13th Sep 2005 07:03
IP2IPO Group PLC13 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 propertycommercialisation 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 ExecutiveOfficer of IP2IPO, said: "I am extremely pleased with our half-year results which show significantdevelopment in both IP2IPO and its portfolio of spin-out companies. The Group ismaturing very rapidly as demonstrated by the formation of Modern Biosciences inMay, which takes IP2IPO into new territory, beyond its existing universitypartnership business. "The portfolio of spin-out companies has made excellent progress. Proximagen'sflotation in March is the first flotation of a spin-out company formed under theauspices of IP2IPO's partnership with King's College London and underscoresIP2IPO's ability to create value from university IP. IP2IPO made an investmentof £332,000 in Proximagen in March 2004, which at 30 June 2005 was worth £6.6million. "I am also delighted to report that since the end of June, GETECH Group plc, aspin-out company from the University of Leeds, has announced its intention tofloat on AIM, which is a great affirmation of the rationale behind IP2IPO'sacquisition of Techtran Group Limited in January. "Looking ahead, IP2IPO's portfolio of unquoted spin-out companies will continueto evolve and the opportunities for further exits within the next 12 months arelooking extremely positive." For more information please contact: IP2IPO (www.ip2ipo.com) 020 7489 5200David Norwood, Chief Executive Officer Buchanan Communications 020 7466 5000Tim Anderson, Mark Court, Mary-Jane Johnson CHAIRMAN'S STATEMENT The six months to 30 June 2005 were an exciting time for the development ofIP2IPO. During the period we acquired a fifth university partner, increased ournumber of spin-out companies and saw considerable value creation throughout theportfolio. Adoption of International Financial Reporting Standards ("IFRS") The Group has matured significantly. The Board continues to believe that yourcompany is the market leader within the intellectual property commercialisationsector and, as a result, the Board has concluded that it is appropriate for theCompany to adopt International Financial Reporting Standards. By doing so, theBoard believes that the Company is best preparing itself for the next phase ofits development. The most significant change involved in the adoption of IFRS is that the Groupwill report increases and decreases in the value of its portfolio of equitystakes in spin-out companies and will recognise these movements in the incomestatement (even though these movements do not represent gains or losses arisingon disposal which will be reported separately). Hence movements in the price ofour listed holdings could have a considerable impact on our reported profit orloss. The Board believes that this provides shareholders with improved visibility andthe best possible way of measuring the Group's success at creating value fromnascent intellectual property based opportunities. As the number of spin-outsincreases and our portfolio matures, the volatility caused by individual shareprice 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 forthe 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 commercialisationpartnership with the University of Leeds. I am delighted to report that theintegration of Techtran is going extremely well. The existing portfolio ofTechtran companies is making very good progress and since 30 June 2005, GETECHGroup plc, a company formed within the University of Leeds, has announced itsintention to float on AIM. The University of Leeds is proving to be a very fertile ground for theexploitation of world class science and the Techtran team is adept at harvestingthis potential. This gives me confidence that the acquisition will deliversignificant 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 20companies. 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 thefirst 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; andour quoted companies are just a small proportion of our overall portfolio. Whathas been particularly encouraging is the progress of certain companies withinthe private portfolio. Several of the spin-outs are trading profitably whilecontinuing to invest in research and development. As an example of the value ofuniversity intellectual property we announced in April 2005 that ReOx Limitedhad concluded a multi-million pound license deal with a major bio-pharmaceuticalcompany. The success of several of the early spin-outs tends to encourage otherscientists within our university partners to come forward with their ideas. Thismeans that our pipeline of new spin-out opportunities looks more exciting thanever before. The challenge for the Group is to continue to exploit this momentumwhile 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) inorder to finance the launch of a new business - Modern Biosciences. ModernBiosciences will in-license life science intellectual property created bymedical researchers at universities with which IP2IPO already has partnerships,other universities in the UK and similar academic and charitable researchinstitutions. Its objective is to develop further this in-licensed intellectualproperty as a precursor to licensing these development programmes to thepharmaceutical industry. Modern Biosciences has made good progress since May andis in early stage discussions with a number of universities in respect ofin-licensing promising intellectual property. The Group's objective is that Modern Biosciences will be run as a stand alonebusiness. Accordingly, Modern Biosciences has commenced the process ofrecruiting the senior management team that will be responsible for driving thebusiness forward. We expect to update the market further on the progress ofModern Biosciences in the near future. Board changes In January 2005, Alan Aubrey FCA and Dr Alison Fielding joined the Board ofIP2IPO from Techtran. Much of the success of the acquisition of Techtran is dueto the efforts of Alan Aubrey and Alison Fielding who have made an immensecontribution to the Group. We announce today that Alan has been appointedManaging Director of the Group and Alison has become Director of TechnologyTransfer. John Davies today steps down from the Board having served as Chief FinancialOfficer since 2001. John leaves to join Inhibox Limited (the first spin-outcompany formed under IP2IPO's partnership with the University of Oxford) anddoes 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. WilliamTurner 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 partnershipwith the University of Oxford in December 2000. Both sides knew that this wassomething 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 ofour leading scientists are making in partnership with IP2IPO. This benefits thedepartment, the University, the scientists themselves and, of course, the IP2IPOGroup. Five years on and the Group is now working with five major universities and hasan interest in the output of over 9,000 scientists. The UK has always been aworld leader in scientific innovation but has often floundered in theexploitation of those ideas. IP2IPO wants to help bridge that gap by being thechannel through which science can get to market. Although there will be many challenges ahead I am confident that we havedeveloped a successful model for the commercialisation of science in the UK.This confidence is shared by my fellow directors. During the period our ChiefExecutive, David Norwood, purchased a further 42,500 shares bringing his totalinvestment into the Group to £2m. Roger Brooke also increased his holding by8,740 and Bruce Smith purchased 7,750 shares. I would like to conclude bythanking our shareholders, our staff and all our university partners. Graham RichardsChairman 13 September 2005 CONSOLIDATED INTERIM INCOME STATEMENTFor 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 SHEETAs at 30 June 2005 Unaudited at Unaudited at Unaudited at 30 June 30 June 31 December 2005 2004 2004 (Restated) (Restated) Note £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 68 59 55Intangible assets: Goodwill 2 18,423 2,086 2,091 Acquired intangible assets 3 681 833 757 Investment in patents 15 14 15Equity rights and related acquisition costs 4 20,159 20,180 20,170Equity investments 5 39,909 16,953 35,536Investment in limited partnerships 83 - 87Total non-current assets 79,338 40,125 58,711 Current assetsTrade and other receivables 1,033 501 1,238Cash and cash equivalents 42,343 37,344 34,801Total current assets 43,376 37,845 36,039 Total assets 122,714 77,970 94,750 EQUITY AND LIABILITIESEquity attributable to equity holdersCalled up share capital 4,531 4,081 4,129Share premium account 84,688 58,972 59,605Merger reserve 783 783 783Retained earnings 26,905 9,608 23,264 Total equity 116,907 73,444 87,781 Non-current liabilitiesTrade and other payables 6 4,288 2,236 3,534Provisions 90 128 90Total equity and non-current liabilities 121,285 75,808 91,405 Current liabilitiesTrade and other payables 6 1,429 2,162 3,345 Total equity and liabilities 122,714 77,970 94,750 CONSOLIDATED INTERIM CASHFLOW STATEMENTFor 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 activitiesOperating profit 2,748 6,778 19,393Depreciation of property, plant and equipment 30 10 35Fair value movements in equity investments (4,307) (7,718) (24,014)Amortisation and impairment of intangible non-current assets 92 10 96Decrease / (Increase) in trade and other receivables 225 (240) (736)(Decrease) / Increase in trade and other payables and (2,002) 1,180 3,689provisionsProfit on disposal of equity investments - (790) (790)Profit on disposal of property, plant and equipment - - 6Share-based payment charge 112 150 300Net cash from operating activities (3,102) (620) (2,021) Investing activitiesPurchase 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 230Proceeds from sale of equity investments - 965 965Interest received 848 762 1,374Net cash used in investing activities (2,641) (281) (2,104) Financing activitiesProceeds from issue of share capital 13,285 - 681Net 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 38,245Cash and cash equivalents at the end of the period 42,343 37,344 34,801 CONSOLIDATED UNAUDITED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFor 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 £'000At 1 January 2004 (restated) 64,954 4,064 1,918 - 58,972Consolidated 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 58,972Consolidated profit for the period to 31 December 2004 13,506 - 13,506 - -Employee share option charge in period to 31 December 150 - 150 - -2004Issue of share capital in the period to 31 December 681 48 - - 6332004At 31 December 2004 (restated) 87,781 4,129 23,264 783 59,605Consolidated 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 - - 25,083At 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 thesix months ended 30 June 2005. The European Union (EU) regulation (1606/2002)requires European Companies with securities traded on an EU regulated market toprepare their consolidated financial statements in accordance with EU endorsedinternational financial reporting standards for accounting periods beginning onor after 1 January 2005. On 7 October 2004, the Alternative Investment Market ("AIM") announced that companies listed on the exchange will not have to preparetheir financial statements for financial years beginning on or after 1 January2005 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 intellectualproperty commercialisation sector. Consistent with the Group's strategy, andpermitted by The Companies Act 1985 (International Accounting Standards andOther 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 InternationalAccounting Standards and International Financial Reporting Standards (together "IFRS"), Standing Interpretations Committee ("SIC") interpretations andInternational Financial Interpretations Committee ("IFRIC") interpretations thathave been endorsed, or are expected to be endorsed, by the European Union forthe year ending 31 December 2005. The respective standards and interpretationsthat will be applicable for the year ending 31 December 2005, including thosethat will be available on an optional basis, are not known with certainty at thetime of preparing these interim results. Accordingly, the accounting policiesfor that annual period will be determined finally only when the annual financialstatements for the year ending 31 December 2005 are prepared. The Group's interim results were prepared in accordance with United KingdomGenerally Accepted Accounting Principles ("UK GAAP") until the year ended 31December 2004. UK GAAP differs in a number of areas from IFRS. In preparingthe Group's interim results for the period to 30 June 2005, the directors haveamended certain accounting, valuation and consolidation methods applied in theUK GAAP financial statements. The comparative figures in respect of 2004 wererestated to reflect these adjustments. These figures have been reviewed but notaudited by the Group's independent auditors. The effect of the transition from UK GAAP to IFRS on the Group's profit, netassets and cash flows are provided in the numerical reconciliation and narrativestatements 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. Thebasis of consolidation is set out below. The comparative figures for the yearended 31 December 2004 do not constitute statutory financial statements for thepurposes of s240 of the Companies Act 1985. A copy of the statutory financialstatements prepared under UK GAAP has been delivered to the Registrar ofCompanies. The auditor's report on those financial statements was unqualifiedand did not contain statements under sections 237 (2) or (3) of the CompaniesAct 1985. Basis of consolidation Subsidiaries Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan half of the voting rights. The existence and effect of potential votingrights are considered when assessing whether the Group controls an entity.Subsidiaries are fully consolidated from the date on which control isestablished by the Group. The purchase method of accounting is used to account for the acquisition of theGroup's subsidiaries. The cost of acquisition is measured at fair value of theassets given, equity instruments issued, and liabilities incurred or assumed atthe date of exchange plus costs directly attributable to the transaction.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are initially measured at their fair values atacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions betweengroup companies are eliminated. Subsidiaries' accounting policies are amendedwhere necessary to ensure consistency with the polices adopted by the Group. Associates Associates are entities over which the Group has significant influence, but doesnot control, generally accompanied by a shareholding of between 20% to 50% ofthe voting rights. The Group's principal activity is akin to that of a venture capitalorganisation, and as such investments in associates are accounted for inaccordance with IAS 39 Financial Instruments: Recognition and Measurement andupon initial recognition are designated as at fair value through profit or loss. Revenue recognition Turnover, comprising fees for advisory work and fund management services, isrecognised in the income statement when the related services are performed. Allturnover is generated within the United Kingdom and is stated exclusive of valueadded tax. Property, plant and equipment All property, plant and equipment is shown at cost less subsequent depreciationand impairment. Cost includes expenditure that is attributable to theacquisition of the items. Depreciation on assets is calculated using thestraight-line method to allocate the cost of each asset to its residual valueover its estimated useful life, as follows: Fixtures and fittings... Over 3 to 5 yearsComputer equipment... Over 3 to 5 yearsMotor vehicles ... Over 1 to 5 years The asset's residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the net identifiable assets of the acquired subsidiary at the date ofacquisition. Goodwill on acquisitions of subsidiaries is included in intangibleassets. Goodwill is tested annually for impairment and carried at cost lessaccumulated impairment losses. Acquired intangible assets - business combinations Intangible assets that are acquired as a result of a business combination andthat can be separately measured at fair value on a reliable basis, areseparately recognised on acquisition at their fair value. Amortisation ischarged on a straight-line basis to the income statement over their expecteduseful economic lives. Patents Patents are measured at cost. They have a finite useful life and are carried atcost less accumulated amortisation. Amortisation is calculated using thestraight-line method to allocate the cost of patents over their estimated usefuleconomic lives. Impairment of intangible assets Intangible assets that have an indefinite useful life are not subject toamortisation and are tested annually for impairment and whenever events orcircumstances indicate that the carrying amount may not be recoverable. Assetsthat are subject to amortisation are tested for impairment when events or achange in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which thecarrying amount exceeds its recoverable amount. The recoverable amount is thehigher of the asset's fair value less costs to sell and the value in use. Forthe purposes of assessing impairments, assets are grouped at the lowest levelsfor which there are identifiable cashflows (cash generating units). Equity rights Equity rights represents consideration paid to the University of Oxford betweenDecember 2000 and June 2001. The payment gives the Group the right to purchase 50% of the University's equityin any spin-out company created from the University's Chemistry Department. Thecontract expires on 23 November 2015. The equity rights agreement is considered to be a derivative contract and isclassified as a 'held for trading' financial instrument with changes in fairvalue recognised in the income statement. The directors have not been able to determine a reliable fair value for thisfinancial instrument at either 1 January 2004 or subsequent reporting dates dueto 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, theequity rights are carried at cost less provision for impairment. The directors review equity rights for impairment annually and if there isobjective evidence of an impairment then a provision would be charged to theincome statement. Acquisition costs Acquisition costs comprise related costs to secure the University of Oxfordequity rights and other university partnership arrangements. These costs areamortised over the life of the respective partnership. Equity investments The Group classifies all its equity investments as financial assets at fairvalue through profit or loss. Investments in associated undertakings that areheld by the Group with a view to the ultimate realisation of capital gains aredesignated as financial assets at fair value through profit or loss inrecognition of the Group's principal trading activity being that of a venturecapital organisation. Investments in undertakings that do not meet thedefinition of an associate undertaking are also designated as financial assetsat 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 profitor 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 balancesheet date. The fair value of unlisted securities is established using British VentureCapital Association ("BVCA") guidelines. The valuation methodology used mostcommonly by the Group is the 'price of recent investment' contained in the BVCAvaluation guidelines. The following considerations are used when calculatingthe 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 atthe carrying value at the previous reporting date unless there is evidence thatthe investment has since been impaired. Employee benefits Pension obligations The Group does not operate any pension schemes for employees but makescontributions to employee personal pension schemes on an individual basis. TheGroup 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 certainemployees. Share options granted after 7 November 2002 which had not vested by1 January 2005 are valued at the date of grant using an appropriate optionpricing model and are charged to operating profit over the vesting period of theaward. The annual charge is modified to take account of options granted toemployees who leave the group during the performance or vesting period andforfeit their rights to the share options and in the case of non-market relatedperformance conditions, where it becomes unlikely they will vest. Bonus plan The group recognises a liability and an expense for bonuses, linked to theperformance of the Group as a whole and to the creation of value in the group'sportfolio of equity investments. Deferred tax Full provision is made for deferred tax on all temporary timing differencesresulting 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 orsubstantially enacted by the balance sheet date and are expected to apply whenthe related deferred tax asset is realised or deferred tax liability settled. Deferred tax assets are recognised to the extent that it is probable that thedeferred tax asset will be recovered in the future. Leases Leases where the lessor retains substantially all of the risks and rewards ofownership are classified as operating leases. Payments made under operatingleases are charged to the income statement on a straight-line basis over theterm of the lease. NOTES TO THE INTERIM RESULTS (Continued) 1. GOODWILL £'000 At 1 January 2005 2,091Additions (Note 7) 16,332At 30 June 2005 18,423 2. ACQUIRED INTANGIBLE ASSETS £'000 At 1 January 2005 757Amortisation (76)At 30 June 2005 681 On 30 June 2004 the Group acquired the entire issued share capital of TopTechnology Ventures Limited. At this time, Top Technology Ventures Limited wasparty to two contracts to supply fund management services. The directors havefair valued this asset on a discounted cashflow basis, and concluded that thefair value of this asset at 30 June 2004 was £833,000, which is being amortisedon a straight-line basis over its useful life. 3. EQUITY RIGHTS AND RELATED ACQUISITION COSTS Equity Acquisition Total Rights costs £'000 £'000 £'000CostAt 1 January 2005 19,890 354 20,244At 30 June 2005 19,890 354 20,244 Aggregate amortisation of acquisition costsAt 1 January 2005 - (74) (74)Charge for the period - (11) (11)At 30 June 2005 - (85) (85) Net book valueAt 30 June 2005 19,890 269 20,159At 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 Oxfordchemistry department have been created to date, their progress towards sale orflotation, the remaining life of the partnership, the rate at which spin-outcompanies from University of Oxford chemistry department are anticipated to becreated in the future, the size of IP2IPO Limited's stake in such companies andthe continued prestige of the chemistry department, the directors continue tobelieve that the equity rights will be realised in full. 4. EQUITY INVESTMENTS - DESIGNATED AS 'AT FAIR VALUE THROUGH PROFITOR 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 35,536Investments during the period - 1,720 365 2,085Reclassifications during the period 332 (332) - -Change in fair value in period 3,996 311 - 4,307Adjustment 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 periodamounted to £3,996,000, of which £6,218,000 was accounted for as a result of thesuccessful flotation of Proximagen Neuroscience plc on the AlternativeInvestment Market in March 2005. The movement in the fair value of the Group's holding of unquoted equityinvestments in the period amounted to £311,000 based on the application of BVCAguidelines. Other Investments In March 2005, the Group purchased 5% of the issued share capital of SigmaTechnologies 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 3,534Other 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 71Social security expenses 42 52 112Accrued staff bonuses - - 1,170Other 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. Basedon the rules of the scheme, the maximum annual bonus (including social securitycosts) is 17.5% of the growth in the fair value of the Group's portfolio ofequity investments subject to an overriding condition that the payment of thebonus 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 offactors, including the performance of the business as a whole and making cashrealisations from equity investments. The directors are of the opinion that the bonus accruals that have beenrecognised at the respective reporting dates are consequential of the changefrom UK GAAP. At 30 June 2005, the directors consider that there is no current intention tosettle any accrued bonus within the next 12 months and therefore the accrual hasbeen classified as a non-current bonus accrual. Non-Current Current bonus bonus accrual accrual £'000 £'000At 1 January 2004 502 50Charged 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 1,170At 31 December 2004 3,534 1,170Charged 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 July2004, which represented 19.9% of the enlarged issued share capital of Techtranat that date. During the period ended 30 June 2005, the Group acquired theremaining share capital of Techtran for a consideration of £16,200,000. The directors have considered the requirements of IFRS 3 Business Combinationsto consolidate the fair value of intangible assets at the date of acquisitionwhere intangible assets can be clearly identified and the fair value measuredreliably. In 2002, Techtran entered into a contractual relationship with theUniversity of Leeds for the provision of technology transfer services. Thedirectors consider that the fair value of the Leeds partnership cannot beestimated 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 andconsequently the reported goodwill balance is provisional and will be finalisedin 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 December2002 between the Group, the University of Southampton and certain of theUniversity of Southampton's subsidiaries, IP2IPO Limited agreed to make£5,000,000 available for the purposes of making investments in University ofSouthampton spin-out companies. Of this amount, at 30 June 2005, £2,494,000 hadbeen invested in nine spin-out companies from the university. Under the terms of an agreement entered into during 2003 between the Group andKing's College London ("KCL") and KCL Enterprises Limited, the Group agreed tomake £5,000,000 available for the purposes of making investments in spin-outcompanies. At 30 June 2005, £661,000 has been invested in two spin-outcompanies from KCL. Under the terms of this agreement, KCL can require theCompany to make a further £5 million available for investments in spin-outcompanies on the tenth anniversary of the partnership. In October 2003, the Group entered into an agreement with the University ofYork. The agreement relates to a specialist research centre within theUniversity of York: the Centre for Novel Agricultural Products ("CNAP"). TheGroup has committed to invest up to a total of £750,000 in spin-out companiesbased on CNAP's intellectual property. At 30 June 2005, £210,000 has beeninvested in one spin-out company. 8. POST BALANCE SHEET EVENTS Following the acquisition of Techtran in January 2005, the Group extended itspartnership with the University of Leeds in July 2005 by securing the right andobligation 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 GETECHGroup plc. In addition, following the period end the Group has invested or committed toinvest £875,000 in two further spin-out companies from the University ofSouthampton. 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 thefirst annual financial statements that comply with IFRS. These interimfinancial 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 itsopening balance sheet date at that date. The reporting date of these interimconsolidated financial statements is 30 June 2005. In preparing the consolidated financial statements the Group has applied themandatory exceptions, as applicable, and the following exemption: • The Group has elected to apply the share-based paymentexemption. The Group has not applied IFRS 2 to those options granted before 7November 2002 and which had vested by 1 January 2005. The reconciliations on pages 19-23 provide an explanation of the effect of thetransition 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 £'000ASSETSNon-current assetsProperty, plant and equipment 27 - 27Intangible assets: Goodwill - - - Investment in patents 12 - 12Equity rights and related acquisition costs A 17,556 2,634 20,190Equity investments B 5,804 2,165 7,969Total non-current assets 23,399 4,799 28,198 Current assetsTrade and other receivables 170 - 170Cash and cash equivalents 38,245 - 38,245Total current assets 38,415 - 38,415 Total assets 61,814 4,799 66,613 EQUITY AND LIABILITIESEquity attributable to equity holdersCalled up share capital 4,064 - 4,064Share premium account 58,972 - 58,972Retained earnings C (2,379) 4,297 1,918Total equity 60,657 4,297 64,954 Non-current liabilitiesTrade and other payables D 383 502 885Total equity and non-current liabilities 61,040 4,799 65,839 Current liabilitiesTrade 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 - 762Profit 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 £'000ASSETSNon-current assetsProperty, plant and equipment 59 - 59Intangible assets: Goodwill I 2,919 (833) 2,086 Acquired intangible assets I - 833 833 Investment in patents 14 - 14Equity rights and related acquisition costs J 17,371 2,809 20,180Equity investments K 7,379 9,574 16,953Total non-current assets 27,742 12,383 40,125 Current assetsTrade and other receivables 501 - 501Cash and cash equivalents 37,344 - 37,344Total current assets 37,845 - 37,845 Total assets 65,587 12,383 77,970 EQUITY AND LIABILITIES Equity attributable to equity holdersCalled up share capital 4,081 - 4,081Share premium account 59,755 - 59,755Retained earnings L (1,177) 10,785 9,608Total equity 62,659 10,785 73,444 Non-current liabilitiesTrade and other payables M 383 1,853 2,236Provisions 128 - 128Total equity and non-current liabilities 63,170 12,638 75,808 Current liabilitiesTrade 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 £'000ASSETSNon-current assetsProperty, plant and equipment 55 - 55Intangible assets: Goodwill T 2,850 (759) 2,091 Acquired intangible assets U - 757 757 Investment in patents 15 - 15Equity rights and related acquisition costs V 16,861 3,309 20,170Equity investments W 9,988 25,548 35,536Investments in Limited Partnerships 87 - 87Total non-current assets 29,856 28,855 58,711 Current assetsTrade and other receivables 1,238 - 1,238Cash and cash equivalents 34,801 - 34,801Total current assets 36,039 - 36,039 Total assets 65,895 28,855 94,750EQUITY AND LIABILITIESEquity attributable to equity holdersCalled up share capital 4,129 - 4,129Share premium account 59,605 - 59,605Merger reserve 783 - 783Retained earnings X (2,057) 25,321 23,264Total equity 62,460 25,321 87,781 Non-current liabilitiesTrade and other payables Y - 3,534 3,534Provisions 90 - 90Total equity and non-current liabilities 62,550 28,855 91,405 Current liabilitiesTrade 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 instrumentclassified as a held for trading financial asset at fair value. No reliablefair value can be established and consequently the asset is carried at cost,subject to impairment. An amount has been debited against equity rightsrecognising 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), anadditional employee bonus accrual charge (£502,000) and a gain as a result ofacquiring shares through equity rights for nil consideration (£2,634,000); D - In addition to a £50,000 bonus accrual that existed at transition datewithin current trade payables under UK GAAP, an additional bonus accrual chargehas 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 sharesthrough equity rights for nil consideration, the impact of which was taken toequity rights under UK GAAP (£175,000); F - The surplus on disposal of shares in Oxford Hydrocarbon Mapping Plc has beenadjusted (£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 fromadministrative expenses to 'accrual for employee bonuses' on the face of theincome 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 TopTechnology Ventures Limited (£833,000); J - The University of Oxford equity rights is a derivative financial instrumentclassified as a held for trading financial asset at fair value. No reliablefair value can be established and consequently the asset is carried at cost,subject to impairment. An amount has been debited against equity rightsrecognising 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 periodfair value gains have been recognised (£7,543,000), and the cost of disposedOxford Hydrocarbon Mapping Plc shares has been adjusted to reflect the revisedbase 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), anadditional accrual for employee bonuses (£1,096,000), the impact of sharesreceived through equity rights for nil consideration (£2,809,000) and areduction 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 broughtforward employee bonus accrual (£502,000) a bonus accrual previously recognisedunder UK GAAP (£255,000) and additional employee bonuses (£1,096,000); N - Current trade and other payables have been adjusted for a bonus accrualpreviously recognised under UK GAAP (£255,000), which has been reclassified tonon-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 theportfolio of equity investments (£23,517,000) the impact of receipt of sharesthrough equity rights for nil consideration (£675,000) and a reclassification ofa provision for impairment recognised under UK GAAP (£178,000); Q - In the year to 31 December 2004 the surplus on disposal of shares in OxfordHydrocarbon Mapping Plc has been reduced to reflect the revised base cost of thedisposed shares (£134,000); R - 'Accrual for employee bonuses' includes a reclassification fromadministrative 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 TopTechnology (£76,000), and a reclassification of bonus costs to 'accrual foremployee 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 aspart 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 instrumentclassified as a held for trading financial asset at fair value. No reliablefair value can be established and consequently the asset is carried at cost,subject to impairment. An amount has been debited against equity rightsrecognising 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), broughtforward gains (£2,165,000) and a reduction in the surplus on disposal of sharesin Oxford Hydrocarbon Mapping Plc (£134,000); X - Retained earnings have been adjusted for a brought forward employee bonusaccrual charge (£502,000), fair value gains (£25,682,000), an additionalemployee bonus accrual charge (£3,032,000), an add back of previously amortisedgoodwill (£74,000), a reduction in the surplus on disposal of shares in OxfordHydrocarbon Mapping Plc (£134,000), the impact of shares received through equityrights for nil consideration (£3,309,000) and a charge for the amortisation ofacquired intangible assets (£76,000); Y - Non-current trade and other payables have been adjusted for a broughtforward 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 disclosedunder 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 forthe six months ended 30 June 2005 on pages 6 to 25. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Our report has been prepared in accordance with the terms of our engagement toassist the company in meeting the requirements of the London Stock Exchange forcompanies trading securities on the Alternative Investment Market and for noother purpose. No person is entitled to rely on this report unless such aperson is a person entitled to rely upon this report by virtue of and for thepurpose of our terms of engagement or has been expressly authorised to do so byour written consent. Save as above, we do not accept responsibility for thisreport to any other person or for any other purpose and we hereby expresslydisclaim any and all such liability. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the rules of theLondon Stock Exchange for companies trading securities on the AlternativeInvestment Market which require that the half-yearly report be presented andprepared in a form consistent with that which will be adopted in the company'sannual financial statements having regard to the accounting standards applicableto such annual financial statements. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with those International Financial Reporting Standardsadopted for use by the European Union. The accounting policies used are consistent with those the directors intend touse 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. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand based thereon, assessing whether the disclosed accounting policies have beenapplied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin 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 thatshould be made to the financial information as presented for the six monthsended 30 June 2005. BDO Stoy Hayward LLP Chartered AccountantsSouthampton 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 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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