27 Apr 2009 07:00
Embargoed: 0700hrs, 27 April 2009
Imperial Innovations Group plc ("Imperial Innovations" or "the Group" or "the Company") Interim Results for the Six Months Ended 31 January 2009
HIGHLIGHTS FOR THE SIX MONTHS ENDED 31 JANUARY 2009
Business Highlights * Sale of portfolio company, Thiakis, to Wyeth for up to £99.4 million comprising an upfront payment of £19.6 million followed by additional potential milestones. The Group owned 23.7% of Thiakis and the potential net value to the Group from receipts and the additional milestones is £ 16.1m. * Post period end led investment of £10.0 million in next generation battery company Nexeon by Invesco, Partnerships UK, Imperial Innovations. * Continued flow of intellectual property with 161 invention disclosures (H1 2008: 150, FY 2008: 354) and 23 patents filed (H1 2008: 24, FY 2008: 55). * Five companies seed funded with launch management teams: Cortexica Vision Systems, Myotec, Navion Pharma, Novacem and Smart Surgical Appliances. * In early April 2009 the Group invested a further £1.2 million as a first draw down on a £2.5 million committed investment in Veryan Medical. * Significant commercial and technological milestones achieved by technology companies. * First transactions completed by the Group's FSA regulated entity in February 2009. * With cash resources and tight overheads, the Group is well capitalised to invest in quality technology companies at attractive prices behind experienced management teams. Financial Highlights * Reported Profit £1.3 million (H1 2008: loss (£2.2 million), FY 2008: loss (£5.9 million)). * Royalty income up 80% to £0.9 million (H1 2008: £0.5 million, FY 2008: £ 0.9 million). * Cash and short term liquidity investments at 31 January 2009 £41.9 million (H1 2008: £46.9 million, FY 2008: £43.1 million) with zero borrowings. * Cash realised from the sale of holdings in portfolio companies £ 3.3 million (H1 2008: £3.6 million, FY 2008: £3.6 million). * Cash invested in portfolio companies £2.8 million (H1 2008: £2.9 million, FY 2008: £6.1 million). Since 31 January 2009 the Group has invested a further £5.5 million in 6 companies. * Net Assets £81.5 million (H1 2008: £82.9 million, FY 2008: £80.3 million). * Annualised overheads cut by £0.8 million.
For further information please contact:
Imperial Innovations
Martin Knight, Chairman
Susan Searle, Chief Executive Officer
Julian Smith, Chief Financial Officer
Tel. +44 (0)20 7594 6589
M:Communications
Patrick d'Ancona or Ben Simons
Tel. +44 (0)20 7153 1540
J.P. Morgan Cazenove (NOMAD to Imperial Innovations)
Steve BaldwinTel. +44(0)20 7588 2828CHAIRMAN'S STATEMENT
At a time of great economic uncertainty, it seems paradoxical to suggest that Imperial Innovations is better placed than it has been to deliver shareholder value from its business model. What lies behind this relative confidence at such a time?
Firstly, the Government has made it very clear that the "science agenda" sits at the centre of the debate about the future of the British economy. The general acceptance of this perspective is important for the quality and quantity of intellectual property which will become available for exploitation by the Group. The intellectual property pipeline remains strong and shows every sign of continuing to be so.
Secondly, Imperial Innovations' business model has very clearly focused not on financial engineering, but on building businesses. Funding spin out companies properly and putting in experienced and motivated management teams has been at the heart of Innovations' work. We are now seeing the benefits of this emphasis on building businesses in the real progress being exhibited in our portfolio companies. The sale of Thiakis in December 2008 was a significant moment for the Company. The progress in the spin out portfolio gives confidence that there will be further disposals at attractive prices.
Thirdly, the shock to the global financial system, in Autumn 2008, led the Board to carry out a comprehensive portfolio review and business analysis. The subsequent refocusing of activities core to the future of the Group and its investments, with a reduction in headcount and overheads, was clear evidence that management understand the business drivers behind delivering shareholder returns. The second outcome of this review was a sharpened focus on the optimum utilisation of the cash resources of the Group in the investment decision making process, to reflect a more acute awareness of where the real value lies in the Group's assets. In a tough business climate, where cash is king, scrupulously targeted allocation of this scarce resource is critical.
At the beginning of the Group's financial year, David Allen joined the Board. His background as a Director of BP for 5 years, and his long involvement in energy and technology, have ensured his immediate and positive engagement in the business. I am grateful to all the members of the Board for their commitment to the success of Imperial Innovations and to the staff for their determination to deliver shareholder returns from the business model.
Dr Martin KnightChairmanCHIEF EXECUTIVE'S REPORTOVERVIEW
Imperial Innovations reported a profit of £1.3 million for the half year. The Group is making good progress, transitioning from a model to an established business where growing equity realisations and reported profit can be expected, although the pattern may still be lumpy. Another step in this transition was the trade sale exit of Thiakis in December 2008 - we believe this is the start of realisations to come over subsequent years.
Wyeth Pharmaceuticals bought Thiakis for £99.4 million, comprising an upfront payment of £19.6 million followed by potential milestones totalling £ 79.8 million. We owned 23.7% of the company prior to the sale, received £ 2.9 million net of revenue share in December 2008 and have the potential to receive a further £13.2 million net of revenue share, subject to milestones. Wyeth will fund the development of the Thiakis product. Whilst our equity holding in Thiakis has been sold, Innovations will continue to benefit from a royalty on the sale of the product if it gets to market. The drug has the potential to treat metabolic disease and the obesity market alone is estimated to grow to some £8.5 billion by 2020. A royalty stream from this product is feasible from as early as 2014.
Royalty income is up 80% at £0.9 million against the comparative half year. This is welcome because it represents the potential for growing recurring revenue whilst inevitably trading income from one-off upfront fees and services is suffering due to the recession. When a licence deal is concluded it means a partner is then funding the development of the technology. Whilst upfront payments might be modest, our priority is to conclude deals so that the potential for further downstream royalties exists.
Our approach to building technology businesses, with experienced management teams and products that are technically sound, is delivering results. We have a group of companies with world class management teams, experienced boards and technologies that addresses large market opportunities, validated by industry partners. For example, in February 2009, we raised £10 million for Nexeon, which is developing silicon anodes for lithium ion batteries, a growing market worth over $10 billion (which some analysts expect to increase to $30 billion by 2018). Imperial Innovations invested £4.0 million alongside £5.0 million from Invesco and £1.0 million from Partnerships UK resulting in Innovations having a 38.7% stake. Scott Brown joins Nexeon as CEO (from Cambridge Display Technology) in June 2009 and joins an experienced board, operational and technical team.
In October 2008, we conducted an intensive review of our portfolio. We are focusing on those companies where we believe the ingredients of management, money, customer market and people are right - ensuring that they are well funded and have the optimum chance to succeed.
We have taken steps to trim the cost base of the Group by an annualised amount of around £0.8 million. With cash in the bank we are well capitalised to invest in quality technology companies and have confidence in the ability of our portfolio and technologies to deliver value. The current climate creates a great opportunity to match great science with talented management and invest at attractive prices.
Key Financial Highlights
We reported a profit for the half year of £1.3 million. The Nexeon transaction was concluded ten days after the half year and will result in an additional net £4.1 million fair value uplift on the existing holding which will come through in the full year results. We reported a profit despite a continued fall in our quoted company holdings, primarily Ceres Power, which fell by £2.0 million to £ 2.4 million. Quoted holdings, however, only represent 8.0% of our portfolio value. We remain well capitalised with £41.9 million in cash and short term liquidity investments and are in a strong position to back our companies and to support them when other sources of funding may not be so readily available.
During the half year we invested £2.8 million in our portfolio of companies with a range of seed and follow-on rounds. Companies that completed fund raisings and milestone based draw downs included Evo Electric, Inforsense, Myotec, Medcell, Molecular Vision, Osspray and STS. Since the half year, we have invested a further £5.5 million, taking our total investment for this financial year to £8.3 million with investments of £1.25 million in Veryan Medical, £4 million in Nexeon and a seed round in Cortexica. We sold our holding in Thiakis resulting in an immediate £2.9 million cash receipt (after revenue sharing obligations) leaving a further potential net consideration of £ 13.2m based on future milestones.
The fair value gain on our unquoted portfolio was £4.1 million (12%), since the start of the financial year. The February 2009 investment in Nexeon, which will result in a net fair value uplift of £4.1 million, would move this gain to 24% for the financial year - a pleasing performance in the current climate. Our net asset value rose by £1.3 million to £81.5 million.
Royalty income at £0.9 million was up 80% compared with the same period last year, but trading income fell to £2.4 million (H1 2008: £2.8 million, FY 2008: £5.3 million). We reduced our cost base, taking voluntary redundancies resulting in annual savings of circa £0.8 million the financial effect of which we will start to see towards the end of this financial year.
Our Company Portfolio and Approach to Investment
At the start of the year, facing the impact on co-investors of the global recession and liquidity restrictions, we reviewed our investment policy. We segmented our portfolio based on the stage of development of the company, its financing requirements, the strength of the management team, the technology and market potential and likely time to break-even or exit. A number of companies are reaching a more mature stage and we have chosen to invest significant time ensuring that these businesses have top quality boards and management teams and are funded to deliver. Our intention is for the strong companies to get stronger.
Prospective new ventures need to be incubated well and built to thrive in the current challenging environment. This places even greater emphasis on building top quality management teams around our world class technologies matching talent and science. We are capital efficient with these companies, using grants to get through the proof stage, stretching seed funding by managing costs and leveraging grant funding sources. However, when businesses are ready for accelerated growth we will not hold back from fully capitalising them.
I have detailed below the progress made in a selection of some of our more advanced companies.
Thiakis
Thiakis was sold to Wyeth for £99.4 million comprising an upfront payment of £ 19.6 million followed by potential milestones totalling £79.8m. Imperial Innovations co-founded Thiakis with Professor Stephen Bloom of Imperial College and CEO, Dr John Burt, four years ago. Imperial Innovations owned 23.7% of the company prior to the sale. Wyeth will fund the development of Thiakis' product and we will continue to benefit from a royalty on the sale of the product if it gets to market. Including contingent consideration, this represented an 11x net return on the £1.5 million invested, excluding future royalties. Under new ownership, Thiakis continues to develop its analogue of the peptide hormone oxyntomodulin, for the treatment of obesity, including the potential amelioration of diseases associated with excess weight such as type 2 diabetes and cardiovascular disease. These products address a forecast £8.5 billion market.
Nexeon
Nexeon is developing silicon anodes for lithium-ion batteries and was co-founded by Imperial Innovations and Professor Mino Green of Imperial College, London. Having started life in the Imperial incubator, Nexeon now boasts a fully operational pilot plant, producing sufficient material to make high volumes of battery cells per day. On 10 February 2009 Imperial Innovations Investment Management, our FSA regulated company, led a £10.0 million round with the Group investing £4.0 million. Nexeon will use the proceeds to construct a development and pilot-scale manufacturing facility. Bill Macklin joined as Chief Technology Officer and is an expert in lithium-ion batteries, formerly Technology Director at ABSL Power Solutions. Scott Brown, formerly Executive Vice President Commercial, IP and Research of Cambridge Display Technology, was appointed CEO and will join Nexeon in June 2009. Nexeon's technology addresses a market worth over $10 billion and the Group holds a 38.7% equity stake in Nexeon.
Veryan Medical
Veryan is developing a platform of vascular technologies re-introducing natural swirling blood flow mimicking the body's natural defence against vascular disease using a unique 3D helical geometry. Veryan's BioMimic 3D stent has now demonstrated that it reduces the formation of new disease in the artery and proves to be structurally stronger than existing stents and significantly less prone to fracture. During the period, the company appointed Geoffrey Vernon, formerly a director of Rothschild Asset Management and partner at Advent as chairman. Geoffrey has 30 years experience in Medical Devices. In early April 2009 Imperial Innovations invested a further £1.2 million (and committed a further £1.3 million) to fund pivotal trials of its products. Veryan is working closely with leading stent manufacturers. The stent market addressable by Veryan's technology is forecast at $1 billion and we hold a 37.6% equity stake in Veryan.
Circassia
Circassia is a clinical stage speciality biopharmaceutical company focused on developing medicines designed to control the immune system responses. In September 2008, Circassia announced successful phase II clinical results with its ToleroMune anti-allergy technology. The trial shows that treatment can substantially reduce allergic reactions to the allergen that causes most cat allergies and that it was well tolerated by all patients. In January 2009 it confirmed that it had completed patient recruitment for a further phase II treatment regime trial. Circassia's approach has potential for treatment of a range of allergies. The allergy market addressed by the Circassia technology is worth about £9 billion and we hold a 14% equity stake in Circassia.
Polytherics
Polytherics applies its proprietary technologies in targeted precision chemistry to the optimisation of proteins as Biopharmaceutical products. The company has expanded its intellectual property base beyond product half-life optimisation into modular assembly of proteins with novel activity and function enabling the design of products beyond genetic engineering. Professor Simon Best, formerly chairman of the Bio Industries Association (BIA) joined the board as a non executive director in November 2008. Simon is a serial entrepreneur and has built three substantial ventures. Polytherics' technology has the ability to address a rapidly growing biopharmaceutical market worth $63 billion and we hold an 18.9% stake.
Respivert:
Respivert was established to identify a new generation of inhaled treatments for serious lung disease. The company is progressing three discrete programs, all of which are expected to enter clinical development in 2010, led by Dr Garth Rapeport (CEO). Dr Rapeport was Head of the division for respiratory and inflammatory disease at GSK. Rudi Pauwels is Chairman and is a pharmaceutical scientist, an entrepreneur who started Tibotec and Galapagos Genomics. The company remains on track to enter the clinic in 2010. The Global asthma / COPD market its products address is estimated to be $18.1 billion and the Group's holding is 15%.
NEW VENTURES (incubating companies)
Our new companies continue to get independent recognition. Novacem is developing a new generation of green carbon negative cement that will help combat global warming by locking atmospheric carbon dioxide into construction materials. Novacem won the Energy Environmental Rushlight Award for its contribution to addressing environmental issues. Novacem has just moved into the incubator and is in the process of raising its seed funding. John Hamlin, one of our Entrepreneurs in Residence, has taken the role of CEO of Plaxica, a company developing a new low cost process for the production of a new generation polylactic acid; a polymer that is biodegradable and has potential widespread use with the properties and cost to compete in a market worth $85 billion with the established high volume polymers like polypropylene, polystyrene and PET.
During the half year we seed funded five companies including:
Navion Pharma: a new therapeutics company focusing on discoveries in the area of cancer and metastatic (secondary) cancer. We have built a strong team including Chris Woods (formerly chairman and CEO of Bioenvision inc), a proven entrepreneurial chair; Professor Mustafa Djamgoz, the scientist whose research the company is based on; Nigel Burns (also chairman of Cellmedica and formerly Senior Vice President at Cambridge Antibody Technologies), who brings proven skills in the technology's development; and Prof Charles Coombes, a leading cancer clinician. The company is operating in a "low-burn" model while it develops the proof-of-principle data and its lead technology prior to scaling the business around a proven proposition.
Cortexica Vision systems: a new software company building solutions for analysing video images. Based on the way the human brain interprets visual images this system promises for efficient and more accurate analysis of video enabling new analysis products to be made economically viable. A team of track record entrepreneurs, Nick Kingsbury (formerly global sector head for information technology investments at 3i) and Scott White (serial entrepreneur and formerly CEO of Azea networks), worked with the research team, Dr Anil Bharath and Dr Jeffrey Ng and have developed a business focusing on providing solutions for brand management, marketing and advertising. The funding will enable them to build solutions based on explicit customer needs and to present a case for growth funding on the basis of that customer engagement.
Smart Surgical Appliances: a medical device company developing sensor-enabled surgical instrumentation that improves the safety and clinical efficiency of minimally invasive surgery e.g. keyhole surgery. The company is leveraging the seed funding with government grant funding to develop its first product to proof-of-principle and enabling the investment money to focus on commercial development. It expects further grant funding to enable it to widen its product portfolio. The company recently recruited executive chair, Paul Donnelly, formerly general manager at Johnson & Johnson, and more recently CEO of a private equity backed medical device business.
THE TECHNOLOGY PIPELINE
We received 161 invention disclosures (H1 2008: 150) and filed 23 new patents (H1 2008: 24) - our pipeline is healthy. We concluded a range of small licence deals, for example an oil well riser technology (Petronas), a transgenic model (GlaxoSmithkline), a serum factor (Novartis), a database (Servier) and pacemaker algorithm (MedImmune). We completed 9 new agreements (options, licences or assignments). A total of £0.5 million of licence revenue was generated and a further £0.9 million generated through royalties from the new and existing portfolio of commercial agreements.
We supported ten applications from Imperial College during the period for large scale translational funding from organisations like the Wellcome Trust and Medical Research Council. This is important because it helps to advance our earlier pipeline. There are a range of market areas where we believe industry is seeking solutions which include: advanced materials, super capacitors, plastic electronics, photovoltaics, optics, catalysts, medtech, fluid dynamics and nanotechnology. We hope to see new technologies and companies created in these areas.
We continue to work with a range of partners to source complementary ideas, incubate propositions, access customers and gain market knowledge. A small team, Commercialisation Services, manages contracts with the Carbon Trust, Kuwait Petroleum Co and WRAP for incubation support and with the National Physical Laboratory and Cranfield University on the commercialisation of ideas. I2india, co-founded with management, Chairman Chris Mathias, business angels and TATA group has established operations in Bangalore. It has entered into a number of agreements with Indian research organisations and has begun to commercialise various technologies.
Our access to industry partners, the customers for our technologies, continues to be an important differentiator and is helped greatly by Imperial College's reputation in engineering, environment, energy and medicine.
Whilst we must operate in a difficult economic climate, we believe that our consistent approach to the development of technology opportunities and companies will deliver results.
Susan SearleChief Executive OfficerFINANCIAL REVIEWSummary
The Group generated a profit of £1.3 million in the first half of the year (H1 2008: loss £2.2 million, FY 2008: loss £5.9 million). Cash and short term liquidity investments at 31 January 2009 were £41.9 million (31 January 2008: £ 46.9 million, 31 July 2008: £43.1 million). The balance sheet had strengthened, ending the half year with net assets up by £1.3 million to £81.5 million on the start of the year, reflecting the trading results for the first 6 months of the year.
The Group achieved realisations, from the full and partial disposal of two investments of £11.1 million, which generated cash realisations of £3.3 million (sale of Thiakis stake), a further £6.0 million in net fair value uplift on the deferred contingent consideration and a reduction of revenue sharing liabilities of £1.8 million (sale of partial holding in Ceres Power Holdings plc). These movements are reflected in note 2 of the interim financial statements. Investments made in portfolio companies were £2.8 million (31 January 2008: £3.1 million, 31 July 2008: £6.4 million) although since the end of January further investments have been made bringing the total invested this financial year to £8.3 million (invested in 17 companies).
The cost base of the organisation has been reduced by £0.8 million per annum to further strengthen its position. The cash flow impact of these reductions, after accounting for the redundancy and other costs, resulted in a charge in the first six months' figures of £0.3 million with the financial benefit from this being seen at the end of the financial year.
INVESTMENT PORTFOLIO PERFORMANCE
During the half year, the Group made £2.8 million investments to fund 12 technology companies in its portfolio and at the end of the half year had outstanding commitments to make further investments of £3 million. The early stage of many of the technology companies is such that investments are made on a milestone tranched basis, which matches their need for cash with the delivery of milestones, whilst providing the certainty of investment to ensure their security. Some investments are made as convertible loans and at the half year end these had a carrying value of £5 million. Since 31 January 2009, the Group has invested a further £5.5 million which brings the total invested in this financial year to £8.3 million.
The Group reported a net profit arising from the portfolio fair value adjustments of £2.0 million (H1 2008: loss £0.5 million, FY 2008: loss £ 3.0 million). An analysis of the changes in fair value is given below:
Portfolio movements excluding Note1 Six months Six months 12 months to cash invested and divestments;
to to 31 July 2008 31 January 31 January 2009 2008 £`000 £`000 £`000 Gains on revaluation of 2 6,469 3,852 3,970investments 2 Losses on the revaluation of 2 (7,700) (7,254) (11,084)investments Fair value (losses) (1,231) (3,402) (7,114) Movement in associated revenue 3 3,159 2,880 4,125sharing obligations Movement in current liabilities 4 67 - - Net fair value gains / (losses) 4 1,995 (522) (2,989)
The total value of the portfolio (excluding University Challenge Seed Fund investments which are subject to a threefold increase before funds can be returned to the Group) reduced from £49.4 million to £39.8 million during the half year as a result of disposals of £11.1 million less investment of £ 2.8 million and fair value losses of £7.7 million partially offset by fair value gains of £6.5 million. There was a corresponding reduction in the provision for liabilities and charges from £10.9 million to £5.3 million arising from the disposal of assets of £2.4 million and from £3.2 million of fair value reductions.
At 31 January 2009, the Group had equity stakes in 90 companies (H1 2008: 77 companies, FY 2008: 89 companies).
1 Notes to the interim financial statements.
2 The gains on revaluation of investments in the period of £6.5 million includes contingent consideration of £6.0 million on the sale of Thiakis and is held within trade and other receivables.
The table below sets out the top 10 technology companies, by value, in the portfolio 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 Note Net Cash Net Net % of Investment invested Movement Investment carrying / in Issued value Carrying carrying share (Cash Value value capital at divested) held 6 months at 31 July 6 months to 31 2008 to 31 January January 31 January 2009 2009 31 2009 January 2009 £'000 £'000 £'000 £'000 Ceres Power Holdings 4,454 - (2,049) 2,405 3.6%plc Circassia Holdings 7,267 - - 7,267 14.0%Limited EVO Electric Limited 744 1,000 - 1,744 37.6% InforSense Limited 1,628 277 (889) 1,016 14.94% Microsaic Limited 1,247 - - 1,247 13.0% Nexeon Limited A 3,196 - - 3,196 38.7% Process Systems 1,280 - - 1,280 25.8%Enterprise Limited Respivert Limited 1,120 - - 1,120 15.5% Thiakis Limited 1 B 2,642 (2,856) 6,211 5,997 - Veryan Medical C 3,217 - - 3,217 37.6%Limited
A. On 10 February 2009, the Group invested a further £4.0million in Nexeon as
part of a £10 million funding round. The impact of this investment is to generate a £4.4 million gross fair value uplift and so increase the value of the gross investment from £3.4 million to £11.8 million (£11.4 million net). The associated revenue sharing liabilities associated with the shareholding in Nexeon will likewise increase by £0.2 million from £ 0.2 million to £0.4 million. The net carrying value (and profit recognised in the Income Statement) of the investment in Nexeon after accounting for the associate revenue sharing liabilities will increase by £4.1 million.
B. On 18 December 2008, the Group realised its holding in Thiakis Limited.
Under the sales agreement, Imperial Innovations could receive cash
payments, net of transaction costs, of £22.2 million which, after
accounting for revenue sharing obligations to Imperial College, London and
other research sponsors of £6.1 million, would leave a net receipt of £16.1
million. As at 31 January 2009, the first payment of £3.3 million has been
received which, after revenue sharing obligations, results in a net receipt
of £2.9 million. The payment received to date results in a fair value
uplift to the income statement in the 6 months ended 31 January 2009 of £
0.2 million and the estimated fair value uplift of the contingent deferred
consideration after risk adjusting using industry standard criteria and
discounting for time at 12% per annum results in a fair value uplift to the
income statement from the contingent deferred consideration of £
6.0 million. At each accounting reference date the fair value of the
contingent deferred consideration will be adjusted.
1 The £6.0 million represents contingent deferred consideration and is therefore held within trade and other receivables.
C. In early April 2009 the Group invested a further £1.2 million in Veryan
Medical maintaining the current value of the pre-existing stake and so the
resulting net carrying value is £4.5 million.
OPERATIONAL PERFORMANCE
The Group made a profit for the financial period of £1.3 million (H1 2008: loss £2.2 million, FY 2008: loss £5.9 million). Interest receivable was £1.2 million (H1 2008: £1.0 million, FY 2008: £2.3 million). The Group continues to invest its surplus cash in a number of Banks with a focus on capital preservation rather than interest earned.
REVENUE AND EXPENSES
Trading revenue for the six months ended 31 January 2009 of £2.4 million (H1 2008: £2.8 million, FY 2008: £5.3 million) is £0.4m lower than that for the six months ended 31 January 2008 as a result of the fees from Imperial College dropping significantly as expected and as per the Technology Pipeline Agreement signed in 2005, together with the more difficult trading conditions prevailing in the economy as a whole.
Cost of sales, largely arising from the revenue sharing arrangements with Imperial College, was broadly flat at £0.8 million (H1 2008: £0.8 million, FY 2008: £1.5 million). Other administrative expenses of £3.6 million (H1 2008:
£3.4 million, FY 2008: £6.7 million) are £0.2million (6%) higher than that for the six months ended 31 January 2008. This increase is primarily as a result of the £0.3 million cost reduction exercise completed early in 2009. Administrative expenses include a charge of £0.6 million (H1 2008: £ 0.6 million, FY 2008: £1.3 million) reflecting expenditure incurred filing patents and protecting the, as yet unexploited, intellectual property.
SHARE BASED PAYMENTS
The Group had incurred an IFRS 2 "Share Based Payment" charge in prior periods. IFRS 2 requires the Group to value the stock options at grant date and to charge this over the vesting period. However, as these options were fully time vested in April 2008 there was no charge in this half year (H1 2008: £ 2.1 million, FY 2008: £3.2 million).
CASH
At 31 January 2009, the Group had cash and short term liquidity investments of £41.9 million (31 January 2008: £46.9 million, 31 July 2008: £43.1 million). This represents a decrease of £1.2 million from the opening balance at 31 July 2008. This movement in cash is summarised below:
Six months Six months 12 months to to to 31 January 31 January 31 July 2009 2008 2008 £'000 £'000 £'000
Net cash used in operating activities (2,140) (3,068) (4,840)
Net cash generated from/(used in) 933 1,130 (838)investing activities Purchase of short term liquidity (4,300) - (36,000)investments Financing activities - 29,336 29,286 Movement in period (5,507) 27,398 (12,392)
Of the net cash used in operating activities, £0.2 million reflected movements in working capital arising from increased turnover at the end of the period and settlement of liabilities brought forward at the start of the period. It is the Group's current policy to place cash surplus to working capital requirements on short-term deposits. The Group has no foreign currency deposits. In light of the current macro economic climate, the Group maintains its cash reserves with a number of highly credit rated institutions to diversify counterparty risk.
TAXATION
The Group is eligible for Substantial Shareholder Relief as it is a member of a trading group whilst it is a subsidiary of Imperial College. However, should the Group cease to be part of the Imperial College group of companies (i.e. Imperial College's shareholding drops below 50%) transitional rules apply, which are likely to preserve the exemption for a further two years. Therefore, unless Imperial College reduces it's holding to less than 50%, it is likely that the Group will continue to be exempt from taxation on chargeable gains from disposals of substantial shareholdings.
During the half year there was no charge or credit relating to taxation (H1 2008: £0.9 million, FY 2008: £0.9million). In prior periods there have been movements arising on the adjustment of the deferred taxation provision previously accrued as a result of the unrecognised gain in the investment in Ceres Power Holdings plc. The value of the Group's investment in Ceres Power Holdings plc fell in the half year and as a result the unrealised gain is less than the brought forward management expenses and so no provision for deferred tax needs to be held at the end of the period.
CONSOLIDATED INTERIM INCOME STATEMENT
FOR THE SIX MONTH PERIOD TO 31 JANUARY 2009
Unaudited Unaudited Audited six months six months 12 months to to to 31 July 2008 31 January 31 January 2009 2008 Note £'000 £'000 £'000 Continuing operations Revenue 2,396 2,781 5,336 Cost of sales (814) (786) (1,453) Gross profit 1,582 1,995 3,883 Net change in fair value of 4 1,995 (522) (2,989)investments held at fair value through profit and loss Administrative expenses: - Other administrative expenses (3,550) (3,366) (6,698) - Share based payments - (2,167) (3,202) Operating profit / (loss) 27 (4,060) (9,006) Interest receivable 1,232 962 2,293 Interest payable - (3) (11) Profit / (loss) before taxation 1,259 (3,101) (6,724) Taxation - 863 863 Profit / (loss) for the 1,259 (2,238) (5,861)financial period Basic earnings / (loss) per 5 2.18 (4.3) (10.63)ordinary share (pence)
Diluted earnings / (loss) per 5 2.18 (4.3) (10.63) ordinary share (pence)
The accompanying notes are an integral part of these interim financial statements.
CONSOLIDATED INTERIM BALANCE SHEET
AS AT 31 JANUARY 2009 Unaudited Unaudited Audited As at As at As at 31 January 31 January 31 July 2008 2009 2008 Note £'000 £'000 £'000 Assets Non-current assets Property, plant and equipment 39 49 44 Investments 2 39,796 49,852 49,369 University Challenge Seed Fund (UCSF): - Investments 936 851 800 - Loans 31 758 758 Low Carbon Seed Fund (LCSF) 232 237 234 Total non-current assets 41,034 51,747 51,205 Current assets Trade and other receivables 6 9,506 2,159 1,488 Short term liquidity 40,300 - 36,000investments Cash and cash equivalents 1,570 46,867 7,077 Total current assets 51,376 49,026 44,565 Total assets 92,410 100,773 95,770 Equity and liabilities Equity attributable to equity holders Issued share capital 1,746 1,746 1,746 Share premium 51,748 51,798 51,748 Retained earnings 1,840 4,204 581 Share based payments 8,097 7,062 8,097 Other reserves 18,096 18,096 18,096 Total equity 81,527 82,906 80,268 Liabilities Non-current liabilities University Challenge Seed Fund 967 1,670 1,590(UCSF)
Provisions for liabilities and 3 5,344 12,104 10,863 charges
Low Carbon Seed Fund (LCSF) 232 237 234 Total non-current liabilities 6,543 14,011 12,687 Current liabilities Trade and other payables 4,340 3,856 2,815 Total liabilities 10,883 17,867 15,502 Total equity and liabilities 92,410 100,773 95,770
The accompanying notes are an integral part of these interim financial statements.
The interim financial statements on pages 9 to 16 were approved by the Board of Directors on 22 April 2009 and were signed on its behalf by J. Smith and S. Searle.
J. Smith
Chief Financial and Operations Officer
Chief Executive Officer
S. Searle
CONSOLIDATED INTERIM CASH FLOW STATEMENT
FOR THE SIX MONTH PERIOD TO 31 JANUARY 2009
Unaudited Unaudited Audited six months six months 12 months to to to 31 July 2008 31 January 31 January 2009 2008 £'000 £'000 £'000 Cash flows from operating activities Operating profit / (loss) 27 (4,060) (9,006) Adjustments to reconcile operating profit / (loss) to net cash flows from operating activities Depreciation of property, plant and 11 11 21equipment Fair value movement in investments (1,995) 522 2,989 Share based payments - 2,167 3,202 UCSF management fee (32) (30) (60) Working capital adjustments: (Increase) in trade and other (1,226) (802) (139)receivables Increase / (decrease) in trade and 1,075 (876) (1,847)other payables
Net cash used in operating activities (2,140) (3,068) (4,840)
Cash flows from investing activities Purchase of property, plant and (5) (6) (11)equipment Purchase of investments (2,791) (2,929) (6,149) Proceeds from sale of investments 3,299 3,596 3,600 Revenue share paid on asset - (295) (332)realisations Interest paid - - (25) Interest received 430 764 2,079 Short term liquidity investments (4,300) - (36,000)
Net cash (used in) / generated from (3,367) 1,130 (36,838) investing activities
Cash flows from financing activities Proceeds from share issues - 30,000 30,000 Transaction cost of issue of shares - (670) (720) Income from UCSF fund - 6 6 Net cash generated from financing - 29,336 29,286activities
Net (decrease) / increase in cash and (5,507) 27,398 (12,392) cash equivalents
Cash and cash equivalents at beginning 7,077 19,469 19,469 of the period
Cash and cash equivalents at end of the 1,570 46,867 7,077 period 1
1 As at 31 January 2009, in addition to cash and cash equivalents, short term liquidity investments (treasury deposits) held are £40.3m (H1 2008: £nil, FY 2008: £36m).
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Group
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Share Share Retained Share Other Total Based Capital Premium Earnings Payments Reserves £'000 £'000 £'000 £'000 £'000 £'000 At 31 January 2008 1,746 51,798 4,204 7,062 18,096 82,906 Consolidated loss for the - - (3,623) - - (3,623)period to 31 July 2008 Expenses of share issue - (50) - - - (50) Share based payments - - - 1,035 - 1,035 At 31 July 2008 1,746 51,748 581 8,097 18,096 80,268 Consolidated profit for - - 1,259 - - 1,259the period to 31 January 2009 At 31 January 2009 1,746 51,748 1,840 8,097 18,096 81,527
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
These unaudited consolidated interim financial statements have 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 interim income statement, the consolidated interim balance sheet, the consolidated interim cash flow statement, the consolidated interim statement of changes in equity and the related notes ("the interim financial statements"). The Group has chosen not to adopt IAS 34, "Interim Financial Reporting", in the preparation of these interim financial statements.
These interim financial statements 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 2008, as described in those financial statements. There are no new Standards likely to affect the financial statements for the year ending 31 July 2009.
These interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 July 2008 were approved by the Board of Directors on 13 October 2008 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 237 of the Companies Act 1985.
2. Investments - Designated at fair value through profit or loss
Unaudited for the six months to 31 January 2008 Quoted Unquoted Total
Companies1 Companies £000 £000 £000 At 1 August 2007 20,508 33,218 53,726 Gains on the revaluation of investments - 3,852 3,852 Losses on the revaluation of investments (5,199) (2,055) (7,254) Fair value (losses) / gains (5,199) 1,797 (3,402) Investments during the period - 3,129 3,129 Proceeds from the sale on investments (3,566) (35) (3,601)
Net (investment) / proceeds from the sale on (3,566) 3,094 (472) investments
At 31 January 2008 11,743 38,109 49,852 For the year ended 31 July 2008 Quoted Unquoted Total Companies1 Companies £000 £000 £000 At 1 August 2007 20,508 33,218 53,726 Gains on the revaluation of investments - 3,970 3,970 Losses on the revaluation of investments (7,262) (3,822) (11,084) Fair value (losses) / gains (7,262) 148 (7,114) Investments during the period - 6,357 6,357 Proceeds from the sale on investments (3,557) (43) (3,600)
Net (investment) / proceeds from the sale on (3,557) 6,314 2,757 investments
At 31 July 2008 9,689 39,680 49,369
Unaudited for the six months to 31 January 2009 Quoted Unquoted Total
Companies1 Companies £000 £000 £000 At 1 August 2008 9,689 39,680 49,369 Gains on the revaluation of investments - 6,469 6,469 Losses on the revaluation of investments (4,588) (3,112) (7,700) Fair value (losses) / gains (4,588) 3,357 (1,231) Investments during the period - 2,798 2,798 Proceeds from the sale on investments (1,846) (9,294) (11,140) Net (investment) (1,846) (6,496) (8,342) At 31 January 2009 3,255 36,541 39,796
1 All quoted companies are listed on AIM.
During the half year ended 31 January 2008, the Group disposed of Ceres Power Holdings plc shares and those shares were not subject to payment of associated revenue share to Imperial College pursuant to the Technology Pipeline Agreement ("TPA") but were subject to an agreement whereby the Group increased the revenue sharing percentage in respect of the remaining Ceres Power Holdings plc shares held by the Group to cover 1,791,771 shares.
As at 31 January 2008 and 31 July 2008 the value of the 1,791,771 shares in Ceres Power Holdings plc remained as an investment on the balance sheet and there was a corresponding liability in the `Provision for liabilities and charges' covering these shares. Consequently, as the value of the Ceres Power Holdings plc shares fluctuates, although the gross values of the investment and liability also fluctuated there was no net impact on the Group's net assets or reserves. In January 2009, Imperial College called for a transfer pursuant to the TPA of the 1,791,771 Ceres Power Holdings plc shares and subsequently the Group transferred the shares to Imperial College. The impact of the transfer is therefore reflected as a disposal of £1.8 million in the Group's holding in Ceres Power Holdings Group plc and a corresponding reduction arising from the disposal in the `provision for liabilities and charges' as set out more fully in Note 3. There is therefore no impact to the `change in fair value of investments' in the income statement and no cash impact.
On 18 December 2008, the Group realised its holding in Thiakis Limited. Under the sales agreement, Imperial Innovations could receive cash payments, net of transaction costs, of £22.2 million which, after accounting for revenue sharing obligations to Imperial College, London and other research sponsors of £ 6.1 million, would leave a net receipt of £16.1 million. As at 31 January 2009, the first payment of £3.3 million has been received which, after revenue sharing obligations, results in a net receipt of £2.9 million. The payment received to date results in a fair value uplift to the income statement in the 6 months ended 31 January 2009 of £0.2 million. The estimated fair value uplift of the contingent deferred consideration after risk adjusting using industry standard criteria and discounting for time at 12% per annum results in a fair value uplift to the income statement from the contingent deferred consideration of £6.0 million. At each accounting reference date the fair value of the contingent deferred consideration will be adjusted to reflect the probability of completion of the milestones. As the future payments are a contractual entitlement, rather than an equity investment, they are reflected in the balance sheet under trade and other receivables.
3. Provisions for liabilities and charges
Unaudited for the six months to 31 January 2008 Quoted Unquoted Total
Companies Companies £000 £000 £000 At 1 August 2007 8,425 6,757 15,182 Increase of liability arising from gains on the - 40 40revaluation of investments
Decrease of liability arising from losses on the (2,358) (562) (2,920) revaluation of investments
Changes in fair value during the period (2,358) (522) (2,880) Realisations during the period (198) - (198) At 31 January 2008 5,869 6,235 12,104 For the year ended 31 July 2008 Quoted Unquoted Total Companies Companies £000 £000 £000 At 1 August 2007 8,425 6,757 15,182 Increase of liability arising from gains on the - 55 55revaluation of investments
Decrease of liability arising from losses on the (3,389) (791) (4,180) revaluation of investments
Changes in fair value during the period (3,389) (736) (4,125) Realisations during the period (194) - (194) At 31 July 2008 4,842 6,021 10,863
Unaudited for the six months to 31 January 2009 Quoted Unquoted Total
Companies Companies £000 £000 £000 At 1 August 2008 4,842 6,021 10,863 Decrease of liability arising from gains on the - (185) (185)revaluation/disposal of investments
Decrease of liability arising from losses on the (2,433) (541) (2,974) revaluation of investments
Changes in fair value during the period (2,433) (726) (3,159) Provisions utilised in the period (69) - (69) Realisations during the period (1,846) (445) (2,291) At 31 January 2009 494 4,850 5,344
NOTES TO THE INTERIM FINANCIAL STATEMENTS continued
Provisions for liabilities and charges is made up of the revenue sharing provision which represents a fair value estimate of monies due to Imperial College 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.
4. Net change in fair value of investments held at fair value through profit or loss
Unaudited for the six months to 31 January 2008 Quoted Unquoted Total
Companies Companies £000 £000 £000 At 1 August 2007 12,083 26,461 38,544 Gains on the revaluation of investments - 3,812 3,812 Losses on the revaluation of investments (2,841) (1,493) (4,334) Fair value (losses) / gains (2,841) 2,319 (522) Investments during the period - 3,129 3,129 Proceeds from the sale on investments (3,368) (35) (3,403)
Net (investment) / proceeds from the sale of (3,368) 3,094 (274) investments
At 31 January 2008 5,874 31,874 37,748 For the year ended 31 July 2008 Quoted Unquoted Total Companies Companies £000 £000 £000 At 1 August 2007 12,083 26,461 38,544 Gains on the revaluation of investments - 3,915 3,915 Losses on the revaluation of investments (3,873) (3,031) (6,904) Fair value (losses) / gains (3,873) 884 (2,989) Investments during the period - 6,357 6,357 Proceeds from the sale on investments (3,363) (43) (3,406)
Net (investment) / proceeds from the sale of (3,363) 6,314 2,951 investments
At 31 July 2008 4,847 33,659 38,506
Unaudited for the six months to 31 January 2009 Quoted Unquoted Total
Companies Companies £000 £000 £000 At 1 August 2008 4,847 33,659 38,506 Gains on the revaluation/disposal of investments - 6,654 6,654 Losses on the revaluation of investments (2,155) (2,571) (4,726) Fair value (losses) / gains (2,155) 4,083 1,928 Investments during the period - 2,798 2,798 Provisions utilised in the period 69 - 69 Proceeds from the sale on investments - (8,849) (8,849) Net proceeds from the sale of investment / 69 (6,051) (5,982)(investment) At 31 January 2009 2,761 31,691 34,452
The tables set out in Note 4 setting out the net change in fair value of investments held at fair value through profit or loss represent a combination of Note 2 and Note 3 to analyse the value of the investments after all associated revenue sharing liabilities have been accounted for.
Movement in Current Liabilities Total £000 Changes in fair value realised during the period 67
Net change in fair value of investments for the period of £1,995,000 as set out on the face of the Income Statement represents the change in net fair value on net assets of £1,928,000 plus £67,000 to reflect final adjustments on current liabilities on realisations before revenue share with third parties.
5. EARNINGS / (LOSS) PER SHARE
Basic earnings / (loss) per share is calculated by dividing the profit / (loss) for the period by the weighted average number of Ordinary Shares in issue during the period.
The profits / (losses) and weighted average number of shares used in the calculations are set out below:
Unaudited Unaudited Audited Six months Six months 12 months to to to 31 January 31 January 31 July 2009 2008 2008 Earnings / (losses) per Ordinary Share
Profit / (loss) for the financial period (£ 1,259 (2,238) (5,861) 000)
Weighted average number of Ordinary Shares 57,630 52,630 55,130 (basic) (thousands)
Effect of dilutive potential Ordinary 166 - -Shares1
Weighted average number of Ordinary Shares 57,796 52,630 - for the purposes of diluted earnings /
(losses) per share (thousands)
Earnings / (loss) per ordinary share basic 2.18 (4.3) (10.63) (pence)
Earnings / (loss) per ordinary share 2.18 (4.3) (10.63)diluted (pence)
1 Share options are non-dilutive for the six months to 31 January 2008 and 31 July 2008 because of the loss.
6. TRADE AND OTHER RECEIVABLES
The balance includes the contingent deferred consideration on the sale of Thiakis of £6.0m.
7. POST BALANCE SHEET EVENTS
Since the period end of 31 January 2009, until and as at 20 April 2009, the last practical date prior to the approval of the interim financial statements, the value of the Group's largest publicly quoted investment, Ceres Power Holdings plc, had increased by £0.3 million (10.77%). This has had the effect of increasing investments by £0.3 million and of increasing the provision for liabilities and charges by £13,000 since the half year end.
On 10 February 2009, the Group invested a further £4.0 million in Nexeon as part of a £10 million funding round. The impact of this investment is to increase the value of the gross investment from £3.4 million to £11.8 million. The associated revenue sharing liabilities associated with the shareholding in Nexeon will likewise increase by £0.2 million from £0.2 million to £ 0.4 million. The net carrying value (and profit recognised in the Income Statement) of the investment in Nexeon after accounting for the associate revenue sharing liabilities will increase by £4.1 million.
In early April 2009 the Group invested a further £1.2 million in Veryan Medical maintaining the current value of the pre-existing stake and so the resulting net carrying value is £4.5 million.
Independent review report to Imperial Innovations Group plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2009, which comprises the consolidated interim income statement, consolidated interim balance sheet, consolidated interim cash flow statement, consolidated interim statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the basis of preparation set out in note 1.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, `Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2009 is not prepared, in all material respects, in accordance with the basis of preparation set out in note 1 and the AIM Rules for Companies.
PricewaterhouseCoopers LLPChartered Accountants24 April 2009CambridgeNotes:
The maintenance and integrity of the Imperial Innovations Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Company InformationDirectors M Knight (Chairman) S Searle (Chief Executive Officer)
J Smith (Chief Financial & Operations Officer)
R (Chief Investment Officer) Cummings
D Allen (Non-Executive Director) appointed 1
August 2008 P (Non-Executive Director) Atherton M Rowan (Non-Executive Director) Company Secretary J Bowen Registered Office Level 12, Electrical and Electronic Engineering Building Imperial College London SW7 2AZ 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 Financial Advisers and Nomad JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA Share Registrars Equiniti Limited Aspect House Spencer Road Lancing Worthing West Sussex BN99 6DA
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