ANNUAL REPORT AND ACCOUNTS
For the year ended 31 December 2016
TRANSFORMING U.S. INVENTION INTO INNOVATION
ANNUAL REPORT AND
ACCOUNTS 2016
CONTENTS
Overview ..........................................................................................................1
Chairman’s Report ..............................................................................................2
Strategic Report ............................................................................................3
Highlights ..........................................................................................................3
CEO’s Report .....................................................................................................9
Company Overview .........................................................................................10
Portfolio Summary ............................................................................................13
Subsidiary Valuation ........................................................................................16
Partner Network ...............................................................................................17
Key Performance Indicators ...............................................................................19
Portfolio Review and Developments ....................................................................21
Financial Review ..............................................................................................27
Risk Management .............................................................................................31
Management and Governance ...............................................................37
The Board ........................................................................................................37
Directors’ Report ..............................................................................................40
Corporate Governance Report ..........................................................................48
Sustainability ...................................................................................................58
Directors’ Remuneration Report .........................................................................62
Audit Committee Report ....................................................................................92
Financial Statements .................................................................................96
Independent Auditor’s Report ............................................................................96
Consolidated Financial Statements ...................................................................101
Notes to the Consolidated Financial Statements ................................................106
Company Financial Statements ........................................................................156
Notes to the Financial Statements ....................................................................159
Company Information .....................................................................................163
IV
ANNUAL REPORT AND ACCOUNTS 2016 OVERVIEW
Allied Minds plc (Allied Minds or the Company or the Group) is an IP commercialisation company focused on
venture creation within the life science and technology sectors. With extensive access to hundreds of university
and federal laboratories across the US, as well as partnerships with leading US corporations, Allied Minds
forms, funds, and operates a portfolio of companies to generate long-term value for its investors and stakeholders.
Based in Boston, Allied Minds supports its businesses with capital, management, and shared services.
A key strength of the Group lies in its ability to access a wide range of innovative scientific research and
technology via its relationships with leading research institutions. In 2016, the Group engaged with more than
200 research universities and US federal government laboratories, providing it with an extensive pipeline of
innovations from which the Group can identify technology for potential development to commercially viable
products and services. More recently the Group has formed alliances with corporations, adding a third leg
to its origination model. Under its strategic alliance with GE Ventures, one of the world’s leading innovative
companies, Allied Minds has the exclusive ability to spin out cutting edge products selected by GE Ventures for
joint investment.
The Group currently comprises 17 subsidiary businesses in the life sciences and technology sectors based upon
a broad range of underlying innovative technologies ranging from molecular compounds and medical devices
to semiconductors, wireless communications, and low earth orbit space.
1
ANNUAL REPORT AND ACCOUNTS 2016 CHAIRMAN’S REPORT
I am pleased to present this Annual Report to shareholders for the financial year ended 31 December 2016
which was an important period in Allied Minds’ development.
During 2016 we successfully raised funds at both Group and subsidiary level, putting the Company in a stronger
financial position to capitalise on the opportunities in front of us. We made solid progress at a number of our
subsidiaries, including, for example, Federated Wireless, which has advanced rapidly against its key regulatory
and commercial objectives, and HawkEye 360, a younger Allied Minds subsidiary with exciting potential, as
evidenced by the participation of Razor’s Edge and a defence market leader in the recent Series A funding
round. We are also pleased with our developments with corporate partners across the Group, most notably our
new strategic alliance with GE Ventures.
In March 2017 the Board appointed Jill Smith as interim CEO, replacing Chris Silva. I would like to thank Chris
Silva for his contribution as CEO and co-founder of the Company and to welcome Jill Smith in her new role as
interim CEO. Chris played an important role in building Allied Minds into a key player in IP commercialisation
in the US – the largest market in the world for R&D investment.
Jill’s appointment is aligned to the Board’s objective to bring about a material acceleration in the pace of
commercialisation activities across our portfolio and pipeline. Jill brings to the role a successful track record over
25 years of leading public and private businesses in the technology and information services sector, including
16 years operating as a CEO. Most recently, Jill served as Chairman, Chief Executive Officer and President of
DigitalGlobe Inc. (NYSE: DGI), a global provider of satellite imagery products and services, including through its
successful IPO in 2009. Her skills and experience, in particular in driving revenue growth and leading successful
monetisation events, are exactly what is required at this stage in the Company’s development.
Following Jill’s appointment the Board took the difficult decision to undertake a restructuring resulting in the
discontinuation of funding at several subsidiary businesses: Biotectix; Cephalogics; CryoXtract; Novare
Pharmaceuticals; Optio Labs; RF Biocidics; and SoundCure/Tinnitus Treatment Solutions (the Discontinued
Subsidiaries). While many of the Discontinued Subsidiaries had demonstrated progress against technical
milestones, the Board determined that the path to commercialisation was unlikely to yield appropriate financial
returns and that capital earmarked to these subsidiaries should be diverted to more promising areas of the
portfolio and to scaling our pipeline and partnerships. The restructuring has resulted in a mark down to Group
Subsidiary Ownership Adjusted Value (GSOAV). However, it places Allied Minds in a stronger position to
deliver returns to shareholders over the medium term to longer term through accelerated commercialisation and
monetisations, and portfolio growth.
Following the restructuring and Jill’s appointment, we are well placed to accelerate commercialisation across the
portfolio and increase the pace of pipeline development. Together with the Board I look forward to the outcome
of the internal review initiated by Jill and in particular to her proposals to unlock faster progress towards value
crystallisation for our shareholders. I would like to thank our shareholders for their continued support and our
management team and staff for their hard work and commitment.
Peter Dolan
Chairman
27 April 2017
2
ANNUAL REPORT AND ACCOUNTS 2016
HIGHLIGHTS
Investment Highlights
During 2016, an aggregate of $108.2 million was invested into new and existing portfolio companies, including:
• $60.2 million from subsidiary fundraisings with $48.5 million coming from third-party investment and
$11.7 million from Allied Minds, to support and accelerate the development of four of the Group’s
existing companies: Federated Wireless; Precision Biopsy; HawkEye 360 and ABLS II.
o Federated Wireless, a company developing cloud-based software enabling dynamic sharing of
surplus spectrum owned by the US military, raised $22.0 million in early 2016. Allied Minds invested
$5.0 million in this fundraising and third-party investment totaled $17.0 million.
o Precision Biopsy, a company developing early intervention technology that detects in real time
suspicious tissue during prostate biopsy examinations, raised $5.0 million during 2016, and received
$6.0 million from a fundraising completed in 2015, both sums from external investors.
o Hawkeye 360, a company developing a space-based radio frequency (RF) mapping and analytics
system to be operated via a constellation of formation-flying small satellites in Low Earth Orbit (LEO),
raised $11.0 million in a funding round led by Razor’s Edge Ventures, with additional participation
by Allied Minds and a defence market leader. A further $2.75 million of new equity was issued
by Hawkeye 360 post-period end, of which $1.5 million was issued in the form of warrants in
association with a $3.0 million development programme.
o ABLS II raised $15.0 million as it moved from initial feasibility studies to fund the lead optimisation
programme for its novel small molecule therapeutics for the treatment of fibrotic and autoimmune
diseases. $12.0 million of this funding was provided by ABLS Capital (of which Allied Minds provided
$2.7 million), with the remaining $3.0 million from Bristol-Myers Squibb (BMS).
o The balance of the $60.2 million of capital invested via subsidiary fundraisings comprised $1.2
million of initial seed capital raised from external sources at ABLS Capital (net of placing fees) to cover
the initial operating expenses of this entity.
•
In addition to these fundraisings, $48.0 million was invested by the Group into new and other existing
portfolio companies, including investments in four new businesses: Signature Medical (Boston University),
ABLS Capital and ABLS III (New York University (NYU)), and Vatic Materials (Penn State). Following
further due diligence on Vatic Materials, a decision was taken post-period end not to exercise an option
to license underlying IP and the business was terminated.
• Separately, ABLS secured binding equity commitments of up to $80.0 million into ABLS Capital
(predominantly from external investors). These commitments, together with up to $20.0 million from
BMS, will fund development costs for lead optimisation programmes of promising drug compounds
sourced by ABLS, the partnership formed between Allied Minds and BMS in 2014, following successful
completion of the initial feasibility phase. Of these commitments, $12.0 million was drawn in 2016 to
fund the lead optimisation programme for ABLS II, as described above. Included in the $80.0 million
of commitments to ABLS Capital is the $1.2 million of net cash payments made to ABLS Capital by the
external investors referred above.
•
In December 2016 Allied Minds raised $80.3 million in gross proceeds via a placing of new ordinary
shares, equivalent to 8.1% of the existing share capital prior to the placing. Proceeds from the placing
will be applied to invest alongside third parties in the Group’s later stage subsidiaries and selected
earlier stage subsidiaries and to invest in the pipeline of innovative new technologies.
3
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
HIGHLIGHTS (CONTINUED)
Corporate Operational Highlights
• During the year, Allied Minds engaged with nearly 50 new research institutions, bringing the total US
universities and federal laboratories in the Allied Minds partner network to 207.
• The investment team reviewed more than 2,700 new technologies developed by the partner network.
Following extensive due diligence on over 20 of the most promising technologies, the Group formed
and funded four new businesses, resulting in a total Group portfolio of 27 subsidiary businesses at 31
December 2016 (17 following the closure of ABLS I, Vatic Materials and the Discontinued Subsidiaries
post-period end).
• Allied Minds launched a strategic alliance with GE Ventures to jointly identify and commercialise next-
generation technologies. Under the terms of the agreement, Allied Minds and GE Ventures agreed to
invest in new and existing technologies sourced from both Allied Minds’ and GE Ventures’ innovation
pipelines.
• The Group entered into exciting new strategic partnerships and renewed valuable existing partnerships
with leading technology sources, including the MITRE Corporation, the Aerospace Corporation, and
Pacific Northwest National Labs.
• During 2016 and post-period, Allied Minds and its subsidiaries further developed existing collaborations
with industry leaders including BMS, Intel, Advanced Micro Devices (AMD), Alphabet, Cisco, Ruckus
Wireless (Brocade), Qualcomm, Nokia, Telrad Networks, Siemens and others, validating the quality of
our platforms, people and technologies.
• During 2016 the total workforce expanded from approximately 359 to 413 employees and consultants.
The workforce increase was almost entirely concentrated in the operating subsidiaries. Our workforce
comprises approximately 68% engineering and technical development professionals, 11% leadership
and management professionals and 21% sales, marketing and other business development professionals.
Financial Highlights
• Net cash and investments* of $226.1 million (2015: $194.8 million) of which $136.7 million (2015:
$115.0 million) held at the parent level.
* includes funds in form of fixed income securities.
• Revenues of $2.7 million (2015: $3.3 million) reflecting the early stage nature of our portfolio businesses
• Net loss of $128.7 million, (2015: $97.9 million) primarily reflecting an increase in the overall growth
of the Group’s investment in commercial and R&D activities, as well as the non-cash finance cost from
fair value accounting of the subsidiary preferred shares liability.
• GSOAV of $416.2 million as of 24 April 2017 ($535.8 million as at 31 December 2015), reflecting
the discontinuation of funding at the Discontinued Subsidiaries, partially offset by a net increase in
valuation in the remainder of the portfolio (specifically, at Hawkeye 360 and ABLS II).
Corporate Partnership Highlights
• ABLS, a drug development joint venture with BMS:
o reviewed more than 245 technologies from partner research institutions;
o called on $12.0 million of pre-committed funds, and received a further $3.0 million of funding from
BMS, to finance the lead optimisation phase for ABLS II’s novel treatment for fibrotic and autoimmune
diseases;
o formed ABLS III (d/b/a iβeCa Therapeutics), licensing technology sourced from NYU School of
Medicine, using proprietary compounds targeting the Wnt signalling (see below); and
4
ANNUAL REPORT AND ACCOUNTS 2016
HIGHLIGHTS (CONTINUED)
o after the period end, closed ABLS I following Board determination that the ABLS I feasibility programme
was not successfully completed.
• Strategic Alliance with GE Ventures
o formed in September 2016; and
o perform ongoing work to identify candidate technologies for joint investment.
Selected Subsidiary Highlights
• BridgeSat, a developer of optical communications networks for the satellite industry:
o initiated development for the three facets of the BridgeSat solution: space terminal, ground station,
and management network for targeted completion in 2017;
o post-period end entered into a commercial agreement with Swedish Space Corporation (SSC)
securing access for BSI equipment at SSC ground sites; and
o secured initial customer agreements for hardware and data services.
• Federated Wireless, a developer of software providing spectrum allocation solutions:
o received Federal Communications Commission’s (FCC) conditional approval for its Spectrum Allocation
System (SAS), with full approval expected in 2017;
o demonstrated interoperability with Alphabet’s SAS system, a key step in the FCC approval process;
o founded the CBRS (Citizen’s Broadband Radio Service) Alliance with Alphabet, Intel, Qualcomm,
Ruckus Wireless (Brocade), Nokia and others, promoting the ecosystem development for shared
spectrum; and
o signed partnership agreements with Siemens and Telrad Networks and completed trials with these
partners as well as Alphabet, Dell, Ruckus and Qualcomm in 2016 and Nokia, Ericsson, Sercomm
and Juni post-period end. Trials with a further 9 ecosystem members are pending, including one with
a national Mobile Network Operator (MNO).
• Hawkeye360, a company developing a space-based radio frequency (RF) mapping/analytics system:
o engaged contractors and commenced manufacturing of satellites and payloads;
o announced the formation of an Advisory Board, and the appointment of John Serafini as CEO; and
o secured launch on a SpaceX Falcon 9 rocket targeted for Q1 2018.
• Precision Biopsy, a company developing alternative prostate cancer diagnostics and focal therapy:
o began clinical trials in the US in a Cohort A study for ClariCore™, to date completing more than 100
patients at 6 US clinical sites.
• SciFluor, a drug discovery and development company making strategic use of fluorine:
o commenced Phase I/II FDA trials with SF0166, an eye drop formulation of a drug intended to treat
age-related macular degeneration (Wet AMD) and diabetic macular edema (DME) populations,
following delays due to FDA requests for additional data;
o secured further patent protection covering methods of use of SF0166 in AMD, DME and retinal vein
occlusion (RVO); and
o completed pre-clinical testing, including toxicology, and prepared IND submission for SF0034 (a
fluorinated derivative of retigabine).
5
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report HIGHLIGHTS (CONTINUED)
• Spin Transfer Technologies (STT), a next-generation computer memory company:
o shipped samples of its DM1 Diagnostic Memory chip to target customers;
o became only the second company to have shipped perpendicular ST-MRAM samples;
o announced fabrication of key magnetic components (pMTJs) as small as 20nm – among the smallest
MTJs every reported; and
o completed prototypes of memory arrays at megabit level densities, another key step in the
commercialisation process.
•
In addition, Allied Minds formed four new businesses during the year:
o ABLS entered into a licence agreement with NYU School of Medicine, via ABLS III d/b/a iβeCa
Therapeutics, in relation to proprietary compounds targeting the Wnt signalling. These compounds
were developed by Dr. Ramanuj Dasgupta, Research Associate Professor at NYU School of Medicine,
and NYU’s drug discovery accelerator, the Office of Therapeutics Alliances (OTA). The Wnt pathway
plays a key role in the development and progression of a number of cancers affecting large numbers
of patients;
o ABLS Capital, a vehicle with binding funding commitments of up to $80.0 million, mostly from
external investors, to be drawn down together with up to $20.0 million of funding from BMS to
fund lead optimisation studies for ABLS subsidiaries that have successfully completed initial feasibility
programmes;
o Signature Medical, which secured an exclusive option to license patent rights from Boston University
relating to technology for application on a wearable device enabling diagnosis and monitoring of
heart failure during hospital therapy and post discharge; and
o Vatic Materials, which closed post-period end following a decision not to exercise an option to
license underlying technology due to an unsatisfactory due diligence outcome.
6
ANNUAL REPORT AND ACCOUNTS 2016
HIGHLIGHTS (CONTINUED)
Outlook for Selected Subsidiaries
Several of our subsidiaries are nearing important commercial milestones. Highlighted below are some of the
key events we expect in 2017. It is in the nature of early stage investing that business plans need to adapt dy-
namically in response to changing circumstances. Where this becomes necessary we will provide an update
on revised plans and timings.
Subsidiary
ABLS
Expected 2017 Event
• Advance ABLS entities through pre-clinical programmes
• Create 2 new subsidiaries
BridgeSat
• Complete Series A fund-raise
• Acquire launch customers
• Demonstrate operation of first BridgeSat ground station
Federated Wireless
• Complete Series B fund-raise
• Receive formal SAS and ESC FCC certification
•
Launch spectrum access commercial product
HawkEye 360
• Prepare for 2018 Pathfinder launch
•
Initiate contract for development of next commercial satellite clusters
Precision Biopsy
• Complete Cohort A; Initiate Cohort B
• Progress ClariCore™ CE Mark and FDA approval
SciFluor
• SF0166: complete Phase I/II trials in DME (AMD in 2018)
• SF0034: file IND and complete enrollment
STT
• Advance technology to demonstrate differentiators
• Secure strategic development / investing partner
• Complete Series B fund-raise
7
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report HIGHLIGHTS (CONTINUED)
Board and Management Highlights
The Group continued to evolve and strengthen its Board with the appointment of Jill Smith as an Independent
Non-executive Director in January 2016.
In addition to Chris Silva’s resignation as Chief Executive Officer on 10 March 2017, the Company accepted
the resignation of Marc Eichenberger as Chief Operating Officer on 26 April 2017.
8
ANNUAL REPORT AND ACCOUNTS 2016 CEO’S REPORT
I am delighted to have been appointed interim CEO of Allied Minds and would like to thank my predecessor,
Chris Silva, for his contribution in co-founding and building the Company, and our employees and partners for
the warm welcome they have extended to me in my new role.
Following my appointment, the Board ratified a recommendation from myself and the senior management team
at Allied Minds to undertake a restructuring resulting in the discontinuation of funding at several subsidiary
businesses. This was a necessary step in ensuring Allied Minds is set up to direct capital and management
resource to the most promising areas of the portfolio and pipeline, consistent with the imperative to accelerate
commercialisation and crystallise returns to our shareholders.
An internal review of all facets of Allied Minds’ model and strategy is underway, focusing on capital allocation
and on priorities to strengthen our competitive advantages and accelerate the growth in shareholder value. We
expect to report on conclusions from this review in the summer. I set out some preliminary observations below.
Firstly, a more disciplined, systematic, and dynamic approach to capital allocation will be implemented. There
will be more intense interrogation and validation of assumptions underpinning our investment decisions, both in
origination and in determining the ongoing business and capital plans for our existing subsidiaries. Out of this
process we will allocate capital where we see the greatest opportunities for growth, and we will be quicker
and more objective in terminating future investments where the path to commercialisation and external funding
becomes unclear.
Secondly, we will seek to broaden our syndication model, bringing in more external investors potentially at an
earlier stage in order to provide external validation, and in the case of strategic investors, to bind in commercial
partners where this can help accelerate or de-risk progress to commercialisation. The recent HawkEye 360
Series A fundraising, including Razor’s Edge and a defence market leader, is a good example of this.
Thirdly, we have an enviable origination platform, in particular via our AMFI network accessing relatively
advanced or proven technologies from federally funded laboratories, and will examine options to bring about
an acceleration in the velocity of new investments around more consistent and defined themes where we can
leverage our competitive advantages.
I look forward to reporting on the conclusions of the internal review in the summer. In the meantime I would like
to thank shareholders for their ongoing support.
Jill Smith
Chief Executive Officer
27 April 2017
9
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
COMPANY OVERVIEW
THE OPPORTUNITY
The US is the world’s largest market for research and development (R&D) investment, with more than $125.0
billion in annual spending by the US federal government, resulting in thousands of US patent applications per
annum. Although US universities and federal research institutions have an established technology transfer process
designed to commercialise this intellectual property, they face a number of challenges. Universities often lack the
resources necessary to adequately and efficiently identify the most marketable opportunities. As a result, many
universities license only a relatively small number of patents per year from a base of thousands, of which only a
small fraction progress to the next stage of development. Likewise, corporations have large areas of R&D output
which may not align with their core strategy and target markets but could be refocused on other markets with
cooperation from outside investors.
Allied Minds was established with the objective of collaborating with US universities and federal research
institutions, and more recently with corporations, to identify high-potential innovations and inventions at an early
stage, and to invest to develop the underlying technology into commercially attractive products and services,
bring them to market and ultimately monetise them with a view to delivering attractive returns to shareholders.
OUR STRATEGY AND CAPITAL ALLOCATION
Our origination strategy focuses on leveraging our partner network to uncover innovations in technology and
life sciences with the potential to disrupt large and growing markets. We see an opportunity to focus an
increasing proportion of our new investments around particular themes or clusters of expertise within certain
sectors, providing an opportunity to leverage technical and operating expertise, origination contacts, client and
co-investor relationships both at Group level and across our subsidiary businesses. At the same time, we will
retain the flexibility to invest opportunistically away from these clusters where we see opportunities to generate
attractive shareholder returns.
We seek to invest in projects at an early stage, sometimes immediately following an academic breakthrough or
invention. As such our investments have significant upside potential, but also carry significant risk inherent in the
early stage model. It is our job to ensure that companies that do not have a clear path to commercial traction
are terminated early and with minimum sunk capital, while treating all parties involved fairly and with respect.
Although our model assumes that not all of our investments will succeed, we expect to make sufficient successful
investments to generate attractive average returns across the portfolio as a whole because we enjoy competitive
advantages via our origination platform and central operating expertise, and focus on investing in innovations
that are disruptive to large and growing markets and maintaining control positions where appropriate.
Our role in our early stage subsidiaries is to provide equity funding, management, operating expertise and
shared service resources to bridge the period from brand new invention to an externally financeable business
plan. A key component of the Company’s strategy is to maintain strict capital discipline within an operationally
efficient model for new companies while the commercial viability of the technology is explored and tested.
We believe that for early-stage businesses it is important to retain initial control of projects. Over time, as our
companies mature and raise outside capital from financial, strategic and commercial partners to accelerate their
journey to commercialisation, we expect our proportionate ownership levels to be diluted. We will follow our
money, or invest to mitigate dilution, to the extent consistent with our goal to maximise risk adjusted returns for our
shareholders, taking into account competing uses of capital across our portfolio and pipeline.
As our portfolio has matured, greater Board and management focus has been concentrated on operating and
realising key commercial milestones at our more mature subsidiaries, representing a majority of GSOAV. The
importance of these subsidiaries to the Group is a key consideration in weighing capital allocation decisions.
10
ANNUAL REPORT AND ACCOUNTS 2016 COMPANY OVERVIEW (CONTINUED)
EVOLUTION OF OUR BUSINESS MODEL AND APPROACH
Since inception, Allied Minds has sought to deliver the commercial potential of selected university owned, early-
stage intellectual property by working with technology transfer offices (TTOs) and establishing a structure to form,
fund, manage and build start-up companies to develop innovative products and services that transform a market
or meet unmet customer needs.
As an extension of its university model, in September 2012, Allied Minds reached agreements for first-of-a-kind
Public Private Partnerships (PPP) with several US Department of Defense laboratories and federal government
agencies, and subsequently reached agreements with other federal government agencies such as the Department
of Homeland Security and the Department of Energy. Under these PPPs, the Company typically receives certain
access and licensing rights to inventions originating from the US Department of Defense laboratories and other
federal government agencies which can be commercialised for government and/or enterprise customers.
More recently our origination model has further evolved with the formation of partnerships and alliances with
US corporations, including BMS (via ABLS) and GE Ventures. These relationships provide us with access to
technology, expertise and capital, and have the potential to de-risk and accelerate the path to commercialisation
and monetisation.
Form
In 2016 Allied Minds evaluated over 2,700 potential projects from across a broad range of university and
federal laboratories and addressing a broad range of underlying technologies. We maintain regular contact
with our university partners, including via campus visits and interaction between Allied Minds staff and university
technology transfer personnel and researchers.
In order for a project to proceed past the first review stage, it must score highly in key technical assessment
criteria. Projects are assessed on a number of criteria, including: value proposition; disruptive technology;
initial commercial application; addressable market; business model; potential intellectual property protection;
competitive landscape; financing profile; regulatory path; and potential exit routes where applicable.
Approximately 2% of those projects reviewed are selected for further evaluation, involving sector experts and
academic peers to perform a deeper evaluation of the scientific and commercial potential of the project. Of
these projects, approximately half are selected for detailed due diligence resulting in preparation of a detailed
product and business development plan and budget structured around key milestones. Following this full diligence
process, historically we have invested in 4 to 6 new technologies per annum. We see scope to increase this
rate of investment in the future.
After selecting a project, Allied Minds typically establishes a subsidiary company that receives an exclusive
licence for the commercial rights to the underlying intellectual property. The subsidiary is usually majority owned
by Allied Minds in either a limited liability company or incorporated structure, with the originating university and
inventor(s) each potentially receiving a minority shareholding in that entity.
Fund
The subsidiary businesses use the seed funding to validate the core scientific principles of the intellectual property,
and evaluate the likelihood of commercial success of a technology prior to making any significant additional
commitment to fund, develop and commercialise the technology.
In certain cases the subsidiary is funded by Allied Minds to conduct deep due diligence over a period of
approximately 3 months, at the end of which further seed funding is invested or the subsidiary is terminated.
11
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report COMPANY OVERVIEW (CONTINUED)
Disbursement of additional funding by Allied Minds and future rounds of financing for further development are
dependent on achievement of key milestones designed to measure technological and commercial progress.
Where a project has failed to deliver sufficient additional proof points, or new market or technical information
renders the opportunity commercially unattractive, and the technology cannot be pivoted to an alternative
commercial path, Allied Minds will look to terminate the investment early.
At each stage in the business development cycle we review and explore opportunities to secure third party
investment. Going forward we expect to increase our focus on opportunities to enlist strategic investors, potentially
at an earlier stage, to validate the commercial opportunity and lock in cooperation with a view to accelerating
or de-risking the path to commercialisation and monetisation.
Manage
We evaluate on an on-going basis the progress and potential of each of the Company’s businesses, and make
strategy and funding decisions based on the achievement of key milestones. The Company sets out to identify
key achievements within each subsidiary that indicate growth momentum such as revenue, industry partnerships,
and go-to-market agreements, as a means of commercially validating the technology and business case.
Allied Minds actively manages and monitors its businesses throughout the life-cycle towards commercialisation.
During the early stages, Allied Minds typically provides technical and executive leadership, as well as shared
services support. At the appropriate time we will support a subsidiary business in hiring a full time CEO and
other critical talent and in putting in place incentives to drive results. As businesses evolve, Allied Minds builds
and leads the Board, recruits advisors and forms advisory Boards comprising of seasoned industry experts who
act as mentors, while maintaining dedicated personnel to oversee progress.
Allied Minds provides administrative support, including sales and marketing research, consulting, competitive
analysis, technology analysis, payroll and IT support, and operational advice, to enable our businesses to focus
on research, product development and commercialisation activities while achieving operational and financial
efficiency.
12
ANNUAL REPORT AND ACCOUNTS 2016
PORTFOLIO SUMMARY
During 2016, an aggregate of $108.2 million was invested into new and existing portfolio companies. This
included $60.2 million from fundraisings, of which $48.5 million came from third-party investment, to further
accelerate the development of Federated Wireless, ABLS II, Precision Biopsy and HawkEye 360. In addition to
these fundraisings, $48.0 million was invested by the Group into new and other existing portfolio companies,
including investments in four new businesses: Vatic Materials (Penn State) (closed post-period end); Signature
Medical (Boston University); ABLS III (NYU); and ABLS Capital.
Allied Minds currently has majority ownership in, or operating control of, all of its subsidiary businesses. Below
we provide an overview of our 17 current existing subsidiary businesses, including year formed, and Allied
Minds’ ownership interest. These 17 subsidiary businesses include 4 entities which do not directly provide or
are not directly developing products and services: Allied-Bristol Life Sciences (ABLS) (the holding company for
ABLS drug development subsidiaries); ABLS Capital (a funding vehicle for ABLS drug development subsidiaries);
Allied Minds Federal Innovations (AMFI) (a company with contractual sourcing relationships with certain federal
laboratory research partners); and Foreland (a holding company for Allied Minds’ cyber security investments).
Subsidiary
Corporate partnerships
Year Formed
Ownership
Interest (1)
Overview
Allied-Bristol Life Sciences, LLC
2014
80.00%
ABLS Capital
2016
30.25%
ABLS II, LLC
2014
35.95%
ABLS III, LLC,
d/b/a iβeCa Therapeutics
2016
80.00%
Life Sciences
LuxCath, LLC
2012
98.00%
Precision Biopsy, Inc.
2008
64.59%
SciFluor Life Sciences, Inc.
2010
69.89%
Created with BMS to identify and conduct pre-
clinical development of therapeutic candidates
which are intended to be sold to BMS prior to
clinical development
Funding vehicle with up to $80 million of binding
commitments to support development of ABLS drug
compounds proceeding to lead optimisation phase
Novel small molecule therapeutics for the treatment
of fibrotic and autoimmune diseases, developed
in the Harvard University laboratory of Professor
Malcolm Whitman
Proprietary compounds developed by Dr. Ramanuj
Dasgupta at the NYU School of Medicine that
target the Wnt signalling pathway and nuclear beta
catenin, which plays a key role in the development
and progression of a number of cancers affecting
large numbers of patients
A catheter-based real-time tissue and lesion visual-
isation technology for use during cardiac ablation
procedures initially focused on atrial fibrillation
ablation
A medical device platform, ClariCore™, utilising
tissue spectroscopy, which seeks to distinguish tissue
characteristics in real-time and to guide clinicians
toward areas of disease for optimum therapy ini-
tially focused on prostate cancer. Developing focal
therapy system using ClariCore™ for abnormal
tissue targeting in the prostate
Developing a best-in-class portfolio of compounds
based on the strategic use of fluorine initially
focused on retinal, CNS, fibrotic and pain related
diseases
13
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report PORTFOLIO SUMMARY (CONTINUED)
Subsidiary
Year Formed
Ownership
Interest (1)
Overview
Signature Medical, Inc.
2016
100.00%
Technology
Allied Minds Federal Innovations, Inc.
2012
100.00%
BridgeSat, Inc.
2015
100.00%
Federated Wireless, Inc.
2012
72.96%
Foreland Technologies, Inc.
2013
100.00%
HawkEye 360, Inc.
2015
53.11%
Percipient Networks, LLC
2014
100.00%
Seamless Devices, Inc.
2014
79.12%
Spin Transfer Technologies, Inc.
2007
48.40%
Whitewood Encryption Systems, Inc.
2014
100.00%
Developing cardiac signature technology for appli-
cation on a wearable device enabling diagnosis
and monitoring of heart failure during hospital
therapy and post discharge
Through a series of Public Private Partnerships (PPPs)
with the US federal government, aims to develop
and commercialise the next generation of trans-
formative technologies from US federal research
institutions
Developing an optical connectivity system that aims
to increase the speed, security and efficiency of
data transmissions from LEO satellites, unmanned
aerial systems, and remote terrestrial infrastructure
compared to traditional radio frequency solutions
A leader in the emerging market for Shared Spec-
trum, their CINQ cloud-based platform provides
coordinated shared spectrum resources to enterprise
customers, network operators and service providers
A cyber security platform company which aims to
discover, incubate and commercialise emerging
technologies with greater speed and agility than the
rest of the market
Building a constellation of small satellites in LEO
to generate reports on wireless signals that can
be used to track and monitor global transportation
networks and assist with emergencies
Developing threat-intelligence driven cloud-based
cyber security technologies for proactive enterprise
network defence
Developer of semiconductor devices using a novel
approach to analog-to-digital signal processing
based on switched-mode signal processing technol-
ogy and algorithms
MRAM computer memory that is being developed
with the aspiration of becoming a leading univer-
sal memory technology to address a segment of
the $60 billion per annum worldwide computer
memory market
Developer of the next-generation systems of data
encryption that leverage advanced quantum cryp-
tography technologies
In addition Allied Minds is party to an agreement with GE Ventures establishing a Strategic Alliance
through which the two parties envisage cooperating to jointly invest in technologies from their pipelines.
Notes:
(1.) Ownership interests are as at 24 April 2017 (being the latest practicable date prior to the publication of this document), and are based upon
percentage interest in issued and outstanding share capital in the subsidiary undertakings. Allied Minds’ ownership of HawkEye 360 was
56.11% as at 31 December 2016, prior to the second closing of the Series A preferred equity funding round completed in January 2017
14
ANNUAL REPORT AND ACCOUNTS 2016
PORTFOLIO SUMMARY (CONTINUED)
which took Allied Minds’ ownership to 53.18%, and the subsequent exercise of employee options taking Allied Minds’ ownership to 53.11%
as at 24 April 2017. The calculation of this ownership interest excludes the dilutive impact of unexercised warrants issued in association with
a $3.0 million development programme.
(2.) In 2016, Allied Minds ceased operations at its subsidiary SiEnergy Systems having determined that the underlying clean energy technology
would not meet key milestones. After the period end ABLS I ceased operations and the company was dissolved following Board determination
that the feasibility programme was not successfully completed, and Vatic Materials was closed following unsatisfactory due diligence outcomes.
Also post-period end funding was discontinued at Biotectix; Cephalogics; CryoXtract; Novare Pharmaceuticals; Optio Labs; RF Biocidics; and
SoundCure/Tinnitus Treatment Solutions.
15
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report SUBSIDIARY VALUATION
All of the Company’s subsidiary companies are currently majority owned and/or controlled and therefore fully
consolidated in the Company’s consolidated financial statements prepared in accordance with International
Financial Reporting Standards as adopted by the EU (IFRS). As a result, the Consolidated Statements of Financial
Position incorporated within the Company’s consolidated financial statements do not include current valuations
of the Company’s subsidiary companies.
While in previous years we have disclosed the ownership adjusted valuations for each of the Group’s top ten
subsidiary businesses by value, in line with certain peers, this year we are disclosing ownership adjusted value
at an aggregate level only for the Group as a whole. We believe this practice will better serve the interests of
our shareholders by protecting the Group’s position in discussions with potential partners and external investors
in our subsidiaries. We will continue to disclose qualitatively against the key drivers of material movements in
the ownership adjusted values in the aggregate life sciences and technology portfolios, and in aggregate for the
Group. We will also disclose against movements in subsidiary valuations arising specifically from fundraising
rounds involving external investors.
At the close of each annual financial period, the Directors formally approve the value of all subsidiary businesses
in the Group which is used to derive the GSOAV. There can be no guarantee that the aforementioned valuation
of the Group will be considered to be correct in light of the future performance of the various Group businesses,
or that the Group would be able to realise proceeds in the amount of such valuations, or at all, in the event of a
sale by it of any of its subsidiaries.
The GSOAV was $416.2 million as of the date of this annual report and accounts. Of that, 87.1% is valued
by reference to the valuation implied by the most recent third party funding round. Compared to $535.8
million when last disclosed, this reflects a decrease of $119.6 million, or 22.3%. This decrease is primarily
attributed to the liquidation of several subsidiary businesses subsequent to year end and write off of their
value, namely Biotectix, Cephalogics, CryoXtract, Optio Labs, Novare, RF Biocidics and SoundCure/Tinnitus
Treatment Solutions. This decrease was partially offset by an increase in value at HawkEye 360 demonstrated
by the consummation of a third-party fundraising and an increase at ABLS due to ABLS II moving into the lead
optimisation programme.
Ownership adjusted value represents Allied Minds’ interest in the equity value of each subsidiary and is calculated
as follows: (Business Enterprise Value – Long Term Debt + Cash) x Allied Minds percentage ownership plus the
value of debt provided by Allied Minds plc to each subsidiary business. Allied Minds commits post-seed funding
to its subsidiaries in the form of loans.
16
ANNUAL REPORT AND ACCOUNTS 2016
PARTNER NETWORK
The Group has well established relationships with the most prestigious academic research institutions across the
United States. Allied Minds aims to gain direct access to technologies at the forefront of research by working
to deepen our relationships with selected institutions and selectively adding highly regarded research centres
across the US.
The Group continues to expand its relationships with US government laboratories and other federal funded
research and development centers (FFRDCs), with the objective of commercialising select technological inventions
developed in the corresponding US federal government laboratory. In particular, Allied Minds has formalised
new technology commercialisation agreements with leading FFRDCs such as the Aerospace Corporation and
the MITRE Corporation.
In addition we have added a third leg to our origination platform in the form of corporate partnerships. This
began with the formation of our ABLS partnership with BMS, and has continued with our strategic alliance with
GE Ventures formed in September 2016. We continue to actively explore additional sources of world-class
technology innovation.
During the year Allied Minds engaged with nearly 50 new research institutions, bringing the total US universities
and federal laboratories in the Allied Minds partner network to 207. The investment team reviewed more than
2,700 new technologies developed by the partner network, and following extensive due diligence on over
20 of the most promising, formed and funded four new businesses, resulting in a total Group portfolio of 17
subsidiary businesses (following the closure of ABLS I, Vatic Materials and the Discontinued Subsidiaries post-
period end), and executed options to license three additional technologies.
Below is a list of research institutions engaged with in 2016.
Aerospace Corporation
Air Force Institute of Technology
Albert Einstein College of Medicine
Argonne National Laboratory
Arizona State University
Army Research Lab CERDEC
Beaumont Health System
Beth Israel Deaconess Medical Center
Binghamton University
Boston Children’s Hospital
Boston University
Brandeis University
Brigham and Women's Hospital
Brookhaven National Laboratory
Brown University
California Institute of Technology
Carnegie Mellon University
Case Western University
Cedars-Sinai Hospital
City of Hope
City University of New York
Cleveland Clinic
Columbia University
Cornell University
Dana Farber Cancer Institute
Dartmouth College
Draper Labs
Drexel University
Duke University
Emory University
Fermi National Accelerator Laboratory
Florida Institute of Technology
Florida State University
GE-Hitachi Nuclear Energy Americas
General Electric
George Washington University
Georgetown University
Georgia Institute of Technology
Harvard University
Houston Methodist Hospital
Idaho National Laboratory
Indiana University
Iowa State University
Jet Propulsion Laboratory
Johns Hopkins University
Johns Hopkins University - Applied Physics Lab
Lawrence Berkeley National Laboratory
Lawrence Livermore National Laboratory
Lehigh University
Los Alamos National Laboratory
Louisiana State University
Marshall University
Massachusetts General Hospital
Massachusetts Institute of Technology
Mayo Clinic
McLean Hospital
Memorial Sloan Kettering Cancer Center
Michigan State University
Michigan Technological University
Missouri University of Science and Technology
MIT Lincoln Laboratory
MITRE
Mount Sinai School of Medicine
NASA – Ames Research Center
NASA - Armstrong Flight Research Center
NASA – Glenn Research Center
NASA – Goddard Space Flight Center
NASA – Johnson Space Center
NASA - Kennedy Space Center
NASA - Langley Research Center
NASA – Marshall Space Flight Center
NASA - Stennis Space Center
National Energy Technology Laboratory
National Institute of Standards and Technology
National Institutes of Health
National Institute of Health – NCATS
National Institute of Health – NCINational Oceanic
and Atmospheric Administration
National Radio Astronomy Observatory
National Renewable Energy Laboratory
National Security Agency
Naval Air Weapons Station China Lake
Naval Research Laboratory
Naval Surface Warfare Center Crane
New Jersey Innovation Institute
New York University
North Carolina State University
North Dakota State University
Ohio Aerospace Institute
Northeastern University
Northwestern University
Oak Ridge National Laboratory
Ohio State University
Ohio University
Oregon State University
Pacific Northwest National Laboratory
Partners Healthcare
PATH
Pennsylvania State University
Picatinny Arsenal
Princeton University
Purdue University
Rice University
Rockefeller University
Rutgers University
17
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report PARTNER NETWORK (CONTINUED)
St Louis University
Sandia National Laboratories
Sanford Burnham Prebys Medical Discovery Institute
Savannah River National Laboratory
Scripps Institute
Southern Illinois University
Southern Methodist University
SPAWAR
St Jude's
Stanford University
State University of New York - Binghamton
State University of New York - Downstate
State University of New York - Stony Brook
Stevens Institute of Technology
Temple University
Texas AandM University
Texas Tech
The Children’s Hospital of Philadelphia
Tufts University
US Army AMRDEC
US Army ARDEC
US Army Engineer Research and Development Center
US Army Research Laboratory
US Department of Homeland Security
US Department of Agriculture
US Environmental Protection Agency
US Naval Air Station Patuxent River
US Naval Air Weapons Station China Lake
US Naval Surface Warfare Center – Indian Head
EOD
US Naval Undersea Warfare Center
Uniformed Services University of the Health Science
University of Alabama
University of Arizona
University of Arkansas for Medical Sciences
University of California - Berkeley
University of California - Davis
University of California - Irvine
University of California - Los Angeles
University of California - Merced
University of California - Riverside
University of California - San Diego
University of California - San Francisco
University of California - Santa Barbara
University of California - Santa Cruz
University of California - System
University of Central Florida
University of Chicago
University of Colorado
University of Colorado - Denver
University of Delaware
University of Florida
University of Houston
University of Idaho
University of Illinois - Chicago
University of Illinois - Urbana Champaign
University of Iowa
University of Kansas
University of Louisville
University of Maryland - Baltimore
University of Maryland - College Park
University of Massachusetts - Amherst
University of Massachusetts - Dartmouth
University of Michigan
University of Minnesota
University of Missouri - Columbia
University of Nebraska
University of Nebraska – Lincoln
University of Nebraska Medical Center
University of New Hampshire
University of North Carolina at Chapel Hill
University of North Carolina at Pembroke
University of North Dakota
University of North Texas
University of Notre Dame
University of Oregon
University of Pennsylvania
University of Pittsburgh
University of Rochester
University of South Carolina
University of South Dakota
University of South Florida
University of Southern California
University of Texas – Austin
University of Texas - Dallas
University of Texas – Southwestern
University of Utah
University of Virginia
University of Washington
University of Wisconsin – Madison
University of Wisconsin - Milwaukee
Utah State University
Utah State University Space Dynamics Laboratory
Vanderbilt University
Vencore Labs
Virginia Polytechnic Institute and State University
(Virginia Tech)
Wake Forest University
Washington State University
Washington University in St. Louis
Wayne State University
Wentworth Institute of Technology
Yale University
18
ANNUAL REPORT AND ACCOUNTS 2016 KEY PERFORMANCE INDICATORS
The following Key Performance Indicators (KPIs) were selected to measure the performance of the Company in
2016:
• number of new subsidiary businesses, strategic transactions, financing transactions and other validating
events consummated
• Group Subsidiary Ownership Adjusted Value (GSOAV);
• Group revenue growth; and
•
the number of subsidiaries that achieve the majority of their financial, operational, technical and other
performance milestones established by the Board.
Performance against 2016 KPIs is set out below:
2016
19
2015
18
Performance
5.6% increase
$416.2 million
$535.8 million
$119.6 million / 22.3% decrease
$2.7 million
$3.3 million
$0.6 million decrease
12
15
20.0% decrease
KPI
New subsidiary businesses, strategic
transactions, financing transactions and
other validating events consummated
GSOAV
Group revenue
Number of subsidiaries achieving a
majority of their financial, operational,
technical and other performance
milestones
Notes:
(1.) $416.2 million is GSOAV estimated as at 24 April 2017, following the Board’s decision to discontinue funding at several subsidiary businesses.
As part of the appointment of Jill Smith as interim Chief Executive Officer, and the Group restructuring announced
on 5 April 2017, the Board re-evaluated the previously selected KPIs. The Board, led by Ms. Smith, undertook a
comprehensive review of the objectives of the Group, and re-set detailed management and Group objectives for
2017. These revised objectives seek to link financial, operational, technical and other performance milestones
established by the Board directly to remuneration and KPIs. As a result of the process, the following KPIs were
selected to measure the performance of the Group in 2017:
• Change in Group Subsidiary Ownership Adjusted Value (GSOAV); and
• Change in percentage level of achievement of management by objectives (MBOs).
19
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
KEY PERFORMANCE INDICATORS (CONTINUED)
The 2017 MBOs, including financial, operational, technical and other performance targets and their weightings
for the upcoming year were set at the start of 2017, and refined in April 2017, as follows:
MBO
Deliver Validating Events(1) and Technical Milestones(2) for Key Subsidiaries
Secure Funding and Strategic Relationships for Subsidiary Companies
Strengthen Investment Committee Process:
Establish Corporate Partner Goals and Commitments
Expand New Company Pipeline Development
Define Path to Commercialisation, Liquidity Event or Key Commercial or
Strategic Differentiators
Develop Strategic Plan to Drive Shareholder Value
Manage Cash
TOTAL PERCENTAGE OF TARGET
TARGET WEIGHTINGS
40.0%
20.0%
5.0%
5.0%
10.0%
10.0%
10.0%
100.0%
Notes:
(1.) “Validating Events” represent various material achievements, such as fundraisings, mergers and acquisitions, development partnerships, strategic
alliances, customer contracts and other significant corporate events.
(2.) “Technical Milestones” represent various research and development achievements, as well as advancement of clinical trials.
20
ANNUAL REPORT AND ACCOUNTS 2016 PORTFOLIO REVIEW AND DEVELOPMENTS
This section covers the Group’s more advanced subsidiaries, and also includes by way of explanation those
subsidiaries subject to material valuation write-downs at the end of 2016.
CORPORATE PARTNERSHIPS
ABLS, LLC
ABLS is a drug discovery and development company created in August 2014 through a partnership between
Allied Minds and BMS. The company’s mission is to create novel drug candidates against serious diseases with
large market potential. These include fibrosis, cardiovascular, immunescience, immuno-oncology, oncology, and
genetically-defined disease, aligning to BMS’s strategic areas of focus. BMS has the option to acquire drug
compounds from ABLS upon completion of the lead optimisation phase for a pre-agreed multiple of invested
capital, with Allied Minds retaining rights to potential milestone and royalty payments.
ABLS sources new drug candidates from Allied Minds’ network of institutional research partners and funds the
initial feasibility study, typically requiring up to approximately $1.0 million of capital, through a newly formed
subsidiary. Consistent with Allied Minds’ overall strategy, the ABLS model presents an opportunity for us, with
BMS, to evaluate each ABLS subsidiary and determine at an early stage and with limited capital invested
whether to continue development based on the results of such subsidiary’s initial phase of research, development
and testing, measured against objectives defined by ABLS and BMS.
If the drug passes the initial feasibility stage, it will enter into the optimisation phase to develop and test a lead
drug candidate, typically requiring further capital investment of up to $15.0 million. Funding for lead optimisation
is provided by a combination of Allied Minds via ABLS Capital, LLC (ABLS Capital) (80.0%) and BMS (20.0%).
The optimisation phase studies are in part carried out at a BMS R&D Site in India, called Biocon-BMS Research
Center (BBRC).
ABLS Capital was formed to provide the majority of the capital required to fund up to ten (10) ABLS subsidiaries
though the lead optimisation phase. In April 2016 ABLS Capital secured commitments amounting to $80.0
million, including $40.0 million from Woodford Investment Management and $20.0 million from Invesco
Perpetual. These funding commitments will be used to invest alongside the up to $20.0 million from BMS to fund
these lead optimisation phases.
The ABLS partnership aligns Allied Minds with a seasoned large pharmaceutical partner and creates a natural
early stage (pre-clinical) acquirer of developing assets, potentially de-risking the drug development process for
Allied Minds and providing attractive risk adjusted returns.
The company reviewed more than 245 technologies in 2016. As of this date, three subsidiaries have been
launched, although one of these (ABLS I) ceased operations after the period end following Board determination
that results from feasibility studies did not warrant progress to the lead optimisation phase. Pre-clinical work is
underway on the other two programmes in collaboration with BBRC. Active negotiations are currently underway
in relation to two potential new deals with scope to close in the first half of 2017.
ABLS I, LLC
ABLS I was a company formed in August 2015 pursuing pre-clinical development of a Yale University based
technology: Antibody Recruiting Molecules. As described above, the ABLS model is structured to allow
decisions to be made early in development with little capital invested, lowering risk and helping to inform better
capitalallocation among the ABLS subsidiaries. Consistent with this approach, upon review and assessment of
the initial research and testing results completed in ABLS I’s initial feasibility phase, ABLS and BMS resolved that
21
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
PORTFOLIO REVIEW AND DEVELOPMENTS (CONTINUED)
the pre-set objectives were not met and accordingly, the lead optimisation phase for ABLS I was not approved
and the company was dissolved post-period end.
ABLS II, LLC
ABLS II was formed in June 2015 to undertake pre-clinical discovery and development of molecules against a
novel target (Prolyl tRNA Synthetase) for treatment of fibrotic diseases. Harvard University researchers had earlier
identified the mechanism of halofuginone (a natural product with anti-fibrotic properties) as an inhibitor of Prolyl
tRNA Synthetase. ABLS II’s objective is to discover and develop halofuginone analogues with novel IP, better
safety and superior efficacy. ABLS II has synthesised various molecules and is evaluating them for safety and
efficacy. In May 2016 ABLS announced that ABLS II had successfully passed feasibility and in August ABLS II
successfully raised $15.0 million of funding from ABLS Capital and BMS to fund the lead optimisation phase.
ABLS III, LLC, d/b/a iβeCa Therapeutics
iβeCa Therapeutics was formed in March 2016 with IP licensed exclusively from New York University (NYU)
School of Medicine. NYU researchers have identified novel inhibitors of nuclear beta catenin, a key player in the
Wnt signaling pathway and a major driver of various cancers. These molecules are targeted specifically against
nuclear (vs cytoplasmic) beta catenin thereby potentially offering better safety and efficacy. The company’s
objective is to develop molecules with improved potency, efficacy and better pharmaceutical properties.
Strategic Alliance with GE Ventures
Created in September 2016 to jointly identify and invest in technologies from Allied Minds’ and GE Ventures’
combined pipelines.
OTHER SUBSIDIARY BUSINESSES
BridgeSat, Inc
BridgeSat is reinventing satellite communication with an advanced optical communications network that delivers
fast, reliable and affordable data transmission to enable a new era of applications and services. Optical
communications is an alternative to RF communications to meet the exponentially growing need for data
downlinking from satellites, including LEO satellites. BridgeSat estimates that the immediate addressable optical
downlink market is $1.5 billion annually, a sub-set of the $9.6 billion satellite network market. BridgeSat made
good progress against its business plan over 2016, developing the three facets of its solution: space terminal,
ground station, and management network, and post-period end secured agreement with The Swedish Space
Corporation (SSC) to install its equipment at 3 of SSC’s ground sites.
Federated Wireless, Inc.
Federated Wireless extends the access of carrier networks through sharing of wireless spectrum amongst multiple
tiers of users through an innovative cloud-based wireless infrastructure solution. The allocation and management
of spectrum employing a shared-economy model is hugely disruptive to the status quo of large spectrum block
auctions. The Federated Wireless platform, consisting of a cloud based Spectrum Allocation System (SAS) and
Environmental Sensing Capability (ESC), unlocks commercial access to spectrum in the 3.5 GHz band, called
the CBRS, that is owned by the US military and is surplus to its requirements at a given point in time.
In February the company announced the formation of an alliance with other wireless industry leaders to build
an ecosystem for the 3.5 GHz band. The other six founding companies in the CBRS Alliance are: Alphabet,
Dell, Intel, Qualcomm, Nokia, and Ruckus Wireless (Brocade). The six companies together aim to build a robust
ecosystem of industry participants and make CBRS solutions as widely available as possible. The Alliance was
formalised in August 2016 as the CBRS Alliance and membership quadrupled by year-end to include cable
companies, carriers, and equipment providers.
22
ANNUAL REPORT AND ACCOUNTS 2016 PORTFOLIO REVIEW AND DEVELOPMENTS (CONTINUED)
In May 2016 Federated Wireless announced that it officially began the certification process with the FCC for its
SAS. Certification is the final phase of the regulatory process as the company prepares its solution for commercial
use. Conditional approval of certification was received in December 2016 and final approval is expected in
mid-2017. Federated Wireless continues to work closely with the FCC and leads the WInnForum in helping to
establish standards for the 3.5 GHz band and shared spectrum.
In June 2016 the first two partner agreements for Federated Wireless were announced with Siemens and Telrad.
Both companies currently operate in the 3.65 GHz band and will be early adopters of the FCC’s CBRS rules
in order to evolve and expand their networks using the Federated Wireless CINQ XP product. In December,
Federated Wireless and Alphabet’s access team successfully demonstrated interoperability between their
respective SASs; a requirement for FCC certification and an important milestone in validating the operational
viability of CBRS.
During the year Federated Wireless completed trials with Alphabet, Dell and Qualcomm, and has trials with
a 15 further ecosystem members signed or underway and 6 in pipeline. These collaborations re-affirm that the
CBRS model is a commercially viable way to allocate and manage limited spectrum resources.
HawkEye 360, Inc.
HawkEye 360, formed in September 2015, is developing a space-based RF mapping and analytics system to
be operated via a constellation of company developed formation-flying small satellites in LEO.
HawkEye 360 intends to be a leader in the emerging small satellite industry and its Pathfinder constellation
of small satellites, which will be flown in formation 600 kilometres from the Earth’s surface, aims to enable
commercial applications such as allowing governmental entities and corporate customers to closely monitor
transportation networks across air, land and sea to ensure normal and safe activity. For government regulators,
telecommunications companies and satellite broadcasters, HawkEye 360’s system is being designed with the
ability to monitor RF spectrum usage to help identify areas of interference, better understand spectrum deployment,
and avoid negative impact to operations. The system could also help to detect and locate activated emergency
beacons to improve response times in life-threatening situations.
At the beginning of 2016 HawkEye 360 announced the formation of an Advisory Board including a former
Director of the National Reconnaissance Office (NRO), former Director of National Geospatial-Intelligence
Agency (NGA) and a former Secretary of Department for Homeland Security (DHS). Over the remainder of the
year HawkEye 360 announced the selection of its satellite and payload manufacturers, with manufacturing now
underway, and secured launch planned for Q1 2018.
Funds from HawkEye 360’s $13.75 million series A round completed in February 2017 will be deployed to
complete the development of the Pathfinder Cluster of three small satellites as well as to support the cost of testing
and launch in early 2018, and to grow the company’s engineering and business development teams.
Precision Biopsy, Inc.
Existing prostate cancer diagnostics rely on biopsy procedures which are performed “blindly”, sampling 12-
14 cores at random. Precision Biopsy’s ClariCore™ live tissue identification technology directs the physician
to sample only “suspicious” tissue, potentially reducing by up to 90% the number of core samples subject to
pathology and providing immediate feedback to biopsied patients. ClariCore™ may also improve cancer
diagnosis and detection rates by enabling the urologist to probe extra locations, including the anterior prostate,
when all previous biopsy location have indicated as “normal”.
23
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report PORTFOLIO REVIEW AND DEVELOPMENTS (CONTINUED)
Existing therapeutics for prostate cancer suffer in the same way as diagnostics from the inability to definitively
localise the cancer tumour. Precision Biopsy has filed patents to develop and is currently developing a three-
dimensional prostate mapping system utilising a variation of the ClariCore™ system. It is intended that this
mapping system will accurately identify the tumour and selected margins to allow for focal treatment of the affected
area of the prostate using RF ablation, HIFU, cryoablation, radiation, or other focal therapy technologies such
as drug injection, potentially reducing the need for radical prostatectomy procedures and preserving healthy
tissue. The company is also developing a focal therapy system which would enable the urologist to locally and
focally ablate selective suspicious segments of the prostate utilising the ClariCore™ system to guide the therapy.
In mid-2016 Precision Biopsy received FDA IDE (Investigational Device Exemption) approval to test ClariCore™
in a Cohort A study intended to collect patient data to develop its commercial tissue classification algorithm. This
IDE approval has allowed the company to expand the clinical trial by adding a second arm to the study enrolling
patients for the Transrectal Ultrasound (TRUS) and MR/Fusion study. To date, Precision Biopsy has completed over
100 patients in its Cohort A trial at six US clinical sites. A second clinical trial initiation, Cohort B, is planned
and trial results are expected to support submission for approval, commercial release and system launch in the
US and EU.
SciFluor Life Sciences, Inc.
SciFluor aims to develop a best-in-class portfolio of compounds principally through the strategic use of fluorine.
It engages in drug discovery and development and is building a portfolio of proprietary compounds seeking
to serve various billion dollar markets. SciFluor has evolved its current portfolio by adding fluorine to drug
compounds with the intention of improving potency, selectivity, rates of absorption, metabolic stability, and half-
life. These factors all improve the specific drugs and can positively impact delivery, dosing, side effects and
more. For reference, approximately 25% of drugs currently marketed or in the pipeline contain fluorine. SciFluor’s
principal products are based on two patented lead compounds:
• SF0166, a patented small molecule integrin antagonist wholly owned by SciFluor and intended to treat
eye conditions, specifically retinal diseases including AMD, DME and retinal vein occlusion (RVO),
representing an estimated 50 million patients worldwide and over $8.0 billion market value. What
makes SF0166 potentially disruptive is that it is a topical drug delivered via eye drops and is intended
to replace current drugs delivered via repeated injection into the back of the eye.
• SF0034, a KCNQ2/3 modulator (a potassium channel activator), which is a fluorinated derivative
of retagabine, is also patented and wholly owned by SciFluor. SF0034 could eliminate key safety
issues associated with retigabine and could potentially serve markets totaling $5.0 billion in aggregate
including: epilepsy/seizures; tinnitus; amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease); and
channelopathies (genetically-defined rare diseases based on mutations of the potassium channel).
In February 2016, SciFluor was granted U.S. Patent No. 9,266,884 covering methods of using SF0166 in
the treatment of a range of diseases including AMD, DME and RVO. SciFluor had been previously granted U.S.
Patent 8,901,144 covering compositions of matter that include SF0166.
In July 2016 the Investigational New Drug (IND) Application to the FDA went into effect for SF0166 Topical
Ophthalmic Solution (SF0166). The company has initiated dosing in Phase I/II trials for both DME and wet-AMD
in multiple centers in the US.
The company is also evolving a portfolio beyond its two lead compounds.
24
ANNUAL REPORT AND ACCOUNTS 2016 PORTFOLIO REVIEW AND DEVELOPMENTS (CONTINUED)
Spin Transfer Technologies, Inc. (STT)
STT engages in the development of OST -MRAM, an innovative memory integrated circuit technology originally
sourced from NYU.
Electronic memory devices used in today’s computers are specialised to handle different computing and data
storage tasks. Non-volatile memories, such as Flash, retain information after power has been turned off, but
Flash memory suffers from slow write speed and poor endurance. High-speed memories, such as Dynamic
Random-Access Memory (DRAM), offer greater read and write performance, but DRAM is volatile and requires
significantly higher power to operate. In addition, both Flash and DRAM have questionable scalability to finer
process geometries than currently used in today’s state of the art semiconductor micro lithography.
MRAM is a promising technology for the next generation of memory applications. OST- MRAM’s potentially
unique combination of fast write speed, low power, and virtually unlimited endurance is expected to enable it
to address a wide range of applications in the standalone and embedded memory markets, which collectively
had a combined estimated value of greater than $60 billion per annum worldwide.
During 2016 STT announced that it had successfully demonstrated its OST-MRAM technology through the
production of a working prototype device. Supported by the 2015 completion of its wafer fabrication clean
room used for developing and prototyping the new “magnetic” portion of the chip fabrication process, the
company’s engineering development cycles have accelerated markedly, reliably achieving under 2-3 week
engineering cycle time for wafers, reduced by greater than 75% in comparison to the typical two month or longer
cycle time that was the operating norm prior to the clean room completion. This has enabled the company to
make rapid strides in its migration to perpendicular magnetic tunnel junction (pMTJ) technology, the so-called
third generation of MRAM. As a result, in December 2016 the company began shipping samples of its “DM1”
Diagnostic Memory chip to target customers. The samples were prepared and screened to credible standards
of function and reliability.
In addition, STT completed prototypes of memory array with megabit-level densities with accompanying
performance and yield statistics. In doing so the company completed its first steps in advancing the capability
of its pMTJ manufacturing process to support high-density, commercially relevant memory arrays. In September
2016 the company announced that it had fabricated pMTJs as small as 20nm – among the smallest MTJs ever
reported. This ‘megabit density’ technology demonstration, along with the pMTJ DM1 samples, are essential
enablers to the company’s initial market outreach.
The above progress signals the impending completion of STT’s first major phase of development, resulting in
a ‘baseline pMTJ technology’ that the company believes will be both viable against competitors (with typical
incremental improvements in time) and highly credible in securing an advanced CMOS (complementary metal-
oxide semiconductor) manufacturing partner (with process capabilities compatible with even higher bit density
memories, e.g. 20-45nm lithography-capable), strategic joint development partner(s), and early stage license
agreements.
The company’s early stage cooperative development arrangements with its Asian CMOS foundry partners has
progressed as anticipated. STT plans to expand one or both of those relationships, as well as add additional
relationships, enabled by the impending readiness of the ‘baseline pMTJ technology’.
Discontinued Subsidiaries
Consistent with the Allied Minds’ model, where a project has failed to deliver sufficient additional proof points for
25
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report PORTFOLIO REVIEW AND DEVELOPMENTS (CONTINUED)
ultimate commercialisation and financial return, no longer supports on-going development and commercialisation
activity, and cannot be successfully redirected to an alternative commercial path, Allied Minds will look to cease
operations and terminate the project.
In 2016, Allied Minds ceased operations at its subsidiary SiEnergy having determined that the clean energy
technology would not meet key milestones.
Post-period end ABLS I ceased operations and was dissolved following Board determination that it had not
successfully completed initial feasibility studies and Vatic Materials was closed following unsatisfactory due
diligence outcomes. Also post-period end funding was discontinued at: Biotectix; Cephalogics; CryoXtract;
Novare Pharmaceuticals; Optio Labs; RF Biocidics; SoundCure; and Tinnitus Treatment Solutions, following Board
determination that these subsidiaries were unlikely to generate appropriate returns and capital and management
resource should be diverted to more promising areas of the portfolio and pipeline.
26
ANNUAL REPORT AND ACCOUNTS 2016
FINANCIAL REVIEW
The financial results of the year reflect the Group’s sustainable model of deploying capital into our portfolio of
Group controlled businesses at the right pace. During 2016, $108.2 million was invested into new and existing
portfolio companies. This included $60.2 million from subsidiary fundraisings (including $6.0 million raised in
2015 but received from investors in 2016), with $48.5 million coming from third-party investment, to further
accelerate the development of four of the Group’s existing companies, ABLS II, Federated Wireless, Precision
Biopsy and HawkEye 360. In addition to these fundraisings, $48.0 million was invested by the Group into new
and other existing portfolio companies.
Consolidated Statement of Comprehensive Loss
For the years ended 31 December
Revenue
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
Finance cost, net
Other comprehensive income
Total comprehensive loss
of which attributable to:
Equity holders of the parent
Non-controlling interests
2016
$ ‘000
2015
$ ‘000
2,664
3,300
(5,563)
(3,925)
(55,484)
(46,888)
(55,292)
(49,209)
(15,267)
(1,267)
208
46
(128,734)
(97,943)
(96,125)
(77,752)
(32,609)
(20,191)
Revenue decreased by $0.6 million, to $2.7 million in 2016 (2015: $3.3 million). This decrease is mainly
attributable to the lower product revenue at RF Biocidics. The revenue in the early stage companies’ segment
decreased to $0.6 million in 2016 (2015: $1.1 million). Cost of revenue increased by $1.6 million to $5.6
million (2015: $3.9 million), reflecting write offs of inventory at RF Biocidics and CryoXtract.
Selling, general and administrative (SG&A) expenses increased by $8.6 million, to $55.5 million, for the year
ended 31 December 2016 (2015: $46.9 million), largely due to the overall growth of the Group. Of this
increase, $6.5 million relates to an increase in personnel expenses reflecting the increase in headcount and
salaries as well as an increase in non-cash share-based compensation expense by $1.7 million. The increase
is also attributed to higher non-cash depreciation, amortisation and impairment charges which were higher by
$3.8 million compared to prior year, offset by a $0.8 million decrease in sales and marketing cost, a $1.0
million decrease in occupancy and related expenses, and a $0.7 million decrease in professional services.
R&D expenses increased by $6.1 million to $55.3 million for the year ended 31 December 2016 (2015:
$49.2 million). The increase is attributed to the overall growth of the Group’s research and development activities,
reflecting the acceleration of activities at a few companies as supported by third party financing rounds in 2015
and 2016 and ramping up full scale of R&D activities of companies created in late 2014 and into 2015.
Finance cost, net increased by $14.0 million to $15.3 million in 2016 (2015: $1.3 million) primarily due
to the finance cost from fair value accounting adjustment of the subsidiary preferred shares liability balance of
27
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report FINANCIAL REVIEW (CONTINUED)
$17.6 million, offset by exchange rate profits of $1.3 million and interest income, net of interest expense, of
$1.0 million.
As a result of the above discussed factors, total comprehensive loss increased by $30.8 million to $128.7
million for the year ended 31 December 2016 (2015: $97.9 million). Total comprehensive loss for the year
attributed to the equity holders of the Group was $96.1 million (2015: $77.8 million) and $32.6 million
(2015: $20.2 million) was attributable to the owners of non-controlling interests.
Consolidated Statement of Financial Position
As of 31 December
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Equity
Total liabilities and equity
2016
$ ‘000
2015
$ ‘000
38,282
92,784
232,007
158,427
270,239
251,211
720
863
155,402
114,117
108,974
141,374
270,239
251,211
Significant performance-impacting events and business developments reflected in the Company’s financial
position at year end include:
• Property and equipment decreased by $2.3 million to $31.9 million as at 31 December 2016 (2015:
$34.2 million), mainly reflecting depreciation expense of $5.7 million and impairment charges of $0.4
million, offset by purchases of approximately $3.8 million, of which $1.8 million relates to STT;
•
Intangible assets as of 31 December 2016 decreased by $1.6 million to $2.8 million (2015: $4.4
million) mainly as a result of amortisation expense of $0.9 million and impairment charges of $1.0
million, offset by additions of $0.3 million in capitalised development costs, acquired licenses and
software assets;
• Other investments, non-current decreased to $2.7 million (2015: $51.5 million) reflecting the investment
of excess cash into fixed income government and corporate securities that have maturities longer than
twelve months;
• Cash and cash equivalents increased by $103.6 million to $209.2 million at 31 December 2016 from
$105.6 million at 31 December 2015. The increase is mainly attributed to $128.1 million of cash from
financing activities from the Company’s equity placing in December 2016 and proceeds from subsidiary
financing rounds, and $70.7 million cash from investing activities mainly reflecting the conversion of
fixed income security investments into cash and cash equivalents. The overall increase in cash and cash
equivalents was offset by $95.2 million of net cash used in operations;
• Other investments, current decreased to $14.2 million (2015: $37.6 million) reflecting the investment
of excess cash into fixed income government and corporate securities that have maturities shorter than
twelve months;
28
ANNUAL REPORT AND ACCOUNTS 2016 FINANCIAL REVIEW (CONTINUED)
•
Inventories increased by $1.1 million to $2.6 million as at 31 December 2016 (2015: $1.5 million)
reflecting the purchases of inventories of $2.1 million, offset by cost of goods sold and other obsolescence
charges of $1.0 million;
• Trade and other receivables decreased by $1.4 million to $5.9 million at 31 December 2016 (2015:
$7.3 million) as a result of decrease in prepaid and other current assets of $0.7 million mainly from
write off of advance payments for inventory units at RFB, plus a net decrease of $0.7 million in trade
receivables;
• Subscription receivable of $6.0 million reflecting the second tranche of the Series A preferred round at
Precision Biopsy due by third party investors was collected in 2016 and the balance decreased to nil
as at 31 December 2016 (2015: $6.0 million);
• The loans balance, current and non-current, decreased to $0.1 million as of 31 December 2016
(2015: $0.3 million) reflecting the repayment of the principal balance by CryoXtract Instruments;
• Subsidiary preferred shares increased by $46.8 million to $140.9 million as of 31 December 2016
(2015: $94.1 million) as a result of Series A preferred rounds of $29.2 million at Federated Wireless,
Precision Biopsy and HawkEye 360 in 2016 as well as the fair value adjustment for the year of $17.6
million primarily at SciFluor and STT;
• Deferred revenue remained consistent at $0.5 million as of 31 December 2016, when compared to
$0.4 million in prior year; and
• Share capital and premium increased by $1.4 million to a combined $160.7 million at 31 December
2016 (2015: $159.3 million) primarily due to exercises of stock options under the U.S. Stock Option
Plan. Merger reserve increased by $77.9 million due to the net proceeds from the Company’s equity
placing in December 2016. The increase in accumulated deficit of $96.6 million to $289.4 million
(2015: 192.8 million) reflected the net comprehensive loss attributable to equity holders of the Group for
the year of $96.1 million (2015: $77.8 million) and the effect from change in non-controlling interest of
$6.2 million (2015: $3.2 million), offset by the share-based compensation expense charge for the year
of $5.9 million (2015: $3.2 million).
Consolidated Statement of Cash Flows
For the years ended 31 December
Net cash outflow from operating activities
Net cash inflow/(outflow) from investing activities
Net cash inflow from financing activities
2016
$ ‘000
2015
$ ‘000
(95,220)
(81,918)
70,729
(74,999)
128,087
38,397
Net increase/(decrease) increase in cash and cash equivalents
103,596
(118,520)
Cash and cash equivalents in the beginning of the year
Cash and cash equivalents at the end of the year
105,555
224,075
209,151
105,555
29
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report FINANCIAL REVIEW (CONTINUED)
The Group’s net cash outflow from operating activities of $95.2 million in 2016 (2015: $81.9 million) was
primarily due to the net operating losses for the year of $113.7 million, offset by the net effect from movement in
working capital of $0.5 million, adjustment for non-cash items such as depreciation, amortisation, impairments
and share-based expenses of $16.4 million and interest received net of paid and other finance charges of $1.6
million.
The Group had a net cash inflow from investing activities of $70.7 million in 2016 (2015: outflow of $75.0
million) mainly reflecting the disposal of fixed income investment securities of $72.3 million and $2.5 million
from disposal of an equity accounted investee, offset by purchases or property and equipment net of disposals
of $3.8 million, and purchases of intangible assets net of disposals of $0.3 million.
The Group’s net cash inflow from financing activities of $128.1 million in 2016 (2015: $38.4 million) primarily
reflects $78.1 million of net proceeds from the Company’s equity placing in December 2016, $49.0 million
proceeds from subsidiary financing rounds in ABLS II, Federated Wireless, HawkEye 360 and Precision Biopsy,
and $1.2 million from exercises of stock options, offset by $0.2 million repayment of notes payable.
The Group’s strategy is to maintain healthy, highly liquid cash balances that are readily available to support the
activities of its subsidiaries by providing working capital, maintaining the level of research and development
activities required to achieve the set milestone goals, and acquiring capital equipment where necessary to
support research and development activities. To further minimise its exposure to risks the Group does not maintain
any material borrowings or cash balances in foreign currency.
30
ANNUAL REPORT AND ACCOUNTS 2016 RISK MANAGEMENT
The execution of the Group’s strategy is subject to a number of risks and uncertainties. A key focus for the Board
is to formally identify the principal risks facing the Group and develop a robust and effective framework to ensure
that the risks are both well understood and appropriate for the Company’s risk appetite to achieve the stated
corporate goals. This process needs to address both risks arising from the internal operations of the Group and
those arising from the business environment in which it operates. It is possible that one or more of these identified
risks could impact the Group in a similar timeframe which may compound their effects.
As an early-stage investor in start-ups, the Group inherently faces significant risks and challenges. The overall aim
of the risk management policy is to achieve an effective balancing of risk and reward, although ultimately no
strategy can provide an absolute assurance against loss.
The Board has carried out a robust assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and/or liquidity. The major risks and uncertainties
identified by the Board are set out below along with the consequences and mitigation strategy of each risk.
1.) The science and technology being developed or commercialised by the Group’s businesses may fail and/
or the Group’s business may not be able to develop their intellectual property into commercially viable
products or technologies. There is also a risk that some of the subsidiary businesses may fail or not succeed
as anticipated, resulting in an impairment of the Group’s value.
Impact: The failure of any of the Group’s subsidiary businesses would impact the Group’s value. A failure
of one of the major subsidiary businesses could also impact on the perception of the Group as a builder
of high value businesses and possibly make additional fund raising at the Group or subsidiary level more
difficult.
Mitigation:
• Before making any investment, extensive due diligence is carried out by the Group which covers
all the major business risks including market size, strategy, adoption and intellectual property.
• The initial seed round investment is typically quite small with additional investment only being
made on successful completion of milestones.
• A disciplined approach to capital allocation is pursued such that proof of concept has to be
achieved before substantial capital is committed.
• Members of the Group’s management team who carry out the initial due diligence initially run
the subsidiary in its incubation phase and subsequently move to becoming independent directors
staying with the project to help ensure consistency of management. The Group’s point of contact
will stay in regular communication with the senior management of the subsidiary business.
• Dedicated leadership with deep industry or sector knowledge is recruited and retained as
appropriate, and the Group ensures that each subsidiary has independent directors and/or other
advisors, as appropriate for the relevant stage of development.
• During incubation stage, we closely monitor milestone developments and should a project fail to
achieve sufficient progress, we terminate the investments.
• The Company carries out face-to-face quarterly reviews with the management of each of the
subsidiary businesses.
• The shared services model provides significant administrative support to the subsidiary businesses
whilst the budgetary and financial controls ensure good governance.
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ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
RISK MANAGEMENT (CONTINUED)
• Within the Group there is a wealth of management expertise which can be called upon to support
each of the subsidiary businesses where necessary.
• The Group actively uses third party advisors and consultants, specific to the particular domain in
which a subsidiary business operates, to assist on market strategy and direction.
2.) The Group expects to continue to incur substantial expenditure in further research and development,
product development and marketing activities of its businesses. There is no guarantee that the Group will
become profitable prior to achieving a sale or other exit event, and, even if it does, it may be unable to
sustain profitability.
Impact: The strategic aim of the business is to generate profits for its shareholders through the investment
into IP-based start-ups, delivering value through capital gain. As such, profits will be generated on exits.
The timing and size of these potential inflows is uncertain and should exits not be forthcoming, or in the
event that they are achieved but at values significantly less than the amount of capital invested, then it
would be difficult to sustain the current levels of investment in the subsidiary businesses and continue to
make new investments. This will lead to reduced activity across the Group. In turn this could make raising
additional capital at the Group level difficult and it could ultimately lead to the failure of the Group as a
whole.
Mitigation:
• The Group retains significant cash balances in order to support its internal cash flow requirements,
including to support the cash requirements for each subsidiary and for corporate resources.
• The Group has close relationships with a wide group of investors, including its shareholder base
to ensure it can continue to access the capital markets.
• Senior management continually seek to create additional strategic relationships for the Group, and
each subsidiary continually seeks to engage in strategic relationships relevant to their respective
markets and to maintain current information on and awareness of potential exit strategies.
3.) If a significant number of the Group’s relationships with US universities and federal government institutions
were to break down or be terminated or expire, then the Group would lose any rights that it has to act as a
private sector partner in the commercialisation of intellectual property being generated by such universities,
other research intensive institutions or US federal research institutions.
Impact: Termination of certain of the Group’s existing relationships would impact the quantity and potential
quality of the Company’s deal flow. This may in turn prevent the Company from completing promising new
deals and reduce its opportunity to create new subsidiaries. This could potentially have an adverse effect
on the Group’s long term prospects and performance.
Mitigation:
• The Group currently receives in excess of 2,700 items of intellectual property per year from its
207 partner institutions. The risk of losing deal flow through the termination of relationships is
greatly lessened by the wide portfolio and geographic spread of our partners.
• The Group continues to strengthen its partner network. The Group seeks to ensure that it has a
diversity of relationships to ensure that no one university or US government laboratory has inordinate
influence on our prospects, and at same time we seek to develop deep relationships with select
research institutions in order to strengthen the quality and quantity of new deal opportunities.
• The Group dedicates resources to manage and expand the partner network.
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ANNUAL REPORT AND ACCOUNTS 2016
RISK MANAGEMENT (CONTINUED)
• The Group is fostering new relationships with strategic corporate partners to expand and strengthen
its partner network and pipeline for opportunities.
4.) A majority of the Group’s intellectual property relates to technologies originated in the course of research
conducted in, and initially funded by, US universities or other federally-funded research institutions. Although
the Group has been granted exclusive licenses to use this intellectual property, there are certain limitations
inherent in these licenses, for example as required by the Bayh-Dole Act of 1980.
Impact: There are certain circumstances where the US government has rights to utilise the underlying intel-
lectual property without any economic benefit flowing back to the Group. In the event this were to happen,
this could impact the financial return to the Group on its investment in the applicable subsidiary businesses.
Mitigation:
• To the Board’s knowledge, while these so called “march in” rights exist, the US government has
never had cause to use them.
• The Group seeks to develop dual use capabilities for the technology it licenses and generally
tends to avoid use cases directly applicable to government use.
• This risk is also mitigated through employing experienced technology transfer experts supported
by our legal team to assess risks that may arise out of this eventuality.
5.) The Group currently has in place cooperative research and development agreements with certain US
Department of Defense laboratories and federal funded government institutions. Certain regulatory
measures apply to these agreements which restrict the export of information and material that may be
used for military or intelligence applications by a non-US person, and compliance with these regulatory
measures may be complex and limit commercial alternatives.
Impact: If the Group were to breach restrictions on the use of certain licensed technologies, particularly
those derived from federally funded research facilities, this could materially impact upon the Group’s ability
to license additional intellectual property from these establishments. In certain circumstances it may also
lead to the termination of existing licenses. In the event that this were to happen, this could materially affect
a number of the Group’s businesses and potentially harm the reputation and standing of the Group and
cause the termination of certain important relationships with federally funded research institutions.
Mitigation:
• Prior to licensing any technology under these agreement, the Group’s management seeks to
identify the commercial and other alternatives available for products and services associated with
such technology and innovations, and to ensure that there are sufficient markets available to justify
the capital investment.
• Prior to the commercialisation process, the Group’s management seeks to obtain all the necessary
clearances from applicable regulatory bodies to ensure that the export of products based upon
the licensed IP is strictly in accordance with government guidelines.
• The Group employs a number of individuals with experience in working with various government
agencies.
• Senior management is fully cognisant with the regulations and sensitivities in relation to this issue
and in particular with International Traffic in Arms Regulations (ITAR) which regulate the use of
technologies for export, and has numerous mitigating actions available should issues arise.
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ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
RISK MANAGEMENT (CONTINUED)
6.) The Group operates in complex and specialised business domains and requires highly qualified and
experienced management to implement its strategy successfully. All of the operations of the Group and its
subsidiary businesses are located in the United States, which is a highly competitive employment market.
There is a risk that the Group may lose key personnel, or fail to attract or retain new personnel. Furthermore,
given the relatively small size of the senior management at the corporate level, the Group is reliant on a
small number of key individuals.
Impact: The loss of key personnel would have an adverse impact on the ability of the Group to continue
to grow and may negatively affect the Group’s competitive advantage.
Mitigation:
• The Board annually seeks external expertise to assess the competitiveness of the compensation
packages of its senior management.
• Senior management continually monitor and assess compensation levels to ensure the Group
remains competitive in the employment market.
• While staff turnover has historically been low and the Group continues to attract highly qualified
individuals, management encourages development and inclusion through coaching and mentoring
programmes.
7.) A large proportion of the overall value of the Group’s businesses may be concentrated in a small proportion
of the Group’s businesses. If one or more of the intellectual property rights relevant to a valuable business
were terminated, this would have a material adverse impact on the overall value of the Group’s businesses.
Impact: The termination of critical IP licenses would materially impact the value of the subsidiary business
and have a consequent effect on the value of the overall Group.
Mitigation:
•
In each subsidiary, the management is specifically directed to pursue a policy of generating and
patenting additional intellectual property to both provide additional protection and create direct
IP ownership for the subsidiary business.
• Where possible, the Group seeks to negotiate intellectual property ownership rights in any
research and development agreement it enters into with a network partner, such that the Group
becomes a part owner of the underlying IP.
• The Group has a diversified portfolio of subsidiary businesses. The value of any one of its
subsidiaries relative to the aggregate value of the Group is closely monitored to ensure that the
concentration risk of any one subsidiary is not disproportionate.
8.) Clinical studies and other tests to assess the commercial viability of a product are typically expensive,
complex and time-consuming, and have uncertain outcomes. If the Company fails to complete or
experiences delays in completing tests for any of its product candidates, it may not be able to obtain
regulatory approval or commercialise its product candidates on a timely basis, or at all.
Impact: Significant delays in any of the clinical studies to support the appropriate regulatory approvals
could significantly impact the amount of capital required for the subsidiary business to achieve final
regulatory approval, which in turn may impact the value of such subsidiary. A critical failure in any stage
of a clinical testing programme would probably necessitate a termination of the project and a loss of the
Group’s investment.
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ANNUAL REPORT AND ACCOUNTS 2016
RISK MANAGEMENT (CONTINUED)
Mitigation:
• The Group has dedicated internal resources to establish and monitor each of the clinical
programmes in order to try and maximise successful outcomes.
• During the evaluation and due diligence phase prior to the initial investment, focus is placed on
an analysis of the risks of the clinical phase of development.
• Prior to the launch of any clinical testing it will be normal for a dedicated management team
(and in certain cases an advisory team to include key opinion leaders (KOLs)) to be hired, and
experience with the management of clinical programmes would be a prerequisite qualification.
•
In the event of the outsourcing of these trials, care and attention is given to assure the quality of
the Contract Research Organization (CRO) vendors used to perform the work.
9.) The Group expects to remain viable through December 2019 given its current cash and financial position.
However, if the Group is unable to raise capital, generate sufficient revenue, appropriately manage
expenses, or exit any of its existing Group businesses prior to the end of such period, then the Group’s
business, financial condition, results of operations, prospects and future viability could be adversely
affected.
Impact: Lack of capital could restrict the Group’s ability to further fund, develop and commercialise its
existing businesses and prevent the Group from investing in attractive new opportunities. In turn, this could
ultimately lead to failure of individual subsidiaries and loss of investment as well as failure of the Group as
a whole.
Mitigation:
• The Group maintains close relationships with its shareholder base, strategic partners, and a wide
group of investors to ensure it continuous access to the capital markets.
• The Group has historically had a strong financial position, including prior to its initial public
offering (IPO), and holds significant control over the Company’s investments and how subsidiary
company working capital requirements are met.
• The Company strives to maintain majority ownership and/or control over all of the subsidiary
companies, so that it can seek to influence optimal capital allocation, use of cash, and fund-
raising strategy.
• The Company has built a valuable portfolio of subsidiary companies since its inception.
• The Company continuously and critically reviews the progress of its subsidiaries against pre-set
milestones to ensure its financial capital and human resource is properly allocated to the more
promising areas of its portfolio to help strengthen and accelerate the Group’s path to monetisation.
BREXIT
On 23 June 2016, the UK electorate voted to leave the European Union in a so-called “Brexit” referendum. The
full consequences of the decision to leave the European Union will not be known for some time. The uncertainty
surrounding the implementation and effect of Brexit has caused and is likely to continue to cause increased
economic volatility.
It is expected that companies based in the UK and with significant UK and EU operational focus will be the most
directly impacted by Brexit. All of the Group’s subsidiary businesses are based in the US, and substantially all of
the business and operations of the Group are conducted in the US. However, the Group has raised significant
35
ANNUAL REPORT AND ACCOUNTS 2016Strategic Report
RISK MANAGEMENT (CONTINUED)
capital in the UK and may need to raise additional capital in the UK in the future to support the growth and
development of its subsidiaries. The uncertainty caused by Brexit may result in the Group being unable to obtain
additional capital on a timely basis on commercially acceptable terms.
In addition, Brexit exposes the Group to increased foreign currency risk. Foreign exchange risk is an exposure
for the Group as it derives substantially all of its revenue in US dollars and the Group’s businesses borrow,
account in, and are valued in, US dollars, but its shares trade in amounts denominated in pounds sterling. Any
capital raised by the Group in the UK would be denominated in pounds sterling, but would be allocated to
subsidiary businesses which operate in the US and whose functional currency is US dollars.
If the Group requires and fails to obtain sufficient capital on acceptable terms, it may be forced to curtail or
abandon its planned growth activity and to forego further investment in developing certain of its current businesses,
and otherwise be subject to a material adverse impact on the Group’s business and financial condition.
CORPORATE AND SOCIAL RESPONSIBILITY
Details on the Group’s policies, activities and aims with regard to its corporate and social responsibilities,
including diversity, are included in the Sustainability section on pages 58 to 61 and are incorporated into this
Strategic Report by reference.
This Strategic Report has been approved by the Board of Directors.
ON BEHALF OF THE BOARD
Peter Dolan
Chairman
Jill Smith
Chief Executive Officer
27 April 2017
36
ANNUAL REPORT AND ACCOUNTS 2016
THE BOARD
EXECUTIVE DIRECTORS
Jill Smith – Chief Executive Officer
Jill joined Allied Minds as a non-executive director in January 2016, and was appointed to the role of interim
Chief Executive Officer and Executive Director in March 2017. Jill has more than 25 years of experience as an
international business leader, including 16 years as Chief Executive Officer of private and public companies in
the technology and information services markets. Most recently, Jill served as Chairman, Chief Executive Officer
and President of DigitalGlobe Inc. (NYSE:DGI), a global provider of satellite imagery products and services.
Beginning her career as a consultant at Bain & Company, where she rose to become Partner, other leadership
capacities in which she has served include Vice President of Sara Lee, Chief Executive Officer and President
of eDial, Chief Executive Officer and President of SRDS, L.P., Chief Operating Officer of Micron Electronics,
and Co-Founder of Treacy & Company, a consulting and boutique investment business. Currently, Jill serves as
an independent director on the Boards of Directors of Endo International plc (NASDAQ: ENDP) and Hexagon
(Nasdaq Stockholm: HEXA B). She will not be standing for re-election at the Hexagon AGM in May 2017, but
has been proposed for election at the May 2017 AGM of Gemalto N.V. (Euronext: GTO). Jill holds a Master of
Science degree in Business Administration from the MIT Sloan School of Management. Jill served as a member
of the Audit Committee throughout 2016, but was replaced by Kevin Sharer upon her appointment as interim
Chief Executive Officer and Executive Director.
NON-EXECUTIVE DIRECTORS
Peter Dolan – Non-Executive Chairman
Peter joined Allied Minds in April 2014. Peter has 30 years of operating experience, including 18 years at
Bristol-Myers Squibb, where he served as Chairman and Chief Executive Officer. He subsequently served as
Chairman and Chief Executive Officer of Gemin X, a venture capital backed oncology company that was sold
to Cephalon. Peter is the Chairman of the Board of Trustees of Tufts University having served in several lead-
ership capacities, including Vice Chair, and as a member of the Compensation, Academic Affairs and Audit
Committees, before his election as Chairman in November 2013. Most recently, Peter served on the Board
of Overseers of the Tuck School at Dartmouth College and on the Board of Directors of the National Centre
on Addiction and Substance Abuse at Columbia University. Additionally, he has served on the Boards of the
American Express Company, C-Change (a cancer coalition organisation), and was Chairman of the Pharma-
ceutical Research and Manufacturers of America. Peter holds a Bachelor of Arts degree from Tufts University in
Social Psychology and a Master of Business Administration degree from the Amos Tuck School of Business at
Dartmouth. Peter was appointed to the Board in May 2014, and has served as Chairman since May 2015.
Rick Davis – Senior Independent Director
Rick joined Allied Minds in August 2011. Rick is an internationally recognised political leader with more than 30
years of experience in business and public affairs. Rick currently serves as a Partner and Chief Operating Officer
at Pegasus Capital Advisors, a $2.2 billion private equity fund founded in 1995. He has a long and distin-
guished career in both the public and private sector. Having served on President Ronald Reagan’s political team,
Rick also served in three Reagan Administration Cabinet Agencies including as White House Special Assistant to
the President for the Domestic Policy Council. In his capacity in the White House, Rick managed all policy devel-
opment related to Climate, Energy and Environment. President George H.W. Bush appointed him as Deputy Ex-
ecutive Director for the White House Conference on Science and Economic Research Related to Global Climate
Change. While in the private sector, Rick built one of the most influential and successful public affairs companies
in the United States. In 2000 and 2008, Rick served as Senator John McCain’s national campaign manager
leading all aspects of the campaign activity. While serving as Senator McCain’s chief strategist and political ad-
visor, Rick was integral in the development of some key legislative initiatives including ground breaking Climate
Legislation and Campaign Finance Reform. Rick currently serves on the Board of The Environmental Defense
37
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
THE BOARD (CONTINUED)
Action Fund developing initiatives and ties to the corporate community that promotes better stewardship of the
environment. Rick was appointed to the Board in May 2014, but was a member of the predecessor company
board since 2011, and serves on each of the Audit, Nomination (Chairman), and Remuneration Committees.
Jeff Rohr – Independent Non-Executive Director
Jeff joined Allied Minds in April 2014. He has 30 years of senior management experience at Deloitte LLP.
Jeff has career long experience serving clients in a multitude of industries and extensive experience in gov-
ernance processes having last served in the role of Vice Chairman and Chief Financial Officer at Deloitte.
In the role of Chief Financial Officer, Jeff was responsible for all aspects of financial affairs of the Deloitte
Global Firm and the Deloitte US Firm, including strategy, accounting and financial reporting, treasury, capital
adequacy, liquidity, taxes, pensions, and risk management. Previously, Jeff served as the Managing Partner
of Deloitte’s Midwest and Mid-Atlantic regions as well as National Director of Deloitte’s Business Planning.
Currently, Jeff serves on a number of Boards and Foundations. He is a member of the Board of Directors of
American Express Centurion Bank where he is the Chairman of the Audit and Risk Committee, has served for
ten years as Chairman of the Audit Committee of the Florida State University Foundation Board of Trustees
and is Chairman of the College of Business Board of Governors. Jeff is a graduate of Florida State Univer-
sity with a B.S. degree in Accounting and is a Certified Public Accountant. Jeff was appointed to the Board
in May 2014, and serves on each of the Audit (Chairman), Nomination, and Remuneration Committees.
Kevin Sharer – Independent Non-Executive Director
Kevin joined Allied Minds in June 2015. Globally recognised as a leader and mentor to senior management
teams engaged in high-growth strategies, Kevin spent more than 20 years leading Amgen, the world’s largest
independent biotechnology firm, starting as President and Chief Operating Officer and then taking over as
Chairman and Chief Executive Officer. Kevin began his career in the United States Navy, serving as Chief Engi-
neer on the USS Memphis and later rising to become a Lieutenant Commander. After his service, Kevin worked
as a consultant at McKinsey & Co., in corporate development at General Electric Co., and as an Executive Vice
President in Marketing at MCI Telecommunications Corp. Having previously served on the Boards of Directors
of Chevron Corp. and Northrop Grumman Corp., Kevin is currently a faculty member at Harvard Business
School, where he teaches General Management and other classes. Kevin holds a Bachelor of Science degree
and a Master of Arts degree in Engineering from the United States Naval Academy and a Master of Business
Administration degree from the University of Pittsburgh’s Joseph M. Katz Graduate School of Business. Kevin
was appointed to the Board in June 2015, and serves on each of the Audit, Nomination, and Remuneration
(Chair) Committees.
FORMER EXECUTIVE DIRECTOR
Chris Silva – Chief Executive Officer (resigned)
Chris joined Allied Minds in March 2006, and resigned his appointments as Chief Executive Officer and
Executive Director in March 2017. Before joining Allied Minds, Chris was a Partner at JSA Partners, a profes-
sional M&A and strategy consultancy in Boston, MA, which provides technology companies with market entry,
competitive strategy, acquisitions and investment decisions. His consulting background includes three years with
A.T. Kearney’s Aerospace Aviation and Defense Practice. Chris was also the Director of Business Development
for GRC International, a scientific and technical support contractor to the Department of Defense and US Intelli-
gence Community. Earlier, Chris served in the US Air Force. Chris holds a BA degree from Tufts University and a
Masters of Business Administration. Chris was appointed to the Board in April 2014, but was a member of the
predecessor company board since 2006.
38
ANNUAL REPORT AND ACCOUNTS 2016 THE BOARD (CONTINUED)
Table of Board Attendance
The table below summarises the attendance of the Directors at the scheduled meetings held during the year:
DIRECTOR
Jill Smith
Peter Dolan
Rick Davis
Jeff Rohr
Kevin Sharer
Chris Silva
MEETINGS ATTENDED
BOARD
AUDIT
COMMITTEE
NOMINATION
COMMITTEE
REMUNERATION
COMMITTE
5 of 6
6 of 6
4 of 6
5 of 6
5 of 6
6 of 6
5 of 5
n/a
3 of 5
5 of 5
n/a
n/a
n/a
n/a
1 of 2
2 of 2
2 of 2
n/a
n/a
n/a
3 of 4
4 of 4
3 of 4
n/a
(1.) Ms. Smith served as a member of the Audit Committee throughout 2016, but was replaced by Kevin Sharer on 10 March 2017 upon her
appointment as interim Chief Executive Officer and Executive Director.
(2.) Mr. Silva resigned as Chief Executive Officer and Executive Director as of 10 March 2017.
(3.) The missed meetings were as a result of unexpected or previously scheduled conflicts, except that one administrative Board meeting was
conducted by a quorum of Messrs. Dolan and Silva, and the remaining members were briefed by the Company Secretary before and after
such meeting.
(4.) In addition, a special committee of the Board of Directors comprised of Messrs. Silva and Rohr, and Ms. Smith, was formed in connection with
the placing of ordinary shares completed on 2 December 2016, and such committee held two meetings to consider and approve such placing.
39
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REPORT
The Directors present their report together with the audited financial statements for Allied Minds plc and its
subsidiaries for the year ended 31 December 2016. The Company was incorporated on 15 April 2014 under
the UK Companies Act 2006 (Companies Act).
DIRECTORS
The Directors of the Company as at 31 December 2016 were those listed on pages 37 to 38, and these pag-
es are incorporated into this Directors’ Report by reference. The only change to the composition of the Board
during the year was the appointment of Jill Smith as a Non-Executive Director in January 2016. Each of Chris
Silva and Rick Davis served on the predecessor company board. Post period on 10 March 2017, Mr. Silva
resigned his appointments as Chief Executive Officer and Executive Director, and Ms. Smith was appointed as
interim Chief Executive Officer and Executive Director. The Directors’ interests in the share capital of the Company
are as shown in the Directors’ Remuneration Report on pages 82 to 83. None of the Directors were materially
interested in any significant contract to which the Company or any of its subsidiaries were party during the year.
CORPORATE GOVERNANCE
Information that fulfils the requirements of the corporate governance statement can be found in the Corporate
Governance Report on pages 48 to 57, the Directors’ Remuneration Report on pages 62 to 91, and the
Audit Committee Report on pages 92 to 95, and is incorporated into this Report of the Directors by reference.
EMPLOYEES
The Group’s policies in relation to employees are disclosed on page 61, and these pages are incorporated into
this Directors’ Report by reference.
RESULTS AND DIVIDENDS
During the period, the Group generated a net comprehensive loss after taxation for the year ended 31 Decem-
ber 2016 of $128.7 million (2015: $97.9 million). The Directors do not recommend the payment of a dividend
for 2016 (2015: nil).
STRATEGIC REPORT
The Group’s Strategic Report can be found on pages 3 to 36, and includes information as to the Group’s activi-
ties in the field of research and development, and as to the likely future development of the Group. Financial key
performance indicators can be found on page 19.
The Strategic Report contains forward-looking statements with respect to the business of Allied Minds. These
statements reflect the Board’s current view, are subject to a number of material known and unknown events, risks
and uncertainties, and could change in the future. Factors that could cause or contribute to such changes include,
but are not limited to, general economic climate and trading conditions, as well as specific factors relating to the
financial or commercial prospects or performance of the Group’s individual subsidiary companies, the ability to
consummate expected transactions, and the ability to identify promising new technologies invented by university
or Federal laboratory partners.
PRINCIPAL RISKS AND UNCERTAINTIES AND FINANCIAL INSTRUMENTS
The Group through its operations is exposed to a number of risks. The Group’s risk management objectives and
policies are described on pages 31 to 36 and in the Governance Report on pages 56 to 57. Further informa-
tion on the Group’s financial risk management objectives and policies, including those in relation to credit risk,
liquidity risk and market risk, is provided in note 23 to the consolidated financial statements, along with further
40
ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REPORT (CONTINUED)
information on the Group’s use of financial instruments. The pages referenced in this paragraph are incorporated
into this Directors’ Report by reference.
SIGNIFICANT AGREEMENTS
The Group has not entered into any significant agreements which may be impacted by a change of control
following a takeover bid.
SHARE CAPITAL
Details of the structure of the Company’s share capital and the rights attaching to the Company’s shares are set
out in note 16 to the consolidated financial statements. Other than the minimum share ownership policy adopted
by the Board in April 2016 with respect to Executive Directors, there are no specific restrictions on the holding
of securities or on the transfer of shares, which are both governed by the general provisions of the Company’s
Articles of Association (Articles) and prevailing legislation. None of the ordinary shares carry any special rights
with regard to control of the Company and there are no restrictions on voting rights.
In connection with the strategic alliance entered into with GE Ventures in September 2016, GE Ventures received
an option to participate in any future capital raise by the Company for at least 6% of the total raise, subject to
current pre-emption rights, applicable authorisations and applicable laws and regulations.
At the last Annual General Meeting of the Company held on 26 May 2016 (2016 AGM), authority was given
to the Directors pursuant to the relevant provisions of the Companies Act to allot unissued relevant securities in the
Company up to a maximum amount equivalent to approximately one-third of the issued ordinary share capital
on 21 April 2016 at any time up to the earlier of the conclusion of the next Annual General Meeting (AGM)
of the Company and 1 August 2017. In addition, at the 2016 AGM, the Directors were also given authority
effective for the same period as the aforementioned authority to allot relevant securities in the Company up to a
maximum of approximately two-thirds of the total ordinary share capital in issue on 21 April 2016 in connection
with an offer by way of a fully preemptive rights issue. The Directors propose to renew both of these authorities
at the Company’s next AGM to be held on 1 June 2017. The authorities being sought are in accordance with
guidance issued by the Investment Association.
A further special resolution passed at the 2016 AGM granted authority to the Directors to allot equity securities
in the Company for cash, without regard to the pre-emption provisions of the Companies Act, both: (i) up to a
maximum of approximately two-thirds of the total ordinary share capital in issue on 21 April 2016 in connection
with a fully preemptive rights issue; and (ii) up to a maximum of approximately 10% of the aggregate nominal
value of the shares in issue on 21 April 2016, each authority exercisable at any time up to the earlier of the
conclusion of the next AGM of the Company and 1 August 2017. The former of these authorities was not used
during the year. The latter of these authorities was used in a connection with the equity fundraising to raise $80.3
million which was completed by the Company on 2 December 2016. The Directors will seek to renew these
authorities, with certain amendments to comply with guidelines issued by the Pre-emption Group, for a similar
period at the next AGM to be held on 1 June 2017. Further details of such authorities are set forth in the Notice
of AGM circulated with this Report and Accounts.
The Directors intend to adhere to the provisions in the Pre-emption Group’s Statement of Principles, as updated in
March 2015, and not to allot shares for cash on a non-pre-emptive basis:
•
in excess of an amount equal to 5% of the total issued ordinary share capital of the Company (excluding
treasury shares); or
41
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REPORT (CONTINUED)
•
in excess of an amount equal to 7.5% of the total issued ordinary share capital of the Company
(excluding treasury shares) within a rolling three-year period, without prior consultation with shareholders,
in each case, other than in connection with an acquisition or specified capital investment which is announced
contemporaneously with the allotment or which has taken place in the preceding six-month period and is
disclosed in the announcement of the allotment.
Under the Companies Act, the Company has the power to purchase its own shares in accordance with Part
18, Chapter 5 of the Companies Act. At the 2016 AGM, a special resolution was passed which granted
the Directors authority to make market purchases of the Company’s shares pursuant to these provisions of the
Companies Act up to a maximum of approximately 10% of the Company’s issued share capital on 21 April
2016 provided that the authority granted set a minimum and maximum price at which purchases can be made
and is exercisable at any time up to the earlier of the conclusion of the next AGM and 1 August 2017. This
authority has not been used during the year and therefore the outstanding authority is 21,563,736. The Directors
will seek to renew the authority within similar parameters and for a similar period at the next AGM to be held
on 1 June 2017.
ARTICLES OF ASSOCIATION
The Company’s Articles may be amended by a special resolution of the shareholders.
SUBSTANTIAL SHAREHOLDERS
As at 31 December 2016, the Company had been advised of the following notifiable interests in the Compa-
ny’s voting rights under DTR 5. Other than as shown, so far as the Company (and its directors) are aware, no
other person holds or is beneficially interested in a disclosable interest in the Company.
SHAREHOLDER
Woodford Investment Management
Invesco Asset Management Limited
Mark Pritchard
GIC Private Limited
SandAire
P3 Private Equity Fund
NUMBER OF
SHARES
PERCENTAGE
65,939,855
62,969,115
15,197,240
14,771,343
9,930,236
7,721,846
28.21%
26.93%
6.50%
6.32%
4.25%
3.30%
Between the year end and 24 April 2017 (the latest practicable date prior to publication), the Company
issued and allotted 501,866 ordinary shares, and was advised pursuant to DTR 5 that (1) GIC Private Limited
had increased its holdings to 19,382,360 shares, or 8.27%, and (2) Invesco Asset Management Limited had
decreased its holdings to 53,387,490 shares, or 22.79%. As a result, the percentage ownership as of 24
April 2017 is as follows: Woodford (28.15%); Invesco (23.24%); GIC (8.27%); Pritchard (6.49%); SandAire
(4.24%); and P3 (3.30%).
RELATIONSHIP AGREEMENT
In accordance with Listing Rule 9.8.4R (14), the Company has set out below a statement describing the
relationship agreement entered into by the Company with its principal shareholder which was in force during
2014 and 2015, and was terminated on 9 October 2015.
42
ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REPORT (CONTINUED)
On 19 June 2014, the Company entered into a Relationship Agreement with Invesco Asset Management Limited
(Invesco), which came into force at the Company’s initial public offering (IPO) on the Main Market of the London
Stock Exchange. The principal purpose of the Relationship Agreement was to ensure that the Company was
capable at all times of carrying on its business independently of Invesco.
If any person acquired control of the Company or the Company ceased to be admitted to the Official List, the
Relationship Agreement could be terminated by Invesco. If Invesco (together with its associates) ceased to hold
30% or more of the voting rights over the Company’s shares, the Relationship Agreement would terminate save
for certain specified provisions.
On 9 October 2015, Invesco reported pursuant to DTR 5 that it had decreased its holdings to 63,502,442
shares, or 29.45%. On 20 April 2017, Invesco further reported pursuant to DTR 5 its holdings as 53,387,490,
or 22.79%. On the basis that Invesco no longer exercises or controls, on its own or together with any person
with which they are acting in concert, 30% or more of the voting rights over the Company’s shares, Invesco is
no longer a “controlling shareholder” under the Listing Rules, and the Relationship Agreement terminated on 9
October 2015 in accordance with its terms and conditions.
The Relationship Agreement provided that Invesco would undertake to use all reasonable endeavors to procure
that its associates and any person with whom it was acting in concert shall:
• conduct all agreements, arrangements, transactions and relationships with any member of the Group
on an arm’s length basis and on a normal commercial basis and in accordance with the related party
transaction requirements of Chapter 11 of the Listing Rules;
• not take any action that would have the effect of preventing the Company from complying with its
obligations under the Listing Rules or preclude or inhibit any member of the Group from carrying on its
business independently of Invesco, its associates and any person with whom it was acting in concert;
• not propose or procure the proposal of a shareholder resolution which was intended to, or appeared to
be intended to, circumvent the proper application of the Listing Rules; and
• not exercise any of its voting rights attaching to the shares held by it to procure any amendment to the
Articles of Association of the Company which would be inconsistent with, undermine or breach any of
the provisions of the Relationship Agreement.
The Board believes that the terms of the Relationship Agreement enabled the Company to carry on its business
independently, prior to its termination, from Invesco and its associates, and ensured that all transactions and
relationships between the Company and Invesco were at arm’s length and on a normal commercial basis.
The Company has and, in so far as it is aware, Invesco and its associates have, complied with the independence
provisions set out in the Relationship Agreement from the date of the agreement, during the relevant period under
review, until its termination on 9 October 2015. The ordinary shares owned by Invesco rank pari passu with the
other ordinary shares in all respects.
POLITICAL DONATIONS
The Group did not make any political or charitable donations in 2015 or 2016.
CORPORATE AND SOCIAL RESPONSIBILITY
Details on the Group’s policies, activities and aims with regard to its corporate and social responsibilities are
included in the Sustainability section on pages 58 to 61, and are incorporated into this Director’s Report by
reference.
43
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ INDEMNITY AND LIABILITY INSURANCE
During the year, the Company has maintained liability insurance in respect of its directors who held office during
the period. Subject to the provisions of the Companies Act, the Articles provide that every director is entitled to
be indemnified out of the funds of the Company against any liabilities incurred in the execution or discharge of
his or her powers or duties.
ISSUANCE OF EQUITY BY MAJOR SUBSIDIARY UNDERTAKING
None of the Company’s major subsidiary undertakings (as defined in the Listing Rules) issued equity in 2016.
REQUIREMENTS OF THE LISTING RULES
The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed:
SECTION
LISTING RULE REQUIREMENT
Interest capitalised
Publication of unaudited financial information
Details of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
LOCATION
Not applicable
Not applicable
Directors’ Remuneration Report, page 62
Not applicable
Not applicable
Notes to the Consolidated Financial
Statements, Note 16
Non pre-emptive issues of equity for cash by any major
subsidiary undertaking
Parent participation in a placing by a listed subsidiary
Contract of significance with director
Provision of services by a controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future dividends
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Relationship agreements with the controlling shareholder
Directors’ Report, pages 42 to 43
1
2
4
5
6
7
8
9
10
11
12
13
14
POST BALANCE SHEET EVENTS
Material events occurring since the balance sheet date are disclosed in the Strategic Report. In summary, they
are:
• On 10 March 2017, Jill Smith resigned as a Non-Executive Director, and was appointed interim Chief
Executive Officer and Executive Director, replacing Chris Silva who resigned as of such date;
• On 5 April 2017, the Company announced that it would undertake a restructuring, reallocating
capital and management resources across the portfolio and pipeline in line with its goal to accelerate
commercialisation. The restructuring will result in discontinued funding for several subsidiaries (Discontinued
Subsidiaries). A process has been undertaken to seek strategic alternatives for these businesses, which
could include sales or transfers of legal entities or assets, or liquidations. The Discontinued Subsidiaries
are: Biotectix; Cephalogics; CryoXtract; Novare Pharmaceuticals; Optio Labs; RF Biocidics; and
44
ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REPORT (CONTINUED)
SoundCure/Tinnitus Treatment Solutions; and Treatment Solutions.
• On 26 April 2017, Marc Eichenberger resigned as Chief Operating Officer.
VIABILITY STATEMENT
While the financial statements and accounts have been prepared on a going concern basis, section C.2.2 of
the 2014 revision of the UK Corporate Governance Code (Code) requires the Directors to make a statement
in the Annual Report with regard to the viability of the Group, including explaining how they have assessed
the prospects of the Group, the period of time for which they have made the assessment, and why they
consider that period to be appropriate. Accordingly, the Directors conducted this assessment over the three
years to December 2019, taking into account the Group’s current position, investment strategy, the effects of the
reallocation of capital resources announced on 5 April 2017, and the principal risks detailed in the Strategic
Report. The Directors believe that a three-year assessment is most appropriate as it aligns with the Group’s normal
and well-established budgeting process. In making their assessment, the Directors considered a wide range of
information, including present and future economic conditions, future projections of profitability, cash flows and
capital requirements and availability of sources of funding.
The Group’s annual budgeting process builds into a robust three-year plan, which is the period the Directors
consider as an appropriate period to be covered by the viability statement. This plan forms the basis for strategic
decisions across the Group. The consolidated plan is reviewed and approved annually by the Directors at the
beginning of the year. The plan is then deployed down to the subsidiary businesses and used to set performance
metrics and objectives (MBOs). Progress against the original plan is reviewed quarterly by the Directors, and
adjustments to the plan can be made if needed to address new risks or take advantage of new opportunities.
In summary, the Directors have assessed the viability of the Group over the three year period to December 2019.
They were comforted by the Group’s strong financial position, its ability to raise or borrow capital, its long-
term investment objectives, the stability of the business model, the Group’s control over its investments and how
working capital requirements are met. Based on this assessment, the Directors have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year
period to December 2019.
DISCLOSURE OF INFORMATION TO AUDITOR
Each of the persons who is a Director at the date of approval of this Annual Report confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is
unaware; and
•
the Director has taken all steps that he or she ought to have taken as a Director in order to make himself
or herself aware of any relevant audit information and to establish that the Company’s auditor is aware
of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the
Companies Act.
45
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REPORT (CONTINUED)
ANNUAL GENERAL MEETING
The Annual General Meeting (AGM) will be held on 1 June 2017. The Notice of AGM circulated with this
Report and Accounts contains a full explanation of the business to be conducted at that meeting. This includes
a resolution to re-appoint KPMG LLP as the Company’s auditors.
DIRECTORS’ RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent Company
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company financial statements for each
financial year. Under that law, they are required to prepare the Group financial statements in accordance with
International Financial Reporting Standards (IFRS), as adopted by the European Union (EU) and applicable law
and have elected to prepare the parent Company financial statements on the same basis.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that
period. In preparing each of the Group and parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRS as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Group and the parent Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of
the parent Company and enable them to ensure that its financial statements comply with the Companies Act.
They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of
the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report,
Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that
law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the parent
Company and the undertakings included in the consolidation taken as a whole; and
the Strategic Report includes a fair review of the development and performance of the business and the
position of the Group and the undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they face.
46
ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REPORT (CONTINUED)
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance, business
model and strategy.
ON BEHALF OF THE BOARD
Peter Dolan
Chairman
Jill Smith
Chief Executive Officer
27 April 2017
47
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
CORPORATE GOVERNANCE REPORT
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
The Directors are committed to a high standard of corporate governance and compliance with the best practice
of the UK Corporate Governance Code (Code) which was issued by the Financial Reporting Council in 2010
and revised in September 2014. The Code is available at the Financial Reporting Council website at www.frc.
org.uk. During the twelve months ended 31 December 2016, the Directors consider that the Company has been
in compliance with the provisions set out in the Code with the following exceptions:
• Contrary to provision D.1.3 of the Code, certain Non-Executive Directors hold restricted ordinary shares
that vest over time. These shares were granted to the Non-Executive Directors prior to the IPO and do not
have performance conditions. The Board does not believe that ownership of these shares impacts the
independence of the Non-Executive Directors.
• Contrary to provision D.1.3 of the Code, certain Non-Executive Directors hold restricted stock units
(RSUs) that vest over time. These RSUs were granted to the Non-Executive Directors in 2015 and 2016,
and do not have performance conditions. The Board does not believe that ownership of these RSUs
impacts the independence of the Non-Executive Directors.
Further explanation as to how the provisions set out in the Code have been applied by the Company is provided
in the following statement, the Directors’ Remuneration Report, the Audit Committee Report and the Strategic
Report.
THE BOARD
Role and Responsibilities of the Board
The Board is responsible to shareholders for the overall management of the Group as a whole, providing
entrepreneurial leadership within a framework of controls for assessing and managing risk; defining, challenging
and interrogating the Group’s strategic aims and direction; maintaining the policy and decision-making framework
in which such strategic aims are implemented; ensuring that the necessary financial and human resources are
in place to meet strategic aims; monitoring performance against key financial and non-financial indicators;
succession planning; overseeing the system of risk management; setting values and standards in governance
matters and monitoring policies and performance on corporate social responsibility. The Directors are also
responsible for ensuring that obligations to shareholders and other stakeholders are understood and met and a
satisfactory dialogue with shareholders is maintained. All Directors are equally accountable to the Company’s
shareholders for the proper stewardship of its affairs and the long-term success of the Group.
The responsibility of the Directors is collective, taking into account their respective roles as Executive Directors and
Non-Executive Directors. The Executive Directors are directly responsible for running the business operations and
the Non-Executive Directors are responsible for constructively challenging proposals on strategy, scrutinising the
performance of management, determining levels of remuneration and for succession planning for the Executive
Directors. The Non-Executive Directors must also satisfy themselves on the integrity of financial information and
that financial controls and systems of risk management are robust.
The Board reviews strategic issues on a regular basis and exercises control over the performance of the Group
by agreeing on budgetary targets and monitoring performance against those targets. The Board has overall
responsibility for the Group’s system of internal controls and risk management, as described on pages 56 to 57.
Any decisions made by the Board on policies and strategy to be adopted by the Group or changes to current
policies and strategy are made following presentations by the Executive Directors and a detailed process of
review and challenge by the Board. Once made, the Executive Directors are fully empowered to implement
those decisions.
Except for a formal schedule of matters which are reserved for decision and approval by the Board, the Board
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has delegated the day-to-day management of the Group to the Chief Executive Officer who is supported by the
Executive Directors and other members of the senior management team. The schedule of matters reserved for
Board decision and approval are those significant to the Group as a whole due to their strategic, financial or
reputational implications.
This schedule is reviewed and updated regularly and currently includes those matters set forth below:
• Approval and monitoring of the Group’s strategic aims and objectives, and approval of the annual
operating budget.
• Strategic acquisitions by the Group.
• Major disposals of the Group’s assets or subsidiaries.
• Changes to the Group’s capital structure, the issue of any securities and material borrowing of the Group.
• Approval of the annual report and half-year results statement, accounting policies and practices or any
matter having a material impact on future financial performance of the Group.
• Ensuring a sound system of internal control and risk management.
• Approval of all circulars, prospectuses and other documents issued to shareholders governed by the
FCA’s Listing Rules, Disclosure Guidance and Transparency Rules or the City Code on Takeovers and
Mergers.
• Approving Board appointments and removals, and approving policies relating to directors’ remuneration.
• The division of responsibility between the Chairman and the Chief Executive Officer.
• Approval of terms of reference and membership of Board Committees.
• Considering and, where appropriate, approving directors’ conflicts of interest.
• Approval, subject to shareholder approval, of the appointment and remuneration of the auditors.
• Major changes in employee share schemes.
•
Insurance and litigation.
The schedule of matters reserved to the Board is available on request from the Company Secretary or within the
Investors section of the Group’s website at www.alliedminds.com.
The Board delegates specific responsibilities to certain Committees that assist the Board in carrying out its
functions and ensure independent oversight of internal control and risk management. The three principal Board
Committees (Audit, Remuneration and Nomination) play an essential role in supporting the Board in fulfilling its
responsibilities and ensuring that the highest standards of corporate governance are maintained throughout the
Group. Each Committee has its own terms of reference which set out the specific matters for which delegated
authority has been given by the Board. The initial terms of reference for each of the Committees, which are
fully compliant with the provisions of the Code and which reflect both best practice and the recommendations
arising from the external evaluation process undergone by the Board and its Committees in connection with the
Company’s IPO, were adopted by the Board during 2014. These were reviewed in November 2016, and will
be reviewed annually on an ongoing basis and updated where necessary. All of these are available on request
from the Company Secretary or within the Investors section of the Group’s website at www.alliedminds.com.
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CORPORATE GOVERNANCE REPORT (CONTINUED)
Board Size and Composition
As at 31 December 2016, there were six Directors on the Board: the Non-Executive Chairman, one Executive
Director and four Non-Executive Directors. During the year, Jill Smith joined the Board as a Non-Executive Di-
rector in January 2016. The biographies of all of the Directors are provided on pages 37 and 38. Post period
on 10 March 2017, Mr. Silva resigned his appointments as Chief Executive Officer and Executive Director,
and Ms. Smith was appointed as interim Chief Executive Officer and Executive Director.
The Company’s policy relating to the terms of appointment and the remuneration of both Executive and Non-
Executive Directors is detailed in the Directors’ Remuneration Report on pages 62 to 91.
The size and composition of the Board is regularly reviewed by the Board, and in particular the Nomination
Committee, to ensure there is an appropriate and diverse mix of skills and experience on the Board.
The Company’s Articles of Association allow appointment of Directors by ordinary resolution and require all
Directors to submit themselves for re-election by the shareholders at the Company’s AGM following their first
appointment and thereafter at each AGM in respect of which they have held office for the two preceding AGMs
and did not retire at either of them. In addition, each director who has held office with the Company for a
continuous period of nine years or more must retire and offer themselves up for re-election at every AGM.
However, because the Company is a FTSE 350 company, in accordance with the Code, all Directors will submit
themselves for annual re-election by shareholders at the AGM of the Company to be held on 1 June 2017
(2017 AGM). The Board recommends to shareholders the reappointment of all Directors retiring at the meeting
and offering themselves for re-election on the basis that independent performance reviews demonstrated that
they each contribute effectively to the Board and continue to display the appropriate level of commitment in their
respective roles.
Diversity
The Board is committed to a culture that attracts and retains talented people to deliver outstanding performance
and further enhance the success of the Company. In that culture, diversity across a range of criteria is valued,
primarily in relation to skills, knowledge and experience and also in other criteria such as gender and ethnicity.
The Company will give careful consideration to issues of overall Board balance and diversity in making new
appointments to the Board and, in identifying suitable candidates, the Nomination Committee will seek candidates
from a range of backgrounds, with the final decision being based on merit against objective criteria. In addition,
the terms of reference of the Nomination Committee include a requirement for the Committee to consider diversity,
including gender, in evaluating the composition of the Board and in identifying suitable candidates for Board
appointments. A breakdown of employee gender showing the percentage of persons who were Directors of the
Company and senior managers during the period covered by this Annual Report can be found on page 61.
Non-Executive Directors
The Non-Executive Directors provide a wide range of skills and experience to the Group. They bring their own
senior level of experience in each of their respective fields, robust opinions and an independent judgement on
issues of strategy, performance, risk and people. They are well-placed to constructively challenge and scrutinise
the performance of management at Board and Committee meetings. The Code sets out the circumstances that
should be relevant to the Board in determining whether each Non-Executive Director is independent. The Board
considers non-executive director independence on an annual basis as part of each non-executive director’s
performance evaluation. Having undertaken this review and with due regard to provision B.1.1 of the Code,
the Board has concluded this year that all of the Non-Executive Directors are considered by the Board to be
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ANNUAL REPORT AND ACCOUNTS 2016
CORPORATE GOVERNANCE REPORT (CONTINUED)
independent of management and free of any relationship or circumstance which could materially influence or
interfere with, or affect, or appear to affect, the exercise of their independent judgement.
Non-Executive Directors are required to obtain the approval of the Chairman before taking on any further
appointments and the Chairman and Executive Director require the approval of the Board before adding to their
commitments. In all cases, the Directors must ensure that their external appointments do not involve excessive time
commitment or cause a conflict of interest.
The Roles of Chairman and Chief Executive
Peter Dolan is the current Non-Executive Chairman. The division of responsibilities between the Chairman and
the Chief Executive Officer is clearly established, set out in writing and agreed by the Board. The Chairman is
responsible for the leadership and conduct of the Board, the conduct of the Group’s affairs and strategy and for
ensuring effective communication with shareholders. The Chairman facilitates the full and effective contribution
of Non-Executive Directors at Board and Committee meetings, ensures that they are kept well informed and
ensures a constructive relationship between the Executive Directors and Non-Executive Directors. The Chairman
also ensures that the Board Committees carry out their duties, including reporting back to the Board either orally
or in writing following their meetings at the next Board meeting. The Chairman was deemed to be independent
of management upon his appointment to the role.
The role of the current Chief Executive Officer, Jill Smith, is to lead the delivery of the strategy and the executive
management of the Group and its operating businesses. She is responsible, amongst other things, for the
development and implementation of strategy and processes which enable the Group to meet the requirements
of shareholders, for delivering the operating plans and budgets for the Group’s businesses, monitoring business
performance against key performance indicators (KPIs) and reporting on these to the Board and for providing
the appropriate environment to recruit, engage, retain and develop the high quality personnel needed to deliver
the Group’s strategy.
Senior Independent Director
Rick Davis is the current Senior Independent Director. A key responsibility of the Senior Independent Director is to
be available to shareholders in the event that they may feel it inappropriate to relay views through the Chairman
or Chief Executive Officer. In addition, the Senior Independent Director serves as an intermediary between the
rest of the Board and the Chairman where necessary and takes the lead when the Non-Executive Directors assess
the Chairman’s performance and when the appointment of a new Chairman is considered. Further, the Senior
Independent Director will lead the Board in its deliberations on any matters on which the Chairman is conflicted.
Board Support
The Company Secretary is responsible to the Board for ensuring Board procedures are followed, applicable
rules and regulations are complied with and that the Board is advised on governance matters and relevant
regulatory matters. All Directors have access to the impartial advice and services of the Company Secretary.
There is also an agreed procedure for directors to take independent professional advice at the Company’s
expense. In accordance with the Company’s Articles of Association and a contractual Deed of Indemnity,
directors have been granted an indemnity issued by the Company to the extent permitted by law in respect of
liabilities incurred to third parties as a result of their office. The indemnity would not provide any coverage where
a director is proved to have acted fraudulently or with willful misconduct. The Company has also arranged
appropriate insurance coverage in respect of legal action against its directors and officers.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 CORPORATE GOVERNANCE REPORT (CONTINUED)
Board Meetings and Decisions
The Board meets regularly during the year, as well as when required by business need. The Board had six
scheduled Board meetings in 2016. During their term of service, each of the Directors were present at the
meetings during the year as set out in the table on page 39. The Chairman and Non-Executive Directors also
met without the presence of the Executive Directors four times during the year.
The schedule of Board and Committee meetings each year is, so far as is possible, determined before the
commencement of that year and all Directors or, if appropriate, all Committee members are expected to attend
each meeting. Supplementary meetings of the Board and/or the Committees are held as and when necessary.
Each member of the Board receives detailed Board packs, including an agenda based upon the schedule
of matters reserved for its approval, appropriate reports and briefing papers in advance of each scheduled
meeting. If a director is unable to attend a meeting due to exceptional circumstances, he or she will still receive
the supporting papers and is expected to discuss any matters he or she wishes to raise with the Chairman in
advance of the meeting. The Chairman, Chief Executive Officer, Chief Financial Officer and Company Secretary
work together to ensure that the Directors receive relevant information to enable them to discharge their duties
and that such information is accurate, timely and clear. This information includes quarterly management accounts
containing analysis of performance against budget and other forecasts. Additional information is provided as
appropriate or if requested. At each meeting, the Board receives information, reports and presentations from the
Chief Executive Officer and, by invitation, other members of senior management as required. This ensures that
all Directors are aware of, and are in a position to monitor effectively, the overall performance of the Group, its
development and implementation of strategy and its management of risk.
Any matter requiring a decision by the Board is supported by a paper analysing the relevant aspects of the
proposal including costs, benefits, potential risks involved and proposed executive management action and
recommendations.
The majority of Board meetings are held at the Group’s offices in Boston, Massachusetts, USA, which gives
members of the Company’s senior management team, as well as the senior managers of the subsidiaries, the
opportunity to formally present to the Board on business development and new investment opportunities. This
assists the Board in gaining a deeper understanding of the breadth, stage of development and diversity of the
Group’s subsidiaries. Meetings between the Chairman and Non-Executive Directors, both with and without the
presence of the Chief Executive Officer, are also held as the need arises.
Directors’ Conflicts of Interest
Each director has a statutory duty under the Companies Act to avoid a situation in which he or she has or can
have a direct or indirect interest that conflicts or may potentially conflict with the interests of the Company. This
duty is in addition to the continuing duty that a director owes to the Company to disclose to the Board any
transaction or arrangement under consideration by the Company in which he or she is interested. The Company’s
Articles of Association permit the Board to authorise conflicts or potential conflicts of interest. The Board has
established procedures for managing and, where appropriate, authorising any such conflicts or potential conflicts
of interest. It is a recurring agenda item at all Board meetings and this gives the directors the opportunity to raise
at the beginning of every Board meeting, any actual of potential conflict of interests that they may have on the
matters to be discussed, or to update the Board on any change to a previous conflict of interest already declared.
In deciding whether to authorise any conflict, the directors must have regard to their general duties under the
Companies Act and their overriding obligation to act in a way they consider, in good faith, will be most likely
to promote the Company’s success. In addition, the directors are able to impose limits or conditions when giving
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ANNUAL REPORT AND ACCOUNTS 2016 CORPORATE GOVERNANCE REPORT (CONTINUED)
authorisation to a conflict or potential conflict of interest if they think this is appropriate. The authorisation of
any conflict matter, and the terms of any authorisation, may be reviewed by the Board at any time. The Board
believes that the procedures established to deal with conflicts of interest are operating effectively.
Induction, Awareness and Development
A comprehensive induction process is in place for new directors. The programme is tailored to the needs of each
individual director and agreed with him or her so that he or she can gain a better understanding of the Group
and its businesses. This will generally include an overview of the Group and its businesses, structure, functions
and strategic aims; site visits to the Group’s head office in Boston, Massachusetts, USA; and, upon request,
site visits to a number of the Group’s subsidiary companies, which will include meeting with such companies’
management and a presentation from them on their businesses. In addition, the Company facilitates sessions as
appropriate with the Group’s advisers, in particular its joint corporate brokers, Credit Suisse International and
Numis Securities Limited, as well as with appropriate governance specialists, to ensure that any new directors
are fully aware of and understand their responsibilities and obligations as a director of a FTSE 250 company
and of the governance framework within which they must operate. A new director may also seek to meet major
shareholders.
In order to ensure that the Directors continue to further their understanding of the issues facing the Group, the Board
is also exposed to the early-stage opportunities in which the Group has invested through presentations at Board
meetings by relevant members of the Group’s staff. In addition, other members of senior management present to
the Board to enhance the Board’s awareness of how the Group operates on a day-to-day basis and how such
functions operate so as to assist in the execution of the Group’s core strategy of systematically developing an
innovation company that forms, funds, manages and builds start-ups based on early-stage technology originating
from US universities and federally funded research institutions.
As a further aspect of their ongoing development, each Director also receives feedback on his or her performance
following the Board’s performance evaluation in each year and, through the Company Secretary, access is
facilitated to relevant training and development opportunities including those relevant to the Non-Executive
Directors’ membership on the Board’s Committees.
Board Effectiveness and Performance Evaluation
A performance evaluation of the Board and its Committees is carried out annually to ensure that they continue to
be effective and that each of the Directors demonstrates commitment to his or her respective role and has sufficient
time to meet his or her commitment to the Company. The Board will seek the assistance of an independent third
party provider at least once every three years in its evaluation in compliance with the Code (the next of which
is scheduled to take place in 2017), and otherwise carry out an internally facilitated Board evaluation led by
the Chairman, assisted by the Company Secretary, and covering the effectiveness of the Board as a whole, its
individual Directors and its Committees. This review will include each of the Board and Committee members
completing a detailed and tailored survey and one-to-one discussions between the Chairman and each of the
individual Directors. A summary of the results of the review, together with the Chairman and Company Secretary’s
observations and recommendations, will be prepared and shared with members of the Board. In addition to
the above, the Non-Executive Directors, led by the Senior Independent Director, will appraise the Chairman’s
performance, following which the Senior Independent Director will provide feedback to the Chairman. The
performance of each of the Directors on the Board will be reviewed by the Chairman and the operational
performance of the other Executive Directors will be reviewed by the Chief Executive Officer as part of the annual
appraisal process. In addition to the aforementioned annual reviews, the performance of Executive Directors will
be reviewed by the Board on an ongoing basis, as deemed necessary, in the absence of the Executive Director
under review.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 CORPORATE GOVERNANCE REPORT (CONTINUED)
During the 2016 financial year, the Board assessed its own effectiveness through an internal Board evaluation
process. This process was based on: a review of documentation including Board and Committee terms of reference,
the completion of a survey to Directors comprising quantitative and qualitative questions; and discussions with
all Board members and a number of stakeholders who regularly interact with the Board, including the Company
Secretary.
The results were analysed by the Chairman and the Company Secretary, and a detailed discussion was facilitated
with the Board to outline the observations and recommendations. Overall it was concluded that the Board
continues to work effectively. The changes to the Board composition in 2015 and 2016 have resulted in a well-
balanced Board with a range of skills and experience. The Board did not recommend any changes it considered
necessary, other than noting that (i) Non-Executive Director meetings with subsidiary Chief Executive Officers
are useful to increase awareness of strategic operations, (ii) continued regular Board access to management
outside of Board meetings is critical, and (iii) the every other month Board updates on corporate and subsidiary
operations are helpful for monitoring operational progress.
COMMITTEES OF THE BOARD
The composition of the three Committees of the Board and the attendance of the members throughout the year
is set out in the table on page 39. The terms of reference of each Committee are available on request from the
Company Secretary or within the Investors section of the Group’s website at www.alliedminds.com.
Remuneration and Audit Committees
Separate reports on the role, composition, responsibilities and operation of the Remuneration Committee and the
Audit Committee are set out on pages 89 to 90, and pages 92 to 95, respectively, and are incorporated by
reference into this Corporate Governance Report.
Nomination Committee
The Nomination Committee leads the process for Board appointments, re-election and succession of directors
and the Chairman. Its key objective is to ensure that the Board comprises individuals with the necessary skills,
knowledge and experience to ensure that it is effective in discharging its duties. It is responsible for making
recommendations to the Board and its Committees concerning the composition and skills of the Board including
any changes considered necessary in the identification and nomination of new directors, the reappointment
of existing directors and the appointment of members to the Board’s Committees. It also assesses the roles of
the existing directors in office to ensure there continues to be a balanced Board in terms of skills, knowledge,
experience and diversity. In addition, the Nomination Committee reviews the senior leadership needs of the
Group to enable it to compete effectively in the marketplace. The Nomination Committee also advises the
Board on succession planning for Executive Director appointments, although the Board itself is responsible for
succession generally.
The Committee is chaired by Rick Davis and its other members as at 31 December 2016 were Jeff Rohr
and Kevin Sharer, being a majority of independent Non-Executive Directors as prescribed by the Code. The
Nomination Committee meets as and when required or requested by the Board and met two times during 2016
to review the structure, size and composition of the Board, following which it discussed the conclusions with the
Chairman and the Chief Executive Officer. Messrs. Rohr and Sharer were present at all meetings during the year,
and Mr. Davis missed one meeting due to an unexpected scheduling conflict.
Before selecting new appointees to the Board, the Nomination Committee shall consider the balance, skill,
knowledge, independence, diversity (including gender) and experience on the Board to ensure that a suitable
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ANNUAL REPORT AND ACCOUNTS 2016 CORPORATE GOVERNANCE REPORT (CONTINUED)
balance is maintained. The Committee shall adopt a formal, rigorous and transparent procedure for the
appointment of new directors to the Board. Consideration shall always be given as to whether identified
candidates have sufficient time available to devote to the role. When searching for appropriate candidates,
the Committee shall give consideration to using an external search company, but may also consider candidates
who are proposed by existing Board members or employees of the Group. When the Committee has found a
suitable candidate, the Chairman of the Committee will make a proposal to the whole Board. The appointment
of a candidate is the responsibility of the whole Board following recommendation from the Committee. The
Committee did not use the services of an external search company in 2016.
As part of its annual duties in 2016, the Committee and the full Board fulfilled its duties which resulted in the
appointment of Jill Smith as a Non-Executive Director in January 2016. The Committee did not use an external
search firm to identify and recruit Ms. Smith, as she was known to members of the Board as a result of her
prior business experience leading a technology company, and service on several public and private company
boards. In the year ahead, the Nomination Committee will continue to assess the Board’s size and composition
and how it may be enhanced.
Chief Executive Officer and Executive Director Succession
Last year, we reported the steps taken to enhance our Non-Executive Director representation on the Board,
which included the appointment of Jill Smith. Ms. Smith’s extensive leadership experience at a number of public
and private technology companies was seen as a perfect complement to the life science and other leadership
experience possessed by Messrs. Dolan and Sharer.
When the Board determined to accept the post period resignation of Mr. Silva, the Company was well placed to
accelerate an orderly CEO succession and transition plan. The Board, with full participation of all the Chairman
of the Board and all other Non-Executive Directors, spent time considering the future strategic direction of the
Group and, with input from advisors to the Group, compiled a CEO role profile. The profile contained a brief
of the requirements and the desired skill-set that a potential successor would need. This brief emphasised the
importance that the Board and Committee placed on the CEO being a great business leader and commercial
operator.
The Board quickly determined that Ms. Smith’s experience and skills, and most importantly, her track record of
successful commercialisation and operating experience, made her well-qualified for the CEO role. Ms. Smith
interviewed with each of the Non-Executive Directors and certain advisors to the Group, and outlined her
preliminary strategy for the Group. Each Non-Executive Director made it clear that they supported Ms. Smith’s
appointment, and then Ms. Smith met with Mr. Sharer to agree on a remuneration proposal. The Nomination
Committee then recommended that Ms. Smith be appointed as interim Chief Executive Officer and Executive
Director, to take effect from 10 March 2017.
The Board was unanimous in supporting the appointment of Jill Smith as interim Chief Executive Officer. It was
felt that her service as a Non-Executive Director and knowledge of the Company and its business, taken together
with her extensive international leadership and operating experience and track record of delivering commercial
success, would bring the right experience and skills to the role at an important point in Allied Minds’ development.
Since her appointment, Ms. Smith has met extensively with key members of senior management, including the
CEOs and general managers of the subsidiary businesses. She has also started to meet with major shareholders
to listen to their views on Allied Minds. She will share her final strategic overview and vision for the Group later
in the year.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 CORPORATE GOVERNANCE REPORT (CONTINUED)
It is expected that in due course Ms. Smith will notify the Board as to her willingness to transition to serve as
“permanent” Chief Executive Officer. Upon any such notification, Ms. Smith and the Board shall mutually agree
on the revised terms of such employment, including base salary, annual incentive bonus awards, equity grants
and other terms of remuneration. The final terms of Ms. Smith’s service contract and remuneration are expected
to be in accordance with the Remuneration Policy, subject to the considerations set forth in the approach to
remuneration recruitment set forth in this Annual Report.
INTERNAL CONTROL
The Board fully recognises the importance of the guidance contained in Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting (Financial Reporting Council). The Group’s internal
controls, which are Group wide, were in place during the whole of 2016, were reviewed by the Board and
Audit Committee and were considered to be effective throughout the year ended 31 December 2016 and up
to the date of approval of the Annual Report and Accounts.
The Board and Audit Committee are responsible for establishing and monitoring internal control systems and
for reviewing the effectiveness of these systems. The Board views the effective operation of a rigorous system of
internal control as critical to the success of the Group; however, it recognises that such systems are designed to
manage rather than eliminate risk of failure and can provide only reasonable and not absolute assurance against
material misstatement or loss. The key elements of the Group’s internal control system, all of which have been
in place during the financial year and up to the date these financial statements were approved, are as follows:
Control environment and procedures
The Group has a clear organisational structure with defined responsibilities and accountabilities. It adopts the
highest values surrounding quality, integrity and ethics, and these values are documented and communicated
clearly throughout the whole organisation.
Detailed written policies and procedures have been established covering key operating and compliance risk
areas. These are reviewed and updated at least once a year. The effectiveness of the systems of internal control
is reviewed at least annually by the Board. The Board considers that the controls have been effective for the year
ended 31 December 2016.
Identification and evaluation of risks
The Board actively identifies and evaluates the risks inherent in the business, and ensures that appropriate controls
and procedures are in place to manage these risks. The Board obtains an update regarding the subsidiary
businesses on a regular basis, and reviews the performance of the Group and its subsidiaries on a quarterly
basis, although performance of specific investments may be reviewed more frequently if deemed appropriate.
The Board also obtains a risk management report from members of senior management on a regular basis. The
key risks and uncertainties faced by the Group, as well as the relevant mitigations, are set out on pages 31 to 36.
PRINCIPAL RISKS AND UNCERTAINTIES
The operations of the Group and the implementation of its objectives and strategy are subject to a number of
key risks and uncertainties. Risks are formally reviewed by the Board and Audit Committee at least annually
and appropriate procedures are put in place to monitor and, to the extent possible, mitigate these risks. Where
more than one of the risks to occur together, the overall impact on the Group may be compounded. A summary
of the key risks affecting the Group and the steps taken to manage these is set out on pages 31 to 36.
Information and financial reporting systems
The Group evaluates and manages significant risks associated with the process for preparing consolidated
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ANNUAL REPORT AND ACCOUNTS 2016 CORPORATE GOVERNANCE REPORT (CONTINUED)
accounts by having in place systems and controls that ensure adequate accounting records are maintained and
transactions are recorded accurately and fairly to permit the preparation of financial statements in accordance
with IFRS. The Board approves the annual operating budgets and each quarter receives details of actual
performance measured against the budget.
RELATIONS WITH STAKEHOLDERS
The Company is committed to a continuous dialogue with shareholders as it believes that this is essential to ensure
a greater understanding of and confidence amongst its shareholders in the medium and longer term strategy of
the Group. It is the responsibility of the Board as a whole to ensure that a satisfactory dialogue does take place.
The Board’s primary shareholder contact is through each of the Chairman and Chief Executive Officer. The
Senior Independent Director and other Directors, as appropriate, make themselves available for contact with
major shareholders and other stakeholders in order to understand their issues and concerns. The Chairman and
Chief Executive Officer met with major shareholders, IP commercialisation sector brokers and analysts, and other
stakeholders, or numerous occasions throughout the year in order to gather their views on the Company and its
business.
The Company uses the AGM as an opportunity to communicate with its shareholders. Notice of the AGM, which
will be held at 1 p.m. BST on 1 June 2017 at the offices of DLA Piper UK LLP, 1 London Wall, London EC2Y 5EA,
United Kingdom, is enclosed with this Report and Accounts. In accordance with the Code, the Notice of AGM is
sent to shareholders at least 20 working days before the meeting. Details of the resolutions and the explanatory
notes thereto are included with the Notice. To ensure compliance with the Code, the Board proposes separate
resolutions for each issue and proxy forms allow shareholders who are unable to attend the AGM to vote for
or against or to withhold their vote on each resolution. The results of all proxy voting shall be published on the
Group’s website after the meeting and at the meeting itself to those shareholders who attend. Shareholders who
attend the AGM will have the opportunity to ask questions and the Chairman and the Executive Directors are
expected to be available to take questions.
The Group’s website at www.alliedminds.com is the primary source of information on the Group. The website
includes an overview of the activities of the Group, details of its subsidiary companies and its key university and
federal government partnerships, and details of all recent Group and subsidiary business announcements.
POLITICAL EXPENDITURE
It is the Board’s policy not to incur political expenditure or otherwise make cash contributions to political parties
and it has no intention of changing that policy.
GOING CONCERN
The Directors confirm that they have a reasonable expectation that the Group will have adequate resources to
continue in operational existence for the foreseeable future and accordingly they continue to adopt the going
concern basis in preparing the financial statements.
ON BEHALF OF THE BOARD
Rick Davis
Chairman of the Nomination Committee
27 April 2017
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 SUSTAINABILITY
POLICY STATEMENT
Allied Minds aims to conduct its business in a socially responsible manner, to contribute to the communities in
which it operates and to respect the needs of its employees and all of its stakeholders.
The Group is committed to growing the business while ensuring a safe environment for employees as well as
minimising the overall impact on the environment.
Allied Minds endeavours to conduct its business in accordance with established best practice, to be a
responsible employer and to adopt values and standards designed to help guide staff in their conduct and
business relationships.
GREENHOUSE GAS (GHG) EMISSIONS
Given the overall size of the Group, we consider the direct environmental impact of the Group as relatively
low. However, we firmly recognise our responsibility to ensure that our business operates in an environmentally
responsible and sustainable manner. The Group complies with all current regulations on emissions including
GHG emissions, where such regulation exists in our markets.
Though the Group’s day-to-day operational activities have a relatively limited impact on the environment, we do
recognise that the more significant impact occurs indirectly through the nature and operations of the companies
that we choose to support with human and financial capital.
The Group therefore considers it important to establish and nurture businesses that comply with existing applicable
environmental, ethical and social legislation. It is also important that these businesses can demonstrate that an
appropriate strategy is in place to meet future applicable legislative and regulatory requirements and that these
businesses can operate to specific industry standards, striving for best practice.
The section below includes our mandatory reporting of GHG emissions. The reporting period is the same as
the Group’s financial year.
ORGANISATION BOUNDARY AND SCOPE OF EMISSIONS
We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013. These sources fall with the Group’s consolidated financial statement.
An operational control approach has been used in order to define our organisational boundary. This is the basis
for determining the Scope 1 and 2 emissions for which the Group is responsible.
METHODOLOGY
For the Group’s reporting, the Group has employed the services of a specialist adviser, Verco, to quantify and
verify the Greenhouse Gas (GHG) emissions associated with the Group’s operations.
The following methodology was applied by Verco in the preparation and presentation of this data:
•
the Greenhouse Gas Protocol published by the World Business Council for Sustainable Development
and the World Resources Institute (WBCSD/WRI GHG Protocol);
• application of appropriate emission factors to the Group’s activities to calculate GHG emissions;
•
implementation of the new scope 2 reporting methods – application of location-based and market-based
emission factors for electricity supplies;
58
ANNUAL REPORT AND ACCOUNTS 2016 SUSTAINABILITY (CONTINUED)
•
inclusion of all the applicable Kyoto gases, expressed in carbon dioxide equivalents, or CO2e; and
• presentation of gross emissions as the Group does not purchase carbon credits (or equivalents).
ABSOLUTE EMISSIONS
The total Scope 1 and 21 GHG emissions from the Group’s operations in the year ending date-month-year were:
• 939.0 tonnes of CO2 equivalent (tCO2e) using a ‘location-based’ emission factor methodology for
Scope 2 emissions; and
• 1,013.3 tonnes of CO2 equivalent (tCO2e) using a ‘market-based’ emission factor methodology for
Scope 2 emissions.
INTENSITY RATIO
As well as reporting the absolute emissions, the Group’s GHG emissions are reported below on the metrics of
tonnes per employee and kilograms per square foot of the occupied areas2. These are the most appropriate
metrics given that the majority of emissions result from the operation of the Group’s offices and the day-to-day
activities of the employees.
TARGET AND BASELINES
Given the comparatively low GHG impact of the Group’s operations, the Group’s objective is to maintain or
reduce its GHG emissions per employee and per square foot of office space each year and will report each
year whether it has been successful in this regard.
1 The apportioned consumption associated with occupied premises which are not sub-metered have been assigned to Scope 2
emissions. This is because the Group is deemed to have operational control over these emissions, emissions arising from such
activities account for 2% of the total carbon emissions.
2 For some of the companies, floor area was not known therefore they are not included in the kg persquare footage of office space
intensity metric.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
SUSTAINABILITY (CONTINUED)
Key Figures
Allied Minds plc - Breakdown of emissions by scope
e
2
O
C
f
o
s
e
n
n
o
T
2016
(location-based)
97.6
2016
(market-based)
97.6
841.4
841.4
0%
20%
40%
60%
80%
100%
Scope 1
Scope 2
GHG EMISSIONS
Scope 11
Scope 22
Scope 23
Total GHG emissions
(Location-based Scope 2)
Total GHG emissions
(Market-based Scope 2)
2016
TONNES CO2E
97.6
841.4
915.7
939.0
1,013.3
TCO2E / EMP. 4
0.46
KGCO2E / SQ. FT. 5
0.001
4.01
4.36
4.47
4.83
0.011
0.012
0.012
0.013
1 Scope 1 being emissions from the Group’s combustion of fuel and operation of facilities.
2 Scope 2 being electricity (from location-based calculations), heat, steam and cooling purchased for the Group’s own use.
3 Scope 2 being electricity (from market-based calculations), heat, steam and cooling purchased for the Group’s own use
4 Employee numbers: 209
5 Occupied office space: 66,696 sq. ft. (this does not include sites where floor area was not known)
UNDERSTANDING THE INDIRECT ENVIRONMENTAL IMPACTS OF OUR BUSINESS ACTIVITIES
The Group’s day-to-day operational activities have a limited impact on the environment. We do, however,
recognise that the more significant impact occurs indirectly, through the investment decisions we make and the
operation of the companies we choose to invest in. The Group therefore considers it important to establish and
60
ANNUAL REPORT AND ACCOUNTS 2016
SUSTAINABILITY (CONTINUED)
invest in businesses that comply with existing applicable environmental, ethical and social legislation. It is also
important that these businesses can demonstrate that an appropriate strategy is in place to meet future applicable
legislative and regulatory requirements and that these businesses can operate to specific industry standards,
striving for best practice.
OUR BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
The Group seeks to conduct all of its operating and business activities in an honest, ethical and socially responsible
manner. We are committed to acting professionally, fairly and with integrity in all our business dealings and
relationships wherever we operate, and for its directors and staff to have due regard to the interest of all of its
stakeholders including investors, university and government partners, employees, suppliers and the businesses in
which the Group invests.
We take a zero tolerance approach to bribery and corruption and implement and enforce effective systems
to counter bribery. The Group is bound by the laws of the UK, including the Bribery Act 2010, and has
implemented policies and procedures to address such laws, as well as the laws in each jurisdiction where the
Group operates, including the US.
The Group’s management and employees are fundamental to our success and as a result we are committed to
encouraging the ongoing development of our staff with the aim of maximising the Group’s overall performance.
Emphasis is placed on staff development through work-based learning, with senior members of staff acting as
coaches and mentors. Allied Minds has continued to employ regular all-staff update meetings as the main source
of employee communication.
EMPLOYEE DIVERSITY AND EMPLOYMENT POLICIES
The Group seeks to operate as a responsible employer and has adopted standards which promote corporate
values designed to help and guide employees in their conduct and business relationships. The Group seeks to
comply with all laws, regulations and rules applicable to its business and to conduct the business in line with
applicable established best practice. The Group’s policy is one of equal opportunity in the selection, training,
career development and promotion of employees, regardless of age, gender, sexual orientation, ethnic origin,
religion and whether disabled or otherwise. The Group had 413 employees and consultants as at 31 December
2016 (but fewer than 250 full time employees). A breakdown of employees by gender as at 31 December
2016 can be seen in the illustrations below. Allied Minds supports the rights of all people as set out in the UN
Universal Declaration of Human Rights and ensures that all transactions the Group enters into uphold these
principles.
Total Employees
Senior Management
Directors
20%
80%
9%
91%
Female
Male
17%
83%
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT
STATEMENT BY CHAIRMAN OF THE REMUNERATION COMMITTEE
I am pleased to present, on behalf of the Board, the Remuneration Report for the year ended 31 December 2016.
Our Remuneration Policy, which was approved by shareholders at our 2016 AGM, was applied in 2016.
During the final quarter of 2016, the Remuneration Committee reviewed all of the elements of remuneration for
Executive Directors and senior management to assess whether the Remuneration Policy approved at the 2016
AGM was meeting its’ design objectives. Based on this review and the application of the Remuneration Policy,
the Remuneration Committee resolved that no further changes were necessary or appropriate, and the current
Remuneration Policy will remain in effect.
The Work of the Remuneration Committee
The Committee met on four occasions during the year. Mr. Rohr was present at all meetings during the year,
and each of Mr. Davis and myself missed one meeting due to an unexpected or previously scheduled conflict.
I met several times during the final quarter of 2016 with members of senior management in order to review all
elements of remuneration and their operation. The Committee also received professional advice from Korn Ferry
| Hay Group where appropriate.
A key objective of this review was to ensure the Remuneration Policy remained appropriate for a UK listed
company, whilst also ensuring that it was designed to continue to attract and retain US-based management and
employees of the highest calibre. The programme is weighted toward rewarding entrepreneurial achievement
and the creation of shareholder value over time. During the year, the key activities carried out by the Committee
were:
• Conducted a review of all elements of remuneration for Executive Directors and senior management;
• Reviewed feedback received from major shareholders and shareholder advisory services in connection
with the adoption and implementation of the revised Remuneration Policy in 2016;
•
In connection with the annual review of the Remuneration Policy, the Remuneration Committee resolved
that no further changes were necessary or appropriate, and the current Remuneration Policy will remain
in effect;
• Reviewed the Long Term Incentive Plan (LTIP) to ensure that it continues to advance the Committee’s policy
to provide a competitive, performance-linked, long-term incentive mechanism to align the interests of
management and shareholders;
• Determined the cash incentive bonus awards for the Executive Officers for the last financial year;
• Determined base salaries of the Executive Directors, for the period starting 1 January 2017;
•
Issued LTIP awards on 9 May 2016;
• Reviewed progress against 2014, 2015 and 2016 LTIP award performance targets for the last financial
year;
• Established 2015 and 2016 LTIP award performance targets for the current financial year; and
• Reviewed the remuneration reporting regulations in connection with the review of the Group’s Remuneration
Policy and preparation of the Directors’ Remuneration Report.
Objectives of the Remuneration Policy
Pursuant to the current Remuneration Policy, the Committee focuses on simple and transparent market competitive
remuneration and incentive schemes. The current Remuneration Policy is designed to:
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ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
• attract, retain and motivate high calibre US-based senior management, and to focus them on the delivery
of the Company’s long-term strategic and business objectives;
• promote a strong, fair and sustainable performance culture;
•
incentivise growth and the achievement of milestones;
• align the interests of Executive Directors and members of the senior management team with those of
shareholders through equity ownership; and
• be simple to understand and implement, and designed taking into account best practice guidelines for
UK listed companies.
The key components of remuneration are set out in detail within the Remuneration Policy approved by shareholders
at the 2016 AGM.
Performance and Reward for 2016
As detailed in the Annual Report on Remuneration, the Committee determined to provide cash incentive bonus
awards and LTIP awards to the Executive Directors that reflected the level of performance and achievement in
2016.
Shareholder Feedback
The Committee recognises that building a close relationship with shareholders can complement the work of the
Committee in developing the Remuneration Policy. During 2016, we received feedback from major shareholders
and shareholder advisory services with respect to our remuneration programme. One of our overarching aims
has been to implement the Remuneration Policy which closely aligns the interests of our senior executives and
our shareholders.
We continue to appreciate any feedback shareholders may have.
Kevin Sharer
Chairman of the Remuneration Committee
27 April 2017
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
What is in this report?
The Directors’ Remuneration Report sets out the Remuneration Policy for the Company on pages 66 to 77,
and describes the implementation of that Remuneration Policy. It has been prepared in accordance with the
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended. The
Remuneration Policy was developed taking into account the principles of the UK Corporate Governance Code
2014, the Listing Rules and shareholders’ executive remuneration guidelines. The Remuneration Policy for the
Executive and Non-Executive Directors was put to a binding shareholder vote at the 2016 AGM and approved
by shareholders. The Remuneration Policy took formal effect from that date, and remains in effect.
The Statement by Chairman of the Remuneration Committee on pages 62 to 63, together with the Annual Report
on Remuneration on pages 78 to 91, will be subject to an advisory vote at the AGM.
REMUNERATION POLICY OVERVIEW
The Remuneration Committee has responsibility for determining remuneration for the Executive Directors, and
monitoring the level and structure of remuneration for senior management. The Committee’s terms of reference
are available on the Company’s website.
The Committee designed this Remuneration Policy with close regard to market practice in other UK listed
companies so as to ensure that the arrangements are appropriately competitive and structured in line with best
practice. However, the Remuneration Policy also retains some of the key elements which helped to drive the
Group’s success prior to IPO, and other customary service arrangements and incentive elements for US-based
management and employees.
Allied Minds’ success depends in part on the talent of its management and employees. Allied Minds has
a highly skilled workforce, with significant expertise throughout the Group across a range of science and
technology disciplines, as well as a highly experienced management team. Allied Minds seeks to ensure that
its management team and its employees and consultants working within the Group’s individual businesses are
fairly and appropriately rewarded and incentivised. Allied Minds seeks to achieve this through a combination
of competitive levels of remuneration that is appropriate to the scale of responsibility and performance of the
employee or consultant, and incentives tied directly to increasing shareholder value.
The Group operates in the highly competitive US market, and attraction and retention of individual talent is
important to success of the Group’s businesses. Allied Minds deploys a careful and considered approach to
remuneration with the objective of attracting, motivating and retaining individuals of the necessary calibre. It is
important to note that each national market for talent is different, making cross-border comparisons very difficult.
In addition to general standard of living costs, there are large differences with respect to taxes, pensions,
provision of cars, and medical plans and costs, among many others.
The Company believes that it is important that remuneration is weighted toward rewarding entrepreneurial
achievement and the creation of shareholder value over time as its employees work toward the commercialisation
of scientific and technological innovations. Accordingly, Allied Minds has established share incentive plans with
the aim of incentivising and rewarding employees and Directors to achieve long term shareholder value. The
Directors believe the share incentive arrangements at the level of the subsidiary businesses, as well as the overall
Group, are an important factor in the promotion of shareholder value creation.
The aim of the Remuneration Policy is to attract, retain and motivate high calibre senior management and
employees, and to focus them on the delivery of the Company’s long-term strategic and business objectives, to
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
promote a strong and sustainable performance culture, incentivise growth and the achievement of milestones,
and to align the interests of Executive Directors and senior management team with those of shareholders through
equity ownership. In promoting these objectives the Remuneration Policy aims to be simple in design, transparent
and understandable both to participants and shareholders, and has been structured so as to adhere to the
principles of good corporate governance and appropriate risk management.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
REMUNERATION POLICY (PAGES 66 TO 77)
The Remuneration Policy for the Executive and Non-Executive Directors was approved by shareholders at the
2016 AGM. The Remuneration Policy took formal effect from that date. The Remuneration Committee will
consider the Remuneration Policy annually to ensure that it continues to align with the Company’s strategic
objectives; however, it is intended that the Remuneration Policy will apply for three years from the 2016 AGM.
If, during that timeframe, any amendments need to be made to the Remuneration Policy, it will be presented to
the shareholders to be voted on.
How the views of shareholders and employees are taken into account
The Committee does not formally consult directly with employees on executive pay but does receive periodic
updates in relation to salary and bonus reviews across the Company. As set out in the Remuneration Policy table
below, in setting remuneration for the Executive Directors, the Committee takes note of the overall approach to
reward for employees in the Company and salary increases will ordinarily be considered in light of those of the
wider workforce. Thus, the Committee is satisfied that the decisions made in relation to Executive Directors’ pay
are made with an appropriate understanding of the wider workforce.
Any feedback received from time to time from shareholders will be considered as part of the Committee’s annual
review of the Remuneration Policy. The Committee will seek to engage with shareholders and their representative
bodies when it is proposed that any material changes are to be made to the Remuneration Policy. The voting
outcomes from the 2016 AGM are available on page 91.
The Future Remuneration Policy Table for Executive Directors
The total remuneration package is structured so that variable elements (annual bonus and long-term incentives)
make up a significant proportion of the package, with the emphasis on variable pay focused on long-term
incentives. The tables below summarise the key aspects of the Company’s Remuneration Policy for Executive
Directors.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
REMUNERATION
SALARY
HOW IT SUPPORTS
THE COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
The Company is
required to provide
an appropriate level
of salary in order to
be competitive and
to maintain its ability
to recruit and retain
Executive Directors.
Salaries are set to
achieve this objective.
The Committee wishes
to ensure that fixed
costs are minimised
and that total actual
payments to executives
will be driven to a more
significant extent through
the operation of the
performance related
elements of the package.
As described in this
Remuneration Policy, the
performance elements of
total reward are directly
linked to the achievement
of the Company’s
strategic objectives.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
There are no
performance conditions
attached to the payment
of salary although
there are a number of
performance-based
factors both at the
individual and Company
level that influence the
level of salaries provided
to Executive Directors
for annual performance
appraisals.
An Executive
Director’s basic
salary is considered
by the Committee
on appointment and
normally reviewed once
per year or when there
is a significant change to
role or responsibility.
There is no prescribed
maximum annual
salary. The Committee
seeks to ensure that the
salaries conform to its
strategy, whilst remaining
competitive against
similar roles within the
relevant peer groups.
When making a
determination as
to the appropriate
remuneration, the
Committee, where it is
relevant, benchmarks the
remuneration against the
Company’s peer groups.
For the purpose of
benchmarking salaries
and other remuneration,
the principal peer
grouping used by the
Company consists of
companies within similar
industry sectors which
are either US or UK
listed with a range of
capitalisations.
The results of
benchmarking will,
however only be one
of a number of factors
taken into account by the
Remuneration Committee
and which will include:
• scale, scope and
responsibility of the role;
• skills and experience of
the individual;
• retention risk;
• base salary of other
employees; and
• economic environment.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
REMUNERATION
BENEFITS
HOW IT SUPPORTS
THE COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
The Committee’s intention
is to provide a benefits
package in line with
US employment market
practice.
The Company is required
to provide this benefits
package in order to
be competitive and
to maintain its ability
to recruit and retain
Executive Directors.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
There are no
performance conditions
attached to the payment
of benefits.
The cost of benefits
provided changes in
accordance with market
conditions and will,
therefore, determine the
maximum amount that
would be paid in the
form of benefits. There
is therefore no overall
maximum opportunity
under this component of
the Remuneration Policy.
The Executive Directors
may be entitled to the
following benefits:
• life insurance;
• disability insurance;
• medical benefits and
dental care;
• a car allowance; and
• an annual payment to
cover personal legal and
tax advice.
Executive Directors may
also participate in any
all-employee share plans
that may be operated by
the Group from time to
time on the same terms
as other employees.
Additional benefits,
which may include
relocation expenses,
housing allowance or
other benefits-in-kind,
may be provided in
certain circumstances if
considered appropriate
and reasonable by the
Committee, including
as may be required on
recruitment.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
RENUMERATION
CASH
INCENTIVE
BONUS
AWARDS
HOW IT SUPPORTS
THE COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
The cash incentive bonus
award, taken together
with base salary, is
required in order to
be competitive and
to maintain the ability
to recruit and retain
Executive Directors. Cash
incentive bonus awards
are set to achieve this
objective.
As described in this
Remuneration Policy, the
performance elements
of cash incentive bonus
awards and total reward
are directly linked to
the achievement of the
Company’s strategic
objectives.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
There are no caps on the
amount of bonus which
may be paid. However,
each year the Committee
determines the maximum
opportunity for each
Executive Director.
When making a
determination as to the
appropriate maximum
bonus, the Committee,
where it is relevant,
benchmarks the
remuneration against the
Company’s peer groups.
For the purpose of
benchmarking cash
incentive bonus awards
and other remuneration,
the principal peer
grouping used by the
Company consists of
companies within similar
industry sectors which
are either US or UK
listed with a range of
capitalisations.
The Committee and
senior management
review the Group’s
management by
objectives (MBOs)
annually prior to the start
of each financial year
to ensure the detailed
performance measures
and weightings are
appropriate and continue
to support the business
strategy.
Annual MBOs, including
financial, operational,
technical and other
performance targets and
their weightings for the
upcoming year are set
at or around the start of
each financial year.
An Executive Director’s
cash incentive bonus
award is considered
by the Committee upon
completion of each
financial year. The
decision to provide any
cash incentive bonus
award and the amount
and terms of any such
award, are determined
solely by the level of
achievement against
the MBOs set by the
Committee at the start of
the financial year.
As noted in “Operation”,
the decision to provide
any cash incentive bonus
award and the amount
and terms of any such
award, are determined
solely by the level of
achievement against
the MBOs set by the
Committee at the start of
the financial year.
The Committee may
consider any and all
performance criteria
in setting the annual
MBOs to be used in the
determination to provide
an award, and may
generally consider:
• the general
performance of the
Group, including
financial, operational,
technical and other
performance targets; and
• the individual
performance of the
Executive Director.
Weighting will be
primarily towards Group,
and not individual,
MBO performance for
Executive Directors.
Performance will typically
be measured over one
year.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
REMUNERATION
PENSION
HOW IT SUPPORTS
THE COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
It is the Committee’s
intention to provide
pension benefits in line
with US employment
market practice.
The Company is not
required to provide
pension benefits in order
to be competitive and to
ensure its ability to recruit
and retain Executive
Directors.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
None.
None.
No element of the
Executive Directors’
remuneration is
pensionable. The Group
does not operate any
pension scheme or
other scheme providing
retirement or similar
benefits. The Group
does not contribute to
any personal pension
schemes for employees.
However, the Company
offers a retirement plan
in accordance with
subsection 401(k) of the
Internal Revenue Code
(401(k) Plan) in which
Executive Directors may
make voluntary pre-tax
contributions toward
their own retirement.
The Company does not
make any payments or
contributions to such
401(k) Plan.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
REMUNERATION
ALLIED MINDS
LONG TERM
INCENTIVE PLAN
(LTIP)
HOW IT SUPPORTS
THE COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
The LTIP provides
a competitive,
performance-linked
long-term incentive
mechanism that will:
• attract, retain
and motivate
individuals with the
required personal
attributes, skills and
experience;
• provide a real
incentive to achieve
the Company’s
long-term strategic
objectives; and
• align the interests
of management and
shareholders.
OPERATION
OPPORTUNITY
PERFORMANCE METRICS
Under the terms of the
LTIP, the maximum value of
ordinary shares over which
awards under the LTIP may
be granted to a participant
in any financial year of
the Company may not
generally exceed 300% of
base salary for that financial
year, unless circumstances
arise which the Committee
believe justify granting an
award outside this limit.
The Committee would only
envisage overriding the
300% limit in exceptional
circumstances such as
where there was a need
to do so to attract a new
executive.
Notwithstanding the
maximum value permitted
under the terms of the LTIP,
each year the Committee
determines the maximum
opportunity for each
Executive Director.
When making a
determination as to the
appropriate maximum
LTIP award, the
Committee where it is
relevant, benchmarks the
remuneration against the
Company’s peer groups.
For the purpose of
benchmarking LTIP awards
and other remuneration,
the principal peer grouping
used by the Company
consists of companies within
similar industry sectors
which are either US or
UK listed with a range of
capitalisations.
The LTIP is reviewed
annually at or around
the start of each
financial year to
ensure the detailed
performance measures
and weightings are
appropriate and
continue to support the
business strategy.
Financial and/or non-
financial performance
targets are set at or
around the start of
each financial year.
Awards under the LTIP
to Executive Directors
will normally take
the form of restricted
share units (RSUs) (a
form of conditional
share award) in
respect of shares in
Allied Minds (although
instruments with similar
economic effect may
be used if considered
appropriate.)
Calculations of the
achievement of
the vesting targets
are reviewed and
approved by the
Committee.
Awards are subject
to cancellation or
clawback provisions
under which in the
event of a material
correction of any
accounts of the
Company used to
assess satisfaction
of any performance
conditions, or in the
event of a participant’s
gross misconduct,
awards may be
reduced, adjusted
or cancelled as
determined by the
Committee. Clawback
applies for the two
year period following
vesting.
Specific performance targets may vary
from year to year in accordance with
priorities support the business strategy.
In respect of the LTIP awards made in
2014 and 2015, vesting is dependent
upon performance metrics measured as
follows:
• 60% of each award will be subject
to performance conditions based on the
Company’s total shareholder return (TSR)
performance in respect of a three-year
period; and
• 40% of each award will be subject
to performance conditions based on
a basket of shareholder value metrics,
including, but not limited to:
(i) the increase in quality of pipeline
intellectual property reviewed; (ii) the
increase in quality of the partnership
pipeline; and (iii) subsidiary level
performance (assessed by reference to
such matters as external funding raised,
corporate collaborations, product
co-development and proof of principal
commercial pilots and revenues).
Performance will be assessed on these
measures on a scorecard basis over a
three year period.
At the end of the three year period,
performance against the relevant
measures will be calculated to determine
the number of ordinary shares capable
of vesting. For the 2014 awards, 50%
of the award will then vest at that time.
The remaining 50% will vest in two equal
tranches in years 4 and 5 subject to the
relevant participant still being employed
within the Group at the relevant vesting
date. For the 2015 awards, 100% of
the award will vest at the end of the three
year period.
The level of vesting for threshold
performance for the 2015 awards is
33.33% of the maximum. The level of
vesting for target performance is 66.67%
of the maximum.
Starting in 2016, the Committee expects
to make annual awards under the LTIP
with 100% of each award subject to
performance conditions based on the
Company’s relative total shareholder
return (rTSR) performance in respect of
a three-year period. The Group TSR will
be measured relative to the FTSE 250,
the S&P 500, and a peer group of four
publicly-traded companies.
The level of vesting for threshold
performance is 16.67% of the maximum.
The level of vesting for target performance
is 66.67% of the maximum.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
REMUNERATION
ALLIED MINDS
PHANTOM PLAN
HOW IT
SUPPORTS THE
COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
The Committee’s
intention is to
reward participants
for a successful
subsidiary
company
liquidity event.
The Committee
recognises
that successful
subsidiary
company liquidity
events are a key
strategic objective
of the Group and
its shareholders,
and believes that
the Phantom Plan
is designed to
align the interests
of the Executive
Directors and
management of
Allied Minds with
such objective.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
No amounts accrue under the
Phantom Plan, and no amounts
are distributed to participants,
until and unless a successful
subsidiary company liquidity
event occurs, and the cash
generated in such liquidity
event exceeds the amount
Allied Minds invested in such
subsidiary company, plus
accrued interest and expenses
in respect of such investment.
No other performance metrics
apply.
The maximum aggregate
number of units that may
be awarded under the
Phantom Plan is 200,000
units.
Upon a liquidity event
Allied Minds will distribute
80% of the Phantom Plan
account to the participants
based on their pro
rata share of all vested
units on the date of the
applicable liquidation
event, and the remaining
20% of the Phantom
Plan account will be
distributed to participants
at the discretion of the
Committee.
The Phantom Plan is a
performance-based,
cash settled bonus
plan for Allied Minds’
Executive Directors
and management.
The Plan is triggered
by a successful
subsidiary liquidity
event, including (i)
a subsidiary IPO,
(ii) the sale of all or
substantially all of a
subsidiary company’s
assets, (iii) the sale
of at least two-thirds
of the outstanding
shares of a subsidiary
company’s voting
equity, (iv) the merger
or consolidation of a
subsidiary company
with or into another
entity, or (v) a
subsidiary company’s
liquidation. Upon a
liquidity event, Allied
Minds will deduct the
amount it invested
in such subsidiary
company and deduct
the accrued interest
in respect of such
investment, and will
then allocate 10%
of the remaining
net proceeds to the
Phantom Plan account
for allocation among
the participants.
Participation in the
Phantom Plan is
evidenced by “units.”
Vesting of units is
determined at the time
of grant of the units.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ELEMENT OF
REMUNERATION
NON-EXECUTIVE
DIRECTORS’ FEES
HOW IT SUPPORTS
THE COMPANY’S
SHORT AND
LONG-TERM
STRATEGIC
OBJECTIVES
The Company’s intention
is to set fees at a level
necessary to attract and
retain experienced and
skilled Non-Executive
Directors with the
necessary experience
and expertise to advise
and assist in establishing
and monitoring the
strategic objectives
of the Company.
Fees also reflect the
time commitment and
responsibilities of the
roles.
An additional fee is paid
for Chairmanship of a
Board Committee and
to the Chairman of the
Board.
OPERATION
OPPORTUNITY
PERFORMANCE
METRICS
There are no
performance conditions
attached to the payment
of fees or the vesting
under the awards
granted under the LTIP.
The fees paid
take account of
responsibilities in acting
as Chairman of the
Board, Chairman of a
Board Committee or
as Senior Independent
Director.
The fees paid to the
Chairman shall only
be payable where the
Chairman is a Non-
Executive Director.
Given the US-based
nature of the Group’s
business, and the need
to attract and retain
independent directors
with significant US
business and leadership
experience, the fees
include an equity
component, based upon
a recommendation from
Korn Ferry | Hay Group.
The Committee is
satisfied that the level
of fees conform to its
strategy, whilst remaining
competitive against
similar roles within the
relevant peer groups.
Careful consideration
has been given as to
whether including an
equity component would
affect the independence
of the Non-Executive
Directors, and the
conclusion was reached
that it would not, given
the level of the awards
and the fact that they are
not performance-related.
Non-Executive Directors
have specific terms
of engagement
provided in formal
letters of appointment.
Their remuneration
is determined by
the Board, taking
into account
recommendations
from the Remuneration
Committee, within the
limits set by the Articles
of Association and
based on equivalent
roles in FTSE 250
companies and the
peer groups used for
Executive Directors. The
fees for Non-Executive
Directors are reviewed
annually and fixed for
the fiscal year. The
Non-Executive Directors
are appointed for a
three year term, subject
to annual re-election by
the shareholders, at the
Company’s AGM.
Non-Executive Directors
do not receive any cash
incentive bonus and
do not participate in
any Company pension
scheme.
The Non-Executive
Directors are eligible
for RSU awards under
the LTIP. Awards to the
Non-Executive Directors
will be subject to time-
based vesting provisions,
and will not be subject
to performance metrics.
Each Non-Executive
Director is also entitled
to reimbursement of
reasonable and properly
documented expenses
incurred in performing
the duties of their office.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
The Committee reserves the right to make any remuneration payments and payments for loss of office,
notwithstanding that they are not in line with the Remuneration Policy set out in the tables on the previous pages,
where the terms of the payment were agreed either: (i) before the policy came into effect, or (ii) at a time when
the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment
was not in consideration for the individual becoming a Director of the Company. For these purposes “payments”
include the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the
terms of the payment are “agreed” at the time the award is granted. Details of any such payments will be set out
in the Annual Report on Remuneration as they arise.
Differences between the Remuneration Policy and that applied to employees generally
The components of remuneration set out on the previous pages for Executive Directors are also generally applied
to the Group’s senior management team and differ only in vesting terms, values and award maxima. The
basic benefits package is typically available to all US employees at the Group level following completion of
a probationary period. Overall, there is more emphasis on variable pay for the Executive Directors and senior
management, but all US employees at the Group level are eligible for discretionary cash incentive bonus
awards. In addition, the Company is committed to fostering alignment with shareholders through widespread
share ownership, and thus all US employees at the Group level are eligible to participate in the LTIP. The Group
has also implemented equity incentive plans within its subsidiaries in order to incentivise employees within
the subsidiary businesses. Generally, the employees of the subsidiary businesses do not participate in any of
the Group level incentive plans. The Chief Executive Officer of each of our most significant subsidiaries may
participate in the future in the LTIP, but the levels of such awards under the LTIP are not expected to be a significant
percentage of their total compensation.
Schemes or arrangements under which allocations or awards are no longer being made
In addition to the Executive Directors’ remuneration arrangements set forth in the Remuneration Policy, the Group
previously maintained the Allied Minds Stock Option/Stock Issuance Plan (US Stock Plan). The Company
does not intend to make any further grants under the US Stock Plan. The interests of the Executive Directors in
outstanding options under the US Stock Plan are shown in the statement of directors’ shareholding and share
interest on pages 82 to 83 of this Annual Report.
The exercise price of the options is equivalent to the fair market value of Common Stock of Allied Minds, Inc.
(now Allied Minds, LLC) as at the date of grant of the options and all outstanding options have already vested
and become exercisable.
74
ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Maximum
20%
37%
44%
Threshold
80% 20%
Minimum
100%
-
$500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500
Base
Bonus
LTIP
-
Approach to Recruitment Remuneration
The Committee will apply the Remuneration Policy for any new Executive Director recruited to the Board in
respect of all elements of forward-looking remuneration. The maximum level of variable remuneration under
the cash incentive bonus awards and LTIP that may be awarded will be within the usual maximums set out in
the Remuneration Policy, subject to the exceptions permitted under the LTIP. The Committee retains flexibility to
provide benefits in kind, pensions and other allowances, such as relocation, education and tax equalisation,
required in order to recruit the intended candidate.
The Committee may make awards on hiring an external candidate to buy out remuneration arrangements
forfeited on leaving a previous employer. In doing so, the Committee will seek to structure buyout awards on a
comparable basis to awards forfeited, taking into account relevant factors including any performance conditions
attached to these awards, the form in which they were granted (e.g. cash or shares) and the timeframe of awards.
It is intended that the value awarded would be no higher than the expected value of the forfeited awards. The
Committee would seek as far as possible to make such buyout awards under the Company’s existing share plans
but, if necessary, may rely on the Listing Rules exemption which allows for the grant of awards to facilitate, in
exceptional circumstances, the recruitment of a Director.
Similarly, the Remuneration Policy for a new Chairman or new Non-Executive Directors would be to apply the
same remuneration elements as applicable to existing Non-Executive Directors under the Remuneration Policy.
In addition to the above principles, the following additional considerations may be applied as appropriate
depending on the circumstances:
•
•
In the case of internal promotion, any existing performance-related elements arising from an individual’s
previous role will continue to be honoured under the Remuneration Policy, even if they may not otherwise
be consistent with the Remuneration Policy prevailing when the commitment is fulfilled.
In the case of promotion to executive director following an acquisition or other business combination, the
Committee may permit equity-based incentive arrangements to continue in force if they can be “rolled-up”
into awards over Allied Minds’ shares provided the performance and vesting conditions are considered
appropriate.
•
In the case of the recruitment of an executive at a time of the year when it would be inappropriate or not
75
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
possible to provide an LTIP award for that year (for instance due to price sensitive information or if there
is insufficient time to assess performance), the quantum in respect of the months employed during the year
may be transferred to and amalgamated with the subsequent year’s award if considered reasonable to
do so by the Committee.
The Committee will include details of the implementation of the Remuneration Policy in respect of any such
recruitment to the Board in its future Annual Reports on Remuneration.
Letters of Appointment
Each of Rick Davis, Peter Dolan and Jeff Rohr have Non-Executive Director letters of appointment that commenced
May 2014. Kevin Sharer and Jill Smith have Non-Executive Director letters of appointment that commenced June
2015 and January 2016, respectively. Each of the letters of appointment are for an initial fixed term of three
years, which are reviewed and may be extended, and are terminable on one months’ notice by either party.
The letters of appointment for the Non-Executive Directors do not provide for any compensation on termination.
At 10 March 2017, Jill Smith’s Non-Executive Director letter of appointment was terminated, and she entered
into a new Executive Director letter of appointment. The letter of appointment immediately terminates upon the
termination of her appointment as the Chief Executive Officer of the Company. The letter of appointment does
not provide for any compensation on termination.
The letters of appointment are available for inspection at the Company’s registered office. In accordance with
the Code, all Directors submit themselves for election at the first AGM since their appointment to the Board, and
for annual re-election by shareholders at each AGM.
Remuneration Policy on Payment for Loss of Office
The Directors believe the payments owed upon loss of office detailed below are customary and appropriate to
attract and retain US-based senior management of the highest calibre.
The Committee reserves the right to make payments where they are made in good faith in discharge of an existing
obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of
any claim arising in connection with the termination of a Director’s office or employment where they are in the
best interests of Allied Minds and its shareholders and reflecting the directors’ contractual and legal rights.
Impact of Loss of Office on Awards under LTIP
Participants who cease to be employees, directors or service providers to the Group will normally forfeit any
unvested awards.
However, if a participant leaves as a result of death, disability, dismissal other than for cause or any other
reason determined by the Committee, awards will vest on the normal vesting date on a pro-rata basis taking into
account performance and the period of time during the applicable performance measurement period in which
the participant continuously provided services. The Committee may in its discretion determine that there are
exceptional circumstances justifying vesting to a greater or lesser extent.
Impact of Change of Control on Awards under LTIP
If there is a change of control of the Company, the number of ordinary shares over which awards will vest will
be calculated on the basis of the extent to which the performance criteria applicable to those awards have been
satisfied as at the date of the change of control. The resulting number of shares will then be reduced on a pro
76
ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
rata basis to reflect the reduced period between the date the award was made and the date of the change of
control, unless the Committee decides otherwise. In exceptional circumstances, the Committee may recommend
full vesting. This discretion to accelerate vesting upon a change of control is included in the LTIP to meet the
expectations of a US-based workforce.
Statement of Consideration of Employment Conditions Elsewhere in the Company
In considering changes to the remuneration of the Executive Directors, the Committee is mindful of pay and
conditions in the wider Group. Whilst the Group operates a range of bonus plans appropriate to its various
businesses, the main drivers of these subsidiary plans, in common with the cash incentive bonus awards to
Executive Directors, are the achievement of company milestones, and other company and individual objectives.
The Committee has not expressly sought the views of employees and no remuneration comparison measurements
were used when drawing up the Remuneration Policy. Through the Board, however, the Committee is regularly
updated as to employees’ views on remuneration generally.
In the event that an employee is promoted to the Board, that individual would be allowed to retain any pre-
existing incentive entitlement that had not vested at that time.
77
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ANNUAL REPORT ON REMUNERATION (PAGES 78 TO 91)
The Annual Report on Remuneration will be subject to an advisory vote at the AGM.
Single Total Figure of Remuneration for Each Director (audited)
The following table sets out the single total figure for remuneration for Directors for the financial years ended 31
December 2016 and 2015.
BASE SALARY/
FEES(1)
BENEFITS(2)
PENSION
ANNUAL
BONUS
EBP(3)
TOTAL
IN $’000
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
EXECUTIVE DIRECTORS
Chris Silva(4)
515
500
61
42
—
—
573
525 8,029
— 9,178
1,067
NON-EXECUTIVE DIRECTORS
Rick Davis
Peter Dolan
Jeff Rohr
Kevin Sharer(5)
Jill Smith(6)
Notes:
85
150
100
85
72
85
124
100
49
-—
-—
-—
-—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12
8
8
8
—
—
—
—
—
—
97
158
108
93
72
85
124
100
49
—
(1.) Actual Non-Executive Directors’ fees, pro-rated for the portion of the year they served on the Board.
(2.) Includes, where applicable, Company contribution to medical and dental insurance premiums, car allowance, and reimbursement for personal
legal and tax advice.
(3.) Equities based payments include the value of LTIP awards granted to the Executive Directors in 2014 which are expected to
vest in May 2017 based upon performance conditions met as of 31 December 2016. As noted on pages 81 and 82, the
Remuneration Committee has made a preliminary assessment that these awards will vest at 94.33% of the maximum number
of shares under the award. The 2016 value has been calculated using the expected 94.33% level of vesting, and the share
price at 31 December 2016 (net of settlement price). If the share price at 24 April 2017 (being the latest practicable date prior to
the publication of this document) had been used, the disclosed amount would have been $2,712,038 (net of settlement price).
Equities based payments also include the value of LTIP awards granted to the Non-Executive Directors that vested in 2016 (based on the value
on the date the awards vested and the shares were granted). In addition, management has adjusted the 2015 numbers for Non-Executive
Directors by an aggregate of $99,000 considering that performance conditions for the restricted share awards were met in 2014, and
aggregate amount of $99,000 should have been included in the single total figure table for 2014.
(4.) Mr. Silva resigned as Chief Executive Officer and Executive Director as of 10 March 2017. Details of the effect of his resignation on
outstanding payments and benefits are given on pages 87 to 88.
(5.) Mr. Sharer was appointed as a Non-Executive Director in June 2015.
(6.) Ms. Smith was appointed as a Non-Executive Director in January 2016. Ms. Smith resigned as Non-Executive Director on 10 March 2017,
and was appointed as interim Chief Executive Officer and Executive Director as of such date.
Individual Elements of Remuneration
Base Salary and Cash Incentive Bonus Awards during 2016
The Remuneration Committee engaged Korn Ferry | Hay Group to conduct a compensation benchmarking
study for the Company’s senior management in conjunction with the Company’s 2016 year-end compensation
process, including an analysis of the traditional elements of executive pay (base salary, annual cash incentive
bonus, long-term equity incentives and total direct compensation). Korn Ferry | Hay Group utilised a variety of
information sources to evaluate the market for executive compensation, including an analysis of eight publicly-
traded companies. For the purpose of benchmarking salaries and other remuneration the principal peer grouping
used by the Company consisted of listed companies within similar industry sectors with a range of capitalisation.
78
ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Based upon the results of the benchmarking study, the Remuneration Committee concluded each of the Executive
Directors’ total direct compensation was still at or below the 50th percentile of the peer group. Given the strong
Company performance in 2015, the Remuneration Committee recommended to the Board the following for
2016:
• a modest 3% increase in base salary for the Chief Executive Officer; and
• a maximum cash incentive bonus award of 150% of base salary for the Chief Executive Officer, and
target award at 100% of base salary. For reference, as a percentage of base salary, the actual award
was 65.7% in 2013, 125.0% in 2014 and 105.0% in 2015.
The Remuneration Committee designed the increase in base salary and potential increase in cash incentive
bonus award to reflect its policy of moving the Executive Director compensation, in connection with superior
performance, towards the 50th percentile of the peer group. The Remuneration Committee also designed the
potential increases to emphasise the variable component of compensation, by allocating more of the potential
increase to the cash incentive bonus award and not base salary. Notwithstanding the increases, the Executive
Director total direct compensation remained below the median for the peer group during 2016. The increase in
base salary was from $500,000 in 2015 to $515,000 in 2016. The increase in cash incentive bonus award
was from $525,000 in 2015 to $572,680 in 2016.
As described in the Remuneration Policy, the Remuneration Committee and senior management review the
Group’s management by objectives (MBOs) annually prior to the start of each financial year to ensure the detailed
performance measures and weightings are appropriate and continue to support the business strategy. Annual
MBOs, including financial, operational, technical and other performance targets and their weightings for the
upcoming year are set at or around the start of each financial year. An Executive Director’s cash incentive bonus
award is considered by the Remuneration Committee upon completion of each financial year. The decision to
provide any cash incentive bonus award and the amount and terms of any such award, are determined solely by
the level of achievement against the MBOs set by the Remuneration Committee at the start of the financial year.
The MBOs set by the Remuneration Committee for 2016, along with the level of achievement against such
MBOs, is set forth below:
MBO
Group 1(1) Validating Events(2)
Group 1 Technical Milestones(3)
Group 2(4) Validating Events
Group 2 Technical Milestones
New Company Formation
Group Fundraising and Cash Management
Group Revenue
TOTAL PERCENTAGE OF TARGET
Notes:
THRESHOLD
WEIGHTINGS
TARGET
WEIGHTINGS
MAXIMUM
WEIGHTINGS
ACHIEVED
WEIGHTINGS
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
30.0%
10.0%
10.0%
5.0%
20.0%
20.0%
5.0%
45.0%
15.0%
15.0%
7.5%
30.0%
30.0%
7.5%
37.5%
10.3%
13.5%
4.4%
20.0%
25.5%
0.0%
100.0%
150.0%
111.2%
(1.) “Group 1” represents subsidiary operating companies of the Group that are at a more mature stage of technical and/or commercial
development, and generally represent a more significant percentage of Group Subsidiary Ownership Adjusted Value (GSOAV).
(2.) “Validating Events” represent various material achievements, such as fundraisings, mergers and acquisitions, development partnerships, strategic
alliances, customer contracts and other significant corporate events.
(3.) “Technical Milestones” represent various research and development achievements, as well as advancement of clinical trials.
(4.) “Group 2” represents subsidiary operating companies of the Group that are at a less mature stage of technical and/or commercial development,
and generally represent a less significant percentage of GSOAV.
79
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
The Remuneration Committee determined that the MBO percentage achievement for 2016 was 111.2% of
target percentage. The Remuneration Committee determined such achievement in accordance with the MBOs
set at the beginning of 2016, and did not exercise any material discretion. As noted above, the target cash
incentive bonus award for the Chief Executive Officer was set at 100% of base salary for 2016, with maximum
award set at 150% of base salary. Based upon the MBO achievement, the cash incentive bonus award to the
Chief Executive Officer was set at 111.2% of base salary, or $572,680.
LTIP Awards made during 2016 (audited)
BASIS OF
AWARD
TYPE
NUMBER
OF
SHARES
FACE
VALUE OF
AWARD
($’000)
% OF
VALUE TO
VEST AT
THRESHOLD
% OF VALUE
TO VEST AT
TARGET
VESTING
CONDITIONS
EXECUTIVE DIRECTORS
Chris Silva
RSU See below 238,470
$1,159
16.67%
66.67%
NON-EXECUTIVE DIRECTORS
Rick Davis
RSU See below 10,290
$50
n/a
n/a
Peter Dolan
RSU See below 15,435
$75
n/a
n/a
Jeff Rohr
RSU See below 10,290
$50
n/a
n/a
Kevin Sharer
RSU See below 10,290
$50
n/a
n/a
Jill Smith
RSU See below 10,290
$50
n/a
n/a
Based on performance
achievement, 100% at
end of 2018
Based on service, an-
nually over three years
to May 2019
Based on service, an-
nually over three years
to May 2019
Based on service, an-
nually over three years
to May 2019
Based on service, an-
nually over three years
to May 2019
Based on service, an-
nually over three years
to May 2019
At 9 May 2016, the LTIP award above was granted to the Chief Executive Officer. The total value of the award
has been calculated using the closing share price of 337p on such date. The level of award was determined by
the Committee after giving due consideration to the 2015 Korn Ferry | Hay Group compensation benchmarking
study which concluded that the target amount of the award ($772,500), or 150% of base salary, would position
the CEO below the median for the peer group for total compensation during 2016. The maximum value of such
award which could be received by Mr. Silva is 225% of base salary. Vesting of the LTIP award is dependent
upon performance metrics measured over the three years to 31 December 2018, details of which are set out
in the Remuneration Policy table on page 71 of the Report. The level of vesting for threshold performance is
16.67% of the maximum. The level of vesting for target performance is 66.67% of the maximum. Following Mr.
Silva’s resignation as Chief Executive Officer and Executive Director, the 2016 LTIP award will continue to be
subject to achievement of performance criteria, but on a pro-rata basis. Further details are given on pages 87 to 88.
At 9 May 2016, the LTIP awards above were granted to the Non-Executive Directors. The total value of the award
has been calculated using the closing share price of 337p on such date. The level of award was determined by
the Committee after giving due consideration to the 2015 Korn Ferry | Hay Group compensation benchmarking
study which recommended such awards in light of the US-based nature of the Group’s business, and the need to
attract and retain independent directors with significant US business and leadership experience. Vesting of the
80
ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
LTIP award is based upon time of service, with each award vesting in three equal installments over a three year
period. There are no performance conditions attached to the vesting under the awards granted under the LTIP.
Long Term Incentive Plan Vesting during 2016 (audited information)
The Company did not make any awards under the LTIP prior to 2014. Accordingly, no equity-based awards
vested under the LTIP during 2015 or 2014.
LTIP awards granted to the Non-Executive Directors in June 2015 partially vested in 2016. Vesting of the Non-
Executive Director LTIP awards is based upon time of service, with each award vesting in three equal installments
over a three year period. There are no performance conditions attached to the vesting under the awards granted
under the LTIP to the Non-Executive Directors. As a result of such vesting, 2,723 ordinary shares were allotted
and issued to Mr. Dolan, and 1,815 ordinary shares were allotted and issued to each of Messrs. Davis, Rohr
and Sharer.
No LTIP awards granted to Executive Directors vested during 2016. However, the performance period for LTIP
awards made to Executive Directors during 2014 ends on 31 December 2016, and such awards are expected
to partially vest in May 2017 based upon the performance metrics set forth below.
In respect of the LTIP awards made to Executive Directors during 2014, vesting is dependent upon performance
metrics measured as follows:
• 60% of each award will be subject to performance conditions based on the Company’s total shareholder
return (TSR) performance in respect of a three-year period, as follows:
o threshold vesting (33.33% of maximum) for achievement of a 10% annualised TSR,
o target vesting (66.67% of maximum) for achievement of a 15% annualised TSR, and
o maximum vesting for achievement of a 20% annualised TSR; and
• 40% of each award will be subject to performance conditions based on a basket of shareholder value
metrics (SVM), including, but not limited to:
o the increase in quality of pipeline intellectual property reviewed,
o the increase in quality of the partnership pipeline, and
o subsidiary level performance (assessed by reference to such matters as external funding raised,
corporate collaborations, product co-development and proof of principal commercial pilots and
revenues).
In May 2017, performance against the relevant measures will be calculated to finally determine the number of
ordinary shares capable of vesting, and the potential award will then vest at that time.
The Company’s annualised TSR for the measurement period was 33.99%, which consisted of an increase from
190.0p at the Company’s IPO in June 2014 to a 30-day trailing high/low average on 31 December 2016 of
399.2p. Thus, the TSR condition exceeded the maximum TSR and 60.00% (out of a possible 60.00%) of the
maximum number of shares under the award are expected to vest in May 2017.
The Remuneration Committee has undertaken a preliminary assessment of Company performance in each of
January 2015, 2016 and 2017 to assess the level of achievement under the SVM condition, and awarded
a preliminary score of 4.0 (maximum) for 2014, 3.0 (target) for 2015, and 3.3 (above target) for 2016.
The Remuneration Committee will make its final assessment in May 2017, but based upon the preliminary
assessment, the SVM condition averaged 3.433 over the measurement period, and 34.33% (out of a possible
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
40.00%) of the maximum number of shares under the award would on this basis be expected to vest in May
2017.
Taken together, and based on the preliminary assessment, 94.33% of the maximum number of shares under the
award are expected to be eligible for vesting in May 2017.
US Stock Plan Awards made during 2016 (audited information)
The Company did not make any grants under the US Stock Plan in 2016, and does not intend to make any
further grants. The interests of the Executive Directors in outstanding options under the US Stock Plan are shown
in the statement of directors’ shareholding and share interest on pages 82 to 83 of this Annual Report.
Payments to Past Directors (audited information)
No payments to past Directors were made during the last financial year.
Loss of Office Payments (audited information)
No payments for loss of office were made to past Directors during the last financial year.
Total Pension Entitlements (audited information)
No payments for pension entitlements were made to Directors during the last financial year. The Company offers
a retirement plan in accordance with subsection 401(k) of the Internal Revenue Code (401(k) Plan) in which
Executive Directors may make voluntary pre-tax contributions toward their own retirement. The Company does
not make any payments or contributions to such 401(k) Plan.
Statement of Directors’ Shareholding and Share Interests (audited)
Share ownership plays a key role in the alignment of our executives with the interests of shareholders. In April
2016, the Remuneration Committee adopted a share ownership policy for Executive Directors. The policy
requires Executive Directors to acquire and maintain a minimum ownership level of ordinary shares in the capital
of the Company, thereby helping to align their interests with those of shareholders. The Committee has set the
current requirements at share value of 400% of base salary for Executive Officers. The Committee has not set a
timeframe during which Executive Officers are required to accumulate their share ownership level. During 2016,
the Executive Director met this requirement. The table below sets out the number of shares held by Directors as at
31 December 2016, and the Company is not aware of any changes through 27 April 2017.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
SHARES HELD
OUTRIGHT
SHARES
CONDITIONAL ON
PERFORMANCE
SHARES
CONDITIONAL
ON SERVICE
OPTIONS TO
PURCHASE
SHARES
TOTAL
EXECUTIVE DIRECTORS
Chris Silva
2,844,402
1,763,441
—
3,105,498
7,713,341
NON-EXECUTIVE DIRECTORS
Rick Davis
Peter Dolan
Jeff Rohr
Kevin Sharer
Jill Smith
Performance Graph
261,415
42,323
41,415
1,815
—
—
—
—
—
—
13,921
20,882
13,921
13,921
10,290
—
—
—
—
—
275,336
63,205
55,336
15,736
10,290
The graph below illustrates the Company’s Total Shareholder Return (TSR) performance relative to the constituents
of the FTSE 250 index excluding investment companies and the FTSE All Share index of which the Company is
a constituent, from the start of conditional share dealing on 25 June 2014. The graph shows performance of a
hypothetical £100 invested and its performance over that period.
Change in remuneration of Chief Executive Officer compared to US Group employees
120
115
110
105
100
95
31-12
2015
ALM
FTSE 250
FTSE All Share
31-12
2016
The table below sets out the increase in total remuneration of the Chief Executive Officer and that of our US
Group employees (excluding Directors) from 2015 to 2016:
CEO
US Group Employees
% CHANGE
IN BASE
SALARY
% CHANGE
IN CASH
BONUS
% CHANGE
IN BENEFITS
3.0%
4.8%
9.1%
9.1%
45.2%
8.2%
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Historical CEO remuneration outcomes
The table below summarises the Chief Executive Officer single total figure for total remuneration, annual cash
incentive bonus award, LTIP vesting as a percentage of maximum opportunity, and US Stock Plan share award
vesting as a percentage of maximum opportunity, for the last financial year. As the company listed in 2014, the
comparative begins with the 2013 period.
CEO single total figure for remuneration ($’000)
Annual cash incentive bonus award pay-out (% of maximum)(1)
LTIP award vesting (% of maximum)(2)
US Stock Plan award vesting (% of maximum)(3)
Notes:
2016
$1,149
74.13%
n/a
n/a
2015
2014
2013
$1,067
$15,942
$1,236
n/a
n/a
n/a
n/a
n/a
n/a
n/a
100%
100%
(1.) With respect to 2015, 2014 and 2013, the percentage of maximum is not applicable because the Company did not have any cap on cash
incentive bonus award payments in those financial years. As a percentage of base salary, the award was 65.7% in 2013, 125.0% in 2014
and 105.0% in 2015. For 2016, the maximum cash incentive bonus award for Executive Officers was 150% of base salary.
(2.) No equity-based awards vested under the LTIP during 2016, 2015, 2014 or 2013. However, the performance period for LTIP awards made
to Executive Directors during 2014 ended on 31 December 2016, and such awards are expected to partially vest in May 2017. As noted
above, 94.33% of the maximum number of shares under the 2014 LTIP award are expected to be eligible for vesting in May 2017.
(3.) Equity-based payments include awards under the US Stock Plan. All equity awards, including stock options and restricted stock, under the US
Stock Plan became vested and fully exercisable, or vested and fully transferable, in connection with the IPO.
Relative importance of spend on pay
The chart below shows the total employee costs, change in Group Subsidiary Ownership Adjusted Value, and
change in share price from 2015 to 2016.
The information shown in this chart is based on the following:
• Total employee pay: Total US Group employee staff costs from note 5 on page 123, including wages
and salaries, social security and healthcare costs, and share-based payments.
• Change in Group Subsidiary Ownership Adjusted Value (GSOAV) taken from page 16.
• Returns to shareholders: since the Group does not currently pay a dividend, returns to shareholders are
represented by the change in the Group’s share price over the period from 31 December 2015 to 31
December 2016.
• Please note that for the purposes of this chart only, the GSOAV determined in April 2017 shall be
assumed retroactive to 31 December 2016.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
48.3
535.8
40.1
416.2
470.0
400.0
Total employee costs
($m)
(+20.4%)
GSOAV ($m)
Share Price (p)
(-22.3%)
(+17.5%)
2016
2015
Statement of implementation of remuneration policy in the following financial year
Base Salary and Benefits
Effective from 01 January 2017, the base salary of the current Executive Director will be:
Jill Smith
BASE SALARY
INCREASE
% INCREASE
$1,200,000
n/a
n/a
During the period that Ms. Smith is serving as “interim” Chief Executive Officer, she will be paid a base salary
of $100,000 per month, and she will not be eligible for any cash incentive bonus awards, LTIP awards, or
any other incentive or equity schemes. It is expected that in due course Ms. Smith will notify the Board as to
her willingness to transition to serve as “permanent” Chief Executive Officer. Upon any such notification, Ms.
Smith and the Board shall mutually agree on the revised terms of such employment, including base salary,
annual incentive bonus awards, equity grants and other terms of remuneration. The final terms of Ms. Smith’s
service contract and remuneration are expected to be in accordance with the Remuneration Policy, subject to the
considerations set forth in the approach to remuneration recruitment above.
The benefits package during 2017 will continue to be in line with US employment market practice and the
Remuneration Policy.
Cash Incentive Bonus Awards
As noted above, Ms. Smith will not be eligible for any cash incentive bonus award unless she transitions to the
role of “permanent” Chief Executive Officer.
The Remuneration Committee expects to implement the following to the cash incentive bonus awards, which is
permitted under the Remuneration Policy. During 2016, the maximum cash incentive bonus award opportunity
for each Executive Director was set at 150% of base salary. Under the Remuneration Policy, each year the
Remuneration Committee will determine the maximum opportunity for each Executive Director. The maximum
opportunity for each Executive Director in 2017 may be up to 300% of base salary.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
The Executive Director’s cash incentive bonus awards shall be considered by the Remuneration Committee upon
completion of the financial year. The decision to provide any cash incentive bonus award and the amount
and terms of any such award, are determined solely by the level of achievement against the MBOs set by the
Committee at the start of the financial year. The annual MBOs, including financial, operational, technical and
other performance targets and their weightings for the upcoming year were set at the start of 2017, and refined
in April 2017, as follows:
MBO
THRESHOLD
WEIGHTINGS
TARGET
WEIGHTINGS
MAXIMUM
WEIGHTINGS
Deliver Validating Events(1) and Technical Milestones(2) for Key Subsidiaries
Secure Funding and Strategic Relationships for Subsidiary Companies
Strengthen Investment Committee Process:
Establish Corporate Partner Goals and Commitments
Expand New Company Pipeline Development
Define Path to Commercialisation, Liquidity Event or Key Commercial or
Strategic Differentiators
Develop Strategic Plan to Drive Shareholder Value
Manage Cash
TOTAL PERCENTAGE OF TARGET
Notes:
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
40.0%
20.0%
5.0%
5.0%
10.0%
10.0%
10.0%
60.0%
30.0%
7.5%
7.5%
15.0%
15.0%
15.0%
100.0%
150.0%
(1.) “Validating Events” represent various material achievements, such as fundraisings, mergers and acquisitions, development partnerships, strategic
alliances, customer contracts and other significant corporate events.
(2.) “Technical Milestones” represent various research and development achievements, as well as advancement of clinical trials.
Long Term Incentive Plan
As noted above, Ms. Smith will not be eligible for any long term incentive plan awards unless she transitions to
the role of “permanent” Chief Executive Officer.
The Remuneration Committee does not expect to implement any changes to LTIP awards in 2017. In 2016, the
Remuneration Committee implemented the following changes to the LTIP awards, which were permitted under
the Remuneration Policy. During 2015, there was no cap on the amount of LTIP award to be made to Executive
Directors, other than the cap of 300% of base salary per financial year as specified in the LTIP. Under the current
Remuneration Policy, each year the Committee will determine the maximum opportunity for each Executive
Director. The maximum opportunity for each Executive Director in 2017 shall be up to 300% of base salary.
In 2016, the Committee made awards under the LTIP with 100% of each award subject to performance
conditions based on the Company’s relative total shareholder return (rTSR) performance in respect of a three-
year period. The Group TSR will be measured relative to the FTSE 250, the S&P 500, and a peer group of
four publicly-traded companies. The level of vesting for threshold performance is 16.67% of the maximum. The
level of vesting for target performance is 66.67% of the maximum. With respect to any LTIP awards granted to
Executive Directors in 2017, the Committee expects to continue the same rTSR performance vesting terms.
In respect of the 2015 awards, the Committee expects vesting to continue to be dependent upon performance
metrics as follows:
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ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
• 60% of each award will be subject to performance conditions based on the Company’s total shareholder
return performance in respect of a three-year period; and
• 40% of each award will be subject to performance conditions based on a basket of shareholder value
metrics, including but not limited to: (i) the increase in quality of pipeline intellectual property reviewed;
(ii) the increase in quality of the partnership pipeline; and (iii) subsidiary level performance (assessed by
reference to such matters as external funding raised, corporate collaborations, product co-development
and proof of principal commercial pilots and revenues). Performance will be assessed on these measures
on a scorecard basis over a three-year period.
In respect of the 2015 awards, following the end of the three-year period, performance against the relevant
measures will be calculated to determine the number of ordinary shares capable of vesting. The level of vesting
for threshold performance will be 33.33% of the maximum. The level of vesting for target performance will be
66.67% of the maximum.
Details of the expected vesting of the 2014 awards are given on page 81.
Service Contract and Post Period Loss of Office Payments (Former CEO)
At 31 December 2016, the former Chief Executive Officer and Executive Director (Chris Silva) had a service
contract that commenced in May 2014. With effect from 10 March 2017, Mr. Silva resigned as Chief
Executive Officer and as an Executive Director of the Company.
The Remuneration Committee approved the arrangements below which are in line with the Company’s
Remuneration Policy approved by the Company’s shareholders at the 2016 AGM.
Payments and benefits
Mr. Silva will be entitled to:
• An annual incentive award for 2017, which shall be a lump sum payment of $100,675.73, which is
equal to the product of: (A) $532,560 (his average annual bonus for the three full years preceding his
resignation) and (B) a fraction, the numerator of which is the number of days he was employed by the
Company during 2017 and the denominator of which is the number of days in such year.
• Continued payment of his base salary at the rate of $600,000 per year for a period of twenty-four (24)
months.
• Participation at the Company’s expense under COBRA for six months for him and each of his eligible
dependents in all medical, dental, hospitalization and other employee welfare benefit plans, programs
and arrangements covered by COBRA.
•
Life and disability insurance cover at the Company’s expense for six months.
Incentive arrangements
Mr .Silva has outstanding restricted share unit awards (RSUs) granted under the Company’s Long Term Incentive
Plan, outstanding share options (Options) granted under the Allied Minds Stock Option/Stock Issuance Plan, and
outstanding awards in the form of units (Phantom Units) granted under the Allied Minds Phantom Plan (Phantom
Plan). The RSUs and Options are settled in ordinary shares in the Company (Shares) and the Phantom Units are
settled in cash.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
In accordance with the terms of such awards and the Company’s Remuneration Policy:
• The RSUs will continue to vest subject to achievement of the relevant performance criteria and, to the
extent that they vest, Mr. Silva will be entitled to a pro rata number of Shares taking into account the
time which Mr. Silva has worked in the period over which the performance criteria are measured. The
Remuneration Committee has exercised its discretion to determine that the pro-rating shall be by reference
to the number of days worked from the beginning of the relevant measurement period, rather than from
the date of grant of the relevant RSU. Mr. Silva has outstanding RSUs to acquire an aggregate of
1,763,441 Shares at maximum vesting.
• The Options are fully vested. Following the Remuneration Committee determination to extend the period
for exercise of the Options from three to twelve months following termination, Mr. Silva has until 10
March 2018 to exercise such Options, failing which they will lapse. Mr. Silva has outstanding Options
which entitle him to acquire an aggregate of 3,105,498 Shares.
• The Phantom Units are also fully vested. Settlement of Phantom Units under the Phantom Plan is triggered
by a successful subsidiary liquidity event (Liquidity Event). Mr. Silva remains entitled to a proportion
of the payment he would have received on a Liquidity Event had he remained an employee. That
proportion is 90% if the Liquidity Event occurs within 9 months of his resignation date, 75% if 10-18
months from his resignation date; 50% if 19-27 months from his resignation date; 25% if 28-36 months
from his resignation date, and 0% if later than 36 months from his resignation date. Mr. Silva has 8,857
Phantom Units.
No further payments will be made to Mr. Silva in connection with his loss of office.
Service Contract and Letter of Appointment (New Interim CEO)
At 10 March 2017, the new interim Chief Executive Officer and Executive Director (Jill Smith) entered into a
service contract. The employment arrangement is “at-will”, which means that either Ms. Smith or Allied Minds
may terminate the employment arrangement at any time, with or without cause and with or without prior notice.
During the period that Ms. Smith is serving as “interim” Chief Executive Officer, she will be paid a base salary
of $100,000 per month, and she will not be eligible for any cash incentive bonus awards, LTIP awards, or
any other incentive or equity schemes. It is expected that in due course Ms. Smith will notify the Board as to
her willingness to transition to serve as “permanent” Chief Executive Officer. Upon any such notification, Ms.
Smith and the Board shall mutually agree on the revised terms of such employment, including base salary,
annual incentive bonus awards, equity grants and other terms of remuneration. The final terms of Ms. Smith’s
service contract and remuneration are expected to be in accordance with the Remuneration Policy, subject to the
considerations set forth in the approach to remuneration recruitment above.
At 10 March 2017, Ms. Smith’s Non-Executive Director letter of appointment was terminated, and she entered
into a new Executive Director letter of appointment. The letter of appointment immediately terminates upon the
termination of her appointment as the Chief Executive Officer of the Company. The letter of appointment does
not provide for any compensation on termination.
On 9 May 2016, in her capacity as a Non-Executive Director, Ms. Smith received a grant of 10,290 RSUs
under the Company’s LTIP. The RSUs vest annually over a three-year period, with the first vesting date scheduled
to occur on 9 May 2017. Under the terms of the RSUs, vesting is time-based and occurs so long as Ms. Smith
continues to be a Director of the Company. Notwithstanding the terms of such RSUs, Ms. Smith has informed
the Company that she intends to forfeit the awards in light of her appointment as interim Chief Executive Officer
and Executive Director because such RSUs do not contain performance vesting conditions, and therefore are not
in compliance with the Remuneration Policy.
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ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
The service contract and letter of appointment are available for inspection at the Company’s registered office. In
accordance with the Code, Ms. Smith will submit herself for election at the AGM, and for annual re-election by
shareholders at each AGM.
Chairman and Non-Executive Directors
Effective from 01 January 2017, the base salaries of the Chairman and Non-Executive Directors will be:
CASH COMPONENT
Non-Executive Director Annual Fee
Audit Committee Chair Annual Fee
Remuneration Committee Chair Annual Fee
Nomination Committee Chair Annual Fee
Chairman of the Board Annual Fee
EQUITY COMPONENT
Non-Executive Director LTIP Award Value
Chairman of the Board LTIP Award Value
2017
$75,000
$25,000
$10,000
$10,000
$75,000
$50,000
$75,000
The Chairman, Non-Executive Director and Committee Chair annual fees set forth in the table above remain
unchanged from 2016. The additional fee for serving as Chairman shall only be payable where the Chairman
is a Non-Executive Director. Given the US-based nature of the Group’s business, and the need to attract and
retain independent directors with significant US business and leadership experience, the proposed fees above
include an equity component, which will have a time-based vesting schedule. Jill Smith, as an Executive Director,
will not be entitled to any Board fees.
Outside Appointments for Executive Directors
Any proposed external directorships are considered and approved by the Board to ensure they do not cause a
conflict of interest but, subject to this, Executive Directors may accept outside non-executive appointments.
Limits on the number of shares used to satisfy share awards (dilution limits)
All of the Group’s incentive schemes that contain an element that may be satisfied in Allied Minds plc shares
incorporate provisions that in any ten-year period (ending on the relevant date of grant), the maximum number
of the shares that may be issued or issuable under all such schemes shall not exceed 10% of the issued ordinary
share capital of the Company from time to time (excluding shares issued pursuant to awards granted prior to IPO
under the US Stock Plan).
The Committee regularly monitors the position and prior to the making of any share-based award, considers the
effect of potential vesting of outstanding awards to ensure that the Company remains within these limits. Any
awards which are required to be satisfied by market purchased shares are excluded from such calculations. No
treasury shares were held or utilised in the year ended 31 December 2016.
Remuneration Committee: details and governance
The full terms of reference of the Committee, which are reviewed annually, are available on the Group’s website
at www.alliedminds.com. In summary, the Remuneration Committee has specific responsibility for advising the
Board on the remuneration and other benefits of executive directors, an overall policy in respect of remuneration
of other employees of the Group and establishing the Group’s policy with respect to employee incentivisation
schemes.
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
The Remuneration Committee is currently comprised of the following independent Non-Executive Directors, all
of whom served during the entire financial year, and whose backgrounds and experience are summarised on
pages 37 to 38:
• Kevin Sharer (Chair)
• Rick Davis
•
Jeff Rohr
Committee meetings are administered and minuted by the Company Secretary. In addition, the Committee
received assistance from the Chief Executive Officer and Chief Financial Officer, each of who attend certain
meetings by invitation, except when matters relating to their own remuneration were being discussed.
During the year, the key activities carried out by the Committee were:
• Conducted a review of all elements of remuneration for Executive Directors and senior management;
• Reviewed feedback received from major shareholders and shareholder advisory services in connection
with the implementation of the revised Remuneration Policy in 2016;
• Confirmed that the Remuneration Policy was designed to be appropriate for a UK listed company,
whilst also ensuring that it was designed to continue to attract and retain US-based management and
employees of the highest calibre;
•
In accordance with the Remuneration Policy, implemented (i) a revised process for the determination of
annual cash incentive bonus awards which utilised specific performance targets and weighting set in
advance from year to year, and (ii) revised performance metrics for annual LTIP awards solely based
upon relative total shareholder return (rTSR);
• Reviewed the LTIP to ensure that it continues to advance the Committee’s policy to provide a competitive,
performance-linked long-term incentive mechanism that will: (i) attract, retain and motivate individuals
with the required personal attributes, skills and experience, (ii) provide a real incentive to achieve
the Company’s long-term strategic objectives, and (iii) and align the interests of management and
shareholders;
• Set the management by objectives (MBOs), including financial, operational, technical and other
performance targets and their weightings at the start of 2016, and determined the level of achievement
against the MBOs at the end of the year, in order to determine the cash incentive bonus awards for the
Executive Officers for the last financial year;
• Considered the (i) scale, scope and responsibility of the role, (ii) skills and experience of the individual,
(iii) retention risk, (iv) base salary of other employees, (v) and economic environment, and carried out
benchmarking, in order to determine base salaries of the Executive Directors, for the period starting 1
January 2017;
•
Issued LTIP awards on 9 May 2016;
• Reviewed progress against 2014, 2015 and 2016 LTIP award performance targets for the last financial
year;
• Established 2014 and 2015 LTIP award performance targets for the current financial year; and
• Reviewed the remuneration reporting regulations in connection with the review and revision of the
Group’s Remuneration Policy and preparation of the Directors’ Remuneration Report.
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ANNUAL REPORT AND ACCOUNTS 2016 DIRECTORS’ REMUNERATION REPORT (CONTINUED)
External advisers
The Remuneration Committee is authorised, if it wishes, to seek independent specialist services to provide
information and advice on remuneration at the Company’s expense, including attendance at Committee meetings.
During the year, the Remuneration Committee continued its review of executive remuneration and took into
consideration professional advice from Korn Ferry | Hay Group carried out in the period from November 2016
through December 2016. Korn Ferry | Hay Group performed peer benchmarking to assist the Committee with
determinations regarding base salary, cash incentive bonus awards, and proposed LTIP awards. Fees paid to
Korn Ferry | Hay Group in connection with advice to the Committee in 2016 were $30,000 (2015: $28,000).
Korn Ferry | Hay Group did not provide any other services or advice to the Group during the year. They are
a member of the Remuneration Consultants Group and adhere to its Code of Conduct in relation to executive
remuneration consulting in the UK.
Statement of voting at general meeting
The table below sets out the proxy results of the vote on the Group’s Remuneration Report and Remuneration
Policy at the Group’s 2016 AGM:
VOTES FOR
VOTES AGAINST
NUMBER
144,357,660
143,253,719
% OF CAST
VOTES
NUMBER
% OF CAST
VOTES
VOTES CAST
VOTES
WITHHELD
93.16%
91.64%
10,604,891
6.84%
154,962,551
2,642,679
13,062,976
8.36%
156,316,695
1,288,535
Remuneration Report
Remuneration Policy
Remuneration disclosure
This Report and Accounts complies with the requirements of the Large and Medium-sized Companies and Groups
Regulations 2008 as amended in 2013, the provisions of the UK Corporate Governance Code (September
2014) and the Listing Rules.
Approval
This Directors’ Remuneration Report, including both the Remuneration Policy and Annual Report on Remuneration
has been approved by the Board of Directors.
Kevin Sharer
Chairman of the Remuneration Committee
27 April 2017
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Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
AUDIT COMMITTEE REPORT
The Audit Committee plays an integral role in assisting the Board fulfil its oversight responsibilities. In performing
its duties, the Committee strives to maintain effective working relationships with the Board, the Company’s
management and the external auditors. The Committee reviews the integrity of the financial statements of the
Group, reviews all proposed half-yearly and annual results, and advises the Board whether it believes the
annual report and accounts, taken as a whole, fairly present the Company’s financial position and provide the
necessary information to the shareholders of the Company to assess the Company’s position and performance,
business model, and strategy.
MEMBERSHIP
The Committee comprises three independent Non-executive Directors. Members of the Committee are appointed
by the Board. The CEO, COO, CFO, General Counsel and external auditors also participate in Committee
meetings by invitation. As Chair of the Audit Committee, Mr. Jeff Rohr has relevant, recent financial experience
being a Certified Public Accountant with over thirty years of senior management and executive experience. At
the beginning of 2016, Mr. Rick Davis and Mr. Kevin Sharer served as the other two independent members of
the Committee. In January 2016, Ms. Jill Smith was appointed to replace Mr. Sharer. Ms. Smith served as a
member of the Audit Committee throughout 2016, but was replaced by Kevin Sharer on 10 March 2017 upon
her appointment as interim Chief Executive Officer and Executive Director.
The Committee met five times in 2016, and the external auditors participated in four of these meetings. Mr. Rohr
and Ms. Smith were present at all meetings during the year during their term of service, and Mr. Davis missed
two meetings due to an unexpected or previously scheduled conflict.
RESPONSIBILITIES
The Committee’s main responsibilities are to monitor the integrity of the financial statements of the Company,
including its annual and half-yearly reports and accounts and any other formal announcement relating to its
financial performance; and reviewing and reporting to the Board on significant financial reporting issues and
judgements made and matters communicated to it by the auditor. The roles and responsibilities of the Audit
Committee additionally include to:
• Review the Company’s internal financial controls and the Company’s internal control and risk management
systems;
• Advise on the need and monitor and review the effectiveness of the Company’s internal audit function;
• Make recommendations to the Board, for it to put to the shareholders for their approval in general
meeting, in relation to the appointment of the external auditor and to approve the remuneration and terms
of engagement of the external auditor;
• Review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit
process, taking into consideration relevant UK professional and regulatory requirements;
• Develop and implement policy on the engagement of the external auditor to supply non-audit services,
taking into account relevant ethical guidance regarding the provision of non-audit services by the external
audit firm; and to report to the Board, identifying any matters in respect of which it considers that action
or improvement is needed, and making recommendations as to the steps to be taken; and
• Report to the Board on how it has discharged its responsibilities.
The Committee carries out these duties for the Company, major subsidiary undertakings and the Group as a
whole, as appropriate.
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ANNUAL REPORT AND ACCOUNTS 2016 AUDIT COMMITTEE REPORT (CONTINUED)
ACTIVITIES DURING THE YEAR
The Committee’s activities for the year ended 31 December 2016 included the responsibilities set forth above,
as well as the items set forth below:
Financial reporting
• Reviewed and approved the appropriate audit plan, before the start of the annual audit cycle;
• Reviewed and provided comments and recommendations in respect of the financial statements in the
half-yearly report for the period ended 30 June 2016, and the financial statements in the Annual Report
and Accounts for the year ended 31 December 2016;
• Reviewed the Company’s approach and methodology for determining the fair value of investments,
including review of the fair value reports on the individual investments. Considered and recommended
the involvement of external valuation specialist firm to assist management and the Board in deriving the
fair value of the subsidiary undertakings; and
• Considered significant matters, risk areas, and areas of judgement in relation to the Group’s financial
statements taking into account the areas highlighted by the external auditors in their presentations to the
Committee, and challenged where necessary.
The Committee is satisfied with the integrity of the financial statements of the Company in all material aspects,
including the application of significant accounting policies, the methods used to account for significant transactions,
use of judgements and estimates made by management, including those made in deriving the fair value of the
subsidiary undertakings, and the quality and completeness of the disclosures in the financial statements of the
Company.
The Committee is satisfied that this Annual Report as a whole is fair, balanced and understandable, and provides
the information necessary for a reasonable shareholder to assess the Company’s performance, business model
and strategy.
Internal controls and risk management systems
• Reviewed the principal elements of the Company’s risk management framework as set out on pages 31to
36 of this Annual Report. The Committee gives consideration and provides guidance on enhancing the
internal controls and risk management framework, as needed;
• Reviewed the established procedures, which provide a reasonable basis for the Board to make proper
judgements on an ongoing basis as to the Financial Position, Prospects and Procedures (FPPP) of the
Company following the adopted risk approach; and
• Reviewed the whistleblower policy that was established and approved by the Board in 2014, which has
been communicated to employees. The Audit Committee is satisfied that the policy has been designed
to encourage staff to report suspected wrongdoing as soon as possible, provide staff with guidance on
how to raise those concerns, and ensure staff that they should be able to raise genuine concerns without
fear of reprisals, even if they turn out to be mistaken.
SIGNIFICANT AREAS REPORTED TO THE BOARD
Valuation of Group subsidiaries
At the close of each annual financial period, the Directors formally approve the value of all subsidiary businesses
in the Group, which is used to derive the Group Subsidiary Ownership Adjusted Value (GSOAV). This Group
Subsidiary Ownership Adjusted Value is a sum-of-the-parts (SOTP) valuation of all the subsidiaries that make up
the Group.
93
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
AUDIT COMMITTEE REPORT (CONTINUED)
The Audit Committee discusses with management and the auditors the appropriateness of the adopted
methodology and approach in deriving the GSOAV. Further details of the Group valuation methodology are
outlined in note 11 on pages 136 to 137. Although the fair values of the Group’s investments in subsidiaries are
not included in the Group’s Consolidated Statement of Financial Position, additional disclosures are provided in
the notes to the Consolidated Financial Statements. This is a significant performance metric for the Group.
Financial instruments – subsidiary preferred shares
Certain of the Group’s subsidiaries have outstanding preferred shares which have been classified as subsidiary
preferred shares in current liabilities as the subsidiaries have a contractual obligation to deliver cash or other
assets to the holders under certain future liquidity events, and/or a requirement to deliver an uncertain number of
common shares upon conversion. Significant judgement is used in determining the classification of these financial
instruments in terms of liability or equity and significant estimates are made when determining the appropriate
valuation methodology and deriving the estimated fair value of the subsidiary preferred shares. As such, they
present a significant risk for the financial statements.
EXTERNAL AUDIT
• Reviewed and approved the scope of the external audit procedures over the half-yearly report for the
period ended 30 June 2016, and the Annual Report and Accounts for the year ended 31 December
2016;
• Discussed with management and agreed upon the terms of the engagement of the external auditors
and the auditors’ remuneration for audit and non-audit services. In assessing independence, the Audit
Committee received the auditor’s presentation and confirmation that in its professional judgment, KPMG
LLP is independent within the meaning of regulatory and professional requirements and the objectivity
of the partner and audit staff is not impaired. The Committee was satisfied that throughout the year that
the objectivity and independence of KPMG LLP was not in any way impaired by the non-audit services
they provided to the Group during the year, by the amounts of non-audit fees, or by any other factors;
• Assessed the independence, objectivity and qualifications of KPMG LLP as the external auditor and
evaluated the quality and effectiveness of the audit procedures. In doing so, the Committee reviewed the
audit plan and monitored performance against the plan, reviewed the periodic reports of KPMG LLP to
the Committee that highlighted key areas of focus during the audit and the applied audit approach, and
obtained feedback from the finance department in respect to quality and status of KPMG LLP work in the
course of the audit. The Committee concluded that the audit process during the year was effective; and
• Reviewed and discussed the principal areas of financial reporting risk, as highlighted above, and
reported to the Board.
KPMG LLP has been the external auditor of the Group since the first audit of the consolidated financial statements
in 2008. The total fees to KPMG LLP for the year ended 31 December 2016 were $0.6 million, of which $0.1
million was for non-audit services (see note 5 of the consolidated financial statements). The Audit Committee
has considered the recent European Union audit reforms in terms of tendering and auditor’s tenure. Given that
the Group listed on the London Stock Exchange during 2014 and became a public interest entity (PIE), the next
anticipated requirement to tender audit will be for the 2024 calendar year. As such, the Company is complying
with the Statutory Audit Services Order.
94
ANNUAL REPORT AND ACCOUNTS 2016 AUDIT COMMITTEE REPORT (CONTINUED)
INTERNAL AUDIT
Given the size and composition of the Group, taking into account relevant significant matters, risk areas, areas of
judgement in relation to the Group’s financial statements, and the centralised internal controls system in respect to
the Group’s financial reporting process, the Board did not consider it necessary to have an internal audit function
during the year. The Board will keep this decision under annual review.
Jeff Rohr
Chairman of the Audit Committee
27 April 2017
95
Management & GovernanceANNUAL REPORT AND ACCOUNTS 2016
◄►
◄►
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIED
MINDS PLC ONLY
Opinions and conclusions arising from our audit
1. OUR OPINION ON THE FINANCIAL STATEMENTS IS UNMODIFIED
We have audited the financial statements of Allied Minds plc for the year ended 31 December 2016 set out on
pages 101 to 162. In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s
affairs as at 31 December 2016 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
the parent company financial statements have been properly prepared in accordance with IFRSs as
adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act
2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.
2. OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the
greatest effect on our audit, in decreasing order of audit significance, were as follows:
Disclosure of Group Subsidiary Ownership Adjusted Value ($416.2 million, 2015: $535.8 million) Risk vs FY15 ◄►
Refer to page 92 (Audit Committee Report) and pages 135 to 137 (financial disclosures)
The risk - The Group owns 33 subsidiaries in which it has ownership stakes of between 30.25% and 100%. The
results and financial position of the subsidiaries are consolidated in the group accounts. Although the Group’s
holdings in subsidiaries are not included in the Consolidated Statement of Financial Position at fair value, the
financial statements do include additional disclosure in relation to the Group Subsidiary Ownership Adjusted
Value of the subsidiaries, as the Directors have determined that it is appropriate to voluntarily present, as
supplementary information. The policy adopted by the Group is detailed in note 11. The Group’s subsidiaries
are, for the most part, still at the development stage and the majority do not yet generate revenues. This has
therefore been determined to be a significant risk for our audit for the following reasons:
• as a result of the group policy not to formally revalue each subsidiary at each accounting period end
there is significant judgement required to assess if there has been an indication of a decrease in the value
of a subsidiary, therefore requiring a valuation;
• where there is a valuation driven by a DCF, the inherent uncertainty involved in forecasting the trading of
such companies and the significant level of judgement required to determine the assumptions used in the
DCFs such as discount rate, revenue and EBIT forecasts and probability of success and the valuations
are sensitive to changes in these assumptions;
•
for valuations based on recent third party funding rounds, the relatively low number of investors partaking
in funding rounds meaning that there is a risk that recent investment on which fair value is based are not
sufficiently at arm’s length to ensure an independent market valuation representative of fair value and;
•
the significance of the Group Subsidiary Ownership Adjusted Value disclosures in the group accounts
to the users of the financial statements.
Our response - In this area our procedures included,
96
ANNUAL REPORT AND ACCOUNTS 2016
◄►
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIED
MINDS PLC ONLY (CONTINUED)
• Where it had been determined that no formal valuation, will be prepared in the current year we assessed
the appropriateness of this conclusion by critically assessing the performance of the related subsidiaries
compared to prior year forecasts to identify indications of a decrease in the value of the company. We
challenged the explanations received for the variances in the context of the progression of the entity
towards achieving milestones set and in relation to wider industry trends in the period.
• Where valuations are based on the implied value from the most recent third party funding we assessed
the accuracy of the data used including agreeing to share subscription agreements and shareholding
structures as detailed in the capitalisation tables. We evaluated the independence of the funding rounds
on which the valuation was based by looking at the number of external investors included within the
funding round, the significance of their investments and whether they are sufficiently independent from
the Group to form a basis for the valuation.
• Where valuations had been prepared by an external expert on behalf of the company we used our
own valuation specialists to assist us in evaluating the assumptions and methodologies used in the
valuations. We critically assessed the appropriateness of the assumptions underlying the forecasts,
including assumptions over projected revenue including forecast product commercialisation or license
date and royalty rates where applicable and operating costs and EBIT margin terminal values and the
probability of success factors where applicable. In doing this we used our knowledge of each subsidiary
and its industry with reference to both internal management information and externally derived data and
benchmarks, including market size data, royalty rates and competitor analyses based on information
from public material.
• We critically assessed the appropriateness of the discount rates applied, with specific focus on the
company specific premium and the appropriateness of the probability of success, assessing also for
consistency with the assumptions used in the prior year.
• We also assessed whether the Group's disclosures were consistent with the valuations performed and
whether the group's disclosures adequately highlighted the uncertainty inherent in the valuations.
Financial instruments – preferred shares classification and valuation ($140.9 million, 2015: $94.1 million)
Risk vs FY15 ◄►
Refer to page 92 (Audit Committee Report), pages 109 to 110 (accounting policy) and pages 141 to 145 and
pages 147 to 148 (financial disclosures)
The risk – The Group finances its operations and subsidiaries partly through financial instruments such as preferred
shares. There is a significant level of judgement in determining whether the instruments should be classified
as debt or equity and, when classified as debt, whether there are any embedded derivatives that require
separation and would prevent the designation of the entire hybrid contract at fair value through profit or loss.
The fair value is derived using the option pricing model which involves a significant level of judgement around
the key assumptions, such as subsidiary values (either the implied value from a third party funding round, a
valuation based on a DCF or asset based valuation – see relevant sections in “Disclosure of Group Subsidiary
Ownership Adjusted Value”), volatility, expected time to the conversion event, forecast exit dates and scenarios
and applicable probability weighting.
Our response – in this area our procedures included,:
• We critically assessed the conclusions reached by the Group in relation to the debt versus equity
classification of the issued financial instruments by considering the key terms and features of the contracts
through applying and interpreting relevant accounting standards;
• Where the Group designated the entire hybrid contract at fair value through profit or loss, we evaluated
97
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIED
MINDS PLC ONLY (CONTINUED)
whether certain embedded derivatives required separate accounting by critically assessing the key terms
and features of those derivatives.
• The value of the subsidiary which is a key input into the option pricing model to give the value per share
is either based on a third party funding round or on a DCF and therefore the procedures performed are
detailed in ‘our responses’ to the ‘disclosure of group subsidiary ownership adjusted value’.
• We used our own valuation specialists to assist us in critically assessing other key inputs utilised within
the option pricing model. These key inputs were assessed for reasonableness by reference to externally
derived data or internal data. In the case of the volatility assumption, comparable company data is
utilised and is critically assessed for appropriateness. Internal data such as strategic plans, forecasts
and budgets and actual results are utilised for inputs such as exit dates and scenarios and probability
of exit scenarios where procedures performed include comparing to prior periods for consistency,
understanding key changes and critically assessing current progress against milestones set and assessing
where there is an impact on the forecast exit date and assessing whether the assumptions used are
consistent with the strategic plans. We assessed the assumptions used for consistency with the prior
year and with assumptions used in the other portfolio companies and critically assessed variances as
appropriate, understanding and challenging the variances based on our knowledge of the group;
• We also assessed whether the Group’s disclosures were consistent with the conclusions reached in
relation to both the classification of the financial instruments and in relation to the key assumptions related
to the valuations.
In our audit report for the year ended 31 December 2015 we included Development Cost Capitalisation as
one of the risks of material misstatement that had the greatest effect on our audit. We continue to perform
procedure over this risk, however, having gained a better understanding of the business and the products under
development it has been determined that, given that the products being developed are a number of years from
technical feasibility and also the fact that when technical feasibility and commercial viability are established there
is then limited further spend on R&D we have not assessed this as one of the risk that had the greatest effect on
our audit and, therefore, it is not separately identified in our report this year.
3. OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Materiality for the group financial statements as a whole was set at $1 million (2015: $1 million), determined
with reference to a benchmark of group total expenses, of $116 million (2015: $100 million), of which it
represents 1% (2015: 1%), which we consider to be one of the principal considerations for the members of the
company in assessing the financial performance of the Group, since the Group’s activities are currently principally
in relation to expenditure on developing forms of intellectual property which can be exploited commercially to
generate income and growth in the future.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $50
thousand (2015: $50 thousand), in addition to other identified misstatements that warranted reporting on
qualitative grounds.
Of the Group's three (2015: two) reporting components, we subjected three (2015: two) to audits for group
reporting purposes. This covered 100% of total group revenue, group loss before tax, and total group assets.
The group team instructed component auditors as to the significant areas to be covered, including the relevant
risks detailed above and the information to be reported back.
The group team approved the component materiality, which ranged from $200,000 to $900,000 (2015:
$150,000 to $500,000), having regard to the mix of size and risk profile of the components. The work on two
of the three components (2015: one of the two components) was performed by component auditors and the rest
by the group team.
98
ANNUAL REPORT AND ACCOUNTS 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIED
MINDS PLC ONLY (CONTINUED)
The group audit team maintained close communication with the component audit team throughout the engagement
including but not limited to discussions and meetings in relation to risks identified, the audit approach to be
adopted, the results of procedures performed and significant findings and visited the site at which two (2015:
one) of the components are located.
4. OUR OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 IS UNMODIFIED
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
5. WE HAVE NOTHING TO REPORT ON THE DISCLOSURES OF PRINCIPAL RISKS
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to
in relation to:
•
the directors’ Viability Statement on page 45, concerning the principal risks, their management, and,
based on that, the directors’ assessment and expectations of the group’s continuing in operation over the
three years to 31 December 2019; or
•
the disclosures in Note 1 of the financial statements concerning the use of the going concern basis of
accounting.
6. WE HAVE NOTHING TO REPORT IN RESPECT OF THE MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during
our audit, we have identified other information in the annual report that contains a material inconsistency with
either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our audit and
the directors’ statement that they consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the group’s position and performance, business model and strategy; or
•
the Audit Committee Report does not appropriately address matters communicated by us to the audit
committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
•
the parent company financial statements and the part of the Directors’ Remuneration Report to be audited
are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the company.
99
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIED
MINDS PLC ONLY (CONTINUED)
Under the Listing Rules we are required to review:
•
•
the directors’ statements, set out on page 57 and 45, in relation to going concern and longer-term
viability; and
the part of the Corporate Governance Statement on page 48 relating to the company’s compliance with
the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
SCOPE OF REPORT AND RESPONSIBILITIES
As explained more fully in the Directors’ Responsibilities Statement set out on page 46, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view. A
description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body
and is subject to important explanations and disclaimers regarding our responsibilities, published on our website
at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and
should be read to provide an understanding of the purpose of this report, the work we have undertaken and the
basis of our opinions.
Charles le Strange Meakin (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
27 April 2017
100
ANNUAL REPORT AND ACCOUNTS 2016 CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED 31 DECEMBER
NOTE
Revenue
Operating expenses:
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
OPERATING LOSS
Finance income
Finance cost
Finance cost from IAS 39 fair value accounting
Taxation
FINANCE COST, NET
Loss before taxation
LOSS FOR THE PERIOD
3
4,5
4,5
4,5
7
7
7
25
2016
$ '000
2,664
(5,563)
(55,484)
(55,292)
(113,675)
2,879
(561)
(17,585)
(15,267)
(128,942)
—
(128,942)
2015
$ '000
3,000
(3,925)
(46,888)
(49,209)
(96,722)
723
(53)
(1,937)
(1,267)
(97,989)
—
(97,989)
OTHER COMPREHENSIVE LOSS:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences
OTHER COMPREHENSIVE INCOME, NET OF TAXATION
208
208
46
46
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD
(128,734)
(97,943)
LOSS ATTRIBUTABLE TO:
Equity holders of the parent
Non-controlling interests
TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO:
Equity holders of the parent
Non-controlling interests
LOSS PER SHARE
Basic
Diluted
17
8
8
(96,333)
(32,609)
(128,942)
(96,125)
(32,609)
(128,734)
$
$
(0.44)
(0.44)
(77,797)
(20,192)
(97,989)
(77,752)
(20,191)
(97,943)
(0.36)
(0.36)
See accompanying notes to consolidated financial statements.
101
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
FOR THE YEAR ENDED
31 DECEMBER 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER
NOTE
NON-CURRENT ASSETS
Property and equipment
Intangible assets
Investment in equity accounted investees
Other investments
Other financial assets
Other non-current assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Cash and cash equivalents
Other investments
Inventories
Trade and other receivables
Subscription receivable
Other financial assets
TOTAL CURRENT ASSETS
TOTAL ASSETS
EQUITY
Share capital
Share premium
Merger reserve
Translation reserve
Accumulated deficit (i)
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Non-controlling interests (i)
TOTAL EQUITY
NON-CURRENT LIABILITIES
Loans
Other non-current liabilities
TOTAL NON-CURRENT LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Deferred revenue
Loans
Subsidiary preferred shares
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
9
10
11
12
22
13
12
14
15
22
22
16
16
16
16
16
16, 17
19
20
20
3
19
18
2016
$ ‘000
31,882
2,762
—
2,668
904
16
38,232
209,151
14,244
2,551
5,900
—
161
232,007
270,239
3,657
157,067
263,435
192
(289,437)
134,914
(20,797)
114,117
—
720
720
2015
$ ‘000
34,173
4,384
1,612
51,545
842
228
92,784
105,555
37,648
1,511
7,342
6,000
371
158,427
251,211
3,429
155,867
185,544
(16)
(192,819)
152,005
(10,631)
141,374
112
751
863
13,941
14,268
458
115
140,888
155,402
156,122
270,239
395
228
94,083
108,974
109,837
251,211
(i) The 2015 amounts have been reclassified. See note 1.
See accompanying notes to consolidated financial statements.
102
ANNUAL REPORT AND ACCOUNTS 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
Registered number: 8998697
The financial statements on pages 101 to 155 were approved by the Board of Directors and authorised for
issue on 27 April 2017 and signed on its behalf by:
Jill Smith
Chief Executive Officer
103
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
NOTE
SHARE CAPITAL
SHARE
MERGER
TRANSLATION
ACCUMULATED
TOTAL PARENT
SHARES
AMOUNT
PREMIUM
RESERVE
RESERVE
DEFICIT (I)
EQUITY
NON-CON-
TROLLING
INTERESTS (I)
TOTAL
EQUITY
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
BALANCE AT 31 DECEMBER 2014
214,445,579
3,411
153,442
185,544
(61)
(115,027)
227,309
(2,524)
229,833
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Loss from continuing operations
Foreign currency translation
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Gain/(loss) arising from change in
non-controlling interest
Exercise of stock options
Equity-settled share based payments
BALANCE AT 31 DECEMBER 2015
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Loss from continuing operations
Foreign currency translation
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Issuance of ordinary shares
New funds into non-controlling interest
Gain/(loss) arising from change in
non-controlling interest
Exercise of stock options
Equity-settled share based payments
17
6
6
16
16
17
6
6
—
—
—
1,191,784
—
—
—
—
18
—
—
—
—
2,425
—
—
—
—
—
—
—
45
45
—
—
—
(77,797)
—
(77,797)
(3,228)
—
3,233
(77,797)
45
(20,192)
(97,989)
1
46
(77,752)
(20,191)
(97,943)
(3,228)
2,443
3,233
3,228
—
3,808
—
2,443
7,041
215,637,363
3,429
155,867
185,544
(16)
(192,819)
152,005
(10,631)
141,374
—
—
17,457,015
—
—
650,000
—
—
—
219
—
—
9
—
—
—
—
—
—
1,200
—
—
—
77,891
—
—
—
—
—
208
208
—
—
—
—
—
(96,333)
—
(96,333)
—
—
(6,229)
—
5,944
(96,333)
208
(96,125)
78,110
—
(6,229)
1,209
5,944
(32,609)
(128,942)
—
208
(32,609)
(128,734)
—
13,773
78,110
13,773
6,229
—
2,441
—
1,209
8,385
BALANCE AT 31 DECEMBER 2016
233,744,378
3,657
157,067
263,435
192
(289,437)
134,914
(20,797)
114,117
(i) The 2014 and 2015 amounts have been reclassified. See note 1.
See accompanying notes to consolidated financial statements.
104
ANNUAL REPORT AND ACCOUNTS 2016
FOR THE YEAR ENDED 31 DECEMBER 2016
NOTE
SHARE CAPITAL
SHARE
MERGER
TRANSLATION
ACCUMULATED
TOTAL PARENT
SHARES
AMOUNT
PREMIUM
RESERVE
RESERVE
DEFICIT (I)
EQUITY
NON-CON-
TROLLING
INTERESTS (I)
TOTAL
EQUITY
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
$’ 000
BALANCE AT 31 DECEMBER 2014
214,445,579
3,411
153,442
185,544
(61)
(115,027)
227,309
(2,524)
229,833
BALANCE AT 31 DECEMBER 2015
215,637,363
3,429
155,867
185,544
(16)
(192,819)
152,005
(10,631)
141,374
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Loss from continuing operations
Foreign currency translation
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Gain/(loss) arising from change in
non-controlling interest
Exercise of stock options
Equity-settled share based payments
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Loss from continuing operations
Foreign currency translation
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Issuance of ordinary shares
New funds into non-controlling interest
Gain/(loss) arising from change in
non-controlling interest
Exercise of stock options
Equity-settled share based payments
17
6
6
16
16
17
6
6
1,191,784
—
—
—
—
—
—
—
—
—
—
—
—
18
—
—
—
219
—
—
9
—
—
—
2,425
—
—
—
—
—
—
—
—
17,457,015
77,891
650,000
1,200
—
—
—
—
—
—
—
—
—
—
—
—
45
45
—
—
—
—
208
208
—
—
—
—
—
(77,797)
—
(77,797)
(3,228)
—
3,233
(96,333)
(96,333)
—
—
—
(6,229)
—
5,944
(77,797)
45
(20,192)
(97,989)
1
46
(77,752)
(20,191)
(97,943)
(3,228)
2,443
3,233
(96,333)
208
(96,125)
78,110
—
(6,229)
1,209
5,944
3,228
—
3,808
—
2,443
7,041
(32,609)
(128,942)
(32,609)
(128,734)
—
—
13,773
6,229
—
2,441
208
78,110
13,773
—
1,209
8,385
BALANCE AT 31 DECEMBER 2016
233,744,378
3,657
157,067
263,435
192
(289,437)
134,914
(20,797)
114,117
(i) The 2014 and 2015 amounts have been reclassified. See note 1.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
NOTE
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation
Amortisation
Impairment losses on property and equipment
Impairment losses on intangible assets
Share-based compensation expense
Changes in working capital:
(Increase)/decrease in inventory
Decrease/(increase) in trade and other receivables
Decrease in other assets
(Decrease)/increase in trade and other payables
(Decrease)/increase in other non-current liabilities
Increase(decrease) in deferred revenue
Interest received
Interest paid
Other finance income
NET CASH USED IN OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of disposals
Purchases of intangible assets, net of disposals
Disposal of investment in equity accounted investees
Disposal/(purchases) of other investments
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
Repayment of notes payable
Proceeds from issuance of share capital
Proceeds from issuance of share capital in subsidiaries
Proceeds from issuance of preferred shares in subsidiaries
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
9
10
9
10
5,6
14
15
20
20
3
7
7
7
9
10
11
12
16
19
16
17
18
2016
$ ‘000
2015
$ ‘000
(113,675)
(96,722)
5,714
921
340
1,025
8,385
(1,040)
1,442
361
(327)
(31)
63
1,610
(527)
519
3,339
747
308
1
7,041
1,408
(1,505)
—
2,929
569
(749)
721
(41)
36
(95,220)
(81,918)
(3,763)
(324)
2,535
72,281
70,729
1,209
(225)
78,110
13,773
35,220
128,087
103,596
105,555
209,151
(21,490)
(1,723)
—
(51,786)
(74,999)
2,443
(211)
—
—
36,165
38,397
(118,520)
224,075
105,555
105
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
1.) ACCOUNTING POLICIES
Basis of Preparation
Allied Minds plc (“Allied Minds” or the “Company”) is a company incorporated and domiciled in the UK.
The Annual Report and Accounts of Allied Minds and its subsidiaries (together referred to as the “Group”)
are presented for the year ended 31 December 2016. The group financial statements consolidate those of
the Company and its subsidiaries and include the Group’s interest in associates using the equity method of
accounting. The Group financial statements have been prepared and approved by the directors in accordance
with the International Financial Reporting Standards, International Accounting Standards, and Interpretations
(collectively “IFRS”) issued by the International Accounting Standards Board (“IASB”) as adopted by the
European Union (“adopted IFRSs”). The accounting policies set out below have, unless otherwise stated,
been applied consistently to all periods presented in these consolidated financial statements.
Reclassification
During the year management further considered certain aspects of accounting for share options issued by
subsidiary companies and concluded that the credit in equity associated with the related IFRS 2 charges
is more appropriately allocated wholly to non-controlling interests rather than pro-rata to parent equity and
non-controlling interests. As a result a reclassification has been reflected at 31 December 2015 to reduce
negative non-controlling interests and reduce accumulated deficit within parent equity by $10.2 million (31
December 2014: $7.5 million). There is no impact on total equity at either 31 December 2015 or 31
December 2014 and no impact on the consolidated statement of comprehensive loss for the year ended
31 December 2015.
Basis of Measurement
The consolidated financial statements, with exception of financial instruments, have been prepared on the
historical cost basis.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management has made judgments, estimates and
assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an on-going basis. Revisions to estimates are recognised prospectively. The
effects on the amounts recognised in the consolidated financial statements, or on other alternative performance
measures, is included in the following notes:
• Note 11 and 18 – portfolio and subsidiary preferred shares valuations: when determining the
appropriate valuation methodology and deriving the estimated fair value of subsidiary undertakings
and subsidiary preferred shares. This includes making certain estimates of the future earnings
potential of the subsidiary businesses, appropriate discount rate and earnings multiple to be applied,
marketability and other industry and company specific risk factors.
• Note 18 – subsidiary preferred shares liability classification: when determining the classification of
financial instruments in terms of liability or equity. These judgements include an assessment whether
the financial instrument include any embedded derivative features, whether they include a contractual
obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party, and whether that obligation will be settled by the Company’s
106
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity
instruments. Further information about these critical judgments and estimates is included below under
Financial Instruments.
Changes in Accounting Policies
No other new standards, interpretations and amendments effective for the first time from 1 January 2016
have had a material effect on the Group’s financial statements.
Going Concern
The Directors have prepared trading and cash flow forecasts for the Group covering the period to 31
December 2019. Despite the fact that the Group is currently loss making and is likely to continue to be so,
at least in the short term, after making enquiries and considering the impact of risks and opportunities on
expected cashflows, and given the fact that the Group has $226 million of available funds in the form of
cash and fixed income securities as at 31 December 2016, the Directors have a reasonable expectation
that the Group has adequate cash to continue in operational existence for the period to 31 December 2019.
For this reason, they have adopted the going concern basis in preparing the financial statements.
Basis of Consolidation
Allied Minds plc was formed on 15 April 2014 and the consolidated financial statements for each of the
years ended 31 December 2016 and 2015 comprises the financial statements of Allied Minds plc and its
subsidiaries.
Subsidiaries
The financial information of the subsidiaries is prepared for the same reporting period as the parent Company,
using consistent accounting policies. Subsidiaries are entities controlled by the Group. The Group controls
an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control commences until the date that
control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-
controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as
equity transactions. Where the Group loses control of a subsidiary, the assets and liabilities are derecognised
along with any related NCI and other components of equity. Any resulting gain or loss is recognised in profit
or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial
and operating policies. Significant influence is presumed to exist when the Group holds between 20 and
50 percent of the voting power of another entity.
Associates are accounted for using the equity method (equity accounted investees) and are initially recognised
at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment
losses. The consolidated financial statements include the Group’s share of the total comprehensive income
and equity movements of equity accounted investees, from the date that significant influence commences
until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an
107
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments
on behalf of an investee.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra- group
transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are
eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Acquisitions and disposals of non-controlling interests
Non-controlling interests (‘‘NCI’’) are measured at their proportionate share of the acquiree’s identifiable net
assets at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of
control are accounted for as equity transactions.
Acquisitions and disposals of non-controlling interests that do not result in a change of control are accounted
for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a
result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount
of the net assets of the subsidiary. Any difference between the price paid or received and the amount by
which non-controlling interests are adjusted is recognised directly in equity and attributed to the owners of
the parent.
Functional and Presentation Currency
This consolidated financial statements are presented in US dollars, which is the functional currency of most
of the entities in the Group.
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign
exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in
the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets
and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional
currency at foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation, are translated to the Group’s presentational currency (U.S. dollar) at foreign exchange rates
ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an
average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of
the transactions. Exchange differences arising from this translation of foreign operations are reported as an
item of other comprehensive income and accumulated in the translation reserve or non- controlling interest,
as the case may be. When a foreign operation is disposed of, such that control, joint control or significant
108
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
influence (as the case may be) is lost, the entire accumulated amount in the Translation reserve, net of
amounts previously attributed to non-controlling interests, is reclassified to profit or loss as part of the gain or
loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign
operation while still retaining control, the relevant proportion of the accumulated amount is reattributed
to non-controlling interests. When the Group disposes of only part of its investment in a subsidiary or an
associate that includes a foreign operation while still retaining significant influence or joint control, the
relevant proportion of the cumulative amount is reclassified to profit or loss.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on
the specific identification or weighted-average method. The cost of inventories includes expenditure incurred
in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their
existing location and condition. In the case of manufactured inventories and work in progress, cost includes
an appropriate share of production overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs
of completion and selling expenses.
Financial Instruments
Financial Assets
The Group initially recognises loans and receivables and deposits on the date that they are originated. All
other financial assets are recognised initially on the trade date at which the Group becomes a party to the
contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire,
or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred.
Financial assets and liabilities are offset and the net amount presented in the Consolidated Statement of
Financial Position when, and only when, the Group has a legal right to offset the amounts and intends either
to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Group classifies its financial assets into the following categories: cash and cash equivalents, trade and
other receivables, security and other deposits, other investments. Fixed income securities are recognised
at fair value through profit and loss. The remaining categories are recognised at amortised cost using the
effective interest rate method.
Other investments comprise fixed income debt securities, including government agency and corporate bonds,
are stated at amortised cost less impairment. It is the Group policy to hold these investments until a maximum
maturity of three years.
Financial Liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are
109
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
originated. All other financial liabilities are recognised initially on the trade date at which the Group becomes
a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or
expire.
The Group classifies non-derivative financial liabilities into the following categories: trade and other payables
and loans. Such financial liabilities are recognised at fair value through profit and loss plus any directly
attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at
amortised cost using the effective interest method.
Warrants are accounted for as financial liabilities and recorded at fair value.
The Group’s financial liabilities include subsidiary preferred shares some of which incorporate embedded
derivatives. In accordance with IAS 39.11 the Group has elected not to bifurcate the embedded derivative
but fair value the entire instrument at each reporting date. The gain or loss on remeasurement to fair value
is recognised immediately in profit or loss.
Financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
•
they include no contractual obligations upon the Group to deliver cash or other financial assets
or to exchange financial assets or financial liabilities with another party under conditions that are
potentially unfavourable to the Group; and
• where the instrument will or may be settled in the Company’s own equity instruments, it is either a
non-derivative that includes no obligation to deliver a variable number of the Company’s own equity
instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash
or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where
the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in
the financial information for share capital and merger reserve account exclude amounts in relation to those
shares.
Where a financial instrument that contains both equity and financial liability components exists these
components are separated and accounted for individually under the above policy.
Share Capital
Ordinary shares are classified as equity. The Group considers its capital to comprise share capital, share
premium, merger reserve, translation reserve, and accumulated deficit.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment
losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Assets under
construction represent machinery and equipment to be used in operations, R&D activities, or to be leased to
customers once completed.
110
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
When parts of an item of property and equipment have different useful lives, they are accounted for as
separate items (major components) of property and equipment. Depreciation is calculated using the straight-
line method over the estimated useful lives of the related assets:
Computers and electronics
Furniture and fixtures
Machinery and equipment
Under construction
Leasehold improvements
3 years
5 years
5 -20 years
Not depreciated until transferred into use
Shorter of the lease term or estimated useful life of the asset
Depreciation methods, useful lives and residual values are reviewed at least annually and adjusted if
appropriate.
Intangible Assets
Licenses (or Options to License) and Purchased In Process Research & Development
Licenses or options to license represent licenses or such options provided by universities, federal laboratories,
and scientists in exchange for an equity ownership in the entities or cash. Purchased in process research
& development (‘‘IPR&D’’) represents time and expertise already invested by the scientist and provided
in exchange for an equity interest in the entity. Licenses or options to license and purchased IPR&D are
valued based on the amount of cash directly paid to acquire those assets or based on the amount of cash
contributed by Allied Minds, at inception of the subsidiary, and the proportionate amount of equity ascribed
to Allied Minds. The licenses or options to license and IPR&D are capitalised only when they meet the criteria
for capitalisation, namely separately identifiable and measurable and it is probable that economic benefit
will flow to the entity.
Capitalised Development Costs
Research and development costs include charges from universities based on sponsored research agreements
(SRAs) that the subsidiaries of Allied Minds enter into with universities. Under these agreements, the universities
perform research on the technology that is being licensed to the subsidiaries. Research and development
costs also include charges from independent research and development contractors, contract research
organisations (CROs), and other research institutions.
Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is
capitalised only if the expenditure can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, the Group intends to and has sufficient
resources to complete development and to use or sell the asset, and if the Group can measure reliably the
expenditure attributable to the intangible asset during its development. The point at which technical feasibility
is determined to have been reached is when regulatory approval has been received, where applicable.
Management determines that commercial viability has been reached when a clear market and pricing point
have been identified, which may coincide with achieving recurring sales. Development activities involve a
plan or design for the production of new or substantially improved products or processes. The expenditure
considered for capitalisation includes the cost of materials, direct labour and an appropriate proportion
of overhead costs. Otherwise, the development expenditure is recognised in profit or loss as incurred.
Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation
and any accumulated impairment losses.
111
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Software
Software intangible assets that are acquired by the Group and have finite useful lives are measured at cost
less accumulated amortisation and any accumulated impairment losses.
Finite-lived intangible assets are amortised on a straight-line basis over their estimated useful lives, from the
date that they are available for use. Intangible assets which are not yet available for use (and therefore not
amortised) are tested for impairment at least annually.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill
are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised
from the date they are available for use. Amortisation methods, useful lives and residual values are reviewed
at least annually and adjusted if appropriate.
The estimated useful lives of the Group’s intangible assets are as follows:
Licences and Options to License
Over the remaining life of the underlying patents
Purchased IPR&D
Development cost
Software
Taxation
Over the remaining life of the underlying patents, once
commercial viability has been achieved
Over the remaining life of the underlying technology
2 years
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income
statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised
in equity.
Current Income Tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect
of previous years.
Deferred Income Tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets
are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent
that it is probable that future taxable profits will be available against which they can be used. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different
tax entities where the Group intends to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realised simultaneously.
112
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred taxes are recognised in profit or loss except to the extent that it relates to items recognised directly
in equity or in other comprehensive income.
Impairment
Impairment of Non-Financial Assets
Non-financial assets consist of property and equipment and intangible assets, including licences, purchased
IPR&D, capitalised development cost, with finite lives and such intangible assets which are not yet available
for use.
The Group reviews the carrying amounts of its property and equipment and finite-lived intangibles at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then
the asset’s recoverable amount is estimated. Intangible assets which are not yet available for use are tested
annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating
units (‘‘CGUs’’).
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to
sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset or CGU.
An impairment loss is recognised in profit and loss if the carrying amount of an asset or CGU exceeds its
recoverable amount. Impairment losses are allocated to reduce the carrying amounts of assets in a CGU on
a pro rata basis.
Impairment of Financial Assets
Financial assets not classified as at fair value through profit or loss are assessed at each reporting date to
determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
• default or delinquency by a debtor;
•
•
restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
indications that a debtor or issuer will enter bankruptcy;
• adverse changes in the payment status of borrowers or issuers;
•
the disappearance of an active market for a security; or
• observable data indicating that there is measurable decrease in expected cash flows from a group
of financial assets.
Financial Assets Measured at Amortised Cost
The Group considers evidence of impairment for these assets at both an individual asset and a collective
level. All individually significant assets are individually assessed for impairment. Those found not to be
113
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
impaired are then collectively assessed for any impairment that has been incurred but not yet individually
identified. Assets that are not individually significant are collectively assessed for impairment. Collective
assessment is carried out by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Group uses historical information on the timing of recoveries and the
amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the
actual losses are likely to be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an asset’s carrying amount and the present
value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are
recognised in profit or loss and reflected in an allowance account. When the Group considers that there
are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of
impairment loss subsequently decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised, then the previously recognised impairment loss is reversed through
profit or loss.
Share-based Payments
Share-based payment arrangements in which the Group or its subsidiaries receive goods or services as
consideration for their own equity instruments are accounted for as equity-settled share-based payment
transactions, regardless of how the equity instruments are obtained by the Group or its subsidiaries. Grants
of equity instruments under the subsidiary stock option incentive plans are accounted for as equity-settled in
the consolidated accounts of the parent and are reflected in equity as a credit to Non-Controlling Interest.
The grant date fair value of share-based payment awards granted to employees is recognised as an
employee expense, with a corresponding increase in equity, over the period that the employees become
unconditionally entitled to the awards. The fair value of the options granted is measured using an option
pricing valuation model, taking into account the terms and conditions upon which the options were granted.
The amount recognised as an expense is adjusted to reflect the actual number of awards for which the
related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognised as an expense is based on the number of awards that do meet the related service and non-market
performance conditions at the vesting date. For share-based payment awards with non-vesting conditions,
the grant date fair value of the share-based payment is measured to reflect such conditions and there is no
true-up for differences between expected and actual outcomes.
Employee Benefits
Short-term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the
related service is provided. A liability is recognised for the amount expected to be paid if the Group has
a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions
into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for
contributions to defined contribution plans are recognised as an employee benefit expense in the periods
during which related services are rendered by employees. Prepaid contributions are recognised as an asset
to the extent that a cash refund or a reduction in future payments is available.
114
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Phantom Plan
The Phantom Plan is a cash settled bonus plan. Expense is accrued when it is determined that it is probable
that a payment will be made and when the amount can be reasonably estimated.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation
as a result of a past event, that can be reliably measured and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects risks specific to the liability.
Revenue Recognition
Sale of Goods
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the
customer, recovery of the consideration is probable, the associated costs and possible return of goods can
be estimated reliably, there is no continuing management involvement with the goods and the amount of
revenue can be measured reliably.
The transfer of significant risks and rewards of ownership usually occurs when products are shipped and the
customer takes ownership and assumes risk of loss.
Rendering of Services
The Group recognises revenue from rendering of services at the time services are provided to the customer
and the Group has no additional performance obligation to the customer.
Government Grants
Grants received are recognised as revenue when the related work is performed and the qualifying research
and development costs are incurred.
License Revenue
The Group recognises revenue from fees associated with licensing of its technologies to third parties in the
form of license fees and royalties on an accruals basis in accordance with the substance of the relevant
agreement and when the Company’s right to receive payment is established, provided that it is probable
that the economic benefits will flow to the Company and the amount of revenue can be measured reliably.
Finance Income and Finance Costs
Finance income mainly comprises interest income on funds invested and foreign exchange gains. Finance
costs mainly comprise loan interest expense and foreign exchange losses. Interest income and interest
payable are recognised as they accrue in profit or loss, using the effective interest method.
Fair Value Measurements
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both
financial and non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as
115
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used
in the valuation techniques as follows:
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of
the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the
fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period
during which the change has occurred.
The carrying amount of cash and cash equivalents, accounts receivable, deposits, accounts payable,
accrued expenses and other current liabilities in the Group’s Consolidated Statements of Financial Position
approximates their fair value because of the short maturities of these instruments.
Operating Leases
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term
of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over
the term of the lease.
Operating Segments
Allied Minds determines and presents operating segments based on the information that internally is provided
to the executive management team, the body which is considered to be Allied Minds’ Chief Operating
Decision Maker (‘‘CODM’’).
An operating segment is a component of Allied Minds that engages in business activities from which it may
earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of
the Allied Minds’ other components. The operating segment’s operating results are reviewed regularly by the
CODM to make decisions about resources to be allocated to the segment, to assess its performance, and
for which discrete financial information is available.
2.) NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
A number of new standards, interpretations and amendments to existing standards are effective for annual
periods beginning after 1 January 2017, and have not therefore been applied in preparing this consolidated
financial information. Management has yet to complete an analysis of these new standards, interpretations
and amendments to existing standards on the results of its operations, financial position, and disclosures. The
Group intends to adopt these standards on their respective effective dates.
The following are amended or new standards and interpretations that may impact the Group. The Group
is currently considering the impact of the proposed changes but their adoption is not expected to have a
material effect on the financial statements unless otherwise indicated:
116
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IFRS 9, ‘Financial instruments’ (effective 1 January 2018)
IFRS 9, ‘Financial instruments’, deals with recognition, measurement, classification and impairment and
derecognition of financial instruments. The actual impact of adopting IFRS 9 on the Group’s consolidated
financial statements in 2018 is not known and cannot be reliably estimated because it will be dependent
on the financial instruments that the Group holds and economic conditions at that time as well as accounting
elections and judgements that it will make in the future. The new standard may require the Group to revise
its accounting processes and internal controls related to reporting financial instruments and these changes
are not yet complete. However, the Group has performed a preliminary assessment of the potential impact
of adoption of IFRS 9 based on its positions at 31 December 2016 under IAS 39.
Classification – Financial assets
IFRS 9 contains three principal classification categories for financial assets that reflect the business model
in which assets are managed and their cash flow characteristics: measured at amortised cost, fair value
through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”). The standard
eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.
Based on its preliminary assessment, the Group does not believe that the new classification requirements, if
applied at 31 December 2016, would have had a material impact on its financial assets that are managed
on a fair value basis.
Other investments
At 31 December 2016, the Group had equity investments in the form of fixed income securities classified as
available-for-sale with a fair value of $16.9 million that are held for supporting the short-term liquidity needs
of the Group. The Group does not expect the purpose of those investment to change and as such, all fair
value gains and losses will continue to be recognised in profit or loss as they arise.
Investments in subsidiaries
Currently, all group subsidiaries are fully consolidated in the consolidated financial statements. The value of
those investments is disclosed as an alternative performance measure, which was determined at $416.2
million as of 24 April 2017. In future, the Company’s position in those investments may be reduced to a point
where the Company no longer exercises control over these entities and they are deconsolidated from the
group accounts and presented separately as investments in equity securities on the consolidated statement
of financial position. If these investments continue to then be held for the same long-term strategic purposes,
per the application of IFRS 9, the Group may elect then to classify them as FVOCI or FVTPL. The Group has
not yet made a decision in this regard. In the former case, all fair value gains and losses would be reported
in other comprehensive income, no impairment losses would be recognised in profit or loss and no gains
or losses would be reclassified to profit or loss on disposal. In the latter case, all fair value gains and losses
would be recognised in profit or loss as they arise, increasing volatility in the Group’s profits.
Classification – Financial liabilities
Under IAS 39 all fair value changes of liabilities designated as at fair value through profit or loss are
recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally presented as follows:
•
the amount of change in the fair value that is attributable to changes in the credit risk of the liability is
presented in OCI; and
•
the remaining amount of change in the fair value is presented in profit or loss.
117
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Group has designated subsidiary preferred shares liability at FVTPL. The Group’s preliminary assessment
did not indicate any material impact if IFRS 9’s requirements regarding the classification of financial liabilities
were applied at 31 December 2016.
IFRS 15, ‘Revenue from contracts with customers’ (effective 1 January 2018)
IFRS 15, ‘Revenue from contracts with customers’, deals with revenue recognition and establishes principles
for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty
of revenue and cash flows arising from an entity’s contracts with customers. For sale of certain products that
require extensive testing and acceptance period, revenue is currently recognized upon final acceptance from
the customer and the consideration is received or the uncertainty around it is removed, i.e. related risk and
regards of ownership are transferred to the customer and the economic benefits from the transaction flow
to the Company. Under IFRS 15, revenue can be recognised earlier when a customer obtains control of a
good or service while the product goes through the testing period and thus has the ability to direct the use
and obtain the benefits from the good or service. However, risk of collectability may still exist and prevent
from earlier revenue recognition. The Group assessed the impact of IFRS 15 on existing and future expected
revenue transactions and concluded that the adoption of IFRS 15 will have no material impact on the group
consolidated financial statements.
Amendments to IAS 7, ‘Statement of cash flows’ disclosure initiative (effective date to be confirmed)
Amendments to IAS 12, ‘Income taxes’ regarding the recognition of deferred tax assets for unrealised
losses (effective date to be confirmed)
Amendments to IFRS 2, ‘Share-based Payment’ to clarify classification and measurement (effective date
to be confirmed)
IFRS 16, ‘Leases’ (effective 1 January 2019)
3.) REVENUE
Revenue recorded in the statement of comprehensive loss consists of the following:
FOR THE YEAR ENDED 31 DECEMBER:
Product revenue
Service revenue
Grant revenue
TOTAL REVENUE IN CONSOLIDATED STATEMENT OF LOSS
2016
$’000
2015
$’000
1,829
835
—
2,664
2,208
606
486
3,300
Product revenue includes license revenue of $55,000 and $10,000 during 2016 and 2015, respectively.
118
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred revenue recorded in the statement of financial position consists of the following:
AS OF 31 DECEMBER:
Customer deposits
Other deferred revenue, current
TOTAL DEFERRED REVENUE IN STATEMENT OF FINANCIAL POSITION
2016
$’000
2015
$’000
297
161
458
—
395
395
4.) OPERATING SEGMENTS
Basis for Segmentation
For management purposes, the Group’s principal operations are currently organised in two types of
activities:
(1.) Early stage companies – subsidiary businesses that are in the early stage of their lifecycle
characterised by incubation, research and development activities; and
(2.) Commercial stage companies – subsidiary businesses that have substantially completed their
research and development activities and that have developed one or more products that are
actively marketed.
Due to their size and nature Spin Transfer Technologies, Inc. (or ‘‘STT’’, an early stage company) and
RF Biocidics, Inc. (or ‘‘RFB’’, a commercial stage company) are not aggregated and presented as two
additional separate reportable segments. The Group’s principal operations are therefore presented as
four reportable segments being early stage company – STT, early stage companies – other, commercial
stage company – RFB, and commercial stage companies – other.
The Group’s CODM reviews internal management reports on these segments at least quarterly in order
to make decisions about resources to be allocated to the segment and to assess its performance.
Other operations include the management function of the head office at the parent level of Allied Minds.
119
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information about Reportable Segments
The following provides detailed information of the Group’s reportable segments as of and for the years
ended 31 December 2016 and 2015, respectively:
2016
$’000
EARLY STAGE
COMMERCIAL
OTHER
STT
OTHER
RFB
OTHER
OPERATIONS
CONSOLIDATED
STATEMENT OF COMPREHENSIVE LOSS
Revenue
Cost of revenue
—
—
622
553
1,489
(134)
(3,911)
(1,518)
—
—
2,664
(5,563)
Selling, general and administrative expenses
(8,628)
(17,392)
(4,304)
(5,536)
(19,624)
(55,484)
Research and development expenses
(15,006)
(39,048)
(140)
(1,098)
—
(55,292)
Finance income/(cost), net
(9,791)
(7,682)
— (26)
2,232
(15,267)
LOSS FOR THE PERIOD
(33,425)
(63,634)
(7,802)
(6,689)
(17,392)
(128,942)
Other comprehensive income/(loss)
—
—
(74)
—
282
208
TOTAL COMPREHENSIVE LOSS
(33,425)
(63,634)
(7,876)
(6,689)
(17,110)
(128,734)
Total comprehensive loss attributable to:
Equity holders of the parent
(16,924)
(52,173)
(4,523)
(5,395)
(17,110)
(96,125)
Non-controlling interests
(16,501)
(11,461)
(3,353)
(1,294)
—
(32,609)
TOTAL COMPREHENSIVE LOSS
(33,425)
(63,634)
(7,876)
(6,689)
(17,110)
(128,734)
STATEMENT OF FINANCIAL POSITION
Non-current assets
29,235
3,402
738
1,032
3,825
38,232
Current assets
13,859
78,197
4,808
822
134,321
232,007
TOTAL ASSETS
43,094
81,599
5,546
1,854
138,146
270,239
Non-current liabilities
(90)
(4)
(18)
(110)
(498)
(720)
Current liabilities
(64,394)
(86,362)
(1,075)
(493)
(3,078)
(155,402)
TOTAL LIABILITIES
(64,484)
(86,366)
(1,093)
(603)
(3,576)
(156,122)
NET ASSETS
(21,390)
(4,767)
4,453
1,251
134,570
114,117
120
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2015
$’000
EARLY STAGE
COMMERCIAL
OTHER
STT
OTHER
RFB
OTHER
OPERATIONS
CONSOLIDATED
STATEMENT OF COMPREHENSIVE LOSS
Revenue
—
1,141
957
1,202
— 3,300
Cost of revenue
—
(205)
(2,791)
(929)
—
(3,925)
Selling, general and administrative expenses
(7,591)
(14,116)
(5,162)
(5,255)
(14,764)
(46,888)
Research and development expenses
(11,752)
(35,145)
(217)
(2,095)
—
(49,209)
Finance income/(cost), net
(1,506)
(330)
—
(43)
612
(1,267)
LOSS FOR THE PERIOD
(20,849)
(48,655)
(7,213)
(7,120)
(14,152)
(97,989)
Other comprehensive income/(loss)
—
—
(26)
—
72
46
TOTAL COMPREHENSIVE LOSS
(20,849)
(48,655)
(7,239)
(7,120)
(14,080)
(97,943)
Total comprehensive loss attributable to:
Equity holders of the parent
(11,331)
(42,404)
(4,230)
(5,707)
(14,080)
(77,752)
Non-controlling interests
(9,518)
(6,251)
(3,009)
(1,413)
—
(20,191)
TOTAL COMPREHENSIVE LOSS
(20,849)
(48,655)
(7,239)
(7,120)
(14,080)
(97,943)
STATEMENT OF FINANCIAL POSITION
Non-current assets
31,692
4,568
2,810
1,687
52,027
92,784
Current assets
34,531
52,590
5,068
1,774
64,464
158,427
TOTAL ASSETS
66,223
57,158
7,878
3,461
116,491
251,211
Non-current liabilities
(113)
(339)
(271)
(115)
(25)
(863)
Current liabilities
(55,265)
(48,757)
(1,140)
(1,149)
(2,663)
(108,974)
TOTAL LIABILITIES
(55,378)
(49,096)
(1,411)
(1,264)
(2,688)
(109,837)
NET ASSETS
10,845
8,062
6,467
2,197
113,803
141,374
121
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 2016, Cost of revenue and Selling, general and administrative expenses of segments STT, Early stage
– other, RFB, Commercial stage – other, and Other operations included depreciation and amortisation
expense of $4,728,000, $1,036,000, $480,000, $238,000, and $153,000 respectively (2015:
$2,316,000, $936,000, $554,000, $232,000, and $49,000).
The proportion of net assets shown above that is attributable to non-controlling interest is disclosed further in
notes 11 and 17.
Geographic Information
Whilst the Group includes RF Biocidics (UK) Limited, which is a UK company, the revenues and net operating
losses of that subsidiary are not considered material to the Group, and therefore the Group revenues and
net operating losses for the years ended 31 December 2016 and 2015 are considered to be entirely
derived from its operations within the United States and accordingly no additional geographical discloses
are provided.
5.) OPERATING EXPENSES
The average number of persons employed by the Group (including Directors) during the year, analysed by
category, was as follows:
FOR THE YEAR ENDING 31 DECEMBER:
2016
2015
Selling, general and administrative
Research and development
TOTAL
88
121
209
73
87
160
The aggregate payroll costs of these persons were as follows:
FOR THE YEAR ENDING 31 DECEMBER:
Selling, general and administrative
Research and development
TOTAL
2016
$’000
2015
$’000
28,913
21,644
22,416
17,710
50,557
40,126
122
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total operating expenses were as follows:
FOR THE YEAR ENDING 31 DECEMBER:
Salaries and wages
Payroll taxes
Healthcare benefit
Other payroll cost
Share-based payments
TOTAL
Cost of revenue
Other SG&A expenses
Other R&D expenses
2016
$’000
2015
$’000
36,050
27,602
2,110
2,837
1,175
8,385
1,781
2,328
1,374
7,041
50,557
40,126
5,563
26,571
33,648
3,925
24,472
31,499
TOTAL OPERATING EXPENSES
116,339
100,022
AUDITOR’S REMUNERATION
Audit of these financial statements
Audit of the financial statements of subsidiaries
Review of half-yearly report
Taxation compliance services
2016
$’000
2015
$’000
425
20
106
—
551
346
20
89
49
504
The cumulative amount of litigation settlements during 2016 is $1,750,000.
See note 6 for further disclosures related to share-based payments and note 24 for management’s remuneration
disclosures.
6.) SHARE-BASED PAYMENTS
UK Long Term Incentive Plan
On 19 June 2014, Allied Minds plc established the UK Long Term Incentive Plan (“LTIP”). Under the LTIP,
awards over Ordinary Shares may be made to employees, officers and Directors, and other individuals
providing services to the Company and its subsidiaries. Awards may be granted in the form of share options,
share appreciation rights, restricted or unrestricted share awards, performance share awards, restricted share
units, phantom-share awards and other share-based awards. Awards were made under the LTIP upon the
Company’s admission to the LSE at the IPO. Vesting is subject to the achievement of performance conditions
and continued services of the participant. In respect of these initial awards made to employees at the IPO,
vesting is dependent upon performance metrics as follows:
123
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
• 60 per cent of each award will be subject to performance conditions based on the Company’s total
shareholder return (“TSR”) performance over a three year period; and
• 40 per cent of each award will be subject to performance conditions based on a basket of shareholder
value metrics (“SVM”). Performance will be assessed on these measures on a scorecard basis over a
three year period.
In respect of the initial awards, at the end of the three year measurement period, performance against the
relevant measures is calculated to determine the number of Ordinary Shares which have satisfied the vesting
criteria and 50 per cent of the award will then vest at that time. The remaining 50 per cent will vest in two
equal tranches after one and two years from the end of the vesting period, respectively, subject to the relevant
participant still being employed within (or being a director of a company within) the Group at the relevant
vesting date (or being an earlier good leaver as described further in the LTIP).
Subsequently, in the first half of 2015, annual awards were made to employees under the LTIP that vest 100
per cent after the three year measurements period subject to both the TSR and SVM performance conditions.
During 2016, annual awards were made to employees of the Group under the LTIP that vest 100 per cent
after the three year measurements period subject to the TSR performance conditions only.
Awards made to Directors of Allied Minds vest 100 per cent after a three year period subject to continued
service condition only.
Awards have been made under the LTIP during 2016 and 2015 in respect of a total of 1,499,247 and
450,251 Ordinary Shares, respectively. A summary of stock option activity under the UK LTIP for the year
ended 31 December 2016 and 2015, respectively, is shown below:
FOR THE YEAR ENDED 31 DECEMBER:
2016
2015
Number of shares granted
at maximum (‘000)
Weighted average fair value (£)
Fair value measurement basis
TSR
SVM
TSR
SVM
1,443
2.19
Monte
Carlo
56
3.37
Market value
of ordinary
share
170
7.01
Monte
Carlo
280
5.99
Market value
of ordinary
share
The share grants that vest upon the occurrence of a market condition (i.e. the TSR performance) and service
condition were adjusted to current market price at the date of the grant to reflect the effect of the market
condition on the non-vested shares’ value. The Company used a Monte Carlo simulation analysis utilising a
Geometric Brownian Motion process with 50,000 simulations to value those shares. The model takes into
account share price volatilities, risk-free rate and other covariance of comparable UK public companies and
other market data to predict distribution of relative share performance. This is applied to the reward criteria
to arrive at expected value of the TSR awards.
The share grants that vests only upon the occurrence of a non-market performance condition (i.e. the SVM
grants) and service condition were valued at the fair value of the shares on the date of the grants and the
124
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
vesting conditions are taken into account by subsequently adjusting the number of instruments included in the
measurement of the transaction amount so that, ultimately, the amount of recognised share-based expense is
based on the number of instruments that eventually vest.
The accounting charge does not necessarily represent the intended value of share-based payments made
to recipients, which are determined by the Remuneration Committee according to established criteria. The
share-based payment charge for the fiscal year ended 31 December 2016 related to the UK LTIP was $5.9
million (2015: $3.1 million).
U.S. Stock Option/Stock Issuance Plan
The U.S. Stock Option/Stock Issuance Plan (the “U.S. Stock Plan”) was originally adopted by Allied Minds,
Inc. (now Allied Minds, LLC) in 2008. The U.S. Stock Plan provides for the grant of share option awards,
restricted share awards, and other awards to acquire common stock of Allied Minds, Inc. (now Allied Minds,
LLC). All stock options granted to employees under this plan are equity settled, for a ten-year term. Pursuant
to the Company’s IPO in 2014, Allied Minds plc adopted and assumed the rights and obligations of Allied
Minds, Inc. (now Allied Minds, LLC) under this plan except that the obligation to issue Common Stock is
replaced with an obligation to issue ordinary shares to satisfy awards granted under the U.S. Stock Plan.
No new stock option grants were awarded in 2016 and 2015 under the Allied Minds 2008 Plan. A
summary of stock option activity in the U.S. Stock Plan is presented in the following table:
NUMBER OF
OPTIONS
2016
WEIGHTED
AVERAGE
EXERCISE
PRICE
2016
NUMBER OF
OPTIONS
2015
WEIGHTED
AVERAGE
EXERCISE PRICE
2015
OUTSTANDING AS OF 1 JANUARY
9,204,712
$ 2.10
10,396,496
Granted during the year
—
—
—
Exercised during the year
(650,000)
$ 1.86
(1,191,784)
Forfeited during the year
—
OUTSTANDING AS OF 31 DECEMBER
8,554,712
Exercisable as of 31 December
8,554,712
—
$ 2.12
$ 2.12
—
9,204,712
9,204,712
Intrinsic value of Exercisable
$ 31.5 million
$ 35.2 million
$ 2.09
—
$ 2.05
—
$ 2.10
$ 2.10
The options outstanding as of 31 December 2016 and 31 December 2015 had an exercise price in the
range of $0.68 to $2.60.
As of 19 June 2014, the maximum number of options reserved under the plan were issued and outstanding
and as a result of the Company’s IPO in 2014, all issued and outstanding options vested on 19 June 2014
and some options were exercised, resulting in the accelerated share- based payment charge of additional
$2.4 million for the period. The Company does not intend to make any further grants under the U.S. Stock
Plan.
Restricted share awards are outstanding over 118,800 ordinary shares, which were granted under the U.S.
Stock Plan to the non-executive Directors. These ordinary shares vest in three equal tranches on each of the
first three anniversaries of Admission provided that the non-executive Director in question is still providing
services to the Group on the relevant vesting date.
125
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The share-based payment charge for the fiscal year ended 31 December 2016 related to the U.S. Stock
Plan was $57,000 (2015: $131,000).
Other Plans
Spin Transfer Technologies
Stock compensation expense was approximately $1,129,000 and $1,937,000 and for the year ended
31 December 2016 and 2015, respectively. Deferred stock compensation expense under these grants was
approximately $1,199,000 and $1,277,000 as of 31 December 2016 and 2015, respectively.
The fair value of the stock option grants awarded in 2016 and 2015 under the 2012 Equity Incentive Plan
was estimated as of the date of grant using a Black-Scholes- Merton option valuation model that uses the
following weighted average assumptions:
Expected option life (in years)
Expected stock price volatility
Risk-free interest rate
Expected dividend yield
Grant date option fair value
Share price at grant date
Exercise
price
2016
2015
6.10
40.99%
1.21%
—
$ 3.18
$ 7.77
5.79
41.54%
1.79%
—
$ 3.23
$ 7.77
$ 7.77
$ 7.77
Expected volatility has been based on an evaluation of the historical volatility of the share price of publicly
traded companies comparable to STT, particularly over the historical period commensurate with the expected
term. The expected term of the instruments has been based on historical experience and general option
holder behavior.
A summary of stock option activity in the STT plans is presented in the following table:
NUMBER OF
OPTIONS
2016
1,849,367
346,426
—
(7,500)
2,188,293
1,397,056
$ 0.1 million
WEIGHTED
AVERAGE
EXERCISE
PRICE
2016
$ 7.43
$ 7.77
—
$ 7.77
$ 7.48
$ 7.34
NUMBER OF
OPTIONS
2015
1,440,394
434,746
—
(25,773)
1,849,367
964,632
$ 0.5 million
WEIGHTED
AVERAGE
EXERCISE
PRICE
2015
$ 7.29
$ 7.77
—
$ 5.40
$ 7.43
$ 7.30
OUTSTANDING AS OF 1 JANUARY
Granted during the year
Exercised during the year
Forfeited during the year
OUTSTANDING AS OF 31
DECEMBER
Exercisable as of 31 December
Intrinsic value of Exercisable
The options outstanding as of 31 December 2016 had an exercise price in the range of $6.97 to $7.77
(2015: $6.97 to $7.77) and a weighted-average contractual life of approximately 8.7 years (2015: 9.1
years).
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ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Plans Under Other Subsidiaries
The stock compensation expense under other subsidiaries of the Company, which adopted stock option
incentive plans in 2016 and prior was $1,312,000 (2015: $1,871,000). Deferred stock compensation
expense under these grants as of 31 December 2016 was approximately $1,035,000 (2015: $1,655,000).
Allied Minds Phantom Plan
In 2007, Allied Minds established a cash settled bonus plan for Allied Minds employees, also known as
its Phantom Plan. In 2012, the board of directors adopted the Amended and Restated 2007 Phantom
Plan. Under the terms of the Amended and Restated Plan, upon a liquidity event Allied Minds will allocate
10% of the value (after deduction of the amount invested by Allied Minds and accrued interest at a rate not
exceeding 5% per annum) of the invested capital owned by Allied Minds of each operating company to the
plan account. Upon a liquidity event, plan participants holding units will receive their proportionate share of
the plan account. The allocated shares at all times remain the sole and exclusive property of Allied Minds
and holders of units have no rights or interests in Allied Minds. No amount has been paid out to employees
under the Phantom Stock Plan through 31 December 2016.
Allied Minds has not accrued any expense relating to the Phantom Plan as of 31 December 2016 or 2015.
Management will record an expense relating to this plan when it is probable that a subsidiary will be sold
and the amount of the payout is reasonably estimable.
Share-based Payment Expense
The Group recorded share-based payment expense related to stock options of approximately
$8,385,000 and $7,041,000 for the years ended 31 December 2016 and 2015, respectively. There
was no income tax benefit recognised for share- based payment arrangements for the years ended 31
December 2016 and 2015, respectively, due to operating losses. Shared-based payment expenses are
included in selling, general and administrative expenses and research and development expenses in the
Consolidated Statement of Comprehensive Income.
127
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7.) FINANCE COST, NET
The following table shows the breakdown of finance income and cost:
FOR THE YEAR ENDED 31 DECEMBER:
2016
$’000
2015
$’000
Interest income on:
– Bank deposits
Foreign exchange gain
Finance income
Interest expense on:
– Financial liabilities at amortised
cost
Foreign exchange loss
Finance cost contractual
Loss on fair value measurement of
subsidiary preferred shares
Finance cost
TOTAL FINANCE COST, NET
1,610
1,269
2,879
(527)
(34)
(561)
721
2
723
(41)
(12)
(53)
(17,585)
(18,146)
(15,267)
(1,937)
(1,990)
(1,267)
See note 18 for further disclosure related to subsidiary preferred shares.
8.) LOSS PER SHARE
The calculation of basic and diluted loss per share as of 31 December 2016 was based on the loss
attributable to ordinary shareholders of $96.3 million (2015: $77.8 million) and a weighted average
number of ordinary shares outstanding of 217,317,696 (2015: 214,958,849), calculated as follows:
Loss attributable to ordinary shareholders
Loss for the year attributed to the
owners of the Company
Loss for the year attributed to the
ordinary shareholders
2016
$’000
2015
$’000
Basic
Diluted
Basic
Diluted
(96,333)
(96,333)
(77,797)
(77,797)
(96,333)
(96,333)
(77,797)
(77,797)
128
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Weighted average number of ordinary shares
2016
2015
Basic
Diluted
Basic
Diluted
Issued ordinary shares on 1 January
215,637,363
215,637,363
214,445,579
214,445,579
Effect of share capital issued
Effect of share options exercised
1,390,196
290,137
1,390,196
290,137
—
—
513,270
513,270
Weighted average ordinary shares
217,317,696
217,317,696
214,958,849
214,958,849
Loss per share
Loss per share
2016
$
2015
$
Basic
(0.44)
Diluted
(0.44)
Basic
(0.36)
Diluted
(0.36)
9.) PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following at:
Cost
$’000
Balance as of 31 December 2014
Additions, net of transfers
Disposals
Balance as of 31 December 2015
Additions, net of transfers
Disposals
Balance as of 31 December 2016
MACHINERY
AND
EQUIPMENT
FURNITURE
AND
FIXTURES
LEASEHOLD
IMPROVEMENTS
COMPUTERS
AND
ELECTRONICS
UNDER
CONSTRUCTION
14,362
18,184
(168)
32,378
4,560
(1,829)
35,109
403
169
—
572
313
(23)
862
1,536
3,135
—
4,671
919
(27)
5,563
601
564
—
1,165
239
(53)
1,351
3,531
(562)
—
2,969
(2,268)
—
701
Accumulated Depreciation and Impairment Loss
$’000
Balance as of 31 December 2014
Depreciation
Impairment loss
Disposals
Balance as of 31 December 2015
Depreciation
Impairment loss
Disposals
Balance as of 31 December 2016
MACHINERY
AND
EQUIPMENT
FURNITURE
AND
FIXTURES
LEASEHOLD
IMPROVEMENTS
COMPUTERS
AND
ELECTRONICS
UNDER
CONSTRUCTION
(3,180)
(2,371)
(422)
168
(5,805)
(4,378)
(320)
1,829
(8,674)
(149)
(198)
150
—
(197)
(135)
(7)
23
(316)
(770)
(235)
(6)
—
(1,011)
(876)
—
27
(1,860)
(316)
(223)
(30)
—
(569)
(325)
(13)
53
(854)
312
(312)
—
—
—
—
—
—
—
TOTAL
20,433
21,490
(168)
41,755
3,763
(1,932)
43,586
TOTAL
(4,103)
(3,339)
(308)
168
(7,582)
(5,714)
(340)
1,932
(11,704)
129
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment, net
$’000
Balance as of 31 December 2015
Balance as of 31 December 2016
MACHINERY
AND
EQUIPMENT
26,573
26,435
FURNITURE
AND
FIXTURES
375
546
LEASEHOLD
IMPROVEMENTS
3,660
3,703
COMPUTERS
AND
ELECTRONICS
596
497
UNDER
CONSTRUCTION
TOTAL
2,969
701
34,173
31,882
Impairment of property and equipment of $340,000 and $308,000 for the years ended 31 December
2016 and 2015, respectively, is mainly attributed to the closing of subsidiary companies, which resulted in
the associated assets being impaired, see further detail in note 26. Impairment of property and equipment
is included in selling, general and administrative expenses in the consolidated statement of comprehensive
income.
Property and equipment under constructions represents assets that are in the process of being built and not
placed in service as of the reporting date.
10.) INTANGIBLE ASSETS
Information regarding the cost and accumulated amortisation of intangible assets is as follows:
Cost
$’000
LICENSES
PURCHASED
IPR&D
SOFTWARE
DEVELOPMENT
COST
TOTAL
Balance as of 31 December 2014
Additions - Acquired separately
Additions - Internally developed
Disposals
4,385
1,032
—
—
Balance as of 31 December 2015
5,417
Additions - Acquired separately
Additions - Internally developed
Disposals
Balance as of 31 December 2016
85
—
(681)
4,821
768
—
—
—
768
—
—
—
768
257
490
—
(3)
744
20
—
(34)
730
303
—
201
—
504
—
219
(629)
94
5,713
1,522
201
(3)
7,433
105
219
(1,344)
6,413
Accumulated Amortisation and Impairment Loss
$’000
LICENSES
PURCHASED
IPR&D
SOFTWARE
DEVELOPMENT
COST
TOTAL
Balance as of 31 December 2014
Amortisation
Impairment loss
Disposals
(2,103)
(512)
—
—
Balance as of 31 December 2015
(2,615)
Amortisation
Impairment loss
Disposals
(522)
(487)
681
Balance as of 31 December 2016
(2,943)
(79)
(23)
—
—
(102)
(22)
—
—
(124)
(98)
(180)
(1)
3
(276)
(318)
—
34
(560)
(24)
(32)
—
—
(56)
(59)
(538)
629
(24)
(2,304)
(747)
(1)
3
(3,049)
(921)
(1,025)
1,344
(3,651)
130
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assests, net
$’000
LICENSES
PURCHASED
IPR&D
SOFTWARE
DEVELOPMENT
COST
TOTAL
Balance as of 31 December 2015
Balance as of 31 December 2016
2,802
1,878
666
644
468
170
448
70
4,384
2,762
Amortisation expense is included in selling, general and administrative expenses in the consolidated statement
of comprehensive loss. Amortisation expense, recorded using the straight-line method, was approximately
$921,000 and $747,000 for the years ended 31 December 2016 and 2015, respectively.
Impairment of intangible assets of $1,025,000 and $1,000 for the years ended 31 December 2016
and 2015, respectively, is mainly attributed to the closing of subsidiary companies, which resulted in the
associated intangible assets being impaired to zero, see further detail in note 26. Impairment expense is
included in selling, general and administrative expenses in the consolidated statement of comprehensive
income.
At each reporting period, management considers qualitative and quantitative factors that define the future
prospects of the respective investment and assesses whether it supports the value of the underlying intangible.
11.) INVESTMENT IN SUBSIDIARIES AND ASSOCIATES
Group Subsidiaries
Allied Minds has 33 subsidiaries as of 31 December 2016. As of and for the two years ended 31
December 2016 the capitalisation of all subsidiary companies in the Group portfolio is in the form of
ordinary shares only, except for certain subsidiaries where Series A preferred shares were issued to both the
parent company and third parties in financing rounds, namely ABLS II, Federated Wireless, HawkEye 360,
Precision Biopsy, SciFluor Life Sciences and Spin Transfer Technologies. Series A preferred shares as per cent
of the total ownership percentage of economic interest in those subsidiaries as of 31 December 2016 were
19.14%, 6.71%, 56.11% 18.15%, 3.82% and 8.01%, respectively.
131
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following outlines the formation of each subsidiary and evolution of Allied Minds’ equity ownership
interest over the two year period ended 31 December 2016:
ACTIVE SUBSIDIARIES
HOLDING COMPANIES
Allied Minds, LLC (1), (3)
Allied Minds Securities Corp. (3)
Project Poldark (Jersey) Limited (3)
EARLY STAGE COMPANIES
ABLS Capital, LLC
Allied-Bristol Life Sciences, LLC
ABLS I, LLC
ABLS II, LLC
ABLS III, LLC
INCEPTION
DATE
OWNERSHIP PERCENTAGE
OF ECONOMIC INTEREST AT
31 DECEMBER (2)
LOCATION (4)
2016
2015
19/06/14
Boston, MA
21/12/15
Boston, MA
29/11/16
Boston, MA
09/07/15
Boston, MA
31/07/14
Boston, MA
24/09/14
Boston, MA
24/09/14
Boston, MA
10/03/16
Boston, MA
100.00%
100.00%
100.00%
30.25%
80.00%
74.00%
35.95%
80.00%
100.00%
100.00%
—
—
80.00%
80.00%
80.00%
—
Allied Minds Federal Innovations, Inc.
09/03/12
Boston, MA
100.00%
100.00%
Federated Wireless, Inc.
08/08/12
Arlington, VA
Federated Wireless Government Solutions, Inc. (3)
04/05/16
Arlington, VA
Foreland Technologies, Inc.
BridgeSat, Inc.
Cephalogics, LLC
HawkEye 360, Inc.
HawkEye 360 Federal, Inc. (3)
LuxCath, LLC
Optio Labs, Inc.
Percipient Networks, LLC
Precision Biopsy, Inc.
23/01/13
Boston, MA
09/02/15
Boston, MA
29/11/06
Cambridge, MA
16/09/15
Herndon, VA
22/09/15
Herndon, VA
29/05/12
Boston, MA
28/02/12
Baltimore, MD
17/06/08
Denver, CO
ProGDerm, Inc. (dba Novare Pharmaceuticals)
19/09/08
Boston, MA
SciFluor Life Sciences, LLC
Seamless Devices, Inc.
Signature Medical, Inc.
Spin Transfer Technologies, Inc.
Vatic Materials, Inc.
Whitewood Encryption Systems, Inc.
COMMERCIAL STAGE COMPANIES
Biotectix, LLC
CryoXtract Instruments, LLC
RF Biocidics, Inc.
RF Biocidics (UK) Ltd (3)
SoundCure, Inc.(3)
14/12/10
Cambridge, MA
14/10/14
San Jose, CA
12/12/16
Boston, MA
03/12/07
Fremont, CA
21/11/16
Boston, MA
21/07/14
Boston, MA
16/01/07
Richmond, CA
23/05/08
Woburn, MA
12/06/08
Sacramento, CA
10/09/10
United Kingdom
04/06/09
San Jose, CA
72.99%
72.99%
100.00%
100.00%
95.00%
56.11%
56.11%
98.00%
81.23%
90.58%
90.58%
100.00%
100.00%
95.00%
81.25%
81.25%
98.00%
81.23%
64.59%
90.38%
69.89%
79.12%
100.00%
48.40%
100.00%
100.00%
64.35%
93.24%
67.14%
67.14%
84.62%
68.32%
90.38%
69.89%
79.41%
—
48.40%
—
100.00%
64.35%
93.24%
67.14%
67.14%
84.62%
29/01/14
Wakefield, MA
100.00%
100.00%
Tinnitus Treatment Solutions, LLC
26/02/13
San Jose, CA
100.00%
100.00%
CLOSED SUBSIDIARIES
SiEnergy Systems, LLC (3)
21/09/07
Cambridge, MA
—
100.00%
NUMBER OF ACTIVE SUBSIDIARIES AT 31 DECEMBER:
33
29
132
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes:
(1.) On 19 June 2014, Allied Minds plc completed a reorganisation of its corporate structure, whereby Allied Minds plc acquired the entire
issued share capital of Allied Minds, Inc., first incorporated on 4 June 2004, which at the same time changed its name to Allied Minds, LLC;
(2.) Represents ownership percentage used in allocations to non-controlling interests except for Federated Wireless, HawkEye 360, Precision
Biopsy, SciFluor Life Sciences, and Spin Transfer Technologies in which cases the percentage used to allocate the non-controlling interests
was 94.15%, 0%, 80.35%, 86.86%, and 56.13%, respectively, where in these cases there are liability classified preferred shares in
issue, which are excluded.
(3.) These subsidiaries do not represent separate subsidiary businesses referred to earlier within the annual report.
(4.) All subsidiaries have a registered office address at CT Corporation System, Corporation Trust Center, 1209 Orange Street, Wilmington,
DE 19801, United States except for Allied Minds Securities Corp. with registered office address at CT Corporation System, 155 Federal
Street, Suite 700, Boston, MA 02110, United States; Project Poldark (Jersey) Limited with registered office address 44 Esplanade, St Helier,
Jersey, JE4 9WG, United Kingdom and Biotectix, LLC, Cephalogics, LLC, and CryoXtract, LLC at CT Corporation System, 120 South
Central Avenue, Suite 400, Clayton, MO 63105, United States.
In April 2016, Allied Minds completed the formation of ABLS Capital, LLC in partnership with existing
shareholders of the Group. The members of ABLS Capital committed to up to $80 million for the development
of drug discovery programs, of which 22.5% was committed by Allied Minds, and contributed an initial $2
million for 2 million Class B shares to fund the operations of the subsidiary. The purpose of this partnership
is to fund 80% of the lead optimization phase of up to ten new drug candidates that pass initial feasibility
studies funded by Allied Bristol Life Sciences, LLC (“ABLS”). The remaining 20% of lead optimization phase
investment, or up to an additional $20 million, will be funded by Bristol-Myers Squibb, pursuant to the terms
of the partnership formed in 2014 through ABLS. Further, in August 2016, ABLS Capital raised $12 million of
new equity in a Class B shares round pursuant to the initial commitment discussed above, which were used to
further fund the development at ABLS II. Under the terms of the ABLS Capital organization documents, Allied
Minds is appointed as the manager of the company and effectively controls the policies and management of
ABLS Capital. As a result, following the transactions from 2016, Allied Minds continues to exercise effective
control over ABLS Capital and as such the subsidiary will continue to be fully consolidated within the group’s
financial statements.
In August 2016, ABLS II closed a Series A round of financing issuing 6,410,256 shares of Preferred Stock
at issue price of $2.34/share to ABLS Capital ($12.0 million) and Bristol-Myers Squibb Company ($3.0
million), raising approximately $15.0 million. Under the terms of the ABLS II organization documents, through
its control over ABLS and ABLS Capital, the Company effectively controls the policies and management of
ABLS II. As a result, following the transaction, Allied Minds continues to exercise effective control over ABLS
II and as such the subsidiary will continue to be fully consolidated within the group’s financial statements.
In October 2014, Spin Transfer Technologies (“STT”) completed a Series A financing round as a result of
which the Allied Minds’ ownership percentage in STT decreased from 56.13% to 48.40%. Whilst Allied
Minds owns less than 50.00% of the voting share capital after the transaction and as of 31 December
2014, the company remains the largest single shareholder at 48.40% of the voting share capital, and
retains control over the majority of the voting rights on the board of directors of STT. Under the terms of
the STT organisational documents, the board of directors effectively controls the policies and management
of STT, and in all instances, the board acts by majority vote. In addition, all material shareholder voting
provisions of the STT organisational documents require a simple majority for approval, giving the Company
substantial influence over the outcome of all actions which require a shareholder vote. As a result, following
the transaction, Allied Minds continues to exercise effective control over STT and as such will continue to be
fully consolidated within the group’s financial statements.
133
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables summarise the financial information related to the Group’s subsidiaries with material non-
controlling interests, aggregated for interests in similar entities, and before intra-group eliminations.
AS OF AND FOR THE YEAR ENDED 31 DECEMBER:
2016
$’000
EARLY STAGE
COMMERCIAL
STT
OTHER
RFB
OTHER
STATEMENT OF COMPREHENSIVE LOSS
Revenue
Loss for the year
Other comprehensive loss
TOTAL COMPREHENSIVE LOSS
Comprehensive loss attributed to NCI
STATEMENT OF FINANCIAL POSITION
Non-current assets
Current assets
TOTAL ASSETS
Non-current liabilities
Current liabilities
TOTAL LIABILITIES
NET ASSETS
Carrying amount of NCI
STATEMENT OF CASH FLOWS
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
—
594
(33,425)
(59,193)
—
(33,425)
(16,501)
29,235
13,859
43,094
(90)
(64,394)
(64,484)
(21,390)
(15,074)
(18,617)
(2,360)
303
(20,674)
—
(59,193)
(11,461)
3,242
77,637
80,879
(4)
(85,658)
(85,662)
(4,783)
10,061
(51,853)
(402)
80,888
28,633
553
(7,802)
(74)
(7,876)
(3,353)
738
4,808
5,546
(18)
(1,075)
(1,093)
4,453
(9,114)
(7,993)
1,595
8,189
1,791
1,223
(5,937)
—
(5,937)
(1,294)
1,029
751
1,780
—
(421)
(421)
1,359
(6,670)
(7,653)
(332)
8,154
169
134
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEAR ENDED 31 DECEMBER:
STATEMENT OF COMPREHENSIVE LOSS
Revenue
Loss for the year
Other comprehensive loss
TOTAL COMPREHENSIVE LOSS
Comprehensive loss attributed to NCI
STATEMENT OF FINANCIAL POSITION
Non-current assets
Current assets
TOTAL ASSETS
Non-current liabilities
Current liabilities
TOTAL LIABILITIES
NET ASSETS
Carrying amount of NCI
STATEMENT OF CASH FLOWS
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
2015
$’000
EARLY STAGE
COMMERCIAL
STT
OTHER
RFB
OTHER
—
654
(20,849)
(42,119)
—
(20,849)
(9,518)
31,692
34,531
66,223
(113)
(55,265)
(55,378)
10,854
(4,281)
(17,142)
(19,629)
1,863
(34,908)
—
(42,119)
(6,250)
5,920
51,774
57,694
(38)
(48,198)
(48,236)
9,458
(3,550)
(41,293)
(4,079)
75,974
30,602
957
(7,213)
(26)
(7,239)
(3,009)
2,810
5,068
7,878
(271)
(1,140)
(1,411)
6,467
(7,031)
(8,237)
(198)
7,228
(1,207)
1,104
(7,171)
—
(7,171)
(1,413)
1,685
1,725
3,410
(117)
(1,142)
(1,259)
2,151
(5,928)
(9,369)
(348)
9,154
(563)
Portfolio Valuation
At the close of each annual financial period, the Directors formally approve the value of all subsidiary
businesses in the Group, which is used to derive the ‘‘Group Subsidiary Ownership Adjusted Value’’. This
Group Subsidiary Ownership Adjusted Value is a sum-of-the-parts (‘‘SOTP’’) valuation of all the subsidiaries
that make up the Group. GSOAV is an alternative performance measure (“APM”) used by the Directors as a
key performance indicator (“KPI”) to measure the performance of the Group. An APM is a numeric measure
of the Group’s financial position that is not a GAAP measure. As the Group exercises control over all of its
investments in subsidiary undertakings their activities are fully consolidated in the group accounts and the
value of those investments is not separately disclosed in the statement of financial position. Only the value of
non-controlling interests of certain subsidiaries reflecting the subsidiary preferred shares liability is disclosed
separately in the statement of financial position, as further discussed in footnote 18.
The Group Subsidiary Ownership Adjusted Value (‘‘GSOAV’’) was $416.2 million as of 24 April 2017
(2015: $535.8m). The decrease compared to prior year is primarily attributed to the liquidation of several
subsidiary businesses subsequent to year end as discussed in note 26, namely Biotectix, Cephalogics,
CryoXtract, Novare Pharmaceuticals, Optio Labs, RF Biocidics (including RF Biocidics (UK) Ltd), SoundCure
and Tinnitus Treatment Solutions. The decrease was partially offset by an increase in value at HawkEye
360 demonstrated by the consummation of a third-party fundraising and an increase to ABLS due to ABLS II
moving into the lead optimisation program.Cephalogics, CryoXtract, Novare Pharmaceuticals, Optio Labs,
RF Biocidics (including RF Biocidics (UK) Ltd), SoundCure and Tinnitus Treatment Solutions. The decreases
135
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
was offset primarily by an increase in value at HawkEye 360 demonstrated by the consummation of a third-
party fundraising and an increase to ABLS due to ABLS II moving into the lead optimisation programme.
Ownership adjusted value represents Allied Minds’ interest in the equity value of each subsidiary and
is calculated as follows: lower of (Business Enterprise Value – Long Term Debt + Cash) x Allied Minds
percentage ownership plus the value of debt provided by Allied Minds plc to each subsidiary business, or
the subsidiary Business Enterprise Value. Allied Minds commits post seed funding to its subsidiaries in the
form of loans.
Valuation Methodology
Each subsidiary company is regularly evaluated based on a range of inputs, including: company performance
and progress towards development milestones; market and competitor analyses based on information from
databases and public material; and interviews with scientists and physicians.
The Group Subsidiary Ownership Adjusted Value represents the sum-of-the-parts (‘‘SOTP’’) of, principally,
net present value (‘‘NPV’’) or risk-adjusted net present value (‘‘rNPV’’) from discounted cash flow (‘‘DCF’’)
valuations and valuations based on recent third party investment at the subsidiary level. A DCF valuation
is used for the majority of Allied Minds subsidiaries. The DCF valuations are updated when the underlying
assumptions for the valuations warrant a change. Generally, valuations are not increased unless warranted
by or in anticipation of a financing transaction. Valuations are decreased in situations where the subsidiary
is falling short of expected progress. Otherwise, the DCF valuations are kept constant. When available,
financing transactions are used as the basis for the subsidiary valuation. In limited instances other techniques
such as based on asset values are utilised.
Set out below are the two principal methodologies applied to value each Group company to derive the
Group Subsidiary Ownership Adjusted Value as of the current year annual report and accounts:
DISCOUNTED CASH FLOW(1)
FUNDING TRANSACTION(2)
BridgeSat, Inc
Allied Bristol Life Sciences, LLC
Foreland Technologies, LLC
ABLS II, LLC
LuxCath, LLC
Percipient Networks, LLC
Seamless Devices, Inc.
Federated Wireless, Inc.
HawkEye 360, Inc.
Precision Biopsy, Inc.
Whitewood Encryption Systems, Inc.
SciFluor Life Sciences, Inc.
Spin Transfer Technologies, Inc.
As per cent of GSOAV:
8.0% (2015: 26.5%)
As per cent of GSOAV:
87.1% (2015: 70.7%)
(1.) The DCF valuation model was updated in the current year for BridgeSat, while for the remaining companies where DCF is used as basis for the
subsidiary valuation the values were kept constant from prior year;
(2.) Funding transactions used as basis for the subsidiary valuations were consummated in the current year, except for Allied Bristol Life Sciences
(2014), Spin Transfer Technologies (2014), and SciFluor Life Sciences (2015).
136
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition to the two principal valuation methodologies, the Directors have valued using alternative valuation
methodologies Allied Minds Federal Innovations, Inc. (“AMFI”)representing 4.9% of the group Subsidiary
Ownership Adjusted Value (2015: 2.8%). AMFI was valued using an asset-based methodology that reflects
the intellectual property to which it has access as at 31 December 2016 and 2015.
For detail of the Net Present Value (“NPV”) method used in estimating the group valuations from discounted
cash flows see footnote 18.
Associates
OWNERSHIP PERCENTAGE
REGISTERED
31 DECEMBER
LOCATION
NUMBER
2016
2015
Stalam S.p.A.
Vicenza, Italy
2083930244
—
28.5%
Stalam S.p.A.
CARRYING AMOUNT FOR EQUITY ACCOUNTED INVESTEES
2016
$’000
—
—
2015
$’000
1,612
1,612
In December 2013, RF Biocidics (“RFB”) entered into a manufacturing agreement with the strategic partner
Stalam S.p.A. (“Stalam”) in Italy, which made Stalam an exclusive manufacturer of the Apex product line
series, as well as any new generation RF Systems that incorporates both Stalam and RFB technologies which
the parties develop jointly as part of the agreement. Following this transaction in March 2014, RF Biocidics
acquired ordinary shares representing 28.5% of the capital of that manufacturer in exchange for 1.1 million
Euro ($1.5 million).
The Group’s interest in Stalam is presented in the below table as of 31 December:
Carrying amount of interest in associates
Share of:
Profit from continuing operations
Total comprehensive income
2016
$’000
2015
$’000
—
—
52
52
In November 2016, Stalam was acquired by third party investors and RF Biocidics sold its interest in the
investment in Stalam for 2.3 million Euro ($2.4 million) plus a potential earn out of 0.6 million Euro ($0.6
million) of which 0.2 million Euro ($0.2 million) was realised in 2016, resulting in a gain for the period of
$0.9 million.
137
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12.) OTHER INVESTMENTS
AS OF 31 DECEMBER:
Fixed income securities
Treasury and government agencies
Corporate bonds
Other investments, current
Fixed income securities
Treasury and government agencies
Corporate bonds
Other investments, long-term
TOTAL OTHER INVESTMENTS
2016
$’000
—
14,244
14,244
—
2,668
2,668
16,912
2015
$’000
3,468
34,180
37,648
10,871
40,674
51,545
89,193
Other investments represent investments in fixed income securities issued by government agencies and US
and non-US corporations. As of 31 December 2016, the investments had a credit rating of A- to A+,
maturities of up to 2 years and original coupon rate from 0.00% to 5.00% (2015: 0.50% to 7.65%).
13.) CASH AND CASH EQUIVALENTS
AS OF 31 DECEMBER:
Bank balances
Restricted cash
TOTAL CASH AND CASH EQUIVALENTS
2016
$’000
2015
$’000
209,283
105,687
(132)
(132)
209,151
105,555
Restricted cash represents cash reserved as collateral against a letter of credit with a bank issued for the
benefit of a landlord in lieu of a security deposit to an office space lease for one of the Group’s subsidiaries.
The amount is classified as other financial assets, non-current in the statement of financial position.
14.) INVENTORIES
AS OF 31 DECEMBER:
Finished units
Work in progress
Raw materials
TOTAL INVENTORIES
138
2016
$’000
2015
$’000
2,505
1,007
15
31
149
355
2,551
1,511
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Finished units and raw materials recognised as cost of revenue in the year amounted to $1,756,000 (2015:
$2,057,000). The write-down of inventories to net realisable value recognized through cost of revenue was
$3,403,000 (2015: $1,778,000).
15.) TRADE AND OTHER RECEIVABLES
AS OF 31 DECEMBER:
Trade receivables
Prepayments and other current assets
TOTAL TRADE AND OTHER RECEIVABLES
16.) EQUITY
2016
$’000
312
5,588
5,900
2015
$’000
1,012
6,33
7,342
In December 2016, the Company issued 17,457,015 ordinary shares of one pence at 367 pence, which
were admitted to the premium listing segment of the Official List of the UK Listing Authority and to trading on
the LSE’s Main Market for listed securities. This resulted in approximately $78.1 million of net proceeds from
the equity placing (net of issue cost of $2.2 million). The amounts subscribed for share capital in excess of the
nominal value in relation to this transaction are reflected in the merger reserve balance as of 31 December
2016.
During 2016, existing and former employees of the Group exercised options to purchase 650,000 shares
of the Company under the U.S. Stock Plan (2015: 1,191,784), resulting in additional share premium of
$1,200,000 (2015: $2,443,000).
As of 31 December 2016, 11,551,496 ordinary shares were reserved under the U.S. Stock Plan and
23,374,437 were reserved under the LTIP, see note 6 for further discussion of the share-based payment
plans.
Movements below explain the movements in share capital:
AS OF 31 DECEMBER:
EQUITY
2016
$’000
2015
$’000
Share capital, £0.01 par value, issued and fully paid
3,657
3,429
233,744,378 and 215,637,363, respectively
Share premium
Merger reserve
Translation reserve
Accumulated deficit (i)
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Non-controlling interests (i)
TOTAL EQUITY
(i) The 2015 amounts have been reclassified, see note 1.
157,067
263,435
192
155,867
185,544
(16)
(289,437)
(192,819)
134,914
(20,797)
114,117
152,005
(10,631)
141,374
139
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Holders of Ordinary Shares are entitled to vote, on all matters submitted to shareholders for a vote. Each
Ordinary Share is entitled to one vote. Each ordinary share is entitled to receive dividends when and if
declared by the Company’s board of directors. The Company has not declared any dividends in the past.
Share premium represents the amounts subscribed for share capital in excess of the nominal value, net of
directly attributable issue costs.
Merger reserve reflects the amounts subscribed for share capital in excess of the nominal value in relation to
the qualifying acquisition of subsidiary undertakings.
Translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations.
17.) ACQUISITION OF NON-CONTROLLING INTEREST (“NCI”)
For the two years ended 31 December 2016, the Group recognised the following changes in common and
preferred stock ownership in subsidiaries resulting in changes to non-controlling interest:
•
•
In March 2016, Allied-Bristol Life Sciences (ABLS) launched its third project – ABLS III, LLC (dba
iβeCa Therapeutics), in a partnership with New York University (NYU). ABLS owns 100% of the
common stock of ABLS III. Following the transaction Allied Minds continues to exercise effective
control over ABLS and subsidiaries including ABLS III and as such the subsidiary will continue to be
fully consolidated within the group’s financial statements
In April 2016, the Group completed the formation of ABLS Capital, LLC in partnership with existing
shareholders of Allied Minds. The members of the LLC committed to up to $80 million for the
development of up to 10 drug discovery programs, of which Allied Minds commits 22.5%, and
contributed an initial $2 million funding for 2 million Class B shares. The purpose of this partnership
is to fund 80% of the lead optimisation phase of up to ten new drug candidates that pass initial
feasibility studies funded by ABLS. The remaining 20% of lead optimization phase investment, or up
to an additional $20 million, will be funded by Bristol-Myers Squibb Company (BMS), pursuant to
the terms of the partnership formed in 2014 through ABLS. Following the transaction, Allied Minds
continues to exercise effective control over ABLS Capital and as such the subsidiary will continue to
be fully consolidated within the group’s financial statements.
In August 2016, ABLS Capital raised $12 million of new equity in a Class B shares round pursuant
to the initial commitment discussed to fund its portion of the ABLS II financing (see below). There is
no change in the subsidiary’s governance structure as a result of the round. Following the transaction
Allied Minds continues to exercise effective control over ABLS Capital and as such the subsidiary will
continue to be fully consolidated within the group’s financial statements.
•
In August 2016, ABLS II closed a Series A round of financing issuing 6,410,256 shares of Preferred
Stock at issue price of $2.34 per share to ABLS Capital and Bristol-Myers Squibb Company, raising
approximately $15.0 million, resulting in a $19.0 million post-money valuation. The use of proceeds
from the Series A round is intended primarily to fund further development of the lead optimisation
program. Should this next lead optimisation phase prove successful, Bristol-Myers Squibb has the
right to acquire Allied Minds’ interest in ABLS II at a pre-determined multiple of invested capital.
140
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarises the changes in the non-controlling ownership interest in subsidiaries by reportable
segment:
EARLY STAGE
COMMERCIAL
CONSOLIDATED
NON-CONTROLLING INTEREST AS OF
31 DECEMBER 2014 (I)
Share of comprehensive loss
Effect of change in Company’s ownership
interest
Equity-settled share based payments
NON-CONTROLLING INTEREST AS OF
31 DECEMBER 2015 (I)
New funds into non-controlling interest
Share of comprehensive loss
Effect of change in Company’s ownership
interest
Equity-settled share based payments
NON-CONTROLLING INTEREST AS OF
31 DECEMBER 2016
STT
$’000
OTHER
$’000
RFB
$’000
(3,000)
(3,009)
8
103
OTHER
$’000
(4,054)
(1,413)
—
61
1,904
(6,251)
3,077
1,707
437
(5,898)
(5,406)
13,773
(11,460)
—
—
(3,353)
(1,295)
6,030
1,281
137
—
—
31
7,674
(9,518)
143
1,937
236
—
(16,501)
62
1,129
$’000
2,524
(20,191)
3,228
3,808
(10,631)
13,773
(32,609)
6,229
2,441
(15,074)
10,061
(9,114)
(6,670)
(20,797)
(i) The 2014 and 2015 amounts have been reclassified, see note 1.
18.) SUBSIDIARY PREFERRED SHARES
Certain of the Group’s subsidiaries have outstanding preferred shares which have been classified as a
subsidiary preferred shares in current liabilities in accordance with IAS 39 as the subsidiaries have a
contractual obligation to deliver cash or other assets to the holders under certain future liquidity events, and/
or a requirement to deliver an uncertain number of common shares upon conversion. The preferred shares
do not contain mandatory dividend rights. The preferred shares are convertible into common stock of the
subsidiary at the option of the holder and mandatorily convertible into common stock of the subsidiary upon
a qualified public offering at or above certain value and gross proceeds specified in the agreements or upon
the vote of the holders of a majority of the subsidiary preferred shares. Under certain scenarios the number
of common stock shares receivable on conversion will change. The Group has elected not to bifurcate the
variable conversion feature as a derivative liability, but account for the entire instrument at fair value through
the income statement.
The preferred shares are entitled to a vote with holders of common stock on an as converted basis. The
holders of the preferred shares are entitled to a liquidation preference amount in the event of a liquidation
or a deemed liquidation event of the respective subsidiary. The Group recognises the subsidiary preferred
shares balance upon the receipt of cash financing, and records the change in its fair value for the respective
reporting period through profit and loss. Preferred shares are not allocated shares of the subsidiary losses.
141
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarises the subsidiary preferred shares balance:
AS OF 31 DECEMBER:
Spin Transfer Technologies
SciFluor Life Sciences
Precision Biopsy
Federated Wireless
HawkEye 360
FINANCE COST
FROM IAS 39
FAIR VALUE
ACCOUNTING
ADDITIONS
$’000
$’000
9,865
6,798
536
372
14
—
—
5,000
16,970
7,250
2016
$’000
61,383
32,381
22,518
17,342
7,264
2015
$’000
51,518
25,583
16,982
—
—
TOTAL SUBSIDIARY PREFERRED SHARES
140,888
17,585
29,220
94,083
The redemption is conditional on occurrence of uncertain future events beyond the control of the Group. The
amount that would be payable in case of such events is as follows:
2015
2016
AS OF 31 DECEMBER:
$’000
$’000
Spin Transfer Technologies
SciFluor Life Sciences
Precision Biopsy
Federated Wireless
HawkEye 360
50,000
25,200
22,000
17,000
7,250
50,000
25,200
17,000
—
—
TOTAL LIQUIDATION PREFERENCE
121,450
92,200
For the two years ended 31 December 2016, the Group recognised the following changes in subsidiary
preferred shares:
2016
• Federated Wireless completed a $22.0 million round of Series A financing in January 2016. Of the
$22.0 million raised in this financing, Allied Minds contributed approximately $5.0 million for the
purchase of 2,727,580 preferred shares, and other existing shareholders of the Group contributed
with the remainder of the round.
• Precision Biopsy received the second tranche of the October 2015 Series A round (see below) and
raised addition $5.0 million from one of the existing shareholders that originally participated in the
round for additional 945,966 shares.
• HawkEye 360 completed a $11.0 million round of Series A-2 financing in November 2016. Of the
$11.0 million raised in this financing, Allied Minds contributed approximately $4.0 million for the
purchase of 3,096,459 preferred shares, and other new investors contributed with the remainder
of the round.
2015
• SciFluor Life Sciences completed a $30.0 million round of Series A financing in April 2015. Of the
142
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$30.0 million raised in this financing, Allied Minds contributed approximately $4.8 million for the
purchase of 501,857 preferred shares, and other existing shareholders of the Group contributed with
the remainder of the round.
• Precision Biopsy completed a $33.6 million round of Series A financing in October 2015. Of
the $33.6 million raised in this financing, Allied Minds contributed approximately $16.6 million
for the purchase of 3,140,608 preferred shares, and other existing shareholders of the Group
contributed with the remainder of the round. The round was funded in two tranches and the second
tranche of $10.0 million was due after one year from closing of the round, of which $4.0 million
was contributed by Allied Minds and other existing shareholders of the Group contributed with the
remainder $6.0 million.
The fair value is derived using the option pricing model where the key inputs and assumptions include the
subsidiary valuations, which are either based on the implied value from a third party funding round, on a
Net Present Valuation method or asset based valuation, volatility, time to liquidity, risk free rate and discount
for lack of marketability (DLOM).
Net Present Valuation (‘‘NPV’’) method
NPV is a standard technique used in valuation and can be defined as the difference between the present
value of the future cash flows from an investment and the amount of investment. Present value of the estimated
cash flows is computed by discounting them at the required rate of return which includes an adjustment for
risk.
The following are important factors when determining fair value based on NPV:
• Estimated income generally consists of sales, co-development revenues, one-time payments and
royalty payments on sales depending on the company, its business model and industry. These are
estimated based on a variety of factors including: total addressable market; competitive factors;
barriers to competition; pricing; typical standards for contract value; royalty rates; and likelihood of
development of a product that is commercially viable.
• Costs and capital expenditures are estimated for each phase of development based on the
companies’ information or according to industry standards. Costs are typically forecasted for cost of
goods, SG&A (selling, general and administrative), research and development as well as a variety
of other expenses. These are typically developed ‘‘from the ground up’’ for earlier years and for later
years depicted as a factor or percentage of sales.
• The terminal or exit value represents the aggregate value of an entity at the end of the discrete
forecast period. Terminal value may be estimated using the terminal multiple method, which inherently
assumes that the business will be valued at the end of the projection period based on reference
valuations. Under this methodology, the terminal value is typically calculated by applying one of two
commonly accepted methodologies:
o Multiple base terminal value: Use of an appropriate multiple to the relevant financial metric
forecasted for the last projected year taking into consideration the ongoing growth potential of
the business in the terminal year. Exit values included in the analysis are typically projected as a
multiple of EBIT, EBITDA or Sales based on the final year results for the forecast period. Where
available, a set of guideline public companies that are similar to the company to be used for
comparative purposes and the multiple is derived from this set;
o Gordon growth model based terminal value: Use of a formula that calculates the present value
of cash flow in the terminal year growing into infinity at an ascribed terminal growth rate. The
143
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
terminal growth rate is derived by estimating the long-term annual growth potential of the business
at the terminal year.
• Selection of discount rates is based on part utilising American Institute of Certified Public Accountants
(AICPA) practice standards varying by stage of development of the subsidiary as well as other risk
factors and typically range from 20-45%.
• Where available NPV results are compared against peer companies and to valuations for similar
companies.
Due to the early stage nature of the Group’s subsidiary companies, projections are particularly sensitive to
certain key assumptions namely:
• Discount rate and in particular risk premium;
• The ability to predict the cost and timing of achieving technical and commercial viability;
• Projected revenue and operating costs in the post-product development phase of each company;
and
• The size and share of addressable market for intellectual property, products and services developed.
Where has been a third party funding round in the year this has been used as the implied value of the
subsidiary, adjusted for indexation where this is deemed to be appropriate.
Whilst the Board considers the methodologies and assumptions adopted in the valuation are supportable,
reasonable and robust, because of the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for the investment existed and
the differences could be significant.
Option Pricing Model Inputs
The following presents the quantitative information about the significant unobservable inputs used in the fair
value measurement of the Group’s subsidiary preferred shares liability designated:
AS OF 31 DECEMBER:
TIME TO LIQUIDITY
VOLATILITY
Volatility
33.0% - 75.5%
60.0% - 70.0%
Time to Liquidity (years)
2.06 – 3.76
3.78 - 4.76
Risk-Free Rate
DLOM
1.22% - 1.70%
1.48% - 1.71%
20.0% - 27.5%
20.0% - 27.8%
144
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sensitivity Analysis
The following summarises the sensitivity from the assumptions made by the Company in respect to the
unobservable inputs used in the fair value measurement of the Group’s subsidiary preferred shares liability,
as well as that in respect to the enterprise value of the underlying subsidiary in general:
INPUT
SENSITIVITY RANGE
AS OF 31 DECEMBER:
SUBSIDIARY PREFERRED SHARES LIABILITY
INCREASE/(DECREASE)
2016
$'000
2015
$'000
Enterprise Value
Volatility
Time to Liquidity
Risk-Free Rate (1)
DLOM
-2%
+2%
-10%
+10%
-6 months
+6 months
-0.18% / -0.12%
+0.13% /+0.12%
-5.0%
+5.0%
(1,746)
1,746
(377)
(776)
416
(762)
416
(762)
42
(26)
(1,232)
1,232
1,783
(2,353)
1,253
(1,221)
1,253
(1,221)
42
(26)
(1) Risk-free rate is a function of the time to liquidity input assumption.
The change in fair value of the subsidiary preferred shares is recorded in Finance cost, net in the consolidated
statement of comprehensive loss.
19.) LOANS
AS OF 31 DECEMBER:
Non-current liabilities - Loans:
Unsecured loan
Current liabilities - Loans:
Unsecured loan
TOTAL LOANS
2016
$’000
2015
$’000
—
—
115
115
115
112
112
228
228
340
145
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The terms and conditions of outstanding loans are as follows:
AS OF 31 DECEMBER:
2016
$’000
2015
$’000
Currency
Nominal
interest
rate
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
Unsecured loan
USD
6.5%
2013-17
TOTAL INTEREST
BEARING LIABILITIES
115
115
115
115
340
340
340
340
CryoXtract Instruments, LLC Promissory Note
In May 2012, CryoXtract Instruments, LLC signed a promissory note with a state financing authority in the
amount of $800,000 to provide working capital for materials and fund salaries. The note fully matures
in May 2017 and bears interest of 6.5%. Payment of interest only is due in the first 18 months. As of 31
December 2013, CryoXtract had drawn the full balance of the note, of which $225,000 and $221,000
was repaid during 2016 and 2015, respectively, and $115,000 (2015: $28,000), net of discount, is
included in current liabilities. Interest expense incurred on the note was $26,000 and $41,000 for the years
ended 31 December 2016 and 2015, respectively.
As part of the consideration for the loan, CryoXtract had issued to the lender a warrant entitling the lender to
purchase an aggregate of 65,310 membership units in the subsidiary’s ordinary shares, representing 0.01%
of the total membership units. The fair value of the warrant issued of $35,000 is amortised over the life of
the loan as a discount against the note balance.
20.) TRADE AND OTHER PAYABLES
AS OF 31 DECEMBER:
Trade payables
Accrued expenses
Other current liabilities
Trade and other payables, current
Other non-current payables
TOTAL TRADE AND OTHER PAYABLES
21.) LEASES
2016
$’000
2015
$’000
4,362
9,210
369
13,941
720
14,661
6,326
7,690
252
14,268
751
15,019
Office and laboratory space is rented under non-cancellable operating leases. These lease agreements
contain various clauses for renewal at the Group’s option and, in certain cases, escalation clauses typically
linked to rates of inflation.
146
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rental commitments under non-cancellable leases were payable as follows:
FOR THE YEAR ENDED 31 DECEMBER:
2016
$’000
2015
$’000
Less than one year
Between one and five years
More than five years
TOTAL MINIMUM LEASE PAYMENTS
2,015
3,713
438
6,166
2,421
4,822
1,183
8,426
Total rent expense under these leases was approximately $2,859,000 and $2,673,000 in 2016 and
2015, respectively. Rent expenses are included in selling, general and administrative expenses and research
and development expenses in the consolidated statements of comprehensive loss.
22.) FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
The following table shows the carrying amounts and fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy:
AS OF 31 DECEMBER:
2016
$’000
CARRYING
AMOUNT
FAIR VALUE
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
FINANCIAL ASSETS DESIGNATED
AS FAIR VALUE THROUGH PROFIT
OR LOSS
Fixed income securities
16,912
—
16,912
LOANS AND RECEIVABLES
Cash and cash equivalents
Trade and other receivables
Security and other deposits
TOTAL
209,151
5,900
1,065
233,028
FINANCIAL LIABILITIES DESIGNATED
AS FAIR VALUE THROUGH PROFIT
OR LOSS
Subsidiary preferred shares
140,888
FINANCIAL LIABILITIES MEASURED
AT AMORTISED COST
Unsecured loan
Trade and other payables
Subsidiary preferred shares
TOTAL
115
14,662
—
155,665
—
—
—
—
—
—
—
—
—
—
—
—
—
16,912
209,151
5,900
1,065
233,028
209,151
5,900
1,065
233,028
— 140,888
140,888
123
14,662
—
—
— 140,888
14,785
140,888
123
14,662
140,888
155,673
147
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF 31 DECEMBER:
2015
$’000
CARRYING
AMOUNT
FAIR VALUE
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
FINANCIAL ASSETS DESIGNATED AS
FAIR VALUE THROUGH PROFIT OR
LOSS
Fixed income securities
89,193
14,360
75,385
—
89,745
LOANS AND RECEIVABLES
Cash and cash equivalents
Trade and other receivables
Subscription receivable
Security and other deposits
TOTAL
105,555
7,342
6,000
1,213
—
—
—
—
105,555
7,342
6,000
1,213
209,303
14,360
195,495
—
—
—
—
—
105,555
7,342
6,000
1,213
209,855
FINANCIAL LIABILITIES DESIGNATED
AS FAIR VALUE THROUGH PROFIT
OR LOSS
Subsidiary preferred shares
94,083
FINANCIAL LIABILITIES MEASURED AT
AMORTISED COST
Unsecured loan
Trade and other payables
TOTAL
340
15,019
109,442
—
—
—
—
—
94,083
94,083
359
15,019
15,378
—
—
359
15,019
94,083
109,461
The fair value of financial instruments that are not traded is determined by using valuation techniques that
maximise the use of observable market data where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument
is included in Level 2. Where the inputs for determining the fair value of financial instruments are not based
on observable market data, the instrument is included in Level 3.
The Group has determined that the carrying amounts for cash and cash equivalents, trade and other receivables
and payables, security and other deposits, and customer deposits are a reasonable approximation of their
fair values and are included in Level 2.
For assumptions used in the fair value measurement of the Group’s subsidiary preferred shares liability
designated as Level 3, see footnote 18.
23.) CAPITAL AND FINANCIAL RISK MANAGEMENT
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. Management monitors the level of capital
deployed and available for deployment in subsidiary projects. The board of directors seeks to maintain a
balance between the higher returns that might be possible with higher levels of deployed capital and the
advantages and security afforded by a sound capital position.
148
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Group’s executive management and board of directors have overall responsibility for establishment
and oversight of the Group’s risk management framework. The Group is exposed to certain risks through
its normal course of operations. The Group’s main objective in using financial instruments is to promote the
commercialisation of intellectual property through the raising and investing of funds for this purpose. The
Group’s policies in calculating the nature, amount and timing of funding are determined by planned future
investment activity. Due to the nature of activities and with the aim to maintain the investors’ funds secure
and protected, the Group’s policy is to hold any excess funds in highly liquid and readily available financial
instruments and reduce the exposure to other financial risks.
The Group has exposure to the following risks arising from financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails
to meet its contractual obligations. Financial instruments that potentially subject the Group to concentrations
of credit risk consist principally of cash and cash equivalents, other investments in the form of fixed income
securities, and trade and other receivables.
The Group held following balances:
AS OF 31 DECEMBER:
2016
$’000
2015
$’000
Cash and cash equivalent
209,151
105,555
Other investments
Trade and other receivables
16,912
5,900
89,193
7,342
231,963
202,090
The Group maintains money market funds, certificates of deposits, and fixed income securities with financial
institutions, which the Group believes are of high credit quality. Risk control assesses the credit quality of the
customer, taking into account its financial position, past experience and other factors. Individual risk limits
are set based on ratings in accordance with limits set by the board. The utilisation of credit limits is regularly
monitored. The credit quality of financial assets that are neither past due nor impaired can be assessed by
reference to credit ratings (if available) or to historical information about counterparty default rates.
Group policy is to maintain its funds in highly liquid deposit accounts with reputable financial institutions.
The aging of trade receivables that were not impaired was as follows:
AS OF 31 DECEMBER:
Neither past due nor impaired
Past due 30-90 days
Past due over 90 days
Reserve for bad debt
2016
$’000
2015
$’000
162
81
921
(852)
312
784
110
842
(724)
1,012
149
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Group has no significant concentration of credit risk. The Group assesses the credit quality of customers,
taking into account their current financial position. An analysis of the credit quality of trade receivables that
are neither past due nor impaired is as follows:
AS OF 31 DECEMBER:
2016
$’000
2015
$’000
Customers with less than three years of
312
1,012
trading history with the Group
312
1,012
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to
managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities
when they are due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Group’s reputation.
The Group seeks to manage liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable
requirements.
The following are the remaining contractual maturities of financial liabilities at the reporting date. The
amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of
netting agreements. The current portion of the carrying amount of lease obligations is included in trade and
other payables.
AS OF 31 DECEMBER 2016:
CONTRACTUAL CASH FLOWS
$’000
CARRYING
AMOUNT
TOTAL
LESS THAN
1 YEAR
2-5 YEARS
MORE THAN
5 YEARS
Trade and other payables
Other non-current liabilities
Unsecured bank loans
13,941
13,941
13,941
720
115
720
115
236
115
14,776
14,776
14,292
—
433
—
433
—
51
—
51
AS OF 31 DECEMBER 2015:
CONTRACTUAL CASH FLOWS
$’000
CARRYING
AMOUNT
TOTAL
LESS THAN
1 YEAR
2-5 YEARS
MORE THAN
5 YEARS
Trade and other payables
14,268
14,268
14,268
Other non-current liabilities
Unsecured bank loans
751
340
751
370
358
252
15,359
15,389
14,878
—
365
118
483
—
28
—
28
150
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at
significantly different amounts.
Market Risk
Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates and equity
prices – will affect the Group’s income or the value of its holdings of financial instruments. The objective
of market risk management is to manage and control market risk exposures within acceptable parameters,
while optimising the return. The Group maintains the exposure to market risk from such financial instruments
to insignificant levels. The Group exposure to changes in interest rates is determined to be insignificant.
Capital Risk Management
The Group is funded by equity finance and long term borrowings. Total capital is calculated as ‘total equity’
as shown in the consolidated statement of financial position.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure,
the Group may issue new shares or borrow new debt. The Group has some external debt and no material
externally imposed capital requirements. The Group’s share capital is set out in note 16.
24.) RELATED PARTIES
Transactions with Key Management Personnel
Key Management Personnel Compensation
Key management personnel compensation received comprised the following:
FOR THE YEAR ENDED 31 DECEMBER:
Short-term employee benefits
Share-based payments
TOTAL
2016
$’000
2015
$’000
3,097
2,073
5,170
3,341
1,708
5,049
Short-term employee benefits of the Group’s key management personnel include salaries and bonuses, health
care and other non-cash benefits.
Share-based payments include the value of awards granted under the LTIP during the year. Share-based
payments under the LTIP are subject to vesting terms over future periods. See further details of the two plans
in note 6.
Bonuses to key management for the year of $1,673,000 were outstanding at 31 December 2016 (2015:
$1,260,000) and were paid in January of 2017.
151
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Key Management Personnel Transactions
Directors’ remuneration for the year comprised the following:
FOR THE YEAR ENDED 31 DECEMBER:
Non-executive Directors’ fees
Non-executive Directors’ share-based payments
TOTAL
2016
$’000
492
275
767
2015
$’000
357
225
582
There were no outstanding fees to non-executive Directors at 31 December 2016 (2015: $105,000).
Executive management and Directors of the Company control 2.0% of the voting shares of the Company as
of 31 December 2016 (2015: 2.2%).
Other related party transactions
Consolidated Statement of Comprehensive Loss
FOR THE YEAR ENDED 31 DECEMBER:
PURCHASE OF GOODS
Equity-accounted investee
2016
$’000
2015
$’000
948
1,334
Consolidated Statement of Financial Position
AS OF 31 DECEMBER:
Purchase of goods outstanding balance
Equity-accounted investee
2016
$’000
2015
$’000
—
171
The Group has not engaged in any other transactions with key management personnel or other related
parties.
25.) TAXATION
Amounts recognised in profit or loss
No current income tax expense was recorded for US jurisdictions for the years ended 31 December 2016
and 2015 due to accumulated losses.
152
ANNUAL REPORT AND ACCOUNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER:
Net loss
Income taxes
NET LOSS BEFORE TAXES
2016
$’000
2015
$’000
128,942
97,989
—
—
128,942
97,989
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the US, therefore the reconciliation of the effective tax rate has
been prepared using the US statutory tax rate. A reconciliation of the US statutory rate to the effective tax
rate is as follows:
Weighted average statutory rate
Effect of state tax rate in US
Credits
Share-based payment remeasurement
Other
Current year losses for which no deferred
tax asset is recognised
2016
%
35.0
5.2
3.4
(1.8)
(5.0)
(36.8)
—
2015
%
35.0
5.3
3.7
(2.6)
(2.6)
(38.8)
—
Factors that may affect future tax expense
The Group is primarily subject to taxation in the US and UK. Additionally, the Group is exposed to state
taxation in various jurisdictions throughout the US. Changes in corporate tax rates can change both the
current tax expense (benefit) as well as the deferred tax expense (benefit). Reductions in the UK corporation
tax rate to 19% (effective 1 April 2017) and to 18% (effective 1 April 2020) were substantially enacted
on 26 October 2015. A further reduction to 17% (effective 1 April 2020) was substantially enacted on 6
September 2016. The maximum corporate tax rate in the US for the corresponding periods is 35%.
153
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unrecognised Deferred Tax Assets
Deferred tax assets have not been recognised in respect of the following items, because it is not probable
that future taxable profit will be available against which the Group can use the benefits therefrom:
AS OF 31 DECEMBER:
Operating tax losses (1)
Capital losses (2)
Research credits (1)
Temporary differences (3)
Deferred tax assets
Other temporary differences (3)
Deferred tax liabilities
2016
$’000
2015
$’000
115,868
87,280
1,146
10,130
20,620
147,751
(1,079)
(1,079)
1,612
6,558
15,390
110,840
(398)
(398)
Deferred tax assets, net, not recognised
146,685
110,442
(1) expire starting in 2024
(2) expiring since 2015
(3) generally will expire 20 years subsequent to the time the deduction is taken
Deferred tax is measured at the rates that are expected to apply in the period when the temporary differences
are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the
statement of financial position date. The reduction in the main rate of UK corporation tax to 20% (from 23%)
was substantially enacted on 2 July 2013 and applied from 1 April 2015. However, the UK corporation
tax rate initially reduced from 23% to 21% from 1 April 2014. The change in the UK corporate tax rate did
not materially impact the calculation of the deferred tax assets as these assets are generally exposed to tax
in US jurisdiction.
There were no movements in deferred tax recognised in income or equity in 2016 or 2015 as the deferred
tax asset was not recognised in any of those years.
As of 31 December 2016 the Company had United States federal net operating losses carry forwards
(NOLs) of approximately $287.6 million (2015: $216.6 million) available to offset future taxable income,
if any. These carry forwards start to expire in 2026 and are subject to review and possible adjustment by
the Internal Revenue Service. The Company may be subject to limitations under Section 382 of the Internal
Revenue Code as a result of changes in ownership.
26.) SUBSEQUENT EVENTS
The Company has evaluated subsequent events through 27 April 2017, which is the date the consolidated
financial information is available to be issued.
HawkEye 360, Inc.
In February 2017, HawkEye completed a second closing of the Series A-2 financing round for additional
$2.75 million, of which $1.25 million from existing shareholders of the Group and members of management
154
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the company for 967,641 Series A-2 shares and a warrant to purchase 1,161,172 Series A-2 shares
for $1.5 million issued to an existing investor of the company.
Group Restructuring Plan
In April 2017, concurrent with the departure of the former CEO, management undertook a reevaluation
of the portfolio and strategic investment direction of the Group and the Board of Directors approved a
restructuring plan that resulted in the discontinuance of funding for several of the group subsidiary businesses.
Those companies included Biotectix, Cephalogics, CryoXtract, Novare Pharmaceuticals, Optio Labs, RF
Biocidics, and SoundCure/Tinnitus Treatment Solutions. This decision will allow the Group to reallocated
capital and management resources previously earmarked for these subsidiaries in the previously approved
2017 budgets to the portfolio and pipeline of our most promising companies consistent with the goal to
accelerate commercialisation of existing companies and invest in new opportunities where there is greater
potential for value creation. The Company is in process of determining the net realisable value of the
underlying assets at these subsidiaries to which those assets will be written off, which as of 31 December
2016 included property and equipment of $0.8 million, intangible assets of $1.6 million, inventories of
$2.5 million, trade and other receivables of $0.3 million, and other non-current financial assets of $0.1
million. The Company wrote off fixed and intangible assets of $1.1 million and $0.3 million at CryoXtract
and Novare Pharmaceuticals, respectively, as of 31 December 2016, reflecting indications that those
investments were impaired as of the year end. The Company expects the total cost of this restructuring plan to
be approximately $5.5 million and have accrued this amount accordingly in April 2017. The restructuring is
estimated to result in approximately $9.0 million of savings from costs that the Group would have otherwise
incurred if it continued to support these businesses in 2017 after the restructuring event.
Vatic Materials, Inc.
Operations at Vatic Materials, Inc., a wholly-owned subsidiary of the Group, were discontinued subsequent
to year end in April 2017. There was no material impact of this event to the Group financials as of 31
December 2016.
155
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 COMPANY BALANCE SHEET
AS OF 31 DECEMBER
NOTE
2
3
4
5
5
5
5
5
5
NON-CURRENT ASSETS
Investment in subsidiary
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Loan to subsidiary
TOTAL CURRENT ASSETS
TOTAL ASSETS
EQUITY
Share capital
Share premium
Merger reserve
Translation reserve
Accumulated deficit
TOTAL EQUITY
CURRENT LIABILITIES
Trade and other payables
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Registered number: 8998697
2016
$ ‘000
2015
$ ‘000
158,431
158,431
1,297
144
183,397
184,838
343,269
3,657
157,067
263,435
(79,815)
(1,518)
342,826
443
443
443
190,055
190,055
1,564
480
126,109
128,153
318,208
3,429
155,867
185,544
(25,852)
(812)
318,176
32
32
32
343,269
318,208
The financial statements on pages 156 to 162 were approved by the Board of Directors and authorised for issue
on 27 April 2017 and signed on its behalf by:
Jill Smith
Chief Executive Officer
156
ANNUAL REPORT AND ACCOUNTS 2016
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
BALANCE AT 31 DECEMBER 2014
214,445,579
3,411
153,442
185,544
(10,209)
250
332,438
SHARE CAPITAL
SHARES
AMOUNT
$’000
SHARE
PREMIUM
$’000
MERGER
RESERVE
$’000
TRANSLATION
ACCUMULATED
RESERVE
$’000
DEFICIT
$’000
TOTAL
EQUITY
$’000
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Loss for the year
Foreign currency translation
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Exercise of stock options
Exercise of stock options
Equity-settled share based payments
Equity-settled share based payments
—
—
1,191,784
—
—
—
18
—
—
—
2,425
—
—
—
—
—
—
(15,643)
(15,643)
—
—
BALANCE AT 31 DECEMBER 2015
215,637,363
3,429
155,867
185,544
(25,852)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Loss for the year
Foreign currency translation
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Issuance of ordinary shares
Exercise of stock options
Equity-settled share based payments
BALANCE AT 31 DECEMBER 2016
—
—
17,457,015
650,000
—
—
—
219
9
—
—
—
—
1,200
—
—
—
77,891
—
—
—
(53,963)
(53,963)
—
—
—
233,744,378
3,657
157,067
263,435
(79,815)
(4,268)
(27)
(4,295)
—
3,233
(812)
(6,008)
(642)
(6,650)
—
—
5,944
(1,518)
(4,268)
(15,670)
(19,938)
2,443
3,233
318,176
(6,008)
(54,605)
(60,613)
78,110
1,209
5,944
342,826
157
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016
2016
$ ‘000
2015
$ ‘000
(9,131)
(4,270)
5
5,944
3,233
4
5
5
335
411
1
1,127
(1,313)
(78,272)
(78,272)
78,110
1,208
79,318
(267)
1,564
1,297
(447)
131
2
(352)
(1,703)
(815)
(815)
—
2,443
2,443
(75)
1,639
1,564
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER:
NOTE
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Share-based compensation expense
Changes in working capital:
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Interest received
Other finance cost
NET CASH USED IN OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of note receivable to subsidiary, net of repayments
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of share capital
Proceeds from exercise of stock options
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
158
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
1.) ACCOUNTING POLICIES
Basis of Preparation and Measurement
The financial statements of the parent company have been prepared under the historical cost convention,
in accordance with the Companies Act 2006 and the International Financial Reporting Standards (“IFRS”).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure
requirements of the International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). A
summary of the more important accounting policies which have been applied consistently throughout the
year are set out below.
Functional and Presentation Currency
The functional currency of the parent company is British Pounds. The financial statements of the parent
company are presented in US dollars.
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of the parent company
at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign
exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in
the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets
and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional
currency at foreign exchange rates ruling at the dates the fair value was determined.
On translation of the Company financial statements from functional currency to presentational currency the
assets and liabilities are translated at the closing exchange rates. Profit and loss accounts are translated at
the average rates of exchange during the year. Gains and losses arising on these translations are taken to
reserves.
Investments
Investments are stated at historic cost less any provision for impairment in value and are held for long-term
investment purposes. Provisions are based upon an assessment of events or changes in circumstances that
indicate that an impairment has occurred such as the performance and/or prospects (including the financial
prospects) of the investee company being significantly below the expectations on which the investment
was based, a significant adverse change in the markets in which the investee company operates or a
deterioration in general market conditions.
Intercompany Loans
All intercompany loans are initially recognised at fair value and subsequently measured at amortised cost.
Where intercompany loans are intended for use on a continuing basis in the Company’s activities and there
is no intention of their settlement in the foreseeable future, they are presented as current assets.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less.
159
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Impairment
If there is an indication that an asset might be impaired, the Company will perform an impairment review.
An asset is impaired if the recoverable amount, being the higher of net realisable value and value in use,
is less than its carrying amount. Value in use is measured based on future discounted cash flows (“DCF”)
attributable to the asset. In such cases, the carrying value of the asset is reduced to recoverable amount with
a corresponding charge recognised in the profit and loss account.
Financial Instruments
Currently the Company does not enter into derivative financial instruments. Financial assets and financial
liabilities are recognised and cease to be recognised on the basis of when the related titles pass to or from
the Company.
Share-based Payments
Share-based payment arrangements in which the Company receives goods or services as consideration for
its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless
of how the equity instruments are obtained by the Company.
The grant date fair value of share-based payment awards granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period that the employees become unconditionally
entitled to the awards. The fair value of the options granted is measured using an option valuation model,
taking into account the terms and conditions upon which the options were granted. The amount recognised
as an expense is adjusted to reflect the actual number of awards for which the related service and non-
market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense
is based on the number of awards that do meet the related service and non-market performance conditions
at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value
of the share-based payment is measured to reflect such conditions and there is no true-up for differences
between expected and actual outcomes.
2.) INVESTMENT IN SUBSIDIARY
2016
$’000
2015
$’000
Balance at 1 January
190,055
199,429
Additions
Impairment
Disposals
—
—
—
—
—
—
Effect from currency translation
Balance at 31 December
(31,624)
158,431
(9,374)
190,055
Investment in subsidiary represents the Company’s wholly-owned investment in Allied Minds, LLC. Allied
Minds, LLC operates in the US as a US-focused science and technology development and commercialisation
company. For a summary of the Company’s indirect subsidiaries see note 11 to the consolidated financial
statements.
160
ANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3.) CASH EQUIVALENTS
AS OF 31 DECEMBER:
2016
$’000
2015
$’000
Bank balances
CASH AND CASH EQUIVALENTS
1,297
1,297
1,564
1,564
4.) LOAN TO SUBSIDIARY
Balance at 1 January
Additions
Repayments
Effect from currency translation
Balance at 31 December
2016
$’000
2015
$’000
126,109
79,973
(1,701)
(20,984)
183,397
131,500
3,913
(3,098)
(6,206)
126,109
The Company has loaned its excess cash to its operating subsidiary Allied Minds, LLC to be further deployed
in support of the continuing operations of the Group. The note bears an interest of 1.25% and is repayable
upon demand. However, there is no intention of its settlement in the foreseeable future.
5.) SHARE CAPITAL AND RESERVES
Allied Minds plc was incorporated with the Companies House under the Companies Act 2006 as a public
company on 15 April 2014. Full detail of the share capital and reserves activity for the year can be found
in note 16 to the consolidated financial statements.
AS OF 31 DECEMBER:
EQUITY
2016
$’000
2015
$’000
Share capital, £0.01 par value, issued and fully paid
3,657
3,429
233,744,378 and 215,637,363, respectively
Share premium
Merger reserve
Translation reserve
Accumulated deficit
TOTAL EQUITY
157,067
263,435
(79,815)
(1,518)
342,826
155,867
185,544
(25,852)
(812)
318,176
161
Financial StatementsANNUAL REPORT AND ACCOUNTS 2016 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
In December 2016, the Company issued 17,457,015 ordinary shares of one pence at 367 pence, which
were admitted to the premium listing segment of the Official List of the UK Listing Authority and to trading on
the LSE’s Main Market for listed securities. This resulted in approximately $78.1 million of net proceeds from
the equity placing (net of issue cost of $2.2 million). The amounts subscribed for share capital in excess of the
nominal value in relation to this transaction are reflected in the merger reserve balance as of 31 December
2016.
The share-based payment charge for the fiscal year ended 31 December 2016 included in accumulated
deficit was $5.9 million (2015: $3.2 million).
6.) PROFIT AND LOSS ACCOUNT
As permitted by Section 408 of the Companies Act 2006, the Company’s profit and loss account has not
been included in these financial statements. The Company’s loss for the year was $6,402,000 (2015:
$4,268,000).
7.) DIRECTORS’ REMUNERATION, EMPLOYEE INFORMATION AND SHARE-BASED PAYMENTS
The remuneration of the Directors of the Company is disclosed in note 24 to the consolidated financial
statements. Full details for their remuneration can be found in the Directors’ Remuneration Report on pages
62 to 91. Full detail of the share-based payment charge and related disclosures can be found in note 6 to
the consolidated financial statements.
The Company had no employees during 2016 and 2015.
162
ANNUAL REPORT AND ACCOUNTS 2016 COMPANY INFORMATION
Company Registration Number 08998697
BROKERS
REGISTERED OFFICE
40 Duke’s Place
London EC3A 7NH
United Kingdom
WEBSITE
www.alliedminds.com
BOARD OF DIRECTORS
Peter Dolan
(Non-Executive Chairman)
Jill Smith
(Chief Executive Officer)
Rick Davis
(Senior Independent Director)
Jeff Rohr
(Independent Non-Executive Director)
Kevin Sharer
(Independent Non-Executive Director)
COMPANY SECRETARY
Michael Turner
Credit Suisse International
1 Cabot Square
London E14 4QJ
United Kingdom
TEL: +44 (0)20 7888 8888
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom
TEL: +44 207 260 1000
REGISTRAR
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham Kent BR3 4TU
United Kingdom
TEL UK: 0871 664 0300
TEL Overseas: +44 208 639 3399
SOLICITORS
DLA Piper UK LLP
3 Noble Street
London EC2V 7EE
United Kingdom
TEL: +44 870 011 1111
INDEPENDENT AUDITOR
KPMG LLP
15 Canada Square
London E14 5GL
United Kingdom
TEL: +44 207 311 1000
MEDIA RELATIONS
Citigate Dewe Rogerson
3 London Wall Buildings
London EC2M 5SY
United Kingdom TEL: +44 207 638 9571
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Financial StatementsANNUAL REPORT AND ACCOUNTS 2016