Half Yearly Report

28 March 2014

Imperial Innovations Group plc

Circassia IPO drives jump in profits as portfolio matures

Imperial Innovations Group plc (AIM: IVO, "Innovations", "the Group"), a leading technology investment group, has published its results for the six months ended 31 January 2014.

Portfolio developments

Financial highlights

Martin Knight, Chairman of the Group, said:

"The clear highlight for the period under review was the progress that Circassia made towards its IPO on the main market of the London stock exchange. Circassia raised £200.0 million in March, which we believe to be the biggest ever biotech fundraising at IPO in the UK market. With cash resources of more than £220.0 million. Circassia is on a sound footing to fulfil its potential of becoming a leading international biopharmaceutical company. As Circassia's lead investor, this has been a major success for us, translating into a significant profit and increase in net asset value for the Group.

"In this period alone, Circassia's IPO, taken together with the flotation of Oxford Immunotec on NASDAQ and the admission to AIM of IXICO, has demonstrated the validity and strength of our business model.

"We are focused on building substantial, high quality, well-funded and well-managed businesses in which we retain a meaningful stake. The success of Circassia confirms my view that this strategy is correct and should deliver exceptional returns for our shareholders.

"We have a number of other companies that are treading the same path as Circassia and share the same potential for success. These are well-funded businesses with high quality management teams and strong prospects.

"The strength and depth of our maturing portfolio, and the quality and professionalism of our executive team, give us confidence that we will achieve our business objectives. This confidence extends beyond our existing portfolio; the quality of the intellectual property we are seeing from Imperial College London and the academic communities of Cambridge University, Oxford University and UCL, is expected to lead to exciting investment opportunities and the prospect for further value creation."

A pdf copy of the results is available at http://www.imperialinnovations.co.uk/interim2014.pdf

Enquiries:

Background information to the Group

Imperial Innovations (the "Group") creates, builds and invests in pioneering technologies addressing global problems in healthcare, energy, engineering and the environment. The Group supports scientists and entrepreneurs in the commercialisation of their ideas by leading the formation of new companies, providing facilities in the early stages, providing investment and encouraging co-investment to accelerate development, providing operational expertise and recruiting high-calibre management teams.

Innovations was founded in 1986 as the technology transfer office for Imperial College London, to protect and maximise commercial opportunities arising from research undertaken at the College.

In 1997, Innovations became a wholly-owned subsidiary of Imperial College London and in 2006 was quoted on the Alternative Investment Market ("AIM") of London Stock Exchange plc, becoming the first UK university commercialisation company to do so.

Innovations has a technology pipeline agreement with Imperial College London which extends until 2020, under which it continues to act as the technology transfer office for Imperial College London. The Group also acts as the technology transfer office for select NHS Trusts linked to Imperial College London, including Imperial College NHS and North West London Hospital Trusts.

Since 2005, Innovations has raised £206.0 million of equity (before costs) from investors, which has enabled it to invest in a portfolio of spin-out companies. In addition, the Group has a £30.0 million loan facility from the European Investment Bank for investment in biotech and therapeutics businesses.

Following a fundraising in January 2011, Innovations has invested larger amounts and maintained its involvement for longer in the most promising opportunities within its portfolio of spin-out companies. In addition, the Group has made a number of investments in opportunities arising from intellectual property developed at, or associated with, Cambridge University, Oxford University and University College London, through its collaborations with Cambridge Enterprise, Oxford Spin-out Equity Management, and UCL Business respectively. Together with Imperial College London, these are the top four research intensive universities in Europe with a research income of over £1.3 billion per annum.

Since listing in 2006, Innovations has invested a total of £160.9 million across its portfolio companies, which have raised collectively investment of over £750.0 million to date. Innovations' largest holding is in Circassia Pharmaceuticals, which listed on the London Stock Exchange main market in March 2014 with a market capitalisation of £581.0 million and which raised £200.0 million.

CHIEF EXECUTIVE'S REPORT

Vision

Our vision is to create the next generation of world-class companies built on UK science and technology.

Strategy

In order to deliver this Vision, the Group is implementing the following strategy:

· To leverage the strengths of the UK's four leading, research-intensive universities by having the capability to select the most promising technologies and progress them from inception to maturity;

· To deliver strong spin-out companies backed by appropriate funding, experienced management teams and robust intellectual property (IP) positions;

· To build, evolve and continue to motivate these world-class management teams as the companies move from research through to development and commercialisation;

· To provide continuity of funding, building scale in the most promising portfolio companies through mergers, collaborations and syndicates of co-investors and collaborations; and

· To have the flexibility to take a long-term approach to realisation, if that would maximise value for all shareholders.

Business Model

The Group's business model is to work with university research at the earliest stage and then take it through to commercialisation. This end to end capability within our business is central to Innovations' business case.

This process involves a detailed screening of the "invention disclosures" which includes developing the IP strategy, investing in patent protection, carrying out market research and de-risking the technology through proof of concept studies. Once this essential early groundwork has been completed, and assuming it is favourable, a decision is then taken as to the best way of taking the IP forward. This can be either through licensing it out to a commercial partner or through forming a spin-out company.

The Group's Technology Transfer team provides the expertise in the early screening and licensing of IP derived from Imperial College. The Group's Ventures team helps to co-found the spin outs from Imperial College IP, but also works collaboratively with the Technology Transfer offices of the Universities of Oxford, Cambridge and UCL, helping to work up their spinouts or investing post-formation.

Crucially for long-term value creation, the Group's philosophy is to ensure that its spin out companies are set up appropriately right from the start. This means ensuring that the venture is funded sufficiently to attract experienced management with a track record and insightful understanding of the market in which the technology will be deployed. The Group always takes a seat on the board when it invests and therefore has a highly influential role in the running of the business and a shared sense of purpose with the management team.

Innovations plays a key role in each of its portfolio companies' funding strategy throughout its development; often building its holding, by investing in subsequent funding rounds plus assembling syndicates of like-minded co-investors, as well as attracting a community of corporate partners that may play a helpful role in the long-term development of the business.

Innovations' business model differs from that of traditional venture capital (VC) companies, in that the Group invests at an earlier stage and is not constrained by the typical VC 5-8 year investment horizon. As a result, the time to maturity for Innovations' assets may be anything up to 8-12 years. As a significant proportion of value can arise right at the end of this period, the Group's investment philosophy is to build its stake in its most promising late stage companies and to have the flexibility to take a long-term approach to realisation.

Overview

The first half of the year has seen a number of very positive events in line with the Group's strategy, with progress reported across much of our maturing portfolio, record profits and the valuation of portfolio companies increasing to £234.6 million (H1 2013: £173.1 million, FY 2013: £187.6 million). Gross portfolio uplifts from fair value gains were £37.6 million, reflecting progress across the portfolio, but driven in particular by the progression to the successful IPO of Circassia, the Group's largest asset. These portfolio gains were offset by impairments of £4.5 million where portfolio companies have seen slower progress or have been wound down. Total equity rose to £254.8 million (H1 2013: £227.6 million, FY 2013: £230.5 million).

Taking into account investments of £17.8 million and gross realisations of £4.0 million (net £4.0 million), the Group's portfolio value increased by £47.0 million in the six months to 31 January 2014. The net effect of our uplift in portfolio value, successful realisations and our cost reduction programme is that we are reporting a substantial jump in profits to £24.4 million.

During the period Innovations made a number of key organisational changes to strengthen the management team and organisation including the appointment of Dr Nigel Pitchford and Tony Hickson to the Board in October 2013. The new management team is in place and the business has been re-shaped to reflect the stage of maturity of the portfolio and its evolution to a full service investment business. The new management has also implemented tight control of operating costs and a cost reduction programme. This included reducing headcount across the business and managing succession of some senior people, which has also allowed us to bring forth existing talent within the business.

Clearly the stand out success year to date has been the IPO of Circassia post period end. This significant event highlights our ability to support the commercialisation of UK science and research, alongside high calibre management teams. Our willingness to fund investee companies from the very outset right through to maturity is core to our investment case.

Circassia's IPO followed closely behind the listing of Oxford Immunotec on NASDAQ in November 2013 and admission to AIM of Ixico in October 2013. Importantly, these IPOs provide vindication of our commercial judgement, our ability to build businesses and provide confirmation that deployment of capital in UK science works. They also highlight the strength in depth of our maturing portfolio.

Circassia is not a one-off and we have a number of exciting companies in our portfolio following behind. Beyond that we are continuing to invest in a healthy flow of early stage companies from our four partner universities.

Outlook

The Group continues to manage its portfolio to maximise value, and our major assets continue to make good progress as they push the boundaries of their technologies or move towards commercialisation.

The Board is optimistic about the prospects for the second half of the year. The IPO of Circassia in particular provides a clear demonstration of our business model and we are encouraged by the progress made in our other portfolio companies.

We have considerable strength in depth in our maturing portfolio and are confident that the businesses we support are strong, with experienced Boards and cutting-edge technologies addressing attractive, global markets. A number of our later stage investments, including Oxford Immunotec, Stanmore, PSE and Permasense, have strongly growing turnover and are expanding internationally.

Behind these revenue generating businesses, we have the next wave comprising some of the UK's brightest product development and pre-revenue companies. We are also continuing to build the portfolio through investing in new ventures to maintain a healthy flow of new opportunities to create value over the longer term.

Our financial and operational development of business and portfolio companies is inherently lumpy, and the Group's financial performance in any financial period is significantly impacted by timing of IPOs and other liquidity events. However, we believe our strong asset portfolio and key investment principles of setting companies up right from the start, attracting world class management, building our stake, putting our capital into selected portfolio companies and having the patience and capital resource to be prepared to hold for the long-term, will generate exceptional returns for our shareholders over the medium term.

Portfolio update

The Group is reporting on the progress of its holdings by grouping them into four sectors: therapeutics, medtech and medical devices, engineering and information & communications technology (ICT). These sectors reflect the strengths of the UK science base and also the heritage of our four partner Universities. The Group has specialists and areas of core competency in each of these sectors.

Whilst the Board of Directors monitors all investments as one portfolio, the Group is reporting on the progress of its holdings by grouping them into the above sectors. This is to allow clearer understanding of the sectors in which the Group invests.

The Group's top 30 investments (by value) represent a total gross carrying value of £230.9 million (net £226.1 million). Of this total, 52.6% is represented by companies in the therapeutics sector, including the Group's largest asset, Circassia. 23.6% of the Group's top 30 assets are in the engineering sector. The Group's medtech and medical devices companies represent 19.1% of the value of its top 30 companies. The information & communications technology (ICT) sector is a small and growing part of the Group's top 30 portfolio companies, currently representing 4.7% of the total value.

Therapeutics

Innovations continues to prove its ability to identify strong therapeutic assets early in development, build high quality investment syndicates to provide substantial funding where necessary, and develop those assets into leading businesses. In addition to developments in the advanced therapeutics portfolio such as Circassia and Cell Medica, the Group has also made investments in new therapeutic assets such as Crescendo Biologics and Pulmocide, ensuring the pipeline for the future.

Investments

During the period, the Group invested £11.1 million in therapeutics companies including:

· £1.5 million in MISSION Therapeutics, alongside co-investors Pfizer Venture Investments, Sofinnova Partners, SR One and Roche Venture Fund;

· £1.8 million in Pulmocide, alongside co-investors SV Life Sciences, Fidelity Biosciences, Johnson & Johnson Development Corporation;

· £3.3 million in Crescendo Biologics, alongside co-investors Astellas Venture Management and Sofinnova Partners;

· £1.9 million in TopiVert, alongside co-investors Neomed, Johnson & Johnson Development Corporation and SV Life Sciences

Therapeutics portfolio updates

Circassia is a clinical-stage specialty biopharmaceuticals company focused on the development and commercialisation of a range of treatments for allergies. The company made strong progress, with promising clinical trial developments and a series of senior board appointments.

On 18 March 2014, Circassia floated on the main market of the London Stock Exchange. This follows encouraging clinical trial results across Circassia's platform of immunotherapy products throughout the past five years. Circassia's lead product, a treatment for cat allergies, is currently in Phase III clinical trials. Innovations has supported Circassia since 2006.

In September 2013, Circassia announced that its short-course house dust mite allergy treatment had achieved positive results in a Phase II clinical trial. Patients who received four doses of the treatment over a 12 week period showed significantly improved allergy symptoms one year after the start of the trial when compared with placebo.

In October 2013, the company announced that its rapid grass allergy treatment had achieved positive results during a Phase II clinical trial. Importantly, patients who received a short-course of treatment before the pollen season had significantly improved allergy symptoms at the end of the season compared with those on placebo. Not only is grass pollen the most common cause of seasonal allergy in Europe and the US, but these results, in combination with positive clinical trial results for other allergens, demonstrate the potential of Circassia's technology platform in treating both seasonal and perennial allergies.

Circassia significantly strengthened its Board in the run up to its IPO, recruiting Dr Francesco Granata and Paul Edick to its Board of directors. Dr Granata joined Circassia as Chairman, taking over from Sir Richard Sykes. Dr Granata has more than 30 years' experience in the international pharmaceutical industry and is currently Executive in Residence at Warburg Pincus. Prior to this, Dr Granata was Executive Vice President at Biogen Idec, following senior roles at Schering-Plough and Pfizer. Mr Edick joined the company as non- executive director, and Circassia will benefit from his extensive commercial experience in the life sciences industry. Mr Edick is currently CEO of Durata Therapeutics, having previously led Ganic Pharmaceuticals and MedPointe Healthcare. Prior to these roles, he held senior positions at GD Searle and Pharmacia Corporation.

At the listing, Circassia raised £200.0 million. During the period a fair value gain of £28.8 million was recognised by Innovations to reflect the anticipated IPO. This was based on the expected valuation and discounted to reflect the illiquidity of the investment at the period end. As at the first day of trading, there was a further value gain of £8.2 million. The Group now holds 26,494,750 shares in Circassia.

PsiOxus Therapeutics, a biotechnology company which develops novel therapeutics for serious diseases with a particular focus upon cancer, published encouraging clinical results from one of its therapeutic programmes.

PsiOxus' MT-102, is a small molecule therapeutic which is in development for the treatment of cancer cachexia, a wasting disease associated with significant morbidity and mortality in cancer patients. In November 2013, the company announced top line positive data from a Phase II clinical trial of MT-102. The statistically significant result of the study, of 87 patients with stage III or IV lung cancer, and who also met the criteria for cancer cachexia, showed that those treated with MT-102 over a 16 week period had a greater weight gain than placebo patients.

PsiOxus also made progress with two ongoing clinical trials for ColoAd1, its oncoloytic vaccine product. These were in patients with ovarian cancer and patients with metastatic colorectal cancer. Results from these Phase I/II trials are expected in the second half of 2014. The first of these trials, the EVOLVE study, which is planned for dose escalation and expansion phases followed by a randomized Phase II stage, has presented preliminary data that showed evidence of virus replication within tumour sites following intravenous delivery.

In October 2013, PsiOxus was named the most innovative biotech SME by EuropaBio. PsiOxus received the award in recognition of its innovative approach to developing novel cancer therapeutics.

PolyTherics, a leading service and technology provider that enables the development of better biopharmaceuticals, continued to make good progress following further fundraising, including from new investor Invesco Perpetual, alongside a merger with Antitope on 26 July 2013.

PolyTherics increased the number of collaborations it has with pharmaceutical and biotech companies. In October 2013, the company signed a collaboration agreement with TUBE Pharma to combine its linker technology with TUBE's novel cytotoxic drugs to produce reagents to create more stable and homogenous antibody-drug conjugates (ADCs).

In December 2013, the company entered into a research agreement with Annexon to generate novel therapeutic antibodies for neurodegenerative diseases. The antibodies will be produced using Antitope's Composite Human Antibody technology so will be fully human with a consequent low risk of producing immunogenicity in the clinic. Annexon plans to take the antibody into preclinical trials.

Cell Medicais a biotechnology company developing cellular therapeutics for infectious diseases and cancer. The company has made excellent progress with product development.

In January 2014, the company received orphan drug designation in the European Union for Cytovir ADV, a T cell immunotherapy for the treatment of adenovirus infections in patients who have received a bone marrow transplant. Infections from adenoviruses are a frequent source of complications in bone marrow transplant patients due to their compromised immune systems. Orphan drug designation provides eligibility for protocol assistance, possible exemptions or reductions in regulatory fees during development, and ten years of market exclusivity from product launch in the EU. It should therefore provide an important competitive advantage to support the company's commercialisation strategy going forward. During the period Innovations invested £1.5 million at the last round price.

In September 2013, the company announced that it had acquired a manufacturing facility in Berlin-Buch (Germany). The facility has been opened with the intention of focusing on the manufacture of Cytovir CMV, a cell therapy for the treatment of cytomegalovirus in patients who have undergone bone marrow transplant. Cytovir CMV is expected to be ready for launch in the second half of 2014.

Autifony, which is pioneering new therapeutic treatments for hearing disorders, completed recruitment for its Phase I study for lead product, AUT00063. This is a novel, first-in-class Kv3 potassium channel modulator, and the study will investigate its safety, tolerability and pharmacokinetic effects. Results are expected in H2 2014. A fair value gain of £1.0 million was recognised by Innovations to reflect completion of an investment round at a higher valuation.

TopiVert, which is developing topical treatments for inflammatory diseases of the eye and gut, raised £17.0 million in a funding round comprising new investors Johnson & Johnson Development Corporation and Neomed Management and existing investors SV Life Sciences and Innovations, which invested £1.9 million in the round. The funding is designed to enable TopiVert to achieve clinical proof of concept in one indication.

MISSION Therapeutics, which is developing cancer therapeutics based on new understandings of the DNA damage response, completed a major funding round. In November, the company raised £20.0 million in a series B financing. Pfizer Ventures became a new investor in the business, alongside Innovations, Sofinnova Partners, S.R. One and Roche Venture Fund. The funding round will enable MISSION to advance its lead programmes through preclinical development. During the period Innovations invested £1.5 million. This investment resulted in a fair value uplift of £0.1 million reflecting the higher price of this round.

New therapeutics companies

Crescendo Biologics, which develops novel medicines based on innovative transgenic antibody fragment VH technology based on IP from the Babraham Institute, Cambridge, was added to the portfolio. Innovations led a £17.5 million Series A funding round for the company, committing £6.5 million alongside Astellas Venture Management and Sofinnova Partners.

The funds will be used to support the exploitation of Crescendo's unique antibody technologies. Crescendo's technology platform enables it to rapidly create novel, high-value product candidates that address areas of significant medical need that cannot be addressed by monoclonal antibodies or small molecules. The company has established an internal pipeline including a transformational topical biologic for psoriasis and products for oncology indications. Furthermore, the company intends to enter into strategic discovery partnerships with pharmaceutical and biotechnology companies.

Pulmocide was added to the portfolio, receiving £17.0 million in Series A funding from a syndicate of investors including SV Life Sciences, Fidelity Biosciences and Johnson & Johnson Development Corporation. Innovations invested £1.8 million in the round. Pulmocide is focused on the discovery and development of a new generation of inhaled medicines for the treatment of serious viral and fungal infections of the respiratory tract. Innovations is supporting Garth Rapeport and Pete Strong in their next venture following our success together with RespiVert, which was acquired by a subsidiary of Johnson and Johnson ("J&J") in 2010.

Medtech & Medical devices

Strong progress has been made by a number of the Group's holdings in this sector, most notably with the IPO of Oxford Immunotec on NASDAQ and admission of IXICO on AIM. Veryan is continuing its progress towards commercialisation with Phase II trials nearing completion and due to report in April 2014.

Investments

The Group invested £0.9 million in Medtech and Medical Devices companies, including £0.2 million in IXICO as part of its reverse takeover process.

Portfolio updates

Veryan Medical, a specialist in vascular disease, continued to see promising results from clinical trials of its leading stent product, the BioMimics 3D™ peripheral stent.

Veryan gained CE Mark approval for its BioMimics 3D™ peripheral stent in November 2012, since which time it has been gathering clinical data about the product's performance in patients.

In October 2013, data presented at the VIVA13 conference in Las Vegas, US, showed the BioMimics stent has demonstrated safety and promising clinical performance at 12 months in the treatment of patients with peripheral arterial disease. This data also showed that the Veryan stent outperformed the control stent in both patency (the extent to which the vessel around the stent remains open) and in freedom from clinically driven target lesion revascularisation. In 2013, a detailed review of the company's strategic options concluded that to maximise shareholder value, it would be beneficial to wait for the full results which are anticipated in April 2014. During the period Innovations invested £0.7 million at the last round price.

Post period-end, in February 2014, Veryan announced 24 month follow up data from its clinical trial of the BioMimics 3D™ stent. Data from the study showed that the Veryan stent provides an improvement in long-term patency compared to a straight nitinol stent.

This data continues to show the BioMimics stent in a positive light compared to other market-leading stent solutions, which suggests a favourable and competitive foundation for commercialisation in the US and Europe. We will therefore revisit our strategic options for commercialising Veryan's novel 3D helical stents, which could range from completing strategic partnerships around the technology platform to building a further funding round with the aim of taking the product through pre-market approval PMA in the US, a process which the Veryan team is familiar with.

Oxford Immunotec, a diagnostics company providing innovative tests in the field of immunology using a proprietary technology platform, listed on NASDAQ, under the trading symbol OXFD. Oxford Immunotec was the first investment that Innovations made into an Oxford University-based spinout company. The company chose to list on NASDAQ because of its extensive presence in the US, where it has received PMA from the US Food and Drugs Administration (FDA), as well as having established reimbursement. The company also maintains processing laboratories in Memphis, Tennessee. Further, the company's lead product, the T-SPOT.TB test for tuberculosis, has a large market in the US, where certain professions must undergo mandatory yearly testing for the disease.

The T-SPOT.TB test has been approved for sale in over 50 countries, including the EU, Japan and China, as well as the US. Though the company has a strong US presence, 50% of its revenue for 2012 came from outside of the US.

In December 2013, the company closed its initial public offering at the price of US$12 per share, generating estimated proceeds of US$62.8 million after expenses. Shares in the company have traded strongly since the IPO. Innovations has invested a total of US$9.5 million (£6.0 million) in Oxford Immunotec and led a US$28.0 million funding round for the company during 2012. Innovations did not sell any shares in Oxford Immunotec during the listing process, and retains a stake of 4.8% in the business.

Following its IPO, in December 2013, Oxford Immunotec announced its preliminary fourth quarter and fiscal 2013 revenues and initiated its 2014 fiscal year guidance. The company expected total revenue for the fourth quarter of 2013 of between US$10.1 million and US$10.5 million, with fiscal 2013 revenues expected to be between US$38.6 million and US$39.0 million. The company also announced that it expects 2014 revenue to be in the range of US$47.0 million to US$50.0 million. During the period this stock generated a fair value gain of £3.1 million for Innovations.

IXICO, the digital health company, was admitted to trading on AIM. IXICO was acquired by Phytopharm plc, and the enlarged Phytopharm group was renamed IXICO plc. Innovations purchased a small number of shares during the transaction. IXICO's first day of trading on AIM was 15 October 2013. A small loss of £0.2 million has been reflected due to movements in the market price of this stock.

In December 2013, IXICO launched Assessa, a decision-support tool for diagnosing dementia. Assessa is designed to improve the quality of the information available to healthcare professionals diagnosing dementia, thereby enabling patients to receive the right treatment and support they need sooner. Structural brain imaging (such as MRI scans) is regularly used in the diagnosis of dementia and is recommended by the National Institute for Clinical Excellence (NICE) in the UK. Assessa provides clinically actionable information from brain scans by making precise measurements of the brain and comparing it with a reference database of normal elderly people and dementia patients of the same age. Assessa is designed to help healthcare professionals make fast, accurate diagnosis of dementia. IXICO is collaborating with InHealth to provide access to the product in the UK and Ireland.

Abingdon Health, the diagnostics company, saw progress with a number of its subsidiary companies. In August 2013, Serascience gained a CE Mark for Seralite®, the world's first rapid diagnostic device for diagnosis and monitoring of multiple myeloma. Multiple myeloma is a common blood cancer for which rapid diagnosis plays a key role in improving patient outcomes by removing existing delays in diagnosis, identifying patient relapse earlier, and enabling quicker decisions by clinicians. The CE mark facilitates the sale of Seralite® in the European Union and beyond. Commercial launch of the product is expected in H1 2014.

Two group subsidiary companies received Technology Strategy Board funding in September 2013. Linear diagnostics, which is developing a technology platform based on linear dichroism, and Molecular Vision, an optiocal detection company with platform technology based on the integration of organic light emitting diodes (OLEDs) and organic photo detectors (OPD) received the grant to develop a diagnostic test to help prevent the spread of crop disease. AltaBioscience continues to expand its analytical services by introducing circular dichroism (CD) analysis and analytical ultra centrifugation (AUC) analysis, while Forsite Diagnostics has seen an increase in its contract manufacturing business with a number of projects moving from R&D into manufacturing.

Engineering

A number of the Group's holdings in this sector have an interest in UK manufacturing, with Nexeon and Plaxica both developing plants in the UK.

Investments

The Group invested £4.7 million in engineering companies including:

· £0.9 million in Plaxica alongside co-investors NESTA and Invesco Perpetual;

· £0.6 million in seed-funding for Oxford Biotrans;

· £0.3 million in Aqdot alongside co-investors Cambridge Enterprise, Parkwalk Advisors and Providence Investment Company;

· £2.9 million in Econic Technologies alongside Jetstream Capital.

Portfolio updates

Nexeon, a battery materials and licensing company which is developing silicon anodes for the next generation of lithium-ion battery, has continued to focus on optimising its proprietary technology. Silicon anodes offer benefits over conventional carbon anodes as they allow the development of lithium-ion cells with greater energy density.

The company has a range of strategic partnerships and joint development agreements with major industrial partners which are progressing and delivering data and know-how that supports Nexeon's technology development. An example of this is the relationship with Wacker Chemie, through which the German chemicals giant is sharing its considerable expertise in silicon processing. Nexeon has a world class R&D facility and recently attracted as Chief Technology Officer Tsuyonobu Hatazawa, ex-Head of Advanced Battery Research at Sony.

Nexeon is currently optimising its silicon materials for applications as demanded by the battery industry. The industry has been slower than anticipated in its adoption of silicon anode materials, with a predicted delay until late 2014. Furthermore, the industry appears generally keener to begin producing blended carbon/silicon anodes, rather than switch straight to pure or high-load silicon anodes, as Nexeon had expected.

Nexeon's first generation of pillared particles was not optimised to work in a silicon/carbon blend because the inert particle core becomes fully lithiated; higher cycle life is delivered in high-load silicon anode designs because it is mainly the pillars which are fully lithiated.

Nexeon is undertaking further optimisation work on its pillared particle silicon (ppSi) in order that it can meet the needs of this blended design; successful safety tests on this material were undertaken by customers. This has implications for production yields and costs. Nexeon has meanwhile been working on at least two other forms of porous nanostructured silicon which are specifically targeting these sprinkling applications and could ultimately prove to be lower cost than ppSi, both in terms of capital expenditure and materials.

Nexeon's new 20 tonne plant which has been completed in Milton Park, Oxford, UK, can be made ready for production within a three month lead time and was designed with flexibility in mind to accommodate the slightly different production processes. These novel porous silicon materials may also be appropriate for high load silicon anodes which are expected now to become adopted by the battery industry two to four years after silicon/carbon blended anodes.

Work continues in parallel on the pillared particles for those high silicon load applications. Nexeon is sampling porous and ppSi materials to both battery Original Equipment Manufacturers ("OEMs") and automotive companies under material evaluation agreements ('MEA'). The latest estimate for the commencement of Nexeon's volume production remains circa 12 months away.

As at 31 December 2013, after paying for the 20 tonne plant but having deferred the capital expenditure on the 250 tonne scale up, Nexeon had £26.5m of cash, representing more than three year's gross costs. Despite these delays, Nexeon remains well positioned in the race for silicon anode materials. 

Plaxica, the developer of low cost lactic acid for next generation biopolymers and platform chemicals, completed an £8.0 million Series C fundraising, with investment from Innovations, Invesco Perpetual and NESTA. Innovations committed £3.9 million as part of the round (of which it invested £0.9 million in the period).

Plaxica's technology enables the manufacture of a range of high performance polylactic acid (PLA) polymers and intermediates with improved properties and a reduced cost of production compared with PLA polymers already on the market. They also represent a sustainable alternative to current oil-based materials as they are bio-based, fully recyclable and have a smaller environmental footprint.

The global PLA market is growing at a rate of in excess of 20% per year, and is expected to reach US$1 billion by 2016. Plaxica's biopolymers are aimed at applications as diverse as packaging, electronic goods, automotive parts and textiles. The additional funding will allow Plaxica to construct its second lactic acid demonstration plant and to progress a number of important partnership and licensing discussions.

Econic Technologies, which is developing novel catalyst technologies for the manufacture of polymers from carbon dioxide (CO2), raised a further funding round. In December 2013, the company received £5.1 million investment from Innovations and new investor, Jetstream Capital. Funding from this round will be used to further the testing and scale-up of Econic's catalyst technology.

Econic Technologies develops new catalytic processes for manufacturing polymers using waste CO2 as a feedstock. The use of CO2 to replace conventional petrochemical-based feedstocks enables a significant cost reduction for certain polymer manufacturers. For example, Econic polycarbonates replace between 30% and 50% of traditional petrochemical feedstock with lower cost CO2, resulting in 30-40% cost reductions as well as improved product characteristics. The resulting polycarbonates can be used in a variety of applications including the production of polyurethane - a US$40 billion global market - which includes products such as foams, plastics and polyesters. The investment generated a fair value gain of £1.7 million reflecting the higher price of this round.

In February 2014, post period-end, Econic won grant funding from the Technology Strategy Board for a collaborative project with Imperial College London to develop novel catalysts that enable polyols to be manufactured from CO-2.

Aqdot, is a Cambridge University spinout which has developed a proprietary and disruptive chemical encapsulation technology that enables the production of extremely small droplets that can carry 'active materials' - for instance, cleaning enzymes used in domestic detergents, or agrochemicals for crop treatments. In November 2013, Innovations led a £1.0 million funding round alongside Cambridge Enterprise, Parkwalk Advisors and Providence Investment Company.

New engineering companies

Oxford Biotrans, a spinout from Oxford University's technology transfer company, ISIS Innovation, was added to the portfolio. Innovations made a seed investment of £0.6 million in the company, in a round alongside Oxford Spinout Equity Management. Oxford Biotrans is developing proprietary enzyme technology to convert low cost feedstocks into high value chemical compounds. The company's technology enables novel routes of production for these high value chemicals, in a process that requires little energy and generates very small amounts of waste in contrast to conventional chemical routes to these products.

ICT/digital/communications

The ICT sector is a small but growing part of the Group's asset portfolio and a key focus for the future. Our investment approach tends to be on leveraging our University partners' strengths in computer engineering rather than on social or digital media, but we are keeping a watchful eye on new initiatives in these rapidly emerging sub-sectors. We invested in Yoyo a customer loyalty and mobile payments business and also successfully completed the trade sale of one of our software companies. The terms of this transaction are confidential, but the Group realised a 3x return on an investment made in 2012.

Investments

The Group invested £1.2 million in ICT/digital/communications companies, including a £0.3 million investment as part of a £0.8 million funding round for Yoyo alongside other investors.

Cortexica, the visual search company, has been focusing on developing and marketing its FindSimilar™ fashion image matching product. Commercial deals have been signed with a number of online fashion retailers. To date, Cortexica has signed a total of five revenue-generating deals for its FindSimilar technology. However in spite of this growth in customers, it was recognised that the company would require longer to develop its markets and this has resulted in a fair value impairment of £3.9 million.

Featurespace, the predictive analytics company, made good customer progress, signing a five year deal with Betfair in August 2013. This builds on an existing relationship with the gaming company. Featurespace provides real-time fraud detection technology to Betfair which can predict and identify fraudulent behaviours, or those behaviours which are likely to become fraudulent.

Also in August 2013, Featurespace partnered with Callcredit Information Group that will provide Callcredit with access to Featurespace's core adaptive behavioural analytics engine, ARIC. This will enable Callcredit to extract more detailed insight from its clients' data and make accurate predictions about future outcomes.

Semetric, the data-driven analysis tool for the entertainment industry, made good commercial progress. Its major product, Musicmetric, which provides a range of big data analytics solutions for the music industry, released new tools that help marketing and branding professionals understand the potential of individual recording artists to support their brand. In addition, the company has launched a new tool that can help concert promoters or record labels analyse fan interest based on location or other criteria.

Semetric has commercial deals in place with major companies in the music and entertainment industry, including MTV, EMI and Spotify.

New ICT/digital/communications companies

Yoyo, a customer loyalty and mobile payments business, was spun out by Innovations. Yoyo has developed a technology platform that allows instant payment via a mobile phone application, and which allows retailers to easily deliver loyalty rewards. The company was founded by Alain Falys, entrepreneur-in-residence at Innovations. Yoyo launched its service at Imperial College London's South Kensington campus in January 2014.

Russell Cummings

Chief Executive Officer

FINANCIAL REVIEW

Summary

The Group's financial position is healthy and the profit for the period is pleasing. Net assets at the period end of £254.8 million (H1 2013: £227.6 million, FY 2013: £230.5 million) increased by £24.4 million from 31 July 2013.

Cash and short term liquidity investments remained strong at £48.1 million (H1 2013: £63.0 million, FY 2013: £65.6 million).

The Group generated a profit during the period of £24.4 million (H1 2013: £0.9 million, FY 2013: £3.8 million).

Net cash collected from realisations, was £3.4 million (H1 2013: £0.4 million, FY 2013: £0.2 million).

The Group's rate of investment in its portfolio companies was £17.8 million across 17 portfolio companies (H1 2013: £14.0 million, FY 2013: £22.2 million). This takes the total invested since Innovations' IPO in July 2006 to £160.9 million and the total raised by the Group's portfolio companies to over £571.9 million.

Cash and short-term liquidity investments

At 31 January 2014, the Group had cash and short term liquidity investments of £48.1 million (H1 2013: £63.0 million, FY 2013: £65.6 million).

Including the undrawn £15.0 million second tranche of the European Investment Bank ("EIB") loan, which can be drawn down over the next 12 months, the total available for investment and working capital is £63.1 million (H1 2013: £63.0 million, FY 2013: £80.6 million).

The movement in cash and short term liquidity investments of £17.5 million from the opening balance at 31 July 2013 is summarised below:

1 Includes the final third tranche of deferred proceeds on the 2011 equity raise of £37m which was received in full in January 2013.

The Group invests cash surplus to working capital requirements in short-term deposits, classified as short term liquidity investments, across a number of banks with a focus on capital preservation rather than interest earned. The Group has no foreign currency deposits.

Revenues, cost of sales and operating costs

Total trading revenue of £1.6 million (H1 2013: £1.6 million, FY 2013: £3.3 million) was comparable with the prior half year reflecting steady performance in a challenging economic environment. Within this licence and royalty revenue was £0.5 million (H1 2013: £0.7 million, FY 2013: £1.4 million). Revenue from services was £0.8 million (H1 2013: £0.8 million, FY 2013: £1.6 million). Corporate finance fees were £0.3 million (H1 2013: £0.1 million, FY 2013: £0.3 million) and were primarily generated by the Group-led funding rounds.

Cost of sales, which mainly arises from the revenue sharing arrangements with Imperial College London, remained steady at £0.3 million (H1 2013: £0.5 million, FY 2013: £0.8 million) reflecting the licence and royalty activity.

Other administrative expenses were £4.5 million (H1 2013: £4.5 million, FY 2013: £9.5 million). Other administrative expenses includes costs of £0.7 million (H1 2013: £0.5 million, FY 2013: £1.2 million) incurred filing patents and protecting the as yet unexploited intellectual property from Imperial College London.

The Group's carried interest plan, which is a significant portion of its long term incentive arrangements, recognised a charge of £5.6 million (H1 2013: release of £2.8 million, FY 2013: a release of £2.4 million). There is no cash payment due to members of the scheme until the Group has made substantial cash realisations.

Finance income was lower at £0.3 million (H1 2013: £0.8 million, FY 2013: £1.1 million), reflecting the interest rate environment and the lower cash balance. During the period ended 31 January 2014, the Group made its first repayments of quarterly interest of £0.3m on the EIB loan, since the first tranche draw down in July 2013.

The Group reported a profit before tax of £24.4 million (H1 2013: £0.9 million, FY 2013: £3.8 million). The Group's basic earnings per share was 24.68p (H1 2013: basic earnings per share 1.45p, FY 2013: basic earnings per share 4.63p). The Company did not pay a dividend (H1 2013: nil, FY 2013: nil).

Investment portfolio performance

The Group reported a net fair value gain arising from the portfolio of £33.2 million (H1 2013: £4.2 million gain, FY 2013: £10.8 million gain). An analysis of the changes in fair value is set out in note 2 to the interim financial statements and is summarised below:

The total gross value of the portfolio increased from £187.6 million to £234.6 million as a result of investments of £17.8 million, less disposals of £4.0 million (on the sale of a software business), gains on revaluation of £37.7 million less losses on the revaluation of investments of £4.5 million. Non-current liabilities on investments remained steady at £5.1 million (FY 2013: £5.1m).

Investment and divestment

During the period, the Group made £17.8 million of investments to fund 17 technology companies in its portfolio and at the end of the period had outstanding investment commitments of £21.1 million.

Total net investment after net cash disposals in the period was £14.4 million (H1 2013: £13.6 million, FY 2013: £22.0 million).

Portfolio company creation

At 31 January 2014, the Group held equity stakes in 93 companies (H1 2013: 86 companies, FY 2013: 92 companies). The movement reflects formations during the period and two of these are discussed in the Chief Executive's report.

Portfolio company overview

The Group has invested a total of £165.6 million in companies which have been active since the IPO of Innovations in July 2006. This includes investment of £4.7 million prior to the IPO and the balance of £160.9 million has been invested since the IPO. Since the January 2011 £140.0 million equity raise, the weight of capital has been focused towards the later stage companies. Of the £160.9 million invested, 86% has been focused on 23 companies where we have invested over £2.0 million in each with the balance invested in smaller companies.

The Group has a total of £140.5 million invested capital at work in the portfolio of currently active technology companies; £131.5 million invested in the top 20 companies, and £9.1 million in the remaining 26 smaller companies.

The table below sets out the top 20 technology companies in the portfolio by value, including contingent consideration, to illustrate the spread of the investments held and their relative carrying value. All of the carrying values listed below reflect the net fair value of the investment, being the gross value of the holding less the attributable revenue-sharing obligations associated with each investment. The percentage of issued share capital represents the absolute percentage of the shares held, without reflecting any revenue-sharing obligations. The percentage holdings in these companies are increasing in line with the Group's strategy to hold larger stakes in its portfolio companies.

The portfolio of companies, are grouped into four sectors (as noted in the Chief Executive's report) however the Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial statements. As a result the Directors are of the opinion that under IFRS 8 the Group has only one operating segment.

Table of the net fair value of the top 20 investee companies

A Following conversion of loans and on a fully diluted basis Innovations' holding in Cortexica rises to 65.4%.

B The Group's investment in Molecular Vision is included in the Abingdon Health investment following its acquisition of 50% of the Molecular Vision equity.

C Currently active companies which excludes those sold, closed or impaired.

Anjum Ahmad

Treasury and Finance Director

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2014

The accompanying notes are an integral part of these interim financial statements.

CONSOLIDATED INTERIM BALANCE SHEET

AS AT 31 JANUARY 2014

The accompanying notes are an integral part of these interim financial statements.

The interim financial statements were approved by the Board of Directors on 27 March 2014 and were signed on its behalf by R. Cummings.

R. Cummings

Chief Executive Officer

CONSOLIDATED INTERIM CASH FLOW STATEMENT

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2014

The accompanying notes are an integral part of these interim financial statements.

CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Group

The accompanying notes are an integral part of these interim financial statements.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. Basis of preparation  

These unaudited condensed consolidated interim financial statements have been prepared in accordance with the AIM Rules and European Union endorsed International Financial Reporting Standards and International Financial Reporting Interpretation Committee Interpretations. These comprise the consolidated interim statement of comprehensive income, the consolidated interim balance sheet, the consolidated interim cash flow statement, the consolidated interim statement of changes in equity and the related notes ("the condensed consolidated interim financial statements"). The Group has chosen not to adopt IAS 34, "Interim Financial Reporting", in the preparation of these condensed consolidated interim financial statements.

These condensed consolidated interim financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of certain financial assets at fair value, as required by IAS 39, "Financial instruments: Recognition and Measurement". The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 July 2013, as described in those financial statements, with the exception of the following new standards which have been applied for the first time during the year commencing 1 August 2013:

IFRS 13 "Fair value measurement". IFRS 13 measurement and disclosure requirements are applicable for the financial year commencing 1 August 2013. IFRS 13, 'Fair value measurement', aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. The Group will include the relevant disclosures required by IFRS13 in the Group's annual report for the year ending 31 July 2014.

In addition, IAS 19 "Employee benefits"is also applicable for the financial year commencing 1 August 2013 and is not expected to have a material impact on the Group.

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 July 2013 were approved by the Board of Directors on 16 October 2013 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2. Net change in fair value of investments held at fair value through profit or loss

Net change in fair value for the period represents the change in fair value less the revenue share charge on these fair value movements. Net change in fair value of investments of £33.2 million as set out on the face of the Consolidated Statement of Comprehensive Income represents the change in net fair value as summarised below.

Included within the net fair value movement recognised in the Consolidated Statement of Comprehensive Income are provisions for liabilities and charges. These are made up of the revenue sharing provision which represents a fair value estimate of monies due to Imperial College London and other third parties such as co-funders of research work and the Appointee Directors' Pool. The provision will be payable upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in investments. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.

HEIF funded investment and University Challenge Seed Fund

The University Challenge Seed Fund (UCSF) reflects an award made by the UK government and third parties and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies from UCSF investments until the fund size has reached a multiple of three times the original investment of £4.15 million, excluding donations from industry parties. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.

The Higher Education Innovations Fund (HEIF) reflects an award made by the UK government and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies. Realisation must be paid back to the fund for re-deployment. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.

Fixed asset investments

All equity investments held by the Group are defined as financial assets under International Accounting Standard (IAS) 32 'Financial Instruments: Disclosure and Presentation' and are classified as financial assets held at fair value under IAS 39, 'Financial Instruments: Recognition and Measurement'. This includes all UCSF equity investments.

Under IAS 39 the carrying value of all investments is measured at fair value with changes in fair value between accounting periods being charged or credited to the Consolidated Statement of Comprehensive Income.

The following tables in this note set out how the net fair value gains recognised in the Consolidated Statement of Comprehensive Income for each of the periods is generated. The tables exclude any UCSF or HEIF related investments as returns are repayable to the respective funds based on the above terms.

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the period, setting out any fair value gains and losses together with the impact arising as a result of disposals.

The table below sets out the movement in the net carrying value of investments from the start to the end of the period, setting out the net fair value gains and losses together with any investments and disposals.

1 Quoted companies are registered on AIM and NASDAQ

2 The provision for liabilities and charges represents monies due to Imperial College London upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in these particular investments. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy. Deferred consideration represents monies due to Imperial College London upon the eventual realisation of the Imperial Innovations LLP assets acquired from Imperial College London as part of the private share placement in 2005.

Additionally, monies are due to parties in the Appointee Directors' Pool in respect of the Imperial Innovations LLP assets acquired as part of the stepped acquisition in 2005 and to other third parties. These are included in 'Revenue Sharing Other' in the table below. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.

The following table analyses the provision by obligation:

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the period, setting out any fair value gains and losses together with the impact arising as a result of disposals.

The table below sets out the movement in the net carrying value of investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the period, setting out any fair value gains and losses together with the impact arising as a result of disposals.

The table below sets out the movement in the net carrying value of investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

3. Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial period by the weighted average number of Ordinary Shares in issue during the period. Diluted earnings per share is computed by dividing the profit for the financial period, by the weighted-average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options and partly paid New Convertible B Shares on an as-if-converted basis. The potential dilutive shares are included in diluted earnings per share computations on a weighted average basis for the period. The profits and weighted average number of shares used in the calculations are set out below:

4. Share capital and equity raise and EBT

Share Capital

On 24 January 2011, the Company's total issued voting share capital increased through the issue of 2,870,328 New Ordinary Shares of 3 and 1/33 pence each at 350 pence each pursuant to a 2 for 3 Rights Issue (taking the total number of Ordinary Shares admitted to trading on AIM to 62,660,949) and 36,990,086 New Convertible B Shares of 350 pence each, which had not been admitted to trading on AIM. The issue price for the New Convertible B Shares was 350 pence (the "issue price") each payable in three instalments, comprising 150 pence (paid during the period of the Rights Issue), 100 pence paid on 20 January 2012 and 100 pence paid on 21 January 2013. As at the date of these interim financial statements the shares are fully paid up and application was therefore made for admission to trading on the London Stock Exchange's AIM market for listed securities on 22 January 2013.

Following receipt of the final instalment, on 21 January 2013 in respect of the issue price of all New Convertible B Shares the New Convertible B Shares were converted into new fully paid Ordinary Shares of 3 and 1/33 pence each.

The total issued voting share capital as at 31 January 2014 was 99,651,035 voting shares (31 July 2013: 99,651,035 voting shares).

Equity raise

The Company raised net proceeds of £135.0 million from the Rights Issue and issue of New Convertible B shares during the year ended 31 July 2011. This was made up of: £10.0 million received from the 2 for 3 Rights Issue of 2,870,328 New Ordinary Shares at 350 pence each; £129.5 million from the issue of 36,990,086 New Convertible B Shares at 350 pence each (payable in three instalments); less expenses of £4.5 million, which related primarily to investment banking, legal and regulatory filing fees, accounting, printing and public relations fees. These issue expenses were taken directly to the share premium account and retained earnings in proportion to the proceeds from the Rights Issue and issue of New Convertible B Shares respectively.

The issue price for the New Convertible B Shares was payable at 350 pence each in three instalments comprising 150 pence paid during the period of the Rights Issue, 100 pence paid on 20 January 2012 and 100 pence paid on 21 January 2013.

Therefore, of the total net proceeds of £135.0 million, £61.0 million cash was received in January 2011, comprising £10.0 million from the 2 for 3 Rights Issue, £55.5 million from the first instalment of the New Convertible B Shares less £4.5 million of issue expenses.

Of the remaining total proceeds of £74.0 million relating to the New Convertible B Shares, £37.0 million was received on 20 January 2012 and £37.0 million was received on 21 January 2013.

Employee Benefit Trust

As at 31 January 2014, the Employee Benefit Trust (EBT) held 971,080 (FY 2013: 971,080) of the Group's Ordinary Shares, which have a cost of £2,564,009 (FY 2013: £2,564,009). As set out in the Directors' remuneration report for the year ended 31 July 2013, these represent unallocated shares which are considered to be under the de-facto control of the Group and have therefore been consolidated in the financial statements.

It is the intention of the Group to use these shares to settle the option liabilities at the point of exercise and they represent a partial hedge on the cost of the exercise. No shares have been issued from the EBT during the period (FY 2013: nil).

5. Short term liquidity investments and cash and cash equivalents

Reconciliation of amounts invested to trade investments:

Reconciliation of cash flows arising from sale of trade investments:

Reconciliation of cash flows arising on revenue share paid on asset realisations of trade investments:

6. Borrowings - non-current

On 1 July 2013 the Group entered into a £30.0 million loan agreement with the European Investment Bank (EIB) available to draw down in two tranches of £15.0 million. The purpose of the loan is to provide 50% of the funding for Biotech and Therapeutics investments. The first tranche of £15.0 million was drawn down on 30 July 2013. Transaction costs in the year ended 31 July 2013 of £186,000 were incurred to obtain the loan and were set against the loan amount. These costs are subsequently amortised over the life time of the loan. During the period ended 31 January 2014, £8,000 (FY 2013: £nil) was released to the Statement of Comprehensive Income.

The loan is based on a floating interest rate related to LIBOR and is repayable in 10 equal annual instalments over a twelve year period with the first payment due on 25 July 2016. There is an uncapped cash sweep of 25% of all investment realisations used to prepay the loan.

The loan contains a debt covenant requiring that the ratio of the total fair value of investments plus cash and qualifying liquidity to debt should at no time fall below 4:1. The Group closely monitors that the covenant is adhered to on an on-going basis and has complied with this covenant throughout the period.

There is no commitment fee on the second tranche of the EIB loan of £15.0 million, the drawdown of which is likely to occur within 18 months of the first tranche disbursement.

7. Post balance sheet events

Circassia Pharmaceuticals listed on the LSE main market in March 2014 with a market capitalisation of £581.0 million. During the period a fair value gain of £28.8 million was recognised by Innovations to reflect the anticipated IPO. This was based on the expected valuation and discounted to reflect the illiquidity of the investment at the period end. As at the first day of trading of Circassia in March 2014, there was a further value gain of £8.2 million. The Group now holds 26,494,750 shares in Circassia.

Independent review report to Imperial Innovations Group plc

Introduction

We have been engaged by the company to review the condensed consolidated interim financial statements in the half-yearly financial report for the six months ended 31 January 2014, which comprises the consolidated interim statement of comprehensive income, consolidated interim balance sheet, consolidated interim cash flow statement, consolidated interim statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial statements included in this half-yearly financial report has been prepared in accordance with the basis of preparation set out in note 1.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements in the half-yearly financial report for the six months ended 31 January 2014 is not prepared, in all material respects, in accordance with the basis of preparation set out in note 1 and the AIM Rules for Companies.

PricewaterhouseCoopers LLP

Chartered Accountants

27 March 2014

Cambridge

Notes:

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The maintenance and integrity of the Imperial Innovations Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.