12 Oct 2010 07:00
12 October 2010
Imperial Innovations Group plc
Strong progress as cash realisations continue to increase
Imperial Innovations Group plc (AIM: IVO, "Imperial Innovations", "the Group"), a leading technology commercialisation and investment group, has published its results for the year ended 30 July 2010.
Business highlights
• Sale of Respivert raised £9.5m gross cash
− 4.7x return on three-year investment
• £9.9m net from all realisations, approaching level of cash investments
• £14.0m invested in 20 companies
− £47.9m total investment since IPO in 2006
• Excellent progress at maturing companies
• Three companies launched and seed funded
• Strong pipeline: 48 patents filed, 344 inventions appraised
Financial highlights
• Pre-tax profits £5.5m (2009: £5.3m)
• £9.2m net cash collected from sale of investments (2009: £3.4m)
• Licence and royalty revenues £2.2m (2009: £2.0m)
• Net asset value £91.1m (2009: £85.6m)
• Improved efficiency: £0.6m cost reduction
Martin Knight, Chairman of Imperial Innovations, said:
"Innovations made good progress in 2010 with the level of investment remaining strong at £14.0 million, the portfolio as a whole raised £75 million. This brings the total raised by the portfolio since the Group's IPO in 2006 to over £210 million. The level of realisations grew satisfactorily to net £9.9 million in the year. The sale of Respivert was our largest all cash exit to date, demonstrating the success of our focussed investment strategy.
"The government has put a high priority on the commercialisation of research to address global problems. With our strong empathy with academic endeavour, an understanding of the challenges facing early stage businesses and the funding to help them, Innovations is in a strong position to build upon its position as the pre-eminent force in the commercialisation of cutting-edge research."
Enquiries:
| Imperial Innovations | 020 7594 6589 |
| Martin Knight, Chairman | 020 7594 1403 |
| Susan Searle, Chief Executive Officer |
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| Julian Smith, Finance Director |
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| College Hill | 020 7457 2020 |
| Adrian Duffield/Carl Franklin |
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| J.P. Morgan Cazenove | 020 7588 2828 |
| Michael Wentworth-Stanley |
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Notes to editors
Imperial Innovations - www.imperialinnovations.co.uk
Innovations creates, builds and invests in pioneering technologies addressing global problems in healthcare, energy, engineering and the environment. It combines deep understanding of science and technology with commercial acumen and strong investment expertise.
Innovations supports scientist-entrepreneurs in the commercialisation of their ideas by:
·; leading the formation of new companies and providing facilities in the early stages;
·; providing significant investment and encouraging co-investment to accelerate the transition from R&D to products;
·; providing operational expertise; and
·; helping to recruit high-calibre industry figures and experienced entrepreneurs as executive management and Board members.
Innovations has exclusive access to scientific and technological developments coming out of Imperial College London, one of the world's leading research institutions. It has already achieved significant success with its early investments; for example its £1.5m investment in obesity drug developer Thiakis could return up to £22m, following its sale for £100m in 2008, while the sale of Respivert, a small molecule drug discovery company, resulted in Innovations realising £9.5m, a 4.7x return on investment.
In the year to 31 July 2010, Innovations invested £14.0m in 20 ventures, helping to launch three new companies. With a technology portfolio of more than 80 companies, Innovations' most advanced assets include:
·; Circassia: Innovative vaccines for the treatment of a wide range of allergies
·; Nexeon: Advanced materials that extend the cycle life and significantly increase capacity of rechargeable batteries
·; Veryan: Stents inspired by the human vascular system
·; Myotec: Developing a pipeline of small molecule therapeutics for the treatment of the wasting disease cachexia.
·; Polytherics: Biotechnology company that applies precision chemistry to develop protein and peptide-based drugs
·; Cellmedia: Cell therapy company working on new techniques to cure human diseases based on cellular immunotherapy
·; Evo Electric: Develops and manufactures advanced electric machines, hybrid drive trains and generator sets for a wide range of transportation and mobile power applications
A complete copy of the Annual Report and Accounts for the year ended 31 July 2010 can be found at http://www.imperialinnovations.co.uk/annualreport2010.pdf
Chairman's statement
In 2010, Imperial Innovations has built successfully on the progress made in previous years.
Imperial College remains a source of outstanding intellectual property to be exploited by the Group. The details are impressive: over the course of the year 344 inventions were disclosed, 48 patents were filed, the uncommercialised patent portfolio stands at 207 and three businesses were formed making a total of 81 in the portfolio as a whole.
The Group reconfirmed its pre-eminent position in the market as an exploiter of university created intellectual property. Its understanding of academia, its ability to attract experienced and knowledgeable management, together with its ability to provide the appropriate funding for the different stages in the development of a business, gives the Group a competitive advantage.
The tangible evidence of this advantage is that the level of investment remains strong at £14.0 million invested in the year; the portfolio as a whole raised £75 million; and the level of realisations grew satisfactorily to net £9.9 million in the year. Of particular note was the sale of Respivert, raising £9.5 million gross cash. The Group made a profit before tax of £5.5 million with a similar increase in net asset value.
Another piece of evidence that the Group has progressed well is that options originally granted to staff at the flotation in 2006 have all now crystallised. These options were granted to incentivise staff to drive forward the efficient establishment of a commercial company with a settled business. This has been done. It has required a significant effort and the Board is grateful to the employees for this.
The Group now has to decide how to move forward to take advantage of this platform. In a recent speech, the government challenged science and business to build stronger links, to focus on the identification of commercially world class research that addresses global problems. This is precisely the challenge that the Group has been addressing successfully and its focus is and has been precisely on the place that government has identified as of crucial importance to the UK economy. This puts the Group in a good position to move forward.
Investors and trade buyers put great value on businesses that have disruptive technology and traction in the marketplace. There is no doubt that building businesses on the back of disruptive intellectual property can rarely be done quickly or with small amounts of drip fed capital. The Group understands this. But with few competitors, a strong empathy with academic endeavour, an understanding of the challenges facing early stage businesses and capital to invest to meet those challenges, the Group is in a good position to build on the platform that has been successfully built to date.
Dr Martin Knight
Chairman
Operational and financial report
Overview
Innovations maintained its commitment to the creation of world-class science and technology companies from cutting-edge academic research.
The Group invested £14 million in 20 companies, including the launch of three start-ups based on research from Imperial College London and the acquisition of equity in a further two in consideration of new intellectual property. This brings the total invested since the Group raised funds with its IPO in 2006 to £47.9 million. While the level of investment was similar to last year, the gap between investments and cash realisations narrowed considerably following the sale of Respivert, which will deliver gross cash of £9.5 million and is the Group's largest cash realisation to date.
In total, the Group realised net £9.9 million from the sale of assets and collected net £9.2 million in cash from the current year and prior year realisations. The nature of the Group's business means that investments and cash realisations will inevitably remain unpredictable at any given time. However, looking at the past five years there is a clear trend of increasing cash returns as our investments begin to mature and buyers are found for portfolio companies.
Innovations ended the year with a pre tax profit up 4% to £5.5 million and £23.7 million in cash and short term liquid investments. The net value of assets on its portfolio stood at £62.4 million, compared with £50.1 million at the end of 2009.
The investment strategy pursued and refined over the past few years is visibly delivering results. The Group has again delivered a significant portfolio exit and continues to make good progress developing its pipeline of companies. Of its original "top-six", Thiakis and Respivert have been sold while Nexeon, Veryan Medical and Circassia continue to make good progress. Only AIM-listed Ceres Power has disappointed, with the value of Innovations' 2.8% stake falling by £3.3 million to £1.8 million. However, the Group remains optimistic that despite some delays, Ceres' innovative fuel-cell technology will find a substantial market in the generation of domestic heat and power.
With exits being achieved at the top of the portfolio, the Group has continued to mature its next wave of companies. Cell Medica, EVO Electric, Myotec and Polytherics all raised new funding from Innovations and other co-investors and, with help from Innovations, a number of these companies made significant hires to their boards.
Progress with earlier-stage companies was also encouraging. Novacem issued a "Green Cement Bond" to raise additional funding from the cement company Lafarge and received impressive plaudits for its pioneering carbon-negative cement. Plaxica raised a further £3.0 million to develop next-generation biopolymers as a sustainable alternative to conventional oil-based plastics. RepRegen was awarded a CE mark and completed an in vivo study with its StronBoneTM bioactive glass with strontium, demonstrating the ability of its platform technology to enhance repair and regeneration of hard tissue such as bone.
In addition, Innovations funded the launch of new companies including Mycologix, Ervitech and Indigix, with Mycologix attracting Paul Mulhollem, formerly president of Archer Daniels Midland, as chairman - a significant endorsement of such an early-stage company.
Innovations and its portfolio companies continued to license potentially valuable technologies that earned the Group £1.3 million over the year. Associated milestone payments and royalties will flow from these in the coming years.
Operational review
Realisations
In June 2010, Innovations achieved its largest cash realisation to date when its portfolio company, Respivert, was acquired by Centocor Ortho Biotech Inc, a wholly-owned subsidiary of Johnson & Johnson. Innovations held 13.4% of Respivert and the return of £9.5 million gross cash represented a 4.7x return on its three-year investment. After revenue-sharing payments of £0.2 million to Imperial College London, the disposal generated a profit of £7.2 million.
The speed at which this return was delivered is a good demonstration of the Innovations model in action. Having helped to launch Respivert in 2007, Innovations provided incubation facilities and £2.0 million funding to help the company develop a new generation of inhaled treatments for respiratory problems including chronic obstructive pulmonary disease, cystic fibrosis and severe asthma. That Respivert was acquired so quickly by such a major name in the pharmaceutical industry is a testament to the quality of the therapeutic development that Innovations, alongside co-investors SV Life Sciences, Advent Venture Partners and Fidelity Biosciences, helped to fund.
It is worth noting that the initial investment in Respivert was smaller than the Group would now consider typical for such a promising company, following the investment review carried out in October 2008.
Innovations achieved other successful cash realisations during the year. In March, the Group received £0.8 million for its 20% stake in Membrane Extraction Technology (MET), which was acquired by the specialty chemical manufacturer Evonik Industries AG. After deduction of revenue-sharing obligations to Imperial College London, the net cash inflow of £0.6 million represents a 12x return on Innovations' original £50,000 investment. At 31 July 2009, the carrying value of MET was £155,000. The realisation from MET shows that good cash returns can be achieved from modest and relatively hands-off investments.
Innovations also received £0.5 million in retentions from the disposals of Inforsense and Thiakis, which were sold in the 2009 financial year.
In August, after the end of the 2010 financial year, Acrobot completed the sale of its business and assets to Stanmore Implants Worldwide. In July, Stanmore licensed from Innovations knee implant technology developed at Imperial College London (see below).
Licensing
Innovations generated £2.2 million from licensing and royalty activities in 2010. In January 2010, Innovations granted Novartis an exclusive worldwide licence to intellectual property for a novel vaccine candidate against Meningitis B. Innovations received an upfront payment and is entitled to ongoing IP licence fees, success based milestones and royalties on product sales. Innovations also licensed a T-cell therapy process to CellMedica for the treatment of infection in cancer patients.
Innovations completed 27 IP agreements with 16 licensing deals. These included a licence to Future Fuels for a method of treating municipal solid waste to produce fuel; to Bob Martin for a cat litter produced from various waste materials (rather than from expensive rare mined minerals); to Volcano for a device to measure narrowing of arteries and various licences of new IP and products to existing spin-outs including Ervitech, Nexeon and Mycologix.
In July, Innovations signed an exclusive global royalty bearing license with Stanmore for an anatomic knee implant developed by Justin Cobb, Professor of Orthopaedic Surgery and Andrew Amis, Professor of Orthopaedic Biomechanics at Imperial College London, together with Rob Wozencroft, Director of Oz Design. The implant design closely mimics human anatomy and offers the potential for less invasive procedures with greater tissue conservation and the associated improved outcomes.
Investments
During 2010, Innovations either led or participated in a number of funding rounds across its portfolio, investing £14.0 million in 20 companies. In total, the same companies raised £75.0 million during the year.
In June Innovations invested a further £1.0 million in Evo Electric alongside another £1.0 million from angel investors. The Group now owns 47% of Evo Electric.
In April, Innovations increased its investment in OSspray with £750,000 as part of a £1.5 million drawdown alongside NESTA and The Capital Fund. OSspray is developing biomaterials under the brand name Sylc™ that not only polish and clean the teeth, but also restore eroded enamel and close microscopic channels to reduce tooth decay and pain. Innovations holds 45.8% of OSspray after a total investment of £2.0 million.
In March, Innovations invested a further £1.12 million in Veryan Medical, which is developing novel stent technologies for insertion into arteries constricted by vascular disease. Innovations now holds 48.4% of Veryan, which has raised a total of £12.4 million from investors. Veryan's stent technology shapes blood vessels to encourage the swirling blood flow that improves circulation and is particularly suitable for arteries subject to significant flexing forces, such as those in the leg.
Also in March, Innovations invested £1.7 million (in addition to commitments of £1.3 million) in a £5.6 million funding round to help its portfolio company Myotec Therapeutics advance treatments for the wasting disease cachexia into Phase II clinical trials. According to the US National Cancer Institute cancer cachexia is estimated to be the immediate cause of death in 20% to 40% of all cancer patients. Following the investment, Innovations holds 57.6% of Myotec Therapeutics.
In February, Innovations invested a further £2.0 million in Polytherics as part of a £3.0 million round, taking its stake to 34.6%. Polytherics is developing ways to overcome the shortcomings of protein and peptide drugs, which are usually unstable or cleared from the bloodstream too quickly, reducing their opportunity to be effective therapies. Its proprietary technologies, TheraPEG™, HyPEG™ and CyPEG™ improve on an established process known as PEGlyation which combines active drug molecules with a polymer known as polyethylene glycol (PEG), which increases the stability of the drug in the bloodstream and thus its duration of action in the body. The result is less frequent dosing and in some cases more effective treatment.
In December 2009, Innovations led a £15.3 million funding round in Circassia, the allergy T-cell vaccine developer, with a £3.8 million investment alongside co-investors Invesco Perpetual and Lansdowne Partners. The Group now owns 16.2% of Circassia, having invested a total of £7.5 million. The company has raised over £24.7 million from other investors bringing the total raised to date to £32.2 million.
In October 2009, Innovations provided £0.3 million of a £1.2 million funding round for RepRegen Limited, a biomaterials developer focussed on medical applications for hard tissue and soft tissue repair and regeneration. Innovations has invested a total of £0.8 million in RepRegen Limited for a holding of 35.9%.
Also in October, Innovations increased its investment in Plaxica, leading a £1.0 million round supported by Carbon Trust Investments and NESTA. Plaxica's technology uses sustainable feedstocks and a more energy efficient production process to produce a biopolymer known as polylactic acid (PLA). The goal is to commercialise a lower-cost but higher-quality polymer with improved physical properties for use in applications as diverse as packaging, textiles, electronics and automobile parts.
Since the end of the year, Innovations has made further investments as follows:
In August 2010, Innovations increased its investment in Plaxica by £1.2 million alongside investment of £1.8 million from existing shareholders NESTA, Invesco Perpetual and Carbon Trust Investments. The new funding will help Plaxica to accelerate development and scale production of its biopolymer products. Following the investment, Innovations' shareholding moved to 41.5%.
In the same month, Innovations acquired a further equity stake in Nexeon, from Partnerships UK, increasing its holding to 41.8%. Nexeon is developing silicon anodes for batteries as alternatives to conventional carbon-based anodes.
Portfolio operational update
Nexeon
Nexeon recently relocated to purpose-built facilities in Oxfordshire and continues to make good progress in the development of advanced silicon anodes to enhance the cycle life and capacity of rechargeable Li-ion batteries. Having successfully tested its prototype cells across 500 full charge-discharge cycles with no significant fade in capacity - an important industry milestone for its technology - Nexeon has since signed Material Evaluation Agreements with a number of leading battery manufacturers.
In January, Nexeon was part of a consortium awarded a £1 million grant from the Technology Strategy Board to develop high-density battery prototypes for plug-in electric vehicles. In October 2009, the board of Nexeon was joined by Dr Alfred Oberholz, formerly deputy chairman and Chief Technology Officer of Evonik Degussa, the specialty chemicals company.
Circassia
In February, Circassia announced that its ToleroMune® ragweed allergy T-cell vaccine achieved positive results in a phase II clinical trial. Ragweed allergy is particularly common in America, where it affects approximately 25% of the population. Three additional phase II trials remain ongoing, targeting house dust mite and cat allergies. Post year-end, in September, Circassia announced it had commenced phase II clinical testing of its grass allergy (hayfever) therapy, begun the final stage of phase II clinical testing for its ragweed allergy treatment and progressed phase III development plans for its cat allergy therapy.
Veryan Medical
Veryan has begun its first in-human and CE Mark study at Herz Zentrum, Bad Krozingen, Germany, with initial results appearing to confirm the favourable attributes Veryan had seen in pre-clinical trials. As well as providing supporting data for achievement of CE Mark status, the in-human study will evaluate the clinical performance attributes of Veryan's technology against a contemporary control stent and will include the assessment of a number of differentiating features of the Veryan stent technology.
PolyTherics
In April, PolyTherics announced a grant of £104,700 from the Technology Strategy Board to support its pioneering work on the precision engineering of proteins for non- therapeutic applications. In June, Dr Ken Cunningham joined PolyTherics as chairman. He has more than 20 years' experience in the pharmaceutical industry and was, until August 2010, Chief Executive of SkyePharma.
PolyTherics began three important collaborations in 2010. In January, it began a collaboration with Cantab BioPharmaceuticals, a subsidiary of Celtic Pharma Holdings, to develop undisclosed novel biopharmaceutical molecules. In March it announced a joint project with Zealand Pharma, of Denmark, to apply its PEGylation technologies to peptide drug candidates developed by Zealand. This project is supported by a Eurostars grant. In September, post year end, PolyTherics announced a collaboration with Professor Rahman and UCL to develop a treatment for 'sticky blood' syndrome, for which there is currently no cure.
Myotec
Myotec has submitted the regulatory dossier for MT102 phase II cachexia clinical trial to the regulatory authorities in the UK and India. The MT102 clinical materials were manufactured under contract by Advinus Pharmaceuticals and packaged by Kemwell. The clinical study is now ready to commence with eight of the twelve centres having received Ethics Committee approval. Myotec has obtained grant of its umbrella patents in US and European territories. Myotec has appointed Charles Swingland to its board of directors.
EVO Electric
In June, EVO Electric announced the launch of its new generation of Axial Flux motor and generator technology, designed to improve the cost, performance and efficiency of hybrid and electric vehicle powertrains. Applications include hybrid, plug-in hybrid and all-electric vehicles, auxiliary power units (APU) and integrated starter-generator (ISG) systems. The new system delivers higher power density than electric motors currently available for automotive applications, with a demonstrated peak power density of 5kW per kg (2.5kg/kW nominal), which is a 33% increase over the previous generation of EVO motors.
In September, the TSB awarded £9.5 million in funding for a consortium including EVO Electric and vehicle manufacturers Jaguar Land Rover, Lotus and Nissan, to develop three premium range-extended electric vehicles (REEV) with sub-50kg/km tailpipe CO-2 emissions. The consortium partners, which include other UK component suppliers, will collaborate over the next two years to develop advanced electric powertrains and analyse commercial requirements for high-performance electric and range-extended vehicles. Also in September, EVO achieved the International Organization for Standardization (ISO) 9001:2008 Certification, an internationally recognised standard for quality management systems.
EVO's technology has been used in a number of demonstrator vehicles during the year, notably the Racing Green Endurance Radical SRZERO supercar, a London taxi fitted with EVO's DuoDrive hybrid technology and the Lotus Evora 414E Hybrid, a concept vehicle unveiled by Lotus Engineering at the Geneva International Motor Show in March.
In February, EVO Electric was presented with the 2009 European Frost & Sullivan Award for Entrepreneurial Company of the Year.
Cell Medica
In January, Cell Medica announced an R&D agreement with the Center for Cell and Gene Therapy, in Texas, aimed at commercialising clinically proven cell therapies that address human diseases for which no current treatment is available. Cell Medica established its lead commercial cell therapy as a non-medicinal product, enabling it to begin marketing once it has completed the IMPACT study across 18 clinical sites that account for 80% of the UK's bone marrow transplant patients. A pipeline of new cell therapy products has been established and the company has entered into collaborative research funding projects supported by the Technology Strategy Board and Leukaemia & Lymphoma Research totalling over £2 million.
Novacem
The carbon-negative cement company, announced in July the first closing of its £1 million Green Cement Bond, together with the participation of Lafarge, a world leader in building materials, as the first subscriber. The bond, a combination of non-refundable engineering fees and convertible loan notes, is an innovative approach to engaging with the cement industry, and is an important step in the company's development towards successful commercialisation.
Novacem recently completed a £1.5 million TSB project with industrial partners Laing O'Rourke, Rio Tinto Minerals and WSP Group, with Imperial College London as an academic partner. In April, Novacem's carbon negative cement was named as "Top 10 Emerging Technology" by MIT's Technology Review magazine, while in March it was named as a New Energy Pioneer at the third annual Bloomberg New Energy Finance Summit in London. In September, it was named as a "Technology Pioneer" for 2011 by the World Economic Forum, in advance of its annual meeting in Davos.
Plaxica
The company recruited Martin Riediker as a non-executive director. He had previously been Chief Technology Officer of Ciba Geigy with 30 years' experience in the chemical sector. In May Plaxica expanded its technical operation taking on a new facility at Wilton. During the year it secured further grants of £0.5 million from the Technology Strategy Board.
RepRegen
In October 2010 recruited a new chairman, Dr Stephen Rietiker, previously CEO of Sulzer Medica and with experience at senior level at Roche, Boehringer Mannheim, Schering Plough and Covance. CEO, Ian Brown was recruited in January from the medical device industry, formerly at Chromogenix, Sweden.
Mycologix
Announced in August 2010, the appointment of former Archer Daniels Midland president Paul Mulhollem as Chairman. Innovations helped to launch Mycologix in 2009, with the aim of commercialising new techniques to process woody material and turn it into biofuels such as ethanol.
New ventures
Innovations launched and seed funded three new ventures during the year:
Mycologix is developing a low cost, highly efficient biological pre-treatment process for second generation biofuels based on research emanating from Dr Richard Murphy's laboratory in Biological Science at Imperial College London. The company is led by Innovations Entrepreneur in Residence, Nick Brooks, who has more than 30 years experience at Shell and in the biofuels industry, including CEO of SunBiofuels, Bioverda and Bioenergy Africa. During the year Mycologix secured grant support from Carbon Trust Investments and Technology Strategy Board.
Ervitech is developing proprietary technology to measure breathing rate using a small, wearable acoustic detector. Based on the work of founder scientists Dr Esther Rodriguez-Villegas from Imperial College London and Professor John Duncan of University College London, the company's device addresses the limitations of earlier acoustic breathing monitors by removing interference from background noise, speech and internal sounds such as heartbeat. These advances allow Ervitech's device to achieve similar accuracy to other techniques that use expensive and bulky monitoring equipment.
Indigix is developing a novel platform technology that can modify the immunological response in a variety of major medical diseases. The company was launched to commercialise research by Professor Sunil Shaunak MD PhD, who previously founded PolyTherics, another Innovations portfolio company. His work was identified as potentially valuable during a review of Imperial College London's research into infectious diseases, conducted by Innovations Entrepreneur in Residence Dr. Robert Feldman MD PhD. Potential applications for Indigix's technology include the treatment of diarrhoeal diseases, inflammatory bowel disease and improved wound healing.
Pipeline development
Innovations continues to develop a strong pipeline of intellectual property that can be commercialised either through company formations or through technology licensing agreements.
During 2010, the Group saw 25 new company prospects, of which a number are likely to be launched in the coming year. Innovations assessed 344 new inventions and helped researchers file 48 patents. The Group also reviewed IP opportunities from Cranfield University, the National Physical Laboratory and initiated commercialisation projects through the WRAP (Waste Resources and Action Programme) sponsored Recycling Research Commercialisation Centre based at Innovations.
In June the Group successfully bid for the commercialisation contract of Imperial College Healthcare NHS Trust which, together with Imperial College's Medical School, is a productive source of new ideas.
The Group continued to support Imperial College London with bids for R&D funding, with ten bids for translational funds from the Medical Research Council and four from the Wellcome Trust.
Financial report
Summary
The Group increased pre tax profit by 4% to £5.5 million in the year to 31 July 2010 (2009: £5.3 million). Cash and short-term liquidity investments remained healthy at £23.7 million (2009: £30.7 million).
Net cash collected from realisations more than doubled to £9.2 million (2009: £3.4 million), the highest level in the Group's history and largely as a result of the sale of the holding in Respivert. The net sale proceeds receivable arising from the sale of Respivert of £9.3 million (gross £9.5m) represent a 4.7x return.
The Group achieved total gross realisations of £10.4 million from the disposal of Respivert, two other investments and receipts of amounts outstanding at the start of the year.
The balance sheet continued to strengthen and ended the year with net assets up by £5.5 million to £91.1 million, reflecting the Group's overall performance and including realisations and the upward revaluation of the portfolio.
The Group maintained its rate of investment in its portfolio companies investing £14.0 million across 20 portfolio companies during the year (2009: £14.4 million). This brings the total invested since the IPO at the end of 2006 to £47.9 million and the total raised by our portfolio companies to over £210 million.
Revenues, cost of sales and operating costs
Total revenues remained steady at £4.3 million (2009: £4.3 million) and include healthy corporate finance fees. Royalty revenue from intellectual property licences was £0.9 million (2009: £1.2 million). Income from initial licence payments increased to £1.3 million (2009: £0.8 million), reflecting increased activity.
The intellectual property management consultancy fees received were £0.8 million (2009: £1.3 million). This expected decrease reflects the cessation of the Imperial College fee as the College took on the remaining administrative burden of the IP due diligence and management and the cessation of some contracts. However, this was offset by a £0.2 million increase in corporate finance fees to £0.7 million (2009: £0.5 million) and other income was £0.6 million (2009: £0.5 million).
The cost of sales, which mainly arises from the revenue-sharing arrangement with Imperial College London, increased to £1.3 million (2009: £1.1 million) reflecting the increased licensing activity.
Operating costs decreased by nearly 10% from £6.8 million to £6.2 million. Of this £0.9 million (2009: £1.3 million) was expenditure incurred filing patents and protecting the Group's as-yet unexploited intellectual property. The reduction in the operating cost base reflects the reduction in patent spend and the full benefit from the prior year's reorganisation. Interest income was £0.4 million (2009: £2.0 million), reflecting the lower cash balance and lower interest rates.
The Group reported a 4% increase in pretax profit of £5.5 million (2009: profit £5.3 million). This increase was achieved despite the non cash write down in fair value adjustments of £3.3m as a result of the decline in price of Ceres Power Holdings plc in which the Group has a 2.8% holding.
Basic earnings per share were up by 2% to 9.42p (2009: 9.23p). The Board is not recommending the payment of a dividend (2009: £Nil).
Cash and short-term liquidity investments
The Group ended the financial year with total cash and short-term liquidity investments of £23.7 million (2009: £30.7 million), comprising £11.2 million of cash and £12.5 million of short-term liquid investments.
The decrease of £7.0 million from the opening balance of £30.7 million can be analysed as follows.
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| 2010 £m | 2009 £m |
| Net cash used in operating activities | (3.4) | (3.7) |
| Purchase of trade investments | (13.4) | (14.0) |
| Net proceeds from sale of trade investments | 9.2 | 3.4 |
| Net cash from other investing activities | 17.5 | 8.6 |
| Financing activities (issue of net equity) | (0.1) | - |
| Movement during year | 9.8 | (5.7) |
| Adjustment for short term liquidity investments | (16.8) | (6.7) |
| Movement in net cash reserves | (7.0) | (12.4) |
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. The Group has no foreign currency deposits.
Investment portfolio performance
During the year the Group's investment portfolio grew from £55.8 million spread across 80 companies, to £67.6 million across 81 companies. Portfolio companies raised more than £75 million from all sources of investment during the year.
The fair value of the Group's holdings increased by £8.4 million (2009: £3.3 million), before taking into account associated revenue sharing obligations, and by £8.2 million (2009: £6.9 million) after these obligations.
|
Portfolio movements excluding cash invested | 2010 £m | 2009 £m |
| Gains on the revaluation of investments | 14.7 | 12.3 |
| Losses on the revaluation of investments | (6.3) | (9.0) |
| Fair value gains | 8.4 | 3.3 |
| Movement in associated revenue sharing obligations | (0.2) | 3.6 |
| Net fair value gain | 8.2 | 6.9 |
Investment and divestment activity
The Group made £14.0 million of investments to fund 20 technology companies in its portfolio. The early stage nature of many of the technology companies is such that investments are made on a milestone/tranche basis that matches the companies' need for cash with the achievement of agreed milestones. This provides investment security for the companies and more control over the Group's cash payments to the portfolio.
Additional investment commitments undrawn at the year-end amounted to £1.7 million. Additionally, some investments are made as convertible loans and at the year end there was a total of £5.4 million which is included in fixed-asset investments.
The Group realised gross £10.4 million (2009: £12.1 million) from the partial realisation of two investment assets. A total of £1.3 million (2009: £6.3 million) of the proceeds is deferred and is included within other receivables.
Taken together with the receipt of consideration deferred from prior years' asset sales this brings the total proceeds arising from the sale of assets to £9.6 million (2009: £3.9 million) and £9.2 million (2009: £3.4 million) after accounting for associated revenue sharing obligations.
|
Analysis of Sale of Investment |
Gross £m | Revenue share £m | Net £m |
| Total proceeds of sale arising | 10.4 | (0.4) | 10.0 |
| Amounts deferred | (1.3) | - | (1.3) |
| Cash received in the year | 9.1 | (0.4) | 8.7 |
| Cash received from prior year's deferred sale proceeds | 0.5 | - | 0.5 |
| Total cash received arising from the sale of investments | 9.6 | (0.4) | 9.2 |
As at the year end the Group was holding a total of £7.2 million (2009: £6.3 million) as risk adjusted discounted deferred proceeds of sales of investment assets. These amounts are held within other receivables. The total unadjusted potential proceeds are £14.3 million (2009: £13.5 million). This relates primarily to Thiakis and Respivert.
|
Analysis of deferred sale proceeds |
Gross £m | Revenue share £m | Net £m |
| Sale proceeds deferred at the start of the year | 18.9 | (5.4) | 13.5 |
| Sale proceeds deferred during the year | 1.3 | - | 1.3 |
| Prior deferral received in year | (0.7) | 0.2 | (0.5) |
| Sale proceeds deferred at the end of the year | 19.5 | (5.2) | 14.3 |
|
|
|
|
|
| Risk adjusted deferred proceeds at start of the year | 8.7 | (2.4) | 6.3 |
| Risk adjusted deferred proceeds at end of the year | 9.5 | (2.3) | 7.2 |
Total net investment after net cash disposals in the year was £4.8 million (2009: £11.0 million).
Portfolio company creation
At 31 July 2010 the Group held equity stakes in 81 companies (2009: 80 companies). A total of 20 companies in the portfolio achieved successful follow-on funding rounds during the year.
Equity acquired relates to equity stakes acquired in companies in consideration for licences granted or services rendered. The movement reflects disposals, formations less dissolutions and liquidations during the year.
The number of new companies formed in the year was four and equity was acquired in two others (2009: four companies). Three companies were seed funded with launch management teams (2009: six companies).
Portfolio company overview
The table below sets out the top 15 technology companies, by value, in the portfolio including contingent deferred consideration (Thiakis Limited), to illustrate the spread of the investments held and their relative carrying value. All of the carrying values listed below reflect the net fair value of the investment, being the gross value of the holding less the attributable revenue-sharing obligations associated with each investment. The percentage of issued share capital represents the absolute percentage of the shares held, without reflecting any revenue-sharing obligations.
| Name of company | Net investment carrying value at 31 July 2009 | Cash invested / (cash divested) 12 months to 31 July 2010 | Net movement in carrying value 12 months to 31 July 2010 | Net investment carrying value at 31 July 2010 | % of Issued share capital held 31 July 2010 |
|
| £'000 | £'000 | £'000 | £000 |
|
| Circassia Holdings | 7,267 | 3,750 | 2,405 | 13,422 | 16.2 |
| Nexeon | 11,327 | - | - | 11,327 | 38.5 |
| Veryan Medical | 5,717 | 1,125 | 1,223 | 8,065 | 48.4 |
| Polytherics | 903 | 2,000 | 50 | 2,953 | 34.6 |
| EVO Electric | 1,744 | 1,000 | 2 | 2,746 | 47.0 |
| Myotec Therapeutics | 625 | 1,650 | 417 | 2,692 | 57.6 |
| Quantasol | 1,210 | 942 | - | 2,152 | 38.1 |
| Process Systems Enterprise | 1,280 | - | - | 1,280 | 25.4 |
| Ceres Power Holdings | 5,083 |
| (3,257) | 1,826 | 2.8 |
| OSspray | 1,391 | 750 | (466) | 1,675 | 45.8 |
| Molecular Vision | 1,407 | - | - | 1,407 | 57.2 |
| Plaxica | 250 | 550 | 450 | 1,250 | 41.8 |
| Cell Medica | 786 | 395 | - | 1,181 | 31.8 |
| Ixico | 667 | 300 | - | 967 | 18.1 |
| Repregen | 598 | 300 | - | 898 | 35.9 |
|
|
|
|
|
|
|
| Respivert (A) | 2,043 | (7,881) | 7,235 | 1,397 | - |
| Thiakis Limited (B) | 5,997 | (251) | - | 5,746 | - |
| A | In May 2010 the Group sold its stake in Respivert for £9.5m, of which £1.0m will be paid in 12 months and £0.4m in 18 months subject to any retentions. The balance was paid in the period.
|
| B | On 18 December 2008 the Group divested its holding in Thiakis Limited. Under the sales agreement, the Group could receive cash payments of £22.2 million (net of transaction costs). After revenue-sharing obligations of £6.1 million payable to Imperial College London and other research sponsors, the net receipt to the Group would be £16.1 million. As at 31 July 2009, the first payment of £3.3 million had been received and after revenue-sharing obligations, the net receipt was £2.9 million. The estimated fair-value uplift of the remaining contingent deferred consideration, after risk adjustment using industry-standard criteria and discounting for time at 12% per annum, resulted in a fair value uplift in the 12 months ended 31 July 2009 of £6.0 million. At each accounting reference date the fair value of the contingent deferred consideration is adjusted to reflect the probability of completion of the associated milestones and any cash receipts. At 31 July 2010, after allowing for further receipts of £0.4m, the probability of milestone receipts was maintained which resulted in a negligible £3k impact on the carrying value of the deferred consideration and a negligible £3k impact to the Consolidated Statement of Comprehensive Income. As future payments are a contractual entitlement, the £5.7 million contingent deferred consideration is reflected in the balance sheet within trade and other receivables. |
The Group is exposed to the impact of exchange rate volatility of Sterling with US Dollars on the remaining £1.4 million Respivert proceeds. During 2010, the Group entered into a forward contract to exchange US Dollars for Sterling in May 2011 and Nov 2011 with respect to the £1.4 million of proceeds. The purpose of this contract is to hedge the balance sheet position of the company to minimise foreign exchange exposure.
The discounted fair value of the currency forward exchange contracts held at 31 July 2010 was £0.1 million. The company's policy is not to trade in derivatives, but to use these instruments to hedge anticipated exposures.
Deferred payment obligations
Non-current liabilities decreased from £5.7 million to £5.2 million at the end of 2010, reflecting the decrease in the revenue-sharing obligations to Imperial College London and other parties arising on the revaluation of investments in technology companies.
End
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2010
|
|
Note | 2010 £000 | 2009 £000 |
| Continuing operations |
|
|
|
| Revenue | 3 | 4,341 | 4,320 |
| Cost of sales |
| (1,283) | (1,139) |
| Gross profit |
| 3,058 | 3,181 |
| Net change in fair value of investments held at fair value through profit and loss | 6 | 8,217 |
6,960 |
| Administrative expenses |
| (6,171) | (6,772) |
| Operating profit |
| 5,104 | 3,369 |
| Interest receivable |
| 431 | 1,953 |
| Profit before taxation |
| 5,535 | 5,322 |
| Taxation |
| - | - |
| Profit for the financial year and total comprehensive income |
| 5,535 | 5,322 |
|
|
|
|
|
| Basic earnings per Ordinary Share (pence) | 7 | 9.42 | 9.23 |
| Diluted earnings per Ordinary share (pence) | 7 | 9.40 | 9.20 |
Consolidated Balance Sheet
As at 31 July 2010
|
| Note | 2010 £000 | 2009 £000 |
| Assets |
|
|
|
| Non-current assets |
|
|
|
| Property, plant and equipment |
| 77 | 28 |
| Investments | 4 | 67,015 | 54,954 |
| University Challenge Seed Fund (UCSF): |
|
|
|
| - Investments |
| 516 | 763 |
| - Loans |
| 42 | 42 |
| Other Receivables |
| 443 | - |
| Total non-current assets |
| 68,093 | 55,787 |
|
|
|
|
|
| Current assets |
|
|
|
| Trade and other receivables |
| 8,010 | 7,524 |
| Short term liquidity investments | 8 | 12,513 | 29,300 |
| Cash and cash equivalents | 8 | 11,219 | 1,401 |
| Total current assets |
| 31,742 | 38,225 |
| Total assets |
| 99,835 | 94,012 |
|
|
|
|
|
| Equity and liabilities |
|
|
|
| Equity attributable to equity holders |
|
|
|
| Issued share capital |
| 1,812 | 1,746 |
| Share premium |
| 51,748 | 51,748 |
| Retained earnings |
| 11,399 | 5,903 |
| Share-based payments |
| 8,070 | 8,097 |
| Other reserves |
| 18,096 | 18,096 |
| Total equity |
| 91,125 | 85,590 |
|
|
|
|
|
| Liabilities |
|
|
|
| Non-current liabilities |
|
|
|
| University Challenge Seed Fund (UCSF) |
| 559 | 805 |
| Provisions for liabilities and charges | 5 | 4,633 | 4,883 |
| Total non-current liabilities |
| 5,192 | 5,688 |
|
|
|
|
|
| Current liabilities |
|
|
|
| Trade and other payables |
| 3,518 | 2,734 |
| Total liabilities |
| 8,710 | 8,422 |
| Total equity and liabilities |
| 99,835 | 94,012 |
Consolidated Cash Flow Statement
For the year ended 31 July 2010
|
|
| Note | 2010 £000 | 2009 £000 |
| Cash inflows from operating activities |
|
|
|
|
| Operating profit |
|
| 5,104 | 3,369 |
|
|
|
|
|
|
| Adjustments to reconcile operating profit to net cash flows from operating activities |
|
| ||
| Depreciation of property, plant and equipment |
|
| 19 | 21 |
| Fair value movement in investments |
|
| (8,217) | (6,960) |
| Share based payments charge |
|
| 58 | - |
| UCSF management fee |
|
| - | (32) |
|
|
|
|
|
|
| Working capital adjustments: |
|
|
|
|
| Increase in trade and other receivables |
|
| (968) | (109) |
| Increase in trade and other payables |
|
| 635 | 11 |
| Net cash used in operating activities |
|
| (3,369) | (3,700) |
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
|
| Purchase of trade investments |
| 8 | (13,445) | (14,000) |
| Cash received from sale of trade investments |
| 8 | 9,609 | 3,939 |
| Revenue share paid on asset realisations in trade investments |
| 8 | (413) | (512) |
| Net cash flows from investments in trade investments |
|
| (4,249) | (10,573) |
|
|
|
|
|
|
| Purchase of property, plant and equipment |
|
| (68) | (5) |
| Interest received |
|
| 775 | 1,902 |
| Short term liquidity investments |
|
| 16,787 | 6,700 |
| Net cash flows from other investing activities |
|
| 17,494 | 8,597 |
|
|
|
|
|
|
| Net cash received / (used) in investing activities |
|
| 13,245 | (1,976) |
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
| Proceeds from share issues |
|
| 66 | - |
| Purchase of share options |
|
| (124) | - |
| Net cash used in financing activities |
|
| (58) | - |
|
|
|
|
|
|
| Net increase / (decrease) in cash and cash equivalents |
|
| 9,818 | (5,676) |
| Cash and cash equivalents at beginning of the year |
|
| 1,401 | 7,077 |
| Cash and cash equivalents at end of the year |
|
| 11,219 | 1,401 |
Consolidated Statement of Changes in Equity Attributable to equity holders of the Group
|
| Share Capital | Share Premium | Retained Earnings | Share-based Payments | Other Reserves |
Total |
|
| £000 | £000 | £000 | £000 | £000 | £000 |
| At 1 August 2008 | 1,746 | 51,748 | 581 | 8,097 | 18,096 | 80,268 |
| Comprehensive income |
|
|
|
|
|
|
| Profit for the year | - | - | 5,322 | - | - | 5,322 |
| Total comprehensive income | - | - | 5,322 | - | - | 5,322 |
| At 31 July 2009 | 1,746 | 51,748 | 5,903 | 8,097 | 18,096 | 85,590 |
| Comprehensive income |
|
|
|
|
|
|
| Profit for the year | - | - | 5,535 | - | - | 5,535 |
| Total comprehensive income | - | - | 5,535 | - | - | 5,535 |
| Transactions with Owners |
|
|
|
|
|
|
| Value of employee services | - | - | - | 58 | - | 58 |
| Proceeds from shares issued | 66 | - | - | - | - | 66 |
| Share based payment reserve movement | - | - | (39) | (85) | - | (124) |
| Transactions with owners | 66 | - | (39) | (27) | - | - |
| At 31 July 2010 | 1,812 | 51,748 | 11,399 | 8,070 | 18,096 | 91,125 |
Notes to the Consolidated Financial Statements
1. Basis of preparation
The preliminary announcement for the year ended 31 July 2010 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as at 31 July 2010. The financial information contained in this preliminary announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information has been extracted from the financial statements for the year ended 31 July 2010, which have been approved by the Board of Directors and on which the auditors have reported without qualification. The financial statements will be delivered to the Registrar of Companies after the Annual General Meeting. The financial statements for the year ended 31 July 2009, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.
2. Accounting policies
Basis of PreparationThe consolidated Financial Statements comprise a consolidation of amounts included in the financial statements of the following companies:
| Company | Nature of operations | Country of Incorporation |
| Imperial Innovations Limited | Technology licensing and investment holding company | England |
| Imperial Innovations LLP | Investment holding company | England |
| Imperial Innovations Investments Limited | Investment holding company | England |
| Imperial Innovations Businesses LLP | Investment holding company | England |
| Imperial Innovations Investment Management Limited | Investment services company | England |
| Imperial College Company Maker Limited | Investment holding company | England |
| Chembecell Limited | Inactive | England |
| Octam Limited | Inactive | England |
|
|
|
|
All the principal subsidiaries of the Group are 100% owned within the Group and have been included in the consolidated Financial Statements.
The consolidated Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities at fair value through profit and loss, as required by International Accounting Standard (IAS) 39 'Financial Instruments: Recognition and Measurement'.
The consolidated Financial Statements of Imperial Innovations Group plc (the Group) have been prepared in accordance with European Union Endorsed International Financial Reporting Standards (IFRSs), International Financial Reporting Interpretations Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The Group has elected to prepare its entity accounts in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP).
The preparation of financial statements in conformity with IFRS as endorsed by the EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated Financial Statements are disclosed in note 22 of the consolidated financial statements.
Basis of Consolidation
The Group's consolidated Financial Statements consist of Imperial Innovations Group plc and all of its subsidiaries. The consolidated financial statements exclude intra-group transactions.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of more than half of the voting rights, (currently exercisable or convertible potential voting rights) or by way of contractual agreement.
The cost of acquisition is measured at fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange plus costs directly attributable to the transaction. Identifiable assets acquired, and liabilities assumed, in a business combination are initially measured at their fair values at acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets is recorded as goodwill.
The Group has elected not to apply IFRS 3, 'Business Combinations', retrospectively to business combinations that took place before 1 August 2005.
Associates
Associates are entities which the Group does not control, accompanied by a shareholding of between 20% to 50% of the equity or voting rights.
Investments that are held as part of the Group's investment portfolio are carried in the balance sheet at fair value even though the Group may have significant influence over these companies. This treatment is permitted by IAS 28 'Investments in Associates', which requires such investments to be excluded from its scope where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39, with changes in fair value recognised in the period of change.
Foreign Currency Translation
The consolidated Financial Statements are presented in pounds sterling, which is the Group's functional and presentational currency. The Group determines the functional currency of each entity and items included in the Financial Statements of each entity are measured using that functional currency. Transactions denominated in foreign currencies are translated into sterling at the actual rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at rates ruling at the Balance Sheet date. Exchange differences are included in the Consolidated Statement of Comprehensive Income.
Property, plant and equipment
All property, plant and equipment are stated at historical cost, together with any incidental costs of acquisition. Depreciation is provided on all property, plant and equipment at rates calculated to write each asset down to its estimated residual value on a straight line basis over its expected useful life, as follows:
| Office equipment | - over four years |
| Computers | - over four years |
Intangible fixed assets
Intangible fixed assets, which include acquired patent rights, are stated at recoverable amount (fair value) and are tested annually for any impairment and whenever circumstances indicate that the carrying amount may not be recoverable. Patent costs incurred on internally generated intellectual property are written off to the Consolidated Statement of Comprehensive Income in the period in which they are incurred.
Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill is recognised as an asset and is reviewed annually for impairment and is carried at cost less accumulated impairment. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Equity investments and other financial assets
Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through the profit and loss, loans or receivables, held to maturity investments or available for sale financial assets except in the case of University Challenge Seed Fund (UCSF) investments. When financial assets are recognised initially they are measured at fair value, plus, in the case of investments not at fair value through profit and loss, directly attributable transaction costs. Changes in the fair value of the UCSF investments are set against the value of the UCSF fund and not through the profit or loss. This is in recognition that the value of the fund has to increase threefold before any repayments or disbursements can be made to the Group.
Financial Assets at Fair Value through Profit or Loss
The Group classifies all its equity investments as financial assets at fair value through profit and loss. Investments in associated undertakings that are held by the Group with a view to the ultimate realisation of capital gains are designated as financial assets at fair value through profit and loss. Investments in undertakings that do not meet the definition of an associate undertaking are also designated as financial assets at fair value through profit and loss on initial recognition.The fair value movement is net of revenue share.
Treatment of gains and losses arising on fair value
Realised and unrealised gains and losses on financial assets at fair value through profit or loss are included in the Consolidated Statement of Comprehensive Income in the period in which they arise.
Valuation of investmentsThe fair values of quoted investments are based on bid prices at the Balance Sheet date.
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' contained in the IPEVCVG. The following considerations are used when calculating the fair value using the 'price of recent investment' guidelines:
• where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value;
• 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;
• 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; and
• all recorded values of investments are regularly reviewed for any indication of impairment and adjusted accordingly.
Recognition of financial assetsThe purchase or sale of financial assets is recognised using trade date accounting for all assets held at fair value through profit and loss. The recognition of an asset and the liability to pay for it or the de-recognition of an asset, recognition of any gain or loss on disposal and the recognition of a receivable from a buyer occur on the date that an irrevocable commitment is made to purchase or to sell the asset.
Pensions
The Group makes payments to a defined contribution scheme. The assets of the scheme are held separately from the Group in independently administered funds. Contributions made by the Group are charged to the Consolidated Statement of Comprehensive Income in the period to which they relate.
Share-based payments
Equity settled transactions
Employees (and Directors) receive remuneration in the form of share-based payments, whereby employees render services in exchange for shares or for rights over shares. The fair value of the employee services received in exchange for the grant of options or shares is recognised as an expense. The total amount to be expensed on a straight line basis over the vesting period is determined by reference to the fair value of the options or shares determined at the grant date, excluding the impact of any non-market based vesting conditions (for example, continuation of employment and performance targets). The share options are valued using the binomial option pricing model. Non-market based vesting conditions are included in assumptions about the number of options that are expected to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at each Balance Sheet date to allow for forecast leaving employees and the difference is charged or credited to the Consolidated Statement of Comprehensive Income, with a corresponding adjustment to equity.
Revenue recognition and cost of sales
Revenue, which excludes value added tax, represents the income generated by the Group from licensing activities, from intellectual property management services provided by the Group to Imperial College London and other parties. Revenue is stated gross of any revenue share due to Imperial College London with any revenue share included in cost of sales.
When granting a licence, an initial up-front fee is receivable on signing followed by subsequent payments when milestone conditions are met. In addition, sales royalties may also be due under licence agreements. The initial up-front fee receivable on the execution of a licence is generally recognised in full on signing as long as all the Group's obligations under the licence have been completed and the fees are not refundable. Milestone payments are recognised at the date all the conditions are satisfied for the particular milestone payment and all the Group's obligations have been completed and the fees are not refundable. Sales royalties receivable under a licence are generally recognised on receipt of a royalty statement unless accurate sales information is available to accrue revenue for royalty over the financial period.
Income received in the form of quoted or unquoted investments from licensing activities is recognised as licensing income for those investments that have either a market value or a value attributed to them by other independent third parties. Income from intellectual property management services is recognised on a straight line basis over the period to which the services relate. Grant and investment awards are recognised on an accruals basis.
Commercial Proof of Concept type awards are recognised in the Consolidated Statement of Comprehensive Income and matched to related expenditure. Technical Proof of Concept type awards are recognised in the Balance Sheet, under creditors and matched to related expenditure.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the Consolidated Statement of Comprehensive Income within administrative expenses.
Trade payables
Trade Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held with banks, bank overdrafts and other short-term highly liquid investments with original maturities of three months or less. Short term liquid investments with a maturity of over three months are included in a separate category 'Short term liquidity investments'.
Deferred tax
Deferred tax arises from temporary timing differences as a result of the different treatment for accounts and taxation purposes of transactions and events recognised in the Financial Statements of the current period and previous periods. Net deferred tax assets are not currently recognised in the accounts because of the uncertainty of future taxable profits against which they may be recovered.
Provisions (revenue sharing)
Technology Pipeline Agreement
The Group provides for liabilities in respect of revenue sharing with Imperial College London, arising under the Technology Pipeline Agreement (TPA), and other parties. Provision for revenue share, based on fair value, on the future realisation of listed stock and unlisted stock is recognised.
Appointee Director Pool
Imperial Innovations LLP, whose intermediate parent company is Imperial Innovations Group plc, has entered into a Carry Plan Agreement with members of the Appointee Director Network. Upon a sale by Imperial Innovations LLP of all or part of a shareholding in one of the specified companies, an 'allocated amount' (based on a fixed percentage of net proceeds) will be paid to the Appointee Directors. The provision is based on fair value.
Operating leases
Costs in respect of operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight line basis over the lease term.
Carried Interest Plan
The Group operates a Carried Interest Plan for Executive Directors and employees to invest their own money in the investment part of the business. Before any payment to a participant becomes due under the carried interest plan, the Group must first have received back the amount of their investment in the relevant class together with a hurdle rate of 8% per annum compound on their investment. At the point at which the hurdle rate has been exceeded a provision is included for the unrealised gain due to members of the carried interest plan.
3. Segmental reporting
For the year ended 31 July 2010 and the year ended 31 July 2009 the Group's revenue and profit was derived from its principal activity within the United Kingdom.
The Group has adopted IFRS 8, "Operating Segments". IFRS 8 defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, being Technology Transfer, Incubation and Investment. The Board of Directors assess the performance of the operating segment on financial information which is measured and presented in a manner consistent with that in the financial statements.
The Group has one customer that accounts for £0.5 million (10.8%) of the Group's revenue (2009: £0.7 million (16.1%) one customer). All of the Group's non-current assets are located in the United Kingdom.
4. Investments - Designated at fair value through profit or loss
|
| Quoted Companies1 £000 | Unquoted Companies £000 | Total £000 |
| At 1 August 2008 | 9,689 | 39,680 | 49,369 |
|
|
|
|
|
| Gains on the revaluation of investments | 652 | 11,696 | 12,348 |
| Losses on the revaluation of investments | (2,531) | (6,566) | (9,097) |
| Fair value (losses) / gains | (1,879) | 5,130 | 3,251 |
|
|
|
|
|
| Investments during the period | - | 14,427 | 14,427 |
| Proceeds from the sale on investments | (1,848) | (10,245) | (12,093) |
| (Net proceeds from disposals) / net investments | (1,848) | 4,182 | 2,334 |
|
|
|
|
|
| At 31 July 2009 | 5,962 | 48,992 | 54,954 |
|
| Quoted Companies1 £000 | Unquoted Companies £000 | Total £000 |
| At 1 August 2009 | 5,962 | 48,992 | 54,954 |
|
|
|
|
|
| Gains on the revaluation of investments | 27 | 14,694 | 14,721 |
| Losses on the revaluation of investments | (3,444) | (2,854) | (6,298) |
| Fair value (losses) / gains | (3,417) | 11,840 | 8,423 |
|
|
|
|
|
| Investments during the period | - | 14,013 | 14,013 |
| Transfers | 61 | (61) | - |
| Proceeds from the sale on investments | - | (10,375) | (10,375) |
| Net investments | 61 | 3,577 | 3,638 |
|
|
|
|
|
| At 31 July 2010 | 2,606 | 64,409 | 67,015 |
1. All quoted companies are listed on AIM.
5. Provisions for liabilities and charges
|
| Quoted Companies £000 | Unquoted Companies £000 | Total £000 |
| At 1 August 2008 | 4,842 | 6,021 | 10,863 |
|
|
|
|
|
| Increase of liability arising from gains on the revaluation of investments | 93 | 275 | 368 |
| Decrease of liability arising from losses on the revaluation of investments | (2,447) | (1,543) | (3,990) |
| Changes in fair value during the period | (2,354) | (1,268) | (3,622) |
|
|
|
|
|
| Provisions utilised in the period | (69) | - | (69) |
| Realisations during the period | (1,848) | (441) | (2,289) |
|
|
|
|
|
| At 31 July 2009 | 571 | 4,312 | 4,883 |
|
| Quoted Companies £000 | Unquoted Companies £000 | Total £000 |
| At 1 August 2009 | 571 | 4,312 | 4,883 |
|
|
|
|
|
| Increase of liability arising from gains on the revaluation of investments | 13 | 944 | 957 |
| Decrease of liability arising from losses on the revaluation of investments | (177) | (580) | (757) |
| Changes in fair value during the period | (164) | 364 | 200 |
|
|
|
|
|
| Realisations during the period | - | (450) | (450) |
|
|
|
|
|
| At 31 July 2010 | 407 | 4,226 | 4,633 |
Analysed by obligation:
|
| Revenue Sharing Imperial College London £000 | Revenue Sharing Other £000 | Deferred Consideration £000 | Total £000 |
| At 31 July 2009 | 4,080 | 599 | 204 | 4,883 |
| Settlements and provisions utilised | (450) | - | - | (450) |
| Changes in fair value attributable to revenue share | 495 | (176) | (119) | 200 |
| At 31 July 2010 | 4,125 | 423 | 85 | 4,633 |
The revenue sharing provision 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 and 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.
The other revenue share represents monies due to other third parties in the Appointee Directors' Pool in respect of the Imperial Innovations LLP assets acquired as part of the stepped acquisition in 2005. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain.
Deferred consideration represents monies due to Imperial College London upon the eventual realisation of the Imperial Innovations LLP assets acquired from Imperial College London as part of the private share placement in 2005. The deferred consideration at the date of acquisition (April 2005) was £554,000. At each Balance Sheet date a fair value adjustment is made until the eventual realisation of the assets. The timing of the realisation of the provision is dependent on the realisation of the Imperial Innovations LLP assets acquired from Imperial College London, which is uncertain.
6. Net change in fair value of investments held at fair value through profit or loss
|
| Quoted Companies £000 | Unquoted Companies £000 | Total £000 |
| At 1 August 2008 | 4,847 | 33,659 | 38,506 |
|
|
|
|
|
| Gains on the revaluation of investments | 559 | 11,421 | 11,980 |
| Losses on the revaluation of investments | (84) | (5,023) | (5,107) |
| Fair value gains | 475 | 6,398 | 6,873 |
|
|
|
|
|
| Investments during the period | - | 14,427 | 14,427 |
| Provisions utilised in the period | 69 | - | 69 |
| Proceeds from the sale on investments | - | (9,804) | (9,804) |
| Net investments | 69 | 4,623 | 4,692 |
|
|
|
|
|
| At 31 July 2009 | 5,391 | 44,680 | 50,071 |
|
| Quoted Companies £000 | Unquoted Companies £000 | Total £000 |
| At 1 August 2009 | 5,391 | 44,680 | 50,071 |
|
|
|
|
|
| Gains on the revaluation of investments | 14 | 13,750 | 13,764 |
| Losses on the revaluation of investments | (3,267) | (2,274) | (5,541) |
| Fair value (losses) / gains | (3,253) | 11,476 | 8,223 |
|
|
|
|
|
| Investments during the period | - | 14,013 | 14,013 |
| Transfers | 61 | (61) | - |
| Proceeds from the sale on investments | - | (9,925) | (9,925) |
| Net investments | 61 | 4,027 | 4,088 |
|
|
|
|
|
| At 31 July 2010 | 2,199 | 60,183 | 62,382 |
Net change in fair value for the period represents the changes in fair value (disclosed in note 4) less the revenue share charge on these fair value movements (disclosed in note 5). Net change in fair value of investments of £8,217,000 as set out on the face of the Consolidated Statement of Comprehensive Income represents the change in net fair value of £8,223,000 (above table) less £6,000 to reflect final adjustments on realisations before revenue share with third parties as summarised below.
|
|
| 2010 £000 | 2009 £000 |
| Net fair value gain on portfolio |
| 8,223 | 6,873 |
| Changes in fair value realised during the period |
| (6) | 87 |
| Net fair value movement recognised in the Consolidated Statement of Comprehensive Income |
| 8,217 | 6,960 |
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the financial year by the weighted average number of Ordinary Shares in issue during the period.
The profits and weighted average number of shares used in the calculations are set out below:
|
| 2010 | 2009 |
| Earnings per Ordinary Share |
|
|
| Profit for the financial year (£000) | 5,535 | 5,322 |
| Weighted average number of Ordinary Shares (basic) (thousands) | 58,765 | 57,630 |
| Effect of dilutive potential Ordinary Shares | 129 | 205 |
| Weighted average number of Ordinary Shares for the purposes of diluted earnings per share (thousands) | 58,894 | 57,835 |
| Earnings per Ordinary Share basic (pence) | 9.42 | 9.23 |
| Earnings per Ordinary Share diluted (pence) | 9.40 | 9.20 |
8. Short term liquidity investments and cash and cash equivalents
|
| 2010 £000 | 2009 £000 |
| Cash at bank and in hand | 11,219 | 1,401 |
| Total cash and cash equivalents | 11,219 | 1,401 |
| Total short term liquidity investments (3 to 12 months) | 12,513 | 29,300 |
|
| 2010 £000 | 2009 £000 |
| Investments in period | 14,013 | 14,427 |
| Current year debt to equity conversions | (568) | (427) |
| Net cash invested in trade investments in the year | 13,445 | 14,000 |
Reconciliation of cash flows arising from sale of Trade Investments:
|
| 2010 £000 | 2009 £000 |
| Disposals of trade investments | 10,939 | 12,093 |
| Shares transferred to satisfy revenue sharing obligations | - | (1,846) |
| Deferred revenue on disposal of trade investments | (1,330) | (6,308) |
| Cash flow arising on the proceeds from sale of investment in trade investments | 9,609 | 3,939 |
Reconciliation of cash flows arising on the sale of trade investments to provisions for liabilities and charges:
|
| 2010 £000 | 2009 £000 |
| Movement in revenue sharing liability arising from disposal of trade investments | 562 | 2,289 |
| Revenue share outstanding | (149) | - |
| Shares transferred to satisfy revenue sharing obligations | - | (1,846) |
| Provisions utilised in the period | - | 69 |
| Cash flow arising on the settlement of revenue sharing liabilities on sale of trade investments | 413 | 512 |