Final Results

RNS Number : 7389Y

IP Group PLC

06 March 2012

FOR RELEASE ON

06 MARCH 2012

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

IP Group Annual Results

IP Group plc (LSE: IPO), the developer of intellectual property based businesses, today announces its annual results for the year ended 31 December 2011.

Financial and operational highlights

· Net assets increased to £221.6m (2010: £173.1m)

· Successful completion of placing and open offer, realising gross proceeds of £55.0m

· Net cash and deposits at 31 December 2011: £60.5m (2010: £21.5m)

· Adjusted profit before tax of £0.5m (2010: £1.8m), excluding £6.0m reduction in fair value of Oxford Equity Rights asset (2010: £nil)

· Widening of partnership with University of Oxford through strategic stake in Technikos LLP

· Appointment of four new directors to the Board

Portfolio highlights

· Fair value of investment portfolio: £123.8m (2010: £110.0m)

· More than doubled investment in portfolio companies to £14.3m (2010: £6.9m)

· Portfolio realisations: £3.7m (2010: £2.7m)

· Value of ten largest holdings: £89.0m (2010: £81.3m)

· Group's portfolio companies raised in excess of £90.0m of new capital (2010: £40.0m)

· Oxford Nanopore Technologies Limited completed £25.0m private financing

· Tissue Regenix Group plc completed £25.0m placing

Post year-end highlights

· Oxford Nanopore to launch two revolutionary DNA sequencing machines, GridION^TM and MinION^TM during 2012

· Net increase in the fair value of the Group's holdings in quoted portfolio companies, excluding net investment, of £10.0m since 31 December 2011.

Commenting on the Group's annual results, Alan Aubrey, Chief Executive Officer of IP Group, said: "2011 was a year of significant progress for the Group with the material strengthening of the Company's balance sheet, enabling us to step up the level of capital deployed in our portfolio companies. Despite continued economic uncertainty, this year the value of the Group's portfolio has increased, the Group's portfolio companies have raised significantly more new capital and the Group has recorded more realisations than in 2010.

We continue to believe that innovation remains strategically important to the UK economy and that the Group is strongly placed to play a central role in helping commercialise UK innovation. Our most valuable portfolio company, Oxford Nanopore, recently announced that it intends to start selling a DNA sequencer the size of a USB memory stick for less than $900 this year. This marked a pivotal moment for both companies that further supports the Group's long-term strategy and exemplifies the quality of technology seen in our portfolio.

Since the year end, the Group's quoted portfolio companies have seen a net increase in fair value of £10m. Our strong cash position coupled with the excellent progress being made across the portfolio gives us renewed confidence that the Group will generate significant long-term returns for shareholders."

For more information, please contact:

IP Group plc
Alan Aubrey, Chief Executive Officer	020 7444 0050
Greg Smith, Chief Financial Officer	020 7444 0050
Liz Vaughan-Adams, Communications	020 7444 0062 / 07979 853 802
FTI Consulting	020 7831 3113
Ben Atwell, John Dineen

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

Notes

(i) Nature of announcement

This Annual Results Release was approved by the directors on 5 March 2012.

The financial information set out in this Annual Results Release does not constitute the company's statutory accounts for 2011 or 2010. Statutory accounts for the years ended 31 December 2011 and 31 December 2010 have been reported on by the Independent Auditor. The Independent Auditor's Reports on the Annual Report and Financial Statements for 2011 and 2010 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar following the Company's annual general meeting.

The 2011 Annual Report and Accounts will be published in April 2012 and a copy will be posted on the Group's website (www.ipggroupplc.com). In accordance with Listing Rule 9.6.1 a copy of the Annual Report and Accounts will also be submitted to the National Storage Mechanism on or around this date and will be available for inspection at: www.Hemscott.com/nsm.do from that time.

Throughout this Annual Results Release the Group's holdings in portfolio companies reflect the undiluted beneficial equity interest excluding debt, unless otherwise explicitly stated.

(ii) Forward looking statements

This Annual Report and Accounts 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 companies within the Group's portfolio.

CHAIRMAN'S STATEMENT

Last year I described 2010 as being a year of building on the Group's foundations and I am pleased to report that during 2011 we have successfully continued to build IP Group and its portfolio companies, many of which have experienced exciting developments during the year.

Since the Group's formation in 2000, its core strategy has been clear and consistent: to build high-quality businesses based on intellectual property. The successful completion of a significant placing during the year, through which we raised £55m of new capital before expenses, is a strong endorsement of this strategy. We are grateful for the substantial support from our existing shareholders and welcome shareholders who are new to the Group in 2011.

By most measures, the macroeconomic environment during 2011 remained turbulent, both globally and in the UK, and a degree of uncertainty continues to hang over the economy and financial markets. This environment brings both challenges and opportunities for the Group and its portfolio companies.

The Group's portfolio companies were successful in raising approximately £90m of new capital during the year. While financing for early-stage businesses, which inevitably carry a higher risk of failure, continues to be limited, we continue to work closely with portfolio companies to access a variety of capital pools, some of which appear to be showing some level of increasing appetite including, for example, additional funds that may become available as a result of the planned broadening of the UK's Enterprise Investment Scheme, which is welcomed by the Group.

Similarly, while trading conditions for small businesses may remain difficult in individual geographies and markets, the challenges addressed by many of the Group's portfolio companies, including healthcare, availability of fresh water, sustainability and increased efficiency, are global in nature and can yield opportunities across many different jurisdictions. During the year, a number of our portfolio companies were successful in selling products and services and forming commercial partnerships not just in the UK and Europe but increasingly in the US, China and the rest of the world. It is our belief that intellectual property is a global asset class and that this trend will continue.

Overall, the financial performance of the Group during the year was satisfactory, with the Group's portfolio of spin-out companies increasing in value to £123.8m (2010: £110.0m) and, largely as a result of the net proceeds from the Group's placing, net assets excluding intangibles and the Oxford Equity Rights asset increasing to £189.1m (2010: £134.6m). Excluding the reduction of £6.0m in the value of the Oxford Equity Rights asset, the Group recorded a modest adjusted profit before tax of £0.5m (2010: £1.8m; £nil reduction in value of Oxford Equity Rights asset).

This year has seen a number of changes to the Board and I am pleased to report the addition of four new members bringing skill sets that we believe will help drive the next phase of the Group's growth. At the non-executive level, we announced the joining of Jonathan Brooks and Mike Humphrey, two individuals with extensive commercial and financial track records. Jonathan, formerly the chief financial officer of ARM Holdings plc, became Chairman of the Group's Audit Committee while Mike, who had served as group chief executive of Croda International plc since 1999, became the Group's Senior Independent Director. Roger Brooke, who had served as a non-executive director for nearly ten years and as Chairman of the Group's Audit Committee since its formation in 2003, announced his retirement.

At the executive level, two members of the existing management team joined the Board. Greg Smith, who had been Group Financial Controller since January 2008, was promoted to Chief Financial Officer, and Charles Winward, who as Managing Director of Top Technology Ventures is responsible for the Group's regulated business, became an executive director having been with the Group since 2007. I would like to welcome all of the Board's new members, who I look forward to working alongside, and would also like to express my significant gratitude to Roger for his wise counsel and immense contribution to the Group over the years.

Finally, I believe that it is important each year to recognise the hard work and dedication of the Group's staff and the continued support and contribution from the Group's shareholders, limited partners, portfolio company management teams and university partners. I would like to conclude my statement with an expression of thanks to these teams and individuals, who have all contributed to the Group's growth this year.

BUSINESS REVIEW

Chief Executive's Statement

During 2011, IP Group continued to execute its core strategy of building high-quality businesses based on intellectual property. The business model that the Group employs in order to achieve this relies on three core components:

· proprietary access to potentially disruptive, commercialisable intellectual property;

· a rigorous and systematic approach to opportunity appraisal and business building; and

· access to sources of capital to finance businesses as they develop.

Through the application of this business model, the Group seeks to form, or assist in the formation of, spin-out companies based on fundamental innovation, to take a significant minority equity stake in those spin-out companies and then to grow the value of that equity over time through active participation in the development of such spin-out companies.

Capital for the development of portfolio companies from the Group's balance sheet was significantly increased during the year as a result of the successful completion of the Group's placing, which raised £55.0m (before expenses). As discussed with shareholders at the time of the placing, a significant proportion of the funds raised is intended to be employed in maintaining or increasing the Group's equity interest in its most promising portfolio companies, resulting in an increase in the Group's overall level of capital deployment into its portfolio. In line with this intention, the Group has more than doubled its level of investment in 2011 to a total of £14.3m compared to £6.9m in 2010.

Many of the Group's portfolio companies continue to mature and a number have announced significant commercial developments. Oxford Nanopore Technologies Limited, the Group's most valuable portfolio company holding at £33.4m following its most recent financing round in April 2011, announced in February 2012 that it intended to launch two revolutionary DNA sequencing machines during 2012 based on its direct, electrical single-molecule detection platform. Oxford Nanopore intends to launch a high-throughput GridION machine as well as the MinION, a sequencer the size of a USB stick intended for the applied sequencing markets. Photopharmica (Holdings) Limited announced the successful completion of its Phase IIb clinical trial for the use of antimicrobial photodynamic therapy in the treatment of chronic leg ulcers. Tissue Regenix Group plc announced a number of developments in its portfolio of regenerative medical devices during the year as well as the completion of a £25m placing in December. At 31 December 2011, the Group's portfolio was valued at £123.8m (2010: £110.0m) and a more detailed analysis is provided in the Portfolio review.

Our proprietary access to high-quality intellectual property through unrivalled access to UK universities was broadened during the year through the acquisition of a stake in, and formation of a commercialisation alliance with, Technikos LLP, a specialist medical technology fund that has a long-term commercialisation agreement with the University of Oxford's Institute of Biomedical Engineering. In July, the Group announced its first spin-out under this alliance in the form of Oxyntix Limited. Oxyntix is developing new technologies for energy and process engineering, most notably in the fields of nuclear fusion and sonochemistry, based on the generation of extremely high temperatures and pressures using intense bubble collapse.

The Group continues to work closely with the University of Oxford and Isis Innovation Limited and was pleased to announce in February 2012 that it had backed its first start-up from the Computer Science Department and Isis's Software Incubator. The company, TheySay Limited, is developing "sentiment analysis" software that can be used to help a broad set of organisations generate competitive advantage by understanding emotion expressed in any passage of text. For example, previous academic studies have found that "public mood states" inferred from a sample of social media data can be predictive of changes in stock markets.

The Group has long recognised the importance of access to capital from a wide variety of sources for developing businesses and, in addition to approximately £60m of balance sheet cash at 31 December 2011, the Group currently manages two venture capital funds, the £31m IP Venture Fund and the £25m Finance for Business North East Technology Fund ("NETF"). The former was launched in July 2006, fully funded in August 2007 and, having invested in 25 of the Group's portfolio companies, reaches the end of its five-year "investment period" in August 2012 and will therefore no longer seek new companies in which to invest. The fund has approximately £7m further to deploy into existing portfolio companies and will seek to do so, and then realise its investments, over the next five to six years. NETF is entering its third year of operation, having made investments into over 20 developing technology companies in the North East of England to date. As was intended when the Group won the mandate to manage the fund in 2010, NETF and the Group have now co-invested in four opportunities, including the Group's first spin-out from Durham University, Durham Graphene Sciences Limited, which is developing production technology for generating large-scale commercial quantities of graphene. Graphene is the strongest material currently known to science, and better at conducting electricity than copper, and UK research institutions are at the forefront of discovery in this area of materials science.

Outlook

Despite challenging economic conditions and volatility in the UK's financial markets in the second half of the year, 2011 was an encouraging year for the Group. The significant new capital raised through the Group's placing has strengthened the balance sheet and the directors will seek to accelerate the growth of the portfolio through increased deployment of capital in the most promising companies as they mature.

Clearly, uncertainty in the economic climate presents challenges and none more so than in the funding and trading environment for early-stage developing businesses such as many of those in the Group's portfolio. However, against this backdrop, a number of these companies are launching products, generating revenues and taking advantage of the opportunities presented by the commercialisation of disruptive technologies. We believe the announcement following the year end that Oxford Nanopore, the Group's most valuable portfolio company, intends to launch products later in 2012 is a pivotal moment for both Oxford Nanopore and the Group and we look forward to updating shareholders on the company's progress later in the year.

The directors believe that, as a result of its diverse and developing portfolio, strong cash position and proprietary access to a significant proportion of the UK's leading scientific innovation, the Group has a number of competitive advantages and is accordingly well-placed to deliver significant value for shareholders over the medium to long term.

Portfolio Review

Overview

At 31 December 2011, the value of the Group's portfolio had increased to £123.8m from £110.0m in 2010, as a result of the net investment and fair value movements set out below. The portfolio comprised holdings in 64 businesses (2010: 63). During the year the Group made total investments of £14.3m, increased from £6.9m in 2010, and realised a total of £3.7m cash proceeds (2010: £2.7m).

The Group's three largest portfolio companies by value, accounting for almost half of the total portfolio value, have seen significant developments during the year and, in the case of Oxford Nanopore, further developments in the early part of 2012.

University of Oxford spin-out, Oxford Nanopore, the developer of revolutionary technology for direct electrical detection and analysis of single molecules, announced the completion of a £25m further financing in April 2011. The round resulted in an unrealised fair value uplift of £6.4m, valuing the Group's 21.5% undiluted beneficial stake in the company at £33.4m at year end.

Following the period end, Oxford Nanopore has made further significant progress and at February's Advances in Genome Biology and Technology ("AGBT") conference in Florida, US, the company presented for the first time DNA sequence data using its novel nanopore "strand sequencing" technique and proprietary high performance electronic devices GridION and MinION. The modular, scalable GridION technology platform consists of a network device (a node) designed for use with a consumable cartridge. Nodes may be clustered in a similar way to computing devices and the "Run Until..." informatics workflow allows the analysis of data in real time as the experiment happens. The miniaturised MinION device is the size of a USB memory stick, designed for portable analysis of single molecules, and is expected to retail at less than $900.

Oxford Nanopore's sequencing platform has numerous potential applications, including screening genetic material, prenatal screening for genetic defects and diagnostic tests aimed at identifying genetic mutations that have applicability in agricultural, environmental and medical markets. Oxford Nanopore intends to commercialise GridION and MinION directly to customers for DNA "strand sequencing" during 2012.

Photopharmica (Holdings) Limited ("Photopharmica"), which is developing photosensitiser-based topical antimicrobial treatments for a variety of therapeutic areas, announced positive clinical trial results in October 2011. The active part of the 48-patient arm of the Phase IIb study, being a randomised, placebo-controlled trial of antimicrobial photodynamic therapy using PPA 904 in the treatment of chronic leg ulcers, successfully met its primary endpoint with statistical significance (p<0.0001). Antimicrobial photodynamic therapy using PPA 904 was shown to produce a substantial and significant reduction in bacterial load in chronic leg ulcers.

Significantly fewer PPA 904-treated patients experienced bacterial load levels above the cited threshold for prevention of healing than placebo-treated patients (p=0.0354), encouraging the pursuit of a wound healing claim in a pivotal regulatory trial. Furthermore, significantly fewer PPA 904-treated patients experienced very high bacterial load levels compared with placebo-treated patients (p=0.0026), suggesting that PPA 904 may reduce the risk of development of clinical infection. All bacterial species investigated were substantially and significantly reduced, including MRSA. A prevention of infection claim in a diabetic foot ulcer indication may also be pursued by conducting further clinical trials based on these findings. Following the release of the trial data, the Company engaged PwC (previously "PricewaterhouseCoopers") as their global corporate finance adviser.

In December, Tissue Regenix Group plc ("Tissue Regenix"), a regenerative medical devices spin-out company from the University of Leeds, announced that it had completed a £25.0m placing. The placing proceeds are expected to enable Tissue Regenix to progress its key programmes through a range of key value inflection points, including funding the development of further applications of its CE-marked vascular patch, developing the porcine heart valve product, progressing the existing meniscus project towards CE approval and to initiate a ligament development programme targeted at anterior cruciate ligament repair.

Performance summary

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

	2011 £m	2010 £m
Unrealised gains on the revaluation of investments	13.6	13.8
Unrealised losses on the revaluation of investments	(12.7)	(9.8)
Net fair value gains	0.9	4.0
Profit on disposals of equity investments	2.3	0.6
Change in fair value of Limited Partnership interests	0.6	0.2
Net portfolio gain	3.8	4.8

Unrealised gains on the revaluation of investments principally comprised £6.4m as a result of Oxford Nanopore's April financing round and from share price increases of Fusion IP plc (£2.5m) and Tissue Regenix Group plc (£1.9m).

Unrealised losses on the revaluation of investments included reductions in the share prices of certain of the Group's quoted companies, including Oxford Advanced Surfaces Group plc (£4.2m), Modern Water plc (£1.7m), Proximagen Group plc (£1.6m) and Avacta Group plc (£1.2m).

The Group's holdings in unquoted companies experienced a net fair value increase of £6.2m, while those companies quoted on either AIM or PLUS Markets saw a net decrease in fair value of £5.3m. While the Group believes that the performance of the underlying businesses of many of its quoted portfolio companies has been satisfactory in the year, the share price performance in a number of cases has been disappointing. The companies' share prices may have been affected by the general poor performance of the UK's AIM market, which has seen a decline of c.26% in 2011. The performance of the Group's portfolio companies, and indeed that of AIM, has been positive during the first two months of 2012, with the Group's quoted portfolio having increased in value by £10.0m from the year end to 2 March 2012 (excluding net investment of £2.5m).

Investments and realisations

As envisaged in the June 2011 placing and open offer prospectus, the Group has increased its rate of capital deployment into its portfolio during 2011, with a total of £14.3m being invested across 42 new and existing projects (2010: £6.9m; 31) as follows:

Cash investment analysis by company stage	2011 £m	2010 £m
Incubation opportunities	0.1	0.4
Seed businesses	2.1	1.5
Post-seed private businesses	5.8	2.9
Post-seed quoted businesses	6.3	2.1
Total	14.3	6.9

Proceeds from sales of equity investments	3.7	2.7

"Incubation opportunities" comprise businesses or pre-incorporation projects that are generally at a very early stage of development and typically involve investments of less than £0.1m from the Group. "Seed businesses" are those that have typically received capital of up to £0.5m in total, primarily from the Group, in order to continue to progress towards agreed commercial and technology milestones and to enable the recruitment of management teams and early commercial engagement. "Post-seed businesses" are those that have received some level of further funding from co-investors external to the Group, with total funding received generally in excess of £0.5m. Of these, "post-seed quoted businesses" consist of those whose shares are quoted on either AIM or PLUS Markets.

The Group has continued to mature its post-seed businesses with a number announcing further financings supported by the Group and/or IP Venture Fund ("IPVF"), the dedicated follow-on venture capital fund managed by the Group. IPVF invested a total of £2.4m into Group portfolio businesses during the year (2010: £2.0m).

Fusion IP plc ("Fusion"), the university IP commercialisation company in which the Group held a 26.0% interest at 31 December 2011, raised £5.0m from new and existing shareholders in November 2011, including £2.3m from the Group. Fusion's portfolio, arising from its exclusive agreements with University of Sheffield and Cardiff University, reached a number of commercial and technical milestones in 2011. This had a positive impact on the Company's share price resulting in an unrealised fair value gain to the Group of £2.5m.

The Group's pipeline of commercialisable intellectual property opportunities remains strong. Five new opportunities received initial incubation or seed funding during the year (2010: seven), while four existing incubation projects progressed to seed stage (2010: two).

The five new opportunities included:

- Arkivum Limited (University of Southampton): Arkivum provides a completely transparent data archiving service that guarantees 100% data integrity.

- Durham Graphene Science Limited ("DGS") (Durham University): DGS develops new methodologies to produce graphene on a reasonable scale and to incorporate it into advanced composites. DGS was founded on research developed by Dr Karl Coleman who won the 2011 Royal Society of Chemistry's "Chemistry World Entrepreneur of the Year". The Group provided seed capital alongside its NETF managed fund.

- Oxyntix Limited (University of Oxford): Oxyntix is developing new technologies for energy and process engineering, most notably in the fields of nuclear fusion and sonochemistry, based on the generation of extremely high temperatures and pressures using intense bubble collapse.

The average level of capital deployed per company increased from £220,000 to £340,000 in 2011. It is expected that this trend will continue in 2012.

The Group realised £3.7m of cash proceeds from its portfolio during the year, an increase from £2.7m during 2010. The most significant contributor to this figure was the realisation in July 2011 of the Group's entire holding in portfolio company Amantys Limited, with the £2.9m cash proceeds representing a multiple of 5.7 times the Group's original investment of £0.5m made in July 2010. The sale resulted in a realised fair value gain to the Group of £2.4m.

Portfolio analysis - by stage of company maturity

At 31 December 2011, the Group's portfolio fair value of £123.8m was distributed across stages of company maturity as follows:

	As at 31 December 2011				As at 31 December 2010
	Fair value		Number		Fair value		Number
Company stage	£m	%		%	£m	%		%
Incubation opportunities	0.2	0%	6	9%	0.4	1%	10	16%
Seed businesses	5.3	4%	14	22%	3.3	3%	10	16%
Post-seed private businesses	68.3	55%	29	46%	56.3	51%	28	44%
Post-seed quoted businesses	50.0	41%	15	23%	50.0	45%	15	24%
All portfolio businesses	123.8	100%	64	100%	110.0	100%	63	100%

Of the 64 companies in the Group's portfolio, 72% of the fair value resides in the ten most valuable companies and the Group's holdings in these businesses are valued at a total of £89.0m (2010: £81.3m).

Portfolio analysis - by sector

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

	As at 31 December 2011				As at 31 December 2010
	Fair value		Number		Fair value		Number
Sector	£m	%		%	£m	%		%
Medical Equipment & Supplies	52.0	42%	14	22%	39.8	36%	16	25%
Pharma & Biotech	25.4	21%	8	13%	26.2	24%	8	13%
Chemicals & Materials	17.5	14%	16	25%	20.7	19%	15	24%
Energy & Renewables	14.4	12%	13	20%	15.8	14%	12	19%
IT & Communications	6.4	5%	11	17%	4.4	4%	11	17%
Multiple sectors	8.1	6%	2	3%	3.1	3%	1	2%
	123.8	100%	64	100%	110.0	100%	63	100%

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

Medical Equipment & Supplies

		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Year to 31 December 2011		Fair value of Group holding at 31 Dec 2011
		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Net investment/ (divestment)	Fair value movement	Fair value of Group holding at 31 Dec 2011
Company name	Description	%	£m	£m	£m	£m
Oxford Nanopore Technologies Limited	Single-molecule detection and analysis using nanopore technology	21.5%	25.6	1.4	6.4	33.4
Tissue Regenix Group plc	Regenerative dCELL^® tissue implants	13.8%	8.2	2.5	1.9	12.6
Avacta Group plc	Specialist detection and analysis technologies and services	21.4%	2.9	0.5	(1.2)	2.2
Other companies			3.1	1.2	(0.5)	3.8
Total			39.8	5.6	6.6	52.0

⁽ⁱ⁾Stake represents undiluted beneficial equity interest excluding debt

Companies in the Group's portfolio of Medical Equipment & Supplies, or "med tech" companies, saw the most significant increase in fair value during the period (31%). The major contributors to this increase were Oxford Nanopore (£6.4m) who, as described above, completed a further £25.0m fundraising at a premium to its previous financing round, and Tissue Regenix Group plc (£1.9m) whose share price performed positively during the year. These were offset to a limited degree by a decrease in the fair value of the Group's holding in Avacta Group plc (£1.2m).

In addition to its £25.0m placing announced in December, Tissue Regenix, announced in April that it had entered into a commercialisation and IP agreement with one of its long-term clinical collaborators, the Pontifical Catholic University of Parana ("PUCPR") and Cardioprotese Ltda (representing Professor Francisco da Costa), both based in Brazil, which will facilitate Tissue Regenix's entry into the $1.0bn global tissue heart valve market. Under the terms of the agreement Tissue Regenix obtains exclusive worldwide commercialisation rights (excluding Brazil) to all data generated from over eight years clinical use of decellularised (using Tissue Regenix's dCELL methods) human donor heart valves as heart valve replacements. The deal involves royalties but no upfront or milestone payments. In May, Tissue Regenix also announced promising follow-up results in relation to an ongoing clinical evaluation of its dCELL Vascular Patch following the receipt of European CE Mark approval in 2010 for its use in vascular repair.

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 £1.2m. From an operational perspective, however, Avacta has continued to perform strongly announcing underlying revenue growth of 42% to £2.4m for the year to 31 July 2011 and an established global network of top-tier distributors including Pall Corporation, Isogen Life Sciences, Cold Spring Biotech and DKSH. In January 2012, Avacta completed a £5.1m placing and acquired Aptuscan Limited ("Aptuscan"). Avacta plans to use the proceeds from the placing to drive faster growth in recurring revenue from proprietary reagents and consumables, including the development of the intellectual property acquired with Aptuscan.

Pharma & Biotech

		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Year to 31 December 2011		Fair value of Group holding at 31 Dec 2011
		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Net investment/ (divestment)	Fair value movement	Fair value of Group holding at 31 Dec 2011
Company name	Description	%	£m	£m	£m	£m
Photopharmica (Holdings) Limited	Wound treatment using light (photodynamic therapy or "PDT")	49.9%	13.0	-	-	13.0
Proximagen Group plc	Treatments for neurodegenerative disorders such as Parkinson's disease	7.6%	7.2	-	(1.6)	5.6
Synairgen plc	Developing new drugs for respiratory diseases	10.8%	1.6	0.3	0.4	2.3
Other companies			4.4	1.0	(0.9)	4.5
Total			26.2	1.3	(2.1)	25.4

⁽ⁱ⁾Stake represents undiluted beneficial equity interest excluding debt

The Group's Pharma & Biotech portfolio experienced a limited level of unrealised fair value losses during 2011 predominantly due to a £1.6m unrealised fair value loss arising from the negative share price performance of Proximagen Group plc ("Proximagen"). This was counteracted to a degree by Synairgen plc ("Synairgen"), whose share price increase contributed £0.4m of fair value gains.

Proximagen, a spin-out from King's College London, announced a number of formal strategic partnerships in 2011 to enable it to better develop and commercialise its therapeutics programmes primarily focused on the treatment of central nervous system diseases, although it saw disappointing share price performance during the period. In September, Proximagen signed a strategic partnership agreement with H. Lundbeck A/S, the international pharmaceutical company and a world leader in treating central nervous system ("CNS") disorders, who also made an equity investment of £10.3m into the company, while in November the company signed a collaborative research and development agreement with Altacor Limited, a specialty ophthalmic pharmaceutical company.

Synairgen plc, the University of Southampton spin-out that focuses on respiratory drug discovery and development, made further positive progress with its Phase II trial of inhaled interferon beta ("IFN-beta") in asthma in the year. Its last subjects were dosed in December, with the results anticipated in March 2012. Positive results from pre-clinical study completed in November 2011 showed that aerosolised IFN-beta reduced virus-induced pneumonia, suggesting that inhaled IFN-beta may have potential in two further areas: (i) as a broad spectrum antiviral for use in patients admitted to hospital with suspected viral lung infections; and (ii) as a post-exposure prophylactic defence against a lethal virus threat to the lungs.

As described above, Photopharmica announced positive results in October from its Phase IIb randomised, placebo-controlled trial of antimicrobial photodynamic therapy using PPA 904 in the treatment of chronic leg ulcers and appointed PwC as its global corporate finance adviser.

Chemicals & Materials

		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Year to 31 December 2011		Fair value of Group holding at 31 Dec 2011
		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Net investment/ (divestment)	Fair value movement	Fair value of Group holding at 31 Dec 2011
Company name	Description	%	£m	£m	£m	£m
Green Chemicals plc	Environmentally friendly textiles and bleaching chemicals	24.5%	3.2	0.2	(0.2)	3.2
Revolymer Limited	Novel polymers e.g. "Removable chewing gum"	11.1%	3.0	0.7	(0.8)	2.9
Oxford Advanced Surfaces Group plc	Surface modification technologies applicable to a broad range of materials	14.6%	6.3	-	(4.2)	2.1
Ilika plc	High-throughput materials discovery	9.2%	1.9	-	(0.4)	1.5
Surrey Nanosystems Limited	Low temperature carbon nanotube growth	22.5%	1.4	0.1	-	1.5
Xeros Limited	"Virtually waterless" washing machines	21.0%	1.2	0.2	-	1.4
Other companies			3.7	0.9	0.3	4.9
Total			20.7	2.1	(5.3)	17.5

⁽ⁱ⁾Stake represents undiluted beneficial equity interest excluding debt

The unrealised fair value loss seen by the Chemicals & Materials portfolio was largely as a result of Oxford Advances Surfaces Group plc's ("OAS") decrease in share price during the year and Revolymer Limited's ("Revolymer") £5.8m April financing round which completed at a discount to its previous round.

Green Chemicals plc ("Green Chemicals"), a spin-out from the University of Leeds that is developing "cleaner, greener, safer" solutions for a range of applications in the textile, health and beauty and personal care markets, raised £0.7m in a placing in October 2011 and announced licences in two application areas during the year. In the field of fire retardants for textiles, Green Chemicals signed an exclusive, worldwide licence agreement with Clariant International Limited, a global leader in the field of speciality chemicals, which provides for royalties on sales. In the hair colouration field, Green Chemicals concluded a licence agreement with Urban Retreats Limited ("UR"), the operator of high-end hair treatment centres and beauty spas. The 18-month licence covers the Company's proprietary hair colouration and colour removal systems and has resulted in a range of hair colorant products being trialled and launched at UR's spa in Harrods of Knightsbridge.

Revolymer completed a £5.8m further financing in April and in late 2011 announced that it had received final approval to market its removable, degradable chewing gum, Rev7^TM, in Europe, making it the first new gumbase ingredient in over 30 years. In February 2012, Revolymer announced that it had gained additional day-to-day retail distribution in over 450 retail chains in the US, with in excess of 4,000 stores now stocking Rev7. Revolymer hopes to launch Rev7 in the UK during 2012 and considering that 50% of gum finds its way onto UK streets and at a cost of over £150m a year for local councils to remove, Revolymer's technology could help to solve a very costly and challenging problem. Other applications for Revolymer's technology currently under evaluation are in the medicated chewing gum, household products, personal care and coatings and adhesives sectors of the FMCG industry.

Xeros Limited ("Xeros"), which is developing polymer-based "virtually waterless" laundry cleaning systems harnessing over 30 years of research from the University of Leeds, successfully completed the second tranche of its 2010 financing led by the Entrepreneurs Fund, raising a further £1.9m. Xeros also announced in December that it was moving closer to full-scale commercial launch of its washing system following highly successful commercial-scale field trials at Jeeves of Belgravia and Watford Launderers and Cleaners Limited.

Energy & Renewables

		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Year to 31 December 2011		Fair value of Group holding at 31 Dec 2011
		Group stake at 31 Dec 2011⁽ⁱ⁾	Fair value of Group holding at 31 Dec 2010	Net investment/ (divestment)	Fair value movement	Fair value of Group holding at 31 Dec 2011
Company name	Description	%	£m	£m	£m	£m
Modern Water plc	Technologies to address the world's water crisis	20.9%	8.3	(0.8)	(1.7)	5.8
Oxford Catalysts Group plc	Speciality catalysts for the generation of clean fuels	5.0%	3.4	(0.1)	(0.9)	2.4
Sustainable Resource Solutions Limited	Integrated resource management	43.6%	1.5	0.3	-	1.8
GETECH Group plc	Gravity and magnetic data analysis for the oil and gas industry	24.2%	0.9	0.1	0.4	1.4
Other companies			1.7	0.6	0.7	3.0
Total			15.8	0.1	(1.5)	14.4

⁽ⁱ⁾Stake represents undiluted beneficial equity interest excluding debt

The Energy & Renewables sector experienced a modest reduction in fair value as a result of decreases in the share prices of AIM-listed Modern Water plc ("MW") and Oxford Catalysts Group plc ("OCG"), which were partially offset by an increase in GETECH Group plc's ("GETECH") share price.

While MW's share price performance has been disappointing in the year, it has continued to develop its leading water technologies focused on addressing the scarcity of fresh water and the monitoring of water quality. MW announced in June that it had been awarded a contract, worth £0.5m, to build and operate a desalination plant by Oman's Public Authority for Electricity and Water. The plant, to be built at Al Naghdah in the Al Wusta region of Oman, will be capable of producing 200m³ of fresh water per day. The high quality fresh water produced by the plant will be supplied to the local community. The plant is the only one to use manipulated osmosis in the huge Middle East market, where annual expenditure on water and wastewater technology is expected to rise to above $50bn by 2016. In November, MW completed the acquisition of the water quality division of Strategic Diagnostics Inc. ("SDIX"), including its Microtox^® toxicity testing technology. Microtox is a leading worldwide brand in water toxicity monitoring and the acquisition will further enhance Modern Water's offering in this key marketplace.

OCG is a spin-out from the University of Oxford that designs and develops technology for the smaller scale production of clean synthetic fuels from conventional fossil fuels and renewable sources such as biowaste. The company announced a placing raising £21.0m (before expenses) in February 2011 as well as the successful sale of five commercial-scale Fischer-Tropsch ("FT") reactors during the year, two of which will form the first instalment of reactors towards a commercial synthetic fuels plant. In January 2012 the Company also announced that it had received an order for a full-scale FT unit from a diversified energy company.

GETECH, the oil services business specialising in the provision of exploration data and petroleum systems studies and evaluations, announced Stuart Paton, formerly chief executive officer of Dana Petroleum plc, as its chairman in April. In November, the company announced positive annual results for the year ended 31 July 2011, including a 63% increase in revenues to £5.3m and pre-tax profits of £0.9m (compared to a loss of £0.2m in 2010).

IT & Communications

At 31 December 2011, the Group's portfolio of holdings in IT & Communications companies was valued at £6.4m (2010: £4.4m) and recorded a fair value gain of £0.6m (2010: £0.1m loss).

The most valuable business in the IT & Communications portfolio, Tracsis plc (fair value 2011: £2.0m; 2010: £1.8m), a leading provider of operational planning software to passenger transport industries, reported its fourth successive year of revenue growth since its AIM IPO in 2007. Tracsis reported record annual revenues of £4.1m with profit before tax of £1.1m and cash balances at 31 July 2011 of £4.7m.

Financial Review

Statement of Comprehensive Income

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

	2011 £m	2010 £m
Net portfolio gains	3.8	4.8
Other income	2.1	2.2
Change in fair value of Oxford Equity Rights asset	(6.0)	-
Administrative expenses - Modern Biosciences	(0.4)	(0.5)
Administrative expenses - all other businesses	(5.6)	(4.9)
Finance income	0.6	0.2
(Loss)/gain and total comprehensive income for the period	(5.5)	1.8

Overall the Group recorded a loss after tax of £5.5m for the period; however, as anticipated in the Group's 2010 Annual Report, this result includes a £6.0m reduction in the fair value of the Group's contract with the University of Oxford's Chemistry Department. Excluding this non-cash fair value reduction, the Group recorded an adjusted profit of £0.5m compared to £1.8m in 2010, largely reflecting lower net portfolio gains in the year.

Net portfolio gains consist primarily of realised and unrealised fair value gains and losses from the Group's equity and debt holdings in spin-out businesses as well as changes in the fair value of its limited and limited liability partnership interests. A detailed analysis of fair value gains and losses is provided in the Portfolio review above.

Other income for the year decreased to £2.1m (2010: £2.2m) primarily as a result of lower venture capital fund management fees (£1.5m; 2010: £1.7m) as the Group's oldest managed venture capital fund, Top Technology Ventures IV LP ("TTVIV"), ceased active operation in May 2011. In accordance with TTVIV's constitutional documents, the Group is seeking to realise the fund's remaining holdings and hopes to achieve this during 2012. The Group's second oldest fund, IP Venture Fund, which completed its second close in August 2007, will reach the conclusion of its five-year "investment period" in August 2012 having invested in over 30 of the Group's portfolio companies to date. As a result, it is expected that venture capital fund management income will see limited further reduction in 2012 and beyond. The Group continues to receive management fees and has the potential to generate performance fees from successful investment performance of both this fund and The North East Technology Fund LP ("NETF"), whose "investment period" is currently anticipated to continue until the end of 2014.

The Group continues to allocate limited capital to the evaluation and development of certain early-stage therapeutic programmes through its subsidiary Modern Biosciences plc and these development costs are expensed to the income statement as they are incurred. The Group intends to continue such activities to a limited degree in the future through Modern Biosciences plc and may also seek to do so through Union Life Sciences Limited, a similar business in which it took a majority stake during the period.

The Group's administrative expenses, excluding those relating to Modern Biosciences, have increased during the period to £5.6m (2010: £4.9m), predominantly due to an increased IFRS 2 share-based payments charge totalling £0.7m (2010: £0.3m) relating to the Group's Long Term Incentive Plan awards. This non-cash charge reflects the fair value of services received from employees, measured by reference to the fair value of the share-based payments at the date of award, but has no net impact on the Group's total equity or "net assets". The LTIP awards made in 2008 expired during the year without vesting and new 2011 awards were made to directors and staff in October. The 2010 and 2011 LTIP awards are subject to vesting conditions until 2013 and 2014 and charges relating to these awards will be recognised in the statement of comprehensive income until this time.

As a result of the Group's June 2011 placing, the additional cash and deposits on balance sheet have led to an increase in the interest received during the year to £0.6m (2010: £0.2m). It is expected that the Group's future finance income will fluctuate broadly in line with cash held on balance sheet and future interest rate changes.

Statement of Financial Position

At 31 December 2011, the Group continued to benefit from a strong financial position with cash and deposits of £60.5m (2010: £21.5m), no borrowings and a diversified portfolio of holdings in 64 private and publicly listed technology companies.

The value of the Group's holdings in portfolio companies increased during the year to £123.8m as at 31 December 2011 following net fair value gains of £3.2m and net investment of £10.6m (2010: £110.0m; £4.6m net fair value gain; £4.1m net investment). The Portfolio review above contains a detailed description of the Group's portfolio of equity and debt investments, including key developments and movements during the year.

The Group's Statement of financial position includes goodwill of £18.4m (2010: £18.4m) and an equity rights asset of £13.9m (2010: £19.9m). The goodwill balances arose as a result of the Group's historical acquisitions of Techtran Group (university partnership business, £16.3m; 2010: £16.3m) and Top Technology Ventures (venture capital fund management business, £2.1m; 2010: £2.1m). The equity rights asset represents amounts paid to the University of Oxford in 2000 and 2001 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.

As anticipated in the Group's 2010 Annual Report, as the date of expiry (November 2015) of the contract underpinning the Oxford Equity Rights Asset draws closer, the value to the Group of the corresponding asset under IFRS reduces and it will have been written off by way of fair value reduction or impairment through the Statement of comprehensive income by the expiry date. Based on the directors' calculations, and as described more fully in note 14 to the consolidated financial information, the fair value of the contract at 31 December 2011 has reduced by £6.0m.

The directors expect the Group's long-standing contractual and non-contractual relationships with the University of Oxford to remain successful and mutually valuable. As at 31 December 2011, the fair value of the Group's holdings in Oxford Chemistry spin-out companies totals £40.3m and, based on having invested £7.8m and realised £7.5m to date, value totalling £40.0m has been derived by the Group from the contract since its inception.

In January 2011, the Group broadened its relationship with the University of Oxford through the acquisition of a 16% strategic stake and alliance with Technikos, a specialist limited liability partnership fund with a long term commercialisation agreement with the University of Oxford's Institute of Biomedical Engineering ("IBME"). The Group's capital interest in the partnership is included within the Interests in Limited Partnerships balance.

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

Cash and short term deposits ("Cash")

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

	2011 £m	2010 £m
Net cash used in operating activities	(3.0)	(2.5)
Net cash used in investing activities	(11.3)	(4.1)
Issued share capital	53.3	-
Movement during period	39.0	(6.6)

Cash, cash equivalents and deposits increased by £39.0m during the year to stand at £60.5m at 31 December 2011 (2010: £6.6m decrease; £21.5m balance) predominantly due to net proceeds of £53.3m from the Group's placing and open offer, offset to some degree by increased net capital deployment into the Group's portfolio.

The Group's net cash used in investing activities increased during 2011, predominantly as a result of an increased net investment as anticipated at the time of the Group's placing in June 2011. As described in detail in the Portfolio review above, the Group allocated a total of £14.3m across 42 portfolio companies during the period (2010: £6.9m; 31).

A further £0.4m was committed to IP Venture Fund (2010: £0.2m), which in turn invested £2.4m across 16 portfolio companies. The Group made realisations of £3.7m during the period (2010: £2.7m) and received £0.1m from the University of Leeds as partial repayment of the Group's other financial asset, further details of which are provided in note 17 to the consolidated financial information. Overall, net cash used in investing activities increased to £11.3m (2010: £4.1m).

Despite a slight increase in interest received during the period of £0.1m compared to 2010, cash used in operating activities increased to £3.0m (2010: £2.5m) primarily as a result of higher administrative costs and the net £0.3m impact of changes in working capital balances.

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

Taxation

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

PRINCIPAL RISKS AND UNCERTAINTIES

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

Risk and description

Impact

Mitigation

The Group's portfolio companies are generally early-stage and as a result they can have an increased risk of failure

The following risks are typically associated with early-stage companies:

- may not be able to secure later rounds of funding;

- may not be able to source or retain appropriately skilled staff;

- competing technologies may enter the market; and

- technology can be materially unproven and may fail.

- Lack of funding and/or an inability to attract or retain appropriately skilled personnel may restrict their ability to fund ongoing research and the development and commercialisation of their IP.

- Could, in some cases, result in a portfolio company being forced to sell off its assets or cease their development.

- Competing technologies may adversely affect portfolio companies' ability to commercialise their IP.

- The failure of portfolio companies to adequately protect their IP could potentially have an adverse effect on their performance or prospects.

- Group staff have significant experience in sourcing, developing and growing early-stage technology companies to significant value.

- Group has developed systematic opportunity evaluation and business building methodologies.

- Group employs an in-house executive search function that specialises in sourcing high quality management suited to early-stage technology companies.

- Group's methodology seeks to employ a capital efficient process by deploying low levels of initial capital to enable identification and mitigation of potential failures at the earliest possible stage.

It can be difficult for early-stage companies to attract capital

As the Group's operations, and the operations of the majority of its portfolio companies, are based in the UK, the financial and operational performance of the Group and particularly the ability of its portfolio companies to attract development capital is influenced by the general economic climate and trading conditions in the UK.

- UK's recent recession and subsequent limited growth have had (and may continue to have) an adverse effect on trading conditions in the UK, particularly for smaller businesses.

- Environment may contribute to a shortage of potential capital providers for early-stage technology businesses such as those that the Group creates.

- Group's portfolio companies may take longer, or find it more difficult, to secure funding to finance their ongoing and future development and the commercialisation of their IP.

- Group has significant balance sheet and managed funds capital to deploy in attractive portfolio opportunities.

- Group operates a capital markets function which carries out fundraising mandates for portfolio companies.

- Group maintains close relationships with co-investors that focus on companies at differing stages of development.

It can be difficult to generate value or realise cash proceeds from early-stage companies

The Group has a portfolio of equity and debt interests in technology companies and there is a high risk that certain of the Group's current and future investments in portfolio companies may fail.

- Portfolio company failure directly impacts the Group's value and profitability.

- Failure of companies within the Group's portfolio may make it more difficult for other spin-out companies within the portfolio to raise additional capital.

- At any time, a large proportion of the Group's portfolio value may be accounted for by one, or very few, technology companies which could exacerbate the impact of one or more such company failures.

- Cash realisations from the Group's portfolio through trade sales and IPOs could vary significantly from year to year.

- Group has developed a portfolio of company holdings across different sectors to reduce the potential impact of a single company failure or sector demise.

- Maintenance of adequate cash balances to ensure irregular realisations do not limit its ability to operate.

- Members of the Group's senior team often serve as non-executive directors or advisors to portfolio companies enabling identification and remedy of critical issues at an early stage.

- However, it is management's expectation that there will always be a limited number of companies that dominate the Group's portfolio in this way.

Termination of university partnerships and other collaborative relationships with universities and research intensive institutions

The Group's business, results of operations and prospects are at least partially dependent on competitive advantage gained from access to proprietary opportunity flow through partnerships and other collaborative arrangements with research intensive institutions and commercial partners, such as Fusion IP and Technikos.

- Termination or non-renewal of arrangements through failure to perform obligations may result in the loss of exclusive rights

- The loss of exclusive rights may limit the Group's ability to secure attractive IP opportunities to commercialise.

- This could potentially have a material adverse effect on the Group's long-term business, results of operations, performance and prospects.

- Members of the Group's senior team work closely with partner institutions to ensure that each commercial relationship is mutually beneficial and productive.

- Group sources a limited number of opportunities through non-exclusive relationships

- Group's track record in IP commercialisation can make the Group a partner of choice for other institutions, acting as a barrier to entry to competitors

- Group continues to source new and innovative collaborations

Loss of key personnel from the Group

The area in which the Group operates is a specialised area and the Group therefore requires highly qualified and experienced employees. There is a risk that the Group's employees could be approached and solicited by competitors of the Group or other technology-based companies or organisations.

- Loss of key employees of the Group could have an adverse effect on the Group's business, financial condition, results of operations and/or prospects.

- Group carries out regular market comparisons for staff and executive remuneration

- Group seeks to offer a balanced incentive package considering the mix of salary, benefits, performance-based long-term incentives and "softer" benefits such as flexible working or salary sacrifice arrangements.

- All senior executives are shareholders in the business

- Group encourages staff development and inclusion through coaching and mentoring

Changes in legislation and government policy

There may be unforeseen changes in government policy or legislation (including taxation legislation) or other changes to the terms upon which public monies are made available to universities and research institutions or their ownership of resulting intellectual property.

- Changes could result in universities and research institutions no longer being able to own, exploit or protect intellectual property.

- Changes in government policy or legislation may make it unattractive for research academics to participate in the commercialisation of the IP that they create.

- Changes of this nature could represent a fundamental risk to the Group being able to carry on its business.

- Changes to tax legislation or the nature of the Group's activities, in particular in relation to the substantial shareholder exemption, may adversely affect the Group's tax position and accordingly its value and operations.

- University partners are incentivised to protect their IP for exploitation as the partnership agreements share returns between universities, academic founders and the Group.

- Client service team members work locally at partner universities to assist with management of their IP and negotiation of research contracts to ensure that any IP 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

- Group utilises professional advisers as appropriate to support its monitoring of, and response to, changes in tax or other legislation.

In addition, through its normal operations the Group is exposed to a number of financial risks, comprising liquidity, market and credit risks. Further quantitative information is set out in note 2 to the consolidated financial information.

CONSOLIDATED FINANCIAL INFORMATION

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 2011 and is an abridged version of the full financial statements, not all of which are reproduced in this announcement.

DIRECTORS' RESPONSIBILITIES STATEMENT

The responsibility statement set out below has been reproduced from the Annual Report and Accounts, which will be published in April 2012, and relates to that document and not this announcement.

The directors confirm to the best of their knowledge:

· The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the group.

· The annual report includes a fair review of the development and performance of the business and the financial position of the group and the parent company, together with a description or the principal risks and uncertainties that they face.

ON BEHALF OF THE BOARD

Bruce Smith	Alan Aubrey
Chairman	Chief Executive Officer

5 March 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2011

	Note	2011 £m	2010 £m
Portfolio return and revenue
Change in fair value of equity and debt investments	15	0.9	4.0
Profit on disposal of equity investments		2.3	0.6
Change in fair value of Limited Partnership interests		0.6	0.2
Revenue from services	4	2.1	2.2
		5.9	7.0
Administrative expenses
Research and development costs		(0.2)	(0.4)
Share-based payment charge	21	(0.7)	(0.3)
Change in fair value of Oxford Equity Rights asset		(6.0)	-
Other administrative expenses		(5.1)	(4.7)
		(12.0)	(5.4)
Operating (loss)/profit	7	(6.1)	1.6
Finance income - interest receivable		0.6	0.2
(Loss)/profit before taxation		(5.5)	1.8
Taxation	9	-	-
(Loss)/profit and total comprehensive income for the year attributable to owners of the parent		(5.5)	1.8


Basic (loss)/earnings per ordinary share (p)	10	(1.76)	0.69
Diluted (loss)/earnings per ordinary share (p)	10	(1.76)	0.69

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2011

	Note	2011 £m	2010 £m
ASSETS
Non-current assets
Intangible assets:
Goodwill	11	18.4	18.4
Property, plant and equipment	12	0.2	0.3
Equity rights and related contract costs	14	14.1	20.1
Portfolio:
Equity investments	15	120.4	106.3
Debt investments	15	3.4	3.7
Other financial asset	17	0.7	0.8
Interest in Limited Partnerships	22	3.3	1.9
Total non-current assets		160.5	151.5
Current assets
Trade and other receivables	16	1.2	0.8
Deposits		50.0	7.5
Cash and cash equivalents		10.5	14.0
Total current assets		61.7	22.3
Total assets		222.2	173.8
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	19	7.3	5.1
Share premium account		150.4	99.3
Merger reserve		12.8	12.8
Retained earnings		51.1	55.9
Total equity attributable to owners of the parent		221.6	173.1
Current liabilities
Trade and other payables	18	0.6	0.7
Total equity and liabilities		222.2	173.8

Registered number: 4204490

Approved by the Board of Directors and authorised for issue on 5 March 2012 and signed on its behalf by:

Bruce Smith	Alan Aubrey
Chairman	Chief Executive Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2011

	2011 £m	2010 £m
Operating activities
(Loss)/profit before taxation	(5.5)	1.8
Adjusted for:
Finance income - interest receivable	(0.6)	(0.2)
Change in fair value of equity and debt investments	(0.9)	(4.0)
Change in fair value of Limited Partnership interests	(0.6)	(0.2)
Depreciation of property, plant and equipment	0.1	0.1
Profit on disposal of equity investments	(2.3)	(0.6)
Change in fair value of Oxford Equity Rights asset	6.0	-
Share-based payment charge	0.7	0.3
Changes in working capital
Increase in trade and other receivables	(0.1)	-
(Decrease)/increase in trade and other payables	(0.1)	0.1
Other operating cash flows
Interest received	0.3	0.2
Net cash outflow from operating activities	(3.0)	(2.5)
Investing activities
Purchase of equity and debt investments	(14.3)	(6.9)
Acquisition of Limited Partnership interests	(0.8)	(0.2)
Proceeds from sale of equity investments	3.7	2.7
Repayments of borrowings	0.1	0.3
Net cash outflow from investing activities	(11.3)	(4.1)
Financing activities
Proceeds from the issue of share capital	53.3	-
Net cash flow (to)/from deposits	(42.5)	7.5
Net cash inflow from financing activities	10.8	7.5
Net (decrease)/increase in cash and cash equivalents	(3.5)	0.9
Cash and cash equivalents at the beginning of the year	14.0	13.1
Cash and cash equivalents at the end of the year	10.5	14.0

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2011

	Attributable to owners of the parent
		Share capital £m	Share premium ⁽ⁱ⁾ £m	Merger reserve ⁽ⁱⁱ⁾ £m	Retained earnings ⁽ⁱⁱⁱ⁾ £m	Total equity £m
At 1 January 2010		5.1	99.3	12.8	53.8	171.0
Profit and total comprehensive income for the year		-	-	-	1.8	1.8
Share-based payment charge		-	-	-	0.3	0.3
At 1 January 2011		5.1	99.3	12.8	55.9	173.1
Loss and total comprehensive income for the year		-	-	-	(5.5)	(5.5)
Issue of equity		2.2	51.1	-	-	53.3
Share-based payment charge		-	-	-	0.7	0.7
At 31 December 2011		7.3	150.4	12.8	51.1	221.6

⁽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 2011. The principal accounting policies adopted are materially unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2010.

Basis of consolidation

(i) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities, 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. Costs directly attributable to the transaction are expensed in the period in which they are incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets is recorded as goodwill.

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

(ii) Associates

Associates are entities over which the Group has significant influence, but does not control, generally accompanied by a shareholding of between 20% and 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 and limited liability partnerships ("Limited Partnerships")

Limited partnerships

Group entities act as general partner and investment manager to the following limited partnerships:

Name	Interest in limited partnership %
IP Venture Fund ("IPVF")	10.0
Top Technology Ventures IV LP ("TTVIV")	1.0
The North East Technology Fund L.P. ("NETF")	-

The Group receives compensation for its role as investment manager to these limited partnerships including fixed fees and performance fees. The directors consider that these amounts are in substance and form "normal market rate" compensation for its role as investment manager. In the case of IPVF and TTVIV, the directors consider that the minority limited partnership interests do not create an exposure of such significance that it indicates that the Group acts as anything other than agent for the other limited partners in the arrangement. Where appropriate the directors also refer to the guidance set out in SIC12 "Consolidation-Special Purpose Entities", for example where there is a narrow and well-defined scope of limited partnership operation. As a result, the directors consider that the Group does not have the power to govern the operations of the limited partnerships so as to obtain benefits from their activities and accordingly none meet the definition of a subsidiary under IAS 27 Consolidated and Separate Financial Statements.

The Group does have the power to exercise significant influence over its 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.

Limited liability partnerships

The Group has a 16.3% interest in the total capital commitments of Technikos LLP ("Technikos"). The general partner and investment manager of Technikos are parties external to the Group.

Portfolio return and revenue

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

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

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

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

Property, plant and equipment

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

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

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

Intangible assets

(i) Goodwill

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

(ii) Acquired intangible assets - business combinations

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

Impairment of intangible assets (including goodwill)

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

Financial assets

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

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

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

(i) At fair value through profit or loss

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

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

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

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

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

Cost

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

Price of recent investment

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

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

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

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

Other valuation techniques

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

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

No reliable estimate

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

(ii) Loans and receivables

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

Fair value hierarchy

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

Level 1 - Quoted prices in active markets.

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

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

Equity rights

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

In return for the non-refundable, non-interest bearing, advance totalling £20.1m, the Group has the right to receive from the university the following over its 15-year term:

- 50% of the university's equity shares in any spin-out company created based on intellectual property created by academics that are considered to be part of the chemistry department (i.e. equity instruments in unlisted companies); and

- 50% of the university's share of any cash payments received by the university from parties who have licensed intellectual property created by academics that are considered to be part of the chemistry department.

The contract expires on 23 November 2015.

Since the arrangement gives the Group contractual rights only to the receipt of shares in unlisted spin-out companies or cash it is considered to be a derivative financial asset 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.

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 Group engages in equity settled share-based payment transactions in respect of services receivable from employees, by granting employees conditional awards of ordinary shares subject to certain vesting conditions.

Conditional awards of shares are made pursuant to the Group's Long Term Incentive Plan ("LTIP") awards. The fair value of the shares is estimated at the date of grant, taking into account the terms and conditions of the award, including market based performance conditions.

The difference between the fair value of the employee services received in respect of the shares granted and the price payable is recognised as an expense over the appropriate performance and vesting period. The corresponding credit is recognised in retained earnings within total equity. The fair value of services is calculated using the market value on the date of award, and is adjusted for expected and actual levels of vesting. Where conditional awards of shares lapse the expense recognised to date is credited to the statement of comprehensive income in the year in which they lapse.

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.

Deferred tax

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

Leases

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

2. FINANCIAL RISK MANAGEMENT

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

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

(a) Market risk

(i) Price risk

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

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

The Group holds investments which are publicly traded on the AIM or PLUS Markets and investments which are not traded on an active market.

The net increase in fair value of the Group's equity investments during 2011 of £0.9m represents a 1% change against the opening balance (2010: net increase of £4.6m, 5%) 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.

	2011			2010
	Quoted	Unquoted	Total	Quoted	Unquoted	Total
	£m	£m	£m	£m	£m	£m

Equity investments and investments in limited partnerships	0.5	0.8	1.3	0.5	0.6	1.1

(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.

	2011				2010
	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	-	-	13.9	13.9	-	-	19.9	19.9
Equity investments	-	-	120.4	120.4	-	-	106.3	106.3
Debt investments	2.8	-	0.6	3.4	1.4	-	2.3	3.7
Deposits	50.0	-	-	50.0	7.5	-	-	7.5
Cash and cash equivalents	-	10.5	-	10.5	-	14.0	-	14.0
Other financial assets	-	-	0.7	0.7	-	-	0.8	0.8
Trade receivables	-	-	0.3	0.3	-	-	0.2	0.2
Other receivables	-	-	0.9	0.9	-	-	0.6	0.6
	52.8	10.5	136.8	200.1	8.9	14.0	130.1	153.0

Financial liabilities
Trade payables	-	-	0.1	0.1	-	-	0.1	0.1
Other accruals and deferred income	-	-	0.5	0.5	-	-	0.6	0.6
	-	-	0.6	0.6	-	-	0.7	0.7

At 31 December 2011, if interest rates had been 1% higher/lower, post-tax profit for the year, and other components of equity, would have been £0.1m (2010: £0.1m) 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 continually monitors rolling cash flow forecasts to ensure sufficient cash is available for anticipated cash requirements.

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 making short-term deposits with counterparties, or by investing in treasury funds with an "AA" credit rating or above managed by institutions. 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	2011	2010
	£m	£m

P1	52.9	18.9
P2	5.0	-
AA	2.6	2.6
Total deposits and cash and cash equivalents	60.5	21.5

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, including defining maximum counterparty exposure limits for term deposits based on their perceived financial strength at the commencement of the deposit. The maximum single counterparty limit for deposits at 31 December 2011 was £10m.

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 consolidated financial information 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

On initial recognition, the equity rights arrangement was considered in substance to be a derivative financial asset. This conclusion was reached after considering that the asset's value changes in response to a change in an 'underlying', being the number and value of spin-out companies created, the net investment was considered to be smaller than would be expected for other contracts with similar response to changes in market factors and it is to be settled at a future date.

As the asset is not quoted on an active market the fair value is determined using valuation techniques, including discounted cash flows. The asset has historically been held at cost since no reliable estimate of fair value could be reached. At 31 December 2011 the information available to the directors and the time remaining in the contract produced a sufficiently accurate estimate of fair value at balance sheet date. In the discounted cash flow model the directors considered the historic asset performance, the spin-out pipeline and available economic data to estimate the unobservable inputs. Those inputs include the average spin-out rate and the projected cash flows on IPO or trade sale from anticipated spin-out opportunities. The discount rate used for valuing the equity rights asset is determined based on the Group's cost of capital.

(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 2011 and the year ended 31 December 2010 the Group's revenue and loss/profit before taxation was derived entirely from its principal activity within the UK 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 focusing 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 Business review above.

Year ended 31 December 2011	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	0.9	-	-	0.9
Profit on disposal of equity investments	2.3	-	-	2.3
Change in fair value of limited partnership interests	0.6	-	-	0.6
Revenue from advisory services	0.6	-	-	0.6
Revenue from fund management services	-	1.5	-	1.5
Change in fair value of Oxford Equity Rights asset	(6.0)	-	-	(6.0)
Administrative expenses	(4.9)	(0.7)	(0.4)	(6.0)
Operating (loss)/profit	(6.5)	0.8	(0.4)	(6.1)
Finance income - interest receivable	0.6	-	-	0.6
(Loss)/profit before taxation	(5.9)	0.8	(0.4)	(5.5)
Taxation	-	-	-	-
(Loss)/profit and total comprehensive income for the year	(5.9)	0.8	(0.4)	(5.5)
STATEMENT OF FINANCIAL POSITION
Assets	217.4	4.7	0.1	222.2
Liabilities	(0.4)	(0.1)	(0.1)	(0.6)
Net assets	217.0	4.6	-	221.6
Other segment items
Capital expenditure	-	-	-	-
Depreciation	0.1	-	-	0.1
Amortisation of intangible assets	-	-	-	-

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

6. AUDITOR'S REMUNERATION

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

	2011 £000	2010 £000

Audit services
- Fees payable to company auditor for the audit of parent and consolidated accounts	64	63
Non-audit services
Fees payable to company auditor and its associates for other services:
- Auditing of accounts of subsidiaries pursuant to legislation	39	44
- Other services supplied under legislation	17	17
- Other taxation services
- Corporation tax compliance	38	39
- Corporation tax advisory	-	1
- Other tax advisory	38	55
- Recruitment and remuneration services	-	-
- All other services	87	-
	283	219

7. PROFIT/(LOSS) FROM OPERATIONS

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

	2011 £m	2010 £m
Amortisation of intangible assets	-	-
Depreciation of tangible assets	0.1	0.1
Employee costs (see note 8)	3.6	3.1
Operating leases - property	0.4	0.4
Profit on disposal of equity investments	2.3	0.6

8. EMPLOYEE COSTS

Employee costs (including directors) comprise:

	2011 £m	2010 £m
Salaries	2.5	2.4
Defined contribution pension cost	0.1	0.1
Share-based payment charge (see Note 21)	0.7	0.3
Social security	0.3	0.3
	3.6	3.1

The average monthly number of persons (including executive directors) employed by the Group during the year was 34, all of whom were involved in management and administration activities (2010: 33).

9. TAXATION

	2011 £'m	2010 £'m

Current tax	-	-

Deferred tax	-	-

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

	2011 £'m	2010 £'m
(Loss)/profit before tax	(5.5)	1.8
Tax at the UK corporation tax rate of 26% (2010: 27%)	(1.4)	0.5
Non-taxable income	(0.3)	(1.2)
Movement in tax losses arising not recognised	1.7	0.8
Other adjustments	-	(0.1)
Tax credit	-	-

At 31 December 2011, deductible temporary differences and unused tax losses for which no deferred tax asset has been recognised totalled £28.7m (2010: £27.5m). An analysis is shown below:

	2011		2010 With rate change and prior year adjustment		2010
	Amount £m	Deferred tax £m	Amount £m	Deferred tax £m	Amount £m	Deferred tax £m
Share based payment costs	-	-			-	-
Unused tax losses	35.2	8.8	28.7	7.2	27.5	7.4
	35.2	8.8	28.7	7.2	27.5	7.4

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

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

10. EARNINGS PER SHARE

Earnings

2011

£m

2010

£m

Earnings for the purposes of basic and dilutive earnings per share

(5.5)

1.8

Number of shares	2011 Number of shares	2010 Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	313,325,308	255,763,664

Effect of dilutive potential ordinary shares: Long Term Incentive Plan	-	-

Weighted average number of ordinary shares for the purposes of diluted earnings per share	313,325,308	255,763,664

The Group has only one class of potentially dilutive ordinary share. These are contingently issuable shares arising under the Group Long Term Incentive Plan ("LTIP"). As the Group made a loss for the year the potentially dilutive shares outstanding at the period end are not considered when calculating the diluted earnings per share.

Had the Group made a profit in the year the number of potentially dilutive shares outstanding at the period end that would have been considered when calculating the diluted earnings per share is 8,527,902 (2010: nil).

11. GOODWILL

	£m
At 1 January 2010	18.4
At 1 January 2011	18.4
At 31 December 2011	18.4

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

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

	2011 £m	2010 £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:

	2011	2010
Discount rate	8-10%	8-10%
Number of funds under management	3	3
Management fee	1-3.5%	1-3.5%
Cost inflation	4%	4%

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

Impairment review of the university partnership CGU

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

	2011	2010
Number of spin-out companies per year	2-10	2-10
Initial equity stake acquired by the Group under the University partnership	12-30%	12-30%
Proportion of spin-out companies failing	20-40%	20-40%
Dilution rates prior to exit as a result of financing for spin-out companies	35-60%	35-60%
Proportion of IPO exits	30-45%	30-50%
IPO exit valuations	£20m-40m	£20m-40m
Proportion of disposal exits	30-50%	30-50%
Disposal valuations	£10m-30m	£10m-30m
Discount rate	8-12%	8-12%

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

12. PROPERTY, PLANT AND EQUIPMENT

		Total £m
Cost
At 1 January 2011		0.8
Additions		-
At 31 December 2011		0.8

Accumulated depreciation
At 1 January 2011		0.5
Charge for the year		0.1
At 31 December 2011		0.6

Net book value
At 31 December 2011		0.2
At 31 December 2010		0.3

		Total £m
Cost
At 1 January 2010		0.8
Additions		-
At 31 December 2010		0.8

Accumulated depreciation
At 1 January 2010		0.4
Charge for the year		0.1
At 31 December 2010		0.5

Net book value
At 31 December 2010		0.3
At 31 December 2009		0.4

13. CATEGORISATION OF FINANCIAL INSTRUMENTS

	At fair value through profit or loss		Loans and receivables	Total
	Held for trading	Designated upon initial recognition	Loans and receivables	Total
Financial assets	£m	£m	£m	£m

At 31 December 2011

Equity rights	13.9	-	-	13.9
Equity investments	-	120.4	-	120.4
Debt investments	-	3.4	-	3.4
Other financial assets	0.7	-	-	0.7
Investment in limited partnerships	-	3.3	-	3.3
Trade and other receivables	-	-	1.2	1.2
Deposits	-	-	50.0	50.0
Cash and cash equivalents	-	-	10.5	10.5
Total	14.6	127.1	61.7	203.4

At 31 December 2010

Equity rights	19.9	-	-	19.9
Equity investments	-	106.3	-	106.3
Debt investments	-	3.7	-	3.7
Other financial assets	0.8	-	-	0.8
Investment in limited partnerships	-	1.9	-	1.9
Trade and other receivables	-	-	0.8	0.8
Deposits	-	-	7.5	7.5
Cash and cash equivalents	-	-	14.0	14.0
Total	20.7	111.9	22.3	154.9

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 (2010: £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 (2010: all net fair value gains attributable to financial assets designated at fair value through profit or loss on initial recognition).

14. EQUITY RIGHTS AND RELATED CONTRACT COSTS

	Equity rights £m	Contract costs £m	Total £m
Cost
At 1 January 2011 and 31 December 2011	19.9	0.5	20.4

Aggregate amortisation and change in fair value of contract costs
At 1 January 2011	-	(0.3)	(0.3)
Change in fair value during the year	(6.0)	-	(6.0)
At 31 December 2011	(6.0)	(0.3)	(6.3)

Net book value
At 31 December 2011	13.9	0.2	14.1
At 31 December 2010	19.9	0.2	20.1

	Equity rights £m	Contract costs £m	Total £m
Cost
At 1 January 2010 and 31 December 2010	19.9	0.5	20.4

Aggregate amortisation and change in fair value of contract costs
At 1 January 2010	-	(0.3)	(0.3)
Change in fair value during the year	-	-	-
At 31 December 2010	-	(0.3)	(0.3)

Net book value
At 31 December 2010	19.9	0.2	20.1
At 31 December 2009	19.9	0.2	20.1

Carrying amount of equity rights

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

In return for the non-refundable, non-interest bearing, advance totalling £20.1m, the Group has the right to receive from the University the following over its 15-year term:

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:

	2011	2010
Number of spin-out companies per year from University of Oxford chemistry department	1-3	1-3
Initial equity stake acquired by the Group under the equity rights contract	20-25%	20-25%
Proportion of spin-out companies failing	20-30%	20-30%
Dilution rates prior to exit as a result of financing for spin-out companies	35-60%	35-60%
Proportion of IPO exits	30-40%	30-40%
IPO exit valuations	£30m-50m	£30m-50m
Proportion of disposal exits	30-50%	30-50%
Disposal valuations	£20m-40m	£20m-40m
Discount rate	8-10%	8-10%

These key variable ranges result in a wide range of fair value estimates for the equity rights agreement, from £7m to £22m using a range of reasonably possible variables, with the number of spin-outs being the variable giving rise to the widest variation in estimated fair values. In order to calculate a more accurate valuation figure given the multitude of reliable scenarios generated when altering the discounted cash flows ("DCF") variables, a probability weighting expected return method is utilised. Having applied probabilities to the various possible scenarios, the method returned an estimated asset value of £14m at 31 December 2011.

A secondary factor considered by management in assessing the fair value of the Oxford Equity Rights Asset is the economic value received to date from the arrangement. Based on the fair value of the Group's holdings in Oxford Chemistry spin-out companies, plus cash realised to date, less cash invested to date, a total of £40.3m value has been considered to have been derived by the Group as at 31 December 2011. If a similar level of return were observed over the remaining life of the contract on a straight-line basis, this would also suggest an estimated value at 31 December 2011 of £14m.

15. 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 2011	49.0	34.2	3.7	23.1	110.0
Investments during the year	6.3	6.5	1.5	-	14.3
Reclassifications during the year	1.0	0.3	(1.2)	(0.1)	-
Transfers between hierarchy levels during the year	-	0.8	(0.4)	(0.4)	-
Disposals	(1.0)	(0.4)	-	-	(1.4)
Change in fair value in the year	(5.3)	6.5	(0.2)	(0.1)	0.9
At 31 December 2011	50.0	47.9	3.4	22.5	123.8

At 1 January 2010	40.7	30.0	2.3	28.3	101.3
Investments during the year	1.5	3.3	1.6	0.6	7.0
Reclassifications during the year	-	(0.5)	0.5	-	-
Transfers between hierarchy levels during the year	5.4	(1.4)	(0.6)	(3.4)	-
Disposals	(1.9)	-	-	(0.3)	(2.2)
Change in fair value in the year	3.4	2.8	(0.1)	(2.1)	4.0
Equity allocated to staff	(0.1)	-	-	-	(0.1)
At 31 December 2010	49.0	34.2	3.7	23.1	110.0

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

The net increase in fair value for the year of £0.9m (2010: £4.0m) includes a net increase of £6.3m (2010: £1.9m) 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

	2011 £'m	2010 £'m
Fair value gains	13.6	13.8
Fair value losses	(12.7)	(9.8)
	0.9	4.0

16. TRADE AND OTHER RECEIVABLES

	2011 £m	2010 £m
Trade debtors	0.3	0.2
Prepayments	0.2	0.2
Other receivables	0.7	0.4
	1.2	0.8

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

17. OTHER FINANCIAL ASSET

Other financial asset comprises a zero-cost forward contract giving the Group the right to receive sale proceeds when University of Leeds sells down its stake in specified spin-out companies subject to a maximum receivable of £0.7m following receipt of sale proceeds totalling £0.1m during 2011 (2010: £0.8m receivable; £0.3m sale proceeds). The asset has no set date of repayment or other rights of recourse. This asset is classified as a financial asset held for trading initially measured at fair value with subsequent changes recognised in the statement of comprehensive income. Fair value is determined by discounting expected cash flows at prevailing market rates of interest and accordingly, the Group considers this asset to be Level 3 in the fair value hierarchy throughout the current and previous financial years.

18. TRADE AND OTHER PAYABLES

	2011 £m	2010 £m
Trade payables	0.2	0.3
Social security expenses	0.1	0.1
Accrued staff bonuses	-	-
Other accruals and deferred income	0.3	0.3
	0.6	0.7

19. SHARE CAPITAL

2011

£m

2010

£m

Issued and fully paid:

365,763,664 ordinary shares of 2p each (2010: 255,763,664 ordinary shares of 2p each)

7.3

5.1

In June 2011 the Group issued 110,000,000 new ordinary shares with a par value of 2p through a placing and open offer at an issue price of 50p per share realising a net proceeds of £53.3m. 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.

20. OPERATING LEASE ARRANGEMENTS

2011

£'m

2010

£'m

Payments under operating leases recognised in the statement of comprehensive income for the year

0.4

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

	2011 £'m	2010 £'m
Within one year	0.3	0.3
In the second to fifth years inclusive	1.2	0.1
	1.5	0.4

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.

21. SHARE-BASED PAYMENTS

Long Term Incentive Plan ("LTIP") awards

Awards under the LTIP take the form of conditional awards of ordinary shares of 2p each in the Group which vest over the prescribed performance period to the extent that performance conditions have been met. The Remuneration Committee impose objective conditions on the vesting of awards, and these take into consideration the guidance of the Group's institutional investors from time to time.

The 2011 LTIP awards will ordinarily vest on 31 March 2014, to the extent that the performance conditions have been met. As noted above, Deloitte LLP provided independent external advice to the Remuneration Committee on the appropriate performance conditions to attach to the 2011 LTIP awards based on their experience of current market practice. The awards are based on the performance of Group's Hard NAV and TSR. Both performance measures are combined into a matrix format to most appropriately measure performance relative to the business. The total award is subject to an underpin based on the relative performance of the Group's TSR to that of the FTSE small-cap index, which can reduce the awards by up to 50%. The matrix is designed such that up to 100% of the award (prior to the application of the underpin) will vest in full in the event of both Hard NAV increasing by 15% per year on a cumulative basis from 1 January 2011 to 31 December 2013 and TSR increasing by 15% per year on a cumulative basis from the date of award to 31 March 2014, using an industry-standard average price period at the beginning and end of the performance period. Further, the matrix is designed such that 30% of the award shall vest (again prior to the application of the underpin) if the cumulative increase is 8% per annum for both measures over their respective performance periods ("threshold performance"). A straight-line sliding scale is applied for performance between the distinct points on the matrix of vesting targets.

The 2010 LTIP awards will ordinarily vest on 31 March 2013, to the extent that the performance conditions have been met. 50% of the awards are based on the performance of Group's Hard NAV, and 50% are based on the Group's share price performance. The portion subject to Hard NAV performance shall vest in full in the event of Hard NAV increasing by 15% per year on a cumulative basis from 1 January 2010 to 31 December 2012, whilst 50% of that portion shall vest if the cumulative increase is 8% per annum over this time period. The portion subject to the Group's share price performance shall vest in full in the event of the Group's share price being equal to or exceeding 67p on 31 December 2012, whilst 50% of that portion shall vest if the Group's share price is 60p on this date. A straight-line sliding scale is applied for performance between the vesting targets detailed above.

For the 2008 awards, the performance conditions were based on the Group's TSR. The 2008 awards lapsed during the year with no awards vesting.

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

	2011	2010
At 1 January	13,079,059	3,483,009
Lapsed during the year	(826,293)	(2,656,716)
Notionally awarded during the year	4,803,037	12,252,766
At 31 December	17,055,803	13,079,059

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:

	2011	2010
Share price at date of award	£0.54	£0.29-0.32
Exercise price	£nil	£nil
Fair value at grant date	£0.17	£0.03-0.05
Expected volatility (median of historical 50-day moving average)	35%	33%
Expected life (years)	2.50	2.45-2.50
Expected dividend yield	0%	0%
Risk-free interest rate	1.0%	0.8-0.9%

The fair value charge recognised in the statement of comprehensive income during the year in respect of LTIP share awards was £0.7m (2010: £0.3m).

22. INTERESTS IN LIMITED PARTNERSHIPS

	£m
At 1 January 2010	1.5
Additions during the year	0.2
Change in fair value during the year	0.2
At 1 January 2011	1.9
Additions during the year	0.8
Change in fair value during the year	0.6
At 31 December 2011	3.3

The Group considers interests in Limited Partnerships to be Level 3 in the fair value hierarchy throughout the current and previous financial years.

23. 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

2011

£m

2010

£m

Revenue from services

1.5

1.7

Statement of financial position

2011

£m

2010

£m

Investment in limited partnerships

2.1

1.9

Amounts due from related parties

b) Key management transactions

The key management had investments in the following spin-out companies as at 31 December 2011:

Director	Company name	Number of shares held at 1 January 2011 or date of appointment if later	Number of shares acquired/ (disposed) in the period	Number of shares held at 31 December 2011	%
Alan Aubrey	Activotec SPP Limited ¹	1,500	-	1,500	0.9%
	Amaethon Limited - A Ordinary Shares	104	-	104	3.1%
	Amaethon Limited - B Ordinary Shares	11,966	-	11,966	1.0%
	Amaethon Limited - Ordinary Shares	21	-	21	0.3%
	Avacta Group plc	13,276,113	-	13,276,113	0.8%
	Capsant Neurotechnologies Limited	11,631	-	11,631	0.8%
	Chamelic Limited	26	-	26	0.5%
	Crysalin Limited	1,447	-	1,447	0.3%
	Dispersia Limited ⁶	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	0.6%
	Ilika plc	117,500	-	117,500	0.3%
	Karus Therapeutics Limited	223	-	223	0.7%
	Leeds Reproductive Biosciences Limited ^-2	18	-	18	1.1%
	Mode Diagnostics Limited	1,863	-	1,863	0.8%
	Modern Biosciences plc	1,185,150	-	1,185,150	2.1%
	Modern Water plc	575,000	-	575,000	1.0%
	Overlay Media Limited	32	-	32	1.2%
	Oxford Advanced Surfaces Group plc	2,172,809	-	2,172,809	1.1%
	Oxford Catalysts Group plc	207,399	(85,290)	122,109	0.1%
	Oxford Nanopore Technologies Limited	11,442	-	11,442	0.7%
	Oxford RF Sensors Limited	53,639	-	53,639	0.8%
	Oxtox Limited	25,363	-	25,363	0.5%
	Pharminox Limited	685	-	685	0.3%
	Photopharmica (Holdings) Limited	37,020	-	37,020	1.0%
	Plexus Planning Limited	1,732	-	1,732	0.8%
	Retroscreen Virology Limited	1,858	-	1,858	0.2%
	Revolymer Limited	2,963	-	2,963	0.3%
	Simulstrat Limited - A Preference shares ³	24,063	(24,063)	-	-
	Simulstrat Limited - Ordinary shares ³	2,255	(2,255)	-	-
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	393	-	393	0.5%
	Sustainable Resource Solutions Limited	25	-	25	1.1%
	Syntopix Group plc	76,731	-	76,731	0.7%
	Tissue Regenix Group plc	2,389,259	-	2,389,259	0.5%
	Tracsis plc	203,400	-	203,400	1.0%
	Xeros Limited	241	-	241	0.3%
Alison Fielding	Activotec SPP Limited ¹	300	-	300	0.2%
	Amaethon Limited - A Ordinary Shares	105	-	105	3.2%
	Amaethon Limited - B Ordinary Shares	12,049	-	12,049	1.0%
	Amaethon Limited - Ordinary Shares	21	-	21	0.3%
	Avacta Group plc	7,664,105	-	7,664,105	0.2%
	Capsant Neurotechnologies Limited	7,847	-	7,847	0.5%
	Chamelic Limited	21	-	21	0.4%
	Crysalin Limited	1,447	-	1,447	0.3%
	Dispersia Limited ⁶	342	-	342	0.8%
	EmDot Limited	14	-	14	0.8%
	Green Chemicals plc	126,181	-	126,181	1.5%
	Icona Solutions Limited	1,419	-	1,419	0.5%
	Ilika plc	32,800	-	32,800	<0.1%
	Karus Therapeutics Limited	43	-	43	0.1%
	Leeds Reproductive Biosciences Limited ^-2	17	-	17	1.0%
	Mode Diagnostics Limited	1,632	-	1,632	0.7%
	Modern Biosciences plc	1,057,343	-	1,057,343	1.9%
	Modern Water plc	221,000	-	221,000	0.4%
	Overlay Media Limited	28	-	28	1.1%
	Oxford Advanced Surfaces Group plc	611,042	-	611,042	0.3%
	Oxford Catalysts Group plc	68,547	(28,190)	40,357	<0.1%
	Oxford Nanopore Technologies Limited	5,721	-	5,721	0.3%
	Oxford RF Sensors Limited	15,085	-	15,085	0.2%
	Oxtox Limited	16,601	-	16,601	0.3%
	Pharminox Limited	274	-	274	0.1%
	Photopharmica (Holdings) Limited	27,350	-	27,350	0.7%
	Plexus Planning Limited	480	-	480	0.2%
	Retroscreen Virology Limited	1,216	-	1,216	0.1%
	Revolymer Limited	1,198	-	1,198	0.1%
	Simulstrat Limited - A Preference shares ³	15,750	(15,750)	-	-
	Simulstrat Limited - Ordinary shares ³	1,476	(1,476)	-	-
	Structure Vision Limited	195	-	195	0.9%
	Surrey Nanosystems Limited	323	-	323	0.4%
	Sustainable Resource Solutions Limited	25	-	25	1.1%
	Syntopix Group plc	35,477	-	35,477	0.3%
	Tissue Regenix Group plc	2,279,660	-	2,279,660	0.5%
	Tracsis plc	197,750	-	197,750	1.0%
	Xeros Limited	197	-	197	0.2%
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	0.5%
	Crysalin Limited	1,286	-	1,286	0.2%
	Dispersia Limited ⁶	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	0.6%
	Leeds Reproductive Biosciences Limited ^-2	18	-	18	1.1%
	Mode Diagnostics Limited	1,756	-	1,756	0.8%
	Modern Biosciences plc	1,185,150	-	1,185,150	2.1%
	Modern Water plc	575,000	-	575,000	1.0%
	Overlay Media Limited	29	-	29	1.1%
	Oxford Advanced Surfaces Group plc	932,994	-	932,994	0.5%
	Oxford Nanopore Technologies Limited	3,490	-	3,490	0.2%
	Oxtox Limited	25,363	-	25,363	0.5%
	Photopharmica (Holdings) Limited	37,020	-	37,020	1.0%
	Retroscreen Virology Limited	1,858	-	1,858	0.2%
	Revolymer Limited	1,198	-	1,198	0.1%
	Simulstrat Limited - A Preference shares ³	24,063	(24,063)	-	-
	Simulstrat Limited - Ordinary shares ³	2,255	(2,255)	-	-
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	350	-	350	0.4%
	Sustainable Resource Solutions Limited	25	-	25	1.1%
	Tissue Regenix Group plc	1,950,862	-	1,950,862	0.4%
	Tracsis plc	84,750	-	84,750	0.4%
	Xeros Limited	213	-	213	0.2%
Greg Smith ⁴	Avacta Group plc	390,407	-	390,407	<0.1%
	Capsant Neurotechnologies Limited	895	-	895	<0.1%
	Chamelic Limited	3	-	3	0.2%
	Crysalin Limited	149	-	149	<0.1%
	Dispersia Limited ⁶	43	-	43	0.1%
	EmDot Limited	4	-	4	0.2%
	Encos Limited	5,671	-	5,671	0.3%
	Getech Group plc	8,000	-	8,000	<0.1%
	Green Chemicals plc	1,500	-	1,500	<0.1%
	Icona Solutions Limited	148	-	148	0.1%
	Mode Diagnostics Limited	192	-	192	<0.1%
	Modern Biosciences plc	313,425	-	313,425	0.6%
	Modern Water plc	7,250	-	7,250	<0.1%
	Overlay Media Limited	7	-	7	0.3%
	Oxford Catalysts Group plc	2,559	-	2,559	<0.1%
	Oxford Nanopore Technologies Limited	150	-	150	<0.1%
	Retroscreen Virology Limited	3,067	-	3,067	0.3%
	Revolymer Limited	150	-	150	<0.1%
	Sustainable Resource Solutions Limited	8	-	8	0.4%
	Surrey Nanosystems Limited	76	-	76	0.1%
	Tissue Regenix Group plc	175,358	-	175,358	<0.1%
	Xeros Limited	33	-	33	<0.1%
Charles Winward ⁵	Amaethon Limited - A Ordinary Shares	15	-	15	0.4%
Charles Winward ⁵	Amaethon Limited - B Ordinary Shares	1,766	-	1,766	0.1%
	Amaethon Limited - Ordinary Shares	3	-	3	<0.1%
	Capsant Neurotechnologies Limited	2,264	-	2,264	0.2%
	Chamelic Limited	3	-	3	0.1%
	Crysalin Limited	189	-	189	<0.1%
	Dispersia Limited	54	-	54	0.1%
	EmDot Limited	5	-	5	0.3%
	Encos Limited	6,530	-	6,530	0.3%
	Icona Solutions Limited	376	-	376	0.3%
	Leeds Reproductive Biosciences Limited ²	3	-	3	0.2%
	Mode Diagnostics Limited	244	-	244	0.1%
	Modern Biosciences plc	360,914	-	360,914	0.6%
	Modern Water plc	37,800	-	37,800	0.7%
	Overlay Media Limited	8	-	8	0.3%
	Oxford Advanced Surfaces Group plc	156,213	-	156,213	0.1%
	Oxford Nanopore Technologies Limited	150	-	150	<0.1%
	Oxtox Limited	3,742	-	3,742	0.1%
	Photopharmica (Holdings) Limited	3,590	-	3,590	0.1%
	Retroscreen Virology Limited	9,438	-	9,438	0.9%
	Revolymer Limited	150	-	150	<0.1%
	Structure Vision Limited	26	-	26	0.1%
	Sustainable Resource Solutions Limited	9	-	9	0.4%
	Surrey Nanosystems Limited	87	-	87	0.1%
	Tracsis plc	56,500	-	56,500	0.2%
	Tissue Regenix Group plc	482,236	-	482,236	0.1%
	Xeros Limited	39	-	39	<0.1%
Graham Richards	Getech Group plc	30,000	-	30,000	0.1%
	Summit Corporation plc	662,958	-	662,958	0.4%
	Tissue Regenix Group plc	150,000	-	150,000	<0.1%
Bruce Smith	Capsant Neurotechnologies Limited	20,724	-	20,724	1.4%
	Getech Group plc	15,000	-	15,000	<0.1%
	iQur Limited	2,000	-	2,000	0.8%
	Nanotecture Group plc	50,000	-	50,000	0.5%
	Oxford Catalysts Group plc	10,000	-	10,000	<0.1%
	Synairgen plc	200,000	-	200,000	0.3%
	Evocutis plc	15,241	-	15,241	0.1%

¹Company in administration.

²Company dissolved on 28 July 2011.

³Company dissolved on 27 January 2011.

⁴Greg Smith was appointed to the Board on 2 June 2011.

⁵Charles Winward was appointed to the Board on 14 October 2011.

⁶Company in liquidation.

Compensation to key management comprises that paid to executive and non-executive directors of the Group.

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

2011

£m

2010

£m

Revenue from services

0.6

0.5

Statement of financial position

2011

£m

2010

£m

Trade receivables

0.3

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:

2011

£m

2010

£m

Intercompany balances with other Group companies

6.8

6.5

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

24. CAPITAL MANAGEMENT

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

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

During 2011, the Group's strategy, which was unchanged from 2010, was to maintain healthy cash and short term deposit balances that enable it to provide capital to all portfolio companies as determined by the Group's investment committee, whilst having sufficient cash reserves to meet all working capital requirements in the foreseeable future.

25. 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	3.6	1.4
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	4.2	0.2	4.0
University of Bristol ^(v)	2005	5.0	1.0	4.0
University of Surrey ^(vi)	2006	5.0	0.5	4.5
University of York ⁽ⁱⁱⁱ⁾	2006	5.0	0.1	4.9
Queen Mary, University of London ^(vii)	2006	5.0	0.7	4.3
University of Bath ^(viii)	2006	5.0	0.2	4.8
University of Glasgow ^(ix)	2006	5.0	1.1	3.9
		45.0	9.4	35.6

⁽ⁱ⁾Under the terms of an agreement entered into in 2002 between the Group, the University of Southampton and certain of the University of Southampton's subsidiaries, IP2IPO Limited agreed to make £5.0m available for the purposes of making investments in University of Southampton spin-out companies. The basis for investment is subject to review during 2012.

⁽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 2010. Under the revised agreement, the Group has agreed to target investing the remaining commitment of £3.2m over a three-year period; KCL cannot, however, require the Group to make any additional funds available. Other changes effected by the revised agreement included the removal of the Group's automatic entitlement to initial partner equity in every spin-out company and/or a share of KCL's licensing fees from intellectual property commercialisation and to the termination rights of the parties.

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

^(iv)The Group extended its partnership with the University of Leeds in July 2005 by securing the right with associated contractual commitment to invest up to £5.0 million in University of Leeds spin-out companies. This agreement was varied in March 2011 so as to provide for a more detailed process by which the Group and the University of Leeds' commercialisation services team evaluate commercialisation opportunities and to remove the Group's entitlement to a share of out-licensing income generated by the University of Leeds except in certain specific circumstances where the Group is involved in the relevant out-licensing opportunity. Under the terms of the variation agreement, subject to quality and quantity of the investment opportunities, the Group, Techtran the University of Leeds have agreed to target annual investments of at least £0.7 million in aggregate and, subject to earlier termination or the parties otherwise agreeing alternative target, to review this target on 30 April 2017.

^(v)In December 2005, 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.

This information is provided by RNS

The company news service from the London Stock Exchange

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