Final Results

RNS Number : 0389C

IP Group PLC

01 March 2011

 



FOR RELEASE ON

1 MARCH 2011

("IP Group" or "the Group" or "the Company")

IP Group Annual Results Release

IP Group plc (LSE: IPO), the developer of intellectual property based businesses, today announces its annual results for the year ended 31 December 2010.

Financial and operational highlights

·      Net assets increased to £173.1m (2009: £171.0m)

·      Profit after tax of £1.8m (2009: £6.1m loss)

·      Net cash and deposits at 31 December 2010: £21.5m (2009: £28.1m) and zero borrowings

·      Investment in portfolio companies increased to: £6.9m (2009: £5.7m)

·      Realisations from portfolio companies increased to: £2.7m (2009: £0.5m)

·      Revenue from services increased to £2.2m (2009: £1.5m)

·      Successful launch of £25m North East Technology Fund managed by the Group in January 2010

Portfolio highlights

·      Fair value of investment portfolio increased to £110.0m (2009: £101.3m)

·      Value of ten largest holdings increased to £81.3m (2009: £72.9m), representing 74% of the portfolio (2009: 72%)

·      5 new seed-stage spin-out companies, including the Group's first from the University of Cambridge (2009: 2 seed companies)

·      Over £40m of capital raised by portfolio companies during the year, of which over £28m was raised in private financing rounds

·      Tissue Regenix Group plc and Ilika plc successfully achieve listings on AIM, raising £4.5m and £5.2m respectively

·      Oxford Nanopore Technologies completes £17.4m financing in 2010 and announces preliminary details of its prototype GridION DNA sequencing platform

·      Revolymer Limited announces the US launch of its Rev7^TM removable and degradable chewing gum

Commenting on the Group's annual results, Alan Aubrey, Chief Executive of IP Group, said: 

"2010 has been an encouraging year for IP Group, with many of the Group's portfolio companies making excellent progress towards key milestones and with commercial validation by industrial partners having been particularly encouraging. The valuation of the portfolio has increased despite a challenging financing and operating environment for small technology-based businesses. This valuation has benefited from the completion of a number of further external financings, including the first two portfolio companies joining AIM since 2007. Cash balances remain strong, our pipeline of activity is healthy and this, coupled with the portfolio's strong 2010 progress, gives us continued confidence that the Group will generate significant long term returns for shareholders.

The UK continues to produce a wealth of world class intellectual property from its universities, much of which we are helping to commercialise. Never before has this innovation been so important to the UK economy. IP Group intends to play an increasingly central role in helping leading innovation reach the market for the benefit of shareholders and all other stakeholders in UK science."

For more information, please contact:

IP Group plc   

Alan Aubrey, Chief Executive Officer Mike Townend, Director of Capital Markets Greg Smith, Group Financial Controller

020 7444 0050 020 7444 0050 020 7444 0050

Further information on IP Group is available on our website: www.ipgroupplc.com

Financial Dynamics Ben Atwell, John Dineen

020 7831 3113

Notes

(i)         Nature of announcement

This Annual Results Release was approved by the directors on 28 February 2011.

The financial information set out in these preliminary results does not constitute the company's statutory accounts for 2010 or 2009. Statutory accounts for the years ended 31 December 2010 and 31 December 2009 have been reported on by the Independent Auditor. The Independent Auditor's Reports on the Annual Report and Financial Statements for 2010 and 2009 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2009 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2010 will be delivered to the Registrar following the Company's annual general meeting.

The 2010 Annual Report and Accounts will be published in March 2011 and a copy will be posted on the Group's website (www.ipggroupplc.com).  A copy will also be lodged with the UK Listing Authority's Document Viewing Facility which is situated at: Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

(ii)        Forward looking statements 

This Annual Results Release may contain forward looking statements. These statements reflect the Board's current view, are subject to a number of material risks and uncertainties and could change in the future. Factors which could cause or contribute to such changes include, but are not limited to, the general economic climate and market conditions, as well as specific factors relating to the financial or commercial prospects or performance of individual portfolio companies within the Group's portfolio of investments. 

CHAIRMAN'S STATEMENT

For IP Group, 2010 has been a year of successfully building on the foundations laid in recent years. Despite the financial crisis and subsequent recession that has affected the UK economy, the commercialisation of intellectual property created in our universities remains of the highest economic and political importance. I reported last year that the environment for small technology companies in the UK was very difficult. These conditions continued into the early part of 2010 but, towards the end of the year, there have been signs that the environment is improving. While this recovery remains tentative, as may be the case with the wider UK economy, it does nevertheless offer encouragement for the future.

IP Group was established more than ten years ago to invest in fundamental innovation developed in the UK's leading universities. Since that time we have reviewed thousands of scientific innovations and now have a portfolio of over 60 technology companies.  Progress in those companies has often taken longer than was anticipated; however, I am very pleased with the progress made by our portfolio this year and remain confident that a number of them will go on to become great UK success stories - some of the successes in the past year are highlighted in the Chief Executive's report.

The Group's business model is to take a large minority stake in a select number of leading scientific innovations each year and then to grow the value of that equity over time through active participation in portfolio company development. An important aspect of this model is the ability to access a wide range of leading scientific research. To do this, the Group pioneered the concept of a long-term partnership model with universities and we now have arrangements covering twelve of the country's leading universities.

As well as making sound progress with the portfolio, IP Group delivered a satisfactory financial result in 2010. Driven by a £4.0m increase in the fair value of our portfolio of technology businesses, the Group reported an overall profit after tax for the year of £1.8m. The Group directly invested £6.9m into new and existing portfolio businesses. Our managed funds invested a further £3.0m, while companies across the portfolio as a whole raised in excess of £40m. Cash realisations for the year increased to £2.7m compared to £0.5m in 2009, while our revenue from services increased from £1.5m to £2.2m. As a result, the Group finished the year with net assets, excluding intangibles and the Oxford Equity Rights asset, of £134.6m including £21.5m cash and no borrowings.

Our strategy has remained consistent since our first partnership with the University of Oxford's Chemistry Department: to identify, create and back businesses built on leading scientific innovation. Since its formation, the Group has backed many such businesses and now has a portfolio valued at £110m, having achieved a gross IRR in excess of 30% per annum. Over time, our aim is to grow shareholder value by increasing the level of investment.

As we now look forward to 2011 and beyond, I would like to conclude with the recognition that, as always, the Group's current and future achievements would not be possible without the hard work and dedication of its staff and the management teams of our portfolio businesses, as well as the continued support of our shareholders, investors and university partners. I thank each of them for their continued commitment and contribution.

DR BRUCE SMITH

CHAIRMAN

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

As noted in the Chairman's statement, in the early part of the year, the macro environment in which the Group operates remained challenging, however, towards the end of the year this showed some signs of improvement. This relative improvement is reflected in the improvement in the value of our portfolio and our results for the year.

IP Group's business model is to create value by growing the value of the equity it owns in its portfolio companies. This involves identifying promising research, developing businesses around this research and then attracting capital and talented management teams to these businesses. The time-line from inception to exit can be 5-10 years. Progress in the portfolio can be assessed most immediately by the movement in the fair value from one period to the next. However, market volatility can mean that this does not always give an accurate or fair reflection of the progress made and, in this context, it has been particularly encouraging to see new product launches from a number of the more mature businesses in the portfolio this year as well as industry validation of their technologies through both partnership and investment. I have highlighted a few such developments in this review.

During the year, the Group directly invested £6.9m across 31 portfolio businesses, creating 6 incubation projects from across the Group's partner universities and progressing a total of 5 opportunities to seed businesses. The Group currently manages two actively investing venture capital funds and these funds invested a further £3.0m into intellectual property based businesses. Overall, the Group's portfolio of 63 technology companies raised a total in excess of £40m during 2010 from both public and private sources, including £10m by Tissue Regenix Group plc and Ilika plc, the first two companies from our portfolio to join AIM since 2007. Further detail is provided in the portfolio review, below.

The slightly more favourable environment in the second half of the year resulted in a higher level of cash realisations, with the Group generating a total of £2.7m during the year compared to £0.5m in 2009.

The Group reported an overall profit after tax for the year of £1.8m (2009: £6.1m loss). As in prior years, the most significant contributor to this was an overall increase of £4.0m in the unrealised fair value of the Group's portfolio which stood at £110.0m at 31 December 2010. The Group's net assets increased to £173.1m, or £134.6m excluding intangible assets and the Oxford Equity Rights asset, and included £21.5m of net cash and deposits with no borrowings.

Examples of portfolio companies making excellent progress in the year include: Revolymer Limited, a specialist polymer company from the University of Bristol, which launched its Rev7^TM removable clean gum in the US; Avacta Group plc, a bio-analytical instrumentation and research company from the University of Leeds, which announced the launch of its second analytical tool, the AX-1 (or "Midas") rapid point of care immunoassay system; and Oxford Nanopore Technologies Limited, a University of Oxford spin-out that uses nanopore technology for single molecule detection and analysis, that released the first details of its prototype DNA sequencing platform, GridION.

The Group has also continued to develop those businesses that are currently earlier in the development cycle with further financings being announced by Syntopix Group plc, which is developing new topical antimicrobials for healthcare and pharmaceuticals; Xeros Limited, which is developing polymer-based "virtually waterless" laundry cleaning systems; and Karus Therapeutics Limited, which is developing a range of small molecule therapeutics for the treatment of inflammation and cancer.

The Group provided seed capital for five new early-stage businesses during the period including Amantys Limited, the Group's first spin-out from the University of Cambridge, that is developing power electronics products and whose board consists of a number of former senior members of ARM Holdings plc's management team.

The Group announced the expansion of its funds under management in January 2010 with the launch of the Finance for Business North East Technology Fund, a £25m, 10-year venture capital fund focusing on technology businesses in the North East of England. The fund made its first two investments during the period and management fees from the fund contributed to the Group growing its revenue from services to £2.2m from £1.5m in 2009.

Finally, in January 2011, the Group was pleased to announce that it had broadened its relationship with the University of Oxford through the acquisition of a strategic stake in, and alliance with, Technikos LLP, a specialist medical technology fund with a long term commercialisation agreement with the University of Oxford's Institute of Biomedical Engineering (IBME). The Group will provide access to its commercialisation, capital markets and scientific expertise and work alongside the Technikos team to assist with the creation of the next generation of spin-outs based on exciting Oxford University science.

Outlook

IP Group was formed more than ten years ago during a time when the UK and world economies were facing difficulties. Whilst the economic environment is again challenging today, the need for businesses that can leverage disruptive intellectual property and significantly contribute to the future of the UK economy has arguably never been greater. The Group has built a strong track record of identifying such intellectual property opportunities, nurturing them and helping to create valuable businesses that are now launching products and services that could have a profound impact on many people's lives. As a consequence, IP Group has interests in a high quality and diverse portfolio of 63 technology companies valued at £110m, with the overall combined value of the companies now exceeding £550m.

While the funding environment, particularly for higher-risk, early-stage businesses continues to be constrained, IP Group remains financially strong with £21.5m of cash and funds under management of £68m. The businesses in our portfolio are generally progressing very well and give exposure to five key industry sectors. The Group's access to both capital and proprietary deal flow has further progressed in the past year. As a result, the directors remain confident that the Group has the resources, technology and the people to create long term shareholder value and to continue to create and build the companies of tomorrow.

PORTFOLIO REVIEW

Portfolio overview

At 31 December 2010, the value of the Group's portfolio had increased to £110.0m from £101.3m at the end of 2009, after the impact of net investment and the fair value movements set out below. The portfolio comprised holdings in 63 businesses (2009: 63). During the year the Group made total investments of £6.9m, increased from £5.7m for the equivalent period in 2009, and realised a total of £2.7m cash proceeds (2009: £0.5m).

A summary of the gains and losses across the portfolio is as follows: 

	2010  £m	2009  £m
Unrealised gains on the revaluation of investments	13.8	15.3
Unrealised losses on the revaluation of investments	(9.8)	(16.7)
Net fair value gains/(losses)	4.0	(1.4)
Gains/(losses) on disposals of equity investments	0.6	(0.8)
Change in fair value of limited partnership investments	0.2	(0.1)
Total	4.8	(2.3)

Unrealised gains on the revaluation of investments principally arose from share price increases of Oxford Catalysts Group plc (£1.1m), Proximagen Group plc (£2.2m) and Tissue Regenix plc (£6.0m), the latter following its reversal onto AIM in June and concurrent £4.5m placing. In addition, in January 2010, Oxford Nanopore Technologies Limited raised £17.4m resulting in a £2.2m fair value gain and valuing the Group's 24.6% shareholding at £25.6m. IP Group and IP Venture Fund participated in this financing round which included existing investors Lansdowne Partners, Invesco Perpetual, Illumina UK Ltd and two new US based technology investors, which illustrates the continued global interest in Oxford Nanopore's technology and its first application in next generation DNA sequencing.

Unrealised losses on the revaluation of investments included reductions in the share prices of certain of the Group's quoted companies, including Modern Water plc (£2.9m), Avacta Group plc (£0.7m) and Synairgen plc (£0.5m).  In May, Ilika plc raised £5.2m when it achieved the first cleantech IPO on AIM in 2010, raising £5.2m. The price at which the IPO was achieved, mitigated to some degree by positive share price performance since that date, resulted in a fair value loss for the Group in 2010 of £1.8m.

Investments and realisations

The Group increased its rate of investment during 2010, with a total of £6.9m being invested across 31 new and existing projects (2009: 20) as follows:

Cash investment analysis by company stage	2010  £m	2009  £m
Incubation projects	0.4	0.3
Seed businesses	1.5	1.2
Post-seed private businesses	2.9	0.8
Post-seed quoted businesses*	2.1	3.4
Total*	6.9	5.7
Proceeds from sales of equity investments	2.7	0.5

* 2009 total of £5.7m includes £2.9m in respect of Fusion IP plc satisfied by vendor-placed new share capital, the associated cash flows for which are not reflected in the Group's statement of cash flows.

Seed businesses are those which have received financing from the Group, generally up to £0.5m in total, while post-seed businesses are those which have received some level of further funding from co-investors external to the Group, with total funding generally having exceeded £0.5m. Quoted businesses consist of those which are quoted on either AIM or PLUS Markets.

The Group has continued to mature its post-seed businesses with a number announcing further financings supported by the Group and/or IP Venture Fund ("IPVF"), the dedicated follow-on venture capital fund managed by the Group. IPVF invested a total of £2.0m into Group portfolio businesses during the year (2009: £3.2m).

Xeros Limited, which is developing polymer-based "virtually waterless" laundry cleaning systems harnessing over 30 years of research at the University of Leeds, announced a £3.5m tranched financing led by Entrepreneurs Fund. The Group and IPVF co-invested alongside Parkwalk Advisors, Finance Yorkshire and funds managed by Enterprise Ventures and the funding will enable Xeros to progress towards an initial launch in the commercial laundry market during 2011. Following the first £1.9m tranche of the financing, the Group holds a direct 25.6% interest in Xeros valued at £1.2m, with a further 12.3% being held by IPVF.

Crysalin Limited, the Group's first spin-out from the University of Oxford that originates from outside its partnership with the Chemistry department, announced a £1.55m fundraising in which the Group and IPVF co-invested alongside Oxford Technology Management and Oxford Spin-Out Equity Management. Crysalin is developing a revolutionary, patented technology for protein structure determination, enabling a step change in the productivity and scope of structure based drug design. The Group's direct 33.6% interest in Crysalin is valued at £0.6m, with a further 7.0% owned by IPVF.

IP Group and IPVF invested alongside Syngenta Ventures, the venture capital arm of the leading agribusiness Syngenta, as a part of a £1m tranched financing into Chamelic Limited. Chamelic has developed an invisible, easy to apply 'stay clean' surface treatment that prevents the build up of dirt and dust on a wide range of surfaces. Having already launched a glazing product, Chamelic will develop further products in a range of applications, including solar panels, agricultural, household care and vehicles. The Group holds a 28.8% voting interest in Chamelic with a further 14.8% being held by IPVF.

In addition, Mode Diagnostics, a University of Glasgow spin-out, secured £0.6m of funding from the Group and Scottish Enterprise to develop home-use diagnostic screening products allowing consumers to check themselves for a range of diseases including for bowel cancer. The Group has a 40% equity stake in Mode.

The Group's pipeline of commercialisable intellectual property opportunities remains strong. Six new incubation projects received initial funding during the year (2009: three). Two of these new incubation projects progressed to seed financing, while seed capital was provided to a further three new and existing opportunities, a total of five for 2010.

The five seed opportunities included:

-     Amantys Limited (University of Cambridge): Amantys's power electronics products are used to increase the reliability and efficiency of power transistors, with a first application in high power wind turbines The Company has an experienced board of directors comprising a number of previous members of the senior management team of ARM Holdings plc and is a member of the Carbon Trust Fast Track Entrepreneur Programme.

-     Aptuscan Limited (University of Leeds): Aptuscan is developing Scannins, unique binding agents for the diagnosis and treatment of disease. Scannins are small human proteins engineered to bind with high specificity and affinity to protein targets and provide the diagnostic and biopharmaceutical industry with a robust alternative to antibodies and antibody fragments.

-     Actual Experience (Queen Mary, University of London): Actual Experience's Perceptual Quality Management software is used to quantify and improve the perceived human experience of networked applications and ultimately reduce IT infrastructure costs.

-     Asalus Medical Instruments Limited (Cardiff University): Asalus is developing three innovative medical devices, Clearvision, Snugport and Surehold, which are designed to improve the safety and efficiency of laparoscopic surgery. The use of laparoscopic techniques has grown rapidly with over 2 million operations now being carried out per year in the US alone. The Group invested alongside Finance Wales and Fusion IP plc.

-     Seren Photonics Limited (University of Sheffield): Seren's revolutionary new procedure for the manufacture of nitride-based ultrahigh brightness LEDs which have the potential to dramatically cut energy requirements for light through the replacement of incandescent bulbs. Seren's non-executive chairman, Dr Godfrey Ainsworth, is also chairman of AIM-listed semiconductor specialist, IQE plc.

Seren Photonics and Asalus Medical Instruments resulted from the Group's co-investment agreement with Fusion IP plc, which was established in November 2009. The agreement grants the Group the right but not the obligation to invest in all future portfolio companies that Fusion forms from its partner universities, enhancing our proprietary access to UK research institutions and enabling us to leverage Fusion's experienced operating team.

The average investment per company increased to £220,000 from £140,000 in 2009 (excluding the non-cash investment in Fusion IP plc).

The Group realised £2.7m of cash during the year, a significant increase from the £0.5m realised during 2009.

In August, COE Group plc, which specialises in bringing innovative products to the video surveillance market, accepted an all-cash offer from Digital Barriers plc, which valued the business at £3.3m. The Group received cash proceeds of £1.2m from the sale of its 34.8% direct equity holding in COE upon completion of the transaction.

The Group also generated a modest level of cash proceeds from the more mature companies in its quoted portfolio totalling £1.3m. As the Group's portfolio businesses continue to mature, management will pursue and assess further opportunities to realise cash when market conditions and/or specific circumstances make it attractive to do so. Given the nature of the Group's business however cash realisations will inevitably retain a degree of unpredictability.

Portfolio analysis - by stage of company maturity

At 31 December 2010, the Group's portfolio fair value of £110.0m was distributed across stage of company maturity as follows:

	As at 31 December 2010					As at 31 Dec 2009
	Fair value		Number			Fair value		Number
Company stage	£m	%		%		£m	%		%
Incubation projects	0.4	1%	10	16%		1.0	1%	11	17%
Seed businesses	3.3	3%	10	16%		1.9	2%	7	11%
Post-seed private businesses	56.3	51%	28	44%		57.1	56%	30	48%
Post-seed quoted businesses	50.0	45%	15	24%		41.3	41%	15	24%
All portfolio businesses	110.0	100%	63	100%		101.3	100%	63	100%

Of the 63 companies in the Group's portfolio, 74% of the fair value resides in the ten most valuable companies and the Group's holdings in these businesses are valued at a total of £81.3m (2009: £72.9m).

Portfolio analysis - by sector

The Group's portfolio consists of five key sectors, as depicted in the following table.

		As at 31 Dec 2010							As at 31 Dec 2009
		Fair Value				Number			Fair Value		Number
Sector		£m		%			%		£m	%		%
Medical Equipment & Supplies		39.8		36%		16	25%		31.0	31%	15	24%
Pharma & Biotech		26.2		24%		8	13%		24.8	24%	10	16%
Chemicals & Materials		20.7		19%		15	24%		20.3	20%	16	25%
	Energy & Renewables		15.8		14%	12	19%		16.8	17%	10	16%
IT & Communications		4.4		4%		11	17%		4.9	5%	11	17%
Multiple sectors (Fusion IP plc)		3.1		3%		1	2%		3.5	3%	1	2%
		110.0		100%		63	100%		101.3	100%	63	100%

A more detailed analysis of each sector is set out below.

Medical Equipment & Supplies

		Group stake at    31 Dec 2010	Fair value of Group holding at 31 Dec 2009	Year to 31 December 2010		Fair value of Group holding at 31 Dec 2010
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Oxford Nanopore Technologies Limited	Single molecule detection and analysis using nanopore technology	24.6%	22.7	0.7	2.2	25.6
Tissue Regenix Group plc	Regenerative dCELL® tissue implants	15.3%	1.9	0.3	6.0	8.2
Avacta Group plc	Specialist detection and analysis technologies and services	21.6%	2.7	0.8	(0.6)	2.9
Other companies			3.7	1.1	(1.7)	3.1
Total			31.0	2.9	5.9	39.8

Companies in the Group's portfolio of Medical Equipment & Supplies or "med tech" companies saw the most significant increase in fair value during the period (19%), driven by Tissue Regenix Group plc's reversal onto AIM and subsequent positive share price performance, and the completion of a further £17.4m financing by Oxford Nanopore Technologies at a premium to the previous round.

Oxford Nanopore Technologies Limited, a spin-out from the University of Oxford's chemistry department, is developing a revolutionary technology for direct, electrical detection and analysis of single molecules. In January 2011, Oxford Nanopore disclosed the first details of its platform technology, GridION. The systems brings together single molecule analysis and contemporary computing, consisting of individual units (nodes) that can be used individually by a small benchtop user or in multiples as a clustered system for medium users or large scientific installations. The system is designed to run in real time and can be used for DNA sequencing, protein analysis, and small molecule analysis.

Oxford Nanopore has a commercialisation agreement with Nasdaq-listed Ilumina Inc., the world leader in the DNA sequencing market, for exonuclease DNA sequencing, in which an enzyme snips individual bases from a single-stranded DNA molecule and drops them into a nanopore. Oxford Nanopore is also pursuing additional methods of nanopore analysis:  DNA 'strand sequencing', for which major advances were reported by Oxford Nanopore's academic collaborators at University of California Santa Cruz and Oxford University in 2010 and protein analysis, for which an internal R&D group was formed in 2010.

The next generation sequencing space saw significant activity in the second half of 2010 with two private US companies announcing major corporate transactions. In August, Ion Torrent Inc. was bought by NASDAQ-listed Life Technologies Inc. for $725m, with $375m payable on completion and the balance payable upon the achievement of certain technical and time-based milestones through 2012. In October, Pacific Biosciences joined NASDAQ, raising $200m through an IPO and valuing the company at c$845m. Oxford Nanopore raised a further £17.4m in January 2010 valuing the Group's direct 24.6% holding at £25.6m, with a further 1.5% being held by IPVF.

Tissue Regenix Group plc achieved admission to AIM by way of a reverse takeover of Oxeco plc in June 2010, raising £5.4m and valuing the Group's holding at £3.6m. Tissue Regenix has developed dCELL® Technology which removes cells and other components from animal and human tissue allowing it to be used without anti-rejection drugs to replace worn out or diseased body parts. The potential applications of this process are diverse and address many critical clinical needs such as vascular disease, heart valve replacement and knee repair. In August 2010, the company received European CE Marking for its first product, the dCELL Vascular Patch, granting approval for it to commence sales. In December, Tissue Regenix announced that its partner, NHS Blood and Transplant, had initiated a pilot study to evaluate the use of decellularised human donor skin grafts (dCELL® Human Dermis) in the treatment of chronic, non-healing wounds, the treatment of which currently costs the NHS alone over £1 billion per annum.

The Group's holding in Avacta Group plc ("Avacta"), which develops detection and analysis technology and services aimed at the pharmaceutical, healthcare, security and industrial sectors, saw a fair value reduction during the period of £0.6m. From an operational perspective however Avacta has continued to perform strongly and this has been reflected in its share price following the period end. Sales momentum for Avacta's flagship Optim product is growing, with the company announcing its first sale in the US, as well as the signing of a distribution agreement in China, Hong Kong and Taiwan. In November, Avacta launched its AX-1 immunoassay system for rapid point of care testing in GP and vet surgeries.

Pharma & Biotech

		Group stake at    31 Dec 2010	Fair value of Group holding at 31 Dec 2009	Year to 31 December 2010		Fair value of Group holding at 31 Dec 2010
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Photopharmica (Holdings) Limited	Wound treatment using light (photodynamic therapy or "PDT")	49.9%	13.0	-	-	13.0
Proximagen Group plc	Treatments for neurodegenerative disorders such as Parkinson's disease	8.4%	4.9	0.1	2.2	7.2
Synairgen plc	Developing new drugs for respiratory diseases	10.8%	2.1	-	(0.5)	1.6
Syntopix Group plc	Topical antimicrobials for healthcare and pharmaceutical applications	19.4%	1.1	0.4	(0.4)	1.1
Other companies			3.7	-	(0.4)	3.3
Total			24.8	0.5	0.9	26.2

The Group's Pharma & Biotech portfolio experienced a limited level of unrealised fair value gains during 2010 predominantly due to a £2.2m unrealised fair value gain arising from the positive share price performance of Proximagen Group plc ("Proximagen").

Photopharmica (Holdings) Limited, based on intellectual property from the University of Leeds, is developing photosensitiser-based technology currently undergoing phase IIb clinical trials. The company announced in February 2011 that greater than 75% of the required patients had now been randomised into its Phase IIb chronic leg ulcer trial for its PPA904 programme and PPA Lux 680 light source. The final results of the trial are anticipated during Q3 2011 and the company will seek to enter into a licensing or co-development agreement with an appropriate partner should the trial complete successfully.

Proximagen, a spin-out from King's College, London which completed a £50m placing in 2009 and has subsequently made three acquisitions of complementary therapeutic programmes with a strategy of further developing those programmes before achieving an early out-licence, announced the completion of the partnering of both of the programmes acquired through the acquisition of Minster Pharmaceuticals plc. In addition, in December, Proximagen strengthened its portfolio of development therapeutics in the CNS space with the acquisition of two programmes from GSK. The programmes are designed to develop positive allosteric modulators that have the potential to address the needs of patients suffering from a variety of disorders of the CNS including cognition, neuropathic pain, and Parkinson's disease.

Both Syntopix Group plc ("Syntopix") and Synairgen plc made further positive progress with their development programmes during 2010 although both saw disappointing share price performances in the period. Having received positive Phase I safety results in 2009, Synairgen announced that the Phase II study of its lead compound, inhaled interferon beta, in exacerbation-prone asthmatics was progressing well with 10 sites now initiated and recruitment scheduled to complete in autumn 2011. The company reported the process for the identification and selection of a long-term development and licensing partner for the interferon beta programme was well underway and also that it had commenced its influenza pre-clinical programme, with results expected late summer 2011.

Having completed a £2.0m financing in March 2010, Syntopix announced an agreement with Sinclair Pharma plc ("Sinclair") to identify an anti-microbial compound to synergise and augment the activity of one of Sinclair's key products. The success of the agreement resulted in a second agreement being signed in October 2010. In addition, in August Syntopix entered into an exclusive agreement with a world leading company in marketing home, health and personal care brands under which it expects to receive payments throughout this clinical phase.

Chemicals & Materials

		Group stake at    31 Dec 2010	Fair value of Group holding at 31 Dec 2009	Year to 31 December 2010		Fair value of Group holding at 31 Dec 2010
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Oxford Advanced Surfaces Group plc	Surface modification technologies applicable to a broad range of materials	15.4%	5.7	-	0.6	6.3
Green Chemicals plc	Environmentally friendly textiles and bleaching chemicals	24.5%	3.0	0.4	(0.2)	3.2
Revolymer Limited	Novel  polymers e.g. "Removable" chewing gum	11.1%	3.0	-	-	3.0
Ilika plc	High throughput materials discovery	9.2%	3.5	0.3	(1.9)	1.9
Surrey Nanosystems Limited	Low temperature carbon nanotube growth	22.5%	1.3	0.1	-	1.4
Xeros Limited	"Virtually waterless" washing machines	25.6%	0.7	0.2	0.3	1.2
Other companies			3.1	0.4	0.2	3.7
Total			20.3	1.4	(1.0)	20.7

The moderate unrealised fair value loss seen by the Chemicals & Materials portfolio is largely as a result of Ilika plc's admission to AIM although this was counteracted to a degree by Oxford Advances Surfaces Group plc ("OAS"), whose share price increase contributed £0.6m of fair value gains.

Following the successful completion of the "GRAS" regulatory approval process earlier this year, Revolymer Limited announced the US launch of its Rev7^TM removable and degradable "clean gum" at the National Association of Convenience Stores Show. It is expected to be available in retail stores early in 2011 with Revolymer working with national and regional distributors to achieve broad distribution as quickly as possible. The United States is the world's largest chewing gum market and it is estimated that over 300,000 tons of chewing gum will be sold this year in the US alone and after chewing this results in approximately 120,000 tons of residual chewing gum cuds which remain in the environment every year. This underlines the positive environmental impact that could result from the Rev7^TM launch. Revolymer applies its innovative proprietary approach to formulate novel polymers to revolutionise consumer products. Other applications for Revolymer's technology currently under evaluation are in the medicated chewing gum, household products, personal care and coatings & adhesives sectors of the FMCG industry.

In addition to its AIM IPO and £5.2m placing during the year, Ilika plc, an advanced cleantech materials discovery company from the University of Southampton, announced a number of further commercial developments, including the progression of a transport fuel cell programme with a major vehicle manufacturer from a contract research relationship to a joint development partnership and an agreement with Taiwan's Industrial Technology Research Institute, to scale-up and commercialise jointly the next generation of fuel cell catalysts. Ilika also announced a six-month development project with the Ministry of Defence for thermoelectric screening technology, and that its subsidiary Altrika had been awarded TSB grants to develop the spray formulation of CryoSkin(R) for the treatment of paediatric burns and scalds.

OAS, the advanced materials company, announced in February 2011 that it had successfully developed a nano-particle based anti-reflective coating which addresses a market that is forecasted to be in the order of $2B by 2015. In January 2010, the company strengthened its board with Dr David Bott, previously Director of Group Technology at ICI, joining as a non-executive director. In June, the technology on which OAS is based received recognition when co-founder, Dr Jon-Paul Griffiths, was awarded the Royal Society of Chemistry's "Young Industrialist of the Year Award 2010" for his research into novel applications of carbene chemistry.

Elsewhere in the Chemicals & Materials portfolio, Green Chemicals plc announced a co-operation agreement with Clariant International Ltd., the Basel-based multinational which in 2009 had sales of c£4bn. The companies have the intention of bringing to market a new generation of flame retardants based on Green Chemicals' patented technology that are less environmentally hostile than existing treatments, which can be carcinogenic or bio-accumulative.

Energy & Renewables

		Group stake at    31 Dec 2010	Fair value of Group holding at 31 Dec 2009	Year to 31 December 2010		Fair value of Group holding at 31 Dec 2010
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Modern Water plc	Technologies to address the world's water crisis	23.2%	11.2	-	(2.9)	8.3
Oxford Catalysts Group plc	Speciality catalysts for the generation of clean fuels	7.5%	3.2	(0.9)	1.1	3.4
Sustainable Resource Solutions Limited	Low temperature carbon nanotube growth	43.6%	0.5	0.5	0.5	1.5
GETECH Group plc	Gravity and magnetic data analysis for the oil and gas industry	22.0%	0.8	0.1	-	0.9
Other companies			1.1	0.6	-	1.7
Total			16.8	(0.3)	(1.3)	15.8

The Energy & Renewables sector experienced a modest reduction in fair value as a result of a decrease in the share price of AIM-listed Modern Water plc ("MW") of £2.9m, which was partially offset by an increase in Oxford Catalysts Group plc's ("OCG") share price giving rise to a net increase in fair value of £1.5m.

While MW's share price performance has been disappointing in the year, the group has continued to develop its leading water technologies focused on addressing the scarcity of fresh water and the treatment of waste water. In December, the group announced the proving plant for its first evaporative cooling system in Oman had completed its trial period and proven key advantages over existing methods including typical operating expenditure savings of 50%. In February 2011, MW announced the acquisition of Cogent Environmental, a global provider of state-of-the-art environmental and process monitoring products, and the formation of the MW Monitoring Division. This division includes Cymtox and Modern Water also announced in the year that a number of orders had been received in China for its Continuous Toxicity Monitor units, the only real-time broadband continuous toxicity monitor currently available on the market. Finally, in June the company announced that the Omani Public Authority for Electricity and Water had agreed a six-month tariff for MW to continue to provide fresh water to the Al Khaluf area. The plant is the only one to use Manipulated Osmosis in the huge Middle East market, where annual expenditure on water and wastewater technology is expected to rise to above $50bn by 2016.

OCG has achieved a number of technical and commercial advances with its development partners during the year and its share price has reacted positively as a result. OCG announced in December that SGC Energia, had ordered a commercial scale Fischer-Tropsch reactor, while OCG's relationship with Thailand's national oil and gas company, PTT Public Company Limited, continues to be very positive, with its collaboration for land-based GTL remaining on schedule. With increasing demand for oil and sustained production constraints having driven crude prices again towards $100 per barrel, OCG reported that it was enjoying an "exceptional level of interest" for its technology and that it expected to conclude a number of new partnership and sales opportunities with major corporations during the course of 2011.

During the year the Group made a further investment into Sustainable Resource Solutions Limited ("SRS"), a waste and resource management business. SRS announced in May that John Holt, a director and shareholder in Avondale Ltd, one of the strongest performing independently owned businesses in the waste sector, had been appointed as non-executive chairman. Alongside IP Group, SRS is also developing Encos Limited, a spin-out company using technology from the Universities of Leeds and Nottingham, which aims to replace concrete as a structural material with fully sustainable construction products made from 100% recycled and industrial waste materials.

IT & Communications

At 31 December 2010, the Group's portfolio of holdings in IT & Communications companies was valued at £4.4m (2009: £4.9m) and recorded a small fair value loss of £0.1m (2009: £0.1m gain).

In August, COE Group plc accepted an all-cash offer from Digital Barriers plc, which valued the business at £3.3m. The Group received cash proceeds of £1.2m from the sale of its 34.8% direct equity holding in COE compared to its fair value at 31 December 2009 of £1.0m and a total investment of £1.4m. Following trading difficulties in COE's 2008 financial year, which resulted in the company posting a loss of £1m, COE rationalised its cost base in 2009 and returned to profitability. The cash exit valued the business at £3.3m and in light of the company's previous trading difficulties this was considered to be the most satisfactory outcome.

The most valuable business in the IT & Communications portfolio, Tracsis plc (fair value 2010: £1.8m; 2009: £1.8m), a leading provider of operational planning software to passenger transport industries, reported its third successive year of revenue growth since its AIM IPO in 2007. This followed the launch of a new product, TRACSRoster, and the acquisition of Safety Information Systems Limited, a data analysis, process control and management reporting software developer, the latter in 2009.

FINANCIAL REVIEW - STATEMENT OF COMPREHENSIVE INCOME

A summary analysis of the Group's performance is provided below:

	2010   £m	2009   £m
Net portfolio gains / (losses)	4.8	(2.3)
Other income	2.2	1.5
Administrative expenses - Modern Biosciences*	(0.5)	(0.3)
Administrative expenses - All other businesses	(4.9)	(5.6)
Finance income	0.2	0.6
Gain/(loss) and total comprehensive income for the period	1.8	(6.1)

* Administrative expenses - Modern Biosciences in 2009 is stated net of £0.4m R&D tax credits

Portfolio gains/(losses) consist primarily of realised and unrealised fair value gains and losses from the Group's equity and debt holdings in spin-out businesses. A detailed analysis of fair value gains and losses is provided in the Portfolio Review above.

Other income for the year increased by 47% to £2.2m (2009: £1.5m) primarily as a result of increased venture capital fund management fees (£1.7m; 2009: £1.0m) following the appointment of the Group as manager of the £25m Finance for Business North East Technology Fund ("NETF") in January 2010. The Group receives management fees and has the potential to generate performance fees from successful investment of the NETF.

The Group is able to co-invest alongside the NETF in appropriate opportunities and the first example of this occurred in January 2011 when the fund led a £0.6m financing, including direct investment from the Group, into Icona Solutions Limited, an existing Group portfolio company that has developed Perceived Quality simulation and visualisation software.

The Group has now established a permanent North East fund management operation based in Newcastle-upon-Tyne in order to efficiently operate the NETF, and the four person local team leverages skills and resources from the wider Group as required. Despite moderate expenditure associated with the additional office, the Group continues to tightly control its cost base, maintaining the lower levels of administrative expenses established following the reorganisation undertaken in late 2008 and early 2009. 

The Group's administrative expenses include an IFRS 2 share-based payments charge totalling £0.3m relating to the Group's Long-Term Incentive Plan (2009: £0.6m). This charge reflects the fair value of services received from employees, measured by reference to the fair value of the share based payments at the date of award, but has no net impact on the Group's total equity or 'net assets'. The LTIP awards made in 2007 expired during the year without vesting and new awards were made to directors and staff in October. The new awards are subject to vesting conditions until March 2013 and charges relating to these awards will therefore be recognised in the statement of comprehensive income until this time.

During 2010 the Group's early-stage drug discovery subsidiary, Modern Biosciences plc, continued development of its two lead programmes OsteoRx and Rimcazole. The Phase I safety trial of Rimcazole was terminated during the year following the occurrence of adverse patient reactions and further development work will not be undertaken on the compound as a result. The Group currently intends to continue to pursue limited early-stage pre-clinical development of selected programmes from its partner and other universities during 2011 dependent on the attractiveness of programmes following detailed due diligence at the time.

As a result of a continued low interest rate environment in the UK and lower average cash balances in the year, finance income again decreased to £0.2m (2009: £0.6m). It is expected that the Group's future finance income will fluctuate broadly in line with future interest rate changes.

FINANCIAL REVIEW - STATEMENT OF FINANCIAL POSITION

At 31 December 2010, the Group continued to benefit from a strong financial position with cash and deposits of £21.5m (2009: £28.1m), no borrowings and a diversified portfolio of holdings in 63 private and publicly-listed technology companies.

The value of the Group's holdings in portfolio companies increased during the year to £110.0m as at 31 December 2010 following net fair value gains of £4.6m and net investment of £4.1m (2009: £101.3m, £1.4m net fair value loss; £4.3m net investment). The Portfolio Review above contains a detailed description of the Group's portfolio of equity and debt investments, including key developments and movements during the year.

The Group's Statement of financial position includes goodwill of £18.4m (2009: £18.4m) and an equity rights asset of £19.9m (2009: £19.9m). The goodwill balances arose as a result of the Group's historical acquisitions of Techtran Group (university partnership business, £16.3m; 2009: £16.3m) and Top Technology Ventures (venture capital fund management business, £2.1m; 2009: £2.1m), while the equity rights asset represents amounts paid to the University of Oxford giving the Group the right to receive 50% of the university's entitlement to equity in any spin-out company or of any licensing income emanating from the University of Oxford's Chemistry Department until 2015. The carrying values of these assets have been reviewed during the period and the directors do not believe these assets to be impaired at the balance sheet date. The contract underpinning the Oxford Equity Rights Asset expires in November 2015, by which time the corresponding asset will have been written off by way of impairment or fair value reduction through the income statement. Based on the directors' current forecasts, it is anticipated a charge to the income statement will first occur in 2011. Further details are provided in Notes 11 and 15 to this Annual Results Release.

Due to the nature of its activities, the Group has limited current assets or current liabilities other than its cash and short term deposit balances, which are considered in more detail below.

Cash and short term deposits ("Cash")

The principal constituents of the movement in Cash during the year are summarised as follows:

	2010  £'m	2009  £'m
Net Cash used in operating activities	(2.5)	(2.7)
Net Cash used in investing activities	(4.1)	(2.5)
Issued share capital	-	-
Movement during period	(6.6)	(5.2)

The Group's overall level of cash deployment increased during 2010, predominantly as a result of an increased net investment rate. As described in detail in the Portfolio Review above, the Group invested £6.9m across 31 opportunities during the period (2009: £5.7m, 20). A further £0.2m was committed to IP Venture Fund (2009: £0.2m), which in turn invested £2.0m across 11 portfolio companies. The Group made realisations of £2.7m during the period (2009: £0.5m) and received £0.3m from the University of Leeds as partial repayment of the Group's other financial asset, further details of which are provided in Note 18 below. Overall, net cash used in investing activities increased to £4.1m (2009: £2.5m).

Despite a reduction in interest received of £0.8m compared to 2009, cash used in operating activities reduced to £2.5m (2009: £2.7m) as a result of lower administrative costs and changes in working capital balances.

It remains the Group's policy to place cash which is surplus to near term working capital requirements in low-risk treasury funds rated "AA" or above, or on short-term and overnight deposits with financial institutions that meet the Group's treasury policy criteria. The treasury policy is described in detail in Note 2 below alongside details of the credit ratings of the Group's cash and deposit counterparties. The Group continues to have no borrowings or foreign currency deposits.

Taxation

As a result of the fact that the Group's activities are mainly trading in nature, the directors continue to believe that the Group qualifies for the Substantial Shareholdings Exemption ('SSE') on chargeable gains arising on the disposal of qualifying holdings and, as such, the Group has continued not to recognise a provision for deferred taxation in respect of uplifts in value on those equity stakes which meet the qualifying criteria.

ALAN AUBREY

CHIEF EXECUTIVE OFFICER

PRINCIPAL RISKS AND UNCERTAINTIES

The operations of the Group and the implementation of its objectives and strategy are subject to a number of key risks and uncertainties. Risks are formally reviewed by the Board on an annual basis and appropriate procedures are put in place to monitor and, to the extent possible, mitigate these risks. Were more than one of the risks to occur, the overall impact on the Group may be compounded. The key risks affecting the Group and the steps taken to manage these are as follows:

Financial risks

Through its normal operations, the Group is exposed to a number of financial risks, comprising liquidity, market and credit risks.

Market risk

The Group is exposed to market risks, principally equity securities price risk as a result of its equity investments and investments in limited partnerships.  The Group holds investments which are publicly traded on the AIM Market and/or PLUS Markets and investments which are not traded on an active market.  The valuation of quoted and unquoted investments depends on a combination of market factors, including investor sentiment, availability of liquidity and appetite for specific asset classes, as well as the specific performance of each underlying company. As a result of the Group's focus on UK-based intellectual property, its portfolio companies tend to be based in, or have significant operations in, the UK and are therefore influenced by trading and market conditions therein.

The Group seeks to mitigate price risk by having an established investment appraisal process and asset-specific monitoring procedures which are subject to overall review by the Board. In a number of cases these monitoring procedures can include members of the Group's executive team and other staff serving in an advisory capacity to portfolio companies (including secondments and non-executive directorships). The Group has also established Capital Markets and Communications teams dedicated to supporting portfolio companies with fundraising activities and investor relations.

Liquidity risk

The Group is exposed to liquidity risk arising from the need to have finance available to make investments in portfolio companies and to meet payments for administrative and other costs as they fall due.

The Group seeks to manage its liquidity risk to ensure sufficient cash is available to meet foreseeable needs and to invest cash assets safely and profitably.  Accordingly, the Group only places working capital on overnight deposits with clearing banks or in short term treasury funds managed by reputable counterparties. The Group continuously monitors rolling cash flow forecasts to ensure sufficient cash is available for anticipated cash requirements.

Credit risk

Credit risk arises from the exposure to the risk of loss if a counterparty fails to perform its financial obligations to the Group. This could include non-repayment of cash and cash equivalents held with financial institutions or defaults of individual trade debtors. Reasons for counterparty defaults include general economic or sector specific downturns, or the failure of an individual financial institution or other entity.

The Group's credit risk is primarily attributable to its deposits, cash and cash equivalents, debt investments and trade receivables.  The Group seeks to mitigate its credit risk on cash and cash equivalents by investing in treasury funds with an "AA" credit rating or above managed by institutions, or by making short term deposits with counterparties. Short term deposit counterparties are required to have most recently reported total assets in excess of £3 billion and, where applicable, a prime short term credit rating at the time of investment (ratings are generally determined by Moody's or Standard & Poor's).  Moody's prime credit ratings of "P1", "P2" and "P3" indicate respectively that the rating agency considers the counterparty to have a "superior", "strong" or "acceptable" ability to repay short term debt obligations (generally defined as having an original maturity not exceeding 13 months). 

Loss of key personnel from the Group

The Group's employees are highly qualified and experienced, and the area in which the Group operates is a specialist area. There is a risk that the Group's management and employees will be targeted by competitors or technology companies. The loss of key employees of the Group may also have an adverse effect on the value of the Group.

The Group mitigates this risk by performing a thorough market comparison of the remuneration of its staff, balancing salary and 'softer' benefits such as flexible working with longer-term incentive plans. All senior executives are shareholders in the business and all members of staff participate in the Group's long-term incentive plan. In 2010 the Group extended its long-term incentive plan such that all permanent members of staff became eligible to receive awards under the scheme. As described in the remuneration report, conditional LTIP awards generally vest over three years and are designed to reward increases in the Group's share price and tangible net asset value.

Group investments are generally into companies at an early stage of development

Investments made by the Group in spin-out companies are made at an early stage and are subject to risks associated with early stage investments in general, including the ability to secure later rounds of funding, the impact of competing technologies entering the market and the risk that the technology will fail. In some cases the ability to succeed will be dependent upon regulatory approval for certain trials to proceed.

The Group mitigates this risk in a number of ways. Executives and senior management collectively have many years of experience in sourcing, developing and investing in early stage technology companies and then growing these to significant value creation. This is achieved through the Group's investment and business building methodology. The risk is further mitigated through low value initial investments prior to seed funding, which enables identification and removal of potential failures at the earliest possible stage of the investment process. The Group seeks to mitigate the risk of a company being unable to source later rounds of funding by operating a capital markets function which carries out fundraising mandates for portfolio companies and by maintaining close relationships with co-investors that focus on companies at differing stages of development.

Failure of, loss of value of, or failure to generate realisations from companies within the Group's portfolio, which may be dominated by one or a limited number of companies

The Group has a portfolio of equity and debt interests in technology companies and there is a high risk that certain of the Group's current and future investments in portfolio companies may fail, resulting in an impairment of the Group's value and profitability. In addition, failure of companies within the Group's portfolio may make it more difficult for other spin-out companies within the portfolio to raise additional capital. At any time, a large proportion of the overall value of the portfolio of technology companies held by the Group may be accounted for by one, or very few, technology companies which could exacerbate the impact on the Group of one or more such company failures. As equity realisations from the Group's technology businesses are expected to be achieved through liquidity events, including trade sales and IPOs, the total cash received from these sources could vary significantly from year to year.

The Group mitigates this by investing in a number of portfolio companies across different sectors which reduces the potential impact of the failure of any one individual portfolio company. Further, members of the Group's experienced management team and staff frequently serve in an advisory capacity to the Group's portfolio companies (including secondments and non-executive directorships) enabling identification and remedy of business issues at an early stage. It is management's expectation however that there will always be a limited number of companies that dominate the Group's portfolio in this way.

Changes in legislation and government policy

There may be unforeseen changes in government policy or legislation (including taxation legislation), or other changes to the terms upon which public monies are made available to universities and research institutions. Such changes could result in universities and research institutions no longer being able, or for it to become commercially unattractive for them, to own, exploit or protect intellectual property. In addition, changes in government policy or legislation (including changes to tax legislation, in particular in relation to the substantial shareholder exemption) or other terms upon which university academics are incentivised could make it commercially unattractive for research academics to participate in the commercialisation of the intellectual property that they create. Changes of this nature could represent a fundamental risk to the Group's business.

The Group's university partners are incentivised to protect their intellectual property for the Group to exploit through the structure of the partnership agreements which share the returns between the universities, the academic founders and the Group. The Group has further mitigated this risk by having client service team managers working locally at its partner universities to assist them with the management of their intellectual property and with the negotiation of research contracts to ensure that their intellectual property is not unduly compromised. The Group's university partners also maintain close links with the government to manage their position with respect to future legislative changes and the Group utilises professional advisors as appropriate to support its monitoring of, and response to, changes in tax or other legislation.

Termination of university partnerships and change of control provisions

The benefits to which the Group is entitled under its university partnerships are dependent on the continuation of those partnerships. In a number of instances (principally relating to a failure on the part of the Group to meet certain contractual obligations), the partnerships can be terminated and a number of the partnership agreements contain change of control clauses which may result in their renegotiation or termination if the situation arose.

The Group manages this risk by ensuring that its university partners receive the requisite level of service in line with the Group's contractual obligations and continuing to generate significant value for the universities and their academic founders through the success of spin-out companies created.

Recoverability of the University of Oxford Equity Rights asset

The Equity Rights asset shown in the Group's consolidated statement of financial position relates to amounts paid to the University of Oxford to secure 50 per cent of the university's equity in any spin-out company or of any licensing income emanating from the university's chemistry department until November 2015. The accounting treatment of the Equity Rights asset is described further in the accounting policies set out below, however the asset is not repayable in cash by the university and its value is therefore affected by a number of factors. In the event of evidence that the future recoverable amount of the Equity Rights asset is less than the value shown in the consolidated statement of financial position, a provision for impairment would be recognised at that time through the statement of comprehensive income.

The key risks that could result in an impairment of the Equity Rights include: the timing and number of successful IP spin-out opportunities arising from the university, the extent to which the Group's holding is diluted through further financing of spin-out companies, and general market conditions which may impact the disposal values or IPO valuations of such companies.

The Group manages these risks by working closely with the university to jointly source and develop intellectual property spin-out companies and then utilising the knowledge and experience of the Group's management team to create value from these companies and generate exit routes. However, as the contract nears its conclusion in November 2015, the corresponding value of the equity rights asset will be reduced from its current holding at cost through impairment or fair value reduction through the income statement. Based on the directors' current forecasts, it is anticipated a charge to the income statement will first occur in 2011.

CONSOLIDATED FINANCIAL STATEMENTS 

The financial information set out below has been extracted from the Annual Report and Accounts of IP Group plc for the year ended 31 December 2010 and is an abridged version of the full financial statements, not all of which are reproduced in this announcement. 

DIRECTORS' RESPONSIBILITIES STATEMENT

The responsibility statement set out below has been reproduced from the Annual Report and Accounts, which will be published in March 2011, and relates to that document and not this announcement.

The annual report and accounts is the responsibility of, and has been approved by, the directors. The directors confirm to the best of their knowledge that:

·      the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union and Article 4 of the IAS regulation;

·      the financial statements, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·      the annual report and accounts includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

ON BEHALF OF THE BOARD

Bruce Smith	Alan Aubrey
Chairman	Chief Executive Officer

28 February 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2010

	Note	2010 £'m		2009 £'m
Portfolio return and revenue
Change in fair value of equity and debt investments	16	4.0		(1.4)
Profit / (loss) on disposal of equity investments		0.6		(0.8)
Change in fair value of limited partnership investments		0.2		(0.1)
Other portfolio income		-		-
Revenue from services	4	2.2		1.5
		7.0		(0.8)
Administrative expenses
Employee bonus costs	19	-		(0.3)
Research and development costs		(0.4)		(0.5)
Share based payment charge	22	(0.3)		(0.6)
Other administrative expenses		(4.7)		(4.9)
		(5.4)		(6.3)
Operating profit / (loss)	7	1.6		(7.1)
Finance income - interest receivable		0.2		0.6
Profit / (loss) before taxation		1.8		(6.5)
Taxation	9	-		0.4
Profit / (loss) and total comprehensive income for the year attributable to owners of the parent		1.8		(6.1)
Basic earnings per ordinary share (p)	10	0.69		(2.45)
Diluted earnings per ordinary share (p)	10	0.69		(2.45)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2010

	Note	2010 £'m		2009 £'m
ASSETS
Non-current assets
Intangible assets:
Goodwill	11	18.4		18.4
Acquired intangible assets	12	-		-
Property, plant and equipment	13	0.3		0.4
Equity rights and related contract costs	15	20.1		20.1
Investment portfolio:
Equity investments	16	106.3		99.0
Debt investments	16	3.7		2.3
Other financial asset	18	0.8		1.1
Investment in limited partnerships	23	1.9		1.5
Total non-current assets		151.5		142.8
Current assets
Trade and other receivables	17	0.8		0.8
Deposits		7.5		15.0
Cash and cash equivalents		14.0		13.1
Total current assets		22.3		28.9
Total assets		173.8		171.7
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	20	5.1		5.1
Share premium account		99.3		99.3
Merger reserve		12.8		12.8
Retained earnings		55.9		53.8
Total equity attributable to owners of the parent		173.1		171.0
Current liabilities
Trade and other payables	19	0.7		0.7
Total equity and liabilities		173.8		171.7

Registered number: 4204490

Approved by the Board of Directors and authorised for issue on 28 February 2011 and signed on its behalf by:

Bruce Smith	Alan Aubrey
Chairman	Chief Executive Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2010

	2010 £'m		2009 £'m
Operating activities
Profit / (loss) before taxation	1.8		(6.5)
Adjusted for:
Finance income - interest receivable	(0.2)		(0.6)
Fair value movements in equity and debt investments	(4.0)		1.4
Fair value movements in limited partnership investments	(0.2)		0.1
Depreciation of property, plant and equipment	0.1		0.1
Amortisation of intangible non-current assets	-		0.2
Gain / (Loss) on disposal of equity investments	(0.6)		0.8
Non cash employee bonus costs	-		0.3
Share-based payment charge	0.3		0.6
Other portfolio income classified as investing activities cash flows	-		-
Changes in working capital
Decrease in trade and other receivables	-		(0.2)
Decrease / (increase) in trade and other payables	0.1		(0.2)
Other operating cash flows
Research and development tax credits received	-		0.3
Interest received	0.2		1.0
Net cash outflow from operating activities	(2.5)		(2.7)
Investing activities
Purchase of property, plant and equipment	-		-
Purchase of equity and debt investments	(6.9)		(2.8)
Investment in Limited Partnership Funds	(0.2)		(0.2)
Proceeds from sale of equity investments	2.7		0.5
Repayments of borrowings	0.3		-
Net cash outflow from investing activities	(4.1)		(2.5)
Financing activities
Net cash flow from / (to) deposits	7.5		(15.0)
Net cash inflow / (outflow) from financing activities	7.5		(15.0)
Net increase / (decrease) in cash and cash equivalents	0.9		(20.2)
Cash and cash equivalents at the beginning of the year	13.1		33.3
Cash and cash equivalents at the end of the year	14.0		13.1

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2010

	Attributable to owners of the parent
	Share capital £'m	Share premium (i) £'m	Merger reserve (ii) £'m	Retained earnings (iii) £'m	Total £'m
At 1 January 2009	5.0	96.7	12.8	59.3	173.8
Loss and total comprehensive income for the year	-	-	-	(6.1)	(6.1)
Issue of equity	0.1	2.6	-	-	2.7
Share based payment charge	-	-	-	0.6	0.6
At 1January 2010	5.1	99.3	12.8	53.8	171.0
Profit and total comprehensive income for the year	-	-	-	1.8	1.8
Share based payment charge	-	-	-	0.3	0.3
At 31 December 2010	5.1	99.3	12.8	55.9	173.1

(i) Share premium	Amount subscribed for share capital in excess of nominal value, net of directly attributable issue costs
(ii) Merger reserve	Amount subscribed for share capital in excess of nominal value in relation to the qualifying acquisition of subsidiary undertakings
(iii) Retained earnings	Cumulative net gains and losses recognised in the consolidated statement of comprehensive income net of associated share-based payments credits

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

1.         ACCOUNTING POLICIES

Basis of preparation

The financial information set out in this Annual Results Release has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The accounting policies adopted in this Annual Results Release have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2010. Other than as indicated below, the principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2009:

-     Revised IFRS 3 Business Combinations: Revised IFRS 3 retains the requirement to apply acquisition accounting in all cases and to identify and recognise intangible assets separately from goodwill. However, for all future acquisitions, all acquisition costs shall be written off to profit or loss instead of being included in the cost of investment; an intangible asset shall be recognised even if it cannot be reliably measured; and, it will be possible to gross up the balance sheet for goodwill attributable to 'non-controlling interests' (previously 'minority interests').  The revised standard will not require the restatement of the Group's previous business combinations.

-     Amendments to IAS 27 Consolidated and Separate Financial: This Amendment affects in particular the acquisition of subsidiaries achieved in stages and disposals of interests, with significant differences in the accounting depending on whether or not control is obtained as a result of the transaction, or where a transaction results only in a change in the percentage of a controlling interest.  The Amendment will not require the restatement of previous transactions. 

Basis of consolidation

(i)  Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than half of the voting rights.  The existence and effect of potential voting rights are considered when assessing whether the Group controls an entity.  Subsidiaries are fully consolidated from the date on which control is established by the Group until the date control ceases.

The purchase method of accounting is used to account for the acquisition of the Group's subsidiaries.  The cost of acquisition is measured at fair value of the 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 and contingent liabilities assumed in a business combination are initially measured at their fair values at acquisition date, irrespective of the extent of any non-controlling 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. 

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated.  Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group.

(ii) Associates

Associates are entities over which the Group has significant influence, but does not control, generally accompanied by a shareholding of between 20% to 50% of the voting rights.

Investments in associates are held at fair value in the statement of financial position.  This treatment is permitted by IAS 28 Investment in Associates, which requires investments held by entities which are akin to venture capital organisations, 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 Financial Instruments: Recognition and Measurement.  Changes in fair value of associates are recognised in profit or loss in the period of the change. The Group has no interests in associates through which it carries on its business.

(iii) Limited partnerships

Group entities act as General Partner to the following limited partnerships:

Name	Interest in limited partnership %
IP Venture Fund	10.0
Top Technology Ventures IV LP	1.0
North East Technology Fund LP	-

IP Venture Fund has a narrow and well-defined scope of operation and, as its limited partners are predominantly parties external to the Group, the Group does not have access to substantially all the risks and rewards arising from its operation. Having due regard for the Group's minor interests in Top Technology Ventures IV LP, the Group does not have the power to govern the operations of the limited partnerships so as to obtain benefits from their activities. Accordingly, none of the limited partnerships meets the definition of a subsidiary under IAS 27 'Consolidated and separate financial statements'. The Group does have the power to exercise significant influence over the limited partnerships and accordingly the Group's accounting treatment for these interests is consistent with that of associates as described above, i.e. in accordance with IAS 39 'Financial Instruments: recognition and measurement' and designated as at fair value through profit or loss on initial recognition.

Portfolio return and revenue

Change in fair value of equity and debt investments represents revaluation gains and losses on the Group's portfolio of investments.  Gains on disposal of equity investments represent the difference between the fair value of consideration received and the carrying value at the start of the accounting period on the disposal of equity investments. Change in fair value of limited partnership investments represents revaluation gains and losses on the Group's investments in limited partnership funds.  Dividends receivable from equity shares are included within other portfolio income and recognised on the ex-dividend date or, where no ex-dividend date is quoted, are recognised when the Group's right to receive payment is established.

Revenue from services:  All revenue from services is generated within the United Kingdom and is stated exclusive of value added tax.  Revenue from services comprises:

Advisory fees: Fees earned from the provision of business support services are recognised as the related services are provided.  Corporate finance advisory fees are generally earned as a fixed percentage of total funds raised and recognised at the time the related transaction is successfully concluded.

Fund management services: Fiduciary fund management fees are generally earned as a fixed percentage of total funds under management and are recognised as the related services are provided.

Property, plant and equipment

All property, plant and equipment is shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is attributable to the acquisition of the items. Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows:

Fixtures and fittings	Over 3 to 5 years
Computer equipment	Over 3 to 5 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition.  Goodwill on acquisitions of subsidiaries is included in intangible assets and allocated from the acquisition date to each of the Group's cash generating units ("CGU") that are expected to benefit from the business combination.  Goodwill may be allocated to CGUs in both the acquired business and in the existing business. 

(ii) Acquired intangible assets - business combinations

Intangible assets that are acquired as a result of a business combination and that can be separately measured at fair value on a reliable basis, are separately recognised on acquisition at their fair value.  Amortisation is charged on a straight-line basis to the statement of comprehensive income over their expected useful economic lives, and is included within "Other administrative expenses".

Impairment of intangible assets (including goodwill)

Goodwill is not subject to amortisation but is tested for impairment annually and whenever events or circumstances indicate that the carrying amount may not be recoverable.  Assets that are subject to amortisation are tested for impairment when events or a change in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use.  For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows (i.e. cash generating units).

Financial assets

In respect of regular way purchases or sales, the Group uses trade date accounting to recognise or derecognise financial assets.

Financial assets are derecognised when the rights to receive cash flows from the assets have expired or the Group has transferred substantially all risks and rewards of ownership.

The Group classifies its financial assets into one of the categories listed below, depending on the purpose for which the asset was acquired.  None of the Group's financial assets are categorised as held to maturity or available for sale. 

(i)         At fair value through profit or loss

Financial assets at fair value through profit or loss are either financial assets held for trading or financial assets which are designated at fair value through profit or loss on initial recognition. 

This category includes equity investments, debt investments, equity rights and investments in limited partnerships. Investments in associated undertakings which are held by the Group with a view to the ultimate realisation of capital gains are also categorised as at fair value through profit or loss.  This measurement basis is consistent with the fact that the Group's performance in respect of investments in equity investments, limited partnerships and associated undertakings is evaluated on a fair value basis in accordance with an established investment strategy.

Financial assets at fair value through profit or loss are initially recognised at fair value and any gains or losses arising from subsequent changes in fair value are presented in profit or loss in the statement of comprehensive income in the period which they arise.

The fair values of quoted investments are based on bid prices in an active market at the reporting date.

The fair value of unlisted securities is established using valuation techniques.  These include the use of recent arm's length transactions, discounted cash flow analysis and earnings multiples. Wherever possible the Group uses valuation techniques which make maximum use of market based inputs.  Accordingly, the valuation methodology used most commonly by the Group is the 'price of recent investment' contained in the International Private Equity and Venture Capital Valuation Guidelines (the "IPEVCV Guidelines") endorsed by the British & European Venture Capital Associations.  The following considerations are used when calculating the fair value of unlisted securities:

Cost

Where the investment being valued was itself made recently, its cost may provide a good indication of fair value unless there is objective evidence that the investment has since been impaired, such as observable data suggesting a deterioration of the financial, technical, or commercial performance of the underlying business.

Price of recent investment

The Group considers that fair value estimates that are based entirely on observable market data will be of greater reliability than those based on assumptions and accordingly where there has been any recent investment by third parties, the price of that investment will generally provide a basis of the valuation.  The length of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the investment and the stability of the external environment.  During this period the Group considers whether any changes or events subsequent to the transaction would imply a change in the fair value of the investment may be required.

Given the nature of the Group's investments in seed, start-up and early stage companies where there are often no current and no short term future earnings or positive cash flows it can be difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts.  Consequently, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a recent investment.  Where the Group considers that the price of recent investment, unadjusted, is no longer relevant and there are limited or no comparable companies or transactions from which to infer value, the Group carries out an enhanced assessment based on milestone analysis and/or industry and sector analysis.  In applying the milestone analysis approach to investments in companies in early or development stages the Group seeks to determine whether there is an indication of change in fair value based on a consideration of performance against any milestones that were set at the time of the original investment decision, as well as taking into consideration the key market drivers of the investee company and the overall economic environment.

Where the Group considers that there is an indication that the fair value has changed, an estimation is made of the required amount of any adjustment from the last price of recent investment.  Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgement of the Group however any adjustment is, by its very nature, subjective. Where a deterioration in value has occurred, the Group reduces the carrying value of the investment to reflect the estimated decrease. If there is evidence of value creation the Group may consider increasing the carrying value of the investment however in the absence of additional financing rounds or profit generation it can be difficult to determine the value that a purchaser may place on positive developments given the potential outcome and the costs and risks to achieving that outcome and accordingly caution is applied.

Factors which the Group considers include inter alia technical measures such as product development phases and patent approvals, financial measures such as cash burn rate and profitability expectations, and market and sales measures such as testing phases, product launches and market introduction.

Other valuation techniques

If there is no readily ascertainable value from following the 'price of recent investment' methodology, or there is objective evidence that a deterioration in fair value has occurred since a relevant transaction, the Group considers alternative methodologies in the IPEVCV Guidelines, such as Discounted Cash Flows ('DCF') or price-earnings multiples.  DCF involves estimating the fair value of a business by calculating the present value of expected future cash flows, based on the most recent forecasts in respect of the underlying business.  Given the difficulty of producing reliable cash flow forecasts for seed, start-up and early stage companies as described above, this methodology is generally used as a confirmatory indicator of the level of any adjustment that may need to be made to the last price of recent investment.

When using the earnings multiple methodology, earnings before interest and tax ("EBIT") are generally used, adjusted to a maintainable level. A suitable earnings multiple is derived from an equivalent business or group of businesses, for which the average price-earnings multiple for the relevant sector index can generally be considered a suitable proxy.  This multiple is applied to earnings to derive an Enterprise Value which is then discounted by up to 60% for non-marketability and other risks inherent to businesses in early stages of operation.

No reliable estimate

Where a fair value cannot be estimated reliably the investment is reported at the carrying value at the previous reporting date unless there is objective evidence that the investment has since been impaired.

(ii)         Loans and receivables

These assets are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market.  They arise principally through the provision of services to customers (trade receivables) and are carried at cost less provision for impairment.

Fair value hierarchy

The Group classifies financial assets using a fair value hierarchy that reflects the significance of the inputs used in making the related fair value measurements. The level in the fair value hierarchy within which a financial asset is classified is determined on the basis of the lowest level input that is significant to that assets fair value measurement.  The fair value hierarchy has the following levels:

Level 1 - Quoted prices in active markets.

Level 2 - Inputs other than quoted prices that are observable, such as prices from market transactions.

Level 3 - One or more inputs that are not based on observable market data.

Equity rights

Equity rights represent consideration paid to the University of Oxford between December 2000 and June 2001.

The payment gives the Group the right to receive 50% of the University's equity in any spin-out company or of any licensing income emanating from the University's Chemistry Department.  The contract expires on 23 November 2015.

The equity rights agreement is considered to be a derivative contract and is classified as a held for trading financial instrument with changes in fair value recognised within profit or loss in the statement of comprehensive income.

As described in note 15, the directors have not been able to determine a reliable fair value for this financial instrument.  Until such time as the directors are able to compute a reliable fair value, the equity rights are carried at cost less provision for impairment. The directors review equity rights for impairment annually and if there is objective evidence of impairment, then a provision would be charged to profit or loss in the statement of comprehensive income. 

Debt investments

Debt investments are generally unquoted debt instruments which are convertible to equity at a future point in time. Such instruments are considered to be hybrid instruments containing a fixed rate debt host contract with an embedded equity derivative.  The Group designates the entire hybrid contract at fair value through profit or loss on initial recognition and accordingly, the embedded derivative is not separated from the host contract and accounted for separately.  The fair value of debt investments is established by calculating the present value of expected future cash flows associated with the instrument.

Deposits

Deposits comprise longer term deposits held with financial institutions with an original maturity of greater than three months.

Cash and cash equivalents

Cash and cash equivalents include cash in hand and short term deposits held with financial institutions with an original maturity of three months or less.

Financial liabilities

Financial liabilities are comprised of trade payables and other short-term monetary liabilities, which are recognised at amortised cost.

Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation to their fair value.

Share capital

Financial instruments issued by the Group are treated as equity if the holders have only a residual interest in the Group's assets after deducting all liabilities.  The objective of the Group is to manage capital so as to provide shareholders with above average returns through capital growth over the medium to long term.  The Group considers its capital to comprise its share capital, share premium, merger reserve and retained earnings.

Top Technology Ventures Limited, a Group subsidiary, is subject to external capital requirements imposed by the Financial Services Authority ("FSA") and as such must ensure that it has sufficient capital to satisfy these requirements.  The Group ensures it remains compliant with these requirements as described in the financial statements of Top Technology Ventures Limited.

Contract costs

Contract costs comprise related costs to secure university partnership arrangements and these costs are amortised over the life of the respective partnership.

Operating segments

An operating segment is a group of assets and operations which are identified on the basis of internal reports that are regularly reviewed by the Board, which analyse components of the Group in order to allocate resources to the segment and to assess its performance.

Employee benefits

(i) Pension obligations

The Group operates a stakeholder pension scheme for which all employees are eligible.  The assets of the scheme are held separately from those of the Group in an independently administered fund.  At present the Group does not make contributions to this scheme, but does make contributions to employee personal pension schemes on an individual basis.  The Group has no further payment obligations once the contributions have been paid.  The contributions are recognised as employee benefit expenses when they are due.

(ii) Share based payments

The fair value of Long-Term Incentive Plan ("LTIP") awards are estimated at the date of grant, taking into account the terms and conditions of the award, including market based performance conditions.

No expense is recognised for grants that do not vest and charges previously made are reversed except where vesting is conditional upon a market condition which are treated as vesting irrespective of whether or not the market condition is satisfied, provided all other performance conditions are satisfied.

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is recognised in the Statement of comprehensive income, with a corresponding entry in equity.

Where the terms for an equity settled award are modified, and the modification increases the total fair value of the share based payment, or is otherwise beneficial to the employee at the date of modification, the incremental fair value is amortised over the vesting period.

(iii) Bonus plan

Until mid-2010, the Group operated a bonus incentive scheme linked to the equity received in spin-out companies as a result of investments made by the Group ('the equity bonus scheme'). The Group accrues for employee bonuses when it becomes likely that an award or awards will be made under the scheme at a cost to the Group of up to 17.5% of the fair value of investments made by the Group. Bonus awards due under the scheme are settled using shares held in companies in the Group's equity portfolio. Some of these shares have been subscribed for in cash by the Group and others have been received for no cash consideration by virtue of the Group's university partnerships.

Deferred tax

Full provision is made for deferred tax on all temporary differences resulting from the carrying value of an asset or liability and its tax base. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or deferred tax liability settled. Deferred tax assets are recognised to the extent that it is probable that the deferred tax asset will be recovered in the future.

Leases

Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases.  Payments made under operating leases are charged to administrative expenses in the statement of comprehensive income on a straight-line basis over the term of the lease.

2.    FINANCIAL RISK MANAGEMENT

As set out in the Principal risks and uncertainties section above, the Group is exposed, through its normal operations, to a number of financial risks, the most significant of which are market, liquidity and credit risks. 

In general, risk management is carried out throughout the Group under policies approved by the Board of Directors.  The following further describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them.   Further quantitative information in respect of these risks is presented throughout these financial statements.

(a)  Market risk

(i)   Price risk

The Group is exposed to equity securities price risk as a result of the equity investments and investments in limited partnerships held by the Group and categorised as at fair value through profit or loss.

The Group mitigates this risk by having established investment appraisal processes and asset monitoring procedures which are subject to overall review by the Board.  The Group has also established Capital Markets and Communications teams dedicated to supporting portfolio companies with fundraising activities and investor relations.

The Group holds investments which are publicly traded on the Alternative Investment Market ("AIM") or PLUS Markets and investments which are not traded on an active market.

The net increase in fair value of the Group's equity investments during 2010 of £4.6m represents a 5% change against the opening balance (2009: net decrease of £1.4m, 1%) and a similar increase or decrease in the prices of quoted and unquoted investments is considered to be reasonably possible. The table below summarises the impact of a 1% increase / decrease in the price of both quoted and unquoted investments on the Group's post tax profit for the year and on equity.

		2010				2009
		Quoted	Unquoted	Total		Quoted	Unquoted	Total
		£'m	£'m	£'m		£'m	£'m	£'m
Equity investments and investments in limited partnerships		0.5	0.6	1.1		0.4	0.6	1.0

(ii)   Interest rate risk

As the Group has no significant borrowings it has only a limited interest rate risk.  The primary impact to the Group is the impact on income and operating cash flow as a result of the interest-bearing deposits and cash and cash equivalents held by the Group.

The Group mitigates this risk, in co-ordination with liquidity risk, by managing its proportion of fixed to floating rate financial assets.  The table below summarises the interest rate profile of the Group.

	2010				2009
	Fixed rate £'m	Floating rate £'m	Interest free £m	Total £m	Fixed rate £m	Floating rate £'m	Interest free £'m	Total £'m
Financial assets
Equity rights	-	-	20.1	20.1	-	-	19.9	19.9
Equity investments	-	-	106.3	106.3	-	-	99.0	99.0
Debt investments	1.4	-	2.3	3.7	1.5	-	0.8	2.3
Deposits	7.5	-	-	7.5	15.0	-	-	15.0
Cash and cash equivalents	-	14.0	-	14.0	-	13.1	-	13.1
Other financial asset	-	-	0.8	0.8	-	-	1.1	1.1
Trade receivables	-	-	0.2	0.2	-	-	0.2	0.2
Other receivables	-	-	0.6	0.6	-	-	0.6	0.6
	8.9	14.0	130.3	153.2	16.5	13.1	121.6	151.2
Financial liabilities
Trade payables	-	-	0.1	0.1	-	-	0.2	0.2
Accrued staff bonus	-	-	-	-	-	-	0.1	0.1
Other accruals and deferred income	-	-	0.6	0.6	-	-	0.4	0.4
	-	-	0.7	0.7	-	-	0.7	0.7

At 31 December 2010, if interest rates had been 1% higher / lower, post-tax profit for the year, and other components of equity, would have been £0.1m (2009: £0.2m) higher / lower as a result of higher interest received on floating rate cash deposits. 

(b)  Liquidity risk

The Group seeks to manage liquidity risk, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.  Accordingly the Group only invests working capital in short term instruments issued by reputable counterparties.  The Group continuously monitors rolling cash flow forecasts to ensure sufficient cash is available for anticipated cash requirements.

(c)  Credit risk

The Group's credit risk is primarily attributable to its deposits, cash and cash equivalents, debt investments and trade receivables.  The Group seeks to mitigate its credit risk on cash and cash equivalents by investing in treasury funds with an "AA" credit rating or above managed by institutions, or by making short term deposits with counterparties. Short term deposit counterparties are required to have most recently reported total assets in excess of £3 billion and, where applicable, a prime short term credit rating at the time of investment (ratings are generally determined by Moody's or Standard & Poor's).  Moody's prime credit ratings of "P1", "P2" and "P3" indicate respectively that the rating agency considers the counterparty to have a "superior", "strong" or "acceptable" ability to repay short term debt obligations (generally defined as having an original maturity not exceeding 13 months).  An analysis of the Group's deposits and cash and cash equivalents balance analysed by credit rating as at the reporting date is shown in the table below.  All other financial assets are unrated.

Credit rating		2010	2009
		£'m	£'m
P1		18.9	16.1
P2		-	2.5
AA		2.6	9.5
Total deposits & cash and cash equivalents		21.5	28.1

The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Group has detailed policies and strategies which seek to minimise these associated risks.

The Group's exposure to credit risk on debt investments is managed in a similar way to equity price risk, as described above, through the Group's investment appraisal processes and asset monitoring procedures which are subject to overall review by the Board.

The maximum exposure to credit risk for debt investments, receivables and other financial assets is represented by their carrying amount.

3.         SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS

The directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions that have the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are discussed below.

(i) Impairment of goodwill - The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined using value in use calculations. The use of this method requires the estimation of future cash flows and the selection of a suitable discount rate in order to calculate the present value of these cash flows.

(ii) Equity rights - The equity rights agreement is considered to be a derivative contract and is classified as a held for trading financial instrument with changes in fair value recognised in the statement of comprehensive income. The directors consider that for each of the key variables which would be relevant in determining a fair value for this financial instrument, there is a range of reasonably possible alternative values which result in a wide range of fair value estimates.  None of these estimates is considered more appropriate or relevant than any other and accordingly the directors have not been able to determine a reliable fair value for this financial instrument.

(iii) Valuation of unquoted equity investments - The judgements required in order to determine the appropriate valuation methodology of unquoted equity investments have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities. These judgements include making assessments of the future earnings potential of portfolio companies, appropriate earnings multiples to apply, and marketability and other risk discounts.

Discussion of sensitivity analyses is included in the relevant note for each of the above estimates and judgements.

4.         REVENUE FROM SERVICES

All revenue from services is derived from the provision of advisory and venture capital fund management services.

5.         OPERATING SEGMENTS

For both the year ended 31 December 2010 and the year ended 31 December 2009 the Group's revenue and profit before taxation was derived entirely from its principal activity within the United Kingdom and accordingly no additional geographical disclosures are given. For management reporting purposes, the Group is currently organised into three operating segments, (i) the commercialisation of intellectual property via the formation of long term partnerships with universities, (ii) management of venture funds focussing on early-stage UK technology companies and (iii) the in-licensing of drugable intellectual property from research intensive institutions. These activities are described in further detail in the Chief Executive Officer's statement above.

Year ended 31 December 2010	University partnership business £'m		Venture capital fund management £'m		In-licensing activity £'m		Consolidated £'m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments	4.0		-		-		4.0
Profit on disposal of equity investments	0.6		-		-		0.6
Change in fair value of limited partnership investments	0.2		-		-		0.2
Revenue from advisory services	0.4		0.1		-		0.5
Revenue from fund management services	-		1.7		-		1.7
Administrative expenses	(4.3)		(0.6)		(0.5)		(5.4)
Operating profit	0.9		1.2		(0.5)		1.6
Finance income - interest receivable	0.2		-		-		0.2
Loss before taxation	1.1		1.2		(0.5)		1.8
Taxation	-		-		-		-
Loss and total comprehensive income for the year	1.1		1.2		(0.5)		1.8
STATEMENT OF FINANCIAL POSITION
Assets	168.2		5.5		0.1		173.8
Liabilities	(0.5)		(0.1)		(0.1)		(0.7)
Net assets	167.7		5.4		-		173.1
Other segment items
Capital expenditure	-		-		-		-
Depreciation	0.1		-		-		0.1
Amortisation of intangible assets	-		-		-		-

Year ended 31 December 2009	University partnership business £'m		Venture capital fund management £'m		In-licensing activity £'m		Consolidated £'m
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Loss on disposal of equity investments	(0.8)		-		-		(0.8)
Change in fair value of limited partnership investments	(0.1)		-		-		(0.1)
Revenue from advisory services	0.4		0.1		-		0.5
Revenue from fund management services	-		1.0		-		1.0
Administrative expenses	(4.9)		(0.7)		(0.7)		(6.3)
Change in fair value of equity and debt investments	(1.4)		-		-		(1.4)
Operating profit	(6.8)		0.4		0.7)		(7.1)
Finance income - interest receivable	0.6		-		-		0.6
Loss before taxation	(6.2)		0.4		(0.7)		(6.5)
Taxation	-		-		0.4		0.4
Loss and total comprehensive income for the year	(6.2)		0.4		(0.3)		(6.1)
STATEMENT OF FINANCIAL POSITION
Assets	166.7		4.8		0.2		171.7
Liabilities	(0.5)		(0.1)		(0.1)		(0.7)
Net assets	166.2		4.7		0.1		171.0
Other segment items
Capital expenditure	-		-		-		-
Depreciation	0.1		-		-		0.1
Amortisation of intangible assets	-		0.2		-		0.2

6.         AUDITOR'S REMUNERATION

Details of the auditor's remuneration are set out below:

	2010 £'000	2009 £'000
Audit services
- Fees payable to company auditor for the audit of parent and consolidated accounts	63	60
Non-audit services
Fees payable to company auditor and its associates for other services:
- Auditing of accounts of subsidiaries pursuant to legislation	44	39
- Other services supplied under legislation	17	13
- Other taxation services
-   Corporation tax compliance	39	36
-   Corporation tax advisory	1	4
-   Other tax advisory	55	49
- Recruitment and remuneration services	-	-
- All other services	-	11
	219	212

7.         PROFIT / (LOSS) FROM OPERATIONS

Profit / (loss) from operations has been arrived at after charging:

	2010 £'m	2009 £'m
Amortisation of intangible assets	-	0.2
Depreciation of tangible assets	0.1	0.1
Employee costs (see Note 8)	3.1	3.9
Operating leases - property	0.4	0.4
Profit / (loss) on disposal of equity investments	0.6	(0.8)

8.       EMPLOYEE COSTS

Employee costs (including directors) comprise:

	2010 £'m	2009 £'m
Salaries	2.4	2.6
Defined contribution pension cost	0.1	0.1
Share based payment charge (see Note 22)	0.3	0.6
Equity bonuses accrued in the year	-	0.3
Social Security	0.3	0.3
	3.1	3.9

The average monthly number of persons (including executive directors) employed by the Group during the year was 33, all of whom were involved in management and administration activities (2009: 35). The Company had no employees in the year ended 31 December 2010 (2009: nil).

9.       TAXATION

	2010 £'m	2009 £'m
Current tax	-	(0.4)
Deferred tax	-	-

The amount for the year can be reconciled to the profit per the statement of comprehensive income as follows:

	2010 £'m	2009 £'m
Profit / (loss) before tax	1.8	(6.5)
Tax at the UK Corporation tax rate of 28% (2009: 28%)	0.5	(1.8)
Non-taxable income	(1.2)	0.5
Non-deductible net fair value losses	-	0.4
Research and development tax credits	-	(0.4)
Tax losses arising not recognised	0.8	0.8
Other adjustments	(0.1)	0.1
Tax credit	-	(0.4)

At 31 December 2010, deductible temporary differences and unused tax losses for which no deferred tax asset has been recognised totalled £27.5m (2009: £19.4m). An analysis is shown below:

	2010		2009
	Amount £'m	Deferred tax £'m	Amount £'m	Deferred tax £'m
Share based payment costs	-	-	-	-
Unused tax losses	27.5	7.4	19.4	5.4
	27.5	7.4	19.4	5.4

This asset has not been recognised in the financial statements due to current uncertainties surrounding the reversal of the underlying temporary differences. This deferred tax asset would be recovered if there were future taxable profits from which the reversal of the underlying temporary difference could be deducted.

The directors believe that the Group qualifies for Substantial Shareholder Exemption and therefore no deferred tax is provided for in respect of the net uplift in valuation of the Group's equity investments.

10.     EARNINGS PER SHARE

Earnings

	2010 £'m	2009 £'m
Earnings for the purposes of basic and dilutive earnings per share	1.8	(6.1)

Number of shares	2010 No. of shares	2009 No. of  shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	255,763,664	250,711,712
Effect of dilutive potential ordinary shares:    Share options	-	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	255,763,664	250,711,712

The Group has only one class of potentially dilutive ordinary shares.  These are contingently issuable shares arising under the Group Long Term Incentive Plan ('LTIP'). Based upon information available at the end of the reporting period, none of the performance criteria for vesting of awards under the LTIP have been satisfied.  Consequently, there are no potentially dilutive shares outstanding at the period end and therefore the diluted earnings per share is equal to the basic earnings per share.

11.     GOODWILL

	£'m
At 1 January 2009	18.4
At 1 January 2010	18.4
At 31 December 2010	18.4

The recoverable amount of the above goodwill has been determined from value in use calculations on cash flow projections from formally approved budgets in respect of the relevant cash generating unit, covering the remaining life of the related funds under management or university partnerships.

The goodwill allocated to each CGU is summarised in the following table:

	2010 £'m	2009 £'m
University partnership CGU	16.3	16.3
Fund management CGU	2.1	2.1
	18.4	18.4

Impairment review of venture capital fund management CGU

The following key assumptions have been used to determine value in use:

	2010	2009
Discount rate	8%-10%	8%-10%
Number of funds under management	3	3
Management fee	1-3.5%	2-3.5%
Cost inflation	4%	4%

The assumptions above reflect past experience. All reasonably possible changes to key assumptions do not result in the recoverable amount being less than the carrying value of goodwill.

Impairment review of the university partnership CGU

The directors consider that for each of the key variables which would be relevant in determining a value in use for the university partnership CGU, there is a range of reasonably possible alternative values.  The key variable ranges are set out below.

	2010	2009
The number of spin-out companies per year	2-10	2-10
Initial equity stake acquired by the Group under the University partnership	12-30%	12-30%
Proportion of spin-out companies failing	20-40%	20-40%
Dilution rates prior to exit as a result of financing for spin-out companies	35-60%	35-60%
Proportion of IPO exits	30-50%	30-50%
IPO exit valuations	£20m-40m	£20m-40m
Proportion of disposal exits	30-50%	30-50%
Disposal valuations	£10m-30m	£10m-30m
Discount rate	8-12%	8-12%

These key variable ranges result in a wide range of value in use estimates for the university partnership CGU. None of these estimates of value in use is considered more appropriate or relevant than any other, however none indicate that an impairment of the goodwill allocated to the CGU is required.

12.     ACQUIRED INTANGIBLE ASSETS

On 30 June 2004 the Group acquired the entire issued share capital of Top Technology Ventures Limited. At this time, Top Technology Ventures Limited was party to two contracts to supply fund management services. The directors calculated the fair value of this asset on a discounted cash flow basis, and concluded that the fair value of this asset at 30 June 2004 was £0.8m. The asset has been amortised on a straight-line basis over its useful life which was determined, by reference to the residual life of the two contracts, to be 5 ½ years from the date of acquisition. At 31 December 2010 the asset had been fully amortised.

13.     PROPERTY, PLANT AND EQUIPMENT

		Total £'m
Cost
At 1 January 2010		0.8
Additions		-
At 31 December 2010		0.8
Accumulated depreciation
At 1 January 2010		0.4
Charge for the year		0.1
At 31 December 2010		0.5
Net book value
At 31 December 2010		0.3
At 31 December 2009		0.4

		Total £'m
Cost
At 1 January 2009		0.8
Additions		-
At 31 December 2009		0.8
Accumulated depreciation
At 1 January 2009		0.3
Charge for the year		0.1
At 31 December 2009		0.4
Net book value
At 31 December 2009		0.4
At 31 December 2008		0.5

14.     CATEGORISATION OF FINANCIAL INSTRUMENTS

		At fair value through profit or loss		Loans and receivables	Total
		Held for trading	Designated upon initial recognition
Financial assets		£'m	£'m	£'m	£'m
At 31 December 2010
Equity rights		19.9	-	-	19.9
Equity investments		-	106.3	-	106.3
Debt investments		-	3.7	-	3.7
Other financial asset		0.8	-	-	0.8
Investment in limited partnerships		-	1.9	-	1.9
Trade and other receivables		-	-	0.8	0.8
Deposits		-	-	7.5	7.5
Cash and cash equivalents		-	-	14.0	14.0
Total		20.7	111.9	22.3	154.9
At 31 December 2009
Equity rights		19.9	-	-	19.9
Equity investments		-	99.0	-	99.0
Debt investments		-	2.3	-	2.3
Other financial asset		1.1	-	-	1.1
Investment in limited partnerships		-	1.5	-	1.5
Trade and other receivables		-	-	0.8	0.8
Deposits		-	-	15.0	15.0
Cash and cash equivalents		-	-	13.1	13.1
Total		21.0	102.8	28.9	152.7

All financial liabilities are categorised as other financial liabilities and recognised at amortised cost. 

The Group does not consider that any change in fair value of financial assets in the year is attributable to credit risk (2009: nil). 

All net fair value gains in the year are attributable to financial assets designated at fair value through profit or loss on initial recognition (2009:  All net fair value gains attributable to financial assets designated at fair value through profit or loss on initial recognition).

15.     EQUITY RIGHTS AND RELATED CONTRACT COSTS

	Equity Rights £'m		Contract  costs £'m		Total £'m
Cost
At 1 January 2010 and 31 December 2010	19.9		0.5		20.4
Aggregate amortisation of contract costs
At 1 January 2010	-		(0.3)		(0.3)
Charge for the year	-		-		-
At 31 December 2010	-		(0.3)		(0.3)
Net book value
At 31 December 2010	19.9		0.2		20.1
At 31 December 2009	19.9		0.2		20.1

	Equity Rights £'m		Contract  costs £'m		Total £'m
Cost
At 1 January 2009 and 31 December 2009	19.9		0.5		20.4
Aggregate amortisation of contract costs
At 1 January 2009	-		(0.2)		(0.2)
Charge for the year	-		(0.1)		(0.1)
At 31 December 2009	-		(0.3)		(0.3)
Net book value
At 31 December 2009	19.9		0.2		20.1
At 31 December 2008	19.9		0.3		20.2

Carrying amount of equity rights

Equity rights represent consideration paid to the University of Oxford between December 2000 and June 2001. The payment gives the Group the right to receive 50% of the University's equity in any spin-out company or of any licensing income emanating from the University's Chemistry Department.  The contract expires on 23 November 2015.

The directors consider that for each of the key variables which would be relevant in determining a fair value for this financial instrument, there is a range of reasonably possible alternative values.  The key variable ranges are set out below.

	2010	2009
The number of spin-out companies per year from the University of Oxford chemistry department	1-3	1-3
Initial equity stake acquired by the Group under the equity rights contract	20-25%	20%
Proportion of spin-out companies failing	20-30%	20-30%
Dilution rates prior to exit as a result of financing for spin-out companies	35-60%	35-60%
Proportion of IPO exits	30-40%	30-40%
IPO exit valuations	£30m-50m	£30m-50m
Proportion of disposal exits	30-50%	30-50%
Disposal valuations	£20m-40m	£15m-35m
Discount rate	8-10%	8-10%

These key variable ranges result in a wide range of fair value estimates for the equity rights agreement. None of these estimates of fair value is considered more appropriate or relevant than any other and accordingly the directors have not been able to determine a reliable fair value for this financial instrument at the reporting date.  The directors consider that it may be possible to reliably estimate a fair value for this instrument when the remaining duration of the contract reaches a stage at which the above variable ranges produce a range of fair values which are sufficiently close.

Until such time as the directors are able to compute a reliable fair value, the equity rights are carried at cost less provision for impairment. The directors review equity rights for impairment annually and if there is objective evidence of an impairment, such as a continued decline in either the number of new spin-out companies from the University of Oxford Chemistry Department or the valuations achieved at IPO or disposal, then a provision would be charged to the statement of comprehensive income. Another factor considered by management in assessing whether the Oxford Equity Rights Asset is impaired is the economic value received to date from the contract. Based on the fair value of the Group's holdings in Oxford Chemistry spin-out companies, plus cash realised to date, less cash invested to date, a total of £38.2m value has been derived by the Group from the contract as at 31 December 2010. Based on the directors' current forecasts, it is anticipated a charge to the income statement will first occur in 2011.

16.     INVESTMENT PORTFOLIO

	Level 1	Level 2		Level 3
Group	Equity investments in quoted spin out companies £'m	Equity investments in unquoted spin out companies £'m	Unquoted debt investments in spin out companies £'m	Equity investments in unquoted spin out companies £'m	Total £'m
At 1 January 2010	40.7	30.0	2.3	28.3	101.3
Investments during the year	1.5	3.3	1.6	0.6	7.0
Reclassifications during the year	-	(0.5)	0.5	-	-
Transfers between hierarchy levels during the year	5.4	(1.4)	(0.6)	(3.4)	-
Disposals	(1.9)	-	-	(0.3)	(2.2)
Change in fair value in the year	3.4	2.8	(0.1)	(2.1)	4.0
Equity allocated to staff	(0.1)	-	-	-	(0.1)
At 31 December 2010	49.0	34.2	3.7	23.1	110.0

At 1 January 2009	38.2	46.1	1.9	12.2	98.4
Investments during the year	3.2	1.4	1.0	0.1	5.7
Reclassifications during the year	0.2	0.1	(0.1)	(0.2)	-
Transfers between hierarchy levels during the year	-	(20.8)	-	20.8	-
Disposals	(0.9)	(0.1)	-	(0.2)	(1.2)
Change in fair value in the year	-	3.5	(0.5)	(4.4)	(1.4)
Equity allocated to staff	-	(0.2)	-	-	(0.2)
At 31 December 2009	40.7	30.0	2.3	28.3	101.3

Fair values of unquoted spin-out companies classified as Level 3 in the fair value hierarchy have been determined in part or in full by valuation techniques that are not supported by observable market prices or rates. Investments in 27 companies have been classified as Level 3, and the individual valuations for each of these have been arrived at using a variety of valuation techniques and assumptions. However, if the assumptions used in the valuation techniques for the Group's holding in each company are varied by using a range of possible alternatives, there is no material difference to the carrying value of the respective spin-out company.

The net increase in fair value for the year of £4.0m (2009: £1.4m reduction) includes a net increase of £1.9m (2009: £4.4m reduction) that has been estimated using a valuation technique. Further details are contained within the accounting policy for equity investments.

Change in fair value in the year

	2010 £'m	2009 £'m
Fair value gains	13.8	15.3
Fair value losses	(9.8)	(16.7)
	4.0	(1.4)

17.        TRADE AND OTHER RECEIVABLES

	2010 £'m	2009 £'m
Trade debtors	0.2	0.2
Prepayments	0.2	0.2
Other receivables	0.4	0.4
	0.8	0.8

The directors consider the carrying amount of trade and other receivables to approximate their fair value.  All receivables are interest free, repayable on demand and unsecured.

18.     OTHER FINANCIAL ASSET

Other financial asset comprises of a zero cost forward contract giving the Group the right to receive sale proceeds when the University of Leeds sells down its stake in specified spin-out companies subject to a maximum receivable of £0.8m following receipt of sale proceeds totalling £0.3m during 2010 (2009: £1.2m receivable; £nil sale proceeds).  The asset has no set date of repayment or other rights of recourse. This asset is classified as a financial asset held for trading initially measured at fair value with subsequent changes recognised in the statement of comprehensive income. Fair value is determined by discounting expected cash flows at prevailing market rates of interest and accordingly, the Group considers this asset to be Level 3 in the fair value hierarchy throughout the current and previous financial years.

19.     TRADE AND OTHER PAYABLES

	2010 £'m	2009 £'m
Trade payables	0.3	0.2
Social security expenses	0.1	0.1
Accrued staff bonuses	-	0.1
Other accruals and deferred income	0.3	0.3
	0.7	0.7

Accrued staff bonuses

During the year ended 31 December 2010, bonus entitlements were settled by the allocation of equity from investments made by the Group.

The timing of the actual allocations of equity to employees is subject to a number of factors, including the performance of the business as a whole.

Group		Current bonus accrual £'m
At 1 January 2010		(0.1)
Charged in the statement of comprehensive income in the year to 31 December 2010		-
Settled during the year to 31 December 2010		0.1
At 31 December 2010		-

Group		Current bonus accrual £'m
At 1 January 2009		-
Charged in the statement of comprehensive income in the year to 31 December 2009		(0.3)
Settled during the year to 31 December 2009		0.2
At 31 December 2009		(0.1)

20.     SHARE CAPITAL

	2010 £'m	2009 £'m
Issued and fully paid:
255,763,664 ordinary shares of 2 pence each (2009: 255,763,664 ordinary shares of 2 pence each)	5.1	5.1

The Company has one class of ordinary shares which carry equal voting rights, equal rights to income and distributions of assets on liquidation or otherwise, and no right to fixed income.

21.     OPERATING LEASE ARRANGEMENTS

	2010 £'m	2009 £'m
Payments under operating leases recognised in the statement of comprehensive income for the year	0.4	0.4

At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	2010 £'m	2009 £'m
Within one year	0.3	0.3
In the second to fifth years inclusive	0.1	0.4
	0.4	0.7

Operating lease payments represent rentals and other charges payable by the group for certain of its office properties.  Leases are negotiated for an average term of five years and rentals are fixed for an average of one year.

22.     SHARE-BASED PAYMENTS

Long term incentive plan ("LTIP") awards

Awards under the LTIP take the form of provisional awards of ordinary shares of two pence each in the Group which vest over the prescribed performance period to the extent that performance conditions have been met.  The Remuneration Committee will impose objective conditions on the vesting of awards, and these will be set taking into consideration the guidance of the Group's institutional investors from time to time.

The 2010 LTIP awards will vest on 31 March 2013, to the extent that the performance conditions have been met. 50% of the awards are based on the performance of Group's net asset value, excluding intangible assets and the Oxford equity rights ("NAV"), and 50% are based on the Group's share price performance. The portion subject to NAV performance shall vest in full in the event of NAV increasing by 15% per year on a cumulative basis from 1 January 2010 to 31 December 2012, whilst 50% of that portion shall vest if the cumulative increase is 8% per annum over this time period. The portion subject to the Group's share price performance shall vest in full in the event of the Group's share price being equal to or exceeding 67p on 31 December 2012, whilst 50% of that portion shall vest if the Group's share price is 60p on this date. A straight line sliding scale will be adopted for the vesting of both portions should achieved performance be between the vesting targets detailed above.

For the 2007 and 2008 awards, the performance conditions were based on the Group's total shareholder return ("TSR") performance.  The awards granted in 2008 will vest in full after three years in the event of TSR growth of 15% per annum on a cumulative basis being achieved.  50% of an award granted will vest in the event of compound annual TSR growth of 10% being achieved with a sliding scale between these points. The 2007 awards lapsed during the year with no awards vesting.

The movement in the number of shares notionally awarded under the LTIP is set out below:

	2010	2009
At 1 January	3,483,009	3,483,009
Lapsed during the period	(2,656,716)	-
Notionally awarded during the year	12,252,766	-
At 31 December	13,079,059	3,483,009

The fair value of awards made during each of the following years has been calculated using a Monte-Carlo pricing model with the following key assumptions:

	2010	2009
Share price at date of award	0.29-0.32p	-
Exercise price	£nil	-
Expected volatility (median of historical 50 day moving average)	33%	-
Expected life (years)	2.20-2.25	-
Expected dividend yield	0%	-
Risk-free interest rate	0.8-0.9%	-

The fair value charge recognised in the statement of comprehensive income during the year in respect of LTIP share awards was £0.3m (2009: £0.6m).

23.     INVESTMENTS IN LIMITED PARTNERSHIPS

	£'m
At 1 January 2009	1.4
Additions during the year	0.2
Change in fair value during the year	(0.1)
At 1 January 2010	1.5
Additions during the year	0.2
Change in fair value during the year	0.2
At 31 December 2010	1.9

The Group considers investments in limited partnership investments to be Level 3 in the fair value hierarchy throughout the current and previous financial years.

24.     RELATED PARTY TRANSACTIONS

The Group has various related parties arising from its key management, subsidiaries, equity stakes in portfolio companies and management of certain limited partnership funds.

a) Limited partnerships

The Group manages a number of investment funds structured as limited partnerships. Group entities have a limited partnership interest (see note 1) and act as the general partners of these limited partnerships.  The Group therefore has power to exert significant influence over these limited partnerships. The following amounts have been included in respect of these limited partnerships:

Statement of comprehensive income	2010 £'m	2009 £'m
Revenue from services	1.7	0.8

Statement of financial position	2010 £'m	2009 £'m
Investment in limited partnerships	1.9	1.5
Amounts due from related parties	-	-

b) Key management transactions

The key management had investments in the following spin-out companies as at 31 December 2010:

Director	Company name	Number of shares held at 1 January 2010	Number of shares acquired / (disposed) in the period	Number of shares held at 31 December 2010	%
Alan Aubrey	Activotec SPP Limited 1	1,500	-	1,500	0.9%
	Amaethon Limited - A Ordinary Shares	104	-	104	3.1%
	Amaethon Limited - B Ordinary Shares	11,966	-	11,966	1.0%
	Amaethon Limited - Ordinary shares	21	-	21	0.3%
	Avacta Group plc	13,276,113	-	13,276,113	1.0%
	Bioniqs Limited 1	1,063	(1,063)	-	0.0%
	Capsant Neurotechnologies Limited	11,631	-	11,631	0.8%
	Chamelic Limited	26	-	26	1.6%
	COE Group plc	357,204	-	357,204	1.0%
	Crysalin Limited	1,447	-	1,447	0.4%
	Dispersia Limited	416	-	416	1.0%
	EmDot Limited	15	-	15	0.9%
	Getech Group plc	15,000	-	15,000	<0.1%
	Green Chemicals plc	108,350	-	108,350	1.3%
	Icona Solutions Limited	1,674	-	1,674	1.2%
	Ilika plc 2	1,175	116,325	117,500	0.3%
	Karus Therapeutics Limited	223	-	223	0.7%
	Leeds Lithium Power Limited 1	178	(178)	-	0.0%
	Leeds Reproductive Biosciences Limited	18	-	18	1.1%
	Mode Diagnostics Limited	1,863	-	1,863	1.2%
	Modern Biosciences plc	1,185,150	-	1,185,150	2.1%
	Modern Water plc	575,000	-	575,000	1.0%
	Overlay Media Limited	32	-	32	1.2%
	Oxford Advanced Surfaces Group plc	2,172,809	-	2,172,809	1.2%
	Oxford Catalysts Group plc	254,749	(47,350)	207,399	0.3%
	Oxford Nanopore Technologies Limited	11,442	-	11,442	0.8%
	Oxford RF Sensors Limited	53,639	-	53,639	0.8%
	Oxtox Limited	25,363	-	25,363	0.6%
	Pharminox Limited	685	-	685	0.3%
	Photopharmica (Holdings) Limited	37,020	-	37,020	1.0%
	Plexus Planning Limited	1,732	-	1,732	0.8%
	ReactivLab Limited 3	50	(50)	-	0.0%
	Retroscreen Virology Limited	1,858	-	1,858	0.5%
	Revolymer Limited	2,963	-	2,963	0.4%
	Simulstrat Limited - A Preference shares	24,063	-	24,063	2.8%
	Simulstrat Limited - Ordinary shares	2,255	-	2,255	1.3%
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	393	-	393	0.9%
	Sustainable Resource Solutions Limited	25	-	25	1.3%
	Syntopix Group plc	76,731	-	76,731	0.7%
	Tissue Regenix Group plc 4	89	2,389,170	2,389,259	0.5%
	Tracsis plc	203,400	-	203,400	1.0%
	Xanic Limited 1	16	(16)	-	0.0%
	Xeros Limited	241	-	241	1.0%
Alison Fielding	Activotec SPP Limited 1	300	-	300	0.2%
	Amaethon Limited - A Ordinary Shares	105	-	105	3.2%
	Amaethon Limited - B Ordinary Shares	12,049	-	12,049	1.0%
	Amaethon Limited - Ordinary shares	21	-	21	0.3%
	Avacta Group plc	7,664,105	-	7,664,105	0.6%
	Bioniqs Limited 1	1,063	(1,063)	-	0.0%
	Capsant Neurotechnologies Limited	7,847	-	7,847	0.5%
	Chamelic Limited	21	-	21	1.3%
	COE Group plc	468,314	-	468,314	1.3%
	Crysalin Limited	1,447	-	1,447	0.4%
	Dispersia Limited	342	-	342	0.8%
	EmDot Limited	14	-	14	0.8%
	Green Chemicals plc	126,181	-	126,181	1.6%
	Icona Solutions Limited	1,419	-	1,419	1.0%
	Ilika plc 2	328	32,472	32,800	<0.1%
	Karus Therapeutics Limited	43	-	43	0.1%
	Leeds Lithium Power Limited 1	172	(172)	-	0.0%
	Leeds Reproductive Biosciences Limited	17	-	17	1.0%
	Mode Diagnostics Limited	1,632	-	1,632	1.1%
	Modern Biosciences plc	1,057,343	-	1,057,343	1.9%
	Modern Water plc	276,000	(55,000)	221,000	0.4%
	Overlay Media Limited	28	-	28	1.1%
	Oxford Advanced Surfaces Group plc	611,042	-	611,042	0.3%
	Oxford Catalysts Group plc	84,196	(15,649)	68,547	0.1%
	Oxford Nanopore Technologies Limited	5,721	-	5,721	0.4%
	Oxford RF Sensors Limited	15,085	-	15,085	0.2%
	Oxtox Limited	16,601	-	16,601	0.4%
	Pharminox Limited	274	-	274	0.1%
	Photopharmica (Holdings) Limited	27,350	-	27,350	0.7%
	Plexus Planning Limited	480	-	480	0.2%
	ReactivLab Limited 3	48	(48)	-	0.0%
	Retroscreen Virology Limited	1,216	-	1,216	0.3%
	Revolymer Limited	1,198	-	1,198	0.2%
	Simulstrat Limited - A Preference shares	15,750	-	15,750	1.8%
	Simulstrat Limited - Ordinary shares	1,476	-	1,476	0.9%
	Structure Vision Limited	195	-	195	0.9%
	Surrey Nanosystems Limited	323	-	323	0.8%
	Sustainable Resource Solutions Limited	25	-	25	1.3%
	Syntopix Group plc	35,477	-	35,477	0.3%
	Tissue Regenix Group plc 4	85	2,279,575	2,279,660	0.5%
	Tracsis plc	197,750	-	197,750	1.0%
	Xanic Limited 1	15	(15)	-	0.0%
	Xeros Limited	197	-	197	0.8%
Magnus Goodlad 5	Activotec SPP Limited 1	627	-	627	0.4%
	Amaethon Limited - A Ordinary Shares	31	-	31	0.9%
	Amaethon Limited - B Ordinary Shares	3,616	-	3,616	0.3%
	Amaethon Limited - Ordinary shares	6	-	6	<0.1%
	Avacta Group plc	2,439,472	-	2,439,472	0.2%
	Bioniqs Limited 1	533	(533)	-	0.0%
	Capsant Neurotechnologies Limited	7,772	-	7,772	0.5%
	Chamelic Limited	20	-	20	1.2%
	COE Group plc	246,094	-	246,094	0.7%
	Crysalin Limited	1,125	-	1,125	0.3%
	Dispersia Limited	324	-	324	0.8%
	EmDot Limited	14	-	14	0.8%
	Green Chemicals plc	21,534	-	21,534	0.3%
	Icona Solutions Limited	1,355	-	1,355	1.0%
	Ilika plc 2	260	25,740	26,000	<0.1%
	Karus Therapeutics Limited	105	-	105	0.3%
	Leeds Lithium Power Limited 1	61	(61)	-	0.0%
	Leeds Reproductive Biosciences Limited	6	-	6	0.4%
	Mode Diagnostics Limited	1,549	-	1,549	1.0%
	Modern Biosciences plc	998,601	-	998,601	1.8%
	Modern Water plc	476,200	-	476,200	0.8%
	Overlay Media Limited	26	-	26	1.0%
	Oxford Advanced Surfaces Group plc	425,857	-	425,857	0.2%
	Oxford Catalysts Group plc	74,684	(13,880)	60,804	<0.1%
	Oxford Nanopore Technologies Limited	5,721	-	5,721	0.4%
	Oxford RF Sensors Limited	29,735	-	29,735	0.4%
	Oxtox Limited	16,601	-	16,601	0.4%
	Pharminox Limited	274	-	274	0.1%
	Photopharmica (Holdings) Limited	21,340	-	21,340	0.6%
	Plexus Planning Limited	444	-	444	0.2%
	ReactivLab Limited 3	45	(45)	-	0.0%
	Retroscreen Virology Limited	1,216	-	1,216	0.3%
	Revolymer Limited	1,228	-	1,228	0.2%
	Simulstrat Limited - A Preference shares	15,750	-	15,750	1.8%
	Simulstrat Limited - Ordinary shares	1,476	-	1,476	0.9%
	Structure Vision Limited	83	-	83	0.4%
	Surrey Nanosystems Limited	306	-	306	0.7%
	Sustainable Resource Solutions Limited	23	-	23	1.2%
	Syntopix Group plc	13,312	-	13,312	0.1%
	Tissue Regenix Group plc 4	31	1,950,831	1,950,862	0.4%
	Tracsis plc	113,000	-	113,000	0.6%
	Xanic Limited 1	14	(14)	-	0.0%
	Xeros Limited	187	-	187	0.8%
Mike Townend	Amaethon Limited - A Ordinary Shares	104	-	104	3.1%
	Amaethon Limited - B Ordinary Shares	11,966	-	11,966	1.0%
	Amaethon Limited - Ordinary shares	21	-	21	0.3%
	Capsant Neurotechnologies Limited	11,282	-	11,282	0.8%
	Chamelic Limited	23	-	23	1.4%
	Crysalin Limited	1,286	-	1,286	0.4%
	Dispersia Limited	370	-	370	0.9%
	EmDot Limited	14	-	14	0.8%
	Green Chemicals plc	113,222	-	113,222	1.4%
	Icona Solutions Limited	1,515	-	1,515	1.1%
	Leeds Lithium Power Limited 1	178	(178)	-	0.0%
	Leeds Reproductive Biosciences Limited	18	-	18	1.1%
	Mode Diagnostics Limited	1,756	-	1,756	1.1%
	Modern Biosciences plc	1,185,150	-	1,185,150	2.1%
	Modern Water plc	575,000	-	575,000	1.0%
	Overlay Media Limited	29	-	29	1.1%
	Oxford Advanced Surfaces Group plc	932,994	-	932,994	0.5%
	Oxford Nanopore Technologies Limited	3,490	-	3,490	0.2%
	Oxtox Limited	25,363	-	25,363	0.6%
	Photopharmica (Holdings) Limited	37,020	-	37,020	1.0%
	ReactivLab Limited 3	51	(51)	-	0.0%
	Retroscreen Virology Limited	1,858	-	1,858	0.5%
	Revolymer Limited	1,198	-	1,198	0.2%
	Simulstrat Limited - A Preference shares	24,063	-	24,063	2.8%
	Simulstrat Limited - Ordinary shares	2,255	-	2,255	1.3%
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	350	-	350	0.8%
	Sustainable Resource Solutions Limited	25	-	25	1.3%
	Tissue Regenix Group plc 4	89	1,950,773	1,950,862	0.4%
	Tracsis plc	84,750	-	84,750	0.4%
	Xanic Limited 1	16	(16)	-	0.0%
	Xeros Limited	213	-	213	0.9%
Graham Richards	Getech Group plc	30,000	-	30,000	0.1%
	Oxtox Limited	-	24,194	24,194	0.5%
	Summit Corporation plc	662,958	-	662,958	0.4%
	Tissue Regenix Group plc 4	-	150,000	150,000	<0.1%
Bruce Smith	Capsant Neurotechnologies Limited	20,724	-	20,724	1.4%
	Getech Group plc	15,000	-	15,000	<0.1%
	iQur Limited	2,000	-	2,000	0.8%
	Nanotecture Group plc	50,000	-	50,000	0.5%
	Oxford Catalysts Group plc	10,000	-	10,000	<0.1%
	Synairgen plc	200,000	-	200,000	0.3%
	Syntopix Group plc	15,241	-	15,241	0.1%
Roger Brooke	Activotec SPP Limited 1	1,459	-	1,459	0.8%
	Avacta Group plc	661,318	-	661,318	<0.1%
	Bioniqs Limited 1	1,000	(1,000)	-	0.0%
	Capsant Neurotechnologies Limited	2,667	-	2,667	0.2%
	Getech Group plc	30,000	-	30,000	0.1%
	Glycoform Limited	937	-	937	0.3%
	Inhibox Limited	500	-	500	<0.1%
	iQur Limited	1,400	-	1,400	0.6%
	Nanotecture Group plc	33,335	-	33,335	0.3%
	Oxford Nanopore Technologies Limited	3,481	-	3,481	0.2%
	Pharminox Limited	786	-	786	0.4%
	Proximagen Neuroscience plc	135,000	-	135,000	0.2%
	ReOx Limited	2,717	-	2,717	0.3%
	Revolymer Limited	1,351	-	1,351	0.2%
	Stratophase Limited	4,549	-	4,549	0.5%
	Summit Corporation plc	11,400	-	11,400	<0.1%
	Syntopix Group plc	11,299	-	11,299	0.1%

¹ Company in administration or dissolved.

 ² Ilika plc acquired the entire issued share capital of Ilika Technologies Limited. Ilika Technologies Limited shareholders received 100 Ilika plc shares as consideration for each Ilika Technologies Limited share. Ilika plc then joined AIM by IPO.

³ Reactivlab Limited was acquired by Avacta Group plc. The Reactivlab ordinary shareholders received no initial consideration but they may receive future contingent consideration in the form of Avacta Group plc shares.

⁴ Tissue Regenix Group plc joined AIM after it completed a reverse takeover of Oxeco plc and raised £4.5m through a placing. In addition, Graham Richards owned 1,000,000 Oxeco plc shares prior to the takeover.

⁵ Magnus Goodlad resigned as a director on 10 September 2010.

c) Portfolio companies

The Group earns fees from the provision of business support services and corporate finance advisory to portfolio companies in which the Group has an equity stake.  The following amounts have been included in respect of these fees:

Statement of comprehensive income	2010 £'m	2009 £'m
Revenue from services	0.5	0.5

Statement of financial position	2010 £'m	2009 £'m
Trade receivables	0.2	0.2

d) Subsidiary companies

Subsidiary companies which are not 100% owned either directly or indirectly by the parent company have intercompany balances with other Group companies totalling as follows:

	2010 £'m	2009 £'m
Intercompany balances with other Group companies	6.5	6.3

These intercompany balances represent funding loans provided by Group companies that are interest free, repayable on demand and unsecured.

25.        CAPITAL MANAGEMENT

The Group's key objective when managing capital is to safeguard the Group's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of issue new shares or dispose of interests in more mature portfolio companies.

During 2010, the Group's strategy, which was unchanged from 2009, was to maintain healthy cash and short term deposit balances that enable it to participate in all investments ratified by the Group's investment committee, whilst having sufficient cash reserves to meet all working capital requirements in the foreseeable future.

26.        CAPITAL COMMITMENTS

Partnership	Year of commencement of partnership	Original commitment (£'m)	Invested to date (£'m)	Remaining commitment (£'m)
University of Southampton (i)	2002	5.0	3.0	2.0
King's College London (ii)	2003	5.0	1.8	3.2
University of York - CNAP (iii)	2003	0.8	0.2	0.6
University of Leeds (iv)	2005	5.0	5.0	-
University of Bristol (v)	2005	5.0	1.0	4.0
University of Surrey (vi)	2006	5.0	0.5	4.5
University of York (iii)	2006	5.0	0.1	4.9
Queen Mary, University of London (vii)	2006	5.0	0.7	4.3
University of Bath (viii)	2006	5.0	0.2	4.8
University of Glasgow (ix)	2006	5.0	1.0	4.0
		45.8	13.5	32.3

(i) Under the terms of an agreement entered into in 2002 between the Group, the University of Southampton and certain of the University of Southampton's subsidiaries, IP2IPO Limited agreed to make £5.0m available for the purposes of making investments in University of Southampton spin-out companies. The basis for investment is subject to review during 2011.

(ii) Under the terms of an agreement entered into during 2003 between the Group and King's College London ("KCL") and King's College London Business Limited (formerly KCL Enterprises Limited), the Group agreed to make £5.0m available for the purposes of making investments in spin out companies.  Under the terms of this agreement, KCL was previously able to require the Company to make a further £5.0m available for investments in spin out companies on the tenth anniversary of the partnership. However, the 2003 agreement was terminated and replaced by a revised agreement between the same parties on 12 November 2009.  Under the revised agreement, the Group has agreed to target investing the remaining commitment of £3.2million over a three year period; KCL cannot, however, require the Group to make any additional funds available.  Other changes effected by the revised agreement included the removal of the Group's automatic entitlement to initial partner equity in every spin out company and/or a share of KCL's licensing fees from intellectual property commercialisation and to the termination rights of the parties.

(iii) In 2003 the Group entered into an agreement with the University of York.  The agreement relates to a specialist research centre within the University of York: the Centre for Novel Agricultural Products ("CNAP").  The Group has committed to invest up to a total of £0.8m in spin-out companies based on CNAP's intellectual property. In 2006 The Group extended its partnership with the University of York to cover the entire university. The Group has committed to invest £5.0m in University of York spin-outs over and beyond the £0.8m commitment as part of the Group's agreement with CNAP.The agreement with York was amended during the year so as to alter the process by which the Group evaluates commercialisation opportunities and the level of initial partner equity the Group is entitled to as a result. Further, the Group's automatic entitlement to share in any of York's proceeds from out-licensing has been removed from the agreement

(iv) The Group extended its partnership with the University of Leeds in July 2005 by securing the right and obligation to invest up to £5.0m in University of Leeds spin-out companies. 

(v) In December 2006, the Group entered into an agreement with the University of Bristol.  The Group has committed to invest up to a total of £5.0m in University of Bristol spin-out companies.

(vi) Under the terms of an agreement entered into in 2006 between the Group and the University of Surrey ('Surrey'), the Group has committed to invest up to a total of £5.0m in spin-out companies based on Surrey's intellectual property.

(vii) In July 2006, the Group entered into an agreement with Queen Mary, University of London ('QM') to invest in QM spin-out companies.  The Group has committed to invest up to a total of £5.0m in QM spin-out companies.

(viii) In September 2006, the Group entered into an agreement with the University of Bath ('Bath') to invest in Bath spin-out companies.  The Group has committed to invest up to a total of £5.0m in Bath spin-out companies. The agreement with Bath was amended during the year so as to remove the Group's automatic entitlement to a share of the initial equity or licence fees (as applicable) received by Bath from the commercialisation of its intellectual property in the event the Group and its employees have not been actively involved in developing the relevant opportunity.

(ix) In October 2006, the Group entered into an agreement with the University of Glasgow ('Glasgow') to invest in Glasgow spin-out companies.  The Group has committed to invest up to a total of £5.0m in Glasgow spin-out companies. 

 

END

 

 

FR XVLLLFLFLBBQ