Final Results

RNS Number : 2079Z

IP Group PLC

05 March 2013

 



FOR RELEASE ON

05 MARCH 2013

("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 2012.

Highlights

Financial and operational

-     Net assets increased to £263.1m (2011: £221.6m)

-     Net cash and deposits: £47.9m (2011: £60.5m)

-     Adjusted profit before tax of £46.7m (2011: £0.5m), excluding £6.0m reduction in fair value of Oxford Equity Rights asset (2011: £6.0m)

Portfolio

-     Fair value of investment portfolio: £181.8m (2011: £123.8m)

-     Continued increase in capital provided to portfolio companies to £26.3m (2011: £14.3m)

-     Portfolio realisations: £16.7m (2011: £3.7m)

-     Acquisition of Proximagen Group by Upsher-Smith for total proceeds of up to £357m (IP Group initial cash proceeds £15.4m)

-     Value of ten largest holdings: £138.2m (2011: £89.0m)

-     Group's portfolio companies raised in excess of £110m of new capital (2011: £90m)

-     Retroscreen Virology Group and Revolymer admitted to AIM, raising gross proceeds of £15m and £25m respectively at IPO

-     Oxford Nanopore Technologies Limited completed £31.4m private financing

Post year-end highlights

-     New flagship intellectual property commercialisation agreement signed with The University of Manchester

  -     Net unrealised fair value increase in the Group's holdings in quoted portfolio companies of £16.0m between 31  
  December 2012 and 1 March 2013.

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

"2012 has been another strong year for IP Group, marked by a number of significant developments across our portfolio, including the admission of Retroscreen Virology and Revolymer to AIM and a significant further financing by Oxford Nanopore Technologies. In line with our commitment to significantly increase our overall rate of investment, the Group committed £26.3m of new funds to portfolio companies during the year. At the same time, we continue to explore alternative sources of innovative intellectual property based opportunities. To this end we have recently signed a commercialisation agreement with Manchester University. 2012 also saw a significant uplift in portfolio realisations and we were particularly pleased to note the acquisition of Proximagen by Upsher-Smith, which represented a 35 times return on the Group's initial investment.

While we have a strong, established portfolio of listed and private companies, I remain confident in the depth of potential throughout our entire portfolio. During 2012 we continued to mature our post-seed businesses and pipeline. The Group's pipeline of early-stage intellectual property opportunities remains strong, with eight new opportunities receiving initial incubation or seed funding during the year.

Despite the continued increase in investment over the year, our balance sheet remains strong, with cash resources of £47.9m, ensuring that we remain well positioned to participate in future financing opportunities.

The progress made across our portfolio during 2012, reflected in the strong growth in the value of the Group's portfolio and net assets, has reinforced our confidence in the quality and commercial potential of the UK's university intellectual property, and we remain well positioned to play a central role in ensuring that the UK's cutting-edge innovations continue to reach the market."

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
Ben Atwell, John Dineen	020 7831 3113

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 4 March 2013.

The financial information set out in this Annual Results Release does not constitute the company's statutory accounts for 2012 or 2011. Statutory accounts for the years ended 31 December 2012 and 31 December 2011 have been reported on by the Independent Auditor. The Independent Auditor's Reports on the Annual Report and Financial Statements for 2012 and 2011 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 2011 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2012 will be delivered to the Registrar following the Company's annual general meeting.

The 2012 Annual Report and Accounts will be published in April 2013 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

I am pleased to be able to report that 2012 has been an encouraging year for IP Group with good overall progress across the business being reflected in strong growth in the value of the Group's portfolio and its net assets.

The Group seeks to generate value for its stakeholders though a well-defined core strategy of building high-quality businesses based on intellectual property. As outlined in more detail in this report, during 2012 we saw evidence that suggests that many of the Group's businesses are maturing and thereby creating value for stakeholders. For example, there has been a substantial increase in the value of the Group's portfolio of spin-out companies, a significant acquisition of one of our drug discovery companies and commercial progress being made by a number of the Group's businesses.

From a financial perspective, the Group's performance in 2012 was very encouraging. Driven by the performance of the portfolio, the Group recorded an adjusted profit before tax of £46.7m excluding the £6.0m reduction in the value of the Oxford Equity Rights asset (2011: £0.5m profit; £6.0m reduction). Net assets, excluding intangibles and the Oxford Equity Rights asset, increased by 25% to £236.6m (2011: £189.1m). It is important to note that, due to the long-term nature of the Group's business, profits and especially cash realisations can vary significantly from year to year.

While the economic environment continued to face a number of challenges during 2012, the performance of UK financial markets was stronger than in the recent past, particularly for smaller-capitalised companies. The AIM market, where 15 of our portfolio companies are quoted, was broadly flat, although this masked some significant sectoral differences. The value of our quoted portfolio companies, in total, fared well. Many factors, including the health of the UK economy, the Eurozone and the wider international picture, contribute to a degree of continuing uncertainty and, as always, this uncertainty brings both opportunities and potential challenges for the Group and its portfolio companies that are increasingly producing goods and services for markets around the globe.

In part due to the improved financial markets, the Group's portfolio companies were successful in raising in excess of £110m of new capital during the year (2011: in excess of £90m). Notwithstanding this positive trend, the financing environment for early-stage technology businesses continues to be relatively challenging, with a comparatively small number of investors deploying significant capital into the sector. The Group has continued to play a key role for its portfolio companies during 2012 in both providing capital directly and helping them to source funds from a variety of capital pools and will continue to do so in the future.

In terms of its access to world-class commercialisable intellectual property, the Group continues to work closely with academics from many of the UK's leading research institutes and, having pioneered the concept of the university partnership model, we were delighted to announce earlier in 2013 a new relationship with the University of Manchester. We look forward to building long and mutually beneficial partnerships with academics and staff the university.

The Board continues to recognise the importance of a strong focus on corporate governance. As I described in my last report, 2011 saw five changes to the Group's Board with the addition of two experienced, independent non-executive directors, two internal promotions to executive director from the existing management team and the retirement of our long-standing audit committee chairman. During 2012, the Board has worked to ensure it is positioned to help drive the next phase of the Group's growth and has also, during early 2013, undergone an external evaluation process. As well as considering the recommendations arising from this evaluation to optimise the Board's effectiveness, we intend that the Group and its Board will continue to evolve over the forthcoming year. This will ensure that it retains an appropriate and diverse mix of skills, knowledge and experience, with consideration also being given to other criteria such as gender and ethnicity, while taking into account additional corporate governance requirements that apply to the Group given its inclusion in the FTSE250 during 2012.

The performance of the Group is the culmination of the hard work and dedication of a large number of teams and individuals often, in the case of its academic partners and spin-out management teams, over periods of many years. I would like to record my thanks for the efforts and support of the Group's staff, shareholders and limited partners. I would also like to record a note of congratulation to Proximagen Group on its successful exit to Upsher-Smith during the year, a significant achievement not only for the company itself but also for its staff and shareholders, including the Group and King's College London.

Finally, Professor Graham Richards, who has served on the Group's Board since 2001, including periods as Chairman and Senior Non-executive Director, and who was instrumental in the Group's original partnership with the University of Oxford's Chemistry Department, has today announced his intention to retire as a non-executive director at the Group's forthcoming AGM. I would like to take this opportunity to extend my significant thanks to Graham for his considerable contribution to the Board over the years and am pleased to report that Graham has agreed to continue as an adviser to the Group.

Bruce Smith

Chairman

BUSINESS REVIEW

Chief Executive's statement

2012 saw IP Group continue to successfully execute its core strategy of building high-quality businesses based on intellectual property.

The Group's overall financial results for the year were pleasing, with substantial growth in the value of the Group's portfolio of technology businesses contributing to a significant increase in the Group's net assets. In line with our stated commitment we have again increased the overall level of capital deployed into our portfolio to £26.3m (2011: £14.3m) while maintaining an appropriate level of new spin-out creation. The Group's first significant portfolio company sale, the acquisition of Proximagen Group plc ("Proximagen") by Upsher-Smith Laboratories, Inc, generated initial cash proceeds of £15.4m in 2012, representing 35 times the Group's investment, with up to a further £9.2m potentially receivable in future by way of contingent value rights.

The business model that the Group employs in order to source, build and fund intellectual property-based companies 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 their development.

At 31 December 2012, the overall value of the Group's portfolio had increased to £181.8m (2011: £123.8m). Despite continued challenging economic conditions, both in the UK and overseas, much of the Group's portfolio has continued to develop and mature. The three most significant positive contributors to the Group's fair value increases during the year, Oxford Nanopore Technologies, Retroscreen Virology Group and Proximagen Group, all announced positive commercial developments, as did a number of other businesses. The one significant disappointment during 2012 was the fact that, despite the successful completion of its Phase IIb clinical trial for the use of antimicrobial photodynamic therapy in the treatment of chronic leg ulcers, Photopharmica was unable to complete a transaction for its therapeutic platform. Further detailed analysis is provided in the Portfolio review.

Our intellectual property sourcing model has developed over time. We continue to work closely with our university partners to identify, build and finance intellectual property-based spin-out companies. We retain a core of exclusive partnerships from where the majority of our spin-out companies have originated to date and, while the rate of spin-out formation from university to university can be variable over time, we expect this to continue to be the case. In addition to our core partnerships and as a result of our track record and specialist skill set, the Group has also backed a number of new intellectual property-based businesses seeking to commercialise research and innovation from academics at other high-quality research institutions and expects to continue to do so. During 2012, the Group added eleven companies to its portfolio, including the creation of seven new technology businesses (2011: five).

We continue to monitor the depth and breadth of our pipeline and, where compelling opportunities are identified, we may add to its pipeline. Accordingly, the Group was pleased to announce the addition of a new partnership since the start of 2013: an exciting opportunity that will see the Group work closely with the University of Manchester, an institution with considerable research pedigree having been ranked third in the UK in terms of "research power" in the most recent Research Assessment Exercise.

Under the terms of the commercialisation agreement with the University of Manchester, the Group will create a Proof of Principle ("PoP") fund of up to £5m to facilitate the identification and formation of new spin-out companies. The fund will be used to provide capital to new projects intended for commercialisation as spin-out companies, with the Group receiving equity stakes in the companies on pre-agreed terms. The agreement, which is for a minimum term of four years, or five years subject to certain conditions, covers the areas of materials and clean technology, electronics and communications, all non-therapeutic life, medical and human sciences, and information technology.

On the capital side, the Group's FSA-regulated subsidiary, Top Technology Ventures, has continued the management of two active venture capital funds during the year, the £31m IP Venture Fund ("IPVF") and the £25m Finance for Business North East Technology Fund ("NETF"), as well as assisting portfolio companies with accessing further capital for their development. As anticipated in my last report, IPVF reached the end of its five-year "investment period" in August 2012 and, having invested in 26 of the Group's portfolio companies since 2006, will now deploy its remaining capital into its existing portfolio. NETF has now been investing in developing technology companies in North East England for three years, providing capital to 43 businesses across the development spectrum. The Group and NETF have now co-invested in five companies, including the Group's first spin-out from Durham University, Durham Graphene Sciences Limited, which met the technical milestones triggering its second tranche of seed financing during the year.

As described above, the Group has continued to increase the level of capital deployed into its portfolio during 2012, with a significant proportion having been provided to its most promising maturing businesses. Having strengthened the Group's balance sheet in 2011 through the raising of £55m of new capital, the £15.4m proceeds from the sale of Proximagen during 2012 has helped to ensure that the Group closed the year with cash resources of £47.9m (2011: £60.5m) and no debt.

Outlook

While 2012, and indeed the early months of 2013, saw positive performance for many equity markets, the broader macroeconomic environment remains uncertain. Many commentators, including the IMF, expect a continuation of the lower levels of underlying growth that have been evident since 2008. This could present challenging trading and funding conditions for small, early-stage businesses, while equity market volatility could have short-term impacts on the value of the Group's portfolio companies. However, our belief is that the challenges addressed by many of the Group's portfolio companies, including clean energy, big data, healthcare, food supply and availability of fresh water, are global in nature and technologies that address these have the potential to generate significant value.

During 2013 the Group intends to continue supporting the development of its most promising portfolio companies with people, networks and capital, to grow its net assets and identify further intellectual-property-based opportunities. The Group remains confident of the commercial potential of its portfolio, while our pipeline of commercialisable intellectual property opportunities remains strong. We will continue to mature our post-seed businesses and pipeline and look forward to guiding them towards potentially significant inflection points over the next few years.

The Group's unrivalled access to commercialisable UK intellectual property, recently strengthened through its new partnership with the University of Manchester, its broad portfolio and its cash resources give the directors confidence in being able to deliver against this intention.

Portfolio review

Overview

A maturing portfolio and an increase in total capital deployed have led to a significant increase in the value of the Group's most promising portfolio companies during 2012. At year end, the Group's portfolio had increased in value to £181.8m, from £123.8m in 2011, and comprised holdings in 67 businesses (2011: 64).

In line with the commitments made at the time of the Group's 2011 placing, total capital deployed into portfolio companies during the year again increased significantly to £26.3m, from £14.3m in 2011. The Group has utilised its increased capital to maintain its equity interest in a number of its most promising companies.

The Group has broadly maintained the level of capital deployed into new spin-out opportunities, with seven new companies being formed during the year (2011: five) and first-time investments being made into a further four existing businesses. The latter included the participation in the December refinancing of AIM-listed Ceres Power Holdings plc, a developer of clean, efficient fuel cell technology based on intellectual property originally developed at Imperial College, London. A total of four companies were sold during the period, while a further four companies, with a total cumulative cost to the Group of £1.2m, were closed.

A number of companies announced positive commercial developments during the year and completed significant financings, with the Group's portfolio raising in excess of £110m of new capital. Having announced its intention to commence commercialisation of two revolutionary DNA sequencing products, the GridION and MinION, University of Oxford spin-out, Oxford Nanopore, completed a £31.4m further financing in May 2012. Two companies were admitted to AIM during the period: Retroscreen, a virology healthcare business that provides clinical services focused on the Viral Challenge Model ("VCM"), raised £15.0m in May 2012, while Revolymer plc, best known for its removable confectionary gum, raised £25.0m in July 2012. Retroscreen has subsequently announced a significant increase in revenues and seen positive share price performance while Revolymer, despite the launch of its nicotine gum in Canada and the appointment to its board of Julian Heslop, formerly chief financial officer of GlaxoSmithKline plc, and Dr Bryan Dobson, formerly President Global Operations Croda, has seen a reduction in its share price.  

As described in the Group's Half-yearly Report, Photopharmica (Holdings) Limited ("Photopharmica") was unable to secure a co-development or partnership deal for its lead therapeutic programme during the first half of the year, leading to a significant reduction in the fair value of the Group's holding. In December, company management worked with the Group's life sciences team to revise its therapeutic development plan and the Group led a capital restructuring and limited refinancing. The restructuring led to a further £2.5m reduction in the fair value of the Group's holding, a total of £13.0m for the year. The Group has invested a total of £3.4m cash in Photopharmica to date, in addition to £4.5m through an issue of the Group's shares in 2007.

During the year, cash proceeds from the realisation of investments increased to £16.7m (2011: £3.7m). This was predominantly driven by the sale of Proximagen Group plc ("Proximagen") to USL Pharma International UK Limited, a wholly-owned subsidiary of Upsher-Smith Laboratories, Inc, for total potential consideration of up to £356.8m. The acquisition of the Group's 7.6% stake resulted in the receipt of initial cash proceeds of £15.4m, representing a multiple of 35 times the Group's total investment, with up to a further £9.2m potentially receivable in future by way of contingent value rights.

Performance summary

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

	2012  £m	2011  £m
Unrealised gains on the revaluation of investments	64.5	13.6
Unrealised losses on the revaluation of investments	(26.5)	(12.7)
Net fair value gains	38.0	0.9
Profit on disposals of equity investments	11.8	2.3
Change in fair value of Limited Partnership interests	0.4	0.6
Net portfolio gain	50.2	3.8

The most significant contributors to unrealised gains on the revaluation of investments comprised £26.4m as a result of Oxford Nanopore's May financing round, £10.3m as a result of the AIM IPO and subsequent share price increase of Retroscreen and increases in the share prices of Ceres Power Holdings plc (£5.1m) and Avacta Group plc (£4.8m).

Unrealised losses on the revaluation of investments included £13.0m from Photopharmica and from reductions in the share prices of certain of the Group's quoted companies, including Green Chemicals plc (£1.4m) and Revolymer plc (£1.4m).

The Group's holdings in companies quoted on either AIM or ISDX saw a net unrealised fair value increase of £28.0m, while the Group's holdings in unquoted companies experienced a net fair value increase of £10.0m. The Group believes that the increasing maturity and technical and commercial progress of many of its underlying portfolio businesses, both quoted and unquoted, contributed to significant increases in fair value during the year. The share price performance of the Group's quoted portfolio companies has continued to be positive during the first two months of 2013, with the portfolio having seen a £16.0m net unrealised fair value increase from the year end to 1 March 2013.

Investments and realisations

As envisaged at the time of the Group's June 2011 placing and open offer, the Group's rate of capital deployment has again increased during 2012, with a total of £26.3m being invested across 43 new and existing projects (2011: £14.3m; 42 projects), as follows:

Cash investment analysis by company stage	2012  £m	2011  £m
Incubation opportunities	0.5	0.1
Seed businesses	4.2	2.1
Post-seed private businesses	13.1	5.8
Post-seed quoted businesses	8.5	6.3
Total	26.3	14.3
Proceeds from sales of equity investments	16.7	3.7

"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 approximately £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 ISDX.

The Group has continued to mature its post-seed businesses with a number announcing further financings supported by the Group and/or IPVF, the dedicated follow-on venture capital fund managed by the Group. IPVF invested a total of £3.0m into Group portfolio businesses during the year (2011: £2.4m).

The Group's pipeline of commercialisable intellectual property opportunities remains strong. Eight opportunities received initial incubation or seed funding during the year (2011: five), two existing incubation projects progressed to seed stage (2011: four), with a further three developing businesses receiving capital from the Group for the first time.

The eight new opportunities included:

-     TheySay Limited (University of Oxford): employs linguistic intelligence to complement machine learning techniques that enables new levels of insight into sentiment analysis;

-     Oxehealth (University of Oxford): a novel technology that should enable a webcam to remotely monitor the vital signs of patients in artificial light, without the need for any additional hardware;

-     Cryptographiq Limited (University of Leeds): developer of cyber-security tools;

-     Azuri Technologies Limited (University of Cambridge): renewable energy company with award winning Indigo pay-as-you-go home solar system technology; and

-     In addition, the Group provided seed capital to Marblar Limited, a company that has developed an online network for inventors to interact directly with the scientific research community to come up with novel ways to exploit scientific discoveries.

The average level of capital deployed per company increased from £340,000 to £610,000 in 2012. Excluding the Group's participation in Oxford Nanopore's 2012 financing round, the average investment per company was still increased at £470,000. This trend is expected to continue in the future.

Portfolio analysis - by stage of company maturity

At 31 December 2012, the Group's portfolio fair value of £181.8m was distributed across stages of company maturity as follows:

	As at 31 December 2012					As at 31 December 2011
	Fair value		Number			Fair value		Number
Company stage	£m	%		%		£m	%		%
Incubation opportunities	0.5	-	8	12%		0.2	-	6	9%
Seed businesses	9.9	5%	17	25%		5.3	4%	14	22%
Post-seed private businesses	86.8	48%	26	39%		68.3	55%	29	46%
Post-seed quoted businesses	84.6	47%	16	24%		50.0	41%	15	23%
All portfolio businesses	181.8	100%	67	100%		123.8	100%	64	100%

Of the 67 companies in the Group's portfolio, 76% (2011: 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 £138.2m (2011: £89.0m).

Portfolio analysis - by sector

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

	As at 31 December 2012					As at 31 December 2011
	Fair value		Number			Fair value		Number
Sector	£m	%		%		£m	%		%
Medical Equipment & Supplies	107.3	59%	17	25%		52.0	42%	14	22%
Energy & Renewables	31.0	17%	14	21%		14.4	12%	13	20%
Chemicals & Materials	18.0	10%	14	21%		17.5	14%	16	25%
IT & Communications	9.7	5%	12	18%		6.4	5%	11	17%
Pharma & Biotech	5.6	3%	8	12%		25.4	21%	8	13%
Multiple sectors	10.2	6%	2	3%		8.1	6%	2	3%
	181.8	100%	67	100%		123.8	100%	64	100%

As can be seen from the table, the Group's portfolio by number of companies is well diversified across five main sectors. By fair value, however, the portfolio is currently more concentrated in the medical equipment & supplies sector, largely as a result of the relative valuation of the Group's holding in Oxford Nanopore,

The Group's holdings in two companies across multiple sectors (IP commercialisation companies Fusion IP plc and Frontier IP plc) saw an unrealised fair value increase of £2.0m. Fusion IP plc ("Fusion") completed its first material portfolio exit during 2012 with the sale of Simcyp to Certara for $32m. The sale of Simcyp, a modelling and simulation platform for predicting the fate of drugs in virtual populations, generated approximately £4m for Fusion, a 200-fold return on their original investment. Fusion also saw a significant increase in the fair value of its portfolio and Fusion's positive share price performance resulted in a £2.1m increase in the value of the Group's holding.

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

Medical Equipment & Supplies

		Group stake at    31 Dec 2012	Fair value of Group holding at 31 Dec 2011	Year to 31 December 2012		Fair value of Group holding at 31 Dec 2012
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Oxford Nanopore Technologies Limited	Single-molecule detection and analysis using nanopore technology	20.4%	33.4	6.7	26.4	66.5
Retroscreen Virology Group plc	Contract virology research company	22.7%	0.6	1.5	10.3	12.4
Tissue Regenix Group plc	Regenerative dCELL® tissue implants	13.8%	12.6	-	(1.3)	11.3
Avacta Group plc(ii)	Specialist detection and analysis technologies and services	29.8%	2.2	2.9	4.8	9.9
Other companies			3.2	3.1	0.9	7.2
Total			52.0	14.2	41.1	107.3

⁽ⁱ⁾ Stake represents undiluted beneficial equity interest excluding debt.

⁽ⁱⁱ⁾Net investment includes the £0.5m acquisition in January 2012 of Aptuscan Limited, an existing Group company.

The Group's portfolio of Medical Equipment & Supplies or "med tech" companies saw the most significant increase in fair value during the period. The major contributors to this increase were Oxford Nanopore (£26.4m) as a result of its further £31.4m fundraising being completed at a premium to its previous financing round, Retroscreen (£10.3m) which experienced strong share price performance following its £15.0m placing and admission to AIM and Avacta Group plc (£4.8m) that completed a £5.1m placing and 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 Tissue Regenix plc (£1.2m).

Following its £15.0m AIM IPO in May, Retroscreen Virology Group plc ("Retroscreen") announced in December that it expects full-year revenues for the year ending 31 December 2012 to exceed £13.0m, more than three times 2011 revenues, and that it had dosed its 1,000^th volunteer. In January 2013, the company announced a further Viral Challenge Model ("VCM") contract valued at £3.9m. The study will be the largest ever investigation into influenza transmission and is a collaboration with the University of Nottingham and other international groups, funded by the United States Centers for Disease Control and Prevention.

Following a successful £25.0m fundraising in December 2011, Tissue Regenix was able to continue its meniscus and human dermis studies. The company announced that both studies had produced encouraging data and a Yale University study into cell re-population showed that dCELL^® matrices in vascular patches outperformed a competitor product. The company then announced in February 2013 that it had successfully completed the safety study for its dCELL meniscus, paving the way for clinical studies to begin in Europe following regulatory review. The dCELL meniscus is being developed for use in knee repair, where more than 1.5 million meniscal procedures are expected in the US and Europe in 2013. Despite these developments, Tissue Regenix experienced some weakening of its share price.

The Group's holding in Avacta Group plc ("Avacta"), which provides reagents, arrays and instruments to the life sciences and healthcare industries, saw a significant fair value increase during the period of £4.8m. From an operational perspective, Avacta has continued to perform strongly announcing underlying revenue growth of 28% to £3.1m for the year to 31 July 2012 and signed a further exclusive marketing and distribution agreement with Pall Corporation in India. In January 2012, Avacta completed a £5.1m placing and acquired Aptuscan Limited.

Energy & Renewables

		Group stake at    31 Dec 2012	Fair value of Group holding at 31 Dec 2011	Year to 31 December 2012		Fair value of Group holding at 31 Dec 2012
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Modern Water plc	Technologies to address the world's water crisis	20.9%	5.8	-	0.9	6.7
Oxford Catalysts Group plc	Speciality catalysts for the generation of clean fuels	5.0%	2.4	-	3.9	6.3
Ceres Power Holdings plc	Ceramic fuel cell technology	25.8%	-	1.1	5.1	6.2
GETECH Group plc	Gravity and magnetic data analysis for the oil and gas industry	24.2%	1.4	-	1.7	3.1
Other companies			4.8	3.7	0.2	8.7
Total			14.4	4.8	11.8	31.0

⁽ⁱ⁾ Stake represents undiluted beneficial equity interest excluding debt.

Companies in the Energy & Renewables sector also saw a significant increase in fair value during the period (£11.8m). The major contributors to this increase were Ceres Power Holdings plc (£5.1m) and Oxford Catalysts Group plc (£3.9m) whose share prices performed positively during the year or, in the case of the former, following the Group's participation in the company's refinancing in December 2012.

In March 2013, Modern Water plc ("MW"), a company that develops leading water technologies focused on addressing the scarcity of fresh water and the monitoring of water quality, announced it had raised £10.0m. This followed the installation and commissioning by the company of the Al Najdah plant, the world's first commercial forward osmosis desalination plant in September 2012. MW also announced that it had entered into a Framework Agreement with Hangzhou Development Center of Water Treatment Technology Company Limited in the People's Republic of China, which will allow both organisations to jointly identify and develop projects in China including seawater desalination plants and other water-related opportunities, as well as a Cooperation and Agency Agreement with Kazema Global Holding KSCH in Kuwait, with a view to the company and Kazema working together in Kuwait to promote the company's forward osmosis technology.

Oxford Catalysts Group plc ("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 in July 2012 that it had been selected to provide its Fischer-Tropsch ("FT") technology to GreenSky London, Europe's first commercial scale sustainable jet fuel facility, being developed in partnership with British Airways. British Airways confirmed that it had committed to purchase the sustainable jet fuel produced by the plant for ten years (at market rates) - worth $500m. The company's share price rose significantly in the period resulting in an increase in the fair value of the Group's holding of £3.9m and the company completed a £31.0m placing in January 2013.

In December 2012, the Group invested £1.1m as part of a £3.3m placing in Ceres Power Holding plc ("Ceres"). Ceres is an AIM-quoted company developing clean, efficient, cost-effective fuel cell technology for use in distributed generation and other applications. Two members of the Group's staff joined the company in a non-executive capacity and worked alongside new interim CEO, Steve Callaghan, to implement a revised strategy. This saw a significant resizing of the business and a focus on the continued development and commercialisation of its core fuel cell and fuel cell module ("FCM") technology platform. Appreciation in the company's share price following the completion of the placing resulted in a £5.1m increase in the fair value of the Group's 25.8% holding during December.

GETECH, the oil services business specialising in the provision of exploration data and petroleum systems studies and evaluations, announced a number of major contracts including five further Globe sponsors and two substantial sales of its global gravity and magnetic datasets during the period. The company's share price responded to its positive trading performance, which included annual results for the year ended 31 July 2012 that saw a 21% increase in revenues to £6.4m and a 86% increase in pre-tax profits to £1.2m.

Chemicals & Materials

		Group stake at    31 Dec 2012	Fair value of Group holding at 31 Dec 2011	Year to 31 December 2012		Fair value of Group holding at 31 Dec 2012
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Revolymer plc	Novel  polymers e.g. "removable chewing gum"	10.6%	2.9	2.5	(1.4)	4.0
Oxford Advanced Surfaces Group plc	ONTO and VISARC surface modification technologies	14.4%	2.1	-	0.6	2.7
Surrey Nanosystems Limited	Low temperature carbon nanotube growth	21.0%	1.5	0.7	0.1	2.3
Green Chemicals plc	Environmentally friendly textiles and bleaching chemicals	24.5%	3.2	0.3	(1.4)	2.1
Xeros Limited	"Virtually waterless" washing machines	21.0%	1.4	-	-	1.4
Other companies			6.4	1.9	(2.8)	5.5
Total			17.5	5.4	(4.9)	18.0

⁽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 a decrease in share price during the year in both Revolymer plc ("Revolymer") and Green Chemicals plc ("Green Chemicals").

As mentioned above, Revolymer completed its AIM IPO and £25.0m placing in July. During the year Revolymer also announced good progress with its six joint development agreements ("JDAs") with major international partners in the household products, and coatings and adhesives business areas, the launch of nicotine gum in Canada through two pharmacy businesses of the McKesson group, and further strengthening of the board of directors with the appointments of Julian Heslop, former CFO of GSK, and Dr Bryan Dobson, formerly President Global Operations Croda, both as independent non-executive directors. Despite this progress, the company's share price saw a limited decline in the latter half of the year and this continued into 2013, when the company also announced that it would vigorously defend a patent infringement claim received.

Oxford Advanced Surfaces plc ("OAS"), a University of Oxford spin-out, continued the development of its ONTO^TM and VISARC^TM surface modification technologies during 2012. In October, Adrian Meldrum, formerly director of IQE plc, joined as chief executive while, in June, the company announced its first commercial agreement with a global industrial manufacturing company, covering the use of its VISARCtechnology in electronic displays.

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 £1.0m in a placing in November 2012 and announced that trials at Harrods of Knightsbridge of the TruKolor™ hair de-colourant and hair colouration technology in conjunction with Urban Retreats Limited ("Urban Retreats") are viewed by the company and by Urban Retreats as having been highly successful.

IT & Communications

		Group stake at    31 Dec 2012	Fair value of Group holding at 31 Dec 2011	Year to 31 December 2012		Fair value of Group holding at 31 Dec 2012
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Tracsis plc	Provider of operational planning software to passenger transport industries	12.6%	2.1	(0.4)	3.3	5.0
Arkivum Limited	Digital preservation and management	45.8%	0.7	0.8	0.4	1.9
Actual Experience Limited	Optimising the human experience of networked applications	40.5%	1.2	-	-	1.2
Other companies			2.4	0.4	(1.2)	1.6
Total			6.4	0.8	2.5	9.7

⁽ⁱ⁾ Stake represents undiluted beneficial equity interest excluding debt.

At 31 December 2012, the Group's portfolio of holdings in IT & Communications companies was valued at £9.6m (2011: £6.4m) and recorded a fair value gain of £2.5m (2011: £0.6m), the majority of which was due to the performance of Tracsis plc's share price.

Tracsis, a leading provider of operational planning software to passenger transport industries, reported its fifth successive year of revenue growth since its AIM IPO in 2007, with revenues increasing 112% to £8.7m for the year ended 31 July 2012. The company's performance contributed to it being awarded the Company of the Year in the Mid-Sized category at the Growing Business Awards. In February 2013, the company announced that it had signed an agreement with a major UK rail freight operator, its first in the sector, to supply a customised version of its TrainTRACS crew scheduling software for a period of three years.

Actual Experience, a spin-out from Queen Mary, London, has accumulated an impressive list of blue chip customers over the past year, including Cisco Systems. Actual Experience Analytics are used by businesses to quantify and improve the actual 'human experience' of key IT applications for their customers and users, potentially unlocking important economic, social and environmental benefits. Actual Experience was the recipient of the prestigious 2012 Innovation Award by the Institution of Engineering and Technology.

During the period the Group realised a total of £0.9m as a result of the acquisition of Overlay Media Limited, a University of Bristol spin-out developing context-aware software for mobile devices, by InMobi, a venture-backed mobile software company.

Pharma & Biotech

		Group stake at    31 Dec 2012	Fair value of Group holding at 31 Dec 2011	Year to 31 December 2012		Fair value of Group holding at 31 Dec 2012
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Synairgen plc	Developing new drugs for respiratory diseases	10.8%	2.3	0.3	1.1	3.7
Photopharmica Limited	Wound treatment using light (photodynamic therapy or "PDT")	38.2%	13.0	0.2	(13.0)	0.2
Proximagen Group plc	Treatments for neurodegenerative disorders such as Parkinson's disease	-	5.6	(5.6)	-	-
Other companies			4.5	0.4	(3.2)	1.7
Total			25.4	(4.7)	(15.1)	5.6

⁽ⁱ⁾ Stake represents undiluted beneficial equity interest excluding debt.

The absolute value of the Group's Pharma & Biotech portfolio decreased significantly during the year as a result of the sale of Proximagen, generating cash proceeds of £15.4m, a full write-down of Photopharmica (£13.0m), as described above, and Synairgen plc ("Synairgen"), whose share price increase contributed £1.1m of fair value gains.

During August, Proximagen, a spin-out from King's College, London, was acquired by USL Pharma International UK Limited, a wholly-owned subsidiary of Upsher-Smith Laboratories, Inc, for a total potential consideration of up to £356.8m. Under the terms of the acquisition, Proximagen shareholders received an initial 320p per ordinary share in cash in addition to a potential further 192p in either cash or loan notes by way of a contingent value right. The initial cash payment of £15.4m received by the Group represented a multiple of 35 times its total investment in Proximagen of approximately £0.4m. At 31 December 2012, the Group's CVRs have been fair valued at £1.4m, or 30p per CVR.

Synairgen plc, the University of Southampton spin-out that focuses on respiratory drug discovery and development, announced positive results in April from its Phase II trial of inhaled interferon beta ("IFN-beta") in asthma. This showed significant benefit across multiple end points in the Step 4/5 patients (estimated to represent between 10% and 20% of adult asthma sufferers, who are the greatest healthcare burden) and that the compound was well tolerated. The company strengthened its balance sheet in July through a £2.5m placing in which the Group participated.

Financial review

Statement of comprehensive income

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

	2012   £m	2011   £m
Net portfolio gains	50.2	3.8
Other income	2.3	2.1
Change in fair value of Oxford Equity Rights asset	(6.0)	(6.0)
Administrative expenses - Modern Biosciences	(0.5)	(0.4)
Administrative expenses - all other businesses	(6.2)	(5.6)
Finance income	0.9	0.6
Gain/(loss) and total comprehensive income for the period	40.7	(5.5)

Overall the Group recorded a profit after tax of £40.7m, which compares to a loss of £5.5m during 2011. As was also the case in 2011, 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 £46.7m compared to £0.5m in 2011, largely reflecting significantly higher 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 increased to £2.3m (2011: £2.1m) as increased consulting and corporate finance fees offset a lower level of venture capital fund management fees. IP Venture Fund reached the conclusion of its five-year "investment period" in August 2012 having invested in over 25 of the Group's portfolio companies to date. As a result, venture capital fund management income is anticipated to further reduce in 2013 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 continued to allocate limited capital to the evaluation and development of certain early-stage therapeutic programmes including through its subsidiary Modern Biosciences plc ("MBS"). These development costs were expensed to the income statement as they were incurred. In November, the Group announced that MBS had been awarded a grant of up to £1.6m by the UK Government-backed Biomedical Catalyst. The award will provide support for MBS's lead anti-inflammatory programme, OsteoRx. The Group intends to continue developing a small number of early-stage therapeutic assets.

The Group's administrative expenses, excluding those relating to Modern Biosciences, increased during the period to £6.2m (2011: £5.6m), predominantly due to higher staff costs, included an IFRS 2 share-based payments charge totalling £0.8m (2011: £0.7m) 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". Approximately 81% of the 2010 LTIP awards are anticipated to vest during 2013 as a result of the Group's strong three-year share price performance and increase in "hard" net assets. The 2011 and 2012 LTIP awards are subject to vesting conditions until 2014 and 2015 and charges relating to these awards will continue to be recognised in the statement of comprehensive income until this time.

As a result of the Group's increased average cash balances during the year, the Group's interest receivable has increased to £0.9m (2011: £0.6m). It is expected that the Group's future finance income will continue to fluctuate broadly in line with cash held on balance sheet and future interest rate changes.

Statement of financial position

The Group ended the period with net assets of £263.1m, representing an increase of £41.5m from the position at 1 January 2012 (£221.6m). As described above, the most significant contributor to the increase in net assets during the period was the performance of the Group's portfolio of holdings in spin-out companies. "Hard" net assets, i.e. those excluding intangible assets and the Oxford Equity Rights asset, totalled £236.6m at 31 December 2012 (2011: £189.1m).

The Group continued to benefit from a strong financial position with cash and deposits of £47.9m (2011: £60.5m) and a diversified portfolio of equity and debt investments in 67 private and publicly-listed technology companies (2011: 64). The Group continued to have no borrowings.

The value of the Group's holdings in portfolio companies increased to £181.8m at year end (2011: £123.8m) after net unrealised fair value gains of £38.0m and net investment of £9.6m (2011: £123.8m; £0.9m net unrealised fair value gain; £10.6m 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 (2011: £18.4m) and an equity rights asset of £7.9m (2011: £13.9m). The goodwill balances arose as a result of the Group's historical acquisitions of Techtran Group (university partnership business, £16.3m; 2011: £16.3m) and Top Technology Ventures (venture capital fund management business, £2.1m; 2011: £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 was also the case in 2011, 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 2012 has reduced by £6.0m (2011: £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 2012, the fair value of the Group's holdings in Oxford Chemistry spin-out companies totalled £77.0m and, based on having invested a total of £14.6m and realised £6.9m to date, value totalling £69.3m has been derived by the Group from the contract since its inception.

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, cash equivalents and short-term deposits ("Cash")

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

	2012  £m	2011  £m
Net cash used in operating activities	(2.6)	(3.0)
Net cash used in investing activities	(10.0)	(11.3)
Issued share capital	-	53.3
Movement during period	(12.6)	39.0

At 31 December 2012, the Group's Cash totalled £47.9m, a decrease of £12.6m from a total of £60.5m at 31 December 2011 predominantly due to net investment in the Group's spin-out companies.

The Group's net cash used in investing activities decreased during 2012, however this reflects a significant increase in both investments (2012: £26.3m; 2011: £14.3m) and realisations (2012: £16.7m; 2011: £3.7m). As described in more detail in the Portfolio review on above, the Group allocated a total of £26.3m across 43 portfolio companies during the period (2011: £14.3m; 42 companies).

A further £0.4m was committed to IP Venture Fund (2011: £0.4m), which in turn invested £3.0m across 15 portfolio companies (2011: £2.4m; 16 companies). Overall, net cash used in investing activities decreased to £10.0m (2011: £11.3m).

Primarily as a result of a £0.8m increase in interest received, which was partially offset by higher administrative costs during the period, cash used in operating activities decreased to £2.6m (2011: £3.0m).

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. The Group's unrecognised deferred tax assets and liabilities are set out in note 9 to the consolidated financial information.

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 returns and cash proceeds from the Group's early-stage companies can be very uncertain The following risks are typically associated with early-stage companies that can have a high risk of failure: -       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; -       technology can be materially unproven and may fail; and -       other administrative, taxation or compliance issue leads to company failure.	-       Portfolio company failure directly impacts the Group's value and profitability. -       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.	-       The Group's staff has significant experience in sourcing, developing and growing early-stage technology companies to significant value, including systematic opportunity evaluation and business building methodologies. -       Members of the Group's senior team often serve as non-executive directors or advisers to portfolio companies to help identify and remedy critical issues promptly. -       The Group has spin-out company holdings across different sectors to reduce the impact of a single company failure or sector demise. -       The Group maintains significant cash balances and seeks to employ a capital efficient process deploying low levels of initial capital to enable identification and mitigation of potential failures at the earliest possible stage.
It may be difficult for the Group and its early-stage companies to attract capital The Group's operations are reliant on the capital markets, particularly those in the UK. 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 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. -       The Group's portfolio companies may take longer, or find it more difficult, to secure funding for their ongoing development and the commercialisation of their IP. -       Failure of companies within the Group's portfolio may make it more difficult for the Group or its spin-out companies to raise additional capital.	-       The Group has significant balance sheet and managed funds capital to deploy in attractive portfolio opportunities. -       The Group operates a capital markets function which carries out fundraising mandates for portfolio companies. -       The Group maintains close relationships with varied co-investors that focus on companies at differing stages of development.
Universities or other research intensive institutions may terminate their partnerships or other collaborative relationships with the Group 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. -       The Group sources a limited number of opportunities through non-exclusive relationships -       The 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 -       The Group continues to consider and, where appropriate, enter into new and innovative collaborations
The Group may lose key personnel or fail to attract and integrate new personnel 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 or other technology-based companies and organisations. Given the relatively small size of the Group, its operations are reliant on a small number of key individuals. Scaling the team presents an additional potential risk.	-       Loss of key executives and employees of the Group or an inability to attract, retain and integrate appropriately skilled and experiences staff could have an adverse effect on the Group's business, competitive advantage, financial condition, results of operations and/or future prospects.	-       Senior team succession planning -       The Group carries out regular market comparisons for staff and executive remuneration -       The Group seeks to offer a balanced incentive package considering the mix of salary, benefits, performance-based long-term incentives and benefits such as flexible working or salary sacrifice arrangements. -       The long term incentives for all senior staff are in the form of shares in the Group and all executives are shareholders in the business -       The Group encourages staff development and inclusion through coaching and mentoring
There may be changes to, or impacts from, legislation, government policy and regulation There may be unforeseen changes in, or impacts from, government policy, regulation or legislation (including taxation legislation). This could include 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 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. -       The Group operates an FSA-authorised subsidiary and regulatory changes or breaches could ultimately lead to reputational damage or fines.	-       University partners are incentivised to protect their IP for exploitation as the partnership agreements share returns between universities, academic founders and the Group. -       The Group's university partners also maintain close links with the government to manage their position with respect to future legislative changes -       The Group utilises professional advisers as appropriate to support its monitoring of, and response to changes in, tax or other legislation. -       The Group has internal policies and procedures to ensure its compliance with applicable FSA-regulations and these are subject to external review.

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 2012 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 2013, 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

4 March 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2012

	Note	2012 £m		2011 £m
Portfolio return and revenue
Change in fair value of equity and debt investments	15	38.0		0.9
Profit on disposal of equity investments		11.8		2.3
Change in fair value of limited and limited liability partnership interests		0.4		0.6
Revenue from services	4	2.3		2.1
		52.5		5.9
Administrative expenses
Research and development costs		(0.3)		(0.2)
Share-based payment charge	22	(0.8)		(0.7)
Change in fair value of Oxford Equity Rights asset		(6.0)		(6.0)
Other administrative expenses		(5.6)		(5.1)
		(12.7)		(12.0)
Operating profit/(loss)	7	39.8		(6.1)
Finance income - interest receivable		0.9		0.6
Profit/(loss) before taxation		40.7		(5.5)
Taxation	9	-		-
Profit/(loss) and total comprehensive income for the year attributable to owners of the parent		40.7		(5.5)
Basic earnings/(loss) per ordinary share (p)	10	11.13		(1.76)
Diluted earnings/(loss) per ordinary share (p)	10	10.71		(1.76)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2012

	Note	2012 £m		2011 £m
ASSETS
Non-current assets
Intangible assets:
Goodwill	11	18.4		18.4
Property, plant and equipment	12	0.3		0.2
Oxford Equity Rights asset and related contract costs	14	8.1		14.1
Portfolio:
Equity investments	15	177.9		120.4
Debt investments	15	3.9		3.4
Limited and limited liability partnership interests	23	4.0		3.3
Other financial asset	17	0.7		0.7
Contingent value rights	18	1.4		-
Total non-current assets		214.7		160.5
Current assets
Trade and other receivables	16	0.9		1.2
Deposits		32.5		50.0
Cash and cash equivalents		15.4		10.5
Total current assets		48.8		61.7
Total assets		263.5		222.2
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	20	7.3		7.3
Share premium account		150.4		150.4
Merger reserve		12.8		12.8
Retained earnings		92.6		51.1
Total equity attributable to owners of the parent		263.1		221.6
Current liabilities
Trade and other payables	19	0.4		0.6
Total equity and liabilities		263.5		222.2

Registered number: 4204490

Approved by the Board of Directors and authorised for issue on 4 March 2013 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 2012

	2012 £m		2011 £m
Operating activities
Profit/(loss) before taxation	40.7		(5.5)
Adjusted for:
Finance income - interest receivable	(0.9)		(0.6)
Change in fair value of equity and debt investments	(38.0)		(0.9)
Change in fair value of limited and limited liability partnership interests	(0.4)		(0.6)
Depreciation of property, plant and equipment	0.1		0.1
Profit on disposal of equity investments	(11.8)		(2.3)
Change in fair value of Oxford equity rights asset	6.0		6.0
Share-based payment charge	0.8		0.7
Changes in working capital
Decrease/(increase) in trade and other receivables	0.1		(0.1)
Decrease in trade and other payables	(0.3)		(0.1)
Net cash flow from/(to) deposits	17.5		(42.5)
Other operating cash flows
Interest received	1.1		0.3
Net cash inflow/(outflow) from operating activities	14.9		(45.5)
Investing activities
Purchase of property, plant and equipment	(0.1)		-
Purchase of equity and debt investments	(26.3)		(14.3)
Investment in limited and limited liability partnerships	(0.4)		(0.8)
Proceeds from sale of equity investments	16.7		3.7
Distributions from limited and limited liability partnerships	0.1		-
Repayments of borrowings	-		0.1
Net cash outflow from investing activities	(10.0)		(11.3)
Financing activities
Proceeds from the issue of share capital	-		53.3
Net cash inflow from financing activities	-		53.3
Net increase/(decrease) in cash and cash equivalents	4.9		(3.5)
Cash and cash equivalents at the beginning of the year	10.5		14.0
Cash and cash equivalents at the end of the year	15.4		10.5

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2012

	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 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 1 January 2012	7.3	150.4	12.8	51.1	221.6
Profit and total comprehensive income for the year	-	-	-	40.7	40.7
Share-based payment charge	-	-	-	0.8	0.8
At 31 December 2012	7.3	150.4	12.8	92.6	263.1

⁽ⁱ⁾ Share premium                   Amount subscribed for share capital in excess of nominal value, net of directly attributable issue costs.

⁽ⁱⁱ⁾ Merger reserve                 Amount subscribed for share capital in excess of nominal value in relation to the qualifying acquisition of subsidiary undertakings.

⁽ⁱⁱⁱ⁾ Retained earnings            Cumulative net gains and losses recognised in the consolidated statement of comprehensive income net of associated share-based payments credits.

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

1.   ACCOUNTING POLICIES

Basis of preparation

The financial information set out in this Annual Results Release has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The accounting policies adopted in this Annual Results Release have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2012. The principal accounting policies adopted are materially unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2011.

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 that 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 ("TTV IV")	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 TTV IV, 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 SIC-12 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 16.7% 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

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. 

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, contingent value 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 that 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 designated at fair value through profit or loss, 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.

Contingent value rights

In instances where the Group receives contingent financial consideration upon the disposal of a financial asset, the resulting asset shall be recognised and designated as at fair value through profit and loss, and treated accordingly.

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 company defined-contribution pension scheme for which all employees are eligible.  The assets of the scheme are held separately from those of the Group in independently administered funds.  The Group currently makes contributions on behalf of staff to this scheme or 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 on above, the Group is exposed, through its normal operations, to a number of financial risks, the most significant of which are market, liquidity and credit risks. 

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

(a)  Market risk

(i)   Price risk

The Group is exposed to equity securities price risk as a result of the equity 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 AIM or ISDX and investments which are not traded on an active market.

The net increase in fair value of the Group's equity investments during 2012 of £38.0m represents a 31% change against the opening balance (2011: net increase of £0.9m, 1%) and a similar increase or decrease in the prices of quoted and unquoted investments is considered to be reasonably possible. The table below summarises the impact of a 1% increase/decrease in the price of both quoted and unquoted investments on the Group's post-tax profit for the year and on equity.

		2012				2011
		Quoted	Unquoted	Total		Quoted	Unquoted	Total
		£m	£m	£m		£m	£m	£m
Equity investments and investments in limited partnerships		0.8	1.0	1.8		0.5	0.8	1.3

(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.

	2012				2011
	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	-	-	7.9	7.9	-	-	13.9	13.9
Equity investments	-	-	177.9	177.9	-	-	120.4	120.4
Debt investments	3.0	-	0.9	3.9	2.8	-	0.6	3.4
Contingent value rights	-	-	1.4	1.4	-	-	-	-
Deposits	32.5	-	-	32.5	50.0	-	-	50.0
Cash and cash equivalents	-	15.4	-	15.4	-	10.5	-	10.5
Other financial assets	-	-	0.7	0.7	-	-	0.7	0.7
Trade receivables	-	-	0.4	0.4	-	-	0.3	0.3
Other receivables	-	-	0.5	0.5	-	-	0.9	0.9
	35.5	15.4	189.7	240.6	52.8	10.5	136.8	200.1
Financial liabilities
Trade payables	-	-	(0.1)	(0.1)	-	-	0.1	0.1
Other accruals and deferred income	-	-	(0.3)	(0.3)	-	-	0.5	0.5
	-	-	(0.4)	(0.4)	-	-	0.6	0.6

At 31 December 2012, if interest rates had been 1% higher/lower, post-tax profit for the year, and other components of equity, would have been £0.2m (2011: £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.

(c)  Credit risk

The Group's credit risk is primarily attributable to its deposits, cash and cash equivalents, debt investments and trade receivables.  The Group seeks to mitigate its credit risk on cash and cash equivalents by 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 £3bn 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		2012	2011
		£m	£m
P1		14.8	52.9
P2		30.6	5.0
AA		2.5	2.6
Total deposits and cash and cash equivalents		47.9	60.5

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 2012 was £10m (2011: £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 financial statements are discussed below.

(i) Impairment of goodwill

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

(ii) Equity rights

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 2012 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 2012 and the year ended 31 December 2011 the Group's revenue and profit/loss before taxation were 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 on above.

Year ended 31 December 2012	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	38.0		-		-	38.0
Profit on disposal of equity investments	11.8		-		-	11.8
Change in fair value of limited and limited liability partnership interests	0.4		-		-	0.4
Revenue from advisory services	0.5		0.4		-	0.9
Revenue from fund management services	-		1.4		-	1.4
Change in fair value of Oxford Equity Rights asset	(6.0)		-		-	(6.0)
Administrative expenses	(5.6)		(0.7)		(0.4)	(6.7)
Operating profit/(loss)	39.1		1.1		(0.4)	39.8
Finance income - interest receivable	0.9		-		-	0.9
Profit/(loss) before taxation	40.0		1.1		(0.4)	40.7
Taxation	-		-		-	-
Profit/(loss) and total comprehensive income for the year	40.0		1.1		(0.4)	40.7
STATEMENT OF FINANCIAL POSITION
Assets	257.9		5.6		-	263.5
Liabilities	(0.2)		(0.2)		-	(0.4)
Net assets	257.7		5.4		-	263.1
Other segment items
Capital expenditure	0.1		-		-	0.1
Depreciation	0.1		-		-	0.1
Amortisation of intangible assets	-		-		-	-

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 and limited liability 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	-		-		-	-

6.   AUDITOR'S REMUNERATION

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

	2012 £000	2011 £000
Fees payable to the company's auditor for the audit of the company's annual accounts	64	64
The audit of the company's subsidiaries, pursuant to legislation	34	39
Total fees for audit services	98	103
Audit-related assurance services	21	17
Total assurance services	119	120
Tax compliance services	44	38
Taxation advisory services	28	38
Corporate finance service	-	87
All other services	7	-
Total non-assurance services	79	163
	198	283

7.   PROFIT/(LOSS) FROM OPERATIONS

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

	2012 £m	2011 £m
Amortisation of intangible assets	-	-
Depreciation of tangible assets	0.1	0.1
Employee costs (see note 8)	4.0	3.6
Operating leases - property	0.2	0.4
Profit on disposal of equity investments	11.8	2.3

8.   EMPLOYEE COSTS

Employee costs (including directors) comprise:

	2012 £m	2011 £m
Salaries	2.7	2.5
Defined contribution pension cost	0.1	0.1
Share-based payment charge (see note 22)	0.8	0.7
Social security	0.4	0.3
	4.0	3.6

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 (2011: 34).

9.   TAXATION

	2012 £m	2011 £m
Current tax	-	-
Deferred tax	-	-

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

	2012 £m	2011 £m
Profit/(loss) before tax	40.7	(5.5)
Tax at the UK corporation tax rate of 24.5% (2011: 26%)	10.0	(1.4)
Non-taxable income	(7.2)	(0.3)
Movement in tax losses arising not recognised	(2.8)	1.7
Other adjustments	-	-
Tax credit	-	-

At 31 December 2012, deductible temporary differences and unused tax losses for which no deferred tax asset has been recognised totalled £22.6m (2011: £35.2m). An analysis is shown below:

	2012		2011 With rate change and prior year adjustment		2011
	Amount £m	Deferred tax £m	Amount £m	Deferred tax £m	Amount £m	Deferred tax £m
Share-based payment costs	-	-			-	-
Unused tax losses	44.7	10.7	33.8	8.1	35.2	8.8
	44.7	10.7	33.8	8.1	35.2	8.8

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

	2012 £m	2011 £m
Earnings for the purposes of basic and dilutive earnings per share	40.7	(5.5)

Number of shares	2012 Number of shares	2011 Number of  shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	365,763,664	313,325,308
Effect of dilutive potential ordinary shares:    Long Term Incentive Plan	14,142,480	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	379,906,144	313,325,308

The Group has only one class of potentially dilutive ordinary share. These are contingently issuable shares arising under the Group LTIP.

Had the Group made a profit in the prior year the number of potentially dilutive shares outstanding at the period ending 31 December 2011 that would have been considered when calculating the diluted earnings per share was 8,527,902 shares.

11.  GOODWILL

	£m
At 1 January 2011	18.4
At 1 January 2012	18.4
At 31 December 2012	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:

	2012 £m	2011 £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:

	2012	2011
Discount rate	9%-11%	8%-10%
Number of funds under management	3	3
Management fee	2-3.5%	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

For the purposes of impairment testing, the university partnership CGU comprises those cash flows connected with the Group's university partnership business other than those that specifically relate to the Group's contract with the University of Oxford's Department of Chemistry (see note 14). 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:

	2012	2011
Number of spin-out companies per year	4-8	2-10
Initial equity stake acquired by the Group under the University partnership	12-30%	12-30%
Proportion of spin-out companies failing	30-45%	20-40%
Dilution rates prior to exit as a result of financing for spin-out companies	40-60%	35-60%
Proportion of IPO exits	25-35%	30-45%
IPO exit valuations	£20m-40m	£20m-40m
Proportion of disposal exits	25-35%	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 and 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 2012		0.8
Additions		0.2
At 31 December 2012		1.0
Accumulated depreciation
At 1 January 2012		0.6
Charge for the year		0.1
At 31 December 2012		0.7
Net book value
At 31 December 2012		0.3
At 31 December 2011		0.2

		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

13.  CATEGORISATION OF FINANCIAL INSTRUMENTS

		At fair value through profit or loss		Loans and receivables	Total
		Held for trading	Designated upon initial recognition
Financial assets		£m	£m	£m	£m
At 31 December 2012
Equity rights		8.1	-	-	8.1
Equity investments		-	177.9	-	177.9
Debt investments		-	3.9	-	3.9
Other financial assets		0.7	-	-	0.7
Contingent value rights		-	1.4	-	1.4
Limited and limited liability partnership interests		-	4.0	-	4.0
Trade and other receivables		-	-	0.9	0.9
Deposits		-	-	32.5	32.5
Cash and cash equivalents		-	-	15.4	15.4
Total		8.8	187.2	48.8	244.8
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
Limited and limited liability partnership interests		-	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

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 (2011: £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 (2011:  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 2012 and 31 December 2012	19.9		0.5		20.4
Aggregate amortisation and change in fair value of contract costs
At 1 January 2012	(6.0)		(0.3)		(6.3)
Change in fair value during the year	(6.0)		-		(6.0)
At 31 December 2012	(12.0)		(0.3)		(12.3)
Net book value
At 31 December 2012	7.9		0.2		8.1
At 31 December 2011	13.9		0.2		14.1

	Equity rights £m		Contract  costs £m		Total £m
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

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:

-     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.

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:

	2012	2011
Number of spin-out companies per year from University of Oxford chemistry department	1-2	1-3
Initial equity stake acquired by the Group under the equity rights contract	20-25%	20-25%
Proportion of spin-out companies failing	30-40%	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	25-35%	30-50%
Disposal valuations	£30m-£40m	£20m-£40m
Discount rate	9-11%	8-10%

These key variable ranges result in a wide range of fair value estimates for the equity rights agreement, from £4.6m to £10.6m 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 £7.9m at 31 December 2012.

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 2012	50.0	47.9	3.4	22.5	123.8
Investments during the year	8.5	14.5	2.6	0.7	26.3
Transaction-based reclassifications during the year	3.5	(2.6)	(1.2)	0.3	-
Other transfers between hierarchy levels during the year	-	(1.2)	-	1.2	-
Disposals	(5.4)	-	(0.1)	(0.8)	(6.3)
Change in fair value in the year	28.0	27.9	(0.8)	(17.1)	38.0
At 31 December 2012	84.6	86.5	3.9	6.8	181.8

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
Transaction-based reclassifications during the year	1.0	0.3	(1.2)	(0.1)	-
Other 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 2011	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 25 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 £38.0m (2011: £0.9m) includes a net increase of £9.9m (2011: £6.3m) 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

	2012 £m	2011 £m
Fair value gains	64.5	13.6
Fair value losses	(26.5)	(12.7)
	38.0	0.9

16.        TRADE AND OTHER RECEIVABLES

	2012 £m	2011 £m
Trade debtors	0.4	0.3
Prepayments	0.2	0.2
Other receivables	0.3	0.7
	0.9	1.2

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 £nil receipt of sale proceeds during 2012 (2011: £0.1m receivable).  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.  CONTINGENT VALUE RIGHTS

As a result of the disposal of Proximagen Group plc in August 2012, the Group received contingent consideration, in the form of contingent value rights ("CVRs"), based upon future net revenues of two associated drug programmes. In line with the Group's policies, these have been recognised as financial assets at fair value through profit and loss, and has been fair valued at £1.4m.  

19.  TRADE AND OTHER PAYABLES

	2012 £m	2011 £m
Trade payables	0.1	0.2
Social security expenses	0.1	0.1
Other accruals and deferred income	0.2	0.3
	0.4	0.6

20.  SHARE CAPITAL

	2012 £m	2011 £m
Issued and fully paid:
365,763,664 ordinary shares of 2p each (2011: 365,763,664 ordinary shares of 2p each)	7.3	7.3

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

21.  OPERATING LEASE ARRANGEMENTS

	2012 £m	2011 £m
Payments under operating leases recognised in the statement of comprehensive income for the year	0.4	0.4

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

	2012 £m	2011 £m
Within one year	0.3	0.3
In the second to fifth years inclusive	0.9	1.2
	1.2	1.5

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

22.  SHARE-BASED PAYMENTS

Long Term Incentive Plan ("LTIP") awards

Awards under the LTIP take the form of 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 imposes 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 2012 LTIP awards will ordinarily vest on 31 March 2015, to the extent that the performance conditions have been met. 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 2012 to 31 December 2014 and TSR increasing by 15% per year on a cumulative basis from the date of award to 31 March 2015, 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 2011 LTIP awards will ordinarily vest on 31 March 2014, to the extent that the performance conditions have been met.  Deloitte LLP provided independent external advice to the Remuneration Committee on the appropriate performance conditions to attach to the 2011 LTIP awards based on its experience of current market practice. The vesting criteria relating to the 2012 awards, as described above, were designed using the same matrix structure, together with the FTSE Small Cap index underpin, as was used for the 2011 LTIP awards.

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. Based on the Group's share price and Hard NAV at 31 December 2012, approximately 81% of the 2010 awards are anticipated to vest during 2013.

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

	2012	2011
At 1 January	17,055,803	13,079,059
Forfeited during the year	(767,746)	(826,293)
Notionally awarded during the year	1,712,866	4,803,037
At 31 December	18,000,923	17,055,803

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:

	2012	2011
Share price at date of award	£1.355	£0.54
Exercise price	£nil	£nil
Fair value at grant date	£0.38	£0.17
Expected volatility (median of historical 50-day moving average)	35%	35%
Expected life (years)	2.75	2.50
Expected dividend yield	0%	0%
Risk-free interest rate	1.1%	1.0%

The fair value charge recognised in the statement of comprehensive income during the year in respect of LTIP share awards was £0.8m (2011: £0.7m).

23.  LIMITED AND LIMITED LIABILITY PARTNERSHIP INTERESTS

	£m
At 1 January 2011	1.9
Additions during the year	0.8
Change in fair value during the year	0.6
At 1 January 2012	3.3
Additions during the year	0.4
Realisations in the year	(0.1)
Change in fair value during the year	0.4
At 31 December 2012	4.0

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

24.  RELATED PARTY TRANSACTIONS

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

a) Limited partnerships

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

Statement of comprehensive income	2012 £m	2011 £m
Revenue from services	1.4	1.5

Statement of financial position	2012 £m	2011 £m
Investment in limited partnerships	2.8	2.1
Amounts due from related parties	-	-

b) Key management transactions

The key management had investments in the following spin-out companies as at 31 December 2012:

Director	Company name	Number of shares held at 1 January 2012	Number of shares acquired/ (disposed) in the period	Number of shares held at 31 December 2012	%
Alan Aubrey	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	7,000,000	20,276,113	0.6%
	Capsant Neurotechnologies Limited	11,631	-	11,631	0.8%
	Chamelic Limited	26	-	26	0.4%
	Crysalin Limited	1,447	-	1,447	0.1%
	EmDot Limited	15	-	15	0.9%
	Evocutis plc	767,310	-	767,310	0.4%
	Getech Group plc	15,000	-	15,000	0.1%
	Green Chemicals plc	108,350	-	108,350	0.9%
	Icona Solutions Limited	1,674	-	1,674	0.6%
	Ilika plc	117,500	-	117,500	0.2%
	Karus Therapeutics Limited	223	-	223	0.1%
	Mode Diagnostics Limited	1,863	1,363	3,226	0.4%
	Modern Biosciences plc	1,185,150	-	1,185,150	2.1%
	Modern Water plc	519,269	-	519,269	0.9%
	Overlay Media Limited	32	(32)	-	-
	Oxford Advanced Surfaces Group plc	2,172,809	-	2,172,809	1.1%
	Oxford Catalysts Group plc	122,109	-	122,109	0.1%
	Oxford Nanopore Technologies Limited	11,442	-	11,442	0.6%
	Oxford RF Sensors Limited	53,639	-	53,639	0.8%
	Oxtox Limited	25,363	-	25,363	0.3%
	Pharminox Limited	685	-	685	0.3%
	Photopharmica (Holdings) Limited1	37,020	-	37,020	1.0%
	Plexus Planning Limited	1,732	-	1,732	0.8%
	Retroscreen Virology Group plc	37,160	-	37,160	0.1%
	Revolymer plc	88,890	-	88,890	0.2%
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	393	-	393	0.3%
	Sustainable Resource Solutions Limited	25	5	30	1.4%
	Tissue Regenix Group plc	2,389,259	-	2,389,259	0.4%
	Tracsis plc	203,400	(35,390)	168,010	0.7%
	Xeros Limited	241	-	241	0.2%
Alison Fielding	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	0.3%
	Crysalin Limited	1,447	-	1,447	0.1%
	EmDot Limited	14	-	14	0.8%
	Evocutis plc	354,770	-	354,770	0.2%
	Green Chemicals plc	126,181	83,333	209,514	1.7%
	Icona Solutions Limited	1,419	-	1,419	<0.1%
	Ilika plc	32,800	-	32,800	0.1%
	Karus Therapeutics Limited	43	-	43	<0.1%
	Mode Diagnostics Limited	1,632	-	1,632	0.2%
	Modern Biosciences plc	1,057,343	-	1,057,343	1.9%
	Modern Water plc	199,580	-	199,580	0.3%
	Overlay Media Limited	28	(28)	-	-
	Oxford Advanced Surfaces Group plc	611,042	-	611,042	0.3%
	Oxford Catalysts Group plc	40,357	-	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	0.2%
	Pharminox Limited	274	-	274	0.1%
	Photopharmica (Holdings) Limited1	27,350	-	27,350	0.7%
	Plexus Planning Limited	480	-	480	0.2%
	Retroscreen Virology Group plc	24,320	-	24,320	0.1%
	Revolymer plc	35,940	-	35,940	0.1%
	Structure Vision Limited	195	-	195	0.9%
	Surrey Nanosystems Limited	323	-	323	0.2%
	Sustainable Resource Solutions Limited	25	3	28	1.3%
	Tissue Regenix Group plc	2,279,660	-	2,279,660	0.3%
	Tracsis plc	197,750	(34,407)	163,343	0.7%
	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	0.3%
	Crysalin Limited	1,286	-	1,286	0.1%
	EmDot Limited	14	-	14	0.8%
	Green Chemicals plc	113,222	-	113,222	0.9%
	Icona Solutions Limited	1,515	-	1,515	<0.1%
	Mode Diagnostics Limited	1,756	-	1,756	0.2%
	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)	-	-
	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	0.3%
	Photopharmica (Holdings) Limited1	37,020	-	37,020	1.0%
	Retroscreen Virology Group plc	37,160	-	37,160	0.1%
	Revolymer plc	35,940	-	35,940	0.1%
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	350	-	350	0.2%
	Sustainable Resource Solutions Limited	25	3	28	1.3%
	Tissue Regenix Group plc	1,950,862	-	1,950,862	0.3%
	Tracsis plc	84,750	(14,746)	70,004	0.3%
	Xeros Limited	213	-	213	0.2%
Greg Smith	Avacta Group plc	390,407	-	390,407	<0.1%
	Capsant Neurotechnologies Limited	895	-	895	0.1%
	Chamelic Limited	3	-	3	<0.1%
	Crysalin Limited	149	-	149	<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	3,330	4,830	<0.1%
	Icona Solutions Limited	148	-	148	0.1%
	Mode Diagnostics Limited	192	169	361	<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)	-	-
	Oxford Catalysts Group plc	2,559	-	2,559	<0.1%
	Oxford Nanopore Technologies Limited	150	-	150	<0.1%
	Retroscreen Virology Group plc	61,340	-	61,340	0.1%
	Revolymer plc	4,500	-	4,500	<0.1%
	Sustainable Resource Solutions Limited	8	1	9	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	Amaethon Limited - A Ordinary Shares	15	-	15	0.5%
	Amaethon Limited - B Ordinary Shares	1,766	-	1,766	0.2%
	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%
	EmDot Limited	5	-	5	0.3%
	Encos Limited	6,530	-	6,530	0.3%
	Icona Solutions Limited	376	-	376	0.1%
	Mode Diagnostics Limited	244	177	421	0.1%
	Modern Biosciences plc	360,914	-	360,914	0.7%
	Modern Water plc	12,400	-	12,400	0.1%
	Overlay Media Limited	8	(8)	-	-
	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) Limited1	3,590	-	3,590	0.1%
	Retroscreen Virology Group plc	66,080	-	66,080	0.2%
	Revolymer plc	4,500	-	4,500	<0.1%
	Structure Vision Limited	26	-	26	0.1%
	Sustainable Resource Solutions Limited	9	1	10	0.5%
	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)	-	-
	Summit Corporation plc	662,958	-	662,958	0.1%
	Tissue Regenix Group plc	150,000	-	150,000	<0.1%
Bruce Smith	Capsant Neurotechnologies Limited	20,724	-	20,724	1.4%
	Evocutis plc	15,241	-	15,241	<0.1%
	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%

¹Photopharmica (Holdings) Limited was restructured in 2012 and its trade and assets were transferred to Photopharmica Limited.

Compensation to key management comprises that paid to executive and non-executive directors of the Group. These amounts are included within the employee costs set out in note 8.

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	2012 £m	2011 £m
Revenue from services	0.9	0.6

Statement of financial position	2012 £m	2011 £m
Trade receivables	0.3	0.3

d) Subsidiary companies

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

	2012 £m	2011 £m
Intercompany balances with other Group companies	7.1	6.8

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

25.  CAPITAL MANAGEMENT

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

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

During 2012, the Group's strategy, which was unchanged from 2011, 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.

26.  CAPITAL COMMITMENTS

Partnership	Year of commencement of partnership	Original commitment £m	Invested to date £m	Remaining commitment £m
University of Southampton(i)	2002	5.0	3.6	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	0.4	3.8
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	9.6	35.4

⁽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.

⁽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 and the University of Leeds have agreed to target annual investments of at least £0.7m 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. 

In addition, as announced on 26 February 2013, the Group has entered into a commercialisation agreement with the University of Manchester. Under the terms of the agreement, the Group will create a Proof of Principle ("PoP") funding facility for the identification and formation of new spin-out companies. The Group has agreed to make available an initial facility of up to £5 million to provide capital to new proof of principle projects intended for commercialisation through spin-out companies. In return, IP Group will receive equity stakes in such spin-out companies on pre-agreed terms. IP Group has the right to invest further in these companies as they progress. In addition, IP Group will provide access to its relevant experts, business building expertise, mentoring, coaching and co-investing networks, recruitment and business support.

 

END

 

 

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