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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Touchstone | LSE:IVO | London | Ordinary Share | GB00B170L953 | ORD 3 1/33P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 315.00 | 305.00 | 325.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMIVO
RNS Number : 5986Q
Touchstone Innovations PLC
13 September 2017
13 September 2017
Touchstone Innovations plc
Maturing unquoted portfolio drives strong growth in NAV (up 10%) and a profit of GBP46.8 million (excluding one-off costs NAV up 12% and a profit of GBP52.3 million)
Touchstone Innovations plc (AIM: IVO, "Touchstone" or "the Group"), a leading technology commercialisation and investment group, has published its unaudited results for the 12 months ended 31 July 2017.
Portfolio
-- Strong dealflow and notable pick-up in activity in maturing accelerated growth portfolio:
o PsiOxus Therapeutics signed licence agreement with Bristol-Myers Squibb potentially worth up to US $936.0 million subject to completion of milestones
o Crescendo Biologics signed collaboration and licence agreement with Takeda Pharmaceutical potentially worth up to US $790.0 million subject to completion of milestones
o Abzena signed two licensing agreements with pharma companies for its ThioBridge(TM) antibody drug conjugate (ADC) linker technology potentially worth up to US $300.0 million and GBP128.0 million subject to completion of milestones
-- Completion of multiple substantial (>GBP10.0 million) funding rounds for portfolio companies attracting new co-investors
-- Profitable cash realisations: including disposal of Oxford Immunotec Global plc and Permasense, which generated GBP15.6 million of proceeds
-- Apollo Therapeutics and UCL Technology Fund making good progress and delivering against expectations
Financial highlights
-- Net portfolio value up by 38% (GBP126.0 million) to GBP461.1 million (2016: GBP335.1 million)
o Unquoted portfolio value up by 43% (GBP127.0 million) to GBP419.2 million (2016: GBP292.2 million)
-- Pre-tax profit of GBP46.8 million (2016: loss GBP63.1 million)
-- Net fair value gain of GBP76.0 million (2016: fair value loss of GBP56.2 million) a 23% increase over opening net portfolio value of GBP335.1 million at 31 July 2016
-- GBP65.7 million invested in 38 portfolio companies (2016: GBP69.9 million in 33 companies)
o Continuing to support existing portfolio: GBP57.6 million invested into 27 existing portfolio companies
o Investing for the future: GBP8.1 million invested in six new accelerated growth and five new organic companies
-- Net assets increased by 10% to GBP503.5 million (2016: GBP455.9 million), NAV per share GBP3.12 (2016: GBP2.83) rising to an adjusted NAV per share of GBP3.16, when excluding one-off corporate finance costs of GBP5.5 million
-- GBP130.1 million cash and short term liquidity investments available for investment and operations (2016: GBP198.3 million)
Russ Cummings, Chief Executive of Touchstone Innovations plc, said:
"Our patient and focused approach to investing for the long-term continues to show real results, as demonstrated by the strong growth in NAV and profit. Excluding the one-off costs associated with the IP Group plc offer, our NAV would be GBP3.16 per share, up 12% from GBP2.83 a year ago. Including one-off costs the NAV per share is GBP3.12.
"The implied value per Touchstone share of the offer from IP Group plc as at the close of business on 12 September 2017 was GBP2.66(1) . This is 15% less than the NAV per Touchstone share (after one-off costs) of GBP3.12 as at 31 July 2017.
"We now have a dozen unquoted companies of material scale and considerable potential, many of which made significant progress and a number of which are approaching key inflexion points. We also have great depth to our portfolio, with another 20 or so portfolio companies showing rapid development.
"We are actively involved in discussions about partnerships, licensing and other corporate developments across a number of our larger unlisted portfolio companies that may lead to transactions resulting in fair value gains.
"We have access to outstanding opportunities from the UK's Golden Triangle cluster and the people, platform, skills and financial resources to continue to build value over the long term."
(1) The implied value per Touchstone share of the offer from IP Group plc is calculated using the current exchange ratio of 2.2178, as announced by IP Group on 25 August 2017, and the IP Group plc share price of 119.90p, as at close of business on 12 September 2017."
A pdf copy of the results is available at http://www.touchestoneinnovations.com
The Directors confirm that they do not believe a potential tax charge would arise on the realisation of the fair value gains set out in this announcement.
The unaudited reported values of the Net Portfolio Value are supported by an opinion of Deloitte LLP as independent valuer in accordance with Rule 29 of the Takeover Code. A copy of this valuation report of Deloitte LLP is included within this announcement in Appendix A.
Deloitte LLP has given and not withdrawn its written consent to the inclusion of its opinion on the value of the Group's quoted and unquoted portfolio as at 31 July 2017 in this announcement.
For further information contact:
Hot Features
Premium
020 3053
Touchstone Innovations plc 8834
Russ Cummings, Chief Executive Officer
Jon Davies, Director of Communications
020 7457
Instinctif Partners 2020
Adrian Duffield/Melanie Toyne-Sewell/Chantal
Woolcock
J.P. Morgan Cazenove (Nominated 020 7742
Adviser) 4000
Michael Wentworth-Stanley/Alec Pratt
020 7653
RBC Capital Markets 4000
Darrell Uden/Marcus Jackson/Laura
White
About Touchstone Innovations - www.touchstoneinnovations.com
Touchstone Innovations plc ("Touchstone" formerly Imperial Innovations Group plc or just "Innovations") creates, builds and invests in pioneering technology companies and licensing opportunities developed from outstanding scientific research from the Golden Triangle, the region broadly bounded by London, Cambridge and Oxford.
This area has an unrivalled cluster of outstanding academic research and technology businesses, and is home to four of the world's top 10 universities, as well as leading research institutions, the cream of the UK's science and technology businesses and many of its leading investors.
Touchstone supports scientists and entrepreneurs in the commercialisation of their ideas through protecting and licensing out intellectual property (through its Technology Transfer subsidiary, Imperial Innovations Limited), by leading the formation of new companies, by recruiting high-calibre management teams and by providing investment and encouraging co-investment. Touchstone remains an active investor over the life of its portfolio companies, with the majority of Touchstone's investment going into businesses in which it is already a shareholder.
Since becoming a public company in 2006, Touchstone has raised more than GBP440.0 million of equity from investors, which has enabled it to invest in some of the most exciting spin-outs to come out of UK academic research. In addition, the Group has a GBP74.4 million term debt facility from the European Investment Bank (EIB).
Between Touchstone's admission to AIM (August 2006) and 31 July 2017, Touchstone has invested a total of GBP372.4 million across its portfolio companies, currently valued at GBP461.1 million and in addition has generated GBP51.0 million of cash realisations. In aggregate, Touchstone's portfolio, excluding Apollo Therapeutics and UCL Technology Fund, has collectively raised investment of more than GBP1.7 billion.
Chief Executive's Report
Overview
The fundamentals of the Group's business remain strong. Touchstone has a diverse portfolio of 48 accelerated growth companies with the top 10 assets accounting for 60% of net portfolio value. Many of these portfolio companies made significant technical, clinical and commercial progress during the period.
A number of portfolio companies have, over the last 12 months, announced high-value partnership and licensing agreements or are currently engaged in ongoing discussions on such arrangements. The two most notable of these are PsiOxus Therapeutics and Crescendo Biologics, with potential deal values up to US $936.0 million and US $790.0 million respectively. These are subject to achievement of pre-clinical and clinical milestones, but the Board believes these are clear indications of the value that global pharma companies have placed on the underlying technology.
The key strategic partnerships signed over the last 18 months to broaden visibility of intellectual property from the elite universities within the Golden Triangle are delivering on expectations, with both Apollo Therapeutics and UCL Technology Fund now well established and producing a flow of new projects.
Touchstone continues to support its portfolio companies both financially and also with the insights and skills of its people. In the period, 88% of investment was made into existing portfolio companies. This is consistent with the Group's approach of making larger investments in more mature assets, which are closer to value inflexion points and offer more near-term material upside to the Group's NAV than earlier stage investments.
Five years ago the portfolio included four companies in which the Group had invested more than GBP5.0 million; now there are 22 companies with this level of investment, illustrating both the acceleration in the Group's investment activity and increasing maturity of its portfolio. Notably 59% of the Group's investment has been made in the last three years.
As at 31 July 2017, the Group's portfolio consisted of holdings in 117 companies. The value of the Group's quoted and unquoted portfolios (the "Net Portfolio Value") was GBP461.1 million, an increase of GBP126.0 million 38% on the prior year (2016: GBP335.1 million). The increase comprises investments of GBP65.7 million across 38 companies and fair value gains of GBP87.5 million, offset by fair value losses of GBP11.5 million and disposals of GBP15.6 million. Private companies make up 91% of Touchstone's portfolio value and represent 83% of Touchstone's NAV (GBP503.5 million).
The Group's quoted portfolio represents 9% of Touchstone's portfolio value and now comprises three companies (Circassia Pharmaceuticals plc, Abzena plc and IXICO plc) with the Group having completed the sale of its holdings in Oxford Immunotec during the second half of the financial year. The value of the quoted portfolio was marked to market at close of trading on 31 July 2017 and valued at GBP41.9 million. Fair value gains of GBP9.1 million were offset by a fair value loss of GBP1.6 million. The sale of the Group's holding in Oxford Immunotec, generated total proceeds of GBP11.5 million. This represents a 1.5 times return on its original investment and generated a fair value gain of GBP5.2 million in this financial year.
The Group's unquoted portfolio increased in value by GBP127.0 million (43%) to GBP419.2 million (31 July 2016: GBP292.2 million). The increase includes investments of GBP62.8 million and fair value gains of GBP78.3 million from across the portfolio, most notably from an increase in the values of PsiOxus Therapeutics and Veryan, but also with significant contributions from Featurespace, Autifony Therapeutics, Crescendo Biologics and Garrison Technology. This fair value gain was offset by fair value losses of GBP9.9 million, the main component of which was the full write-down in the value of Kesios Therapeutics. In addition, the unquoted portfolio value decreased by GBP4.2 million as a result of disposals, most notably from the sale of Permasense for GBP3.4 million.
Visibility of new investment opportunities from the academic, research and entrepreneurial community within the Golden Triangle remains high, and the Group added six new companies to its accelerated growth portfolio during the year. The Directors believe that the quality and experience of the Group's team means its ability to identify opportunities with strong potential is continually improving. The Group continues to be excited by the quality of investments made and the opportunities that it sees, but as it is only looking to add 6-8 new companies to the portfolio per annum, it can afford to take a rigorous and measured approach to growing the portfolio, with a resolute focus on quality over quantity.
Other notable developments included the opening of a new corporate office in Air Street, London and the change of name from Imperial Innovations Group plc to Touchstone Innovations plc, both of which were completed in early January 2017. The Group also secured a new five-year contract to run the incubator at the I-HUB, a new building at Imperial College London's new White City Campus.
As at 31 July 2017, the Group's Net Assets were GBP503.5 million or GBP3.12 per share, up 10% (GBP47.6 million) since the start of the financial year (2016: GBP455.9 million and GBP2.83 respectively), primarily as a result of fair value gains in the unquoted portfolio. Excluding one-off costs of GBP5.5 million associated with IP Group offer, the Group's adjusted NAV was GBP509.0 million or GBP3.16 per share.
The Group's balance sheet remains strong with GBP130.1 million (2016: GBP198.3 million) available for investment and operations, including the GBP50.0 million second loan facility from EIB which was drawn down in the second half of the financial year. For context the current net investment rate is GBP50.1 million per annum (calculated as GBP65.7 million investment less GBP15.6 million divestment). Cash realisations are becoming an increasingly important feature of the business and there is flexibility for this net investment rate to be adjusted.
Operational review
Partnerships, collaborations and exits
As reported in last year's annual report, there is growing evidence of partnership interest in Touchstone's portfolio, both from corporate venture investors and industry.
In October 2016, Crescendo signed a multi-target collaboration and licence agreement with Takeda Pharmaceutical worth up to US $790.0 million, subject to successful completion of milestones. Crescendo will use its proprietary transgenic platform and engineering expertise to discover and optimally configure Humabody(R) candidates (drug conjugates and immuno-oncology therapeutics) against multiple targets selected by Takeda. Under the terms of the agreement, Crescendo is eligible to receive up to US $36.0 million, in a combination of an upfront payment, investment, research funding and pre-clinical milestones. Crescendo is also eligible to receive further clinical development, regulatory and sales-based milestone payments of up to US $754.0 million over the years post pre-clinical development, and in addition, will be eligible to receive royalties on Humabody(R) -based product sales by Takeda. In the light of this significant agreement Touchstone is reporting a net fair value gain of GBP3.7 million in its investment in Crescendo.
In December 2016, PsiOxus signed an exclusive worldwide licence agreement with Bristol-Myers Squibb (BMS) for the rights to a single pre-clinical product, NG-348, PsiOxus' first "armed" oncolytic virus. The agreement comprises an upfront payment of US $50.0 million to PsiOxus, but is potentially worth up to an additional US $886.0 million in development, regulatory and sales-based milestones, subject to successful completion of milestones. BMS will also be responsible for providing PsiOxus funding to support activities related to the pre-clinical development of NG-348.This is the second collaboration that PsiOxus has signed with BMS and follows on from the first clinical collaboration of PsiOxus' oncolytic adenovirus therapeutic enadenotucirev, in combination with BMS's Immuno-Oncology (I-O) agent Opdivo(R) (nivolumab) to treat a range of tumour types in late-stage cancer patients (announced in June 2016). The combination of the initial upfront payment of US $50.0 million and the potential value of the licensing agreement for NG-348 has resulted in the Group reporting a net fair value gain of GBP21.9 million in its investment in PsiOxus.
Abzena plc is continuing to see interest in its novel site-specific ThioBridge(TM) antibody drug conjugate (ADC) linker technology, which links antibodies and other proteins to drugs. In January 2017, the company announced a licensing agreement with a San Diego-based biopharmaceutical company covering the use of ThioBridge(TM) in up to 10 Antibody Drug Conjugates (ADCs) across a wide range of indications. The agreement has the potential to reach over US $300 million to Abzena, comprising licence fees and milestone payments. In July 2017, Abzena signed a licensing agreement and a master services and clinical supply agreement with OBI Pharma, a Taiwanese biopharmaceutical company, to use its ThioBridge(TM) technology to develop OBI's proprietary ADC, OBI-999 and a series of further ADCs as potential treatments for cancer. Under the terms of this agreement, OBI will receive a worldwide exclusive licence to use the ThioBridge technology to research, develop and commercialise ADCs targeting the Globo series. Abzena will receive a small initial up-front payment from OBI and has the potential, subject to successful development, to receive up to GBP128 million, in aggregate, which may become payable upon achievement of certain development, regulatory and commercialisation milestones. In addition, Abzena will also receive royalties on sales of any approved ADC products that incorporate the ThioBridge(TM) technology. The same month Abzena also signed a licence agreement with Telix Pharmaceuticals Limited, a clinical-stage biopharmaceutical company headquartered in Melbourne, Australia. The agreement gives Telix an exclusive worldwide, royalty-bearing, sub-licensable licence to Abzena's prostate-specific membrane antigen ('PSMA') antibodies in the field of radio-immunoconjugation. The agreement could deliver an excess of US $65 million in licence fees and milestone payments to Abzena over its life, subject to successful development.
On 17 March 2017, Circassia announced that it had entered an agreement with AstraZeneca to secure certain U.S. commercial rights to two chronic obstructive pulmonary disease products, Tudorza(R) and Duaklir(R) , for a maximum total consideration of US $230.0 million. These products represent a clear strategic fit with Circassia's focus on respiratory medicines. Post year end, on the 7 September 2017, Circassia announced that Duaklir(R) had successfully completed a Phase III Study in Chronic Obstructive Pulmonary Disease (COPD) by demonstrating statistically significant and clinically meaningfully improvements in lung function. Following the completion of this study, AstraZeneca will file a New Drug Application (NDA) for Duaklir(R) with the United States Food and Drug Administration (FDA) during the first half of 2018. Circassia has exclusive commercialisation rights to Duaklir(R) in the United States.
In October, Permasense Limited was acquired by Emerson Electric, a Fortune 500 company, for an initial consideration of GBP30.6 million, with further amounts of up to GBP7.7 million subject to the Permasense business achieving certain performance targets over the subsequent 13 months. Touchstone's 'IP Equity' stake was acquired at nil cost, yet generated net proceeds to Touchstone of GBP3.4 million and in addition, an equal payment of GBP3.4 million for Imperial College as part of the revenue share agreement.
On 6 June 2017, Plaxica Limited, an Imperial College spin-out which has developed a range of process technology licence products in the fields of polylactic acid (PLA), cellulosic sugars and their derivatives, announced that it had licensed its Optipure(R) D-Lactic Acid Process Technology to Natureworks a global sustainable biopolymer company. The licence provides NatureWorks with a low-cost route to produce D-lactic acid, a building block for an expanded range of performance polymers. Post period end on 1 September 2017 Sappi Biotech (a division of Sappi Limited, the global leader in paper, paper pulp and dissolving wood pulp solutions) acquired Plaxica's Xylex(R) and Versalac(R) technologies as part of its efforts to expand its biorefining expertise. The transaction will result in Sappi acquiring Plaxica's sugar clean up technologies which includes patents, knowhow, equipment and key technical staff. The terms of the transaction have not been disclosed, but are reflected in the valuation as at 31 July 2017.
Putting Touchstone's capital to work
During the year the Group invested GBP65.7 million across 38 portfolio companies, including the addition of six new companies to the Group's accelerated growth portfolio. Divestment proceeds were GBP15.6 million, so the net investment during the period was GBP50.1 million.
Of the GBP65.7 million total investment 88% (GBP57.6 million) was invested into existing portfolio companies, with the balance of GBP8.1 million being invested in six new unquoted accelerated growth companies. These new companies comprise two additions to the therapeutics portfolio (Artios Pharma Limited and ApcinteX Limited), one new medical device company (Cardian Limited) and three new ICT & digital companies (ThisWay Global Limited, Resolving Limited and Toggle Limited).
The majority of the new investment, 64% (GBP41.8 million) was made into the healthcare portfolio, reflecting the higher capital demands of these companies. This included GBP4.6 million invested in Cell Medica as part of a GBP60.0 million funding round; GBP3.9 million invested in MISSION Therapeutics as part of the company's GBP60.0 million funding round (announced on 2 February 2016); GBP2.9 million invested in Abzena as part of its GBP25.0 million placing; GBP6.7 million invested in Inivata as part of the company's GBP31.5 million Series A funding round (announced on 26 January 2016); GBP2.8 million invested in Veryan Medical and GBP4.5 million invested in Ieso Digital Health.
The Group continues to develop its investment portfolio by scaling its activities in non-therapeutics sectors and invested in thirteen accelerated growth technology companies during the period. This included an investment of GBP3.9 million in the GBP12.0 million funding round in Garrison Technology; GBP3.6 million invested in the GBP12.0 million Series B funding round in Yoyo Wallet; and GBP3.1 million invested in the GBP12.0 million Series B funding round in WaveOptics. Other investments included Cortexica (GBP2.6 million) and Concirrus (GBP2.5 million).
Post-period end on 12 September 2017, the Group committed GBP8.0 million to a GBP18.0 million funding round in Ieso Digital Health (including a loan of GBP2.0 million from May 2017, which has now converted to equity).
Table 1: Major funding rounds completed during the year
Portfolio Funding round Major third-party co-investors
Company
-------------------- ---------------- --------------------------------
Abzena plc GBP25.0 million Invesco Asset Management,
Woodford Investment Management
LLP
-------------------- ---------------- --------------------------------
Cell Medica GBP60.0 million Invesco Asset Management,
Woodford Investment Management
LLP
-------------------- ---------------- --------------------------------
Garrison Technology GBP12.0 million BGF Ventures, NM Capital
-------------------- ---------------- --------------------------------
Impression GBP3.0 million Mercia Technologies
Technologies
-------------------- ---------------- --------------------------------
Pulmocide GBP25.0 million SR One, Longwood Fund,
SV Life Sciences, F-Prime
Capital, Johnson & Johnson
Innovation
-------------------- ---------------- --------------------------------
Veryan GBP13.5 million Invesco Asset Management,
Seroba Life Sciences,
Silicon Valley Bank
-------------------- ---------------- --------------------------------
WaveOptics GBP12.0 million Robert Bosch Venture
Capital GMBH, Octopus
Investments, Gobi Ventures
-------------------- ---------------- --------------------------------
Yoyo Wallet GBP12.0 million METRO GROUP, Woodford
Investment Management
LLP
-------------------- ---------------- --------------------------------
Post period
end
-------------------- ---------------- --------------------------------
Ieso Digital GBP18.0 million Draper Esprit, Ananda
Health Ventures
-------------------- ---------------- --------------------------------
Building the pipeline for future value creation
Whilst the vast majority of Touchstone's investment capital is deployed in existing portfolio companies, the Group continues selectively to add a small number of new companies per annum to build longevity in the portfolio. Six new accelerated growth companies were added during the period:
-- Artios Pharma Limited: a new Cambridge-based private biotech company, focused on the development of novel DNA Damage Response (DDR) cancer therapies formed from assets from Cancer Research Technology Limited. In September 2016, Touchstone committed GBP5.1 million to the GBP25.0 million Series A funding round alongside an impressive syndicate of leading European and US life science investors including SV Life Sciences, Merck Ventures, Arix Bioscience PLC, CRT Pioneer Fund (managed by Sixth Element Capital) and AbbVie Ventures.
-- ApcinteX Limited: a University of Cambridge spin-out company that is developing a new therapy for haemophilia. Touchstone and Medicxi co-led a GBP14.0 million Series A funding round alongside Cambridge Enterprise, who helped in ApcinteX's formation, licensing key intellectual property to the company. Touchstone committed GBP7.0 million to the round, investing GBP2.7 million during the period.
-- ThisWay Global Limited: a Cambridge-based technology company that is developing an innovative software platform for the recruitment industry that uses machine learning to streamline the recruitment process by matching high-quality candidates to the most appropriate job opportunities. In September 2016, Touchstone led a GBP1.6 million funding round alongside US-based Jetstream Ventures and Grupa Pracuj, a global recruitment technology company with a dedicated investment arm for emerging HR tech companies.
-- Resolving Limited: this is the parent company of Resolver.co.uk a website dedicated to making it easier for consumers to make complaints or raise issues with brands, companies and organisations. During the period Touchstone committed GBP0.5 million as the first part of a GBP1.1 million commitment to a GBP2.9 million funding round announced on 14 March 2017. Touchstone invested alongside Draper Esprit.
-- Cardian Limited: in April 2017, Touchstone provided seed funding of GBP1.5 million into Cardian Limited. Cardian is a new spin-out company from Imperial College London, which has been formed to commercialise a novel implantable device that improves the monitoring and treatment of cardiac failure patients, by providing completely automated, continuous wireless monitoring of blood pressure in the pulmonary artery. The Group's Technology Transfer Office, Imperial Innovations Limited, has been supporting Cardian's founders for years, working with the team on intellectual property protection and market evaluation, and helping them secure the initial funding, which enabled them to develop prototypes in an academic setting.
-- Toggle Limited: at the end of the financial year the Group made a small investment in Toggle, a new technology start-up which is focused on developing a smartphone-based telematics solution for the car insurance industry.
UCL Technology Fund and Apollo Therapeutics
In January 2016, Touchstone completed two new initiatives aimed at expanding its licence portfolio and broadening its visibility of, and access to, intellectual property from the elite universities within the Golden Triangle. The Board is pleased with the progress made by these two initiatives which are performing in line with expectations. Furthermore, they are very capital efficient, as the modest amount drawn down so far has already resulted in multiple active projects. The Group expects that in future both of these initiatives will provide incremental opportunities for it to deploy its investment capital.
The first of these was participation in the new GBP50.0 million UCL Technology Fund LP. This is the first investment fund that University College London (UCL) has created to commercialise its multi-disciplinary research. Participation in this fund has significantly increased Touchstone's access to dealflow from one of the world's leading universities.
The flexible approach to investment is proving to be attractive, resulting in investments in a wide range of high-quality projects, which should form the basis for a strong, long-term portfolio. To date the fund has invested or committed GBP11.5 million across 20 approved projects of which 15 are in Life Sciences and five in Physical Sciences. Five of these projects are spin-out investments, four are licensing projects and 11 are Proof-of-Concept (POC) projects. There is a strong pipeline of other POC projects, which together with the 11 projects currently in the portfolio, is expected to drive much of the investment commitment of the fund over the next 2-3 years.
The second initiative was Touchstone's GBP3.3 million contribution to Apollo Therapeutics, a new GBP40.0 million joint venture between Touchstone, Cambridge Enterprise (the technology transfer office of the University of Cambridge), UCLB (the technology commercialisation company of UCL) and three of the world's leading pharma companies, AstraZeneca, GlaxoSmithKline and Johnson & Johnson.
This new venture was created to foster the translation of outstanding academic therapeutic science into innovative new medicines, by combining the skills of the university academics with industry expertise at an early stage. The aim of the joint venture is to speed up the development of new medicines, as well as reducing the cost and improving the attrition rate of potential opportunities, whilst sharing the risk of early development.
Apollo Therapeutics is actively evaluating opportunities emerging from the academic research at University of Cambridge, Imperial College London and UCL for novel and compelling drug discovery targets emerging in areas of high medical need. So far, Apollo Therapeutics' Drug Discovery Team has launched 12 collaborative projects across a diversity of therapy areas for which a clear route to a drug discovery programme has been identified. These collaborations include multiple projects at each university. Apollo Theraputics' unique model has enabled significant interaction with the three partner Pharma companies, including support to conduct scientific review and to expedite project development and execution. To date, a total of GBP14.0 million has been committed across the 12 projects, with multiple further projects currently under evaluation.
Continuing momentum in the portfolio
Since IPO in 2006 the Group has co-founded and invested in 112 portfolio companies. Of these, 24 companies have completed successful exits, generating GBP42.8 million of cash proceeds and an average return of 2.8x cash invested. A further 38 companies have been sold or written down to recover GBP8.20 million value in total, an average of 0.3x cash invested. The balance comprises the accelerated growth portfolio valued at GBP445.4 million which provides the investment opportunity and value potential.
The Group's top 10 investee companies have net investment carrying values between GBP13.8 million and GBP48.3 million spread across the Group's four specialist sectors of Therapeutics, Medtech & Diagnostics, Engineering & Materials and ICT & Digital. None of these companies have a disproportionate weighting, with the largest, Veryan Holdings Limited, representing 10% of total net portfolio value. Eight of the top 10 are private companies with an average age of 9.9 years. These are well-managed and well-capitalised businesses which have been de-risked and validated in each case to varying degrees through the due diligence carried out by the Group's co-investors. They have raised an average of GBP44.5 million each.
Portfolio highlights include:
-- Abzena: as previously mentioned Abzena plc is continuing to see interest in its novel site-specific ThioBridge(TM) antibody drug conjugate (ADC) linker technology and announced two substantial licensing agreements for the technology during the year, worth up to $300.0 million and GBP128.0 million respectively depending on successful completion of milestones. Abzena also signed a licence agreement with Telix Pharmaceuticals for its Prostate-Specific Membrane Antigen Antibodies with the potential to deliver in excess of US $65.0 million in licence fees and milestone payments.
-- Autifony: is pioneering the development of novel pharmaceutical treatments for serious disorders of the central nervous system. In August 2016, Autifony announced the successful completion of a Phase I study of AUT00206, its first-in-class Kv3 modulator for schizophrenia. This was followed in January 2017 with news of a Phase 1a study providing further encouraging confirmation of human target engagement. On 18 May 2017, the company announced the start of a Phase Ib biomarker study of the effect of AUT00206, on patients with schizophrenia. The clinical trial, which is being conducted in collaboration with King's College London, is designed to test the safety, tolerability and pharmacokinetics of AUT00206 in patients with schizophrenia, and also explores the effects of AUT00206 on relevant central biomarkers. The study builds on previous with the Universities of Manchester and Newcastle, which have explored the effects of AUT00206 in pre-clinical models of brain pathophysiology relevant to schizophrenia. On 10 July 2017, Autifony announced that following positive results in a range of pre-clinical studies, the U.S. Food and Drug Administration (FDA) has granted AUT00206 an Orphan Drug Designation for the treatment of Fragile X Syndrome, the most common known cause of inherited learning disabilities. Autifony plans to initiate clinical trials on this condition in 2018. On 15 March 2017, Autifony announced that it had secured GBP1.3 million in funding from Innovate UK and the Dementia Discovery Fund to explore novel approaches to dementia treatment based on its expertise in ion-channel drug discovery.
-- Cell Medica: continues to strike new partnerships to expand its capabilities in cellular immunotherapy. On 24 August 2016, the company announced a research collaboration with UCL that will see Cell Medica utilise UCL's novel T cell receptor (TCR) technology to generate leading-edge modified TCR products for the treatment of cancer. On 10 November 2016, Cell Medica announced that it had expanded its partnership with Baylor College of Medicine to develop an off-the-shelf allogeneic cell therapy, taking advantage of the unique aspects of invariant natural killer T (NKT) cells which mean that they are not prone to a serious side effect called graft versus host disease (GvHD) that is common in other allogenic treatments. More recently, on 20 June 2017, Cell Medica announced the acquisition of Catapult Therapy TCR Limited (TCR), a company focused on a novel cell therapy approach to the treatment of acute myeloid leukaemia and other blood cancers. TCR is a joint venture set up by The Cell and Gene Therapy Catapult, Imperial Innovations and UCL Business. The technology underpinning TCR was developed initially at Imperial College London and then at UCL by scientists funded by the charity Bloodwise. In 2016, TCR announced positive interim results from its phase I/II trial in using a T-cell therapy to target acute myeloid leukaemia (AML). The acquisition will enable the further development and commercialisation of this innovative treatment by Cell Medica at CGT Catapult's large-scale cell and gene-therapy manufacturing centre located at the Stevenage BioScience Catalyst in Hertfordshire. Cell Medica also completed a GBP60.0 million funding round during the period, with Touchstone committing GBP13.7 million to the round.
-- Circassia Pharmaceuticals: following cessation of investment in their allergy platform, Circassia's management team has worked hard to strengthen its commercial platform and respiratory portfolio, and transitioned the business into a specialty pharmaceutical company focused on respiratory disease. The company's growing commercial organisation promotes innovative asthma management products directly to specialist physicians and has a pipeline of asthma and chronic obstructive pulmonary disease (COPD) treatments in development. On 17 March 2017, Circassia announced that it had entered into an agreement with AstraZeneca to secure certain U.S. commercial rights to two chronic obstructive pulmonary disease products, Tudorza(R) and Duaklir(R), for a maximum total consideration of US $230.0 million. These products represent a clear strategic fit with Circassia's focus on respiratory medicines - see Partnerships, collaborations and exits for further details. Having repositioned the business, management is now seeking to build upon its commercial collaboration with AstraZeneca, as well as pursuing additional in-licensing and acquisition opportunities to expand its commercial portfolio. Post year end, on the 7 September 2017, Circassia announced that Duaklir(R) had successfully completed a Phase III Study in COPD, by demonstrating statistically significant and clinically meaningfully improvements in lung function. Following the completion of this study, AstraZeneca plans to file a New Drug Application (NDA) for Duaklir(R) with the United States Food and Drug Administration (FDA) during the first half of 2018.
-- Cortexica Visual Systems: Cortexica is continuing to make commercial progress with its proprietary findSimilar(TM) technology being used by a growing list of global retailers including Macy's, Zalando and John Lewis. Cortexica is also working with Hammerson, the shopping centre group, to integrate findSimilar(TM) into the retailer's location-based mobile application, which is in use in 22 shopping centres across Europe. Cortexica is also diversifying its operations with the development of new applications for its visual search technology in other applications such as Health and Safety, and Clean Room environments.
-- Crescendo Biologics: Crescendo is discovering and developing potent, highly differentiated mono- and multi-specific Humabody(R) therapeutics in oncology based on its unique, patented, transgenic mouse platform. This platform, combined with the company's engineering expertise, could lead to the development of multiple drug candidates making it very attractive to pharma companies. In October 2016 Crescendo signed a multi-target collaboration and licence agreement with Takeda Pharmaceutical worth up to US $790 million (subject to successful completion of milestones) - see Partnerships, collaborations and exits for further details. On the 15 June 2017, Crescendo won the "Emerging Star of the Year" award at the European Mediscience Awards.
-- Featurespace: is continuing to make excellent progress in the USA, following the announcement in May 2016 of its partnership with TSYS Inc, one of the world's largest payment solutions and services companies. As a result of this partnership Featurespace's adaptive behavioural analytics platform will be used to reduce fraud and false positives for TSYS' clients. Elsewhere the company continues to make strong commercial progress and has signed a number of strategic partnerships. On 24 July 2017, the company announced that following a robust selection process, it had been selected by the International Air Transport Association (IATA), the trade association representing over 275 airlines globally, to deploy its real-time Adaptive Behavioural Analytics platform, ARIC, to protect payments between travel agents and airlines. Post-period end, on 7 August 2017, Featurespace agreed a joint business relationship with PwC UK, the professional services firm, to provide client organisations with advanced technology to combat real-time financial crime attacks. By working alongside Featurespace, PwC UK will be able to provide its clients with an innovative real-time machine learning technology solution for combating financial crime risk, to complement the range of other financial crime advisory services PwC offers. Just prior to year end, Featurespace completed a first close of a growth funding round.
-- Garrison Technology: is addressing the large and growing enterprise cyber-security market estimated to be worth $23bn and growing at 10% CAGR. The company has developed an anti-malware product that effectively blocks the highest impact cyber threats to modern organisations. Garrison's unique technology enables a previously unachievable blend of ultra-secure internet connectivity, user experience and enterprise scalability. On 6 March 2017, Touchstone led a GBP12.0 million funding round in Garrison, commiting GBP3.9 million to the round alongside new investors BGF Ventures, NM Capital and existing angel investors. Touchstone first invested in Garrison in 2015 and has progressed rapidly, attracting new investors pricing this round at a significant uplift in valuation.
-- Ieso Digital Health: is the largest provider of online cognitive behavioural therapy ('CBT') in the UK, having treated more than 7,000 patients for depression or anxiety and captured over 75 million clinical data units in its therapy database. The company's proprietary web-based platform enables CBT to be delivered in real-time by real therapists over the internet, using a secure online therapy room and written (typed) conversation. Therapy delivered in this way has been clinically validated in routine NHS service to deliver better results than traditional methods, with higher levels of patient engagement as a result of it being discreet and convenient to users, and directly accessible from their computer, tablet or smartphone. Post-period end, on 12 September 2017, Ieso closed an GBP18.0 million funding round, which was jointly led by Touchstone and Draper Esprit. The new funding will enable the company to continue to grow its UK business and pursue further expansion in the US, where it has recently achieved significant early traction and appointed a new highly-experienced management team.
-- MISSION Therapeutics: having raised GBP60.0 million from investors in February 2016, MISSION is well placed to continue development of its world-leading platform for the discovery and development of first-in-class, small-molecule drugs that selectively target deubiquitinating enzymes ('DUBs') - an emerging, and hitherto intractable drug class that is attracting significant commercial interest. On 11 April 2017, World Parkinson's Day, the company announced that it has been awarded a grant from the Michael J. Fox Foundation for Parkinson's Research (MJFF) to support the testing of USP30, a mitochondrial-associated DUB, in stem cell-derived Parkinson's disease models. USP30 has been implicated in the control of mitophagy - a process where dysfunctional mitochondria are selectively cleared from the cell. The inhibition of USP30 is being studied by MISSION Therapeutics to see if this promotes mitophagy and thus improves cellular resilience in this and other neurodegenerative diseases. On 5 December 2016, MISSION appointed Dr Colin Goddard as non-executive Chairman. Prior to joining MISSION Therapeutics, Dr Goddard was Chief Executive Officer of OSI Pharmaceuticals.
-- Nexeon: with the benefit of the additional GBP30.0 million equity funding round completed in May 2016, Nexeon is continuing to optimise its silicon materials for the blended carbon/silicon anode applications currently being demanded by the battery industry. Acquisition of some complementary technology has led to a step-change in capacity retention and high temperature performance of materials, and with further IP consolidation opportunities in the pipleline, Nexeon remains the "go to" company for silicon materials in the battery space. The company recently signed a joint development agreement with an automotive company and is actively sampling kilogram quantities of its products to several tier 1 battery companies. On 11 October 2016, Nexeon announced the opening of a new office and development laboratory in Yokohama, close to many of the company's development partners and prospective customers in the electronics and automotive sectors. The facility is now close to being fully staffed with industry experts, allowing Nexeon to directly support customers in a territory where more than 90% batteries are currently made. Encouraging results in the control of expansion at the particle level have also been obtained for materials designed for use in anodes at high loading.
-- PsiOxus Therapeutics: PsiOxus' first generation oncolytic virus Enadenotucirev and the company's proprietary Tumor-Specific Immuno-Gene Therapy (T-SIGn) platform technology continue to garner significant interest from pharma companies. As a combination therapy Enadenotucirev could potentially expand the market for blockbuster checkpoint inhibitor drugs by increasing the range of cancer types for which they are effective, whereas the T-SIGn platform could potentially outperform new immuno-oncology platforms such as CAR-T by providing an off-the-shelf product that does not require the selection of a specific tumour antigen. In December 2016, PsiOxus announced an exclusive worldwide licence agreement with BMS for NG-348, its first "armed" oncolytic virus, in a transaction worth up to US $936 million (subject to successful completion of milestones) - see Partnerships, collaborations and exits for further details. On 13 June 2017, PsiOxus announced the expansion of its operations into a 21,000 sq ft state-of-the-art facility on the Abingdon Science Park in Oxfordshire and the opening of a new US facility in Pennsylvania. This dual expansion will allow PsiOxus to accelerate the research and development on its novel immune-oncology products in both the UK and US. On 16 August 2017, PsiOxus announced the appointment of two US-based Board Directors as part of an ongoing drive to mature and internationalise the business, particularly in the US.
-- Pulmocide: is developing novel small-molecule inhaled medicines for the treatment of life-threatening respiratory infections caused by respiratory syncytial virus (RSV) and Aspergillus. On 20 March 2017, Pulmocide announced the completion of a GBP25.0 million funding found. Touchstone committed GBP3.0 million to the round alongside new investors SR One and Longwood Fund, plus existing investors SV Life Sciences, F-Prime Capital, Johnson & Johnson Innovation (JJDC, Inc.). This new funding will enable Pulmocide to advance its assets through early clinical development. Pulmocide is on track to deliver proof of concept data in RSV using its highly potent inhaled RSV antiviral agent (PC786) in human RSV challenge and in infants hospitalised with bronchiolitis due to RSV infection. Pulmocide will also be progressing its PC945, a potent azole antifungal for the treatment of pulmonary Aspergillosis, including fungal asthma, pulmonary Aspergilloma, Aspergillus infections in lung transplant recipients and patients with cystic fibrosis.
-- TopiVert: is continuing to see good clinical progress with the development of narrow-spectrum kinase inhibitors (NSKIs) as novel, locally acting medicines for the local treatment of chronic inflammatory diseases of the gastrointestinal tract and eye. TopiVert's most advanced drug candidate, TOP1288 for the treatment of ulcerative colitis (UC), has successfully completed Phase I development and on 6 October 2016, the company announced that the first patients had been dosed in its Phase IIa proof-of-concept study. This was followed on the 28 February 2017 with the news of the successful dosing of the first subjects in a Phase I study of its oral formulation of TOP1288 for the treatment of UC. In November 2016, the company announced that its Investigational New Drug (IND) application for the evaluation of TOP1630 ophthalmic solution as a treatment of patients with dry eye syndrome (DES) has been approved by the US Food and Drug Administration (FDA). On the 22 February 2017, TopiVert announced the successful dosing of the first patients in this trial. On 26 June 2017, TopiVert announced the
successful completion of all three clinical studies. Results from both oral and rectal studies of TOP1288 are expected later this calendar year. Results for the Phase I/IIa proof of concept study of TOP1630 in patients with DES are also expected before the end of the calendar year.
-- Veryan Medical: in October 2016, Veryan completed enrolment into the MIMICS2 clinical study of its BioMimics 3D(R) Self-Expanding Stent System (BioMimics 3D). This has been designed to evaluate the safety and effectiveness of BioMimics 3D in the treatment of patients with symptomatic femoropopliteal disease with a view to provide safety and effectiveness data that are intended to support marketing applications for BioMimics 3D in both the USA and Japan. Enrolment concluded with a total of 271 patients who were enrolled across 47 investigational sites in Germany, the USA and Japan. In February 2017, Veryan secured a further GBP13.5 million of funding in the form of new equity funding secured from existing investors (including Touchstone) supported with a EUR5.0 million loan from Silicon Valley Bank. The new investment will allow the company to continue its progress towards US and Japanese regulatory approvals for BioMimics 3D, which secured European approval in late 2012.
-- WaveOptics: is developing novel optical waveguide technology and modules for augmented reality displays. Augmented reality (AR) devices enable people to view the world around them, overlaid with relevant digital content. Whilst a number of major manufacturers are building the full AR systems (including the optics, sensors, camera and head mounted unit), WaveOptics is focused on developing the underlying optics to deliver an enhanced AR experience, whilst solving some of the performance and cost challenges currently limiting AR technology adoption. Unlike conventional technologies that rely on cumbersome prisms, mirrors or scarce materials, WaveOptics' optical design harnesses waveguide hologram physics and photonics, which enables lightweight design with unrivalled optical performance. On 17 July 2017, WaveOptics completed a GBP12.0 million series B funding round. Touchstone has committed GBP3.1 million to the round, alongside existing investors Robert Bosch Venture Capital GMBH and Octopus Investments, as well as new investor Gobi Ventures. This funding will enable to company to accelerate development of its industry-leading technologies and enables it to launch programmes in new markets and territories.
-- Yoyo Wallet: is continuing to see firm traction for its mobile payments and loyalty application. The app was launched in early 2014 across 32 food and drink outlets at Imperial College London and as at 31 July 2017, the solution was being used at more than 386 university outlets and deployed at 189 head office corporate catering locations. Yoyo is now targeting high-street retail chains and in November 2016 the company announced it had been selected by Caffè Nero as the coffee chain's mobile payment and loyalty strategy partner. The solution is now deployed at over 660 high street retail locations. On 26 June 2017, Yoyo completed a GBP12.0 million Series B funding round. Touchstone has committed GBP4.0 million to the round, which was led by the digitalisation and start-up investment arm of the METRO GROUP Wholesale & Food Specialist Company, an internationally leading specialist in wholesale and food retail with ca. EUR37 billion in annual turnover. The round was also supported by Woodford Investment Management. The new funding will help the team to build more partnerships with UK high-street retailers and realise its ambitious plans for international expansion across Europe.
Not all companies performed to expectations and the Group reported GBP9.9 million of impairments from its unquoted portfolio. More than 63% of this impairment is attributable to a GBP6.2 million write down in the value of Kesios Therapeutics. Disappointingly the underlying technology failed to live up to expectations and the decision was made, with Kesios' management team, to wind the company down.
Syndication and attracting investment to the portfolio
Syndication of investment is an important part of the Group's approach to building strong companies and allows Touchstone to leverage its investment to attract additional capital to its portfolio. Since becoming a public company in 2006, Touchstone has invested a total of GBP372.4 million across its portfolio companies, which have collectively raised investment of more than GBP1.7 billion.
Co-investors not only bring capital, but often perform extensive due diligence on the portfolio companies in which they invest, which helps to validate the underlying technology. Significantly, co-investors may also bring insight and people with operational experience, which can provide invaluable support to growing companies. In the case of strategic or corporate venture firms, these co-investors may also be a potential acquirer, so they also increase the range of exit options.
During the financial year the portfolio raised GBP268.6 million in new investment (2016: GBP206.4 million) as the Group led or participated in multiple major funding rounds. These funding rounds attracted a number of significant new co-investors to the portfolio including: SR One, Longwood Fund, SV Life Sciences, F-Prime Capital, Johnson & Johnson Innovation which participated in the GBP25.0 million Series B funding round in Pulmocide; the Metro Group, which participated in the funding round for Yoyo; BGF Ventures and NM Capital, which participated in the GBP12.0 million funding round in Garrison Technology; Medicxi, which co-led the GBP14.0 million Series A funding round in Apcintex; SV Life Sciences, Merck Ventures, Arix Bioscience PLC, and AbbVie Ventures who supported the GBP25.0 million funding round in Artios; and Robert Bosch Venture Capital GMBH, Octopus Investments, and Gobi Ventures all of which invested in the GBP12.0 million Series B funding round in WaveOptics.
Touchstone's major investors, Invesco Asset Management ('Invesco') and Woodford Funds ('Woodford') participated in Cell Medica's GBP60.0 million funding round and Abzena's GBP25.0 million placing. Woodford also participated in the GBP12.0 million funding round for Yoyo Wallet. However, the Group is constantly attracting new investors to the portfolio and over the past year, of the money raised by the Group's portfolio, 24% came from Touchstone, with 16% from Invesco and Woodford, and the majority (60%) coming from other investors.
Russell Cummings
Chief Executive Officer
Financial review
Summary
The Group generated a profit during the year of GBP46.8 million (2016: GBP63.1 million loss) reflecting gains across the portfolio. Excluding one-off corporate finance fees of GBP5.5m the underlying profit is GBP52.3 million.
Net assets at the year end of GBP503.5 million (2016: GBP455.9 million) increased by GBP47.6 million from 31 July 2016, primarily as a result of the net fair value gain. This is an increase of 10% and rises to 12% excluding the one-off costs.
Cash and short-term liquidity investments
At 31 July 2017, the Group's cash and short term liquidity investments moved to GBP130.1 million (2016: GBP148.3 million). The key driver of this movement was the Group's investment activity.
The movement in cash and short term liquidity investments of GBP18.2 million from the opening balance as at 31 July 2017 is summarised below:
2017 2016
Unaudited Audited
GBPm GBPm
--------------------------------------- ----------- --------
Net cash used in operating activities (9.8) (10.8)
Purchase of trade investments (65.7) (69.9)
Investments in funds (3.7) (1.2)
Net proceeds from sale of trade
investments 16.5 5.0
Purchase of property, plant and
equipment (1.2) -
Net cash from other investing
activities 0.6 1.1
Financing activities 45.1 96.0
--------------------------------------- ----------- --------
Movement in net cash reserves
during year (18.2) 20.2
--------------------------------------- ----------- --------
The Group invests cash surplus to working capital requirements in short-term deposits, classified as short term liquidity investments, across a number of banks with a focus on capital preservation rather than interest earned.
On 2 February 2017 the Group drew down the GBP50.0 million second loan facility secured from the EIB in July 2015. Following this, the Group has GBP130.1 million available for investment and operations.
Revenues, cost of sales and operating costs
Total trading revenue of GBP4.4 million (2016: GBP4.3 million) was higher than the prior year as a result of an increase in the licence and royalty income stream to GBP3.0 million (2016: GBP2.2 million). Corporate finance fees were GBP0.2 million (2016: GBP0.4 million) and were primarily generated by the Group-led funding rounds. Other income includes revenue from services of GBP1.2 million (2016: GBP1.6 million) and minimal dividends received (2016: GBP0.1 million).
Cost of sales, which mainly arises from the revenue sharing arrangements with Imperial College London, were GBP1.7 million (2016: GBP1.4 million) reflecting the increased licence and royalty activity.
Other administrative expenses were GBP16.6 million (2016: GBP12.6 million). The expenses are up on last year primarily due to costs associated with our office move to the new premises. Other administrative expenses include costs of GBP1.4 million (2016: GBP1.5 million) incurred filing patents and protecting the as yet unexploited intellectual property from Imperial College London.
The Group's carried interest plan, which is a significant portion of its long term incentive arrangements, recognised a charge of GBP9.0 million (2016: a release of GBP3.0 million) as a result of an increase in the value of the unquoted portfolio. There is no cash payment due to members of the scheme until the Group has made substantial cash realisations.
Additionally one-off corporate finance costs of GBP5.5m relating to the proposed acquisition of the Group by IP Group plc were incurred.
Finance income was lower than the prior year, at GBP0.6 million (2016: GBP1.1 million), reflecting the lower cash balance. During the year ended 31 July 2017, the Group made quarterly payments of interest and paid a total of GBP1.7 million (2016: GBP1.1 million) on the EIB loan.
The Group reported a profit before tax of GBP46.8 million (2016: GBP63.1 million loss). The Group's basic profit per share was 29.2p (2016: basic loss per share 43.2p). The Board is not proposing to pay a dividend (2016: nil).
Investment portfolio performance
The Group reported a net fair value gain arising from the portfolio of GBP76.0 million (2016: GBP56.2 million loss). An analysis of the change in fair value is set out in note 2 to the report and accounts and is summarised below:
2017 2016
Unaudited Audited
Portfolio movements excluding GBPm GBPm
cash invested/divestments
------------------------------- ----------- --------
Gains on revaluation
of investments 87.5 22.1
Losses on the revaluation
of investments (11.5) (78.3)
--------------------------------- ----------- --------
Net fair value gains
/ (losses) 76.0 (56.2)
--------------------------------- ----------- --------
As at 31 July 2017, the value of the Group's portfolio, net of GBP6.8 million due to revenue share agreements, increased to GBP461.1 million (2016: GBP335.1 million). The increase represents GBP65.7 million (2016: GBP69.9 million) of investments to fund 38 (2016: 33) companies in its portfolio, net of disposals of GBP15.6 million (2016: GBP5.8 million) and fair value gains of GBP76.0 million (2016: GBP56.2 million loss).
Investment and divestment
The Group's rate of investment in its portfolio companies was GBP65.7 million across 38 portfolio companies (2016: GBP69.9 million). At the end of the year the Group had outstanding investment commitments of GBP34.9 million in certain technology businesses under milestone provisions contained in investment agreements.
This takes the total invested since Innovations' IPO in July 2006 to GBP372.4 million and the total raised by the Group's portfolio companies to over GBP1.7 billion.
Divestments in the year amounted to GBP15.6 million and include proceeds on the sale of Permasense and the sale of stock in Oxford Immunotec, a quoted portfolio company.
Total net investment after net cash disposals in the year was GBP50.1 million (2016: GBP64.1 million).
UCL Technology Fund and Apollo Therapeutics
In addition to investments into its core portfolio, the Group committed GBP24.8 million towards the UCL Technology Fund LP and GBP3.3 million towards the partnership, Apollo Therapeutics LLP during the year ended 31 July 2016. The actual cash will be invested over a number of years. During the current year the Group invested GBP3.7 million into the fund and LLP, taking the total invested in these activities to GBP4.9 million. During the current year the Group recognised a fair value gain on the UCL Technology Fund LP of GBP0.4 million (2016: nil).
Portfolio company creation
At 31 July 2017, the Group held equity stakes in 117 companies (2016: 107 companies). The movement reflects formations during the year.
Portfolio company overview
The net value of the Group's investment portfolio grew to GBP461.1 million (2016: GBP335.1 million spread across 107 companies) and portfolio companies raised GBP268.6 million in cash (2016: GBP206.4 million) from all sources of investment. Since 31 July 2017 the portfolio companies have secured further commitments of GBP129 million from all sources of investments, with the Group committing GBP34.9 million.
The Group has a total of GBP328.2 million invested capital at work in the portfolio of currently active technology companies; GBP166.4 million invested in the top 10 companies and GBP161.8 million in the remaining companies.
The portfolio of companies is grouped into four sectors (as noted in the Chief Executive's Report) for the purpose of external reporting. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, which commercialises academic research and uses it to build businesses. The Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial information.
Anjum Ahmad
Treasury and Finance Director
Consolidated statement of comprehensive income for the year ended 31 July 2017
2017 2016
Unaudited Audited
Note GBP'000 GBP'000
----------------------------- ----- ----------- ---------
Revenue 4,411 4,257
Cost of sales (1,726) (1,395)
----------------------------- ----- ----------- ---------
Gross profit 2,685 2,862
Change in fair value
of investments 2 75,968 (56,249)
Fair value movement on 439 -
funds
Administrative expenses:
- Carried interest plan
(charge)/ release (9,006) 2,972
- Other administrative
expenses (16,556) (12,634)
- Corporate transaction
costs 10 (5,531) -
----------------------------- ----- ----------- ---------
Total administrative
expenses (31,093) (9,662)
----------------------------- ----- ----------- ---------
Operating profit/ (loss) 47,999 (63,049)
Finance costs (1,794) (1,141)
Finance income 597 1,077
----------------------------- ----- ----------- ---------
Profit/ (loss) before
taxation 46,802 (63,113)
Taxation - -
----------------------------- ----- ----------- ---------
Profit/ (loss) for the financial
year and total comprehensive
income 46,802 (63,113)
------------------------------------ ----------- ---------
Basic earnings/(loss)
per ordinary share (pence) 3 29.2 (43.2)
Diluted earnings/(loss)
per ordinary share (pence) 3 29.1 (43.2)
----------------------------- ----- ----------- ---------
The accompanying notes are an integral part of these consolidated financial information.
Consolidated balance sheet as at 31 July 2017
2017 2016
Unaudited Audited
Note GBP'000 GBP'000
------------------------------- ----- ----------- ---------
Assets
Non-current assets
Property, plant and equipment 1,117 18
Trade investments 2 459,353 343,973
University Challenge
Seed Fund (UCSF) investments 149 163
Higher Education Innovation
Fund (HEIF) 328 288
Apollo Therapeutics and
UCL Technology Fund 5,344 1,173
------------------------------- ----- ----------- ---------
Total non-current assets 466,291 345,615
------------------------------- ----- ----------- ---------
Current assets
Trade and other receivables 7 2,631 4,486
Trade investments 2 8,622 -
Short term liquidity
investments 10,000 15,000
Cash and cash equivalents 120,069 133,306
------------------------------- ----- ----------- ---------
Total current assets 141,322 152,792
------------------------------- ----- ----------- ---------
Total assets 607,613 498,407
------------------------------- ----- ----------- ---------
Equity and liabilities
Equity attributable to
equity holders
Issued share capital 4 4,885 4,885
Share premium 304,938 304,938
Capital redemption reserve 4 128,344 128,344
Retained earnings/(loss) 37,568 (9,234)
Share based payments 9,703 8,861
Other reserves 18,096 18,096
------------------------------- ----- ----------- ---------
Total equity 503,534 455,890
------------------------------- ----- ----------- ---------
Liabilities
Non-current liabilities
Borrowings 6 67,831 24,089
Higher Education Innovation
Fund (HEIF) and University
Challenge Seed Fund (UCSF)
investments 502 477
Provisions for liabilities
and charges 2 6,830 8,887
Carried interest plan
liability 10,737 1,731
------------------------------- ----- -----------
Total non-current liabilities 85,900 35,184
------------------------------- ----- ----------- ---------
Current liabilities
Borrowings 6 6,292 3,167 Trade and other payables 11,887 4,166 ------------------------------- ----- ----------- --------- Total liabilities 104,079 42,517 ------------------------------- ----- ----------- --------- Total equity and liabilities 607,613 498,407 ------------------------------- ----- ----------- ---------
The accompanying notes are an integral part of these consolidated financial information.
The consolidated financial information on pages 15 to 34 were approved by the Board of Directors on 12 September 2017 and were approved for release as unaudited preliminary financial information signed on its behalf by R. Cummings.
R. Cummings
Chief Executive Officer
Consolidated cash flow statement for the year ended to 31 July 2017
2017 2016
Unaudited Audited
Note GBP'000 GBP'000
------------------------------- ----- ----------- ---------
Cash flows from operating
activities:
Operating profit/ (loss) 47,999 (63,049)
Adjustments to reconcile operating profit/
(loss) to net
cash flows used in operating
activities:
Depreciation of property,
plant and equipment 120 11
Fair value movement in
investments (75,968) 56,249
Fair value movement in (439) -
funds
Share based payment charge 842 333
Carried interest plan
charge/(release) 9,006 (2,972)
Working capital adjustments:
Decrease/(increase) in
trade and other receivables 639 (273)
Increase/ (decrease)
in trade and other payables 8,012 (1,098)
------------------------------- ----- ----------- ---------
Net cash used in operating
activities (9,789) (10,799)
------------------------------- ----- ----------- ---------
Cash flows from investing
activities:
Purchase of trade investments 5 (65,732) (69,873)
Investments in funds (3,732) (1,173)
Proceeds from sale of
trade investments 5 20,254 4,979
Revenue share paid on
realisations of trade
investments 5 (3,745) -
------------------------------- ----- ----------- ---------
Net cash flows used in
investments in trade
investments (52,955) (66,067)
Purchase of property, (1,220) -
plant and equipment
Interest received 627 1,079
Decrease in short term
liquidity investments 5,000 5,000
------------------------------- ----- ----------- ---------
Net cash flows generated
from other investing
activities 4,407 6,079
------------------------------- ----- ----------- ---------
Net cash used in investing
activities (48,548) (59,988)
------------------------------- ----- ----------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of ordinary shares - 101,636
Transaction costs relating
to issuance of ordinary
shares - (3,037)
Proceeds from EIB loan 50,000 -
Repayment of EIB loan (3,167) (1,500)
Interest paid (1,733) (1,103)
Net cash generated from
financing activities 45,100 95,996
Net (decrease)/increase
in cash and cash equivalents (13,237) 25,209
Cash and cash equivalents
at beginning of the year 133,306 108,097
Cash and cash equivalents
at end of the year 5 120,069 133,306
------------------------------- ----- ----------- ---------
The accompanying notes are an integral part of these consolidated financial information.
Consolidated statement of changes in equity attributable to equity holders of the Group
For the year ended 31 July 2016:
Audited Audited Audited Audited Audited Audited Audited
Share Share Retained Share Other Total
Capital Premium Capital Earnings/ Based Reserves
Redemption (accumulated Payments
Reserve loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------- --------- ------------ -------------- ---------- ---------- ---------
At 1 August
2015 132,500 207,068 - 53,879 8,528 18,096 420,071
--------------------- ---------- --------- ------------ -------------- ---------- ---------- ---------
Comprehensive
income
Loss for the
year to 31 July
2016 - - - (63,113) - - (63,113)
---------------------- ---------- --------- ------------ -------------- ---------- ---------- ---------
Total comprehensive
income - - - (63,113) - - (63,113)
Transactions
with owners
Value of employee
services - - - - 333 - 333
Share capital
issued 729 100,907 - - - - 101,636
Cost of share
capital issued - (3,037) - - - - (3,037)
Cancellation
of deferred
shares (128,344) - 128,344 - - - -
---------------------- ---------- --------- ------------ -------------- ---------- ---------- ---------
Transactions
with owners (127,615) 97,870 128,344 - 333 - 98,932
---------------------- ---------- --------- ------------ -------------- ---------- ---------- ---------
At 31 July 2016 4,885 304,938 128,344 (9,234) 8,861 18,096 455,890
---------------------- ---------- --------- ------------ -------------- ---------- ---------- ---------
For the year ended 31 July 2017:
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Retained
Capital Earnings/ Share
Share Share Redemption (accumulated Based Other
Capital Premium Reserve loss) Payments Reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- --------- ------------ -------------- ---------- ---------- ---------
At 1 August 2016 4,885 304,938 128,344 (9,234) 8,861 18,096 455,890
--------------------- --------- --------- ------------ -------------- ---------- ---------- ---------
Comprehensive
income
Profit for the
year to 31 July
2017 - - - 46,802 - - 46,802
---------------------- --------- --------- ------------ -------------- ---------- ---------- ---------
Total comprehensive
income - - - 46,802 - - 46,802
Transactions
with owners
Value of employee
services - - - - 842 - 842
Transactions
with owners - - - - 842 - 842
---------------------- --------- --------- ------------ -------------- ---------- ---------- ---------
At 31 July 2017 4,885 304,938 128,344 37,568 9,703 18,096 503,534
---------------------- --------- --------- ------------ -------------- ---------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial information.
Notes to the consolidated financial information
1. Basis of preparation
These unaudited consolidated financial information has been prepared in accordance with the AIM Rules and European Union endorsed International Financial Reporting Standards and International Financial Reporting Interpretation Committee Interpretations. These comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity and the related notes ("the financial information").
These unaudited consolidated financial information have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of certain financial assets at fair value, as required by IAS 39, "Financial instruments: Recognition and Measurement". The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 July 2016, as described in those financial statements, with the exception of the following new standards which have been applied for the first time during the year commencing 1 August 2016:
(a) New Standards, amendments and interpretations adopted by the Group
There are no new standards and interpretations adopted by the EU in the period which would have a material financial impact on or disclosure requirement for the Group's report.
(b) New standards, amendments and interpretations not yet adopted
-- IFRS 9 - Financial Instruments (effective for reporting periods commencing on or after 1 January 2018).
-- IFRS 15 - Revenue (effective for reporting periods commencing on or after 1 January 2018). -- IFRS 16 - Leases (effective for reporting periods commencing on or after 1 January 2019).
-- Amendments to IFRS 10 and IAS 28 on investment entities applying the consolidation exemption - effective for annual periods beginning on or after 1 January 2016.
-- Amendment to IAS 1 'Presentation of Financial Statements' on the disclosure initiative - effective for annual periods beginning on or after 1 January 2016.
-- Amendments to IAS 16 'Property, Plant and Equipment' and IAS 38 'Intangible Assets' on depreciation and amortisation -effective for annual periods beginning on or after 1 January 2016.
-- Amendments to IAS 27 'Separate Financial Statements' on the equity method - effective for annual periods beginning on or after 1 January 2016.
-- Annual Improvements to IFRS 2014 cycle - effective for annual periods beginning on or after 1 January 2016.
-- IAS Amendments to IAS 7, Statement of cash flows on disclosure initiative - effective for annual periods beginning on or after 1 January 2017.
-- Amendments to IAS 12,'Income taxes' on Recognition of deferred tax assets for unrealised losses (effective 1 January 2017) - effective for annual periods beginning on or after 1 January 2016.
-- Amendments to IFRS 11 'Joint Arrangements' on acquisition of an interest in a joint operation - effective for annual periods beginning on or after 1 January 2016.
The Directors do not anticipate that the adoption of these standards, amendments and interpretations, where relevant, in future periods will have a material impact on the Group's financial statements, however the Group continue to assess the impact of IFRS 16.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.
These unaudited consolidated financial information do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 July 2016 were approved by the Board of Directors on 12 October 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
2. Net change in fair value of trade investments held at fair value through profit or loss
Net change in fair value for the year represents the change in fair value less the revenue share charge on these fair value movements.
Included within the net fair value movement recognised in the Consolidated Statement of Comprehensive Income are provisions for liabilities and charges. These are made up of the revenue sharing provision which represents a fair value estimate of monies due to Imperial College London and other third parties such as co-funders of research work and the Appointee Directors' Pool. The provision will be payable upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in investments. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.
HEIF funded investment and University Challenge Seed Fund
The University Challenge Seed Fund (UCSF) reflects an award made by the UK government and third parties and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies from UCSF investments until the fund size has reached a multiple of three times the original investment of GBP4.15 million, excluding donations from industry parties. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.
The Higher Education Innovations Fund (HEIF) reflects an award made by the UK government and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies. Realisation must be paid back to the fund for re-deployment. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.
Non-current investments
All equity investments held by the Group are defined as financial assets under International Accounting Standard (IAS) 32 'Financial Instruments: Disclosure and Presentation' and are classified as financial assets held at fair value under IAS 39, 'Financial Instruments: Recognition and Measurement'. This includes all UCSF equity investments.
Under IAS 39 the carrying value of all investments is measured at fair value with changes in fair value between accounting periods being charged or credited to the Consolidated Statement of Comprehensive Income.
The following tables in this note set out how the net fair value gains recognised in the Consolidated Statement of Comprehensive Income for each of the periods is generated. The tables exclude any UCSF or HEIF related investments as returns are repayable to the respective funds based on the above terms.
2. Net change in fair value of trade investments held at fair value through profit or loss (continued)
The table below sets out the movement in the balance sheet value of the investments from the start to the end of the year, setting out the fair value gains and losses together with any investments and disposals.
Gross investments - designated Unaudited Unaudited Unaudited
at fair value through profit Quoted Unquoted Total
or loss for the year ended 31 (1) Companies
July 2017 Companies Total
Total
GBP'000 GBP'000 GBP'000
---------------------------------------- ---------- ---------- ----------
At 1 August 2016 43,134 300,839 343,973
Gains on the revaluation of investments 9,182 80,096 89,278
Losses on the revaluation of
investments (1,616) (10,325) (11,941)
---------------------------------------- ---------- ---------- ----------
Fair value gains 7,566 69,771 77,337
Investments during the year 2,937 62,795 65,732
Disposal of investments (11,462) (7,605) (19,067)
---------------------------------------- ---------- ---------- ----------
Net investment (8,525) 55,190 46,665
At 31 July 2017 42,175 425,800 467,975
---------------------------------------- ---------- ---------- ----------
The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the year, setting out any fair value gains and losses together with the impact arising as a result of disposals.
Provisions for liabilities and Unaudited Unaudited Unaudited
charges (2)
for the year ended 31 July 2017 Quoted Unquoted Total
(1) Companies
Companies Total
Total
GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- ---------- ---------
At 1 August 2016 211 8,676 8,887
Increase in liability arising
from changes in fair value of
investments 40 1,776 1,816
Decrease in liability arising
from changes in fair value of
investments - (447) (447)
-------------------------------------- ---------- ---------- ---------
Net change in fair value of liability
during the year 40 1,329 1,369
Disposal of investments - (3,426) (3,426)
At 31 July 2017 251 6,579 6,830
-------------------------------------- ---------- ---------- ---------
The table below sets out the movement in the net carrying value of investments from the start to the end of the year, setting out the net fair value gains and losses together with any investments and disposals.
Unaudited Unaudited Unaudited
Investments - designated at fair Quoted Unquoted Total
value through profit or loss (1) Companies
(net of revenue share) Companies Total
for the year ended 31 July 2017 Total
GBP'000 GBP'000 GBP'000
---------------------------------------- ---------- ---------- ----------
At 1 August 2016 42,923 292,163 335,086
Gains on the revaluation of investments 9,142 78,320 87,462
Losses on the revaluation of
investments (1,616) (9,878) (11,494)
---------------------------------------- ---------- ---------- ----------
Fair value (losses)/ gains 7,526 68,442 75,968
Investments during the year 2,937 62,795 65,732
Disposal of investments (11,462) (4,179) (15,641)
---------------------------------------- ---------- ---------- ----------
Net investments (8,525) 58,616 50,091
At 31 July 2017 41,924 419,221 461,145
---------------------------------------- ---------- ---------- ----------
Trade investments - non-current 41,924 410,599 452,523
Trade investments - current(3) - 8,622 8,622
---------------------------------------- ---------- ---------- ----------
Total trade investments 41,924 419,221 461,145
---------------------------------------- ---------- ---------- ----------
2. Net change in fair value of trade investments held at fair value through profit or loss (continued)
(1) Quoted companies are registered on AIM and the Main Market of the London Stock Exchange.
(2) The provision for liabilities and charges represents monies due to Imperial College London upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in these particular investments.
(3) The trade investments classified as current, represent investments that are expected to be realised within twelve months after the reporting period.
Additionally, monies are due to parties in the Appointee Directors' Pool in respect of the Imperial Innovations LLP assets acquired as part of the stepped acquisition in 2005 and to other third parties. These are included in 'Revenue Sharing Other' in the table below. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.
The following table analyses the provision by obligation:
Revenue
Sharing
Imperial Revenue Sharing
College Other Total
GBP000 GBP000 GBP000
----------------------------------- --------- --------------- ---------
At 1 August 2016 (audited) 8,437 450 8,887
Settlements and provisions
utilised (3,426) - (3,426)
Changes in fair value attributable
to revenue share 1,301 68 1,369
------------------------------------ --------- --------------- -------
At 31 July 2017 (unaudited) 6,312 518 6,830
------------------------------------ --------- --------------- -------
2. Net change in fair value of trade investments held at fair value through profit or loss (continued)
The table below sets out the movement in the balance sheet value of the investments from the start to the end of the prior year, setting out the fair value gains and losses together with any investments and disposals.
Gross investments - designated Audited Audited Audited
at fair value through profit
or loss
for the year ended 31 July 2016 Quoted Unquoted Total
(1) Companies
Companies Total
Total
GBP'000 GBP'000 GBP'000
---------------------------------------- ---------- ---------- --------
At 1 August 2015 107,113 226,155 333,268
Gains on the revaluation of investments - 26,404 26,404
Losses on the revaluation of
investments (67,060) (11,727) (78,787)
---------------------------------------- ---------- ---------- --------
Fair value gains (67,060) 14,677 (52,383)
Investments during the year 3,081 66,793 69,874
Disposal of investments - (6,786) (6,786)
---------------------------------------- ---------- ---------- --------
Net investment 3,081 60,007 63,088
At 31 July 2016 43,134 300,839 343,973
---------------------------------------- ---------- ---------- --------
The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the prior year, setting out any fair value gains and losses together with the impact arising as a result of disposals.
Provisions for liabilities and Audited Audited Audited
charges
for the year ended 31 July 2016 Quoted Unquoted Total
(1) Companies
Companies Total
Total
GBP'000 GBP'000 GBP'000
-------------------------------- ---------- ---------- -------
At 1 August 2015 345 5,703 6,048
Increase in liability arising
from changes in fair value of
investments - 4,321 4,321
Decrease in liability arising
from changes in fair value of
investments (134) (321) (455)
-------------------------------- ---------- ---------- -------
Net (reduction)/ increase in
fair value of liability during
the year (134) 4,000 3,866
Disposals during the year - (1,027) (1,027)
At 31 July 2016 211 8,676 8,887
-------------------------------- ---------- ---------- -------
The table below sets out the movement in the net carrying value of investments from the start to the end of the prior year, setting out the net fair value gains and losses together with any investments and disposals.
Investments - designated at fair Audited Audited Audited
value through profit or loss
(net of revenue share)
for the year ended 31 July 2016 Quoted Unquoted Total
(1) Companies
Companies Total
Total
GBP'000 GBP'000 GBP'000
---------------------------------------- ---------- ---------- --------
At 1 August 2015 106,768 220,452 327,220
Gains on the revaluation of investments - 22,083 22,083
Losses on the revaluation of
investments (66,926) (11,406) (78,332)
---------------------------------------- ---------- ---------- --------
Fair value gains (66,926) 10,677 (56,249)
Investments during the year 3,081 66,793 69,874
Disposal of investments - (5,759) (5,759)
---------------------------------------- ---------- ---------- --------
Net investments 3,081 61,034 64,115
At 31 July 2016 42,923 292,163 335,086
---------------------------------------- ---------- ---------- --------
(1) Quoted companies are registered on AIM, NASDAQ and the Main Market of the London Stock Exchange.
3. Earnings/ (loss) per share and net asset value (NAV) per share
Basic earnings per share is calculated by dividing the result for the financial year by the weighted average number of Ordinary Shares in issue during the year. Diluted earnings per share is computed by dividing the result for the financial year, by the weighted-average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options on an as-if-converted basis and excluding treasury shares. The potential dilutive shares are included in diluted earnings per share computations on a weighted average basis for the year. The results and weighted average number of shares used in the calculations are set out below:
2017 2016
Unaudited Audited
Earnings/ (loss) per Ordinary GBP'000 GBP'000
Share
-------------------------------------- ---------- ---------
Profit/ (loss) for the financial
year (GBP'000) 46,802 (63,113)
--------------------------------------- ---------- ---------
Weighted average number of
Ordinary Shares (basic) (thousands) 160,234 146,063
Effect of dilutive potential 460 -
Ordinary Shares
-------------------------------------- ---------- ---------
Weighted average number of
Ordinary Shares for the purposes
of diluted earnings per share
(thousands) 160,694 146,063
--------------------------------------- ---------- ---------
Earnings per ordinary share
basic (pence) 29.2 (43.2)
--------------------------------------- ---------- ---------
Earnings per ordinary share
diluted (pence) 29.1 (43.2)
--------------------------------------- ---------- ---------
Net asset value (NAV) for
the financial year
---------------------------------- -------- --------
Net asset value per consolidated
balance sheet 503,534 455,890
Effect of one-off corporate 5,531 -
finance fees(1)
---------------------------------- -------- --------
Net asset value excluding
one-off corporate finance
fees 509,065 455,890
----------------------------------- -------- --------
Number of shares in issue
at year end (thousands) 161,204 161,204
----------------------------------- -------- --------
NAV per ordinary share (pence) 312.4 282.8
----------------------------------- -------- --------
NAV per ordinary share excluding
one-off corporate finance
fees (pence) 315.8 282.8
----------------------------------- -------- ----------
(1) These are one-off, non-recurring costs associated with the corporate finance activity.
4. Share capital and equity
2017 2016
Unaudited Audited
GBP'000 GBP'000
--------------------------------------- ---------- -----------
Ordinary Shares
Allotted and fully paid:
Balance at beginning of year
of 161,204,124 Ordinary Shares
of GBP0.0303 each (2016: 137,151,035
Ordinary Shares of GBP0.0303
each) 4,885 4,156
Issue of share capital during
the year - 729
Balance at end of year of
161,204,124 Ordinary Shares
of GBP0.0303 each 4,885 4,885
---------------------------------------- ---------- ---------
Deferred Shares
Allotted and fully paid:
Balance at beginning of year
(36,990,086 Deferred shares
of GBP3.4697 each) - 128,344
Cancellation of shares and
transfer to capital redemption
reserve - (128,344)
======================================== ========== =========
Balance at end of year of
nil - -
---------------------------------------- ---------- ---------
Total balance as at end of
the year 4,885 4,885
---------------------------------------- ---------- ---------
Share capital and equity
Deferred shares are not transferable and do not entitle the holder to the payment of any dividend or otherwise participate in the profits of the Company or to receive notice of or attend or vote at any general meeting of the Company and on any reduction of capital in accordance with the Companies Act 2006, may be cancelled without payment of consideration. The Deferred Shares are not listed on any stock exchange. The Company may purchase the Deferred Shares for not more than the sum of GBP0.01 in aggregate for all the Deferred Shares and cancel the Deferred Shares so purchased, without any requirement to obtain the consent or sanction of the holders of the Deferred Shares. Pursuant to this right, on 24 September 2015 the Company purchased all the Deferred Shares for the total sum of GBP0.01 in aggregate and the shares were then cancelled.
On 17 August 2015, the Company's total issued voting capital increased through the issue of 523,677 Ordinary Shares of 3 and 1/33 pence each at an average price of approximately 312 pence per Ordinary Share pursuant to the exercise of share options held by two former Directors.
On 4 February 2016 the Company announced a placing to raise GBP100,000,000 before issue costs, through the issue of 23,529,412 Ordinary Shares of 3 and 1/33 pence each (total nominal value of GBP713,000) at 425 pence each.
The total issued voting share capital as at 31 July 2017 was 161,204,124 voting shares (2016: 161,204,124 voting shares).
Employee Benefit Trust
As at 31 July 2017, the Employee Benefit Trust (EBT) held 970,349 (2016: 971,080) of the Group's Ordinary Shares, which have a cost of GBP2,562,079 (2016: GBP2,564,009). These represent shares which are considered to be under the de-facto control of the Group and have therefore been netted against the retained earnings in the financial information.
It is the intention of the Group to use these shares to settle the option liabilities at the point of exercise and they represent a partial hedge on the cost of the exercise. During October 2016, 731 shares have been issued from the EBT under the terms of our SAYE scheme (2016: nil).
5. Short term liquidity investments and cash and cash equivalents
2017 2016
Unaudited Audited
GBP'000 GBP'000
--------------------------------- ---------- ----------
Cash at bank and in hand 120,069 133,306
--------------------------------- --- ---------- --------
Total cash and cash equivalents 120,069 133,306
--------------------------------- --- ---------- --------
Total short term liquidity
investments 10,000 15,000
--------------------------------- --- ---------- --------
Total cash and cash equivalents include restricted balances of GBP2.8 million (2016: GBP2.1 million). Pursuant to the amended and restated EIB facility agreement the Group is required to maintain a debt service reserve account pledged in favour of the lender. The account is available solely to pay any outstanding interest and principal payments owed under the EIB agreement for the following six months (see note 6).
Reconciliation of amounts invested to trade investments:
2017 2016
Unaudited Audited
GBP'000 GBP'000
---------------------------- ---------- ----------
Investments in year 65,732 69,874
Investments unpaid at year
end - (1)
Net cash invested in trade
investments in the year 65,732 69,873
---------------------------- --- ---------- --------
Reconciliation of cash flows arising from sale of trade investments:
2017 2016
Unaudited Audited
GBP'000 GBP'000
----------------------------------- ---------- ----------
Disposals of trade investments 19,067 6,786
Deferred consideration received 1,437 430
Deferred consideration accrued (250) (2,237)
----------------------------------- --- ---------- --------
Cash flow arising on the
proceeds from sale of investment
in trade investments 20,254 4,979
----------------------------------- --- ---------- --------
Reconciliation of cash flows arising on revenue share paid on asset realisations of trade investments:
2017 2016
Unaudited Audited
GBP'000 GBP'000
---------------------------------- ---------- ----------
Movement in revenue sharing
liability arising from disposal
of trade investments 3,426 1,027
Movement in revenue share
outstanding (included within
accruals) 319 (1,027)
---------------------------------- --- ---------- --------
Cash flow arising on the
settlement of revenue sharing
liabilities on sale of trade
investments 3,745 -
---------------------------------- --- ---------- --------
6. Borrowings
2017 2016
Unaudited Audited
GBP'000 GBP'000
------------------------ ---------- ----------
EIB Loan - non-current 67,831 24,089
EIB Loan - current 6,292 3,167
------------------------ --- ---------- --------
EIB Loan 74,123 27,256
------------------------ --- ---------- --------
On 1 July 2013 the Group entered into a GBP30.0 million loan agreement with the European Investment Bank (EIB) available to draw down in two tranches of GBP15.0 million. The purpose of the loan is to provide funding towards Biotech and Therapeutics investments.
The first tranche of GBP15.0 million was drawn down on 30 July 2013. Transaction costs in the year ended 31 July 2013 of GBP186,000 were incurred to obtain the loan and were set against the loan amount. These costs are subsequently amortised over the life time of the loan. During the year ended 31 July 2017, GBP16,000 (2016: GBP15,000) was charged to the statement of comprehensive income. The loan is based on a floating interest rate related to LIBOR and is repayable in 10 equal annual instalments over a twelve year period with the first payment due on 25 July 2016. During the current year capital of GBP1,500,000 (2016: GBP1,500,000) was repaid.
The second tranche of GBP15.0 million was drawn down on 30 June 2015. Transaction costs of GBP181,000 were incurred to obtain the loan and were set against the loan amount. These costs are subsequently amortised over the life time of the loan. During the year ended 31 July 2017, GBP18,000 (2016: GBP18,000) was charged to the statement of comprehensive income. The loan is based on a fixed interest rate of 4.199% and is repayable over a ten year period. The first repayment of GBP833,333 was made on 25 January 2017.
On 13 July 2015, the Group entered a second loan agreement of GBP50.0 million with the European Investment Bank (EIB) available to draw down in up to four tranches with a minimum tranche value of GBP10.0 million. The purpose of the loan is to provide funding towards Biotech and Therapeutics investments. There is a non-utilisation fee calculated on the daily undrawn, uncancelled balance of the loan from the date falling six months after the date of the agreement at a rate of 0.10% per annum. On 2 Febraury 2017, the second loan facility was fully drawn down.
The loans contain a debt covenant requiring that the ratio of the total fair value of investments plus cash and qualifying liquidity to debt should at no time fall below 4:1. The loan also stipulates that on any date, the aggregate of all amounts scheduled for payment to the EIB in the following six months should be kept in a separate bank account.
The Group closely monitors that the covenants are adhered to on an ongoing basis and has complied with these covenants throughout the year. The Group will continue to monitor the covenant's position against forecasts and budgets to ensure that it operates within the prescribed limits.
The maturity profile of the borrowings was as follows:
2017 2016
Unaudited Audited
GBP'000 GBP'000
-------------------- ---------- ----------
Due under 6 months 1,583 1,583
Due 6 to 12 months 4,708 1,584
Due 1 to 5 years 37,667 15,833
Due after 5 years 30,431 8,556
-------------------- --- ---------- --------
Total (1) 74,389 27,556
-------------------- --- ---------- --------
(1) These are gross amounts repayable and exclude costs of GBP266,000 (2016: GBP300,000) incurred on obtaining the loans and amortised over the life of the loans.
7. Financial risk management
Financial risk factors
In the normal course of business, the Group uses certain financial instruments including cash, trade and other receivables, equity rights, equity investments and loans to investee companies. The Group's financial liabilities include loans from the European Investment Bank and trade and other payables.
Monies provided by way of UCSF grants are loaned to individual technology businesses. These loans are repayable in cash or convertible to equity, at a rate mutually agreed by the Group and technology business, at the earliest opportunity after the technology business' formation. Loans are treated on the same basis as equity for valuation purposes.
Risk management objectives
The Group is exposed to a number of risks through the performance of its normal operations. The most significant are liquidity and market price risk. Income from surplus funds is dependent on market interest rates and expose the Group to interest rate risk.
The Group's main objective in using financial instruments is to promote the commercialisation of intellectual property held by technology businesses through the raising and investing of funds for this purpose. The Group's policies in calculating the nature, amount and timing of investments' equity fundraisings are determined by planned future investment activity.
Due to the nature of the Group's activities, the Directors may consider it necessary to use derivative financial instruments to hedge the Group's exposure to fluctuations in exchange rates, where these exposures have been significant.
(a) Financial Risk Factors
The Group is exposed to price risk in respect of equity rights, equity investments and loans to the technology businesses held by the Group and classified on the balance sheet as at fair value through profit or loss. The Group seeks to manage this risk by routinely monitoring the performance of these investments. The Group employs stringent investment appraisal processes prior to deciding on investment. Regular reports are made to the Board on the status and valuation of investments and significant disposals require Board approval. The value of the investment portfolio can be affected by the performance of the international equity markets and the carrying value is likely to be adversely affected by material declines in these markets. Furthermore, the ability to liquidate market positions will be affected by weak equity markets.
(b) Liquidity risk
The Group seeks to manage financial risk, and in particular liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable requirements and to invest surplus cash in low risk instruments with reputable institutions.
Compared to prior year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities.
On 2 February 2017 the Group drew down the GBP50.0 million second loan facility secured from the EIB in July 2015. Following this, the Group has GBP130.1 million available for investment and operations.
(c) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and short-term liquidity investments as well as credit exposures to trade and other receivables.
There have been no changes in the Credit risk profile or any credit risk management since prior year end.
(d) Capital risk management
The Group is funded by equity finance and a long term loan. Total capital is calculated as 'total equity' as shown in the consolidated balance sheet.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group maintains a maturity analysis profile for short-term liquidity investments.
There have been no changes in the capital risk management since the prior year end.
7. Financial risk management (continued)
(e) Fair values
The fair values of the Group's financial assets and liabilities are considered a reasonable approximation to the carrying values shown in the balance sheet. The basis for determining fair values is disclosed in note 8.
(f) Fair value estimation
The following table presents the Group's assets that are measured at fair value at 31 July 2017:
Level Level Level
1 2 3 Total
Unaudited GBP000 GBP000 GBP000 GBP000
------------------------- ------- ------- ------- --------
Financial assets at fair
value through profit or
loss 42,175 - 431,621 473,796
------------------------- ------- ------- ------- --------
Total 42,175 - 431,621 473,796
------------------------- ------- ------- ------- --------
The following table presents the Group's assets that are measured at fair value at 31 July 2016:
Level Level Level
1 2 3 Total
Audited GBP000 GBP000 GBP000 GBP000
------------------------- ------- ------- ------- --------
Financial assets at fair
value through profit or
loss 43,134 - 302,463 345,597
------------------------- ------- ------- ------- --------
Total 43,134 - 302,463 345,597
------------------------- ------- ------- ------- --------
Financial instruments in Level 1
The fair value of financial instruments traded in active markets is based upon quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, price service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market prices used for financial assets held by the Group is the current bid price. These instruments are included in Level 1. Instruments included in Level 1 comprise AIM, NASDAQ and the Main Market of the London Stock Exchange registered equity investments.
Financial instruments in Level 2
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. For the Group, this category includes derivatives used for hedging and quoted securities that are not actively traded in an active market.
Financial instruments in Level 3
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. For the Group, this includes all unquoted companies, UCSF investments and loans, HEIF investments and loans, Apollo Therapeutics LLP and UCL Technology Fund. For a detailed understanding of the valuation techniques for Level 3 financial instruments, see note 8.
The following table presents the changes in Level 3 instruments for the years ended 31 July 2017 and 31 July 2016:
2017 2016
Unaudited Audited
GBP'000 GBP'000
--------------------------------- ---------- ----------
Opening balance 302,463 226,794
Investments into Level 3 66,527 68,075
Realisations from Level 3 (7,605) (6,786)
Fair value movements on UCSF (14) (297)
Fair value movements on HEIF 40 -
Fair value movements on funds 439 -
Gains and losses on investments
recognised in profit or loss
gross of revenue share 69,771 14,677
--------------------------------- --- ---------- --------
Closing balance 431,621 302,463
--------------------------------- --- ---------- --------
7. Financial risk management (continued)
Information about fair value measurements using significant unobservable inputs (Level 3)
The Group's finance department, in consultation with the investment team, performs valuations of investments held for financial reporting purposes, including Level 3 fair values. Discussions of valuation processes and results are held at least twice a year, in line with the Group's reporting dates. The valuation techniques, unobservable inputs and the relationship of unobservable inputs to fair value are discussed in note 8.
Information about fair value measurements for the year ended 31 July 2017:
Valuation Level Unaudited Inputs Unobservable Weighted Reasonable Change Relationship
technique net inputs average possible in of inputs
fair input shift valuation to value
value +/- GBP'000
at 31
July
2017
GBP'000
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
Publically
available
share
price
at balance
Listed sheet
investments 1 41,924 date - - - - -
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
Price
of latest Unobservable inputs include
funding management's assessment of
round performance against milestones,
adjusted and considerations and calculation
for of any impairment. For further
recent information on valuation methodology,
milestones Performance see note 8. The main unobservable
or against input relates to the assessment
impairments 3 142,887 milestones of impairment.
------------- ------ ---------- -------------- -----------------------------------------------------------------
Assessment The greater
of the
impairment/ assessment
fair of
value impairment/
gain fair
value
gain,
the lower/
higher
the fair
value
movement
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
The price of latest funding
round provides observable input
into the valuation of any individual
investment. However, subsequent
to the funding round, management
Price are required to re-assess the
of latest carrying value of investments
funding at each year end, including
round assessment of any impairment
(investment indicators, which result in
made unobservable inputs into the
within Price valuation methodology. For
the of the further information on valuation
last latest methodology, see note 8. The
two funding main unobservable input relates
years) 3 218,120 round to the assessment of impairment.
------------- ------ ---------- -------------- -----------------------------------------------------------------
Assessment The greater
of the
impairment/ assessment
fair of
value impairment/
gain fair
value
gain,
the lower/
higher
the fair
value
movement
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
Price
of latest Unobservable inputs include
funding management's assessment of
round the performance of the investment
(investment company and considerations
made and calculation of any impairment.
more Price For further information on
than of the valuation methodology, see
two latest note 8. The main unobservable
years funding input relates to the assessment
ago) 3 53,717 round of impairment.
------------- ------ ---------- -------------- -----------------------------------------------------------------
Assessment The greater
of impairment the
assessment
of
impairment,
the lower
the fair
value
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
Earnings
of comparable
companies
and The greater
discount the discount
for Discount factor,
lack for lack the lower
Earnings of of 899/ the fair
multiple 3 4,497 marketability marketability 40% 20% (899) value.
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
Total 461,145
------------- ------ ---------- -------------- -------------- --------- ----------- ---------- -------------
7. Financial risk management (continued)
Information about fair value measurements for the year ended 31 July 2016
Valuation Level Audited Inputs Unobservable Weighted Reasonable Change Relationship
technique net inputs average possible in of inputs
fair input shift valuation to value
value +/- GBP'000
at 31
July
2016
GBP'000
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
Publically
available
share
price
at balance
Listed sheet
investments 1 42,923 date - - - - -
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
Price
of latest Unobservable inputs include
funding management's assessment of
round performance against milestones,
adjusted and considerations and calculation
for of any impairment. For further
recent information on valuation methodology,
milestones Performance see note 8. The main unobservable
or against input relates to the assessment
impairments 3 41,405 milestones of impairment.
------------- ------ -------- -------------- -----------------------------------------------------------------
Assessment The greater
of impairment the
assessment
of
impairment,
the lower
the fair
value
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
The price of latest funding
round provides observable
input into the valuation of
any individual investment.
However, subsequent to the
funding round, management
Price are required to re-assess
of latest the carrying value of investments
funding at each year end, including
round assessment of any impairment
(investment indicators, which result in
made unobservable inputs into the
within Price valuation methodology. For
the of the further information on valuation
last latest methodology, see note 8. The
two funding main unobservable input relates
years) 3 246,150 round to the assessment of impairment.
------------- ------ -------- -------------- -----------------------------------------------------------------
Assessment The greater
of impairment the
assessment
of
impairment,
the lower
the fair
value
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
Price
of latest Unobservable inputs include
funding management's assessment of
round the performance of the investment
(investment company and considerations
made and calculation of any impairment.
more Price For further information on
than of the valuation methodology, see
two latest note 8. The main unobservable
years funding input relates to the assessment
ago) 3 250 round of impairment.
------------- ------ -------- -------------- -----------------------------------------------------------------
Assessment The greater
of impairment the
assessment
of
impairment,
the lower
the fair
value
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
Earnings
of comparable
companies
and The greater
discount the discount
for Discount factor,
lack for lack the lower
Earnings of of 1,249/ the fair
multiple 3 4,358 marketability marketability 40% 20% (1,249) value.
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
Total 335,086
------------- ------ -------- -------------- -------------- --------- ----------- ---------- -------------
8. Critical accounting estimates and judgements
The Directors have made the following judgements and estimates that have had the most significant effect on the carrying amounts of the assets and liabilities in the consolidated financial information.
The Group has concluded that it is not an investment company as identified by IFRS10.
Valuation of unquoted equity investments
The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is a risk of material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision whether or not to increase or decrease investment valuations.
The fair value of unlisted securities is established using International Private Equity and Venture Capital Valuation Guidelines (IPEVCVG). The valuation methodology used most commonly by the Group is the 'price of recent investment' or a 'milestone analysis' approach. 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, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a recent investment. The Group considers that fair value estimates that are based entirely on observable market data will be of greater reliability than those based on assumptions and accordingly where there has been any recent investment by third parties, the price of that investment will generally provide a basis of the valuation.
Where the Group considers that the price of recent investment, unadjusted, is no longer relevant and there are limited or comparable companies or transactions from which to infer value, the Group carries out an enhanced assessment based on milestone analysis and/or industry and sector analysis. In applying the milestone analysis approach to investments in companies in early or development stages the Group seeks to determine whether there is an indication of change in fair value based on a consideration of performance against any 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. When considered appropriate, the Group may use external valuers to assess the reasonableness of any change in fair value estimated by management.
The following considerations are used when calculating the fair value:
-- where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value unless there is objective evidence that the investment has since been impaired, such as observable data suggesting a deterioration of the financial, technical, or commercial performance of the underlying business;
-- where there has been any recent investment by third parties, the price of that investment will provide a basis of the valuation;
-- if there is no readily ascertainable value from following the 'price of recent investment' methodology, the Group considers alternative methodologies in the IPEVCVG guidelines, being principally discounted cash flows and price-earnings multiples requiring management to make assumptions over the timing and nature of future earnings and cash flows when calculating fair value or the use of comparable transactions;
-- where a fair value cannot be estimated reliably, the investment is reported at the carrying value at the previous reporting date unless there is evidence that the investment has since been impaired;
-- all recorded values of investments are regularly reviewed for any indication of impairment and adjusted accordingly;
-- the length of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the investment and the stability of the external environment. During this period the Group considers whether any changes or events subsequent to the transaction would imply a change in the fair value of the investment may be required; 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. Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgement of the Group. However any adjustment is, by its very nature, subjective. Where 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 purchaser may place on positive developments given the potential outcome and the costs and risks to achieving that outcome;
-- factors which 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; and
-- 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 of the value of its investment.
8. Critical accounting estimates and judgements (continued)
Valuation of Carried Interest Plan liability
For several years, the Group has maintained a long term incentive arrangement known as the Carried Interest Plan. It is the intention of the Group to continue to use the Carried Interest Plan as part of the Group's long term incentive arrangements, alongside the introduction of share options.
The provision is measured by reference to the fair value of the relevant investments. The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is a corresponding risk of material adjustment to the carrying amounts of the Carried Interest Plan liability. The additional considerations used when calculating the Carried Interest Plan liability include estimates for an appropriate discount rate, leaver provisions and year of realisation.
9. Related party disclosures
The Group does not have an ultimate parent company.
The Group's ultimate parent company was Imperial College London (Imperial College of Science, Technology and Medicine, South Kensington Campus, London, SW7 2AZ, United Kingdom) by virtue of its shareholding in the Group, until the equity raise in 2011. The Group has a Technology Pipeline Agreement (TPA) with Imperial College London which stipulates the terms for sharing revenue generated from the commercialisation of Imperial College London intellectual property which is assigned to Imperial Innovations Limited. The Group has agreements with Imperial College London across a range of services, including an operating lease for office premises (from June 2010 at 52 Princes Gate, Exhibition Road) as disclosed in note 23 of the group's annual financial statements as at 31 July 2016 and an agreement covering information technology and intellectual property advice (services agreement). In addition, following the June 2014 placing, Imperial College London has the right to nominate one member to sit on the Board of Touchstone Innovations plc (down from two members prior to the placing). On this basis, the Directors have considered that Imperial College London continues to be a related party.
Transactions with Appointee Directors are excluded as these are not considered to exert influence on the Group.
The Group has considered whether Invesco Limited, Woodford Investment Management, and Lansdowne with their significant shareholdings in the Group (albeit in a number of different funds), are related parties under IAS 24, 'Related party disclosures'. As these shareholders cannot take part in financial or operating policy decisions, have no right to appoint a Board member, and do not exert significant influence over the Group, the Group has taken the view that they are not Related Parties under IAS 24,'Related party disclosures'.
Under the AIM rules, shareholders with a shareholding of more than 10% are considered to be related parties and therefore investments with the above shareholders are disclosed below. Given the substantial shareholdings, the Board of Directors manages the relationship with the relevant shareholders carefully to ensure that any co-investments are conducted on an arm's length basis.
Although the Group may have significant influence over an investee company, ultimately the investee company makes the final decision regarding the investors as part of a fundraising. Where the Group leads a fundraising all co-investors are responsible for their own evaluation and due diligence with no preferential treatment afforded to any particular investor.
During the year Invesco invested GBP14.6 million in total in Abzena, Cell Medica and Veryan (2016: GBP20.6 million in Cell Medica, Nexeon and Veryan).
During the year Lansdowne partners invested nil into the Group's portfolio (2016: nil).
During the year Woodford Investment Management LLP invested GBP27.9 million in Abzena, Cell Medica, Inivata and MISSION (2016: GBP39.1 million in Cell Medica, Inivata, MISSION, Nexeon and Econic).
9. Related party disclosures (continued)
Transactions with related parties are laid out in the tables below.
2017 2016
Sale of goods and services Unaudited Audited
(including recovery of costs) GBP000 GBP000
--------------------------------- ---------- --------
Trading with Imperial College
London 410 512
Government grants received
via Imperial College London 130 867
Trading with portfolio companies 1,935 925
2,475 2,304
--------------------------------- ---------- --------
2017 2016
Purchases of goods and services GBP000 GBP000
------------------------------------ ------- -------
Rent paid to Imperial College
London 385 314
Revenue share and other expenditure
with Imperial College London 5,395 1,783
5,780 2,097
------------------------------------ ------- -------
Year end balances arising 2017 2016
from sales/purchases of goods GBP000 GBP000
/ services
------------------------------- ------- -------
Receivables from portfolio
companies 159 73
Receivables from Imperial
College London 84 896
Payables to Imperial College
London (959) (1,609)
(716) (640)
------------------------------- ------- -------
The receivables from related parties arise mainly from sale transactions and are due one month after the date of sale. The receivables are unsecured in nature and bear no interest. The payables to related parties arise mainly from purchase transactions and are due one month after the date of purchase. The payables bear no interest.
Convertible loans to portfolio companies are expected to convert to equity and are of a long term investment nature. As a result, they are included within non-current investments (see note 2). Where the Group has a representative on the board of a portfolio company, this is considered a related party and the aggregate balance is shown below.
2017 2016
Unaudited Audited
Loans to portfolio companies GBP000 GBP000
----------------------------- ---------- --------
Beginning of the year 22,185 18,219
Loans advanced 18,906 7,876
Loans disposed (600) (296)
Loans converted or exchanged
from debt to equity (6,000) (3,746)
(Impairment)/ revaluation
of loans (4,029) 132
30,462 22,185
----------------------------- ---------- --------
10. Corporate transaction costs
These costs relate to professional fees incurred due to the proposed acquisition of the Group by IP Group plc.
Company Information
Directors David Newlands (Chairman) Russ Cummings (Chief Executive Officer) Dr Nigel (Chief Investment Officer) Pitchford Tony Hickson (Managing Director - Technology Transfer) Professor (Non-Executive Director) David Begg Dr Linda (Non-Executive Director Wilding Dr Robert (Non-Executive Director) Easton Company Secretary William Rayner Registered Office 7 Air Street London W1B 5AD Independent Auditors PricewaterhouseCoopers LLP Abacus House Castle Park Cambridge CB3 0AN Principal Bankers National Westminster Bank plc P O Box No 592 18 Cromwell Place London SW7 2LB Solicitors Mayer Brown International LLP 201 Bishopsgate London EC2M 3AF Nomad and Joint Brokers J. P. Morgan Cazenove 25 Bank Street Canary Wharf London E14 5JP Joint Brokers RBC Capital Markets Riverbank House 2 Swan Lane London EC2R 3BF Share Registrars Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
Appendix A
Deloitte LLP
Athene Place
66 Shoe Lane
London EC4A 3BQ
Tel: +44 (0) 20 7936 3000
www.deloitte.co.uk
The Directors
Touchstone Innovations plc
7 Air St,
Soho,
London
W1B 5AD
J.P. Morgan Limited
25 Bank Street
London
E14 5JP
13 September 2017
Dear Sirs
We report on the net portfolio value at 31 July 2017 (the "Net Portfolio Value") as set out in the preliminary statement of annual results (the "Preliminary Results Statement") issued by the directors of Touchstone Innovations plc ("the Company") dated 13 September 2017. The report is required by Rule 29.1 of The City Code on Takeovers and Mergers (the "City Code") and is given for the purpose of complying with that requirement and for no other purpose.
Save for any responsibility that we may have to those persons to whom this report is addressed, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such person as a result of, arising out of, or in connection with, this report or our statement, required by and given solely for the purposes of complying with Rule 23.2 of the City Code, consenting to its inclusion in the Preliminary Results Statement.
Accordingly, we assume no responsibility in respect of this report to IP Group plc (the "Offeror") or any person connected to, or acting in concert with, the Offeror or to any other person who is seeking or may in future seek to acquire control of the Company or to any other person connected to, or acting in concert with, such a person.
Responsibilities
The directors of the Company have prepared the Net Portfolio Value in accordance with International Private Equity and Venture Capital Valuation Guidelines and are solely responsible for the estimate.
It is our responsibility to form an opinion as required by the City Code to support the Net Portfolio Value prepared by the directors of the Company.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting 1000 issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the Net Portfolio Value. It also included an assessment of whether the accounting policies are consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide our opinion.
Our work has not been carried out in accordance with auditing or other standards and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
In carrying out our work we have:
-- reviewed the work papers prepared by the Company; -- considered the basis of value and assumptions used; -- made enquiries of the Company;
-- where necessary, considered supporting evidence obtained by the Company or from public sources; and,
-- assessed whether the accounting policies adopted by the Company, as set out in the Preliminary Results Statement, have been applied.
The review was limited to the information provided by the Company.
We note the Directors' statement regarding the tax impact of the Net Portfolio Value.
Opinion
In our opinion, the Net Portfolio Value as at 31 July 2017:
-- has been properly compiled and fairly presented on a basis consistent with the accounting policies adopted by the Company and, in the case of unquoted investments, in accordance with the guidelines set out by the International Private Equity and Venture Capital Valuation Board; and
-- has been prepared after due care and consideration.
On the basis of our review, we are not aware of any material modifications that should be made to the Net Portfolio Value as presented for the Company as at 31 July 2017.
Limitations
Our review was substantially less in scope than an audit performed in accordance with International Financial Reporting Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the Net Portfolio Value.
Consent
Deloitte LLP has given and not withdrawn its consent for the inclusion of this letter in the Preliminary Results Statement.
Yours faithfully,
Deloitte LLP
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Member of Deloitte Touche Tohmatsu Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LJMATMBJBMRR
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September 13, 2017 02:01 ET (06:01 GMT)
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