Final Results

RNS Number : 9033H

IP Group PLC

02 March 2010

 



FOR RELEASE ON

2 MARCH 2010

("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 2009.

Financial highlights

·      Net assets stable at £171.0m (2008: £173.8m)

·      Assets managed on behalf of third parties increased to £63m following award of mandate to manage £25m North East Technology Fund in January 2010

·      Cash balance at 31 December 2009: £28.1m (2008: £33.3m) and zero borrowings

·      Investment in portfolio companies: £5.7m (2008: £8.6m)

·      Revenue from services of £1.5m (2008: £1.9m)

Portfolio highlights

·      Fair value of investment portfolio: £101.3m (2008: £98.4m)

·      Over £75m of capital raised by portfolio companies during the year, of which over £20m was raised in private financing rounds

·      Significant commercial and technical milestones achieved by portfolio companies during 2009

·      Oxford Nanopore Technologies completes £17.4m fund raising in 2010 following $18m investment from and strategic alliance with Illumina Inc in 2009

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

"The underlying performance of our portfolio companies in 2009 was encouraging with notable milestones achieved including the successful completion of a number of fund raisings. The current year has begun on a similar note with the completion of a successful fundraising by Oxford Nanopore Technologies Limited, our largest holding, together with some modest realisations.

IP Group is financially strong with no borrowings and a portfolio which is well diversified, generally well funded and maturing. We have a good pipeline of opportunities from our partners, augmented by our strategic deal with Fusion IP plc. While the financing environment remains difficult, particularly for smaller companies, we remain confident in our ability to deliver shareholder value over the medium to long term."

For more information, please contact:

IP Group plc    Alan Aubrey, Chief Executive Officer Mike Townend, Director of Capital Markets Greg Smith, Group Financial Controller Liz Vaughan-Adams, Communications

020 7444 0050 020 7444 0050 020 7444 0050 020 7444 0062 / 07979 853 802

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 1 March 2009.

The financial information set out in these preliminary results does not constitute the company's statutory accounts for 2008 or 2009. Statutory accounts for the years ended 31 December 2009 and 31 December 2008 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2008 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 237(2) or 237(3) of the Companies Act 1985. The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 was 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 2008 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2009 will be delivered to the Registrar following the Company's annual general meeting.

The 2009 Annual Report and Accounts will be published on 29 March 2010 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

While the global economic environment in 2009 remained challenging and the funding environment for early stage companies continued to be constrained, I was encouraged by the Group's overall performance during the period.

The Group's total net assets stood at £171.0m at the end of 2009 (2008: £173.8m), and we finished the year in a strong financial position with a portfolio valued at £101.3m (2008: £98.4m), cash balances of £28.1m (2008: £33.3m) and no borrowings. The funds that we manage on behalf of third parties have now increased to £63m after the Group successfully won the mandate to manage the £25m North East Technology Fund - a venture capital fund dedicated to investing in technology businesses based in the North East of England.

The Group has augmented its deal flow pipeline through a strategic investment in, and the signing of a co-investment agreement with, Fusion IP plc, an AIM-listed company which owns the exclusive commercialisation rights to 100% of the university-owned intellectual property generated at the University of Sheffield and Cardiff University which are both leading research universities with a combined research spend in 2008/09 of £190m.

IP Group's portfolio remains well diversified by sector, size and maturity and in general has made strong technical and commercial progress during the period. Despite the funding environment remaining tough, the Group's portfolio companies raised in excess of £58m from public markets (2008: £25m) and over £22m (2008: £30m) by way of private financings during the year. It is also worth noting that the vast majority of our more mature portfolio companies are well funded and debt free. The Group achieved modest realisations during the year and this trend continued in early 2010. We have maintained our conservative treasury policies and have kept a tight control on our cost base whilst continuing to support both our university partners and our portfolio companies effectively.

The strength of IP Group's business lies in our methodology of commercialising intellectual property that we have developed and deployed across our pipeline and portfolio and it is pleasing to see this method bearing fruit. This is evidenced by the increasing maturity profile of the portfolio, with a significant number of our portfolio companies signing deals in the year with major multi-national organisations. In addition, a number of our portfolio companies have taken advantage of market conditions to acquire or divest businesses as appropriate, or have attracted new investors, while others are showing solid organic growth and delivering product to customers.

In summary, IP Group is financially strong, appropriately positioned for the current economic climate with a robust and well financed portfolio, and recognised as a market leader in its sector. In addition, there is consensus amongst the major political parties that intellectual property based businesses have an important part to play in the growth of the economy which, we believe, should ensure that Government policy is favourably disposed to our sector. This gives us continued confidence in our ability to deliver shareholder value over the long term.

As ever, the Group's achievements would not be possible were it not for the hard work and dedication of its staff, as well as the continued support of our shareholders, investors, university partners, portfolio company management and associates and I would therefore like to extend my thanks to each of them for their contribution and commitment.

DR BRUCE SMITH

CHAIRMAN

CHIEF EXECUTIVE OFFICER'S STATEMENT

IP Group's core business is the creation of value for its shareholders, partners and investors through the commercialisation of intellectual property in a systematic and capital-efficient way. Our strength lies in managing this process of identifying suitable intellectual property to commercialise through the establishment of businesses and the generation of value from them.

We consider that there are three key pillars to the success of IP Group's core business:

-     Proprietary access to high quality intellectual property based deal flow;

-     Availability of capital to support company growth; and

-     A systematic and capital-efficient development approach.

Despite a continuation of difficult market conditions during 2009, the Group has taken steps to strengthen each of these pillars and I outline below the progress that we have made in this regard.

Proprietary Deal Flow

A key differentiator of the IP Group business model is our exclusive access to deal flow. Over the last ten years, we have entered into long-term agreements with ten of the UK's leading universities with a combined research income of over £1 billion. This has given us unique and unrivalled access to leading science and intellectual property in the UK and has enabled us to build a diverse portfolio of 63 companies based on groundbreaking discoveries.

In December, with support from shareholders through a vendor placing, we subscribed for a 19.8% shareholding in Fusion IP plc, an AIM-listed university intellectual property commercialisation company. The investment significantly increases the total university research income which IP Group is able to access while providing exposure to Fusion's diverse current portfolio of 20 companies.

Fusion has the exclusive commercialisation rights to 100 per cent of university-owned intellectual property generated at two of the UK's leading universities - the University of Sheffield and Cardiff University. Sheffield is the ninth largest and Cardiff is the thirteenth largest university in the UK, based on research income. Fusion has 10 year exclusive partnership agreements in place with these universities. In addition, the Group also entered into a co-investment agreement with Fusion under which we have the right, but not the obligation, to invest in all future portfolio companies that Fusion forms from its partner universities. During the first few months of 2010, the Group has approved the exercise of its option over two new Fusion companies under this agreement, the first is developing medical devices for laparoscopic surgery and the second is developing novel High Brightness LEDs.

The combination of the strategic investment in Fusion and co-investment agreement gives the Group exposure to an existing portfolio of established spin-out companies and enhances our proprietary access to the spin-out pipeline from leading UK research institutions, enabling us to leverage Fusion's experienced operating team.

Capital

In 2009 the constrained funding environment for early stage companies, such as the ones IP Group incubates and develops, persisted. We have continued to work with portfolio companies to attract external finance alongside IP Group's investment as they mature. This investment originates from a range of sources determined by the stage and sector in which the relevant portfolio company is operating. Set out below are examples of the principal sources of co-investment:

-     Industrial partners: examples during the year include the commercial collaborations and associated investments of Illumina Inc with Oxford Nanopore Technologies Limited and Upsher-Smith with Proximagen Neuroscience plc;

-     Venture capital financiers: investment rounds were led by Aquarius Equity Partners into Retroscreen Virology, by Octopus Ventures into Surrey Nano Systems Limited and by Esperante into Karus Therapeutics Limited;

-     Public markets: significant placings were completed by Proximagen Neuroscience, Synairgen plc and Avacta Group plc during 2009; and

-     Angels and High Net Worth Individuals: financings including material angel investment were agreed for Actual Experience Limited and Xeros Limited during 2009.

The Group has continued the investment of IP Venture Fund in portfolio companies during the year and increased funds under management through the winning of the mandate to manage the North East Technology Fund which launched in January 2010. The £25m Fund will invest in technology companies in the North East region from seed through to growth stages of development including opportunities from the leading research universities based in the region. The fund provides further recurring income from management fees and has the potential to generate performance fees from successful investment as well as providing co-investment opportunities for the Group.

The fund is part of the £125m JEREMIE venture capital fund (Joint European Resources for Micro to Medium Enterprises Initiative) - the first fund of its type in England. The North East JEREMIE is jointly funded by the European Investment Bank, the European Regional Development Fund and the Regional Development Agency, One North East.

The management of third party funds continues to bring a number of benefits to the Group. Additional funds broaden the sources of financing potentially available to the Group's existing portfolio companies where such investment is aligned with the relevant fund's investment mandate. The funds also provide specialist limited partner investors with access to opportunities in IP Group's existing portfolio and enable them to benefit from the Group's deep expertise in intellectual property sourcing, work-up and business building. Fund management also leverages IP Group's existing competencies to provide additional recurring income and potential performance-related fees. The Group continues to seek to increase the level of third party funds under management to further consolidate these benefits.

In addition, the Group continues to manage its own balance sheet resources prudently and, as at 31 December 2009, had £28.1m of cash resources and no borrowings. We also encourage our portfolio companies to take a similar stance to their own financial budgeting and have been working with them to increase early engagement with industry as development partners, sources of equity financing and potential routes to market for their products.

Development approach

Following the Client Services Team re-structuring described in the 2008 Annual Report, we have been able to support both our university partners and our portfolio companies more efficiently. This followed a rigorous review of our resourcing requirements which enabled us to make a number of organisational and process improvements. I am pleased to report that this approach has operated successfully during the year enabling us to offer more focused, specialist support to the pipeline and portfolio which has been well received.

The Group now employs its proprietary capital-efficient technology evaluation and development model across all of its partner universities. In most instances, an essential part of this model involves very early stage engagement in incubation projects. Opportunities at this stage usually involve investments of up to £50,000 and this allows for additional proof of concept work and early commercial engagement to be carried out. Incubation projects typically have durations of nine to eighteen months, following which the opportunity is generally either progressed to seed financing or terminated. The Group also encourages early partnering with industry and leveraging of initial capital through grants or development finance. During the period the Group closed a number of incubation projects where proof of concept work failed or the investment case was insufficiently compelling to progress the opportunity further.

At 31 December 2009, the Group's portfolio was valued at £101.3m (2008: £98.4m). More detail of this is given in the Portfolio Review below.

Outlook

The economic environment remains challenging and the funding environment, particularly for early stage businesses such as those in which the Group invests, continues to be constrained. Nonetheless, IP Group is financially strong with a portfolio valued at £101.3m, £28.1m of cash and funds under management of £63m.

Our portfolio is progressing well, is, in general, well financed and diverse, with exposure to five key sectors and a range of businesses by level of maturity, and our access to both deal flow and capital is extremely strong, having both been recently augmented.

These factors, combined with our continued tight control of our cost base and the maintenance of conservative treasury policies, give us confidence that the Group remains well positioned to create long term shareholder value.

PORTFOLIO REVIEW

Portfolio overview

At 31 December 2009, the Group's portfolio consisted of holdings in 63 companies (2008: 74) with a fair value that has stabilised during the year to stand at £101.3m (2008: £98.4m). A summary analysis of portfolio gains and losses is as follows:

	2009   £m	2008   £m
Unrealised gains on the revaluation of investments	15.3	12.2
Unrealised losses on the revaluation of investments	(16.7)	(47.7)
Net fair value (losses) / gains	(1.4)	(35.5)
Loss on disposals of equity investments	(0.8)	-
Total	(2.2)	(35.5)

The principal unrealised gains on the revaluation of investments comprise, from the quoted portfolio, the positive share price performance of Modern Water plc (£7.4m), Oxford Advanced Surfaces Group plc (£1.1m) and Synairgen plc (£1.1m), and, from the private portfolio, Oxford Nanopore Technologies Limited (£3.2m), which announced a £13.9m private financing in January 2009 as part of its worldwide strategic alliance with Illumina Inc., valuing the Group's 28.8% stake at £22.7m.

Unrealised losses on the revaluation of investments predominantly consist of falls in the share prices of certain companies in the Group's quoted portfolio, most significantly Green Chemicals plc (£3.3m), Oxford Catalysts Group plc (£3.2m), Proximagen Neuroscience plc (£2.1m) and Avacta Group plc (£1.7m). In addition, the application of the valuation techniques outlined in the Group's accounting policies set out in Note 1 to the Financial Statements has resulted in reductions in the fair values of a limited number of unquoted portfolio companies.

Portfolio analysis - by company stage

Of the 63 companies in the Group's portfolio, 72% of the fair value resides in the ten companies in which IP Group's stake is worth over £3m.  As at 31 Dec 2009, these businesses were valued at £72.9m (2008: £72.6m). An analysis of the Group's portfolio and investment during the year, by company stage, is as follows:

	31 Dec 2009						31 Dec 2008
	Invested	Fair Value		Number			Invested	Fair Value		Number
Company stage	£m	£m	%		%		£m	£m	%		%
Incubation projects	0.3	1.0	1%	11	17%		0.8	1.5	2%	20	27%
Portfolio businesses <£3m	2.0	27.4	27%	42	67%		6.2	24.3	24%	44	59%
Portfolio businesses >£3m	3.4	72.9	72%	10	16%		1.6	72.6	74%	10	14%
All portfolio businesses	5.7	101.3	100%	63	100%		8.6	98.4	100%	74	100%
Proceeds from sales of equity investments	0.5						-

Over the course of 2009 we gave particular focus in our portfolio companies to the efficient use of cash resources. The success of this work, particularly in our early stage businesses, is partially reflected in the reduction in cash invested during the year. The overall level of investment into our portfolio during 2009 was £5.7m, including the investment of £2.9m into Fusion IP plc, compared to £8.6m during 2008. The Group's investment approach is designed to enable us to incubate early stage technology businesses with low levels of cash investment, and this has borne out in practice during 2009. This approach allows the progressive elimination of risk with minimal capital deployment and facilitates the maintenance of a portfolio that is well diversified by stage and sector. During the early part of 2010, the level of investment made by the Group has increased to some degree and by 26 February 2010, £1.4m of investment had been made across 5 portfolio opportunities. An additional trend that is helping the Group develop opportunities more cost effectively is the increasing availability of translational funding from a variety of sources.

Despite a continuation of difficult equity market conditions in the very early stage and micro-cap space, the Group took the opportunity to make modest realisations from the portfolio, generating proceeds of £0.5m (2008: £nil). The directors will continue to identify and evaluate opportunities to realise cash from the portfolio when market conditions and/or specific circumstances make this appropriate to do so.

The Group's Capital Markets team continues to work closely with our portfolio companies, and our portfolio companies have raised in excess of £80m through public and private financings this year (2008: £55m).

Portfolio analysis - by sector

The Group's portfolio consists of five key sectors, as depicted in the following table. A more detailed analysis of each sector is set out below.

	As at 31 Dec 2009					As at 31 Dec 2008
	Fair Value		Number			Fair Value		Number
Sector	£m	%		%		£m	%		%
Energy & Renewables	16.8	17%	10	16%		13.0	13%	9	12%
Chemicals & Materials	20.3	20%	16	25%		23.9	24%	18	25%
Medical Equipment & Supplies	31.0	31%	15	24%		30.2	31%	23	31%
Pharma & Biotech	24.8	24%	10	16%		27.0	28%	12	16%
IT & Communications	4.9	5%	11	17%		4.3	4%	12	16%
Multiple sectors	3.5	3%	1	2%		-	-	-	-
	101.3	100%	63	100%		98.4	100%	74	100%

Energy & Renewables

		Group Stake		Company value*	Value* of Group  holding at:
		31 Dec 09	Quoted/ Unquoted	31 Dec 09	31 Dec 09	31 Dec 08
Name/Description		%		£m	£m	£m
Modern Water plc	Technologies to address the world's water crisis	23.2%	Quoted	48.3	11.2	3.8
Oxford Catalysts Group plc	Speciality catalysts for the generation of clean fuels	11.1%	Quoted	28.4	3.2	6.4
GETECH Group plc	Gravity and magnetic data analysis for the oil and gas industry	20.3%	Quoted	3.8	0.8	1.2
Other companies and unquoted fair value reductions					1.6	1.6
Total					16.8	13.0

* Values of unquoted companies are shown at price of recent investment prior to any fair value reductions (c.f. provisions)

The Energy & Renewables sector has experienced the most significant increase in fair value during the period (approximately 28%) largely as a result of the recovery in the share price of AIM-listed Modern Water plc which has contributed a fair value gain of £7.4m. This has been partially offset by a reduction in Oxford Catalysts Group plc's ("OCG") share price giving rise to an unrealised reduction in fair value of £3.2m.

Modern Water plc, a company that develops of leading water technologies, has made a number of significant operational and commercial advances during the year. In November, the company announced that fresh water production had commenced at its Manipulated Osmosis Desalination ("MOD") plant in Oman. The project is particularly significant as it acts as a showcase for the company's technology in the huge Middle East market, where annual expenditure on water and wastewater technology is expected to rise to $52.3 billion by 2016. The plant will also earn Modern Water its first revenue from desalination. This site is the second to employ the company's MOD technology. The first, in Gibraltar, has been successfully supplying water directly into Gibraltar's potable water distribution system since May 2009 having been thoroughly quality tested by the client and verified by a third party expert for approval to supply the public.

While OCG's share price performance has been disappointing during the year, the clean synthetic fuels innovation company has shown considerable progress following its acquisition of Velocys Inc in late 2008. During the period, OCG announced that it had been awarded development grants totalling in excess of $7.7m (£4.8m) and will benefit from a further $5.9m (£3.6m) through its joint development agreement with Portugal-based SGC Energia, SGPS, S.A. in the Fischer-Tropsch field. Following the period end, OCG announced a further $5.0m (£3.1m) agreement with PTT Public Company Limited, Thailand's largest listed company, for small scale Gas-to-Liquid ("GTL") facilities and then, in February 2010, an agreement with Petróleo Brasileiro S.A. (Petrobras), the largest company in Latin America, for a further GTL demonstrator.

During the year the Group made a seed investment into 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. Encos's ultimate aim is to produce construction products with a wide range of properties to suit different structural applications, using far less energy than traditional methods of manufacturing building materials. The Group co-invested at the seed stage with Sustainable Resource Solutions Limited, another Group portfolio company, which aims to provide practicable solutions to waste and resource management problems.

Chemicals & Materials

		Group Stake		Company value*	Value* of Group holding at:
		31 Dec 09	Quoted/ Unquoted	31 Dec 09	31 Dec 09	31 Dec 08
Name/Description		%		£m	£m	£m
Ilika Technologies Limited	High throughput materials discovery	23.6%	Unquoted	29.5	7.0	7.0
Oxford Advanced Surfaces Group plc	Surface modification technologies applicable to a broad range of materials	15.4%	Quoted	37.1	5.7	4.5
Green Chemicals plc	Environmentally friendly textiles and bleaching chemicals	24.4%	Quoted	10.8	3.0	6.1
Revolymer Limited	Revolutionary polymer solutions	11.3%	Unquoted	26.3	3.0	3.0
Other companies and unquoted fair value reductions					1.6	3.3
Total					20.3	23.9

* Values of unquoted companies are shown at price of recent investment prior to any fair value reductions (c.f. provisions)

The decrease in the fair value of the Chemicals & Materials portfolio can be largely attributed to the negative share price movement of Green Chemicals plc, which contributed an unrealised fair value reduction of £3.1m during the period. This was offset to some degree by an unrealised fair value gain in the Group's holding in Oxford Advances Surfaces Group plc ("OAS"), whose share price increase contributed £1.2m.

Ilika Technologies Limited ("Ilika") is based on technology from the University of Southampton and specialises in the use of high-throughput methods to accelerate materials development. Ilika's approach is to partner with a number of multinational companies and during the year the company extended its partnership with Toyota Motor Company for the development of next-generation lithium ion batteries for use in electric and hybrid vehicles and announced a joint development project with CeramTec, the world-leading ceramics company, for the development and commercialization of novel ceramic materials.

OAS, the advanced materials company, announced in June that its Onto® surface modification technology had facilitated a breakthrough in adhesion for inert and low-surface energy materials including PET and polyimide polymers. In January 2010, the company announced a strengthening of its board with Dr David Bott, previously Director of Group Technology at ICI, joining as a non-executive director. Green Chemicals' share price reduction occurred despite the unveiling of an ammonia-free, breakthrough hair bleaching and colouring system which is considered safer and simpler than other permanent dye products currently on the market.

Elsewhere in the Chemicals & Materials portfolio, Xeros Limited, the company behind the world's first "virtually waterless" washing machine technology, successfully completed a Series A financing led by Enterprise Ventures during the year, while Surrey NanoSystems Limited, which is developing a silicon-friendly carbon nanotube growth process for next-generation semiconductors, secured a £2.5m further financing led by Octopus Ventures.

Medical Equipment & Supplies

		Group Stake		Company value*	Value* of Group holding at:
		31 Dec 09	Quoted/ Unquoted	31 Dec 09	31 Dec 09	31 Dec 08
Name/Description		%		£m	£m	£m
Oxford Nanopore Technologies Limited	Nanopore technology used for super-fast genome sequencing	28.8%	Unquoted	78.9	22.7	19.5
Avacta Group plc	Specialist detection and analysis technologies and services	17.8%	Quoted	15.4	2.7	3.9
Tissue Regenix Limited	Regenerative medical devices	28.1%	Unquoted	6.9	1.9	1.9
Retroscreen Virology Limited	Specialist virology contract research organisation	18.0%	Unquoted	7.9	1.3	1.1
Other companies and unquoted fair value reductions					2.3	3.7
Total					30.9	30.1

* Values of unquoted companies are shown at price of recent investment prior to any fair value reductions (c.f. provisions)

The fair value of the Group's portfolio of Medical Equipment & Supplies or "med tech" companies remained stable during the period.

The most significant transaction of 2009 for the Medical Equipment & Supplies sector was the entering into by Oxford Nanopore Technologies Ltd ("ONP") of a worldwide strategic alliance with NASDAQ-quoted Illumina Inc. for the development and commercialisation of its BASE^TM Technology for super-fast DNA sequencing. Illumina Inc is a leading developer, manufacturer, and marketer of next-generation life-science tools with sales in 2009 in excess of $660m and provides a strong commercialisation partner for ONP. As part of this strategic alliance, Illumina invested $18m (£11.8m) alongside a further £2.1m from existing shareholders at an uplift from the previous investment round resulting in a fair value gain of £3.2m. Following the period end, ONP announced a further £17.4m equity financing from new and existing investors including IP Group and IP Venture Fund, to accelerate the development of ONP's electronic, single molecule analysis technology. This February 2010 investment was completed at a premium to the January 2009 round and will result in a further £2.2m fair value gain to the Group in 2010.

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 £1.7m. From an operational perspective, however, Avacta has performed strongly during the period. Having announced a number of acquisitions in the period, Avacta launched its Avacta Animal Health division and, in September, announced the first sale of its flagship Optim diagnostic product aimed at reducing risks and costs for biopharmaceutical developers. Avacta is also on track to launch its MIDAS animal diagnostic platform in early 2010 and completed a £2m placing during Q4 2009 to support roll-out of the product.

The technology behind Tissue Regenix Limited, a developer of regenerative medical devices, was highlighted in October 2009 as being at the centre of a £50m "50 active years after 50" research initiative being carried out by the University of Leeds. The company's lead product, the dCELL® Vascular Patch is currently undergoing a clinical trial in Europe. In parallel, Tissue Regenix is also developing a pipeline of further dCELL® products that address clinical needs in fields such as orthopaedics (meniscal repair, ligaments) and cardiac surgery (heart valves).

During the period, Retroscreen Virology Limited, the global leading CRO in anti-viral research, clinical trials and experimental challenge studies founded by Professor John Oxford, announced a successful £2.6m series B financing led by Aquarius Equity Partners Ltd in conjunction with IP Venture Fund. Retroscreen's sales have grown by over 66% in the last three years, generating revenues of over £5m in the year to 31 July 2009, and resulting in the company being included in the Sunday Times 2009 Tech Track 100 which ranks the fastest-growing private technology companies in Britain by sales growth over a three year period.

Pharma & Biotech

		Group Stake		Company value*	Value* of Group holding at:
		31 Dec 09	Quoted/ Unquoted	31 Dec 09	31 Dec 09	31 Dec 08
Name/Description		%		£m	£m	£m
Photopharmica (Holdings) Limited	Wound treatment using light (photodynamic therapy or "PDT")	49.9%	Unquoted	26.0	13.0	13.0
Proximagen Neuroscience plc	Treatments for neurodegenerative disorders such as Parkinson's disease	8.2%	Quoted	60.2	4.9	7.1
Synairgen plc	Developing new drugs for respiratory diseases	10.8%	Quoted	19.4	2.1	1.0
Syntopix Group plc	Topical antimicrobials for healthcare and pharmaceutical applications	18.7%	Quoted	5.8	1.1	1.1
Other companies and unquoted fair value reductions					3.8	5.0
Total					24.9	27.2

* Values of unquoted companies are shown at price of recent investment prior to any fair value reductions (c.f. provisions)

The Group's Pharma & Biotech portfolio experienced a limited level of unrealised fair value losses during 2009 (£1.5m, 2008: £9.2m) predominantly due to a £2.1m unrealised fair value loss arising from a reduction in Proximagen Neuroscience plc's ("Proximagen") share price over the period.

Building on the successful licensing of its PRX1 Parkinson's programme with Upsher-Smith Labroratories Inc during 2008, Proximagen significantly strengthened its business in a number of ways during 2009. Having announced the appointment of Peter Allen, previously CFO of Celltech Group, as its new Non-Executive Chairman in February 2009 (sourced through Stuart Thompson of IP Exec), the company completed a £50m placing. This placing provided capital for further in-licensing and development to commercialisation of drug development programmes for diseases of the central nervous system. In October, Proximagen announced its first acquisition, the purchase Cambridge Biotechnology Ltd and certain drug development programmes from Biovitrum AB, providing Proximagen with a number of clinical and pre-clinical stage assets. Following the period end in January 2010, Proximagen announced its recommended cash offer for Minster Pharmaceuticals plc, whose two principal assets, focussing on neurological and psychiatric disorders, benefit from comprehensive safety data having been previously acquired from GlaxoSmithKline. Following this acquisition, Proximagen will have a broad portfolio of 16 programmes ranging from discovery, through pre-clinical and clinical stages.

Photopharmica Holdings Limited ("Photopharmica"), the spin out company from the University of Leeds which is developing pharmaceutical products using photodynamic therapy ("PDT"), received MHRA regulatory approval for its repeat dose Phase II leg ulcer trial for its lead compound PPA904 in late 2008 and recruited its first patients during the second quarter of 2009. The company received further external validation during April that no bacterial resistance to PPA904 photodynamic therapy developed even under sustained conditions. Further developments from the trial are anticipated during 2010.

Both Syntopix Group plc ("Syntopix") and Synairgen plc made positive progress during 2009, with the latter's strong share price performance resulting in a fair value gain of £1.1m during the year. Having successfully raised £6.3m through a placing in May, Synairgen continued development of its respiratory drug programmes with the second half of 2009 seeing the patent for the company's lead compound, interferon-beta, being granted in the US, positive Phase I safety results being achieved and anti-viral proof of mechanism being confirmed. Synairgen is currently preparing for commencement of Phase II trials in Spring 2010, with the scope of the first study being widened to include flu. Syntopix meanwhile continues to progress the commercial applications of it topical antimicrobial innovations adding a second 12 month exclusive evaluation agreement with a major consumer healthcare company to that signed with Procter & Gamble during 2008. In November the company announced positive results in its Phase II randomised, blinded cosmetic study in subjects with acneic skin and is currently planning an equity issue in order to fully progress its commercial opportunities.

During the period the Group realised £0.25m of cash through the disposal of its holding in Summit Corporation plc. This realisation represents a cash on cash return of approximately ten times, following the Group's initial investment of £25,000 during 2003.

IT & Communications

		Group Stake		Company value*	Value* of Group holding at:
		31 Dec 09	Quoted/ Unquoted	31 Dec 09	31 Dec 09	31 Dec 08
Name/Description		%		£m	£m	£m
Tracsis plc	Crew scheduling software for the transportation industry	19.4%	Quoted	9.4	1.8	1.8
Coe Group plc	CCTV and surveillance technology	34.8%	Quoted	2.8	1.0	0.5
Icona Solutions Limited	Software to improve Perceived Quality	41.2%	Unquoted	1.1	0.4	0.4
Other companies and unquoted fair value reductions					1.7	1.6
Total					4.9	4.3

* Values of unquoted companies are shown at price of recent investment prior to any fair value reductions (c.f. provisions)

The Group's holdings in IT & Communications portfolio companies increased to a fair value of £4.9m at 31 December 2009 (2008: £4.3m). This was largely attributable to an increase in the share price of AIM-listed CCTV and surveillance technology company, Coe Group plc ("Coe"), of £0.5m.

In the latter part of 2008 Coe rationalised its cost base and raised almost £1.0m (before expenses) by way of a placing to strengthen its balance sheet and enable it to take advantage of developing sales opportunities. During 2009 this strategy began to bear fruit as the company announced a number of commercial partnerships and contract awards, including a £1m contract to provide the video surveillance solution for lines 1, 3 & 4 of the Seoul Metropolitan Subway network. In November 2009, Coe announced a full year profit for the year to 30 June 2009 compared to a loss of £1m in the prior year.

Tracsis plc, the scheduling software company for the transportation industry, continued to grow revenues and operating profits in 2009 and further consolidated its market position through two strategic acquisitions. In July Tracsis acquired Peeping Limited, a company which provides research based services to train operating companies, and this was followed by the announcement in December that it was to acquire Safety Information Systems Limited, a data analysis, process control and management reporting software developer.

Icona Solutions Ltd., continued to develop its innovative Perceived Quality simulation and visualisation software solution, aesthetica. As well as a number of software developments, the company announced in March that Bentley Motors had implemented Icona's aesthetica software, in order to streamline and improve the process of achieving consistently high Perceived Quality in Bentley Motors' vehicles without negatively impacting development timescales and manufacturing costs.

FINANCIAL REVIEW - STATEMENT OF COMPREHENSIVE INCOME

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

	2009   £m	2008   £m
Net portfolio losses	(2.3)	(35.0)
Other income	1.5	1.9
Administrative expenses - Modern Businesses*	(0.3)	(2.9)
Administrative expenses - All other businesses	(5.6)	(6.6)
Finance income	0.6	2.2
Loss and total comprehensive income for the period	(6.1)	(40.4)

* Modern businesses administrative expenses are stated net of R&D tax credits

Portfolio gains consist primarily of realised and unrealised fair value gains and losses, as well as any dividends or other distribution income received from portfolio companies. A detailed analysis of fair value gains and losses is provided in the Portfolio Review above.

Other income for the year decreased to £1.5m (2008: £1.9m) largely due to reduced private placement fees during the period (£0.1m; 2008:.£0.3m) and a slight reduction in venture capital fund management fees (£1.0m; 2008: £1.1m) as one of the funds managed by the Group moves fully into its realisations period where lower fees are charged. The Group will benefit from additional venture capital fund management fee income in 2010 following the appointment of the Group as manager of the £25m North East Technology Fund in January 2010.

As a result of the restructuring carried out in late 2008 the cost base of the business has reduced with administrative costs, excluding those attributable to the Group's drug discovery subsidiary, Modern Biosciences plc ("MBS"), £1m lower than in 2008.

As in prior years, administrative expenses include a number of non-cash charges totalling £1.1m (2008: £1.0m) including an IFRS 2 share-based payments charge of £0.6m relating to the Group's Long-Term Incentive Plan (2008: £0.6m). This charge is designed to reflect 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'.

During 2009 the Group deployed limited capital to continue development of MBS's two lead programmes, Rimcazole and OsteoRx, while reducing operating overheads to an absolute minimum. The net cost to the business of this development, following the receipt of a cash R&D tax credit of £0.3m during the period (2008: £0.1m), was £0.3m (2008: £2.9m). The Group currently intends to deploy limited further capital for the early-stage pre-clinical development of these two assets which seek to address the significant global markets of age-related macular degeneration (AMD) and rheumatoid arthritis.

As anticipated in the 2008 Annual Report, finance income decreased significantly to £0.6m (2008: £2.2m) primarily due to significantly lower interest rates in the UK during 2009. 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

The Group continues to have a strong balance sheet with cash and deposits of £28.1m (2008: £33.3m), no borrowings and a diversified portfolio of investments in private and publicly-listed companies across five distinct sectors.

The value of the Group's portfolio of 63 companies has stabilised during the year and is valued at £101.3m as at 31 December 2009 (2008: £98.4m, 74 companies). A detailed report on the Group's portfolio of equity and debt investments, including key developments and movements during the period, is provided in the Portfolio Review above.

The Group's balance sheet includes goodwill of £18.4m (2008: £18.4m) and an equity rights asset of £19.9m (2008: £19.9m). The goodwill balances arose as a result of the Group's historical acquisitions of Techtran Group (university partnership business, £16.3m; 2008: £16.3m) and Top Technology Ventures (venture capital fund management business, £2.1m; 2008: £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. 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

The principal constituents of the movement in cash and short term deposits balances during the period can be summarised as follows:

	2009  £'m	2008  £'m
Net cash used in operating activities	(2.7)	(3.5)
Net cash used in investing activities	(2.5)	(9.2)
Issued share capital	-	-
Movement during period	(5.2)	(12.7)

While the overall level of cash deployment has reduced during the period, the Group has continued to incubate and invest in new university spin-out opportunities, and has maintained some participation in follow-on funding rounds where appropriate. The Group invested £5.7m across 20 opportunities during the period (2008: £8.6m, 40). This included the Group's £2.9m investment into Fusion IP plc although since this was financed through the issue of vendor-placed new share capital, the associated cash flows are not reflected in the Group's statement of cash flows. The Group made modest realisations of £0.5m during the period (2008: £nil) and the net cash used in investing activities reduced to £2.5m (2008: £9.2m).

As in previous years, the directors have applied the Group's stringent qualification criteria to its investment opportunities at all stages of company maturity and will continue to do so in the future. The Group has discretion over the level of cash deployed into portfolio opportunities and regularly reviews this level based on the economic environment, likely capital requirements of the portfolio and volume of attractive intellectual property commercialisation opportunities.

It is 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 as detailed in Note 2 to the Group Financial Statements. The Group has no borrowings or foreign currency deposits.

Taxation

The Group's 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 equity stakes which meet the qualifying criteria.

ALAN AUBREY

CHIEF EXECUTIVE OFFICER

PRINCIPAL RISKS AND UNCERTAINTIES

The key risks and uncertainties 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 Alternative Investment Market ("AIM") 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.

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 with longer-term incentive plans. All senior executives are shareholders in the business and members of the senior management and executive teams participate in the Group's long-term incentive plan and/or equity bonus scheme.

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 second round 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.

Failure of companies within the Group's portfolio

The Group has a portfolio of equity interests in portfolio 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 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.

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 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.

Changes in legislation and government policy

There may be unforeseen changes in government policy or legislation (including taxation legislation), or other changes in 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 with 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, which could have an adverse effect on the Group's business. In addition, a number of the partnership agreements contain change of control clauses which may result in their renegotiation or termination.

The Group manages this risk by ensuring that its university partners receive the highest 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.  

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 2009 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 on 29 March 2010, 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

1 March 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009

	Note	2009 £'m		2008 £'m
Portfolio return and revenue
Change in fair value of equity and debt investments	16	(1.4)		(35.5)
Loss on disposal of equity investments		(0.8)		-
Change in fair value of limited partnership investments		(0.1)		-
Other portfolio income		-		0.5
Revenue from services	4	1.5		1.9
		(0.8)		(33.1)
Administrative expenses
Employee bonus costs	19	(0.3)		(0.1)
Research and development costs		(0.5)		(1.3)
Share based payment charge	22	(0.6)		(0.6)
Other administrative expenses		(4.9)		(7.6)
		(6.3)		(9.6)
Operating loss	7	(7.1)		(42.7)
Finance income - interest receivable		0.6		2.2
Loss before taxation		(6.5)		(40.5)
Taxation	9	0.4		0.1
Loss and total comprehensive income for the year		(6.1)		(40.4)
Loss and total comprehensive income for the year attributable to:
Owners of the parent		(6.1)		(40.3)
Minority interest	25	-		(0.1)
		(6.1)		(40.4)
Basic earnings per ordinary share (p)	10	(2.45)		(16.10)
Diluted earnings per ordinary share (p)	10	(2.45)		(16.10)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

	Note	2009 £'m		2008 £'m
ASSETS
Non-current assets
Intangible assets:
Goodwill	11	18.4		18.4
Acquired intangible assets	12	-		0.1
Property, plant and equipment	13	0.4		0.5
Equity rights and related contract costs	15	20.1		20.2
Investment portfolio:
Equity investments	16	99.0		96.5
Debt investments	16	2.3		1.9
Other financial asset	18	1.1		1.1
Investment in limited partnerships	23	1.5		1.4
Total non-current assets		142.8		140.1
Current assets
Trade and other receivables	17	0.8		1.1
Deposits		15.0		-
Cash and cash equivalents		13.1		33.3
Total current assets		28.9		34.4
Total assets		171.7		174.5
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	20	5.1		5.0
Share premium account		99.3		96.7
Merger reserve		12.8		12.8
Retained earnings		53.8		59.3
Total equity attributable to owners of the parent		171.0		173.8
Minority interest in equity	25	-		-
Total equity		171.0		173.8
Current liabilities
Trade and other payables	19	0.7		0.7
Total equity and liabilities		171.7		174.5

Registered number: 4204490

Approved by the Board of Directors and authorised for issue on 1 March 2010 and signed on its behalf by:

Bruce Smith Chairman

Alan Aubrey Chief Executive Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2009

	2009 £'m		2008 £'m
Operating activities
Loss before taxation	(6.5)		(40.5)
Adjusted for:
Finance income - interest receivable	(0.6)		(2.2)
Fair value movements in equity and debt investments	1.4		35.5
Fair value movements in limited partnership investments	0.1
Depreciation of property, plant and equipment	0.1		0.1
Amortisation of intangible non-current assets	0.2		0.2
Loss on disposal of equity investments	0.8		-
Non cash employee bonus costs	0.3		0.1
Share-based payment charge	0.6		0.6
Other portfolio income classified as investing activities cash flows	-		(0.5)
Changes in working capital
(Increase) / decrease in trade and other receivables	(0.2)		0.7
Decrease in trade and other payables	(0.1)		(0.1)
Other operating cash flows
Research and development tax credits received	0.3		0.1
Interest received	1.0		2.5
Net cash outflow from operating activities	(2.7)		(3.5)
Investing activities
Purchase of property, plant and equipment	-		(0.1)
Purchase of equity and debt investments	(2.8)		(9.2)
Investment in Limited Partnership Funds	(0.2)		(0.4)
Proceeds from sale of equity investments	0.5		-
Other portfolio income received	-		0.5
Net cash outflow from investing activities	(2.5)		(9.2)
Financing activities
Net cash flow to deposits	(15.0)		-
Net cash outflow from financing activities	(15.0)
Net decrease in cash and cash equivalents	(20.2)		(12.7)
Cash and cash equivalents at the beginning of the year	33.3		46.0
Cash and cash equivalents at the end of the year	13.1		33.3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2009

	Attributable to owners of the parent
	Share capital £'m	Share premium (i) £'m	Merger reserve (ii) £'m	Retained earnings (iii) £'m	Total £'m	Minority interest £'m	Total Equity £'m
At 1 January 2008	5.0	96.7	12.8	99.0	213.5	0.3	213.8
Loss and total comprehensive income for the year	-	-	-	(40.3)	(40.3)	(0.1)	(40.4)
Acquisition of minority interest	-	-	-	-	-	(0.2)	(0.2)
Share based payment charge	-	-	-	0.6	0.6	-	0.6
At 1 January 2009	5.0	96.7	12.8	59.3	173.8	-	173.8
Loss and total comprehensive income for the year	-	-	-	(6.1)	(6.1)	-	(6.1)
Issue of equity	0.1	2.6	-	-	2.7	-	2.7
Share based payment charge	-	-	-	0.6	0.6	-	0.6
At 31 December 2009	5.1	99.3	12.8	53.8	171.0	-	171.0

(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 2009. 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 2008:

-     Improving Disclosures about Financial Instruments (Amendments to IFRS 7): The application of this Amendment has resulted in changes to the disclosures provided in respect of financial instruments, primarily in note 16 to the financial information, including an analysis of financial assets and financial liabilities that are measured at fair value in the statement of financial position, into a three level fair value measurement hierarchy. The Amendment does not change the recognition or measurement of transactions and balances in the financial information.

-     Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation: As a result of the application of this Amendment the Group have elected to present a single statement of comprehensive income; previously it presented an income statement and the statement of recognised income and expense.  In addition, a statement of changes in equity is now presented as a primary statement where previously the information was included in a note.  An analysis of the tax effect of any items recognised in other comprehensive income will be included if this is applicable in the future. The Amendment does not change the recognition or measurement of transactions and balances in the financial information.

-     IFRS 8, Operating Segments: This standard sets out requirements for the disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. The segments are to be identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operation decision maker in order to allocate resources to the segments and to assess its performance. It replaces IAS 14, Segmental Reporting. The adoption of the standard has not resulted in change of the number and composition of the segments reported by the group.

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 minority interest.  The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets is recorded as goodwill. 

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

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.

(iv) Transactions with minority shareholders - 'economic entity approach'

The Group applies a policy of treating transactions with minority interests as transactions with equity owners of the Group. For purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains or losses on disposals to minority interests are also recorded in equity. For disposals to minority interests, differences between any proceeds received and the relevant share of minority interests are also recorded in equity.

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 Computer equipment

Over 3 to 5 years 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.  Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. 

(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 will generally provide a good indication of fair value unless there is objective evidence that the investment has since been impaired, such as observable data suggesting a deterioration of the financial, technical, or commercial performance of the underlying business.

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 an 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 award, using a Monte Carlo simulation technique, 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 balance sheet 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

The Group operates 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 of the Annual Results Release, 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 and 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 reduction in fair value of the Group's equity investments during 2009 of £1.4m represents a 1% change against the opening balance (2008: net decrease of £35.4m, 28%) 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.

		2009				2008
		Quoted	Unquoted	Total		Quoted	Unquoted	Total
		£'m	£'m	£'m		£'m	£'m	£'m
Equity investments and investments in limited partnerships		0.4	0.6	1.0		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.

	2009				2008
	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	-	-	19.9	19.9	-	-	19.9	19.9
Equity investments	-	-	99.0	99.0	-	-	96.5	96.5
Debt investments	1.5	-	0.8	2.3	1.0	-	0.9	1.9
Deposits	15.0	-	-	15.0
Cash and cash equivalents	-	13.1	-	13.1	15.0	18.3	-	33.3
Other financial asset	-	-	1.1	1.1	-	-	1.1	1.1
Trade receivables	-	-	0.2	0.2	-	-	0.2	0.2
Other receivables	-	-	0.6	0.6	-	-	0.8	0.8
	16.5	13.1	121.6	151.2	16.0	18.3	119.4	153.7
Financial liabilities
Trade payables	-	-	0.2	0.2	-	-	0.1	0.1
Accrued staff bonus	-	-	0.1	0.1	-	-	-	-
Other accruals and deferred income	-	-	0.4	0.4	-	-	0.4	0.4
	-	-	0.7	0.7	-	-	0.5	0.5

At 31 December 2009, if interest rates had been 1% higher / lower, post-tax profit for the year, and other components of equity, would have been £0.2m (2008: £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	2009	2008
	£'m	£'m
P1	16.1	10.0
P2	2.5	-
AA	9.5	14.4
Unrated*	-	8.9
Total deposits & cash and cash equivalents	28.1	33.3

* Unrated deposits & cash and cash equivalents includes £nil (2008: £5m) of short term instruments where the counterparty has not been rated by Moody's or Standard & Poor's.  In 2008 these counterparties were building societies who, in accordance with the Group's treasury policy, have most recently reported total assets in excess of £3 billion at the time of investment.

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 2009 and the year ended 31 December 2008 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 2009	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	(1.4)	-	-	(1.4)
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)
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

Year ended 31 December 2008	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	(35.5)	-	-	(35.5)
Other portfolio income	0.5	-	-	0.5
Revenue from advisory services	0.5	0.3	-	0.8
Revenue from fund management services	-	1.1	-	1.1
Administrative expenses	(5.4)	(1.2)	(3.0)	(9.6)
Operating profit / (loss)	(39.9)	0.2	(3.0)	(42.7)
Finance income - interest receivable	2.0	0.1	0.1	2.2
Profit / (loss) before taxation	(37.9)	0.3	(2.9)	(40.5)
Taxation	-	-	0.1	0.1
Profit / (loss) and total comprehensive income for the year	(37.9)	0.3	(2.8)	(40.4)
STATEMENT OF FINANCIAL POSITION
Assets	170.7	3.2	0.6	174.5
Liabilities	(0.5)	(0.1)	(0.1)	(0.7)
Net assets	170.2	3.1	0.5	173.8
Other segment items
Capital expenditure	0.1	-	-	0.1
Depreciation	0.1	-	-	0.1
Amortisation of intangible assets	-	0.2	-	0.2

6.    AUDITORS' REMUNERATION

Details of the auditors' remuneration are set out below:

	2009 £'000	2008 £'000
Audit services
- Fees payable to company auditor for the audit of parent and consolidated accounts	60	57
Non-audit services
Fees payable to company auditor and its associates for other services:
- Auditing of accounts of subsidiaries pursuant to legislation	39	27
- Other services supplied under legislation	13	13
- Other taxation services
-   Corporation tax compliance	36	43
-   Corporation tax advisory	4	22
-   Other tax advisory	49	69
- Recruitment and remuneration services	-	-
- All other services	11	4
	212	235

7.    LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging:

	2009 £'m	2008 £'m
Amortisation of intangible assets	0.2	0.2
Depreciation of tangible assets	0.1	0.1
Employee costs (see Note 8)	3.9	5.5
Operating leases - property	0.4	0.5
Loss on disposal of equity investments	0.8	-

8.    EMPLOYEE COSTS

Employee costs (including directors) comprise:

	2009 £'m	2008 £'m
Salaries	2.6	4.2
Defined contribution pension cost	0.1	0.1
Share based payment charge (see Note 22)	0.6	0.6
Equity bonuses accrued in the year	0.3	0.1
Social Security	0.3	0.5
	3.9	5.5

The average monthly number of persons (including executive directors) employed by the Group during the year was 35, all of whom were involved in management and administration activities (2008: 54). The Company had no employees in the year ended 31 December 2009 (2008: nil).

9.    TAXATION

	2009 £'m	2008 £'m
Current tax	(0.4)	(0.1)
Deferred tax	-	-

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

	2009 £'m	2008 £'m
Loss before tax	(6.5)	(40.5)
Tax at the UK Corporation tax rate of 28% (2008: 28%)	(1.8)	(11.3)
Non-taxable income	0.5	(0.1)
Non-deductible net fair value losses	0.4	9.9
Schedule 23 deduction	-	-
Research and development tax credits	(0.4)	(0.1)
Tax losses arising not recognised	0.8	0.9
Other adjustments	0.1	0.6
Tax credit	(0.4)	(0.1)

At 31 December 2009, deductible temporary differences and unused tax losses for which no deferred tax asset has been recognised totalled £19.4m (2008: £16.7m). An analysis is shown below:

	2009		2008
	Amount £'m	Deferred tax £'m	Amount £'m	Deferred tax £'m
Share based payment costs	-	-	-	-
Unused tax losses	19.4	5.4	16.7	4.7
	19.4	5.4	16.7	4.7

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

	2009 £'m	2008 £'m
Earnings for the purposes of basic and dilutive earnings per share	(6.1)	(40.3)

Number of shares	2009 No. of shares	2008 No. of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	250,711,712	250,291,965
Effect of dilutive potential ordinary shares:    Share options	-	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	250,711,712	250,291,965

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 2008	18.7
Acquisition of minority interests (i)	0.1
Disposed with subsidiary (i)	(0.4)
At 1 January 2009	18.4
At 31 December 2009	18.4
At 31 December 2008	18.4

i)          Goodwill arising on the Group increasing its stake in Modern Waste Limited in 2008.  Modern Waste Limited was then subsequently disposed of on 17 December 2008.

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:

	2009 £'m	2008 £'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:

	2009	2008
Discount rate	9%	9%
Number of funds under management	3	3
Management fee	2-3.5%	2%
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.

	2009	2008
The number of spin-out companies per year	2-10	2 - 8
Initial equity stake acquired by the Group under the University partnership	12-30%	20%
Proportion of spin-out companies failing	20-40%	20-30%
Dilution rates prior to exit as a result of financing for spin-out companies	35-60%	35-50%
Proportion of IPO exits	30-50%	30-50%
IPO exit valuations	£20m-40m	£30m-50m
Proportion of disposal exits	30-50%	30-50%
Disposal valuations	£10m-30m	£15m-35m
Discount rate	8-12%	8-10%

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

	£'m
At 1 January 2008	0.3
Amortisation charge during the year ended 31 December 2008	(0.2)
At 1 January 2009	0.1
Amortisation charge during the year ended 31 December 2009	(0.1)
At 31 December 2009	-
At 31 December 2008	0.1

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 2009 the asset had been fully amortised.

13.   PROPERTY, PLANT AND EQUIPMENT

	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

	Total £'m
Cost
At 1 January 2008	0.7
Additions	0.1
At 31 December 2008	0.8
Accumulated depreciation
At 1 January 2008	0.2
Charge for the year	0.1
At 31 December 2008	0.3
Net book value
At 31 December 2008	0.5
At 31 December 2007	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 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
At 31 December 2008
Equity rights		19.9	-	-	19.9
Equity investments		-	96.5	-	96.5
Debt investments		-	1.9	-	1.9
Other financial asset		1.1	-	-	1.1
Investment in limited partnerships		-	1.4	-	1.4
Trade and other receivables		-	-	1.1	1.1
Cash and cash equivalents		-	-	33.3	33.3
Total		21.0	99.8	34.4	155.2

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 (2008: 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 (2008:  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 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

	Equity Rights £'m		Contract  costs £'m		Total £'m
Cost
At 1 January 2008 and 31 December 2008	19.9		0.5		20.4
Aggregate amortisation of contract costs
At 1 January 2008	-		(0.2)		(0.2)
Charge for the year	-		-		-
At 31 December 2008	-		(0.2)		(0.2)
Net book value
At 31 December 2008	19.9		0.3		20.2
At 31 December 2007	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.

	2009	2008
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%	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%	35-50%
Proportion of IPO exits	30-40%	30-50%
IPO exit valuations	£30m-50m	£30m-50m
Proportion of disposal exits	30-50%	30-50%
Disposal valuations	£15m-35m	£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 either 1 January 2004 or any subsequent reporting date.  The directors consider a fair value for this instrument could be reliably estimated 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.  None of the above reasonably possible estimates of fair value indicate that an impairment of carrying value of the equity rights agreement is required.

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 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 reduction in fair value for the year of £1.4m (2008: £35.5m reduction) includes a net reduction of £4.4m (2008: £3.6m 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

	2009 £'m	2008 £'m
Fair value gains	15.3	12.2
Fair value losses	(16.7)	(47.7)
	(1.4)	(35.5)

17.        TRADE AND OTHER RECEIVABLES

	2009 £'m	2008 £'m
Trade debtors	0.2	0.2
Prepayments	0.2	0.1
Other receivables	0.4	0.8
	0.8	1.1

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 £1.2m (2008: £1.2m).  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

	2009 £'m	2008 £'m
Trade payables	0.2	0.1
Social security expenses	0.1	0.2
Accrued staff bonuses	0.1	-
Other accruals and deferred income	0.3	0.4
	0.7	0.7

Accrued staff bonuses

During the year ended 31 December 2009, 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 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)

Group		Current bonus accrual £'m
At 1 January 2008		0.7
Charged in the statement of comprehensive income in the year to 31 December 2008		0.1
Settled during the year to 31 December 2008		(0.8)
At 31 December 2008		-

20.   SHARE CAPITAL

	2009 £'m	2008 £'m
Issued and fully paid:
255,763,664 ordinary shares of 2 pence each (2008: 250,291,965 ordinary shares of 2 pence each)	5.1	5.0

On 4 December 2009 the Company issued 5,471,699 ordinary shares of 2 pence each for consideration of £2.9m. The new ordinary shares were issued in consideration for the Group's acquisition of a 19.8% stake in Fusion IP plc and were vendor placed on behalf of Fusion IP plc by the Group's brokers, KBC Peel Hunt, to existing Group shareholders. Accordingly the associated cash flows are not presented in the Group's consolidated statement of cash flows.

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

	2009 £'m	2008 £'m
Payments under operating leases recognised in the statement of comprehensive income for the year	0.4	0.5

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

	2009 £'m	2008 £'m
Within one year	0.3	0.3
In the second to fifth years inclusive	0.4	0.6
	0.7	0.9

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.  Awards will generally vest over three years following the date on which they are made, to the extent that performance conditions have been met.  The Remuneration Committee will impose objective conditions on the vesting of awards, and it is proposed that such conditions will be imposed as reflect the guidelines of institutional investors from time to time.  At present, it is intended that the performance conditions for any potential future grants will be based on the Group's total shareholder return ("TSR") performance.  The awards granted in 2007 and 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 movement in the number of shares notionally awarded under the LTIP is set out below:

	2009	2008
At 1 January	3,483,009	2,656,716
Notionally awarded during the year	-	826,293
At 31 December	3,483,009	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:

	2009	2008
Share price at date of award	-	105p
Exercise price	-	£nil
Expected volatility (median of historical 50 day moving average)	-	26%
Expected life (years)	-	3
Expected dividend yield	-	0%
Risk-free interest rate	-	4.0%
Value per option	-	42p

The fair value charge recognised in the income statement during the year in respect of LTIP share awards was £0.6m (2008: £0.6m).

23.   INVESTMENTS IN LIMITED PARTNERSHIPS

	£'m
At 1 January 2008	1.0
Additions during the year	0.4
At 1 January 2009	1.4
Additions during the year	0.2
Change in fair value during the year	(0.1)
At 31 December 2009	1.5

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	2009 £'m	2008 £'m
Revenue from services	0.8	0.9

Statement of financial position	2009 £'m	2008 £'m
Investment in limited partnerships	1.5	1.4
Amounts due from related parties	-	-

b) Key management transactions

The key management had direct shareholdings in the following spin-out companies as at 31 December 2009:

Director	Company name	Number of shares held at 1 January 2009	Number of shares acquired / (disposed) in the period	Number of shares held at 31 December 2009	%
Alan Aubrey	Activotec SPP Limited	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 (Note 1)	12,961,857	314,256	13,276,113	1.0%
	Bioniqs Limited	1,063	-	1,063	1.0%
	Capsant Neurotechnologies Limited	11,631	-	11,631	0.8%
	Cerogenix Limited	3,143	(3,143)	-	-
	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	1.3%
	Ilika Technologies Limited	1,175	-	1,175	1.0%
	Karus Therapeutics Limited	223	-	223	0.7%
	Leeds Lithium Power Limited	178	-	178	1.2%
	Leeds Reproductive Biosciences Limited	18	-	18	1.1%
	Luto Research Limited	132	(132)	-	-
	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	22	10	32	1.4%
	Oxford Advanced Surfaces Group plc	2,172,809	-	2,172,809	1.2%
	Oxford Catalysts Group plc	254,749	-	254,749	0.4%
	Oxford Nanopore Technologies Limited	11,442	-	11,442	1.0%
	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	50	-	50	1.1%
	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	1.2%
	Surrey Nanosystems Limited	393	-	393	1.0%
	Sustainable Resource Solutions Limited	-	25	25	1.4%
	Syntopix Group plc	77,059	(328)	76,731	1.0%
	Theragenetics Limited (Note 1)	3,150	(3,150)	-	-
	Tissue Regenix Limited	89	-	89	0.8%
	Tracsis plc	203,400	-	203,400	1.0%
	Xanic Limited	16	-	16	0.6%
	Xeros Limited	241	-	241	1.3%
Alison Fielding	Activotec SPP Limited	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 (Note 1)	7,522,403	141,702	7,664,105	0.6%
	Bioniqs Limited	1,063	-	1,063	1.0%
	Capsant Neurotechnologies Limited	7,847	-	7,847	0.5%
	Cerogenix Limited	874	(874)	-	-
	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	1.1%
	Ilika Technologies Limited	328	-	328	0.3%
	Karus Therapeutics Limited	43	-	43	0.1%
	Leeds Lithium Power Limited	172	-	172	1.2%
	Leeds Reproductive Biosciences Limited	17	-	17	1.0%
	Luto Research Limited	132	(132)	-	-
	Mode Diagnostics Limited	1,632	-	1,632	1.1%
	Modern Biosciences plc	773,460	283,883	1,057,343	1.9%
	Modern Water plc	276,000	-	276,000	0.5%
	Overlay Media Limited	18	10	28	1.2%
	Oxford Advanced Surfaces Group plc	611,042	-	611,042	0.3%
	Oxford Catalysts Group plc	84,196	-	84,196	0.1%
	Oxford Nanopore Technologies Limited	5,721	-	5,721	0.5%
	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	48	-	48	1.1%
	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	1.1%
	Surrey Nanosystems Limited	323	-	323	0.8%
	Sustainable Resource Solutions Limited	-	25	25	1.4%
	Syntopix Group plc	35,477	-	35,477	0.5%
	Theragenetics Limited (Note 1)	1,260	(1,260)	-	-
	Tissue Regenix Limited	85	-	85	0.8%
	Tracsis plc	197,750	-	197,750	1.0%
	Xanic Limited	15	-	15	0.5%
	Xeros Limited	197	-	197	1.0%
Magnus Goodlad	Activotec SPP Limited	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 (Note 1)	2,297,770	141,702	2,439,472	0.2%
	Bioniqs Limited	533	-	533	0.5%
	Capsant Neurotechnologies Limited	7,772	-	7,772	0.5%
	Cerogenix Limited	651	(651)	-	-
	Chamelic Limited	20	-	20	1.3%
	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	43,067	(21,533)	21,534	0.3%
	Icona Solutions Limited	1,355	-	1,355	1.0%
	Ilika Technologies Limited	260	-	260	0.2%
	Karus Therapeutics Limited	105	-	105	0.3%
	Leeds Lithium Power Limited	61	-	61	0.4%
	Leeds Reproductive Biosciences Limited	6	-	6	0.4%
	Luto Research Limited	30	(30)	-	-
	Mode Diagnostics Limited	1,549	-	1,549	1.0%
	Modern Biosciences plc	773,460	225,141	998,601	1.8%
	Modern Water plc	476,200	-	476,200	0.8%
	Overlay Media Limited	17	9	26	1.1%
	Oxford Advanced Surfaces Group plc	425,857	-	425,857	0.2%
	Oxford Catalysts Group plc	74,684	-	74,684	0.1%
	Oxford Nanopore Technologies Limited	5,721	-	5,721	0.5%
	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	45	-	45	1.0%
	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	0.5%
	Surrey Nanosystems Limited	306	-	306	0.8%
	Sustainable Resource Solutions Limited	-	23	23	1.3%
	Syntopix Group plc	13,312	-	13,312	0.2%
	Theragenetics Limited (Note 1)	1,260	(1,260)	-	-
	Tissue Regenix Limited	31	-	31	0.3%
	Tracsis plc	113,000	-	113,000	0.6%
	Xanic Limited	14	-	14	0.5%
	Xeros Limited	187	-	187	1.0%
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	178	-	178	1.2%
	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	19	10	29	1.3%
	Oxford Advanced Surfaces Group plc	932,994	-	932,994	0.5%
	Oxford Nanopore Technologies Limited	3,490	-	3,490	0.3%
	Oxtox Limited	25,363	-	25,363	0.6%
	Photopharmica (Holdings) Limited	37,020	-	37,020	1.0%
	ReactivLab Limited	51	-	51	1.2%
	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	1.2%
	Surrey Nanosystems Limited	350	-	350	0.9%
	Sustainable Resource Solutions Limited	-	25	25	1.4%
	Tissue Regenix Limited	89	-	89	0.8%
	Tracsis plc	84,750	-	84,750	0.4%
	Xanic Limited	16	-	16	0.6%
	Xeros Limited	213	-	213	1.1%
Graham Richards	Getech Group plc	30,000	-	30,000	0.1%
	Summit Corporation plc	662,958	-	662,958	1.1%
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	0.2%
Roger Brooke	Activotec SPP Limited	1,459	-	1,459	0.8%
	Avacta Group plc (Note 1)	661,318	-	661,318	<0.1%
	Bioniqs Limited	1,000	-	1,000	0.9%
	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	0.2%
	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	0.3%
	Pharminox Limited	786	-	786	0.4%
	Proximagen Neuroscience plc	160,000	(25,000)	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%

All figures refer to ordinary shares unless indicated otherwise.

(Note 1) On 15 January 2009, Avacta Group plc acquired the entire issued ordinary share capital of Theragenetics Limited.  Theragenetics Limited shareholders received approximately 112 ordinary shares in Avacta Group plc as consideration for each ordinary share in Theragenetics Limited held at that time

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	2009 £'m	2008 £'m
Revenue from services	0.5	0.8

Statement of financial position	2009 £'m	2008 £'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:

	2009 £'m	2008 £'m
Intercompany balances with other Group companies	6.3	6.0

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

25.   MINORITY INTEREST

	2009 £'m	2008 £'m
At 1 January	-	0.3
Disposal of minority interest	-	(0.2)
Share of loss for the year	-	(0.1)
At 31 December	-	-

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	0.3	4.7
University of Bath (viii)	2006	5.0	0.2	4.8
University of Glasgow (ix)	2006	5.0	1.0	4.0
		45.8	13.1	32.7

(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 in 2010.

(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 changes 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. 

27.   POST BALANCE SHEET EVENTS

On 22 January 2010, the Group announced that it had won the mandate to manage the North East Technology Fund ("the Fund"), a £25m venture capital fund that will invest in technology companies in the North East region from seed through to growth stages of development including opportunities from the leading research universities based in the region. The Group will receive management fees and has the potential to generate performance fees from successful investment of the Fund. In addition, the Group will be able to co-invest alongside the Fund in appropriate opportunities.

On 1 February 2010, Oxford Nanopore Technologies Limited ('Oxford Nanopore') announced a further £17.4m equity financing from new and existing investors including IP Group and IP Venture Fund, to accelerate the development of its electronic, single molecule analysis technology. This February 2010 investment was completed at a premium to the January 2009 round and will result in a further £2.2m fair value gain to the Group in 2010.

ENDS

 

END

 

 

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