Interim Results
IP2IPO Group PLC
13 September 2005
For immediate release 13 September 2005
IP2IPO Group plc
Interim Results for the Six Months to 30 June 2005
IP2IPO Group plc (AIM: IPO) ('IP2IPO' or 'the Group'), the intellectual property
commercialisation company, today announces its unaudited interim results for the
six months ended 30 June 2005. For the first time, IP2IPO has prepared its
interim results under International Financial Reporting Standards.
Highlights
• Successful flotation of Proximagen Neurosciences plc on AIM
• Successful share placing raising £13.7 million and launch of Modern
Biosciences (previously known as LifeUK)
• Acquisition of Techtran Group Limited
• Number of spin-out companies increases to 33 (30 June 2004: 18)
• BVCA valuation of IP2IPO portfolio of £40 million (30 June 2004 UK GAAP:
£7 million, 30 June 2004 IFRS: £17 million)
• Profit before taxation under IFRS of £3.6 million (30 June 2004 UK GAAP:
£1.2 million, 30 June 2004 IFRS: £7.5 million)
• IP2IPO continues to control its costs, remaining profitable at the trading
level (profit for the period, before IFRS fair value adjustments, bonus
accrual and share option charge: £131,000)
• Cash balance of £42.3 million (2004: £37.3 million)
Post 30 June 2005 highlights
• GETECH Group plc announces intention to float on AIM
• Extension of partnership with University of Leeds
• Further investment in 2 new spin-out companies
Commenting on the Group's interim results, David Norwood, Chief Executive
Officer of IP2IPO, said:
'I am extremely pleased with our half-year results which show significant
development in both IP2IPO and its portfolio of spin-out companies. The Group is
maturing very rapidly as demonstrated by the formation of Modern Biosciences in
May, which takes IP2IPO into new territory, beyond its existing university
partnership business.
'The portfolio of spin-out companies has made excellent progress. Proximagen's
flotation in March is the first flotation of a spin-out company formed under the
auspices of IP2IPO's partnership with King's College London and underscores
IP2IPO's ability to create value from university IP. IP2IPO made an investment
of £332,000 in Proximagen in March 2004, which at 30 June 2005 was worth £6.6
million.
'I am also delighted to report that since the end of June, GETECH Group plc, a
spin-out company from the University of Leeds, has announced its intention to
float on AIM, which is a great affirmation of the rationale behind IP2IPO's
acquisition of Techtran Group Limited in January.
'Looking ahead, IP2IPO's portfolio of unquoted spin-out companies will continue
to evolve and the opportunities for further exits within the next 12 months are
looking extremely positive.'
For more information please contact:
IP2IPO (www.ip2ipo.com) 020 7489 5200
David Norwood, Chief Executive Officer
Buchanan Communications 020 7466 5000
Tim Anderson, Mark Court, Mary-Jane Johnson
CHAIRMAN'S STATEMENT
The six months to 30 June 2005 were an exciting time for the development of
IP2IPO. During the period we acquired a fifth university partner, increased our
number of spin-out companies and saw considerable value creation throughout the
portfolio.
Adoption of International Financial Reporting Standards ('IFRS')
The Group has matured significantly. The Board continues to believe that your
company is the market leader within the intellectual property commercialisation
sector and, as a result, the Board has concluded that it is appropriate for the
Company to adopt International Financial Reporting Standards. By doing so, the
Board believes that the Company is best preparing itself for the next phase of
its development.
The most significant change involved in the adoption of IFRS is that the Group
will report increases and decreases in the value of its portfolio of equity
stakes in spin-out companies and will recognise these movements in the income
statement (even though these movements do not represent gains or losses arising
on disposal which will be reported separately). Hence movements in the price of
our listed holdings could have a considerable impact on our reported profit or
loss.
The Board believes that this provides shareholders with improved visibility and
the best possible way of measuring the Group's success at creating value from
nascent intellectual property based opportunities. As the number of spin-outs
increases and our portfolio matures, the volatility caused by individual share
price movements will decrease.
The Group reported turnover for the period of £765,000 (UK GAAP 2004: £379,000;
IFRS 2004: £379,000). Gains on the revaluation of equity investments amounted to
£4,307,000 (UK GAAP 2004: nil; IFRS 2004: £7,718,000) and the Group's profit for
the six months ended 30 June 2005 amounted to £3,572,000 (UK GAAP 2004:
£1,202,000; IFRS 2004 £7,540,000).
Acquisition of Techtran
Your company began 2005 with the acquisition of Techtran Group Limited ('
Techtran'), a company that in 2002 entered into a long term IP commercialisation
partnership with the University of Leeds. I am delighted to report that the
integration of Techtran is going extremely well. The existing portfolio of
Techtran companies is making very good progress and since 30 June 2005, GETECH
Group plc, a company formed within the University of Leeds, has announced its
intention to float on AIM.
The University of Leeds is proving to be a very fertile ground for the
exploitation of world class science and the Techtran team is adept at harvesting
this potential. This gives me confidence that the acquisition will deliver
significant long term value to the Group.
Portfolio of spin-out companies
At the beginning of the period the Group had a portfolio of equity stakes in 20
companies. As at 30 June 2005, the Group's portfolio had increased to 33.
In March 2005, Proximagen Neuroscience plc ('Proximagen') floated on AIM.
Proximagen is the fourth company from the IP2IPO portfolio to float and the
first exit from IP2IPO's partnership with King's College London. IP2IPO invested
£332,000 in Proximagen in March 2004 and at 30 June 2005 IP2IPO held a 23.5%
stake worth £6,550,000; a twenty-fold increase in value.
Understandably, the market has visibility only of our listed equity stakes; and
our quoted companies are just a small proportion of our overall portfolio. What
has been particularly encouraging is the progress of certain companies within
the private portfolio. Several of the spin-outs are trading profitably while
continuing to invest in research and development. As an example of the value of
university intellectual property we announced in April 2005 that ReOx Limited
had concluded a multi-million pound license deal with a major bio-pharmaceutical
company.
The success of several of the early spin-outs tends to encourage other
scientists within our university partners to come forward with their ideas. This
means that our pipeline of new spin-out opportunities looks more exciting than
ever before. The challenge for the Group is to continue to exploit this momentum
while ensuring that the quality of the pipelines remains high.
Additional placing and launch of Modern Biosciences (previously known as LifeUK)
In May 2005, the Company raised approximately £13.7 million (before expenses) in
order to finance the launch of a new business - Modern Biosciences. Modern
Biosciences will in-license life science intellectual property created by
medical researchers at universities with which IP2IPO already has partnerships,
other universities in the UK and similar academic and charitable research
institutions. Its objective is to develop further this in-licensed intellectual
property as a precursor to licensing these development programmes to the
pharmaceutical industry. Modern Biosciences has made good progress since May and
is in early stage discussions with a number of universities in respect of
in-licensing promising intellectual property.
The Group's objective is that Modern Biosciences will be run as a stand alone
business. Accordingly, Modern Biosciences has commenced the process of
recruiting the senior management team that will be responsible for driving the
business forward. We expect to update the market further on the progress of
Modern Biosciences in the near future.
Board changes
In January 2005, Alan Aubrey FCA and Dr Alison Fielding joined the Board of
IP2IPO from Techtran. Much of the success of the acquisition of Techtran is due
to the efforts of Alan Aubrey and Alison Fielding who have made an immense
contribution to the Group. We announce today that Alan has been appointed
Managing Director of the Group and Alison has become Director of Technology
Transfer.
John Davies today steps down from the Board having served as Chief Financial
Officer since 2001. John leaves to join Inhibox Limited (the first spin-out
company formed under IP2IPO's partnership with the University of Oxford) and
does so with the Board's thanks for the contribution he has made to the Group.
John will continue to be available to the Group on a part-time basis. William
Turner continues in his role as Group Financial Controller, under Alan Aubrey,
who assumes overall responsibility for the finance and operations of the Group.
Outlook
As Head of Oxford Chemistry I was a protagonist in IP2IPO's first partnership
with the University of Oxford in December 2000. Both sides knew that this was
something of an experiment and the results have exceeded all our expectations.
Even in my own department I am astounded by the commercial progress that many of
our leading scientists are making in partnership with IP2IPO. This benefits the
department, the University, the scientists themselves and, of course, the IP2IPO
Group.
Five years on and the Group is now working with five major universities and has
an interest in the output of over 9,000 scientists. The UK has always been a
world leader in scientific innovation but has often floundered in the
exploitation of those ideas. IP2IPO wants to help bridge that gap by being the
channel through which science can get to market.
Although there will be many challenges ahead I am confident that we have
developed a successful model for the commercialisation of science in the UK.
This confidence is shared by my fellow directors. During the period our Chief
Executive, David Norwood, purchased a further 42,500 shares bringing his total
investment into the Group to £2m. Roger Brooke also increased his holding by
8,740 and Bruce Smith purchased 7,750 shares. I would like to conclude by
thanking our shareholders, our staff and all our university partners.
Graham Richards
Chairman
13 September 2005
CONSOLIDATED INTERIM INCOME STATEMENT
For the six months to 30 June 2005
Note Unaudited six Unaudited six Unaudited 12
months to 30 months to 30 months to 31
June June December 2004
2005 2004 (Restated)
(Restated) £'000
£'000 £'000
Turnover 765 379 1,183
Equity investments
Change in fair value of equity investments 5 4,307 7,718 24,014
Surplus on disposal of equity investments - 790 790
Administrative expenses
Accrual for employee bonuses 6 (754) (1,351) (4,202)
Other administrative expenses (1,570) (758) (2,392)
Operating profit 2,748 6,778 19,393
Finance income - interest receivable 824 762 1,616
Profit before taxation 3,572 7,540 21,009
Taxation - - 37
Profit for the period 3,572 7,540 21,046
Basic earnings per ordinary share 8.20 18.55 51.61
Diluted earnings per ordinary share 7.97 18.03 50.24
CONSOLIDATED INTERIM BALANCE SHEET
As at 30 June 2005
Unaudited at Unaudited at Unaudited at
30 June 30 June 31 December
2005 2004 2004
(Restated) (Restated)
Note £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 68 59 55
Intangible assets:
Goodwill 2 18,423 2,086 2,091
Acquired intangible assets 3 681 833 757
Investment in patents 15 14 15
Equity rights and related acquisition costs 4 20,159 20,180 20,170
Equity investments 5 39,909 16,953 35,536
Investment in limited partnerships 83 - 87
Total non-current assets 79,338 40,125 58,711
Current assets
Trade and other receivables 1,033 501 1,238
Cash and cash equivalents 42,343 37,344 34,801
Total current assets 43,376 37,845 36,039
Total assets 122,714 77,970 94,750
EQUITY AND LIABILITIES
Equity attributable to equity holders
Called up share capital 4,531 4,081 4,129
Share premium account 84,688 58,972 59,605
Merger reserve 783 783 783
Retained earnings 26,905 9,608 23,264
Total equity 116,907 73,444 87,781
Non-current liabilities
Trade and other payables 6 4,288 2,236 3,534
Provisions 90 128 90
Total equity and non-current liabilities 121,285 75,808 91,405
Current liabilities
Trade and other payables 6 1,429 2,162 3,345
Total equity and liabilities 122,714 77,970 94,750
CONSOLIDATED INTERIM CASHFLOW STATEMENT
For the six months to 30 June 2005
Unaudited six Unaudited Unaudited 12
months to 30 six months months to 31
June to 30 December
2005 June 2004
2004
(Restated) (Restated)
£'000 £'000 £'000
Operating activities
Operating profit 2,748 6,778 19,393
Depreciation of property, plant and equipment 30 10 35
Fair value movements in equity investments (4,307) (7,718) (24,014)
Amortisation and impairment of intangible non-current assets 92 10 96
Decrease / (Increase) in trade and other receivables 225 (240) (736)
(Decrease) / Increase in trade and other payables and (2,002) 1,180 3,689
provisions
Profit on disposal of equity investments - (790) (790)
Profit on disposal of property, plant and equipment - - 6
Share-based payment charge 112 150 300
Net cash from operating activities (3,102) (620) (2,021)
Investing activities
Purchase of property, plant & equipment (35) (5) (34)
Purchase of equity investments (1,747) (1,353) (3,728)
Purchase of subsidiary undertaking (3,545) (880) (911)
Net cash acquired with subsidiary 1,838 230 230
Proceeds from sale of equity investments - 965 965
Interest received 848 762 1,374
Net cash used in investing activities (2,641) (281) (2,104)
Financing activities
Proceeds from issue of share capital 13,285 - 681
Net increase / (decrease) in cash and cash equivalents 7,542 (901) (3,444)
Cash and cash equivalents at the beginning of the period 34,801 38,245 38,245
Cash and cash equivalents at the end of the period 42,343 37,344 34,801
CONSOLIDATED UNAUDITED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months to 30 June 2005
Attributable to equity holders of the Group
Total Share Retained Merger Share
Equity capital earnings reserve premium
£'000 £'000 £'000 £'000 £'000
At 1 January 2004 (restated) 64,954 4,064 1,918 - 58,972
Consolidated profit for the period to 30 June 2004 7,540 - 7,540 - -
Employee share option charge in period to 30 June 2004 150 - 150 - -
Issue of share capital in period to 30 June 2004 800 17 - 783 -
At 30 June 2004 (restated) 73,444 4,081 9,608 783 58,972
Consolidated profit for the period to 31 December 2004 13,506 - 13,506 - -
Employee share option charge in period to 31 December 150 - 150 - -
2004
Issue of share capital in the period to 31 December 681 48 - - 633
2004
At 31 December 2004 (restated) 87,781 4,129 23,264 783 59,605
Consolidated profit for the period to 30 June 2005 3,572 - 3,572 - -
Employee share option charge in period to 30 June 2005 112 - 112 - -
Pre-acquisition reserves attributable to the Group (43) - (43) - -
Issue of share capital in period to 30 June 2005 25,485 402 - - 25,083
At 30 June 2005 116,907 4,531 26,905 783 84,688
NOTES TO THE INTERIM RESULTS
1. ACCOUNTING POLICIES
Basis of preparation
The interim financial statements of IP2IPO Group plc ('the Group') are for the
six months ended 30 June 2005. The European Union (EU) regulation (1606/2002)
requires European Companies with securities traded on an EU regulated market to
prepare their consolidated financial statements in accordance with EU endorsed
international financial reporting standards for accounting periods beginning on
or after 1 January 2005. On 7 October 2004, the Alternative Investment Market ('
AIM') announced that companies listed on the exchange will not have to prepare
their financial statements for financial years beginning on or after 1 January
2005 in accordance with IFRS as AIM is no longer an EU regulated market.
The directors consider the Group to be the market leader in the intellectual
property commercialisation sector. Consistent with the Group's strategy, and
permitted by The Companies Act 1985 (International Accounting Standards and
Other Accounting Amendments) Regulations that became law on 11 November 2004,
the directors have decided to adopt IFRS for the year ending 31 December 2005.
The interim results have been prepared in accordance with the International
Accounting Standards and International Financial Reporting Standards (together '
IFRS'), Standing Interpretations Committee ('SIC') interpretations and
International Financial Interpretations Committee ('IFRIC') interpretations that
have been endorsed, or are expected to be endorsed, by the European Union for
the year ending 31 December 2005. The respective standards and interpretations
that will be applicable for the year ending 31 December 2005, including those
that will be available on an optional basis, are not known with certainty at the
time of preparing these interim results. Accordingly, the accounting policies
for that annual period will be determined finally only when the annual financial
statements for the year ending 31 December 2005 are prepared.
The Group's interim results were prepared in accordance with United Kingdom
Generally Accepted Accounting Principles ('UK GAAP') until the year ended 31
December 2004. UK GAAP differs in a number of areas from IFRS. In preparing
the Group's interim results for the period to 30 June 2005, the directors have
amended certain accounting, valuation and consolidation methods applied in the
UK GAAP financial statements. The comparative figures in respect of 2004 were
restated to reflect these adjustments. These figures have been reviewed but not
audited by the Group's independent auditors.
The effect of the transition from UK GAAP to IFRS on the Group's profit, net
assets and cash flows are provided in the numerical reconciliation and narrative
statements in note 10 to the interim results.
These interim results have been prepared under the historical cost convention,
as modified by the revaluation of certain financial assets at fair value. The
basis of consolidation is set out below. The comparative figures for the year
ended 31 December 2004 do not constitute statutory financial statements for the
purposes of s240 of the Companies Act 1985. A copy of the statutory financial
statements prepared under UK GAAP has been delivered to the Registrar of
Companies. The auditor's report on those financial statements was unqualified
and did not contain statements under sections 237 (2) or (3) of the Companies
Act 1985.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than half of the voting rights. The existence and effect of potential voting
rights are considered when assessing whether the Group controls an entity.
Subsidiaries are fully consolidated from the date on which control is
established by the Group.
The purchase method of accounting is used to account for the acquisition of the
Group's subsidiaries. The cost of acquisition is measured at fair value of the
assets given, equity instruments issued, and liabilities incurred or assumed at
the date of exchange plus costs directly attributable to the transaction.
Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are initially measured at their fair values at
acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the fair value of the Group's share of
the identifiable net assets is recorded as goodwill.
Intercompany transactions, balances and unrealised gains on transactions between
group companies are eliminated. Subsidiaries' accounting policies are amended
where necessary to ensure consistency with the polices adopted by the Group.
Associates
Associates are entities over which the Group has significant influence, but does
not control, generally accompanied by a shareholding of between 20% to 50% of
the voting rights.
The Group's principal activity is akin to that of a venture capital
organisation, and as such investments in associates are accounted for in
accordance with IAS 39 Financial Instruments: Recognition and Measurement and
upon initial recognition are designated as at fair value through profit or loss.
Revenue recognition
Turnover, comprising fees for advisory work and fund management services, is
recognised in the income statement when the related services are performed. All
turnover is generated within the United Kingdom and is stated exclusive of value
added tax.
Property, plant and equipment
All property, plant and equipment is shown at cost less subsequent depreciation
and impairment. Cost includes expenditure that is attributable to the
acquisition of the items. Depreciation on assets is calculated using the
straight-line method to allocate the cost of each asset to its residual value
over its estimated useful life, as follows:
Fixtures and fittings... Over 3 to 5 years
Computer equipment... Over 3 to 5 years
Motor vehicles ... Over 1 to 5 years
The asset's residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the net identifiable assets of the acquired subsidiary at the date of
acquisition. Goodwill on acquisitions of subsidiaries is included in intangible
assets. Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses.
Acquired intangible assets - business combinations
Intangible assets that are acquired as a result of a business combination and
that can be separately measured at fair value on a reliable basis, are
separately recognised on acquisition at their fair value. Amortisation is
charged on a straight-line basis to the income statement over their expected
useful economic lives.
Patents
Patents are measured at cost. They have a finite useful life and are carried at
cost less accumulated amortisation. Amortisation is calculated using the
straight-line method to allocate the cost of patents over their estimated useful
economic lives.
Impairment of intangible assets
Intangible assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment and whenever events or
circumstances indicate that the carrying amount may not be recoverable. Assets
that are subject to amortisation are tested for impairment when events or a
change in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of the asset's fair value less costs to sell and the value in use. For
the purposes of assessing impairments, assets are grouped at the lowest levels
for which there are identifiable cashflows (cash generating units).
Equity rights
Equity rights represents consideration paid to the University of Oxford between
December 2000 and June 2001.
The payment gives the Group the right to purchase 50% of the University's equity
in any spin-out company created from the University's Chemistry Department. The
contract expires on 23 November 2015.
The equity rights agreement is considered to be a derivative contract and is
classified as a 'held for trading' financial instrument with changes in fair
value recognised in the income statement.
The directors have not been able to determine a reliable fair value for this
financial instrument at either 1 January 2004 or subsequent reporting dates due
to what are considered to be immeasurable variables:
• The timing and number of spin-out companies;
• Dilution rates as a result of financing for spin-out companies in the
future;
• IPO valuations; and
• Disposal values and timings.
Until such time as the directors are able to compute a reliable fair value, the
equity rights are carried at cost less provision for impairment.
The directors review equity rights for impairment annually and if there is
objective evidence of an impairment then a provision would be charged to the
income statement.
Acquisition costs
Acquisition costs comprise related costs to secure the University of Oxford
equity rights and other university partnership arrangements. These costs are
amortised over the life of the respective partnership.
Equity investments
The Group classifies all its equity investments as financial assets at fair
value through profit or loss. Investments in associated undertakings that are
held by the Group with a view to the ultimate realisation of capital gains are
designated as financial assets at fair value through profit or loss in
recognition of the Group's principal trading activity being that of a venture
capital organisation. Investments in undertakings that do not meet the
definition of an associate undertaking are also designated as financial assets
at fair value through profit or loss on initial recognition.
Treatment of gains and losses arising on fair value
Realised and unrealised gains on financial assets at fair value through profit
or loss are included in the income statement in the period they arise.
The fair values of quoted investments are based on bid prices at the balance
sheet date.
The fair value of unlisted securities is established using British Venture
Capital Association ('BVCA') guidelines. The valuation methodology used most
commonly by the Group is the 'price of recent investment' contained in the BVCA
valuation guidelines. The following considerations are used when calculating
the fair value using the 'price of recent investment' guidelines:
• Where the investment being valued was itself made recently, its cost will
generally provide a good indication of fair value; and
• Where there has been any recent investment by third parties, the price of
that investment will provide a basis of the valuation.
Where a fair value can not be estimated reliably the investment is reported at
the carrying value at the previous reporting date unless there is evidence that
the investment has since been impaired.
Employee benefits
Pension obligations
The Group does not operate any pension schemes for employees but makes
contributions to employee personal pension schemes on an individual basis. The
Group has no further payment obligations once the contributions have been paid.
The contributions are recognised as employee benefit expenses when they are due.
Share based payments
Share based incentive arrangements are provided to management and certain
employees. Share options granted after 7 November 2002 which had not vested by
1 January 2005 are valued at the date of grant using an appropriate option
pricing model and are charged to operating profit over the vesting period of the
award. The annual charge is modified to take account of options granted to
employees who leave the group during the performance or vesting period and
forfeit their rights to the share options and in the case of non-market related
performance conditions, where it becomes unlikely they will vest.
Bonus plan
The group recognises a liability and an expense for bonuses, linked to the
performance of the Group as a whole and to the creation of value in the group's
portfolio of equity investments.
Deferred tax
Full provision is made for deferred tax on all temporary timing differences
resulting from the carrying value of an asset or liability and its tax base.
Deferred tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when
the related deferred tax asset is realised or deferred tax liability settled.
Deferred tax assets are recognised to the extent that it is probable that the
deferred tax asset will be recovered in the future.
Leases
Leases where the lessor retains substantially all of the risks and rewards of
ownership are classified as operating leases. Payments made under operating
leases are charged to the income statement on a straight-line basis over the
term of the lease.
NOTES TO THE INTERIM RESULTS (Continued)
1. GOODWILL
£'000
At 1 January 2005 2,091
Additions (Note 7) 16,332
At 30 June 2005 18,423
2. ACQUIRED INTANGIBLE ASSETS
£'000
At 1 January 2005 757
Amortisation (76)
At 30 June 2005 681
On 30 June 2004 the Group acquired the entire issued share capital of Top
Technology Ventures Limited. At this time, Top Technology Ventures Limited was
party to two contracts to supply fund management services. The directors have
fair valued this asset on a discounted cashflow basis, and concluded that the
fair value of this asset at 30 June 2004 was £833,000, which is being amortised
on a straight-line basis over its useful life.
3. EQUITY RIGHTS AND RELATED ACQUISITION COSTS
Equity Acquisition Total
Rights costs
£'000 £'000 £'000
Cost
At 1 January 2005 19,890 354 20,244
At 30 June 2005 19,890 354 20,244
Aggregate amortisation of acquisition costs
At 1 January 2005 - (74) (74)
Charge for the period - (11) (11)
At 30 June 2005 - (85) (85)
Net book value
At 30 June 2005 19,890 269 20,159
At 31 December 2004 19,890 280 20,170
Carrying amount of equity rights
Based on the rate at which spin-out companies from the University of Oxford
chemistry department have been created to date, their progress towards sale or
flotation, the remaining life of the partnership, the rate at which spin-out
companies from University of Oxford chemistry department are anticipated to be
created in the future, the size of IP2IPO Limited's stake in such companies and
the continued prestige of the chemistry department, the directors continue to
believe that the equity rights will be realised in full.
4. EQUITY INVESTMENTS - DESIGNATED AS 'AT FAIR VALUE THROUGH PROFIT
OR LOSS'
Quoted Unquoted Other Total
spin-out spin-out investments
companies companies
£'000 £'000 £'000 £'000
At 1 January 2005 24,044 8,322 3,170 35,536
Investments during the period - 1,720 365 2,085
Reclassifications during the period 332 (332) - -
Change in fair value in period 3,996 311 - 4,307
Adjustment arising on consolidation of Techtran Group Ltd - - (2,019) (2,019)
At 30 June 2005 28,372 10,021 1,516 39,909
Movement in fair value of equity investments
Mark to market gains and losses of quoted equity investments during the period
amounted to £3,996,000, of which £6,218,000 was accounted for as a result of the
successful flotation of Proximagen Neuroscience plc on the Alternative
Investment Market in March 2005.
The movement in the fair value of the Group's holding of unquoted equity
investments in the period amounted to £311,000 based on the application of BVCA
guidelines.
Other Investments
In March 2005, the Group purchased 5% of the issued share capital of Sigma
Technologies plc for £365,000.
5. TRADE AND OTHER PAYABLES
Non-current liabilities
At 30 June At 30 June At 31
December
2005 2004 2004
£'000 £'000 £'000
Accrued staff bonuses 4,288 1,853 3,534
Other accruals - 383 -
4,288 2,236 3,534
Current liabilities
At 30 June At 30 June At 31
December
2005 2004 2004
£'000 £'000 £'000
Trade payables 142 37 71
Social security expenses 42 52 112
Accrued staff bonuses - - 1,170
Other accruals and deferred consideration 1,245 2,073 1,992
1,429 2,162 3,345
6. TRADE AND OTHER PAYABLES (Continued)
Accrued staff bonuses
The Group operates a discretionary staff bonus scheme for its employees. Based
on the rules of the scheme, the maximum annual bonus (including social security
costs) is 17.5% of the growth in the fair value of the Group's portfolio of
equity investments subject to an overriding condition that the payment of the
bonus cannot change a profit before tax into a loss before tax.
The timing of the actual cash payment to employees is subject to a number of
factors, including the performance of the business as a whole and making cash
realisations from equity investments.
The directors are of the opinion that the bonus accruals that have been
recognised at the respective reporting dates are consequential of the change
from UK GAAP.
At 30 June 2005, the directors consider that there is no current intention to
settle any accrued bonus within the next 12 months and therefore the accrual has
been classified as a non-current bonus accrual.
Non-Current Current bonus
bonus accrual accrual
£'000 £'000
At 1 January 2004 502 50
Charged in the income statement in the period to 30 June 2004 1,351 -
Paid during the period to 30 June 2004 - (50)
At 30 June 2004 1,853 -
Charged in the income statement in the period to 31 December 2004 1,681 1,170
At 31 December 2004 3,534 1,170
Charged in the income statement in the period to 30 June 2005 754 -
Paid during the period to 30 June 2005 - (1,170)
At 30 June 2005 4,288 -
6. ACQUISITIONS
Acquisition of Techtran Group Limited ('Techtran')
The Group subscribed for 33,994 shares in Techtran for £2,000,000 on 16 July
2004, which represented 19.9% of the enlarged issued share capital of Techtran
at that date. During the period ended 30 June 2005, the Group acquired the
remaining share capital of Techtran for a consideration of £16,200,000.
The directors have considered the requirements of IFRS 3 Business Combinations
to consolidate the fair value of intangible assets at the date of acquisition
where intangible assets can be clearly identified and the fair value measured
reliably. In 2002, Techtran entered into a contractual relationship with the
University of Leeds for the provision of technology transfer services. The
directors consider that the fair value of the Leeds partnership cannot be
estimated reliably as a result of uncertainty surrounding:
• The timing and number of spin-out companies;
• Dilution rates as a result of financing spin-out companies in the future;
• IPO valuations;
• Disposal values and timings; and
• The number and value of licensing deals.
The Group's detailed acquisition investigation has not yet been completed and
consequently the reported goodwill balance is provisional and will be finalised
in the annual financial statements for the year ending 31 December 2005.
7. CAPITAL COMMITMENTS
Under the terms of an agreement entered into during the year ended 31 December
2002 between the Group, the University of Southampton and certain of the
University of Southampton's subsidiaries, IP2IPO Limited agreed to make
£5,000,000 available for the purposes of making investments in University of
Southampton spin-out companies. Of this amount, at 30 June 2005, £2,494,000 had
been invested in nine spin-out companies from the university.
Under the terms of an agreement entered into during 2003 between the Group and
King's College London ('KCL') and KCL Enterprises Limited, the Group agreed to
make £5,000,000 available for the purposes of making investments in spin-out
companies. At 30 June 2005, £661,000 has been invested in two spin-out
companies from KCL. Under the terms of this agreement, KCL can require the
Company to make a further £5 million available for investments in spin-out
companies on the tenth anniversary of the partnership.
In October 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 £750,000 in spin-out companies
based on CNAP's intellectual property. At 30 June 2005, £210,000 has been
invested in one spin-out company.
8. POST BALANCE SHEET EVENTS
Following the acquisition of Techtran in January 2005, the Group extended its
partnership with the University of Leeds in July 2005 by securing the right and
obligation to invest up to £5,000,000 in University of Leeds spin-out companies.
Subsequent to the period end, the Group has invested or has committed to invest
£250,000 in Perachem Limited, £300,000 in Avacta Limited and £330,000 in GETECH
Group plc.
In addition, following the period end the Group has invested or committed to
invest £875,000 in two further spin-out companies from the University of
Southampton.
On 12 September 2005 GETECH Group plc, announced its intention to float on AIM.
The Group is interested in 21% of the share capital of GETECH Group plc.
9. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS
Application of IFRS 1
The Group's financial statements for the year ended 31 December 2005 will be the
first annual financial statements that comply with IFRS. These interim
financial statements have been prepared on the basis set out in note 1.
The Group's transition date is the 1 January 2004. The Group prepared its
opening balance sheet date at that date. The reporting date of these interim
consolidated financial statements is 30 June 2005.
In preparing the consolidated financial statements the Group has applied the
mandatory exceptions, as applicable, and the following exemption:
• The Group has elected to apply the share-based payment
exemption. The Group has not applied IFRS 2 to those options granted before 7
November 2002 and which had vested by 1 January 2005.
The reconciliations on pages 19-23 provide an explanation of the effect of the
transition to IFRS.
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
BALANCE SHEET RECONCILIATION AT 1 JANUARY 2004
Note UK GAAP Effect of IFRS
transition
to IFRS
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 27 - 27
Intangible assets:
Goodwill - - -
Investment in patents 12 - 12
Equity rights and related acquisition costs A 17,556 2,634 20,190
Equity investments B 5,804 2,165 7,969
Total non-current assets 23,399 4,799 28,198
Current assets
Trade and other receivables 170 - 170
Cash and cash equivalents 38,245 - 38,245
Total current assets 38,415 - 38,415
Total assets 61,814 4,799 66,613
EQUITY AND LIABILITIES
Equity attributable to equity holders
Called up share capital 4,064 - 4,064
Share premium account 58,972 - 58,972
Retained earnings C (2,379) 4,297 1,918
Total equity 60,657 4,297 64,954
Non-current liabilities
Trade and other payables D 383 502 885
Total equity and non-current liabilities 61,040 4,799 65,839
Current liabilities
Trade and other payables 774 - 774
Total equity and liabilities 61,814 4,799 66,613
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
RECONCILIATION OF INCOME STATEMENT SIX MONTHS TO 30 JUNE 2004
Note UK GAAP Effect of IFRS
transition
to IFRS
£'000 £'000 £'000
Turnover 379 - 379
Equity investments
Change in fair value of equity investments E - 7,718 7,718
Surplus on disposal of equity investments F 924 (134) 790
Administrative expenses
Accrual for employee bonuses G - (1,351) (1,351)
Other administrative expenses H (863) 105 (758)
Operating profit 440 6,338 6,778
Finance income - interest receivable 762 - 762
Profit before taxation 1,202 6,338 7,540
Taxation - - -
Profit for the period 1,202 6,338 7,540
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
BALANCE SHEET RECONCILIATION AT 30 JUNE 2004
Note UK GAAP Effect of IFRS
transition
to IFRS
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 59 - 59
Intangible assets:
Goodwill I 2,919 (833) 2,086
Acquired intangible assets I - 833 833
Investment in patents 14 - 14
Equity rights and related acquisition costs J 17,371 2,809 20,180
Equity investments K 7,379 9,574 16,953
Total non-current assets 27,742 12,383 40,125
Current assets
Trade and other receivables 501 - 501
Cash and cash equivalents 37,344 - 37,344
Total current assets 37,845 - 37,845
Total assets 65,587 12,383 77,970
EQUITY AND LIABILITIES
Equity attributable to equity holders
Called up share capital 4,081 - 4,081
Share premium account 59,755 - 59,755
Retained earnings L (1,177) 10,785 9,608
Total equity 62,659 10,785 73,444
Non-current liabilities
Trade and other payables M 383 1,853 2,236
Provisions 128 - 128
Total equity and non-current liabilities 63,170 12,638 75,808
Current liabilities
Trade and other payables N 2,417 (255) 2,162
Total equity and liabilities 65,587 12,383 77,970
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
RECONCILIATION OF INCOME STATEMENT YEAR TO 31 DECEMBER 2004
Note UK GAAP Effect of IFRS
transition
to IFRS
£'000 £'000 £'000
Turnover 1,183 - 1,183
Equity investments
Provision against equity investments O (178) 178 -
Change in fair value of equity investments P - 24,014 24,014
Surplus on disposal of equity investments Q 924 (134) 790
Administrative expenses
Accrual for employee bonuses R - (4,202) (4,202)
Other administrative expenses S (3,260) 868 (2,392)
Operating profit / (loss) (1,331) 20,724 19,393
Finance income - interest receivable 1,616 20,724 1,616
Profit before taxation 285 20,724 21,009
Taxation 37 - 37
Profit for the period 322 20,724 21,046
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
BALANCE SHEET RECONCILIATION AT 31 DECEMBER 2004
Note UK GAAP Effect of IFRS
transition to
IFRS
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 55 - 55
Intangible assets:
Goodwill T 2,850 (759) 2,091
Acquired intangible assets U - 757 757
Investment in patents 15 - 15
Equity rights and related acquisition costs V 16,861 3,309 20,170
Equity investments W 9,988 25,548 35,536
Investments in Limited Partnerships 87 - 87
Total non-current assets 29,856 28,855 58,711
Current assets
Trade and other receivables 1,238 - 1,238
Cash and cash equivalents 34,801 - 34,801
Total current assets 36,039 - 36,039
Total assets 65,895 28,855 94,750
EQUITY AND LIABILITIES
Equity attributable to equity holders
Called up share capital 4,129 - 4,129
Share premium account 59,605 - 59,605
Merger reserve 783 - 783
Retained earnings X (2,057) 25,321 23,264
Total equity 62,460 25,321 87,781
Non-current liabilities
Trade and other payables Y - 3,534 3,534
Provisions 90 - 90
Total equity and non-current liabilities 62,550 28,855 91,405
Current liabilities
Trade and other payables 3,345 - 3,345
Total equity and liabilities 65,895 28,855 94,750
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
Description of adjustments
Transitional adjustments at 1 January 2004
A - The University of Oxford equity rights is a derivative financial instrument
classified as a held for trading financial asset at fair value. No reliable
fair value can be established and consequently the asset is carried at cost,
subject to impairment. An amount has been debited against equity rights
recognising the reversal of prior GAAP accounting practice (£2,634,000);
B - Equity investments have been stated at fair value (£2,165,000);
C - Retained earnings have been adjusted for fair value gains (£2,165,000), an
additional employee bonus accrual charge (£502,000) and a gain as a result of
acquiring shares through equity rights for nil consideration (£2,634,000);
D - In addition to a £50,000 bonus accrual that existed at transition date
within current trade payables under UK GAAP, an additional bonus accrual charge
has been recognised in non-current trade payables (£502,000).
Income statement for the six months to 30 June 2004
E - Gains on equity investments were recorded in the period (£7,718,000)
comprising fair value gains (£7,543,000) and the impact of receipt of shares
through equity rights for nil consideration, the impact of which was taken to
equity rights under UK GAAP (£175,000);
F - The surplus on disposal of shares in Oxford Hydrocarbon Mapping Plc has been
adjusted (£134,000) to reflect a revised base cost at date of disposal;
G - An additional amount has been accrued for employee bonuses (£1,096,000);
there has also been a reclassification of current period bonus accrual from
administrative expenses to 'accrual for employee bonuses' on the face of the
income statement (£255,000);
H - Administrative expenses have been adjusted for a share option charge
(£150,000) and a reclassification of bonuses previously accrued under UK GAAP to
'accrual for employee bonuses' on the face of the income statement (£255,000).
Balance sheet at 30 June 2004
I - An acquired intangible asset has been recognised on acquisition of Top
Technology Ventures Limited (£833,000);
J - The University of Oxford equity rights is a derivative financial instrument
classified as a held for trading financial asset at fair value. No reliable
fair value can be established and consequently the asset is carried at cost,
subject to impairment. An amount has been debited against equity rights
recognising the reversal of prior GAAP accounting practice at transition date
(£2,634,000) and the current period (£175,000);
K - In addition to brought forward fair value gains (£2,165,000), current period
fair value gains have been recognised (£7,543,000), and the cost of disposed
Oxford Hydrocarbon Mapping Plc shares has been adjusted to reflect the revised
base cost of the shares disposed (£134,000);
L - Retained earnings have been adjusted for brought forward employee bonuses
(£502,000), brought forward and current period fair value gains (£9,708,000), an
additional accrual for employee bonuses (£1,096,000), the impact of shares
received through equity rights for nil consideration (£2,809,000) and a
reduction in the surplus on disposal of shares in Oxford Hydrocarbon Mapping Plc
(£134,000);
M - Non-current trade and other payables have been adjusted for a brought
forward employee bonus accrual (£502,000) a bonus accrual previously recognised
under UK GAAP (£255,000) and additional employee bonuses (£1,096,000);
N - Current trade and other payables have been adjusted for a bonus accrual
previously recognised under UK GAAP (£255,000), which has been reclassified to
non-current liabilities.
10. IMPACT OF THE FIRST TIME ADOPTION OF IFRS/IAS (Continued)
Description of adjustments (Continued)
Income statement for the year ended 31 December 2004
O - An impairment charge recognised under UK GAAP has been reclassified to '
changes in fair value of equity investments' (£178,000);
P - Current period gains comprise gains as a result of fair valuing the
portfolio of equity investments (£23,517,000) the impact of receipt of shares
through equity rights for nil consideration (£675,000) and a reclassification of
a provision for impairment recognised under UK GAAP (£178,000);
Q - In the year to 31 December 2004 the surplus on disposal of shares in Oxford
Hydrocarbon Mapping Plc has been reduced to reflect the revised base cost of the
disposed shares (£134,000);
R - 'Accrual for employee bonuses' includes a reclassification from
administrative expenses of previously recognised employee bonuses under UK GAAP
(£1,170,000) and an additional current period employee bonus charge
(£3,032,000);
S - Adjustments to administrative expenses include a share option charge
(£300,000), a write back of previously amortised goodwill (£74,000),
amortisation of an intangible asset acquired as part of the acquisition of Top
Technology (£76,000), and a reclassification of bonus costs to 'accrual for
employee bonuses' on the face of the income statement (£1,170,000).
Balance sheet at 31 December 2004
T - Goodwill has been reduced by the cost of an intangible asset acquired as
part of the acquisition of Top Technology Ventures Limited (£833,000),
previously amortised goodwill has been added back (£74,000);
U - An acquired intangible asset less amortisation to date has been recognised
(£757,000);
V - The University of Oxford equity rights is a derivative financial instrument
classified as a held for trading financial asset at fair value. No reliable
fair value can be established and consequently the asset is carried at cost,
subject to impairment. An amount has been debited against equity rights
recognising the reversal of prior GAAP accounting practice in prior periods
(£2,634,000) and the current period (£675,000);
W - Total fair value gains include current period gains (£23,517,000), brought
forward gains (£2,165,000) and a reduction in the surplus on disposal of shares
in Oxford Hydrocarbon Mapping Plc (£134,000);
X - Retained earnings have been adjusted for a brought forward employee bonus
accrual charge (£502,000), fair value gains (£25,682,000), an additional
employee bonus accrual charge (£3,032,000), an add back of previously amortised
goodwill (£74,000), a reduction in the surplus on disposal of shares in Oxford
Hydrocarbon Mapping Plc (£134,000), the impact of shares received through equity
rights for nil consideration (£3,309,000) and a charge for the amortisation of
acquired intangible assets (£76,000);
Y - Non-current trade and other payables have been adjusted for a brought
forward bonus accrual charge (£502,000) and an additional employee bonus charge
(£3,032,000).
Consolidated Interim Cashflow Statement
The adoption of IFRS does not impact the amount of cash previously disclosed
under UK GAAP in any of the periods of account in the interim results.
INDEPENDENT REVIEW REPORT TO IP2IPO GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 on pages 6 to 25. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Our report has been prepared in accordance with the terms of our engagement to
assist the company in meeting the requirements of the London Stock Exchange for
companies trading securities on the Alternative Investment Market and for no
other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so by
our written consent. Save as above, we do not accept responsibility for this
report to any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the rules of the
London Stock Exchange for companies trading securities on the Alternative
Investment Market which require that the half-yearly report be presented and
prepared in a form consistent with that which will be adopted in the company's
annual financial statements having regard to the accounting standards applicable
to such annual financial statements.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with those International Financial Reporting Standards
adopted for use by the European Union.
The accounting policies used are consistent with those the directors intend to
use in the next annual financial statements.
Review work performed
We conducted our work in accordance with the guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the disclosed accounting policies have been
applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
BDO Stoy Hayward LLP
Chartered Accountants
Southampton
13 September 2005
Directors, secretary and advisors to the Group
Company registration number 4204490
Registered office Warwick Court
5 Paternoster Square
London
EC4M 7BP
Directors Professor William Graham Richards, CBE (Non-executive Chairman)
David Robert Norwood (Chief Executive Officer)
Dr Alison Fielding (Director of Technology Transfer)
Alan Aubrey, FCA (Managing Director)
Dr David Bruce Campbell (Chief Scientific Officer)
Dr Bruce Gordon Smith, CBE (Non-executive Director)
Christopher Roger Ettrick Brooke (Non-executive Director)
Company secretary Magnus Goodlad
Brokers KBC Peel Hunt Ltd Lehman Brothers
111 Old Broad Street 25 Bank Street
London London
EC2N 1PH E14 5LE
Registrars Capita IRG plc
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Bankers Royal Bank of Scotland
PO Box 333
Silbury House
300 Silbury Boulevard
Milton Keynes
MK9 2ZF
Solicitors Pinsent Masons
30 Aylesbury Street
London
EC1R 0ER
Public relations Buchanan Communications
107 Cheapside
London
EC2V 6DN
Independent auditors BDO Stoy Hayward LLP
Park House
102-108 Above Bar
Southampton
SO14 7NH
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