24 44.1 33.1
Deferred tax liability 10 6.8 5.8
Loans from limited partners of consolidated funds 19 19.5 18.7
Revenue share liability 20 13.0 13.1
Total non-current liabilities 158.5 107.1
Total liabilities 181.7 141.2
Total equity and liabilities 1,557.8 1,879.3
Registered number: 4204490
The accompanying notes form an integral part of the financial statements. The
financial statements were approved by the Board of Directors and authorised
for issue on 7 March 2023 and were signed on its behalf by:
Greg Smith
Chief Executive Officer
David Baynes
Chief Financial & Operating Officer
Consolidated statement of cash flows
For the year ended 31 December 2022
Note 2022 2021
£m £m
Operating activities
(Loss) / Profit before taxation for the period (343.5) 454.6
Adjusted for:
Change in fair value of equity and debt investments 13 303.4 (415.9)
Change in fair value of limited and limited liability partnership interests 14 (2.1) (1.8)
Loss/(gain) on disposal of equity investments 15 7.8 (81.5)
Loss on deconsolidation of subsidiary 22 - 3.8
Depreciation of right of use asset, property, plant and equipment 0.6 1.6
Long term incentive carry scheme charge 24 12.0 17.2
Corporate finance fees settled in the form of portfolio company equity (0.5) (0.5)
Finance income (2.2) (0.4)
Finance costs 1.4 1.8
Share-based payment charge 23 2.9 2.6
Changes in working capital
Carried interest scheme payments 24 (1.0) (3.4)
(Increase) in trade and other receivables 16 (0.5) (3.0)
(Decrease)/increase in trade and other payables 18 (2.8) 8.8
Drawdowns from limited partners of consolidated funds 0.8 27.7
Other operating cash flows
Net interest received/(paid) 0.2 (1.5)
Net cash (outflow)/inflow from operating activities (23.5) 10.0
Investing activities
Purchase of property, plant and equipment (0.3) (0.2)
Purchase of equity and debt investments 13 (88.9) (103.7)
Investment in limited and limited liability partnership funds 14 (4.6) (3.0)
Distribution from limited partnership funds 14 - 0.5
Cash flow to deposits (208.7) (230.5)
Cash flow from deposits 272.1 156.9
Cash disposed via deconsolidation of subsidiary 22 - (7.1)
Proceeds from sale of equity and debt investments 15 28.1 213.4
Net cash (outflow)/inflow from investing activities (2.3) 26.3
Financing activities
Dividends paid 28 (12.3) (15.0)
Repurchase of own shares - treasury shares 21 (8.0) (27.2)
Lease principal payment (0.5) (0.7)
Repayment of EIB facility 19 (29.8) (15.4)
Drawdown of loan facility (net of costs) 19 59.4 -
Net cash inflow/(outflow) from financing activities 8.8 (58.3)
Net decrease in cash and cash equivalents (17.0) (22.0)
Cash and cash equivalents at the beginning of the year 105.7 127.6
Effect of foreign exchange rate changes - 0.1
Cash and cash equivalents at the end of the year 88.7 105.7
The accompanying notes form an integral part of the financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2022
Attributable to equity holders of the parent
Share Share Retained Total Non-controlling Total
capital premium(1) earnings(2) £m interest(3) equity
£m £m £m £m
At 1 January 2021 21.3 101.6 1,208.5 1,331.4 0.5 1,331.9
Profit for the year - - 448.2 448.2 1.1 449.3
Deconsolidation of subsidiary(4) - - 0.9 0.9 (4.7) (3.8)
Issue of shares(5) - 0.8 - 0.8 - 0.8
Purchase of treasury shares(6) - - (27.2) (27.2) - (27.2)
Equity-settled share-based payments - - 2.6 2.6 - 2.6
Ordinary dividends(7) - - (15.8) (15.8) - (15.8)
Currency translation(8) - - 0.3 0.3 - 0.3
At 1 January 2022 21.3 102.4 1,617.5 1,741.2 (3.1) 1,738.1
(Loss) for the year - - (342.0) (342.0) (2.5) (344.5)
Issue of shares(5) - 0.1 - 0.1 - 0.1
Purchase of treasury shares(6) - - (8.0) (8.0) - (8.0)
Equity-settled share-based payments - - 2.9 2.9 - 2.9
Ordinary dividends(7) - - (12.7) (12.7) - (12.7)
Currency translation(8) - - (0.2) (0.2) - (0.2)
At 31 December 2022 21.3 102.5 1,257.9 1,381.7 (5.6) 1,376.1
1 Share premium - Amount subscribed for share capital in excess of nominal
value, net of directly attributable issue costs.
2 Retained earnings - Cumulative net gains and losses recognised in the
consolidated statement of comprehensive income net of associated share-based
payments credits.
3 Non-controlling interest - Share of profits attributable to the Limited
Partners of IP Venture Fund II LP.
4 Deconsolidation of subsidiary - during the financial year 2021 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 22.
5 Issue of shares - Share premium in connection with the Interim Scrip
Dividend, the Group has received valid elections from shareholders resulting
in a requirement to issue new ordinary shares of 2p each ("New Shares").
6 Purchase of treasury shares - Reflects the issue of 7,429,494 ordinary
shares, with an aggregate value of £8.0m, these were purchased by the Company
during the year and are held in treasury. Total value including costs was
£8.0m. (2021: 22,279,127 share purchased for total value of £27.0m, total
including costs of £27.2m). These shares were purchased for the £35m share
buyback. This also includes movement in treasury shares related to DBSP and
employee SAYE schemes.
7 Ordinary dividends - Of the £12.7m dividends paid in 2022, £12.3m was
settled in cash and £0.4m was settled via the issue of equity under the
Group's scrip programme (2021: £15.8m, £15.0m, £0.8m). 485,569 new shares
were issued in respect of the scrip dividend (2021: 679,553 shares issued).
8 Currency translation - Reflects currency translation differences on reserves
non-GBP functional currency subsidiaries. Exchange differences on translating
foreign operations are presented before tax.
The accompanying notes form an integral part of the financial statements.
Notes to the consolidated financial statements
1. Accounting policies
A) Basis of preparation
The Annual Report and Accounts of IP Group plc ("IP Group" or the "Company")
and its subsidiary companies (together, the "Group") are for the year ended 31
December 2022. 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 2.
Going concern
The financial statements are prepared on a going concern basis. The directors
have completed a detailed financial forecast alongside severe but plausible
scenario-based downside stress-testing, including the impact of declining
portfolio values and a reduced ability to generate portfolio realisations.
At the balance sheet date, the Group had cash and deposits of £241.5m,
providing liquidity for at least two years' operating expenses, portfolio
investment and debt repayments at recent levels. Furthermore, the Group has a
portfolio of investments valued at over £1.26bn, which is anticipated to
provide further liquidity over the forecast period. Accordingly, our
forecasting indicates that the Group has adequate resources to enable it to
meet its obligations including its debt covenants and to continue in
operational existence for at least the next twelve months from the approval
date of the accounts. For further details see the Group's viability.
Changes in accounting policies
(i) New standards, interpretations and amendments effective from 1 January
2022
No new standards, interpretations and amendments effective in the year have
had a material effect on the Group's financial statements.
(ii) New standards, interpretations and amendments not yet
effective
No new standards, interpretations and amendments not yet effective are
expected to have a material effect on the Group's future financial statements.
B) Basis of consolidation
IFRS 10 Investment Entity Exemption
IFRS 10 defines an investment entity as one which:
(a) Obtains funds from one or more investors for the purpose of providing
those investors with investment management services
(b) Commits to its investors that its business purpose is to invest funds
solely for returns from capital appreciation, investment income or both
(c) Measures and evaluates the performance of substantially all of its
investments on a fair value basis
We believe that IP Group plc does not meet this definition of an investment
entity with the key factors behind this conclusion being:
· the absence of specific exit strategies for early-stage assets
(indicating condition (b) above is not satisfied)
· the ability to hold investments indefinitely (indicating condition (b)
above is not satisfied)
· the flexibility to explore the direct commercialisation of intellectual
property within the Group if that is determined to be the most attractive
means of generating value for shareholders. (indicating condition (a) above is
not satisfied)
Accordingly, we have applied IFRS 10 consolidation principles for each group
of entities as follows:
(i) Subsidiaries
Where the Group has control over an entity, it is classified as a subsidiary.
Typically, the Group owns a non-controlling interest in its portfolio
companies; however, in certain circumstances, the Group takes a controlling
interest and hence categorises the portfolio company as a subsidiary. As per
IFRS 10, an entity is classed as under the control of the Group when all three
of the following elements are present: power over the entity; exposure to
variable returns from the entity; and the ability of the Group to use its
power to affect those variable returns.
In situations where the Company has the practical ability to direct the
relevant activities of the investee without holding the majority of the voting
rights, it is considered that de facto control exists. In determining whether
de facto control exists the Group considers the relevant facts and
circumstances, including:
· The size of the Company's voting rights relative to both the size and
dispersion of other parties who hold voting rights;
· Substantive potential voting rights held by the Company and by other
parties;
· Other contractual arrangements; and
· Historic patterns in voting attendance.
In assessing the IFRS 10 control criteria in respect of the Group's private
portfolio companies, direction of the relevant activities of the company is
usually considered to be exercised by the company's board, therefore the key
control consideration is whether the Group currently has a majority of board
seats on a given company's board, or is able to obtain a majority of board
seats via the exercise of its voting rights. Control is reassessed whenever
facts and circumstances indicate that there may be a change in any of these
elements of control.
The consolidated financial statements present the results of the Company and
its subsidiaries as if they formed a single entity. Intercompany transactions
and balances between Group companies are therefore eliminated in full. The
consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets and liabilities are initially
recognised at their fair values at the acquisition date. Contingent
liabilities dependent on the disposed value of an associated investment are
only recognised when the fair value is above the associated threshold. The
results of acquired operations are included in the consolidated statement of
comprehensive income from the date on which control is obtained. They are
consolidated until the date on which control ceases.
(ii) Associates/portfolio companies
The majority of the Group's portfolio companies are deemed to be Associates,
as the Group has significant influence (generally accompanied by a
shareholding of between 20% and 50% of the voting rights) but not control. A
small number of the Group's portfolio companies are controlled and hence
consolidated, as per section (i) above.
As permitted under IAS 28, the Group elects to hold investments in Associates
at fair value through profit and loss in accordance with IFRS 9. This
treatment is specified by IAS 28 Investment in Associates and Joint Ventures,
which permits investments held by a venture capital organisation or similar
entity to be excluded from its measurement methodology requirements where
those investments are designated, upon initial recognition, as at fair value
through profit or loss and accounted for in accordance with IFRS 9 Financial
Instruments. Therefore, no associates are presented on the consolidated
statement of financial position.
Changes in fair value of associates are recognised in profit or loss in the
period of the change. The Group has no interests in Associates through which
it carries on its operating business.
The disclosures required by Section 409 of the Companies Act 2006 for
associated undertakings are included in note 13 of the Company financial
statements. Similarly, those investments which may not have qualified as an
Associate but fall within the wider scope of significant holdings and so are
subject to Section 409 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 IFRS 10 control model and related application guidance. In
respect of IPVFII, the Group has power via its role as fund manager of the
partnership, and exposure to variable returns via its 33.3% ownership
interest, resulting in the conclusion that the Group controls and hence
consolidates the fund.
b) Other non-consolidated Limited Partnership fund holdings
In addition to Limited Partnerships where Group entities act as general
partner and investment manager, the Group has interests in three further
entities which are managed by third parties:
Name Interest in Limited partnership
%
IPG Cayman LP 58.1
UCL Technology Fund LP ("UCL Fund") 46.4
Technikos LLP ("Technikos") 17.7
The rationale for IPG Cayman LP's categorisation as a non-consolidated fund is
considered a significant accounting judgment and is set out in note 2.
The Group has a 46.4% interest in the total capital commitments of the UCL
Fund. The Group has committed £24.8m to the fund alongside the European
Investment Fund ("EIF"), University College London and other investors.
Participation in the UCL Fund provides the Group with the opportunity to
generate financial returns and visibility of potential intellectual property
from across University College London's research base.
The Group has an 17.7% interest in the total capital commitments of Technikos,
a fund with an exclusive pipeline agreement with Oxford University's Institute
of Biomedical Engineering.
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 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 27 for disclosure of outstanding commitments in respect of Limited
Partnerships.
iv) Other third party funds under management
In addition to the Limited Partnership fund IPVFII, described above, the Group
also manages other third-party funds, including within its Parkwalk business
unit, described in further detail in the Portfolio Review section, 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 assets and they are not consolidated.
v) Non-controlling interests
The total comprehensive income, assets and liabilities of non-wholly owned
entities are attributed to owners of the parent and to the non-controlling
interests in proportion to their relative ownership interests.
vi) Business combinations
The Group accounts for business combinations using the acquisition method from
the date that control is transferred to the Group (see (i) Subsidiaries
above). Both the identifiable net assets and the consideration transferred in
the acquisition are measured at fair value at the date of acquisition and
transaction costs are expensed as incurred. Goodwill arising on acquisitions
is tested at least annually for impairment. In instances where the Group owns
a non-controlling stake prior to acquisition the step acquisition method is
applied, and any gain or losses on the fair value of the pre-acquisition
holding is recognised in the consolidated statement of comprehensive income.
C) Other accounting policies
Regulated capital
Top Technology Ventures Limited and Parkwalk Advisors Ltd, are Group
subsidiaries which are subject to external capital requirements imposed by the
Financial Conduct Authority ("FCA") and as such must ensure that they have
sufficient capital to satisfy these requirements. The Group ensures it remains
compliant with these requirements as described in their respective financial
statements.
Lease accounting
For leases there is no longer a distinction between finance and operating
leases as all leases are now recognised on the balance sheet. When a lease
commences a lease liability is recognised that is equal to the present value
of the minimum lease payments. A right-of-use asset is also recognised and is
equal in value to the lease liability. This represents the right to use the
leased asset for the full term of the lease.
Short term leases and low-value leases are exempt from recognition on the
balance sheet and the payments are instead recognised on a straight-line basis
in the income statement in the same way as they would have under IFRS17.
Right-of-use assets are depreciated over the total lease term. As the
discounting is unwound, interest is charged in the income statement and
increases the lease liabilities. When lease payments are made, the lease
liabilities reduce. Therefore, both right of use assets and lease liabilities
have nil value at the end of the lease. Lease payments are discounted using
the interest rate implicit in the lease or the incremental borrowing rate
where the interest rate implicit in the lease is not available.
Cash flow statement classification
Cash flow relating to portfolio investments have been presented as investing
cash flows as opposed to cash flows from operating activities. Management
considers this to be an appropriate classification representing the fact that
the relevant cashflows are allocated towards resources intended to generate
future income and cash flows.
2. Significant accounting estimates and judgements
The directors make judgements and estimates concerning the future. Estimates
and judgements are continually evaluated and are based on historical
experience and other factors, such as expectations of future events, and are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. The estimates and assumptions which have the most
significant effects on the carrying amounts of the assets and liabilities in
the financial statements are discussed below.
(i) Valuation of unquoted equity and debt investments and limited
participation interests (significant estimate)
The Group's accounting policy in respect of the valuation of unquoted equity
investments is set out in note 13, and in respect of limited participation
interests in note 14. In applying this policy, the key areas over which
judgement are exercised include:
· Consideration of whether a funding round is at arm's length and therefore
representative of fair value.
· The relevance of the price of recent investment as an input to fair
value, which typically becomes more subjective as the time elapsed between the
recent investment date and the balance sheet date increases.
· In the case of companies with complex capital structures, the appropriate
methodology for assigning value to different classes of equity based on their
differing economic rights.
· Where using valuation methods such as discounted cash flows or revenue
multiples, the assumptions around inputs including the probability of
achieving milestones and the discount rate used, and the choice of comparable
companies used within revenue multiple analysis.
· Where valuations are based on future events such as sales processes or
future funding rounds, the appropriate level of execution risk to be applied
to the anticipated event when assessing its valuation impact as at the balance
sheet date.
· Debt investments typically represent convertible debt; in such cases
judgement is exercised in respect of the estimated equity value received on
conversion of the loan.
Valuations are based on management's judgement after consideration of the
above and upon available information believed to be reliable, which may be
affected by conditions in the financial markets. Due to the inherent
uncertainty of the investment valuations, the estimated values may differ
significantly from the values that would have been used had a ready market for
the investments existed, and the differences could be material.
(ii) Application of IFRS 10 in respect of IPG Cayman LP and Istesso Limited
(significant judgement)
Istesso Limited
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 resulting in it holding less than 50% of the
voting rights at the company. Under Istesso's Articles of Association,
strategic and day-to-day decisions over running of the business rest with the
Board of Directors rather than through shareholder voting rights attached to
direct ownership of equity interests held in the entity. In this respect,
power over Istesso is exercised predominantly through directors' meetings, on
which IP Group is not deemed to have majority representation. As such, the
relationship between Istesso and IP Group is designed in such a way that
"shareholder" voting rights are not the dominant factor in deciding who
directs the investee's relevant activities, but it is the directors who do so.
IP Group does not control the board of Istesso Limited via a majority of board
directors, and is specifically prevented from appointing additional directors
to gain control of the board via restrictions in Istesso's Articles of
Association.
During the year, the Group provided a £10m convertible loan to Istesso
Limited. The terms of the loan contain specific provisions preventing its
conversion where this would result in IP Group obtaining control of Istesso.
Based on an updated control assessment, including considerations around
whether IP Group has 'de facto' control of Istesso including inter alia the
number of voting shares held by the Group and its connected parties and the
dispersion of other parties' voting rights, we have concluded that the Group
does not control Istesso Limited under IFRS 10
IPG Cayman LP
The Group's US portfolio is held via a limited partnership fund, IPG Cayman
LP, which was set up in 2018 to facilitate third party investment into this
portfolio. The fund is managed by IP Group, Inc., formerly an operating
subsidiary of the Group. Prior to 2021, the Group was judged to control both
IPG Cayman LP and IP Group, Inc. under IFRS 10 and hence both entities were
consolidated.
In 2021, several events took place which caused us to reassess the Group's
control of both entities:
· IPG Cayman LP raised additional third-party funds in the first half of
2021, which reduced the Group's stake in the fund from 80.7% to 58.1%.
· 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 changes, our control assessment concluded that IPG Inc.
is acting as an agent on behalf of all investors in the Cayman LP and not
solely IPG plc, therefore the Group no longer controls IPG Cayman LP. The
Group therefore ceased to consolidate it from November 2021. See note 22 for
further details on the accounting impact of the deconsolidation.
Arriving at this conclusion required the application of judgement, most
significantly in assessing the application guidance contained in IFRS 10 B19
which suggests that in some instances a special relationship may exist (such
as the fact that we remain the largest individual investor in the fund),
implying that an investor has a more than passive interest in the investee.
Having considered this guidance we conclude that on balance the Group does not
have power over IPG Cayman LP and hence does not control it.
There have been no significant changes in the facts and circumstances relating
to control considerations in respect of IPG Cayman LP in 2022.
3. Financial risk management
As set out in the principal risks and uncertainties section, 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 13 investments valued at £228.7m which are publicly traded
(2021: 13, £662.7m), and the remainder of its investments are not traded on
an active market.
The net portfolio loss in 2022 of £304.3m represents a 21.5% decrease against
the opening balance (2021: gain of £497.4m, 42.8%). 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.
2022 2021
Quoted Unquoted Total Quoted Unquoted Total
£m £m £m £m £m £m
Equity and debt investments and investments in limited partnerships 2.3 10.4 12.7 6.6 8.4 15.0
(ii) Foreign exchange risk
The Groups' main exposure to foreign currency risk is via its investment
portfolio, which is partially denominated in US dollars, Australian dollars,
Euros and Swedish Krona. Further details of currency exposure in the portfolio
are given in notes 13 and 14.
Additionally, the Group's assets include deferred consideration relating to US
dollar denominated proceeds totalling £35.5m (2021: £28.2m), with the
largest element relating to proceeds of £28.8m receivable in the first half
of 2023 relating to the disposal of WaveOptics.
The Group has entered into forward foreign exchange contracts to mitigate risk
of exchange rate exposure to an element of these proceeds. As at 31 December
2022 the notional amount of the forward foreign exchange contracts held by the
Company was $26.3 million (2021: nil). The settlement date of these is 30 June
2023. The fair value of these contracts at the balance sheet date was £0.1m.
(iii) Interest rate risk
The Group holds a debt facility with the European Investment Bank and a loan
note facility primarily with Phoenix Group with the overall balance as at 31
December 2022 amounting to £81.9m (excluding setup costs). These loans are
all subject to fixed rate interest (following the repayment of variable rate
loans in the year) being subject to an average fixed rate interest of 4.65%
(2021: 3.1%).
For further details of the Group's loans including covenant details see note
19.
The other primary impact of interest rate risk to the Group is the impact on
the income and operating cash flows as a result of the interest-bearing
deposits and cash and cash equivalents held by the Group.
(iv) Concentrations of risk
The Group is exposed to concentration risk via the significant majority of the
portfolio being UK-based companies and thus subject to the performance of the
UK economy. In recent years, the Group has increased the scale of its
operations in the US both via its holding in IPG Cayman LP and via the
relocation of certain portfolio companies to the US. The group has also
increased the scale of its operations in Australia via additional investment
in this geography.
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.
2022 2021
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 - - 1,120.8 1,120.8 - - 1,391.8 1,391.8
Debt investments - - 38.1 38.1 - - 22.8 22.8
Limited and limited liability partnership interests - - 99.6 99.6 - - 92.9 92.9
Trade receivables - - 2.1 2.1 - - 1.7 1.7
Other receivables - - 6.7 6.7 - - 5.2 5.2
Receivable on sale of debt and equity investments - - 48.2 48.2 - - 42.3 42.3
Deposits 152.8 - - 152.8 216.2 - - 216.2
Cash and cash equivalents - 88.7 - 88.7 - 105.7 - 105.7
152.8 88.7 1,315.5 1,557.0 216.2 105.7 1,556.7 1,878.5
Financial liabilities
Trade payables - - (1.3) (1.3) - - (0.6) (0.6)
Other accruals and deferred income - - (15.6) (15.6) - - (18.1) (18.1)
Borrowings (81.4) - - (81.4) (40.8) (11.0) - (51.8)
Carried interest plan liability - - (44.1) (44.1) - - (33.1) (33.1)
Deferred tax liability - - (6.8) (6.8) - - (5.8) (5.8)
Loans from Limited Partners of consolidated funds (19.5) (19.5) - - (18.7) (18.7)
- -
Revenue share liability - - (13.0) (13.0) - - (13.1) (13.1)
(81.4) - (100.3) (181.7) (40.8) (11.0) (89.4) (141.2)
At 31 December 2022, if interest rates had been 1% higher/lower, post-tax loss
for the year, and other components of equity, would have been £2.0m (2021:
£1.4m) 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 2022 2021
£m £m
P1 177.4 292.3
AAAMMF(1) 54.6 20.2
Other(2) 9.5 9.4
Total deposits and cash and cash equivalents 241.5 321.9
1 The Group holds £54.6m (2021: £20.2m) with JP Morgan GBP liquidity fund,
which has a AAAMMF credit rating with Fitch.
2 The Group holds £9.5m (2021 £9.4m) 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
0.2107% (2021: 0.1401%).
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 2022 was the greater of 60% of total group
cash or £50.0m (2021: 60%, £50.0m). In addition, no single institution may
hold more than the higher of 50% of total cash or £80m. (2021: 50%, £75m).
The group's exposure to credit risk on debt investments is managed in a
similar way to equity investment price risk, as described above, through the
Group's investment appraisal processes and asset monitoring procedures which
are subject to overall review by the Board. The maximum exposure to credit
risk for debt investments, receivables and other financial assets is
represented by their carrying amount.
4. Revenue from services
Accounting Policy:
Revenue from services is generated primarily from within the United Kingdom
and is stated exclusive of value added tax, with further revenue generated in
the Group's Australian operations. Revenue is recognised when the Group
satisfies its performance obligations, in line with IFRS 15. Revenue breakdown
and disclosure requirements under IFRS 15 have not been presented as they are
considered immaterial. Revenue from services and other income comprises:
Fund management services
Fund management fees include fiduciary fund management fees which are
generally earned as a fixed percentage of total funds under management and are
recognised as the related services are provided and performance fees payable
from realisation of agreed returns to investors which are recognised as
performance criterion are met.
Licence and royalty income
The Group's IP licences typically constitute separate performance obligations,
being separate from other promised goods or services. Revenue is recognised in
line with the performance obligations included in the licence, which can
include sales-based, usage-based or milestone-based royalties.
Advisory and corporate finance fees
Fees earned from the provision of business support services including 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 of the financing round to which the advisory fees apply.
Revenue from services is derived from the provision of advisory and venture
capital fund management services or from licensing activities, royalty
revenues and patent cost recoveries.
5. Operating segments
For both the year ended 31 December 2022 and the year ended 31 December 2021,
the Group's revenue and profit before taxation were derived largely from its
principal activities within the UK.
For management reporting purposes, the Group is currently organised into five
operating segments:
i) Venture Capital investing within our Life
Sciences thematic area
ii) Venture Capital investing within our Deeptech
thematic area
iii) Venture Capital investing within our Cleantech
thematic area
iv) Venture Capital investing: Oher, representing
investments not included within our three thematic areas above, including
platform investments, and our US and Australian investments
v) the management of third party funds and the
provision of corporate finance advice
Following the implementation of the group's revised strategy, and the decision
to formalise the split of the Group's investment activities into three
thematic areas (Life Sciences, Deeptech and Cleantech), the Directors have
concluded that it is no longer appropriate to aggregate the Group's venture
capital investing activities into a single operating segment and have
accordingly presented the three thematic areas as separate segments. Reporting
line items within Venture Capital investing which are not allocated by
thematic sector are presented in the 'Venture Capital investing: other'
segment.
These activities are described in further detail in the strategic report Venture capital investing: Life sciences Of which Oxford Nanopore Venture capital investing: Deeptech Venture capital investing: Cleantech Venture capital investing: Other Third party fund management Consolidated
Year ended 31 December 2022 £m £m £m £m £m £m £m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments (399.4) (369.7) (21.0) 114.6 2.4 - (303.4)
(Loss)/gain on disposal of equity and debt investments (12.1) - 4.0 - 0.3 - (7.8)
Change in fair value of limited and limited liability partnership interests 2.1 - 2.1
Loss on disposal of subsidiary - - - - - - -
Revenue from services and other income 1.1 6.0 7.1
(411.5) (369.7) (17.0) 114.6 5.9 6.0 (302.0)
Administrative expenses(1)
Carried interest plan charge(1) (12.0) - (12.0)
Share-based payment charge(1) (2.6) (0.3) (2.9)
Other administrative expenses(1) (22.1) (5.3) (27.4)
(36.7) (5.6) (42.3)
Operating loss (334.7) 0.4 (344.3)
Finance income(1) 2.1 0.1 2.2
Finance costs(1) (1.4) - (1.4)
Loss before taxation (344.0) 0.5 (343.5)
Taxation(1) (1.0) - (1.0)
Loss for the year (344.0) 0.5 (344.5)
STATEMENT OF FINANCIAL POSITION
Assets 613.8 205.5 230.5 243.8 451.9 17.8 1,557.8
Liabilities(1) (176.0) (5.7) (181.7)
Net Assets 1,364.0 12.1 1,376.1
Other segment items
Purchase of debt & equity investments (38.9) (3.2) (20.4) (22.3) (7.3) - (88.9)
Realisations 15.6 - 8.7 3.5 0.3 - 28.1
Venture capital investing: Life sciences Of which Oxford Nanopore Venture capital investing: Deeptech Venture capital investing: Cleantech Venture capital investing: Other Third party fund management Consolidated
Year ended 31 December 2021 £m £m £m £m £m £m £m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments 319.9 284.8 47.0 30.4 18.6 - 415.9
Gain on disposal of equity investments 55.4 12.3 25.4 0.5 0.2 - 81.5
Change in fair value of limited and limited liability partnership interests 1.8 - 1.8
Loss on deconsolidation of subsidiary - - - - (3.8) - (3.8)
Revenue from services and other income 5.7 7.9 13.6
375.3 297.1 72.4 30.9 22.5 7.9 509.0
Administrative expenses(1)
Carried interest plan charge(1) (17.2) - (17.2)
Share-based payment charge(1) (2.5) (0.1) (2.6)
Other administrative expenses(1) (28.7) (4.5) (33.2)
(48.4) (4.6) (53.0)
Operating profit 452.7 3.3 456.0
Finance income(1) 0.4 - 0.4
Finance costs(1) (1.8) - (1.8)
Profit before taxation 451.3 3.3 454.6
Taxation(1) (5.3) - (5.3)
Profit for the year 446.0 3.3 449.3
STATEMENT OF FINANCIAL POSITION
Assets 1,005.1 572.0 250.3 100.9 505.8 17.2 1,879.3
Liabilities(1) (137.4) (3.8) (141.2)
Net Assets 1,724.7 13.4 1,738.1
Other segment items
Purchase of debt & equity investments (52.2) (18.7) (6.7) (11.9) (32.9) - (103.7)
Realisations 167.7 84.1 41.7 2.8 1.2 - 213.4
(1) These amounts cannot be apportioned to the individual segments of the
venture capital investing business.
6. Auditor's remuneration
Details of the auditor's remuneration are set out below:
2022 2021(1)
£000 £000
Audit fees in respect of Group and subsidiaries, audited by KPMG LLP 578.9 398.3
Interim review fee, for review performed by Group auditor KPMG LLP 60.0 55.0
Audit fees in respect of Funds, audited by KPMG LLP 15.0 108.1
Audit fees in respect of subsidiary companies, audited by Moore Northern Home 68.7 62.0
Counties Limited
Total assurance services 722.6 623.4
All other services performed by Group auditor KPMG LLP - 5.0
Total non-assurance services performed by Group auditor KPMG LLP - 5.0
The 2021 audit fee in respect of IPG Cayman LP included within Audit fees in
respect of Funds above was pro-rated to reflects its de-consolidation in
November 2021.
7. Operating profit
Operating profit/(loss) has been arrived at after charging:
2022 2021
£m £m
Depreciation of right of use asset, property, plant and equipment (0.6) (1.6)
Employee costs (see note 9) (20.0) (22.5)
Loss on disposal or deconsolidation of subsidiary (see note 22) - (3.8)
8. Other administrative expenses
Other administrative expenses comprise:
2022 2021
£m £m
Employee costs (less share-based payment charge) 17.1 19.9
Professional services 4.0 5.5
Consolidated portfolio company costs 0.1 0.1
Depreciation of tangible assets 0.6 1.6
Other expenses 5.6 6.1
27.4 33.2
9. Employee Costs
Accounting Policy
Employee benefits
Pension obligations
The Group operates a company defined contribution pension scheme for which all
employees are eligible. The assets of the scheme are held separately from
those of the Group in independently administered funds. The Group currently
makes contributions on behalf of employees to this scheme or to employee
personal pension schemes on an individual basis. The Group has no further
payment obligations once the contributions have been paid. The contributions
are recognised as employee benefit expenses when they are due.
Share-based payments
The Group engages in equity-settled share-based payment transactions in
respect of services receivable from employees, by granting employees
conditional awards of ordinary shares subject to certain vesting conditions.
Conditional awards of shares are made pursuant to the Group's Long Term
Incentive Plan ("LTIP") awards and/or the Group's Annual Incentive Scheme
("AIS"). The fair value of the shares is estimated at the date of grant,
taking into account the terms and conditions of the award, including
market-based performance conditions.
The fair value at the date of grant is recognised as an expense over the
period that the employee provides services, generally the period between the
start of the performance period and the vesting date of the shares. The
corresponding credit is recognised in retained earnings within total equity.
The fair value of services is calculated using the market value on the date of
award and is adjusted for expected and actual levels of vesting. Where
conditional awards of shares lapse, the expense recognised to date is credited
to the statement of comprehensive income in the year in which they lapse.
Where the terms for an equity-settled award are modified, and the modification
increases the total fair value of the share-based payment or is otherwise
beneficial to the employee at the date of modification, the incremental fair
value is amortised over the vesting period.
See the Directors' Remuneration Report and note 22 for further details.
Employee costs (including Executive Directors) comprise:
2022 2021
£m £m
Salaries 11.6 12.6
Defined contribution pension cost 1.0 1.0
Share-based payment charge (see note 23) 2.9 2.6
Other bonuses accrued in the year 3.0 4.8
Social security 1.5 1.4
Total staff costs 20.0 22.4
The average monthly number of persons (including executive directors) employed
by the Group during the year was 99, all of whom were involved in management
and administration activities (2021: 104). Details of the directors'
remuneration can be found in the Directors' Remuneration Report.
10. Taxation
Accounting Policy:
Deferred tax
Full provision is made for deferred tax on all temporary differences resulting
from the carrying value of an asset or liability and its tax base. Deferred
tax is determined using tax rates (and laws) that have been enacted or
substantively enacted by the reporting date and are expected to apply when the
related deferred tax asset is realised or deferred tax liability settled.
Deferred tax assets are recognised to the extent that it is probable that the
deferred tax asset will be recovered in the future.
2022 2021
£m £m
Current tax
UK corporation tax on profits for the year - -
Foreign tax - 0.1
- 0.1
Deferred tax 1.0 5.2
Total tax 1.0 5.3
The Group primarily seeks to generate capital gains from its holdings in
spin-out companies over the longer-term. The majority of these capital gains
qualify for UK Substantial Shareholding Exemption ("SSE") and are therefore
not taxable, resulting in the Group making annual net operating losses from
its operations from a UK tax perspective.
Gains arising on sales of holdings which do not qualify for SSE will
ordinarily give rise to taxable profits for the Group, to the extent that
these exceed the Group's ability to offset gains against current and brought
forward tax losses (subject to the relevant restrictions on the use of
brought-forward losses). In such cases, a deferred tax liability is recognised
in respect of estimated tax amount payable.
The amount for the year can be reconciled to the profit per the statement of
comprehensive income as follows:
2022 2021
£m £m
(Loss)/profit before tax (343.5) 454.6
Tax at the UK corporation tax rate of 19% (2021: 19%) (65.3) 86.4
Expenses not deductible for tax purposes 2.3 3.3
Income not taxable 1.5 (15.4)
Prior year adjustment on deferred tax 0.4 0.1
Non-taxable income on deconsolidation of subsidiaries - 0.1
Fair value movement on investments qualifying for SSE 58.4 (79.0)
Movement on share-based payments 0.4 0.4
Movement in tax losses arising not recognised 2.9 8.0
Rate change on deferred tax 0.4 1.4
Total tax charge 1.0 5.3
At 31 December 2022, deductible temporary differences and unused tax losses,
for which no deferred tax asset has been recognised, totalled £278.7m (2021:
£264.4m). An analysis is shown below:
2022 2021
Amount Deferred Amount Deferred
£m tax £m tax
£m £m
Accelerated capital allowances (0.5) (0.1) (0.2) (0.1)
Share-based payment costs and other temporary differences (15.5) (3.9) (25.8) (6.4)
Unused tax losses (262.7) (65.7) (238.4) (59.6)
(278.7) (69.7) (264.4) (66.1)
At 31 December 2022, deductible temporary differences and unused tax losses,
for which a deferred tax asset/(liability) has been recognised, totalled
£27.3m (2021: £23.7m). An analysis is shown below:
2022 2021
Amount Deferred Amount Deferred
£m tax £m tax
£m £m
Temporary timing differences 79.7 19.9 78.4 19.5
Unused tax losses (52.4) (13.1) (54.7) (13.7)
27.3 6.8 23.7 5.8
11. Earnings per share
Earnings 2022 2021
£m £m
Earnings for the purposes of basic and dilutive earnings per share (341.5) 448.5
Number of shares 2022 2021
Number of shares Number of shares
Weighted average number of ordinary shares for the purposes of basic 1,034,483,278 1,059,547,189
earnings per share
Effect of dilutive potential ordinary shares:
Options or contingently issuable shares - 16,431,907
Weighted average number of ordinary shares for the purposes of diluted 1,034,483,278 1,075,979,096
earnings per share
2022 2021
pence pence
Basic (33.01) 42.33
Diluted (33.01) 41.68
No adjustment has been made to the basic loss per share in the year ended 31
December 2022, as the exercise of share options would have the effect of
reducing the loss per ordinary share, and therefore is not dilutive.
Potentially dilutive ordinary shares include contingently issuable shares
arising under the Group's LTIP arrangements, and options issued as part of the
Group's Sharesave schemes and Deferred Bonus Share Plan (for annual bonuses
deferred under the terms of the Group's Annual Incentive Scheme).
12. Categorisation of financial instruments
Accounting policy:
Financial assets and liabilities
Financial assets and liabilities are recognised in the balance sheet when the
relevant Group entity becomes a party to the contractual provisions of the
instrument. De-recognition occurs when rights to cash flows from a financial
asset expire, or when a liability is extinguished.
Derivative financial instruments are accounted for at fair value through
profit and loss in accordance with IFRS 9. They are revalued at the balance
sheet date based on market prices, with any change in fair value being
recorded in profit and loss. Derivatives are recognised in the Consolidated
statement of financial position as a financial asset when their fair value is
positive and as a financial liability whey their fair value is negative. The
Group's derivative financial instruments are not designated as hedging
instruments.
Financial assets
In respect of regular way purchases or sales, the Group uses trade date
accounting to recognise or derecognise financial assets.
The Group classifies its financial assets into one of the categories listed
below, depending on the purpose for which the asset was acquired.
At fair value through profit or loss
Held for trading and financial assets are recognised at fair value through
profit and loss. This category includes equity investments, debt investments
and investments in limited partnerships. Investments in associated
undertakings, which are held by the Group with a view to the ultimate
realisation of capital gains, are also categorised as at fair value through
profit or loss. This measurement basis is consistent with the fact that the
Group's performance in respect of investments in equity investments, limited
partnerships and associated undertakings is evaluated on a fair value basis in
accordance with an established investment strategy.
Financial assets at fair value through profit or loss are initially recognised
at fair value and any gains or losses arising from subsequent changes in fair
value are presented in profit or loss in the statement of comprehensive income
in the period which they arise.
At amortised cost
These assets are non-derivative financial assets with fixed and determinable
payments that are not quoted in an active market. They arise principally
through the provision of services to customers (trade receivables) and are
carried at cost less provision for impairment.
Deposits
Deposits comprise longer-term deposits held with financial institutions with
an original maturity of greater than three months and, in line with IAS 7 are
not included within cash and cash equivalents. Cash flows related to 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, loan notes provided by Phoenix
Group, carried interest plans liabilities, and revenue share liabilities
arising as a result of the Group's former Technology Pipeline Agreement with
University College London.
Unless otherwise indicated, the carrying amounts of the Group's financial
liabilities are a reasonable approximation to their fair value. Non-current
liabilities are recognised initially at fair value net of transaction costs
incurred, and subsequently at amortised cost.
Financial assets At fair Amortised cost Total
value through profit or loss
£m £m
£m
At 31 December 2022
Equity investments 1,120.8 - 1,120.8
Debt investments 38.1 - 38.1
Limited and limited liability partnership interests 99.6 - 99.6
Trade and other receivables - 8.8 8.8
Receivables on sale of debt and equity investments 48.2 - 48.2
Deposits - 152.8 152.8
Cash and cash equivalents - 88.7 88.7
At 31 December 2022 1,306.7 250.3 1,557.0
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
Receivables 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
In light of the credit ratings applicable to the Group's cash and cash
equivalent and deposits, (see note 3 for further details), we estimate
expected credit losses on the Group's receivables to be under £0.1m and
therefore not disclosed further (2021: 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 (2021:
all net fair value gains in the year are attributable to financial assets
designated at fair value through profit or loss on initial recognition).
Interest income of £nil (2021: £nil) is attributable to financial assets
classified as fair value through profit and loss.
13. Portfolio: Equity and debt investments
Accounting policy:
Fair value hierarchy
The Group classifies financial assets using a fair value hierarchy that
reflects the significance of the inputs used in making the related fair value
measurements. The level in the fair value hierarchy, within which a financial
asset is classified, is determined on the basis of the lowest level input that
is significant to that asset's fair value measurement. The fair value
hierarchy has the following levels:
Level 1 - Quoted prices in active markets.
Level 2 - Inputs other than quoted prices that are observable, such as prices
from market transactions.
Level 3 - One or more inputs that are not based on observable market data.
Equity investments
Fair value is the underlying principle and is defined as "the price that would
be received to sell an asset in an orderly transaction between market
participants at the measurement date" (IPEV guidelines, December 2022).
Where the equity structure of a portfolio company involves different class
rights in a sale or liquidity event, the Group takes these different rights
into account when forming a view on the value of its investment.
Valuation techniques used
The fair value of unlisted securities is established using appropriate
valuation techniques in line with December 2022 IPEV guidelines. The selection
of appropriate valuation techniques is considered on an individual basis in
light of the nature, facts and circumstances of the investment and in the
expected view of market participants. The Group selects valuation techniques
which make maximum use of market-based inputs. Techniques are applied
consistently from period to period, except where a change would result in
better estimates of fair value. Several valuation techniques may be used so
that the results of one technique may be used as a cross check/corroboration
of an alternative technique.
Valuation techniques used include:
· Quoted bid price: The fair values of quoted investments are based on bid
prices in an active market at the reporting date.
· Recent financing: The fair value of unquoted investments which have
recently raised equity financing may be calculated with reference to the price
of the recent investment. For investments for which the capital structure
involves different class rights in a sale or liquidity event, a full scenario
analysis via the use of the probability-weighted expected return method
(PWERM) is used to calculate the implied values of the existing share classes.
· Other: Future market/commercial events: Scenario analysis is used, which
is a forward-looking method that considers one or more possible future
scenarios. These methods include simplified scenario analysis and relative
value scenario analysis, which tie to the fully diluted ("post-money") equity
value. The PWERM method may be utilised for this valuation technique for
investments which have an equity structure which involves different class
rights in a sale or liquidity event.
· Other: Adjusted recent financing price based on past performance: The
milestone approach involves making an assessment as to whether there is an
indication of change in fair value based on a consideration of the relevant
milestones, typically agreed at the time of making the investment decision.
· Other: Discounted cash flows: deriving the value of a business by
calculating the present value of expected future cash flows.
· Other: Revenue multiple: the application of an appropriate multiple to a
performance measure (such as earnings or revenue) of the investee company in
order to derive a value for the business.
The fair value indicated by a recent transaction is used to calibrate inputs
used with valuation techniques including those noted above. At each
measurement date, an assessment is made as to whether changes or events
subsequent to the relevant transaction would imply a change in the
investment's fair value. The Price of a Recent Investment is not considered a
standalone valuation technique (see further considerations below). Where the
current fair value of an investment is unchanged from the price of a 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.
Disclosure of unrealised and realised gains and losses
'Change in fair value of equity and debt investments' per the Group Income
Statement represents unrealised revaluation gains and losses on the Group's
portfolio of investment.
Gains on disposal of equity investments represents the difference between the
fair value of consideration received and the carrying value at the start of
the accounting period for the investment in question.
Changes in fair values of investments do not constitute revenue
Top 20 Equity and Debt Investments by holding value
The following table lists information on the 20 most valuable portfolio
company investments, which represent 71% of the total portfolio value (2021:
75%). Detail on the performance of these companies is included in the Life
Sciences, Deeptech and Cleantech portfolio reviews.
The Group engages third-party valuation specialists to provide valuation
support where required; during the period we commissioned third-party
valuations on nine out of the top 20 holdings (2021: three).
Company name Primary valuation basis Fair value of Group holding at 31 Dec 2022
£m
Oxford Nanopore Technologies plc Quoted bid price 205.5
First Light Fusion Limited *Adjusted funding 114.5
Istesso Limited *DCF 95.6
Oxbotica Limited Recent financing (< 12 months) 65.9
Featurespace Limited *Revenue multiple 64.1
Hinge Health, Inc. *Adjusted funding 53.6
Ultraleap Holdings Limited *Adjusted funding 37.9
Garrison Technology Limited *Future market/commercial events 27.7
Ieso Digital Health Limited Recent financing (> 12 months) 21.8
Akamis Bio Limited *Adjusted funding 21.3
Bramble Energy Limited Recent financing (< 12 months) 20.9
Oxford Science Enterprises plc Recent financing (< 12 months) 20.6
Crescendo Biologics Limited Recent financing (< 12 months) 18.7
Hysata Pty Ltd Recent financing (< 12 months) 18.7
Artios Pharma Limited Recent financing (> 12 months) 18.3
Mission Therapeutics Limited *Recent financing (> 12 months) 18.1
Nexeon Limited Recent financing (< 12 months) 16.6
Salt Pay Co. Limited *Adjusted funding 16.5
Microbiotica Limited Recent financing (< 12 months) 16.1
Oxular Limited Recent financing (> 12 months) 15.9
Total 888.3
* Third-party valuation specialists used for 31 December 2022 valuation. In
these instances, the valuation basis is management's assessment of the primary
valuation input used by the third-party valuation specialist.
Level 1 Level 3
Equity investments in quoted spin-out companies Unquoted equity investments in spin-out companies Debt investments in unquoted spin-out companies Total
£m
£m £m £m
At 1 January 2022 662.7 729.1 22.8 1,414.6
Investments during the year 7.3 61.4 20.2 88.9
Transaction-based reclassifications during the year - 8.4 (8.4) -
Other transfers between hierarchy levels during the year - - - -
Disposals during period (27.5) (14.2) - (41.7)
Fees settled via equity - 0.5 - 0.5
Change in revenue share(1) - - - -
Change in fair value in the year(2) (416.0) 93.6 3.1 (319.3)
Change in FX(2) 2.2 13.3 0.4 15.9
At 31 December 2022 228.7 892.1 38.1 1,158.9
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(1) - 0.1 - 0.1
Change in fair value in the year(2) 270.3 137.1 3.7 411.1
Change in FX(2) 1.8 3.1 (0.1) 4.8
At 31 December 2021 662.7 729.1 22.8 1,414.6
1 For description of revenue share arrangement see description in note 19.
2 The total unrealised change in fair value and FX in respect of Level 3
investments was a gain of £110.4m (2021: gain of £143.8m).
Unquoted equity and debt investment are measured in accordance with IPEV
guidelines with reference to the most appropriate information available at the
time of measurement. Where relevant, several valuation approaches are used in
arriving at an estimate of fair value for an individual asset.
For assets and liabilities that are recognised at fair value on a recurring
basis, the Group determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of
each reporting period. Transfers between levels are then made as if the
transfer took place on the first day of the period in question, except in the
cases of transfers between tiers based on an initial public offering ("IPO")
of an investment wherein the changes in value prior to the IPO are calculated
and reported in level 3, and those changes post are attributed to level 1.
Transfers between level 3 and level 1 occur when a previously unquoted
investment undertakes an initial public offering, resulting in its equity
becoming quoted on an active market. In the current period, transfers of this
nature amounted to £nil (2021: £383.2m). 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 (2021: no such instances).
Transfers between level 3 debt and level 3 equity occur upon conversion of
convertible debt into equity. In the current period, transfers of this nature
amounted to £8.4m (2021: £23.8m).
The Group has considered the impact of ESG and climate change issues on its
portfolio, including performing a materiality assessment (see TCFD
disclosures) 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. To view the portfolio split by sector, please refer to
the 'Overview of Portfolio and Business unit performance'. We believe our
current valuation approach, based largely on quoted valuations, and recent
financing transactions, reflects market participant assessment of the ESG and
climate risks and opportunities of our portfolio.
Valuation inputs and sensitivities
Unobservable inputs are typically portfolio company-specific and, based on a
materiality assessment, are not considered significant either at an individual
company level or in aggregate where relevant for common factors such as
discount rates.
The sensitivity analysis table below has been prepared in recognition of the
fact that some of the valuation methodologies applied by the Group in valuing
the portfolio investments involve subjectivity in their significant
unobservable inputs. The table illustrates the sensitivity of the valuations
to these inputs. The inputs of investments valued using techniques which
involve significant subjectivity have been flexed by +/- 10%.
Valuation Technique Fair value of investments Variable inputs Variable input sensitivity Positive impact Negative impact
Fair value of investments
2022 2021
£m % £m % of NAV £m % of NAV £m
Quoted 228.7 n/a +/-10 22.9 1.7 (22.9) (1.7) 662.7
Recent financing 289.8 n/a +/-10 29.0 2.1 (29.0) (2.1) 388.6
<12 months
Recent financing 117.8 n/a +/-10 11.8 0.9 (11.8) (0.9) 71.6
>12 months
Other: Future market/commercial events 40.7 • Estimated impact of future event +/-10 4.1 0.3 (4.1) (0.3) 39.5
• Execution risk discount applied to future event (where positive)
• Scenario probabilities
• Discount rates
• Extent to which future event is indicative of facts and circumstances in
existence at the balance sheet date
Other: Adjusted recent financing 306.3 • Company-specific milestone analysis +/-10 30.6 2.2 (30.6) (2.2) 147.4
price based on past performance*
Other: Revenue multiple* 77.9 • Estimate of future recurring revenues +/-10 7.8 0.6 (7.8) (0.6) 19.2
• Selection of comparable companies
Other: DCF* 97.7 • Discount rate +/-10 9.8 0.7 (9.8) (0.7) 85.6
• Clinical trial and drug approval success rates
• Estimate of value and structure of a potential pharmaceutical
partnership
• Estimate of addressable market
• Market share and royalty rates
• Probability estimation of liquidity event
Total 1,158.9 116.0 8.4 (116.0) (8.4) 1,414.6
*Due to the large number of inputs used in the valuation of these assets,
unobservable inputs are below a size threshold that would warrant disclosure
under IFRS 13, paragraph 93(d). Due to the large number of inputs, any range
of reasonably possible alternative assumptions does not significantly impact
the fair value and hence no valuation sensitivity is required under IFRS 13
paragraph 93(h)(ii).
Within the 'Other: DCF' category above is Istesso Limited, whose equity is
valued at £80.8m as at 31 December 2022 (2021: £80.8m). Our estimated range
for the value of the Group's equity investment in Istesso based on this DCF
model as at 31 December 2022 is £65.0m to £105.0m (2021: £66.3m to
£106.0m).
Within the 'Adjusted valuation' category above is First Light Fusion Limited,
whose equity is valued at £114.5m as at 31 December 2022 (2021: £57.3m). The
valuation of this company involves an assessment against comparable companies
and involves certain key assumptions around their comparability and First
Light's assumed maturity value. Our estimated range for the value of the
Group's equity investment in First Light Fusion based on this model as at 31
December 2022 is £92.5m to £185.8m (2021: The company was valued based on a
recent financing price).
In addition to Istesso Limited and First Light Fusion Limited, eight other
assets were reviewed by external valuers. The aggregate of the range of
valuations they concluded upon for these assets was £234.7m-£286.5m, and we
have selected points within these ranges which in aggregate total £246.7m.
Change in fair value in the year 2022 2021
£m £m
Fair value gains 183.3 479.0
Fair value losses (486.7) (63.1)
(303.4) 415.9
The Company's interests in subsidiary undertakings are listed in note 10 to
the Company's financial statements.
Currency risk
Exposure to currency risk through asset allocation, which is calculated by
reference to the currency in which the asset or liability is quoted, is shown
below.
At 31 December 2022
Investments Sensitivity
£m
+/- 1%
£m
US dollar 102.2 1.0
Australian dollar 49.6 0.5
Euro 3.0 -
Swedish Krona 1.5 -
Total 156.3 1.5
At 31 December 2021
Investments Sensitivity
£m
+/- 1%
£m
US dollar 139.0 1.4
Australian dollar 26.6 0.3
Euro - -
Total 165.6 1.7
14. Portfolio: Limited and limited liability partnership interests
Accounting Policy:
Valuations in respect of Limited and Limited Liability Funds are based on IP
Group's share of the Net Asset Value of the fund as per the audited financial
statements prepared by the fund manager. The key judgements in the preparation
of these accounts relate to the valuation of unquoted investments.
Investments in these Limited and Limited Liability Partnerships are recognised
at fair value through profit and loss in accordance with IFRS 9.
'Changes in fair value of Limited Partnership investments' per the Group
Income Statement represents revaluation gains and losses on the Group's
investment in Limited Partnership funds.
Fund interests are valued on a net asset basis, estimated based on the
managers' NAVs. Manager's NAVs apply valuation techniques consistent with IFRS
and are subject to audit (received in arrears of the publication of the
Group's results hence marked as unaudited in the table below). Managers' NAVs
are usually published quarterly, two to four months after the quarter end. The
below table analyses the fund valuations with reference to manager NAV dates
used at 31 December.
Limited & Limited Liability Partnerships Functional currency Status 2022 2021
£m
£m
IPG Cayman Fund L.P. USD Unaudited & Adjusted 80.0 72.6
UCL Technology Fund L.P. GBP Unaudited 16.9 17.7
Technikos LLP GBP Unaudited 2.7 2.6
Total 99.6 92.9
We reviewed the underlying valuation methodologies adopted by our Fund
managers for all Fund investments of material value. In the Cayman Fund L.P.
this includes two investments in which the Group also holds direct
shareholdings outside the fund: MOBILion, Inc. and Carisma Therapeutics, Inc.
Following our review of valuation methodologies we were satisfied that the
techniques utilised were appropriate, other than in one instance where our own
valuation estimates resulted in a lower valuation. We have therefore adjusted
the value of the Group's NAV in the IPG Cayman Fund L.P. to reflect this
revised valuation, and bring it in line with the valuation applied to the
Group's direct interest in the company.
Limited & Limited Liability Partnerships movements in year £m
At 1 January 2022 92.9
Investments during the year 4.6
Distribution from Limited Partnership funds -
Change in fair value during the year 8.5
Currency revaluation (6.4)
At 31 December 2022 99.6
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 22)
1.8
Change in fair value during the year
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.
15. (Loss)/Gain on disposal of equity investments
2022 2021
£m £m
Disposal proceeds 28.1 213.4
Movement in amounts receivable on sale of debt and equity investments 5.8 27.2
Carrying value of investments (41.7) (159.1)
(Loss)/profit on disposal (7.8) 81.5
(Loss)/profit on disposal of investments is calculated as disposal proceeds
plus deferred and contingent consideration receivable in respect of the sale,
less the carrying value of the investment at the point of disposal.
The subsequent receipt of deferred and contingent consideration amounts is
reflected in the above table as a positive amount of disposal proceeds and a
negative movement in amounts receivable on sale of debt and equity
investments, resulting in no overall movement in profit on disposal.
16. Trade and other receivables
Current assets 2022 2021
£m £m
Trade debtors 2.1 1.7
Prepayments 0.8 0.4
Right of use asset 0.7 1.2
Other receivables 5.2 3.6
Trade and other receivables 8.8 6.9
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.
17. Receivable on sale of debt and equity investments
Accounting Policy:
Consideration in respect of the sale of debt and equity investments may
include elements of deferred consideration where payment is received at a
pre-agreed future date, and/or elements of contingent consideration where
payment is received based on, for example, achievement of specific drug
development milestones. In such instances, these amounts are designated at
fair value through profit and loss on initial recognition. Any subsequent
remeasurement will be recognised as changes in fair value in the statement of
comprehensive income.
2022 2021
£m £m
Deferred and contingent consideration (non-current) 6.9 31.3
Deferred and contingent consideration (current) 41.3 11.0
Total deferred and contingent consideration 48.2 42.3
The following table summarises the primary valuation basis used to value the
deferred consideration:
Investment Primary Valuation Basis 2022 2021
£m £m
WaveOptics Limited Discounted sale amount 28.8 23.9
Enterprise Therapeutics Holdings Limited Probability-weighted DFC model 12.5 14.0
Athenex, Inc. Probability-weighted DFC model 5.6 4.2
Reinfer Limited Discounted sale amount 1.1 -
Perpetuum Limited Discounted sale amount 0.2 0.2
Total 48.2 42.3
18. Trade and other payables
Current liabilities 2022 2021
£m £m
Trade payables 1.3 0.5
Social security expenses 0.6 1.0
Bonus accrual 2.8 3.3
Lease liability 0.9 1.3
Payable to Imperial College and other third parties under revenue share 7.1 8.4
obligations (see note 20)
Other accruals and deferred income 4.2 4.2
Trade and other payables 16.9 18.7
19. Borrowings and Loans from Limited Partners of consolidated funds
Current liabilities 2022 2021
£m £m
Borrowings 6.3 15.4
Total 6.3 15.4
Non-current liabilities 2022 2021
£m £m
Loans drawn down from the Limited Partners of consolidated funds 19.5 18.7
Borrowings 75.1 36.4
Total 94.6 55.1
Loans drawn down from the Limited Partners of consolidated funds
Accounting Policy:
The Group consolidates the assets of a co-investment fund, IP Venture Fund II
LP, which it manages. Loans from third parties of consolidated funds represent
third-party LP loans into this partnership. Under the terms of the Limited
Partnership Agreement, these loans are repayable only upon these funds
generating sufficient realisations to repay the Limited Partners. Management
anticipates that the funds will generate the required returns and consequently
recognises the full associated liabilities.
The classification of these loans as non-current reflects the forecast timing
of returns and subsequent repayment of loans, which is not anticipated to
occur within one year.
As at 31 December, loans from Limited Partners of consolidated funds comprised
loans into IP Venture Fund II LP £19.5m (2021: £18.7m).
Borrowings
Accounting Policy:
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the consolidated statement of comprehensive income over
the period of the borrowing using the effective interest rate method. Costs
incurred in the course of issuing additional debt are recognised on the
balance sheet and charged to the income statement on a straight line basis
over the term of the borrowings.
The Group has expanded its debt facilities in the year with the addition of an
agreed borrowing primarily from Phoenix group to an existing loan from the
European Investment Bank which it has used to fund our portfolio of
businesses. The terms of the facilities are summarised below:
Description Initial amount Outstanding amount Date drawn Interest rate Repayment terms Repayment commencement date
EIB Facility £50.0m £21.9m Feb 2017 Fixed 3.026% 8 years Jul 2018
IP Group Series A Notes £20m £20m Dec-22 Fixed 5.230% 5 years Dec 2027
IP Group Series B Notes £20m £20m Dec-22 Fixed 5.210% 6 years Dec 2028
IP Group Series C Notes £20m £20m Dec-22 Fixed 5.300% 7 years Dec 2029
Total £110.0m £81.9m
Loans totalling £81.9m (2021: £40.8m) are subject to fixed interest rates
and are recognised at amortised cost. The fair value of these loans as at 31
December 2022 is £76.9m (2021: £43.0m).
In December 2022, the Group issued the first Tranche of £60m of a £120m loan
Note Purchase Agreement ("NPA"). The Group has a further £60m committed
borrowing that will be issued in June 2023. The NPA contains the following
covenants:
· Total equity must be at least £500m as at the Group's 30 June and 31
December reporting dates
· Gross debt less restricted cash must not exceed 25% of total equity as at
the Group's 30 June and 31 December reporting dates
· The Group must maintain cash and cash equivalents of not less than £25m
at any time
Breach of any of the above covenants constitutes default under the NPA.
The NPA also includes the concept of a 'Cash Trap', which is triggered based
on conditions listed below. In the event of the Cash Trap being triggered, the
Group is not permitted to pay or declare a dividend, or purchase any of its
shares. In addition, investments are restricted to £2.5m per calendar quarter
other than those legally committed to. The Group is also required to place the
net proceeds of all realisations (over a threshold of £1m) into a blocked
bank account. Entering a Cash Trap does not constitute a default under the
NPA.
A Cash Trap period is entered if any of the following conditions are breached
· Total equity must be at least £750m as at the Group's 30 June and 31
December reporting dates
· Gross debt less restricted cash must not exceed 20% of total equity as at
the Group's 30 June and 31 December reporting dates
· The Group must maintain cash and cash equivalents of not less than £50m
at any time.
A cash trap period can be remedied by:
· Transferring sufficient cash into the restricted cash account so that
gross debt less restricted cash exceeds 20% of total equity
· If because of low equity of high leverage, once these are restored at a
subsequent 30 June or 31 December measurement date
· If because of low liquidity, once two month-ends have passed with
liquidity > £50m
The EIB loan contains a debt covenant requiring that the ratio of the total
fair value of IP Group investments plus cash and qualifying liquidity to debt
should at no time fall below 6:1. The Group must maintain that the amount of
unencumbered funds freely available to the Group set with reference to the
outstanding EIB facility which was £21.9m at December 2022 (2021 £39.9m).
The loan also stipulates that on any date, the aggregate of all amounts
scheduled for payment to the EIB in the following six months should be kept in
a separate bank account, which totalled £3.5m on 31 December 2022 (2021:
£9.4m) The Group is required to maintain a minimum cash balance of £13.1m
(2001: £30m).
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 2022 NPA includes fixed and floating charges over the Company's assets,
details of which are available on Companies House.
The maturity profile of the borrowings including undiscounted cash flows and
fixed interest was as follows:
2022 2021
£m £m
Due within 6 months 4.8 8.3
Due 6 to 12 months 4.8 8.2
Due 1 to 5 years 48.4 38.5
Due after 5 years 43.1 -
Total(1) 101.1 55.0
The maturity profile of the borrowings was as follows:
2022 2021
£m £m
Due within 6 months 3.1 7.7
Due 6 to 12 months 3.2 7.7
Due 1 to 5 years 35.6 36.4
Due after 5 years 40.0 -
Total(1) 81.9 51.8
1 These are gross amounts repayable and exclude amortised costs of £0.5m
(2021: £nil) incurred on obtaining the Phoenix loans, these are amortised on
a straight line basis over the life of the borrowings.
A reconciliation in the movement in borrowings is as follows:
2022 2021
£m £m
At 1 January 51.8 67.3
Amortisation of costs - (0.1)
Capitalised loan costs (0.6) -
Repayment of debt (29.8) (15.4)
New borrowings 60.0 -
At 31 December 81.4 51.8
There were no non-cash movements in debt.
20. Revenue share liability
Accounting Policy:
The Group provides for liabilities in respect of revenue sharing obligations
arising under the former Technology Pipeline Agreement with Imperial College
London. Under this agreement, the Group received founder equity in spin out
companies from Imperial College, and following a sale of such founder equity,
a pre-specified "revenue share" (typically 50%) is payable to Imperial College
and other third parties. The liability for this revenue share, based on fair
value, is recognised as part of the movement in fair value through profit or
loss (see note 13 for further details).
2022 2021
£m £m
Current liabilities: revenue share liability (note 18) 7.1 8.4
Non-current liabilities: revenue share liability (note 13) 13.0 13.1
Revenue share liability 20.1 21.5
Prior to 2018, the Group operated the Technology Transfer Office of Imperial
College, under a contract referred to as the Technology Pipeline Agreement
("TPA"). Under the terms of this TPA, the Group owns licences, patents and
equity in spin-out companies generated through 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 licences and patents
governed by the TPA, and a share of proceeds from the disposal of equity where
a disposal of equity which is subject to revenue share (see further details
below) has taken place. The maturity date on such liabilities is typically
less than six months.
Long-term liabilities: Revenue share arrangement
Under the Group's former Technology Pipeline Agreement with Imperial College
London, the Group received founder equity in spin out companies from Imperial
College. Following any sale of such founder equity stakes, a pre-specified
revenue share (typically 50%) is payable to Imperial College and other third
parties. As at 31 December 2022, £13.0m of our equity investment were payable
to Imperial College and other third parties on their disposal under these
arrangements (i.e. 50% of a gross investment amount of approximately £26m)
(2021: £13.1m). 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.
21. Share capital
Accounting policy:
Financial instruments issued by the Group are treated as equity if the holders
have only a residual interest in the Group's assets after deducting all
liabilities. The objective of the Group is to manage capital so as to provide
shareholders with above- average returns through capital growth over the
medium to long-term. The Group considers its capital to comprise its share
capital, share premium, merger reserve and retained earnings.
2022 2021
Issued and fully paid: Number £m Number £m
Ordinary shares of 2p each
At 1 January 1,063,033,287 21.3 1,062,353,734 21.3
Issued in respect of scrip dividend 154,718 - 679,553 -
Share capital at 31 December 1,063,188,005 21.3 1,063,033,287 21.3
Existing treasury shares at 1 January (22,279,127) (0.4) - -
Purchase of treasury shares (7,429,494) (0.1) (22,279,127) (0.4)
Transfer of shares in respect of scrip dividend 330,851 - - -
Shares transferred out of treasury for SAYE 497,249 - - -
Settlement of employee share-based payments 770,148 - - -
Outstanding at 31 December 1,035,077,632 20.8 1,040,754,160 20.9
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 2022, the Company purchased 7,429,494 ordinary shares, with an
aggregate value of £8.0m, and they are held in treasury. Retained profits
have been reduced by £7.9m, being the net consideration paid for these
shares, including the expenses directly relating to the treasury share
purchase.
22. Deconsolidation and disposal of subsidiaries
In November 2021 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.
Total loss on deconsolidation/disposal:
2022 2021
£m £m
Deconsolidation of IPG Cayman LP - (3.0)
IPG Cayman LP - (0.8)
Total income statement amount - (3.8)
In 2021, 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 2. 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 2022 2021
£m £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
2022 (see note 24)
-
Loss on deconsolidation: - (3.0)
23. Share-based payments
In 2022, the Group continued to incentivise employees through its LTIP and
AIS. Both are described in more detail in the Directors' Remuneration Report.
Deferred bonus share plan ("DBSP")
Awards made to employees under the Group's AIS above a certain threshold
include 50% deferred into IP Group equity through the grant of nil-cost
options under the Group's DBSP. The number of nil-cost options granted under
the Group's DBSP is determined by the share price at the vesting date. The
DBSP options are subject to further time-based vesting over two years
(typically 50% after year one and 50% after year two).
An analysis of movements in the DBSP options outstanding is as follows:
Number of Weighted-average exercise price Number of Weighted-average
options
options
exercise price
2022
2022 2021 2021
At 1 January 1,311,615 - 743,489 -
AIS deferral shares award during the year 2,066,174 - 975,254 -
Exercised during the year (821,107) - (407,128) -
Forfeit during the year - - - -
At 31 December 2,556,682 - 1,311,615 -
Exercisable at 31 December 2,881 - 10,699 -
770,148 shares were transferred from treasury in respect of DBSP scheme during
the year, comprising 760,933 DBSP options exercised on 25th April 2022 and a
further 9,215 shares added to reflect scrip dividends issued since the
original DBSP award. A further 60,174 shares were exercised in December 2022.
The options outstanding at 31 December 2022 had an exercise price of £nil
(2021: £nil) and a weighted-average remaining contractual life of 0.6 years
(2021: 0.6 years).
The weighted average share price at the date of exercise for share options
exercised in 2022 was 84.4p (2021: 121.3p).
As the 2022 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 2022.
IP Group Restricted Share Plan ("RSP")
As set out in the Remuneration Policy approved by shareholders in 2022, a
Restricted Share Plan was introduced in 2022 to replace the previous LTIP
structure. Vesting of these awards will take place over a three-year period
commencing on 1 April 2023. Any RSP awards that vest will be subject to a
further two-year holding period. Vesting will be subject to a financial
underpin based on NAV growth over the vesting period. For 2022 awards, the
financial underpin has been set such that NAV per share on the vesting date
must be no lower than 100% of NAV per share on the award date, after making
appropriate adjustments for dividends, buy-backs and any other distributions.
Further information on the Group's RSP is set out in the Directors'
Remuneration Report.
The 2022 RSP awards were made on 28 June 2022. The awards will ordinarily vest
on 31 March 2025, to the extent that the performance conditions have been met.
The movement in the number of shares conditionally awarded under the RSP is
set out below:
Number of Weighted-average exercise price Number of Weighted-average
options
options
exercise price
2022
2022 2021 2021
At 1 January - - - -
Lapsed during the year - - - -
Forfeited during the year (74,235) - - -
Notionally awarded during the year 3,532,744 - - -
At 31 December 3,458,509 - - -
Exercisable at 31 December - - - -
The options outstanding at 31 December 2022 had an exercise price in the range
of £nil and a weighted-average remaining contractual life of 4.2 years.
The fair value of the RSP shares notionally awarded in 2022 was calculated
using the Finnerty pricing model with the following key assumptions:
2022 2021
IP Group share price as of valuation date £0.558 £1.254
Exercise price £nil £nil
Indicated Discount for Lack of Marketability 14.7% n/a
Adjusted probability assigned for performance conditions 20.0% n/a
Fair value at grant date £0.21 £0.35
Pre 2022 IP Group Long Term Incentive Plan ("LTIP")
Awards under the LTIP take the form of conditional awards of ordinary shares
of 2p each in the Group which vest over the prescribed performance period to
the extent that performance conditions have been met. The Remuneration
Committee imposes objective conditions on the vesting of awards and these take
into consideration the guidance of the Group's institutional investors from
time to time. Further information on the Group's LTIP is set out in the
Directors' Remuneration Report.
The 2021 LTIP awards were made on 6 May 2021. The awards will ordinarily vest
on 31 March 2024, to the extent that the performance conditions have been met.
The awards are based on the performance of the Group's NAV and Total
Shareholder Return ("TSR"). Both performance measures are combined into a
matrix format to most appropriately measure performance relative to the
business, as shown in the Directors' Remuneration Report within the Group's
2021 Annual Report and Accounts. The total award is subject to an underpin
based on the relative performance of the Group's TSR to that of the FTSE 250
index, which can reduce the awards by up to 50%. The 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 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 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 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 partially met the threshold performance target and
3,529,818 number vested, 2,534,571 lapsed on 31 March 2022. NAV growth to 31
December 2021 was above the minimum threshold and below the maximum threshold.
The one-month average share price at 31 March 2022 was below lower TSR target
and that of the FTSE 250 TSR performance. The performance measures were
achieved in full however the underpin was only partially achieved, as a result
51.1% of the 2019 LTIP awards vested on 31 March 2022.Vested shares are
subject to a further two-year holding period until 31/03/2024 and will be
issued to participants only at the end of this period.
The table below sets out the performance measures relating to the 2019 LTIP
awards and the actual performance achieved.
Performance condition Target Performance Actual Performance
NAV (at 31 Dec 2021) 8%: £1.52bn £1.77bn
15%: £1.84bn (+13.3% p.a.)
Annual TSR (share price) 8%: 119.6p 95p
15%: 144.4p (-1.3% p.a. growth)
Comparative TSR FTSE 250 +7.1% IP Group -8.4%
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
options
options
exercise price
2022
2022 2021 2021
At 1 January 17,113,631 - 18,853,309 -
Lapsed during the year (2,534,571) - (4,753,071) -
Forfeited during the year (89,021) - (1,790,049) -
Notionally awarded during the year - - 4,803,442 -
At 31 December 14,490,039 - 17,113,631 -
Exercisable at 31 December 3,529,818 - - -
The options outstanding at 31 December 2022 had an exercise price in the range
of £nil (2021: £nil) and a weighted-average remaining contractual life of
2.0 years (2021: 1.1 years).
The fair value of LTIP shares awarded in 2021 and 2020 for which a charge has
been recognised in 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 LTIPs
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 3.33p 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 290p by the exchange
ratio detailed above. The TTO specific targets remain the same.
Number of Weighted-average Number of Weighted-average
options
exercise price
options
exercise price
2022 2022 2021 2021
At 1 January 102,033 0.01 386,794 0.01
Forfeited during the year - 0.01 - 0.01
Lapsed during the year (91,064) 0.01 (258,958) 0.01
Vested during the year (10,969) 0.01 (25,803) 0.01
At 31 December - 0.01 102,033 0.01
Exercisable at 31 December - - - -
There were no options outstanding at 31 December 2022, (2021: exercise price
of 1.366p and a weighted-average remaining contractual life of 0.9 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 Number of Weighted-average
options
exercise price
options
exercise price
2022 2022 2021 2021
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 2022 had an exercise price of £2.13
(2021: £2.13) and a weighted-average remaining contractual life of 1.9 years
(2021: 2.9 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 £2.9m (2021: £2.6m).
24. Long-term incentive carry scheme - Carried interest plan liability
Accounting Policy:
The Group operates a number of Long Term Incentive Carry Schemes ("LTICS") for
eligible employees which may result in payments to scheme participants
relating to returns from investments.
Under the Group's LTICS arrangements, a profit-sharing mechanism exists
whereby if a specific vintage delivers returns in excess of the base cost of
investments together with an agreed hurdle rate, scheme participants receive a
share of excess returns. Of the Group's total equity and debt investments,
66.6% are included in LTICS arrangements (2021: 44.8%).
The calculation of the liability in respect of the Group's LTICS is derived
from the fair value estimates for the relevant portfolio investments and does
not involve significant additional judgement (although the fair value of the
portfolio is a significant accounting estimate). The actual amounts of carried
interest paid will depend on the cash realisations of individual vintages, and
valuations may change significantly in the next financial year. Movements in
the liability are recognised in the consolidated statement of comprehensive
income.
2022 2021
£m £m
At 1 January 33.1 19.3
Charge for the year 12.0 17.2
Payments made in the year (1.0) (3.4)
At 31 December 44.1 33.1
25. Related party transactions
The Group has various related parties arising from its key management,
subsidiaries and equity stakes in portfolio companies.
A) Key management transactions
(i) Key management personnel transactions
The following key management held shares in the following spin-out companies
as at 31 December 2022:
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 2022
2022
Greg Smith Alesi Surgical Limited 2 - 2 <0.1%
Crysalin Limited(1) 149 - 149 <0.1%
Diurnal Group plc(2) 15,000 (15,000) - 0.00%
EmDot Limited(1) 4 - 4 0.23%
Istesso Limited - A Shares 313,425 - 313,425 0.28%
Itaconix plc 4,500 - 4,500 <0.1%
Mirriad Advertising plc 16,667 - 16,667 <0.1%
Oxbotica Limited 8 - 8 <0.1%
Oxford Nanopore Technologies plc 27,008 - 27,008 <0.1%
Rio AI Limited(4) 144,246 - 144,246 <0.1%
Surrey Nanosystems Limited 88 - 88 <0.1%
Tissue Regenix Group plc 50,000 - 50,000 <0.1%
Xeros Technology Group plc 13 - 13 <0.1%
David Baynes Alesi Surgical Limited 4 - 4 <0.1%
Arkivum Limited 377 - 377 <0.1%
Creavo Medical Technologies Limited(1) 46 - 46 <0.1%
Diurnal Group plc(2) 73,000 (73,000) - 0.00%
Mirriad Advertising plc 16,667 - 16,667 <0.1%
Oxford Nanopore Technologies plc 2,784 - 2,784 <0.1%
Ultraleap Holdings Limited 2,600 - 2,600 <0.1%
Zeetta Networks Limited 424 - 424 0.11%
Mark Reilly Actual Experience plc 28,000 - 28,000 <0.1%
AudioScenic Limited - 53 53 <0.1%
Bramble Energy Limited 16 - 16 <0.1%
Diffblue Limited(3) 8,038 - 8,038 <0.1%
Diurnal Group plc(2) 7,500 (7,500) - 0.00%
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%
Sam Williams Accelercomm Limited 127 - 127 <0.1%
Alesi Surgical Limited 1 - 1 <0.1%
Centessa Pharmaceuticals plc - 3,247 3,247 <0.1%
Creavo Medical Technologies Limited(1) 23 - 23 <0.1%
Diurnal Group plc(2) 113,819 (113,819) - 0.00%
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 33 - 33 <0.1%
Oxford Nanopore Technologies plc 18,540 - 18,540 <0.1%
Topivert Limited(1) 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(1) 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%
Lisa Patel Alesi Surgical Limited 1 - 1 <0.1%
Creavo Medical Technologies Limited(1) 23 - 23 <0.1%
Diurnal Group plc(2) 37,500 (37,500) - 0.00%
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 9,453 - 9,453 <0.1%
Topivert Limited(1) 1,000 - 1,000 <0.1%
Ultraleap Holdings Limited 1,317 - 1,317 <0.1%
Elizabeth Vaughan-Adams Amaethon Limited - Ordinary Shares(1) 2 - 2 <0.1%
Amaethon Limited - A Ordinary Shares 8 - 8 <0.1%
Amaethon Limited - B Shares 929 - 929 <0.1%
Bramble Energy Limited - A Ordinary Shares - 2 2 <0.1%
Creavo Medical Technologies Limited(1) 23 - 23 <0.1%
Crysalin Limited(1) 100 - 100 <0.1%
Deep Matter Group plc 82,393 1,655,440 1,737,833 <0.1%
Diurnal Group plc(2) 4,844 (4,844) - 0.00%
Emdot Limited(1) 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 4,500 - 4,500 <0.1%
Rio AI Limited(4) 2,258,185 13,986,014 16,244,199 <0.1%
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(1) 2 - 2 <0.1%
Amaethon Limited - B Shares 1,394 - 1,394 <0.1%
Amaethon Limited - A Ordinary Shares 12 - 12 <0.1%
Alesi Surgical Limited 2 - 2 <0.1%
AudioScenic Limited - 53 53 <0.1%
Barocal Limited - 1,010 1,010 <0.1%
Boxarr Limited 102 - 102 <0.1%
Bramble Energy Limited 8 5 13 <0.1%
Creavo Medical Technologies Limited(1) 23 - 23 <0.1%
Crysalin Limited(1) 149 - 149 <0.1%
Deep Matter Group plc 68,101 - 68,101 <0.1%
Diffblue Limited 644 - 644 <0.1%
Diurnal Group plc(2) 11,500 (11,500) - 0.00%
Emdot Limited(1) 4 - 4 0.23%
Featurespace Limited - 240 240 <0.1%
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 0.28%
Itaconix plc 4,500 - 4,500 <0.1%
Mirriad Advertising plc 16,667 - 16,667 <0.1%
Mixergy Limited 206 - 206 <0.1%
Oxbotica Limited 3 - 3 <0.1%
Oxford Nanopore Technologies plc 37,880 29 37,909 <0.1%
OxONN Limited - 20,000 20,000 <0.1%
Rio AI Limited(4) 180,308 - 180,308 <0.1%
Sunborne Systems Limited - 2 2 <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%
Chris Glasson 8Power Limited 400 - 400 <0.1%
Audioscenic Limited 967 - 967 <0.1%
Creavo Medical Technologies Limited(1) 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(1) 3,000 - 3,000 <0.1%
Ultraleap Holdings Limited 1,585 - 1,585 <0.1%
Moray Wright Mirriad Advertising plc 73,664 - 73,664 <0.1%
OxSyBio Limited(1) 20 - 20 <0.1%
Anthony York Diffblue Limited - 179 179 <0.1%
1 Company being closed down.
2 Acquired by Neurocrine in November 2022.
3 Restated opening position.
4 Previously called Ditto AI Limited.
Updated policy for Executive Director holdings in Portfolio Companies
As described in in the Directors' Remuneration Report, a new policy for
Executive Director shareholdings in portfolio companies was agreed during the
year under which:
· New direct investments in portfolio companies by executive directors are
prohibited, with the exception of the take-up of pre-emption rights which
relate to existing portfolio company shareholdings. Both Mr Smith and Mr
Baynes are covered by this policy.
· Mr Smith and Mr Baynes have voluntarily submitted to an additional
binding condition such that any net proceeds received as a result of
realisations from direct holdings in portfolio companies that exceed £250,000
will be used to purchase shares in IP Group, until such time as they meet the
Minimum Shareholding Requirement set for their role (currently 350% of annual
salary for Mr Smith, 250% for Mr Baynes).
(ii) Key management personnel compensation
Key management personnel compensation comprised the following:
2022 2021
£000 £000
Short-term employee benefits(1) 3,918 4,016
Post-employment benefits(2) 99 72
Other long-term benefits - -
Termination benefits - -
Share-based payments(3) 1,374 1,325
Total 5,391 5,413
5 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.
6 Represents employer contributions to defined contribution pension and life
assurance plans.
7 Represents the accounting charge for share-based payments, reflecting LTIP
and DBSP options currently in issue as part of these schemes. See note 23 for
a detailed description of these schemes.
B) Portfolio companies
(i) Services
The Group earns fees from the provision of business support services and
corporate finance advisory services to portfolio companies in which the Group
has an equity stake. Through the lack of control over portfolio companies
these fees are considered arm's length transactions. The following amounts
have been included in respect of these fees:
Statement of comprehensive income 2022 2021
£m £m
Revenue from services 0.2 0.3
Statement of financial position 2022 2021
£m £m
Trade receivables - 0.2
(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 2022 2021
£m £m
Net portfolio gains 75.0 56.5
Statement of financial position 2022 2021
£m £m
Equity and debt investments 651.6 444.6
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:
2022 2021
£m £m
Intercompany balances with other Group companies 2.1 2.4
These intercompany balances represent funding loans provided by Group
companies that are interest free, repayable on demand and unsecured.
26. 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 share capital, issue or repay debt and dispose of interests
in portfolio companies.
During 2022, the Group's strategy, which was unchanged from 2021, was to
maintain an appropriate level of cash and short-term deposit balances in line
with the Group's capital allocation plans, whilst having sufficient cash
reserves to meet working capital requirements in the foreseeable future.
The Group has external borrowings with associated covenants that are described
in note 19. These include covenants around the Group's minimum equity and
maximum debt/equity ratio. Consideration is given to the level of headroom
against these covenants as part of the Group's capital allocation process
where planning corporate actions such as dividends and share buy-backs which
have an impact on the headroom level.
27. 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 2022:
Year of commencement of commitment Commitment £m Invested to date Remaining commitment £m
£m
IP Venture Fund II LP 2013 10.0 9.8 0.2
UCL Technology Fund LP 2016 24.8 22.4 2.4
IP Cayman LP 2021 8.3 8.3 -
Total 43.1 40.5 2.6
28. Dividends
2022 pence £m 2021 pence £m
per share
per share
Ordinary shares
Interim dividend 0.50 5.3 0.48 5.1
Final dividend 0.72 7.4 1.0 10.7
Dividends paid to equity owners in the financial year 1.22 12.7 1.48 15.8
Proposed final dividend at financial year end 0.76 7.9
Of the £12.7m dividends paid in 2022, £12.3m was settled in cash and £0.4m
was settled via the issue of equity under the Group's scrip programme (2021:
£15.8m dividends, £15.0m settled in cash, £0.8m settled via the issue of
equity).
The proposed final dividend was recommended by the Board of Directors on 7
March 2023 and is subject to the approval of shareholders at the 2023 AGM to
be held on 15 June 2023. The proposed dividend has not been included as a
liability as at 31 December 2022, in accordance with IAS 10 "Events after the
reporting period". It will be paid on 22 June 2023 to shareholders who are on
the register of members at close of business on 26 May 2023.
29. Alternative performance measures ("APM")
IP Group management believes that the alternative performance measures
included in this document provide valuable information to the readers of the
financial statements as they enable the reader to identify a more consistent
basis for comparing the business' performance between financial periods and
provide more detail concerning the elements of performance which the managers
of the Group are most directly able to influence or are relevant for an
assessment of the Group. They also reflect an important aspect of the way in
which operating targets are defined and performance is monitored by the
directors. These measures are not defined by IFRS and therefore may not be
directly comparable with other companies' APMs, including those in the Group's
industry. APMs should be considered in addition to, and are not intended to be
a substitute for, or superior to, IFRS measurements.
The directors believe that these APMs assist in providing additional useful
information on the underlying trends, performance and position of the Group.
Consequently, APMs are used by the directors and management for performance
analysis, planning, reporting and incentive-setting purposes.
Calculation
APM Reference for Definition and purpose 2022 2021
reconciliation
£m £m
NAV per share(1) Primary statements, note 21 NAV per share is defined as Net Assets divided by the number of outstanding NAV £1,376.1m £1,738.1m
shares.
The measure shows net assets managed on behalf of shareholders by the Group
per outstanding share.
NAV per share is a standard measure used within our peer group and can be
directly compared with the Group's share price.
Shares in issue 1,035,077,632 1,040,754,160
NAV per share 132.9p 167.0p
Return on NAV Primary statements Return on NAV is defined as the total comprehensive income or loss for the Total comprehensive income (344.0) 449.6
year excluding charges which do not impact on net assets, specifically
note 4 share-based payment charges.
The measure shows a summary of the income statement gains and losses which
directly impact NAV.
Excluding:
Share-based payment charge 2.9 2.6
Return on NAV (341.1) 452.2
Net portfolio gains note 13, 15, 22 Net portfolio gains are defined as the movement in the value of holdings in Change in fair value of equity and debt investments (303.4) 415.9
the portfolio due as a result of realised and unrealised gains and losses.
The measure shows a summary of the income statement gains and losses which are
directly attributable to the Total Portfolio (see definition below), which is
a headline measure for the Group's portfolio performance.
This is a key driver of the Return on NAV which is a performance metric for
directors' and employees' incentives.
Gain on disposal of equity investments (7.8) 81.5
Change in fair value of LP interests(2) 2.1 1.8
Net portfolio gains (309.1) 499.2
Total portfolio Consolidated statement of financial position, Total portfolio is defined as the total of equity investments, debt Equity investments 1,120.8 1,391.8
investments and investments in LPs.
note 13,14
This measure represents the aggregate balance sheet amounts which the Group
considers to be its investment portfolio, and which is described in further
detail within the portfolio review section of the strategic report.
Debt investments 38.1 22.8
LP interests 99.6 92.9
Total Portfolio 1,258.5 1,507.5
Portfolio investment(3) Primary statements Portfolio investment is defined as the purchase of equity and debt investments Purchase of equity and debt investments (88.9) (103.7)
plus investments into limited participation interests.
This gives a combined measure of investment into the Group's portfolio]
Investment in limited and limited liability partnerships (4.6) (3.0)
Portfolio investment (93.5) (106.7)
Net overheads Financial review, Net overheads are defined as the Group's core overheads less operating income. Other income 7.1 13.6
note 8 The measure reflects the Group's controllable net operating "cash-equivalent"
central cost base.
Net overheads exclude items such as share-based payments and consolidated
portfolio company costs.
Other administrative expenses (27.4) (33.2)
Excluding:
Administrative expenses - consolidated portfolio companies 0.1 0.1
Net overheads (20.2) (19.5)
Gross Cash and deposits Primary statements Cash and deposits is defined as cash and cash equivalents plus deposits. Cash and cash equivalents 88.7 105.7
The measures give a view of the Group's liquid resources on a short-term Deposit 152.8 216.2
timeframe. The Group's Treasury Policy has a maximum maturity limit of 13
months for deposits.
Cash 241.5 321.9
(Loss)/profit excluding ONT(4) Primary statements Loss/profit excluding ONT is defined as the Groups (loss)/profit for the year (Loss)/gain for the year (344.5) 499.2
(after tax) excluding the (loss)/profit on the investment held in Oxford
Nanopore publicly quoted shares both realised and unrealised.
Excluding:
Change in fair value of equity investment in Oxford Nanopore 369.7 (297.1)
(Loss)/profit for the year 25.2 202.1
1 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.
2 Following the deconsolidation of IPG Cayman LP, LP investments have been
added to the definitions of Total Portfolio, and Net Portfolio Gains and a new
APM Portfolio Investment has been created which aggregates investment into
equity and debt investments with investments into LP funds, to give a measure
reflecting total investment into the Group's portfolio.
3 The APM 'Net Realisations/Investments' used in prior years is no longer
believed to represent a useful additional measure.
4 Given the size and volatility of the Group's holding in Oxford Nanopore, the
directors believe that this new measure showing profit excluding fair value
movements in Oxford Nanopore represents a useful additional measure for users
of the accounts.
30. Post balance sheet events
As of the reporting date, unrealised fair value losses in respect of the
Group's quoted portfolio totalled £26.2m, largely in respect of Oxford
Nanopore Technologies plc, which has seen a fair value loss of £28.3m since
31 December 2022.
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