Final Results

RNS Number : 4451B

IP Group PLC

04 March 2014

 



FOR RELEASE ON

04 MARCH 2013

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

IP Group Annual Results Release

IP Group plc (LSE: IPO), the developer of intellectual property based businesses, today announces its annual results for the year ended 31 December 2013.

HIGHLIGHTS

Financial and Operational highlights

-     Net assets increased to £337.0m (2012: £263.1m)

-     Net cash and deposits as at 31 December 2013: £24.1m (2012: £47.9m)

-     Adjusted profit before tax of £77.6m (2012: £46.7m), excluding £5.0m reduction in fair value of Oxford Equity Rights asset (2012: £6.0m)

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

-     £5m investment in Cambridge Innovation Capital plc and Memorandum of Understanding signed to share information on co-investment opportunities

-     First US pilot IP commercialisation agreements signed with the University of Pennsylvania and Columbia University

-     Launch of £30m IP Venture Fund II in partnership with the European Investment Fund

Portfolio highlights

-     Fair value of portfolio: £285.9m (2012: £181.8m)

-     Capital provided to portfolio companies: £27.5m (2012: £26.3m)

-     Portfolio realisations: £5.5m (2012: £16.7m)

-     Value of ten largest holdings: £225.2m (2012: £138.2m)

-     Group's portfolio companies raised in excess of £160m of new capital (2012: £110m)

-     Applied Graphene Materials plc admitted to AIM, raising gross proceeds of £11m at IPO

-     Oxford Nanopore Technologies Limited completed £40m private financing

Post-year-end highlights

-     £100m (before expenses) raised through issue of new equity capital in February 2014

-     Announced the recommended proposed acquisition of the remaining 79.9% shareholding in Fusion IP plc not currently owned by the Group in an all-paper transaction to be implemented by way of a court-sanctioned scheme of arrangement

-     Net unrealised fair value increase in the Group's holdings in quoted portfolio companies of £23.6m between 31 December 2013 and 28 February 2014, including admission to AIM of Actual Experience plc

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

"2013 was a record year with the strongest financial performance since the Group was formed in 2001. There was also significant strategic progress with a commercialisation agreement with the University of Manchester, an investment in Cambridge Innovation Capital as well as pilot agreements with two of the US's eight Ivy League universities.

The current year has started well with Actual Experience plc listing on AIM and Xeros Limited also announcing its intention to float on AIM. The Group recently announced the recommended acquisition of the remaining 79.9% of Fusion IP plc that it does not currently own and we look forward to welcoming Fusion IP's staff to the Group. We firmly believe the acquisition will create a stronger UK based IP commercialisation company with greater critical mass including a portfolio valued at over £300m and approximately £140m of cash.

The recent capital raise will enable the Group to accelerate growth by increasing our overall rate of capital deployment into both our existing portfolio and into new early stage opportunities, in the UK and internationally, as well as to broaden our access to world class IP. As such, we remain confident in the Group's ability to deliver significant shareholder value."

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
James Melville-Ross, 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 3 March 2014

.

The financial information set out in this Annual Results Release does not constitute the company's statutory accounts for 2013 or 2012. Statutory accounts for the years ended 31 December 2013 and 31 December 2012 have been reported on by the Independent Auditor. The Independent Auditor's Reports on the Annual Report and Financial Statements for 2013 and 2012 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 2012 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2013 will be delivered to the Registrar following the Company's annual general meeting.

The 2013 Annual Report and Accounts will be published in April 2014 and a copy will be posted on the Group's website (www.ipgroupplc.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.

STRATEGIC REPORT

Chairman's Summary

I am pleased to report that 2013 has been a year of strong performance for IP Group which has resulted in a significant increase in the value of the Group's portfolio and its net assets.

Building on this success we also made two significant announcements in early 2014. First we completed an equity capital raise that, due to significant demand from new and existing shareholders, was increased in size to £100m (before expenses) and, second, we reached agreement on the terms of a recommended offer to acquire the remaining 79.9% of Fusion IP plc not already owned by the Group. The latter is subject to a scheme of arrangement and we anticipate that the transaction will complete in late March, creating a business with an enlarged specialised team, access to IP from 15 of the UK's, and two of the US's, top research universities, a portfolio with a value in excess of £300m and approximately £140m of cash.

The Group's financial performance in 2013 was the strongest since its formation in 2001. The overall value of our holdings in portfolio companies has significantly increased and this has led to net assets, excluding intangibles and the Oxford Equity Rights asset, increasing to £315.5m (2012: £236.6m), representing 33% growth. In income terms, the Group recorded an adjusted profit before tax of £77.6m excluding the £5.0m reduction in the value of the Oxford Equity Rights asset (2012: £46.7m profit; £6.0m reduction). Whilst both 2012 and 2013 have seen a very positive performance, it remains important for our shareholders 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.

The Group has continued to support its portfolio companies by both providing capital from its balance sheet and managed funds, and assisting them in sourcing further capital from a variety of sources. There continues to be a comparatively low number of investors seeking to deploy significant capital into early-stage technology business although the environment has been more favourable in recent times, particularly in the public markets. Looking at the AIM market, for example, capital raised through primary and secondary issues increased by nearly 25% in 2013 to £3.9bn, although this remains significantly below the £16bn levels seen in 2006 and 2007. Our portfolio companies fared well in this regard, raising approximately £160m of capital during the year (2012: £110m). We were also pleased to announce the launch of our £30m IP Venture Fund II in partnership with the EIF which will provide additional capital for the development of our new spin-out companies.

Another important element of the Group's model is its access to world-class commercialisable intellectual property through the formation of long-term relationships across a wide pool of research institutions. Having announced our new proof of concept partnership with the University of Manchester in early 2013, we were pleased to be able to announce the expansion of this relationship in January 2014 to include graphene projects and the extension of its term to 2019. During the year we also agreed to take an 8% equity holding in Cambridge Innovation Capital plc ("CIC") as part of its £50m fundraising. CIC will support the growth of innovative businesses in the "Cambridge Cluster" and, through our memorandum of understanding, we have agreed to share information on co-investment opportunities in this region. It should also be noted that the Group's original contract with Oxford's Department of Chemistry expires at the end of 2015 although our access to innovation from Oxford's Institute for Biomedical Engineering runs until 2023. Outside of the UK, we announced two exciting new relationships with East Coast Ivy League universities in the US, Columbia University and The University of Pennsylvania. We look forward to working with academics and staff from our new partners, as well as with those universities with whom we already have significant track records, to identify backable commercial IP.

The Group's Board has seen three changes since my 2012 statement. Firstly, I am very pleased to be able to welcome Professor Lynn Gladden to the Board. Professor Gladden, currently Pro-Vice-Chancellor for Research for the University of Cambridge, has an impeccable track record in academia as well as extensive experience in industry, a combination highly relevant to the Group's business model. Secondly, as previously announced, during the year Dr Alison Fielding and Professor Graham Richards stepped down from the Group's Board, in the case of Dr Fielding for personal reasons and in the case of Professor Richards because the length of his tenure as a non-executive director meant that he was no longer regarded as independent from a governance perspective. I am pleased to report that Dr Fielding and Professor Richards both remain with the Group on a part-time basis in roles that are enabling the Group to continue to leverage their significant expertise.

The Group's success in the last twelve months would have been impossible without the contributions of many people and, as always, I am proud of and thankful for these efforts. I would also like to formally note my thanks to the Group's stakeholders, particularly for the overwhelming support from shareholders for the Group's capital raising that we completed in February. I would also like to extend a warm welcome to the staff from Fusion IP plc, who, assuming our recommended offer completes as anticipated in March 2014, will all be offered positions within the IP Group team. David Baynes, Fusion IP's CEO, and Doug Liversidge, its Chairman, are proposed additions to the Group's Board upon completion as executive director and non-executive director respectively. We look forward to working together effectively to identify and develop the most exciting spin-outs from across all of our partner universities.

The sector in which the Group operates, IP commercialisation, appears to be gaining further attention with a number of new entrants being seen in the market in 2013. A number of companies or funds raised capital with the explicit intention of seeking to develop spin-out companies from universities in the UK, as well as in the US and other countries. I believe that this asset class will continue to develop and no doubt the Group will support spin-out companies alongside some of these new entrants; as may be the case under the memorandum of understanding that we have with Cambridge Innovation Capital plc, alongside our 8% equity holding. I also believe that the Group's track record and expertise in its field, coupled with its long-term university partnerships and strong balance sheet, leaves it well placed to continue to generate significant value for shareholders over the long term.

Dr Bruce Smith

Chairman

Our business model: turning innovation into successful businesses

Deal flow: proprietary access to potentially disruptive commercialisable intellectual property An important aspect of IP Group's strategy is its ability to access a wide range of leading scientific research. This has been achieved primarily through long-term partner relationships with a number of leading research universities in the UK. Recently the Group announced that it had expanded its access to intellectual property beyond the UK to the US. The Group's specialist in-house sourcing team works with our partners, as well as academics from other universities and research institutions, to identify and pursue compelling opportunities arising from these institutions and to create and build businesses around this research.

Business building: a rigorous and systematic approach to opportunity appraisal, development and business building During the early stages of an opportunity's development, members of the Group's team work closely with its founders to help shape its strategic direction, often taking an interim management role until such time as the business reaches a sufficient stage of maturity and has the resources to recruit a full external leadership team. IP Group utilises its in-house executive search consultancy, IP Exec, to recruit experienced and high-calibre individuals to lead its developing businesses alongside founders and the Group team members, who continue to provide strategic guidance in an executive or non-executive capacity. Further, IP Group, through its in-house division, IP Impact, has developed a series of innovative programmes that, by working with the CEOs and boards of portfolio companies, seek to help accelerate company growth. The Group also provides operational, legal, business and company secretarial support to its companies with a view to minimising the most common administrative factors that can contribute to early-stage company failure.

Capital: access to sources of capital to finance businesses as they develop IP Group provides long-term capital for the development of its portfolio companies from its own balance sheet. In addition, IP Group has an FCA regulated venture capital fund management subsidiary, Top Technology Ventures ("TTV"), which specialises in providing funding for early stage technology businesses. TTV currently manages three funds: IP Venture Fund ("IPVF"), IP Venture Fund II L.P. ("IPVFII") and the Finance for Business North East Technology Fund ("NETF") which, subject to investment guidelines, can provide further additional sources of capital to the Group's portfolio companies. In addition, TTV and the Group work with a wide network of co-investors that can provide further capital alongside the Group.

Long-term value: systematic commercialisation of intellectual property IP Group seeks to form, or assist in the formation of, spin-out companies based on scientific 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 taking an active role in spin-out company development. IP Group's approach has been to build significant minority equity stakes across a diversified portfolio of companies designed to achieve strong equity returns over the medium to long term.

Operational review

During 2013 the Group has continued to build on the strong foundations laid in previous years and has utilised its people and cash resources to continue to support the development of its portfolio. For the second successive year the Group deployed over £25m of balance sheet capital into its portfolio companies and saw the fair value of its portfolio increase significantly. The Group's access to intellectual property opportunities in the UK was expanded through a new partnership with the University of Manchester and a strategic investment in Cambridge Innovation Capital plc, while the Group took its first measured steps internationally through two new pilot relationships with the University of Pennsylvania and Columbia University.

Since the period end, in January 2014, we were pleased to announce a recommended all-paper acquisition of Fusion IP plc, a business with which we have enjoyed a strong working relationship since taking a 20% stake in 2009. The recommended acquisition is highly complementary to IP Group's core business and will give the combined entity greater breadth of coverage, enabling the Group to access a wider pool of intellectual property as well as improve our service offering to existing and potential research institutions both in the UK and internationally. In addition, our shareholders gave a strong endorsement of our business model and progress to date through their support of an equity raise of £100m, before expenses, that will enable us to continue to back our most promising portfolio companies. Access to finance for our portfolio companies was further complemented in 2013 through the raising of a new £30m fund with the European Investment Fund ("EIF"), IP Venture Fund II, a successor to IP Venture Fund.

Throughout 2013, the Group continued to execute its core strategy of building high-quality businesses based on intellectual property. This has resulted in the fair value of the Group's portfolio increasing to £285.9m (2012: £181.8m) across 72 companies, with many companies continuing to mature, increase revenues, and achieve commercial and technical milestones. Highlights included: Oxford Nanopore Technologies Limited ("Oxford Nanopore") completing a £40m financing and launching a heavily oversubscribed access program to allow researchers to begin using its nanopore sequencing technology; Durham Graphene Sciences Limited rebranding to Applied Graphene Materials plc ("Applied Graphene") and completing an AIM market IPO and concurrent £11m placing; and Retroscreen Virology Group plc ("Retroscreen") continuing to grow its revenues and guiding the market in December to expect FY2013 revenues in excess of £27m (almost double the £14m achieved in 2012). There were few significant reductions in fair value or write-offs within the portfolio. Further detailed analysis is provided in the portfolio review.

The Group's active involvement in the development of its spin-out companies is an integral part of the implementation of its strategy. To that end, the Group has expanded IP Exec, the Group's specialist in-house executive search function which assists portfolio companies in recruiting experienced and able leadership. In addition, following the completion of the acquisition of Fusion IP, its existing highly skilled team will augment the Group's core business.

As noted above, in addition to increasing its access to UK university-produced research through its relationships with the University of Manchester and CIC, the Group announced in December that it had signed IP commercialisation agreements with the University of Pennsylvania, the UPstart company formation programme run by its Center for Technology Transfer, and with Columbia Technology Ventures, the technology transfer office of Columbia University. These partnerships, which have an initial pilot phase of 18 months, will focus on identifying early-stage, proof of principle opportunities based on intellectual property developed at those universities. The Group will seek to identify its first opportunities for development from these universities during the course of 2014.

In order to support the current portfolio as well as future spin-outs from its university partners, the Group recognises the importance of being able to provide long-term 'patient' capital to its portfolio companies. The successful completion of the Group's £100m placing in February 2014 will ensure that the Group has the ability to continue to back its most promising portfolio companies with both capital and people. Top Technology Ventures Limited ("TTV"), the Group's FCA-regulated subsidiary, now manages three venture capital funds with total assets under management now in excess of £100m. IPVFII was established in May 2013 in partnership with the EIF, one of the leading venture capital investors in Europe. The fund comprises £30m of capital with a £20m contribution from the EIF and a £10m contribution from the Group. NETF, now entering its fifth year of investing, has to date provided capital to 55 developing technology companies in north-east England. Finally, IPVF, whose investing period ended in 2012, continues to deploy its remaining capital to support its existing portfolio.

Outlook

Whilst macroeconomic sentiment in the UK is improving, funding for higher risk, early-stage businesses continues to be constrained and trading circumstances for many small businesses remain difficult. Nonetheless, the Directors believe that the UK continues to produce a wealth of potentially world-class IP from its universities and other research intensive institutions and consider that the Group has an increasingly strengthened position given its track record, strong cash position and available funds under management.

The Group continues to expand its access to leading scientific innovation, both in the UK and abroad, by broadening and deepening its arrangements with its existing university partners and other research intensive institutions, and by entering into collaborations with new partners. These arrangements continue to provide opportunities for the Group to back early-stage projects and companies based on potentially high-impact technologies. The Board is confident that this flow of opportunities, coupled with the Group's increased ability to invest larger sums more frequently in its portfolio companies as a result of the Capital Raising, will continue to drive the Group's growth. The Board is excited at the prospect of the acquisition of Fusion IP plc which it considers represents an opportunity to create a stronger UK commercialisation company with greater critical mass. Accordingly, the Board remains confident in the prospects for the Group.

PORTFOLIO REVIEW

Overview

At 31 December 2013 the value of the Group's portfolio had increased to £285.9m, from £181.8m in 2012, as a result of the net investment and fair value movements set out below. The portfolio comprised holdings in 72 companies, compared with 67 at 31 December 2012.

During the year to 31 December 2013, the Group provided pre-seed, seed and post-seed capital totalling approximately £27.5m to its portfolio companies, including a £5m investment into Cambridge Innovation Capital plc. This rate of deployment is largely consistent with the £26.3m provided in 2012 and is in line with commitments made at the time of the Group's 2011 placing. The directors believe that the Group's ability to utilise its increased capital to maintain its equity interest in its most promising companies has contributed to the significant fair value increase in the portfolio during the year of £82.4m (2012: £38.0m).

The Group has broadly maintained the level of capital deployed into new spin-out opportunities, with initial capital being deployed by the Group into nine companies during the year (2012: 11) and the Group received stakes in two additional companies. One company was sold during the period, whilst a further five companies were closed or fully provided against with a total historic cost of £11.2m. The total cost of all closed or fully provided companies now stands at approximately £17m, representing approximately 14% of the total capital deployed to date by the Group into its portfolio.

The Group's ten largest portfolio companies by value, accounting for almost 79% of the total portfolio value (2012: 76%), have seen significant developments during the year. Applied Graphene Materials plc, a spin-out from Durham University which has developed a proprietary process for the manufacture of high purity graphene nanoplatelets, completed an AIM market IPO and concurrent £11m placing to scale up capacity of its plant to eight tonnes per annum over the next 18 months, for investment in technical and business development, commercial partnerships and to extend the applications capability.

During the year, cash proceeds from the realisation of investments decreased to £5.5m (2012: £16.7m). The proceeds predominantly arose from partial exits of the Group's holdings in AIM-quoted Tracsis plc and Velocys plc, whilst the prior year was primarily driven by the disposal of Proximagen plc for £15.4m.

Performance summary

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

	2013  £m	2012  £m
Unrealised gains on the revaluation of investments	90.3	64.5
Unrealised losses on the revaluation of investments	(7.9)	(26.5)
Net fair value gains	82.4	38.0
(Loss)/profit on disposals of equity investments	(0.2)	11.8
Change in fair value of Limited Partnership interests	0.8	0.4
Net portfolio gains	83.0	50.2

The most significant contributors to unrealised gains on the revaluation of investments comprised Oxford Nanopore (£33.3m), Retroscreen (£16.1m) and Applied Graphene (£12.2m). The major contributors to the unrealised losses on the revaluation of investments were Modern Water (£1.6m), Oxford Advanced Surfaces (£1.5m) and Encos (£1.1m).

The Group's holdings in companies quoted on either AIM or ISDX saw a net unrealised fair value increase of £46.1m while the Group's holdings in unquoted companies experienced a net fair value increase of £36.3m. 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 the 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 2014, with the portfolio having seen a £23.6m net unrealised fair value increase from the year end to 28 February 2014.

Investments and realisations

As expected, the Group's rate of capital deployment remained consistent during 2013, with a total of £27.5m being deployed across 44 new and existing projects (2012: £26.3m; 43 projects), as follows:

Cash investment analysis by company stage	2013  £m	2012  £m
Incubation opportunities	0.2	0.5
Seed businesses	4.2	4.2
Post-seed private businesses	13.7	13.1
Post-seed quoted businesses	9.4	8.5
Total	27.5	26.3
Proceeds from sales of equity investments	5.5	16.7

Incubation opportunities comprise businesses or pre-incorporation projects that are generally at a very early stage of development. Opportunities at this stage usually involve capital of less than £150,000 from IP Group, predominantly allowing for proof of concept work to be carried out. Incubation projects generally have a duration of nine to eighteen months, following which the opportunity is progressed to seed financing, terminated or retained at the pre-seed stage for a further period to allow additional proof of concept work to be carried out. Seed businesses are those that have typically received financing of up to £1m in total, primarily from IP 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 IP Group, with total funding received generally in excess of £1m. Although each business can vary significantly in its rate and manner of development, such additional funding is generally used to progress towards key milestones and commercial validation, to build senior level capability in the business and to attract experienced non-executive directors to their boards. This category is further broken down into post-seed private and post-seed quoted companies. Post-seed quoted companies consist of companies quoted on either AIM or the ISDX markets.

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 £1.4m into Group portfolio businesses during the year (2012: £3.0m). There is approximately £2.6m further to invest into the existing portfolio from this fund.

The Group raised IP Venture Fund II, a £30 million venture capital fund, in May 2013 in partnership with the European Investment Fund. IP Venture Fund II is a successor fund to IP Venture Fund and will invest alongside the Group in new spin-out companies from IP Group's university partnerships and other collaborations, from incubation stage through seed and post-seed stage, with an investment ratio of 30:70 (IP Venture Fund II: IP Group).

The Group's pipeline of commercialisable intellectual property opportunities remains strong. Eight opportunities received initial incubation or seed funding during the year (2012: eight), two existing incubation projects progressed to seed stage (2012: two), with a further one developing business receiving capital from the Group for the first time.

The eight new opportunities included:

-     Quantum Imaging Limited (University of Leeds): Quantum Imaging is developing an imaging device that is portable, passive, and can be deployed in a bedside setting. The device can rapidly triage patients presenting with chest pains to the emergency department. These patients represent a major time and cost burden on global healthcare systems offering a significant addressable market opportunity;

-     Fault Current Limited (University of Cardiff): Fault Current has devised a unique magnetic fault current limiter design that protects utility electrical distribution networks from unanticipated power surges;

-     Ubiquigent Limited (University of Dundee): Ubiquigent is a specialist developer and supplier of high quality reagents, kits and drug discovery assay development and compound profiling services with a focus on ubiquitin, ubiquitin-like, and integrated signalling systems; and

-     Ionix Advanced Technologies Limited (University of Leeds): Ionix develops high performance piezoelectric materials that can operate in high-temperature, high-work environments.

The average level of capital deployed per company increased slightly from £610,000 to £620,000 in 2013. Excluding the Group's participation in Oxford Nanopore's 2012 and 2013 financing rounds, the average investment per company increased to £530,000 from £470,000 in 2012. This trend is expected to broadly continue in the future.

Portfolio analysis - by stage of company maturity

At 31 December 2013, the Group's portfolio fair value of £285.9m was distributed across stages of company maturity as follows:

	As at 31 December 2013					As at 31 December 2012
	Fair value		Number			Fair value		Number
Company stage	£m	%		%		£m	%		%
Incubation opportunities	0.1	-	8	11%		0.5	-	8	12%
Seed businesses	11.3	4%	20	28%		9.9	5%	17	25%
Post-seed private businesses	139.4	49%	26	36%		86.8	48%	26	39%
Post-seed quoted businesses	135.1	47%	18	25%		84.6	47%	16	24%
All portfolio businesses	285.9	100%	72	100%		181.8	100%	67	100%

Of the 72 companies in the Group's portfolio, 79% (2012: 76%) 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 £225.2m (2012: £138.2m).

Portfolio analysis - by sector

The Group funds spin-out companies based on a wide variety of innovative and potentially disruptive commercialisable intellectual property emerging from leading research intensive institutions and does not limit itself to funding companies from particular areas of science. For reporting purposes only, the Group categorises its portfolio companies into five broad "technology" sectors, as depicted in the following table:

	As at 31 December 2013					As at 31 December 2012
	Fair value		Number			Fair value		Number
Sector	£m	%		%		£m	%		%
Healthcare	175.8	62%	18	25%		107.3	59%	17	25%
Energy & Renewables	36.1	13%	15	21%		31.0	17%	14	21%
Chemicals & Materials	32.7	11%	16	22%		18.0	10%	14	21%
IT & Communications	15.4	5%	11	15%		9.7	5%	12	18%
Biotech	6.1	2%	9	13%		5.6	3%	8	12%
Multiple sectors	19.8	7%	3	4%		10.2	6%	2	3%
	285.9	100%	72	100%		181.8	100%	67	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 healthcare sector, largely as a result of the relative valuation of the Group's holding in Oxford Nanopore, Retroscreen and Tissue Regenix Group plc.

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

Healthcare

		Group stake at 31 Dec 2013(i)	Fair value of Group holding at 31 Dec 2012	Year to 31 December 2013		Fair value of Group holding at 31 Dec 2013
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Oxford Nanopore Technologies Limited	Single-molecule detection. 1st application in 3rd generation DNA sequencing ("$1000 genome")	19.6%	66.5	4.5	33.3	104.3
Retroscreen Virology Group plc	Viral challenge and 'virometrics' specialist ("conquering viral disease")	18.3%	12.4	1.1	16.1	29.6
Tissue Regenix Group plc	Regenerative dCELL® soft tissue body parts	13.8%	11.3	-	9.4	20.7
Avacta Group plc	Reagents, arrays and instruments for human and animal healthcare	27.6%	9.9	0.9	1.4	12.2
Other companies			7.2	1.9	(0.1)	9.0
Total			107.3	8.4	60.1	175.8

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

The Group's portfolio of healthcare, or "medtech", companies saw the most significant increase in fair value during the period. The major contributors to this increase were Oxford Nanopore (£33.3m) as a result of its further £40m fundraising being completed at a premium to its previous financing round, Retroscreen (£16.1m) which experienced strong share price performance following its £25.5m placing and Tissue Regenix Group plc (£9.4m) whose share price performed positively during the year following announcement of the publication of full trial results detailing the effectiveness of DermaPure™ in healing treatment-resistant chronic wounds and the production of dCELL^® dermis in the United States.

In January 2014, Oxford Nanopore Technologies Limited ("Oxford Nanopore"), a spin-out company from the University of Oxford that specialises in nanopore-based electronic molecular analysis systems, announced that its MinION Access Programme ("MAP") had been "heavily oversubscribed" following its launch in November. The MAP is a substantial but initially controlled programme designed to give life science researchers access to nanopore sequencing technology at no risk and minimal cost. The programme will be conducted in cycles with the first cycle taking place over a six week period comprising "a configuration phase (installation of hardware and software), burn-in phase (test experiments using control samples provided by Oxford Nanopore) and the user's own experiments". In October 2013, Oxford Nanopore announced it had raised £40m in new funding via a private placement of ordinary shares, bringing the total funds raised by Oxford Nanopore since its foundation to £145m.

Retroscreen Virology Group plc ("Retroscreen"), a spin-out from Queen Mary, University of London, that has pioneered the commercialisation of the Viral Challenge Model which enables research into viral infection and enables pharmaceutical companies to accelerate and reduce the cost of bringing antiviral therapeutics and vaccines to market, announced in July that had it raised £25.5m before expenses, with the Group, together with its managed funds, contributing £1.5m of the placing. In December, Retroscreen announced that it expects to report revenues for the year ended 31 December 2013 in excess of £27.0m (31 December 2012: £14.4m), significantly ahead of market expectations. The company also continues to achieve improvements to gross margin and profitability.

Avacta Group plc ("Avacta"), which develops reagents, arrays and instruments for human and animal healthcare, announced in July 2013 that it had raised gross proceeds of £4.7m primarily to develop its Affimer technology, of which the Group, together with its managed funds, contributed £1.0m. Avacta subsequently announced its first licence deal for Affimers with Blueberry Therapeutics, a private UK biotechnology company.

Energy & Renewables

		Group stake at 31 Dec 2013(i)	Fair value of Group holding at 31 Dec 2012	Year to 31 December 2013		Fair value of Group holding at 31 Dec 2013
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Ceres Power Holdings plc	Ceramic fuel cell technology for distributed generation	24.7%	6.2	2.0	2.1	10.3
Modern Water plc	Technologies to address the world's water crisis	20.0%	6.7	1.7	(1.6)	6.8
Getech Group plc	Gravitational and magnetic data services for the oil, gas and mining industries	23.4%	3.1	-	3.3	6.4
CH4E Limited	Small to medium scale anaerobic digesters	41.2%	0.6	1.3	1.0	2.9
Rock Deformation Research Limited	Services and tools to examine impact of faults and other structures on hydrocarbon reserves	21.4%	1.7	-	0.5	2.2
Velocys plc (previously Oxford Catalysts Group plc)	Speciality catalysts for the generation of clean fuels	0.7%	6.3	(5.1)	-	1.2
Other companies			5.7	1.9	(1.3)	6.3
Total			30.3	1.8	4.0	36.1

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

Companies in the Energy & Renewables sector also saw an increase in fair value during the period (£4.0m). The major contributors to this increase were Getech Group plc (£3.3m) and Ceres Power Holdings plc (£2.1m) whose respective share prices performed positively during the year. This increase was partially offset by a decrease in Modern Water plc's share price (£1.6m).

In March 2013, Ceres Power Holdings plc ("Ceres"), a developer of clean, efficient, low-cost fuel cell technology, raised gross proceeds of £9.7m, of which the Group provided £2.0m. In July, assisted by IP Exec, Ceres appointed Phil Caldwell, formerly Corporate Development Director at PEM fuel cell developer Intelligent Energy Limited, as its new CEO. Shortly thereafter, the company announced a commercial and technical partnership with KD Navien, the dominant boiler manufacturer in South Korea. In late November, the company presented significant technical progress of its fuel cell technology at the Okinawa Fuel Cell Conference in Japan. Two technical papers were published which explained the performance advances demonstrated by the low cost Ceres' Steel Cell over the past year, particularly in relation to robustness, efficiency and durability.

Modern Water plc ("Modern Water"), a company that develops leading water technologies focused on addressing the scarcity of fresh water and the monitoring of water quality, announced in March 2013 that it had raised gross proceeds of £10.0m, including £1.7m from the Group. Modern Water's share performance in the year was disappointing despite the company releasing improved interim results in September and announcing the signing of an exclusive distribution agreement, opening a new office and signing a number of new strategic contracts in China.

Getech Group plc ("Getech"), the geoscience services business specialising in the provision of data, studies and services to the oil, gas and mining exploration sectors, announced its results for the twelve months ended 31 July 2013 in October. The highlights included revenue for the year increasing by 25% to £8.0m (2012: £6.4m) and profit before tax increasing by 83% to £2.2m (2012: £1.2m). Following on from this significant improvement in financial performance, the company's share price increased 105% during 2013, with the fair value of the Group's holding in the company increasing £3.3m. Getech's share price has experienced some downward pressure in early 2014 following a H1 trading update indicating a reduction in profit compared to the prior half year.

Chemicals & Materials

		Group stake at 31 Dec 2013(i)	Fair value of Group holding at 31 Dec 2012	Year to 31 December 2013		Fair value of Group holding at 31 Dec 2013
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Applied Graphene Materials plc	Producer of speciality graphene materials	20.4%	0.7	2.0	12.2	14.9
Revolymer plc	Novel polymers, e.g. "removable chewing gum"	10.4%	4.0	-	(0.1)	3.9
Xeros Limited	"Virtually waterless" washing machines	14.6%	1.4	0.9	0.9	3.2
Surrey Nanosystems Limited	Low temperature carbon nanotube growth	21.0%	2.3	-	-	2.3
Other companies			9.6	0.9	(2.1)	8.4
Total			18.0	3.8	10.9	32.7

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

The unrealised fair value gain seen by the Chemicals & Materials portfolio was largely as a result of an increase in Applied Graphene's share price since its admission to AIM and Xeros Limited's further £10.0m fundraising being completed at a premium to its previous financing round.

Applied Graphene Materials plc ("Applied Graphene"), a spin-out from Durham University which has developed a proprietary process for the manufacture of high purity graphene nanoplatelets, completed its AIM IPO and £11.0m placing in November. Applied Graphene will utilise the funding to scale up production and accelerate its collaboration agreements with nine commercial partners, which range from feasibility assessments to detailed research investigating uses of graphene in various application areas.

Revolymer plc ("Revolymer"), a University of Bristol spin-out that has developed a broad portfolio of polymer-based IP which it is now applying to improve the performance of a variety of consumer products, announced in November 2013 that it had filed for marketing authorisation in Europe of its proprietary nicotine gum products by submitting an application to the MHRA. If approved, this will permit the marketing of Revolymer's 2mg and 4mg strength nicotine gum in the UK, Ireland, Poland and Spain. On 27 January 2014, the company announced the departure of its CEO and is currently taking steps to identify a successor.

In March 2013, Xeros Limited ("Xeros"), the developer of a patented polymer bead cleaning system, successfully completed a £10.0m fundraising from new and existing investors, including £1.3m from the Group and its managed funds. The funding is being used to accelerate the roll-out of the Xeros commercial laundry cleaning system and to finalise the development of a household system as an alternative to conventional domestic washing machines. In May 2013, Xeros announced that it had partnered with the chemical company BASF to jointly develop polymer beads based on engineering plastics that will increase the cleaning power in laundry applications. This long-term agreement reflects the mutual commitment of the two companies to maximise the commercialisation of the Xeros cleaning system and protect the environment by conserving water and energy. In February 2014, Xeros announced its intention to float on the AIM market and raise funds to allow it to accelerate roll-out in commercial laundry and to fund the research and development process through to commercialisation in other identified applications, not least in domestic laundry.

IT & Communications

		Group stake at 31 Dec 2013(i)	Fair value of Group holding at 31 Dec 2012	Year to 31 December 2013		Fair value of Group holding at 31 Dec 2013
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Tracsis plc	Resource optimisation software for the transport industry	10.9%	5.0	(0.6)	1.1	5.5
Actual Experience plc(ii)	Optimising the human experience of networked applications	30.1%	1.2	0.2	3.3	4.7
Arkivum Limited	Digital preservation and management	45.3%	1.9	0.1	-	2.0
Other companies			2.3	1.1	(0.2)	3.2
Total			10.4	0.8	4.2	15.4

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

⁽ⁱⁱ⁾ Actual Experience plc following its AIM IPO on 13 February 2014.

At 31 December 2013, the Group's portfolio of holdings in IT & Communications companies was valued at £15.4m (2012: £10.4m) and recorded a fair value gain of £4.2m (2012: £2.5m), the majority of which was due to Actual Experience plc's fundraising being completed at a premium to its previous financing round and the performance of Tracsis plc's share price.

Tracsis plc ("Tracsis"), a leading provider of operational planning software to passenger transport industries, announced in March 2013 a recommended cash offer for the entire issued share capital of AIM-quoted Sky High plc, the largest provider of traffic analysis and surveys within the UK, and in April won Small Cap Company of the Year at the 2013 Small Cap Awards. In October 2013, Tracsis released its final results for the year ended 31 July 2013, highlighting increases in revenues of 25% to £10.8m (2012: £8.7m), an expanded geographic footprint and the successful launch of new software products.

In November 2013, Actual Experience plc ("Actual Experience"), a spin-out from Queen Mary London, successfully completed a £4m financing round. Funds raised will be used to support Actual Experience's continued expansion and internationalisation, increase resource dedicated to supporting channel partners and further improve its capacity to service its blue chip customer base, which currently includes Acenture (UK) Limited, Cisco systems Inc., Deutsche Post AG and Verizon Business Inc. 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. Following the period end in February 2014, Actual Experience's shares were admitted to trading on AIM, with strong share price performance since listing resulting in a fair value increase in the Group's holding as at 28 February 2014 of £11.6m.

Biotech

		Group stake at 31 Dec 2013(i)	Fair value of Group holding at 31 Dec 2012	Year to 31 December 2013		Fair value of Group holding at 31 Dec 2013
				Net investment/ (divestment)	Fair value movement
Company name	Description	%	£m	£m	£m	£m
Synairgen plc	Respiratory diseases	10.8%	3.7	-	0.6	4.3
Karus Therapeutics Limited	Inflammatory disease and cancer	8.6%	0.9	-	-	0.9
Summit Corporation plc	Duchenne Muscular Dystrophy	<1%	-	-	0.5	0.5
Other companies			1.0	0.3	(0.9)	0.4
Total			5.6	0.3	0.2	6.1

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

The fair value of the Group's holdings in Biotech companies increased slightly during the year largely as a result of an increase in the share price of Synairgen and the receipt of shares in Summit Corporation plc worth approximately £0.5m as a result of the Group's contract with the University of Oxford's Department of Chemistry.

Two businesses in this sector were fully provided against during the year. Pharminox, which had a fair value of £0.5m at 31 December 2012, was revalued to £nil following the cessation of operations and the commencement of a sale process for its intellectual property to seek to realise any residual value. This followed the last of Pharminox's drug candidates having not received sufficiently positive pre-clinical data during the year to progress further. While the Group had only committed £1.0m of capital since Pharminox's 2002 spin-out from Oxford's Department of Chemistry, the Group has provided significant input into the company over that time and it is therefore a disappointing outcome. Photopharmica Limited, which was restructured by the Group in 2012 after an unsuccessful attempt by the company to partner its lead photodynamic therapy programme following positive Phase IIb data, was also fair valued at £nil at 31 December 2013 (2012: £0.2m). The Group continues to seek a purchaser of Photopharmica Limited's intellectual property and clinical trial data.

Modern Biosciences plc ("MBS"), a subsidiary company of the Group that in-licenses and develops intellectual property relating to new therapeutic compounds using a virtual drug-discovery model, saw more positive developments. Since 2006, MBS has been developing a family of compounds that act via a novel target that the Group believes is one of the most exciting emerging targets in immunology and has already been the focus of several papers published in Nature. Currently, the Group believes that MBS has the only known ligands against these targets. MBS expects to take its lead candidate into the clinic in 2014. MBS has also identified ways to use its expertise in the novel target biology to pursue other members of this family of compounds, each of which has a differing role in various inflammatory diseases. As MBS is currently consolidated into the Group's results, it is not attributed any value in the Group's portfolio.

FINANCIAL REVIEW

Statement of comprehensive income

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

	2013  £m	2012  £m
Net portfolio gains	83.0	50.2
Other income	2.4	2.3
Change in fair value of Oxford Equity Rights asset	(5.0)	(6.0)
Administrative expenses - Modern Biosciences	(0.5)	(0.5)
Administrative expenses - all other businesses	(7.7)	(6.2)
Finance income	0.4	0.9
Profit and total comprehensive income for the year	72.6	40.7

For the year to 31 December 2013, the Group achieved a profit after tax of £72.6m, compared to a profit of £40.7m in 2012. This result includes a £5.0m reduction in the fair value of the Group's contract with the University of Oxford's Department of Chemistry (2012: £6.0m reduction). Excluding this non-cash fair value reduction, the Group recorded an adjusted profit of £77.6m compared to £46.7m in 2012, 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 slightly to £2.4m (2012: £2.3m) as an increase in dividend income from Getech and Tracsis was largely offset by a lower level of venture capital fund management fees. This reduction occurred as IP Venture Fund continued in its post "investment period" run-off. However, this too was offset by the Group raising a successor fund, IP Venture Fund II, in May 2013. The Group continues to receive management fees and has the potential to generate performance fees from successful investment performance of both IP Venture Fund and the 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 2012, the Group announced that MBS had been awarded a grant of up to £1.6m by the UK Government-backed Biomedical Catalyst. The award is providing 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 MBS, increased during the period to £7.7m (2012: £6.2m), predominantly due to higher staff costs, and included an IFRS 2 share-based payments charge totalling £0.9m (2012: £0.8m) 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". In April 2013, the 2010 LTIP awards partially vested with 9,495,195 shares, representing 81% of the original award, being issued to the relevant members of the Company's staff as a result of the Group's strong three-year share price performance and an increase in "hard" net assets. Further detail is included in the Directors' Remuneration Report in the full Annual Report and Accounts. 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. The 2011 LTIP award will ordinarily vest on or after 31 March 2014 and, based on the results presented in this report, 100% of the 2011 awards are anticipated to vest during 2014.

As a result of the Group's decreased average cash balances during the year, the Group's interest receivable during the period fell to £0.4m (2012: £0.9m). 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 attributable to shareholders of £337.0m, representing an increase of £73.9m from the position at 1 January 2013 (£263.1m). 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 £315.5m at 31 December 2013 (2012: £236.6m).

The Group finished 2013 with cash and deposits of £24.1m (2012: £47.9m) and a diversified portfolio of equity and debt investments in 72 private and publicly listed technology companies (2012: 67). On 14 February 2014 the Group announced its further equity capital raise of £100m of cash before expenses.

The value of the Group's holdings in portfolio companies increased to £285.9m at year end (2012: £181.8m) after net unrealised fair value gains of £82.4m and net investment of £22.0m (2012: £38.0m net unrealised fair value gain; £9.6m 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 (2012: £18.4m) and an equity rights asset of £2.9m (2012: £7.9m). The goodwill balances arose as a result of the Group's historical acquisitions of Techtran Group (university partnership business, £16.3m; 2012: £16.3m) and Top Technology Ventures (venture capital fund management business, £2.1m; 2012: £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 and of any licensing income emanating from the University of Oxford's Department of Chemistry until 2015.

As highlighted in 2012, the date of expiry (November 2015) of the contract underpinning the Oxford Equity Rights Asset draws closer, and the value to the Group of the corresponding asset under IFRS reduces. The asset value 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 Group's consolidated financial information, the fair value of the contract at 31 December 2013 has reduced by £5.0m (2012: £6.0m).

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:

	2013  £m	2012  £m
Net cash used in operating activities (excluding cash flows from deposits)	(1.9)	(2.6)
Net cash used in investing activities	(21.9)	(10.0)
Issued share capital	-	-
Movement during period	(23.8)	(12.6)

At 31 December 2013, the Group's Cash totalled £24.1m, a decrease of £23.8m from a total of £47.9m at 31 December 2012 predominantly due to net investment in the Group's spin-out companies.

The Group's net cash used in investing activities increased during 2013, reflecting both an increase in investments (2013: £27.5m; 2012: £26.3m) and a decrease in realisations (2013: £5.5m; 2012: £16.7m). As described in more detail in the Portfolio review above, the Group allocated a total of £27.5m across 44 portfolio companies during the period (2012: £26.3m; 43 companies).

A further £0.2m was committed to IP Venture Fund (2012: £0.4m), which in turn invested £1.4m across six portfolio companies (2012: £3.0m; 15 companies) and realised £1.8m from one partial disposal. Overall, net cash used in investing activities totalled £21.9m (2012: £10.0m).

Primarily as a result of a £1.1m increase in trade and other payables, which was partially offset by higher administrative costs during the period, cash used in operating activities decreased to £1.9m (2012: £2.6m).

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 Group consolidated financial information alongside details of the credit ratings of the Group's cash and deposit counterparties.

At 31 December 2013, the Group recognises £1.3m of loans (2012: £nil) from the limited partners of IPVFII, a fund raised during the period which is consolidated into the Group's year-end figures. These loans are only repayable upon IPVFII generating sufficient returns to repay the limited partners. Whilst the Group continued to have no borrowings, it may in the future consider introducing a modest level of gearing into the business if this is considered to be in the best interests of the Group.

During the period, the Group incorporated a new subsidiary, IP Group Inc., in Delaware, USA in order to support the development of US-based intellectual property commercialisation opportunities. The Group holds a total of £0.1m (2012: £nil) in US dollars.

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; -       IP may be infringed, copied or stolen; -       may be more susceptible to cyber-crime; and -       other administrative, taxation or compliance issues may lead 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, companies which could exacerbate the impact of any impairment or failure of one or more of these companies. -       Cash realisations from the Group's portfolio through trade sales and IPOs could vary significantly from year to year.	-       The Group's staff have 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. -       Support on operational, legal and company secretarial matters is offered to minimise failures due to common administrative factors. -       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 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.	-       The UK's recession and subsequent limited growth have had (and may continue to have) an adverse effect on trading conditions and availability of capital in the UK, particularly for smaller businesses. -       The success of those portfolio companies which require significant funding in the future may be influenced by the market's appetite for investment in early stage companies, which may not be sufficient. -       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 leading scientific research through partnerships and other collaborative arrangements with research intensive institutions and commercial partners, such as Fusion IP, Technikos and Cambridge Innovation Capital.	-       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. -       With several new entrants to our market, this may reduce our opportunities to create new spin-out businesses.	-       The Group continues to consider and, where appropriate, enter into new and innovative partnerships and collaborations with research institutions. -       The Group has been able to source opportunities through non-exclusive relationships and other sources -       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'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 may lose key personnel or fail to attract and integrate new personnel The industry in which the Group operates is a specialised area and the Group 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, or could otherwise choose to leave the Group. 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 competitive advantage, business, financial condition, operational results and/or future prospects.	-       Senior team succession plans are in place and updated regularly -       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 long0term 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 funding levels or to the terms upon which public moneys are made available to universities and research institutions and the ownership of any 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 FCA-authorised subsidiary and regulatory changes or breaches could ultimately lead to withdrawal of regulatory permissions, loss of fund management contracts, 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 FCA-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 Group's consolidated financial information.

----------------------------------------------------------------------

The Strategic Report, as set out above, has been approved by the Board.

ON BEHALF OF THE BOARD

Bruce Smith

Chairman

3 March 2014

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 2013 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 2014, and relates to that document and not this announcement.

Each of the directors confirms 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 and Accounts 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

3 March 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2013

	Note	2013 £m		2012 £m
Portfolio return and revenue
Change in fair value of equity and debt investments	15	82.4		38.0
(Loss)/profit on disposal of equity investments		(0.2)		11.8
Change in fair value of limited and limited liability partnership interests		0.8		0.4
Revenue from services and other income	4	2.4		2.3
		85.4		52.5
Administrative expenses
Research and development costs		(0.4)		(0.3)
Share-based payment charge	22	(0.9)		(0.8)
Change in fair value of Oxford Equity Rights asset		(5.0)		(6.0)
Other administrative expenses		(6.9)		(5.6)
		(13.2)		(12.7)
Operating profit	7	72.2		39.8
Finance income - interest receivable		0.4		0.9
Profit before taxation		72.6		40.7
Taxation	9	-		-
Profit and total comprehensive income for the year		72.6		40.7
Attributable to:
Equity holders of the parent		73.0		40.7
Non-controlling interest		(0.4)		-
		72.6		40.7
Earnings per share
Basic (p)	10	19.60		11.13
Diluted (p)	10	19.27		10.71

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2013

	Note	2013 £m		2012 £m
ASSETS
Non-current assets
Goodwill	11	18.4		18.4
Property, plant and equipment	12	0.2		0.3
Oxford Equity Rights asset and related contract costs	14	3.1		8.1
Portfolio:
Equity investments	15	283.1		177.9
Debt investments	15	2.8		3.9
Limited and limited liability partnership interests	23	4.8		4.0
Other financial asset	17	0.7		0.7
Contingent value rights	18	1.4		1.4
Total non-current assets		314.5		214.7
Current assets
Trade and other receivables	16	0.8		0.9
Deposits		5.0		32.5
Cash and cash equivalents		19.1		15.4
Total current assets		24.9		48.8
Total assets		339.4		263.5
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	20	7.5		7.3
Share premium account		150.4		150.4
Merger reserve		12.8		12.8
Retained earnings		166.3		92.6
Total equity attributable to equity holders		337.0		263.1
Non-controlling interest		(0.4)		-
Total equity		336.6		263.1
Current liabilities
Trade and other payables	19	1.5		0.4
Non-current liabilities
Loans from limited partners of consolidated funds		1.3		-
Total equity and liabilities		339.4		263.5

Registered number: 4204490

Approved by the Board of Directors and authorised for issue on 3 March 2014 and were signed on its behalf by:

Alan Aubrey	Greg Smith
Chief Executive Officer	Chief Financial Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2013

	2013 £m		2012 £m
Operating activities
Profit before taxation	72.6		40.7
Adjusted for:
Finance income - interest receivable	(0.4)		(0.9)
Change in fair value of equity and debt investments	(82.4)		(38.0)
Change in fair value of limited and limited liability partnership interests	(0.8)		(0.4)
Depreciation of property, plant and equipment	0.1		0.1
Loss/(profit) on disposal of equity investments	0.2		(11.8)
Change in fair value of Oxford equity rights asset	5.0		6.0
Share-based payment charge	0.9		0.8
Other portfolio income classified as investing activities cash flows	(0.3)		-
Changes in working capital
Decrease in trade and other receivables	0.1		0.1
Increase/(decrease) in trade and other payables	1.1		(0.3)
Increase in non-current liabilities	1.3		-
Net cash flow from deposits	27.5		17.5
Other operating cash flows
Interest received	0.7		1.1
Net cash inflow from operating activities	25.6		14.9
Investing activities
Purchase of property, plant and equipment	-		(0.1)
Purchase of equity and debt investments	(27.5)		(26.3)
Investment in limited and limited liability partnerships	(0.2)		(0.4)
Proceeds from sale of equity investments	5.5		16.7
Distributions from limited and limited liability partnerships	0.2		0.1
Other portfolio income received	0.1		-
Net cash outflow from investing activities	(21.9)		(10.0)
Financing activities
Proceeds from the issue of share capital	-		-
Net cash inflow from financing activities	-		-
Net increase in cash and cash equivalents	3.7		4.9
Cash and cash equivalents at the beginning of the year	15.4		10.5
Cash and cash equivalents at the end of the year	19.1		15.4

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2013

	Attributable to equity holders of the parent
	Share capital £m	Share premium (i) £m	Merger reserve (ii) £m	Retained earnings (iii) £m	Total £m	Non-controlling interest (iv) £m	Total equity £m
At 1 January 2012	7.3	150.4	12.8	51.1	221.6	-	221.6
Profit and total comprehensive income for the year	-	-	-	40.7	40.7	-	40.7
Share-based payment charge	-	-	-	0.8	0.8	-	0.8
At 1 January 2013	7.3	150.4	12.8	92.6	263.1	-	263.1
Profit and total comprehensive income for the year	-	-	-	73.0	73.0	(0.4)	72.6
Equity issued to settle share-based payment	0.2	-	-	(0.2)	-	-	-
Share-based payment charge	-	-	-	0.9	0.9	-	0.9
At 31 December 2013	7.5	150.4	12.8	166.3	337.0	(0.4)	336.6

(i) Share premium	Amount subscribed for share capital in excess of nominal value, net of directly attributable issue costs.
(ii) Merger reserve	Amount subscribed for share capital in excess of nominal value in relation to the qualifying acquisition of subsidiary undertakings.
(iii) Retained earnings	Cumulative net gains and losses recognised in the consolidated statement of comprehensive income net of associated share-based payments credits.
(iv) Non-controlling interest	Share of losses attributable to the Limited Partners of IP Venture Fund II L.P. - a consolidated fund which was created in May 2013.

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

1.   ACCOUNTING POLICIES

Basis of preparation

The results are based on the Group financial statements, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and the International Financial Reporting Interpretations Committee's interpretations as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. This release does not include all of the information required for full annual financial statements. Copies of the 2013 Annual Report and Accounts will be published on the Group's website and will be available upon request.

The accounting policies are consistent with those applied by the Group in its 2012 annual report and accounts except as described below. On 1 January 2013 the Group adopted the following new accounting standards and amendments to standards:

IFRS 10 Consolidated Financial Statements, which became effective for periods beginning on or after 1 January 2013, establishes principles for the preparation and presentation of consolidated financial statements when a reporting entity controls one or more other entities. The new standard replaces the consolidation requirements in SIC-12 Consolidation - Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. While IFRS 10 specifies new criteria for the assessment of control, it has not resulted in any conclusions differing to those reached under the previously applicable standards.

IFRS 12 Disclosure of Interests in Other Entities:IFRS 12 sets out the disclosure requirements relating to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. The standard requires a reporting entity to disclose information that helps users to assess the nature and financial effects of the reporting entity's relationship with other entities. As the new standard affects only disclosure, there is no effect on the Group's financial position or performance.

IFRS 13 Fair Value Measurement: IFRS 13 sets out the framework for determining the measurement of fair value and the disclosure of information relating to fair value measurement, when fair value measurements and/or disclosures are required or permitted by other IFRSs. As a result, the guidance and requirements relating to fair value measurement that were previously located in other IFRSs have now been relocated to IFRS 13. While there has been some rewording of the previous guidance, there are few changes to the previous fair value measurement requirements. Instead, IFRS 13 is intended to clarify the measurement objective, harmonise the disclosure requirements, and improve consistency in application of fair value measurement. IFRS 13 did not materially affect any fair value measurements of the Group's assets or liabilities, with changes being limited to presentation and disclosure, and therefore has no effect on the Group's financial position or performance. In addition, IFRS 13 is to be applied prospectively and therefore comparative disclosures have not been presented. See note 2 Critical accounting estimates and judgements for more details and further references related to fair value measurement.

No other new standards, interpretations and amendments effective for the first time from 1 January 2013 have had a material effect on the Group's consolidated financial information.

2.   FINANCIAL RISK MANAGEMENT

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

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

(a)  Market risk

(i)   Price risk

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

The Group mitigates this risk by having established investment appraisal processes and asset monitoring procedures which are subject to overall review by the Board. The Group has also established corporate finance 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 and debt investments during 2013 of £82.4m represents a 45% change against the opening balance (2012: net increase of £38.0m, 31%) 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.

	2013				2012
	Quoted	Unquoted	Total		Quoted	Unquoted	Total
	£m	£m	£m		£m	£m	£m
Equity investments and investments in limited partnerships	1.4	1.5	2.9		0.8	1.0	1.8

(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.

	2013				2012
	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	-	-	2.9	2.9	-	-	7.9	7.9
Equity investments	-	-	283.1	283.1	-	-	177.9	177.9
Debt investments	0.6	-	2.2	2.8	3.0	-	0.9	3.9
Contingent value rights	-	-	1.4	1.4	-	-	1.4	1.4
Deposits	5.0	-	-	5.0	32.5	-	-	32.5
Cash and cash equivalents	-	19.1	-	19.1	-	15.4	-	15.4
Other financial assets	-	-	0.7	0.7	-	-	0.7	0.7
Trade receivables	-	-	0.4	0.4	-	-	0.4	0.4
Other receivables	-	-	0.4	0.4	-	-	0.5	0.5
	5.6	19.1	291.1	315.8	35.5	15.4	189.7	240.6
Financial liabilities
Trade payables	-	-	(0.1)	(0.1)	-	-	(0.1)	(0.1)
Other accruals and deferred income	-	-	(1.4)	(1.4)	-	-	(0.3)	(0.3)
Loans from limited partners of consolidated funds	-	-	(1.3)	(1.3)	-	-	-	-
	-	-	(2.8)	(2.8)	-	-	(0.4)	(0.4)

At 31 December 2013, if interest rates had been 1% higher/lower, post-tax profit for the year, and other components of equity, would have been £0.2m (2012: £0.2m) higher/lower as a result of higher interest received on floating rate cash deposits.

(b)  Liquidity risk

The Group seeks to manage liquidity risk, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Accordingly, the Group only invests working capital in short-term instruments issued by reputable counterparties. The Group 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		2013	2012
		£m	£m
P1		14.2	14.8
P2		9.9	30.6
AA		0.0	2.5
Total deposits and cash and cash equivalents		24.1	47.9

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 2013 was £10m (2012: £10m).

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

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

3.   SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS

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

(i) 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.

(ii) Impairment of goodwill

The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined using a number of value-in-use and fair-value-less-costs-to-sell calculations. The use of these 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, as well as the selection of applicable and reasonable multiples..

(iii) 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 2013 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.

 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 2013 and the year ended 31 December 2012 the Group's revenue and profit/loss before taxation were derived almost entirely from its principal activities within the UK. Though the Group has initiated operations in the US the associated revenues and costs are currently immaterial 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 partner relationships 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 Strategic report in the full Annual Report and Accounts.

Year ended 31 December 2013	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	82.4		-		-		82.4
Loss on disposal of equity investments	(0.2)		-		-		(0.2)
Change in fair value of limited and limited liability partnership interests	0.8		-		-		0.8
Revenue from advisory services and other portfolio income	0.8		0.3		-		1.1
Revenue from fund management services	-		1.3		-		1.3
Change in fair value of Oxford Equity Rights asset	(5.0)		-		-		(5.0)
Administrative expenses	(6.9)		(0.8)		(0.5)		(8.2)
Operating profit/(loss)	71.9		0.8		(0.5)		72.2
Finance income - interest receivable	0.4		-		-		0.4
Profit/(loss) before taxation	72.3		0.8		(0.5)		72.6
Taxation	-		-		-		-
Profit/(loss) and total comprehensive income for the year	72.3		0.8		(0.5)		72.6
STATEMENT OF FINANCIAL POSITION
Assets	332.8		6.4		0.2		339.4
Liabilities	(1.3)		(1.4)		(0.1)		(2.8)
Net assets	331.5		5.0		0.1		336.6
Other segment items
Capital expenditure	-		-		-		-
Depreciation	0.1		-		-		0.1
Amortisation of intangible assets	-		-		-		-

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	(5.5)		(0.7)		(0.5)		(6.7)
Operating profit/(loss)	39.2		1.1		(0.5)		39.8
Finance income - interest receivable	0.9		-		-		0.9
Profit/(loss) before taxation	40.1		1.1		(0.5)		40.7
Taxation	-		-		-		-
Profit/(loss) and total comprehensive income for the year	40.1		1.1		(0.5)		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	-		-		-		-

6.   AUDITOR'S REMUNERATION

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

	2013 £000	2012 £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	36	34
Total fees for audit services	100	98
Audit-related assurance services	23	21
Total assurance services	123	119
Tax compliance services	46	44
Taxation advisory services	26	28
Corporate finance service	-	-
All other services	7	7
Total non-assurance services	79	79
	202	198

7.   PROFIT/(LOSS) FROM OPERATIONS

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

	2013 £m	2012 £m
Amortisation of intangible assets	-	-
Depreciation of tangible assets	0.1	0.1
Employee costs (see note 8)	5.1	4.0
Operating leases - property	0.4	0.2
(Loss)/profit on disposal of equity investments	(0.2)	11.8

8.   EMPLOYEE COSTS

Employee costs (including directors) comprise:

	2013 £m	2012 £m
Salaries	3.7	2.7
Defined contribution pension cost	0.1	0.1
Share-based payment charge (see note 22)	0.9	0.8
Social security	0.4	0.4
	5.1	4.0

The average monthly number of persons (including executive directors) employed by the Group during the year was 35, all of whom were involved in management and administration activities (2012: 34). Details of directors' remuneration can be found in the Directors' Remuneration Report in the full Annual Report and Accounts.

9.   TAXATION

	2013 £m	2012 £m
Current tax	-	-
Deferred tax	-	-

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

	2013 £m	2012 £m
Profit before tax	72.6	40.7
Tax at the UK corporation tax rate of 23.5% (2012: 24.5%)	16.9	10.0
Non-taxable income	(19.9)	(7.2)
Movement in tax losses arising not recognised	3.0	(2.8)
Other adjustments	-	-
Tax credit	-	-

At 31 December 2013, deductible temporary differences and unused tax losses for which no deferred tax asset has been recognised totalled £53.0m (2012: £22.6m). An analysis is shown below:

	2013		2012
	Amount £m	Deferred tax £m	Amount  £m	Deferred tax £m
Share-based payment costs	13.7	2.7	-	-
Unused tax losses	39.3	7.9	22.6	4.5
	53.0	10.6	22.6	4.5

This asset has not been recognised in the consolidated financial information 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

	2013 £m	2012 £m
Earnings for the purposes of basic and dilutive earnings per share	73.0	40.7

Number of shares	2013 Number of shares	2012 Number of  shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	372,513,387	365,763,664
Effect of dilutive potential ordinary shares:    Long Term Incentive Plan	6,515,903	14,142,480
Weighted average number of ordinary shares for the purposes of diluted earnings per share	379,029,290	379,906,144

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

11.  GOODWILL

	£m
At 1 January 2012	18.4
At 1 January 2013	18.4
At 31 December 2013	18.4

The Group conducts annual impairment tests on the carrying value of goodwill, based on the recoverable amount of the CGUs to which the goodwill has been allocated. The goodwill allocated to each CGU is summarised in the table below. A number of both value-in-use and fair-value-less-costs-to-sale calculations are used to assess the recoverable values of the CGUs, details of which are specified below.

	2013 £m	2012 £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 key assumptions of the DCF model used to assess the value in use, and the range of multiples applied in calculating the fair-value-less-costs-to-sale based on a percentage of assets under management are shown below:

	2013	2012
Discount rate	9%-11%	9%-11%
Number of funds under management	3	3
Management fee	2%-3.5%	2%-3.5%
Cost inflation	3%	4%
Percentage of assets under management	2%-7%	n/a

A number of different value-in-use models were assessed in order to evaluate the recoverable value of the CGU, none of which resulted in an impairment being required.

Impairment review of the university partnership CGU

The key assumptions of the DCF models used to assess the value in use are shown below.

For the purposes of impairment testing, the university partnership CGU comprises those elements 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 recoverable value for the university partnership CGU, there is a range of reasonably possible alternative values. The key variable ranges are set out below:

	2013	2012
Number of spin-out companies per year	7-10	4-8
Annual investment rate	£20m-£35m	n/a
Rate of return achieved	18-22%	n/a
Initial equity stake acquired by the Group under the university partnership	12-30%	12-30%
Proportion of spin-out companies failing	32-45%	30-45%
Weighted average holding period (years)	3-5	n/a
Dilution rates prior to exit as a result of financing for spin-out companies	40-60%	40-60%
Proportion of IPO exits	25-35%	25-35%
IPO exit valuations	£35m-£45m	£20m-£40m
Proportion of disposal exits	28-32%	25-35%
Disposal valuations	£25m-£35m	£10m-£30m
Discount rate	9-11%	8-12%

A number of different value-in-use models were assessed in order to evaluate the recoverable value of the CGU, none of which resulted in an impairment being required.

12.  PROPERTY, PLANT AND EQUIPMENT

		Total £m
Cost
At 1 January 2013		1.0
Additions		-
At 31 December 2013		1.0
Accumulated depreciation
At 1 January 2013		0.7
Charge for the year		0.1
At 31 December 2013		0.8
Net book value
At 31 December 2013		0.2
At 31 December 2012		0.3

		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

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 2013
Equity rights		3.1	-	-	3.1
Equity investments		-	283.1	-	283.1
Debt investments		-	2.8	-	2.8
Other financial assets		0.7	-	-	0.7
Contingent value rights		-	1.4	-	1.4
Limited and limited liability partnership interests		-	4.8	-	4.8
Trade and other receivables		-	-	0.8	0.8
Deposits		-	-	5.0	5.0
Cash and cash equivalents		-	-	19.1	19.1
Total		3.8	292.1	24.9	320.8
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

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 (2012: £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 (2012: 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 2013 and 31 December 2013	19.9		0.5		20.4
Aggregate amortisation and change in fair value of contract costs
At 1 January 2013	(12.0)		(0.3)		(12.3)
Change in fair value during the year	(5.0)		-		(5.0)
At 31 December 2013	(17.0)		(0.3)		(17.3)
Net book value
At 31 December 2013	2.9		0.2		3.1
At 31 December 2012	7.9		0.2		8.1

	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

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 Department of Chemistry (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 Department of Chemistry.

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:

	2013	2012
Number of spin-out companies per year from University of Oxford's Department of Chemistry	1-2	1-2
Initial equity stake acquired by the Group under the equity rights contract	20-25%	20-25%
Proportion of spin-out companies failing	30-40%	30-40%
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%	25-35%
Disposal valuations	£30m-£40m	£30m-£40m
Discount rate	9-11%	9-11%

These key variable ranges result in a wide range of fair value estimates for the equity rights agreement, from £2.3m to £4.4m 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 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 £3.1m at 31 December 2013 (2012: £8.1m).

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 2013	84.6	86.5	3.9	6.8	181.8
Investments during the year	9.4	14.1	4.0	0.0	27.5
Transaction-based reclassifications during the year	-	3.6	(3.7)	0.1	-
Other transfers between hierarchy levels during the year	0.6	(12.0)	(0.4)	11.8	-
Disposals	(5.6)	(0.2)	-	-	(5.8)
Change in fair value in the year	46.1	39.0	(1.0)	(1.7)	82.4
At 31 December 2013	135.1	131.0	2.8	17.0	285.9

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

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. For instances where the fair values are based upon the most recent market transaction but which occurred more than twelve months previously, the investments are reclassified as Level 3 in the fair value hierarchy. 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 effect on the consolidated statement of comprehensive income for the period is also not expected to be material.

The net increase in fair value for the year of £82.4m (2012: £38.0m) includes a net decrease of £1.7m (2012: £9.9m increase) that has been estimated using a valuation technique. Further details are contained within the accounting policy for equity investments. During the period then has been a net transfer between the level 2 heirarchy to level 3 of circa £12m. This is due to a number of portfolio companies not receiving financing in the previous 12 months and subsequently being reclassified. However these companies had previously raised sufficient capital to allow extended periods of development and continue to make good progress against technical milestones.

Change in fair value in the year

	2013 £m	2012 £m
Fair value gains	90.2	64.5
Fair value losses	(7.8)	(26.5)
	82.4	38.0

16.        TRADE AND OTHER RECEIVABLES

	2013 £m	2012 £m
Trade debtors	0.3	0.4
Prepayments	0.1	0.2
Other receivables	0.4	0.3
	0.8	0.9

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 2013 (2012: £0.7m 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. If the assumptions used in the valuation techniques are varied by using a range of possible alternatives, there is no material difference to the statement of financial position, nor the consolidated statement of comprehensive income.

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 (2012: £1.4m). The Group considers this asset to be Level 3 in the fair value hierarchy throughout the current and previous financial years. If the assumptions used in the valuation techniques are varied by using a range of possible alternatives, there is no material difference to the statement of financial position, nor the consolidated statement of comprehensive income.

19.  TRADE AND OTHER PAYABLES

Current liabilities	2013 £m	2012 £m
Trade payables	0.1	0.1
Social security expenses	0.1	0.1
Other accruals and deferred income	1.3	0.2
	1.5	0.4

Non-current liabilities	2013 £m	2012 £m
Loans drawn down from the Limited Partners of consolidated funds	1.3	-
	1.3	-

20.  SHARE CAPITAL

Issued and fully paid:	2013 Number	2013 £m	2012 Number	2012 £m
Ordinary Shares of 2p each
Opening Balance	365,763,664	7.3	365,763,664	7.3
Issued under employee share plans	9,495,195	0.2	-	-
Closing Balance	375,258,859	7.5	365,763,664	7.3

In April 2013 the Group issued 9,495,195 new ordinary shares with a par value of 2p in order to settle the 2010 LTIP scheme which achieved its vesting conditions and consequently became payable to the Group's employees. 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

	2013 £m	2012 £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:

	2013 £m	2012 £m
Within one year	0.3	0.3
In the second to fifth years inclusive	0.6	0.9
	0.9	1.2

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

Annual Incentive Scheme

In 2013, following the reduction in scope of the LTIP scheme, the Annual incentive scheme was introduced to provide an element of short-term incentive. Some awards will include an element of IP Group shares, which will be subject to further time-based vesting over two years (typically 50% after year 1 and 50% after year 2). As at 31 December 2013 no such options or shares had been granted and there is no associated fair value. However, as the number shares to be granted are based as a percentage of employees' salary, the share-based payments line includes the associated expense incurred in 2013.

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. Further information on the Group's LTIP is set out in the Directors' Remuneration Report set out the full Annual Report and Accounts.

No LTIP awards were made in 2013.

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, as shown in the Directors' Remuneration report in the full Annual Report and Accounts. 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 IP Group's Remuneration committee on the appropriate performance conditions to attach to the 2011 LTIP awards based on their experience of current market practice. The 2012 awards were designed using on the same matrix structure, together with the FTSE small-cap index underpin, as was incorporated into the 2011 LTIP.

The 2010 LTIP awards partially vested on 16 April 2013 and on this date shares in IP Group plc were issued via the Group's employee benefit trust to the relevant members of the Company's staff accordingly. Fifty percent of the awards were based on the increase in IP Group's Hard NAV, and 50% were based on IP Group's share price performance. The table below sets out the performance measures relating to the 2010 LTIP awards and the actual performance achieved.

Performance condition	Vesting criteria	Actual performance	Percentage vesting
Hard NAV(i)	£226.8m: 25% £267.4m: 50%	£236.6m	31%
TSR performance (share price)	60p: 25% 67p: 50%	119.9p	50%
Total			81%

(i)     Hard NAV target increased by the net proceeds of the Group's 2011 placing plus 8%-15% growth from the date of completion of the placing.

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

	2013	2012
At 1 January	18,000,923	17,055,803
Forfeited during the year	(2,342,292)	(767,746)
Vested during the year	(9,495,195)	-
Notionally awarded during the year	-	1,712,866
At 31 December	6,163,436	18,000,923

No shares were notionally awarded during 2013. The fair value of awards made in the prior year was calculated using a Monte Carlo pricing model with the following key assumptions:

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

The fair value charge recognised in the statement of comprehensive income during the year in respect of LTIP share awards was £0.7m (2012: £0.8m).

23.  LIMITED AND LIMITED LIABILITY PARTNERSHIP INTERESTS

	£m
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 1 January 2013	4.0
Additions during the year	0.2
Realisations in the year	(0.2)
Change in fair value during the year	0.8
At 31 December 2013	4.8

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. 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 effect on the consolidated statement of comprehensive income for the period is also not expected to be material.

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 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	2013 £m	2012 £m
Revenue from services	1.3	1.4

Statement of financial position	2013 £m	2012 £m
Investment in limited partnerships	3.6	2.8
Amounts due from related parties	-	-

            b) Key management transactions

            The key management had investments in the following spin-out companies as at 31 December 2013:

Director	Company name	Number of shares held at 1 January 2013	Number of shares acquired/ (disposed) in the period	Number of shares held at 31 December 2013	%
Alan Aubrey	Amaethon Limited - A Shares	104	-	104	3.1%
	Amaethon Limited - B Shares	11,966	-	11,966	1.0%
	Amaethon Limited - Ordinary shares	21	-	21	0.3%
	Avacta Group plc	20,276,113	-	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	0.8%
	Icona Solutions Limited	1,674	(1,674)	-	-
	Ilika plc	117,500	-	117,500	0.2%
	Karus Therapeutics Limited	223	-	223	0.1%
	Mode Diagnostics Limited	3,226	-	3,226	0.4%
	Modern Biosciences plc	1,185,150	-	1,185,150	2.1%
	Modern Water plc	519,269	-	519,269	0.7%
	Oxford Advanced Surfaces Group plc	2,172,809	-	2,172,809	1.1%
	Oxford Nanopore Technologies Limited	114,420	-	114,420	0.6%
	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%
	Revise Limited	-	19	19	0.5%
	Revolymer plc	88,890	-	88,890	0.2%
	Salunda Limited	53,639	-	53,639	0.8%
	Structure Vision Limited	212	-	212	1.0%
	Surrey Nanosystems Limited	393	-	393	0.3%
	Sustainable Resource Solutions Limited	30	-	30	1.2%
	Tissue Regenix Group plc	2,389,259	-	2,389,259	0.4%
	Tracsis plc	168,010	(46,821)	121,189	0.5%
	Velocys plc	122,109	(100,591)	21,518	<0.1%
	Xeros Limited	241	-	241	0.1%
Mike Townend	Amaethon Limited - A Shares	104	-	104	3.1%
	Amaethon Limited - B Shares	11,966	-	11,966	1.0%
	Amaethon Limited - Ordinary shares	21	-	21	0.3%
	Avacta Group plc	931,367	-	931,367	<0.1%
	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%
	Getech Group plc	20,000	-	20,000	<0.1%
	Green Chemicals plc	113,222	-	113,222	0.8%
	Icona Solutions Limited	1,515	(1,515)	-	-
	Ilika plc	10,000	-	10,000	<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	0.7%
	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%
	Revise Limited	-	18	18	0.5%
	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	28	-	28	1.1%
	Synairgen plc	20,000	-	20,000	<0.1%
	Tissue Regenix Group plc	1,950,862	-	1,950,862	0.3%
	Tracsis plc	70,004	(44,574)	25,430	0.1%
	Velocys plc	5,000	-	5,000	<0.1%
	Xeros Limited	213	-	213	0.1%
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	4,830	-	4,830	<0.1%
	Icona Solutions Limited	148	(148)	-	-
	Mode Diagnostics Limited	361	-	361	<0.1%
	Modern Biosciences plc	313,425	-	313,425	0.6%
	Modern Water plc	7,250	-	7,250	<0.1%
	Oxford Nanopore Technologies Limited	150	-	150	<0.1%
	Retroscreen Virology Group plc	61,340	-	61,340	0.1%
	Revise Limited	-	6	6	0.2%
	Revolymer plc	4,500	-	4,500	<0.1%
	Summit Corporation plc	-	15,972	15,972	<0.1%
	Surrey Nanosystems Limited	76	-	76	0.1%
	Sustainable Resource Solutions Limited	9	-	9	0.4%
	Tissue Regenix Group plc	175,358	-	175,358	<0.1%
	Velocys plc	2,559	-	2,559	<0.1%
	Xeros Limited	33	-	33	<0.1%
Charles Winward	Amaethon Limited - A Shares	15	-	15	0.5%
	Amaethon Limited - B 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)	-	-
	Mode Diagnostics Limited	421	-	421	0.1%
	Modern Biosciences plc	360,914	-	360,914	0.7%
	Modern Water plc	12,400	-	12,400	<0.1%
	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%
	Revise Limited	-	6	6	0.2%
	Revolymer plc	4,500	-	4,500	<0.1%
	Structure Vision Limited	26	-	26	0.1%
	Surrey Nanosystems Limited	87	-	87	0.1%
	Sustainable Resource Solutions Limited	10	-	10	0.4%
	Tissue Regenix Group plc	482,236	-	482,236	0.1%
	Tracsis plc2	56,500	-	56,500	0.2%
	Xeros Limited	39	-	39	<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%
	Synairgen plc	200,000	-	200,000	0.3%
	Velocys plc	10,000	-	10,000	<0.1%

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

²In addition, Charles Winward holds options over 137,517 ordinary shares in Tracsis plc.

Compensation to key management comprises that paid to Executive and Non-executive directors of the Group. Full details of directors' compensation are disclosed in the Directors' Remuneration Report in the full Annual Report and Accounts, and 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	2013 £m	2012 £m
Revenue from services	0.7	0.9

Statement of financial position	2013 £m	2012 £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:

	2013 £m	2012 £m
Intercompany balances with other Group companies	7.8	7.1

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 2013, the Group's strategy, which was unchanged from 2012, 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

Commitments to university partnerships

A number of the Group's partnerships with research intensive universities in the UK include certain arrangements to provide seed capital to spin-out companies arising from such universities. As at 31 December 2013, the balances were as follows:

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	0.7	3.5
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	1.2	3.8
University of Manchester(x)	2013	5.0	-	5.0
		50.0	10.0	40.0

(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 £5.0m in University of Leeds spin-out companies. This agreement was varied in March 2011 to, amongst other things, 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. The agreement was amended in January 2014 primarily to remove the Group's entitlement to licence fees save where it is involved in the development or licensing of the relevant IP and in most cases to replace the Group's automatic entitlement to a share of the initial equity in any spin-out company with an equivalent warrant exercisable at the seed stage of the relevant company.

(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 2009 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.

(x)     In February 2013, the Group entered into a commercialisation agreement with the University of Manchester. Initially the Group had agreed to make available an initial facility of up to £5.0m to provide capital to new proof of principle projects (excluding grapheme projects) intended for commercialisation through spin-out companies. During January 2014, the Group extended its agreement to include funding for Graphene projects, increased the capital commitment by a further £2.5m, bringing the total to £7.5m, and extended the agreement to 2019.

Commitments to limited partnerships

Pursuant to the terms of their limited partnership agreements, the Group has committed to invest the following amounts into limited partnerships as at 31 December 2013:

Partnership	Year of commencement of partnership	Original commitment £m	Invested to date £m	Remaining commitment £m
IP Venture Fund	2006	3.1	2.7	0.4
IP Venture Fund II L.P.	2013	10.0	0.4	9.6
		13.1	3.1	10.0

 

END

 

 

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