EVOLVING GREAT
IDEAS INTO
WORLD-CHANGING
BUSINESSES
IP GROUP PLC
Annual Report and Accounts
for the year ended 31 December 2019
Registration Number: 04204490 | Stock Code: IPO
Evolving great ideas into
world-changing businesses
INVESTMENT
CASE
IP Group’s purpose is to evolve great ideas into world-
changing businesses that achieve a positive impact on the
environment and society as well as a financial return.
Sustainability has always been at
the heart of IP Group. Through the
businesses that we back and build, we
aim to address some of the world’s
most pressing challenges in areas such
as disease prevention and mitigation,
the transition to a less carbon intense
energy world and in productivity
improvement. Our approach therefore
considers environmental, social and
governance (“ESG”) factors and their
impact.
Our team is passionate about this
endeavour and has spent many years
finessing its approach to identifying
attractive intellectual property (“IP”),
nurturing and building businesses
around that IP and then providing
capital and support along the journey
from ‘cradle to maturity’. Through
collaborations and established
partner relationships with leading
research institutions in the UK, the US
and Australasia, the Group seeks to
access and commercialise a wealth of
scientific research.
Our portfolio, which is currently valued
at just over £1bn, comprises holdings
in 57 focus companies covering a
broad range of commercial innovations
across life sciences and technology.
We have a long track record and are
proud to have helped create and build
a number of exciting businesses that
are making a real difference. We are
pioneering in our approach, passionate
about what we do, principled in how
we work and committed to delivering
results for all of our stakeholders.
DISCLAIMER: THIS ANNUAL REPORT AND ACCOUNTS MAY CONTAIN FORWARD-
LOOKING STATEMENTS. THESE STATEMENTS REFLECT THE BOARD’S CURRENT VIEW,
ARE SUBJECT TO A NUMBER OF MATERIAL RISKS AND UNCERTAINTIES AND COULD
CHANGE IN THE FUTURE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
CHANGES INCLUDE, BUT ARE NOT LIMITED TO, THE GENERAL ECONOMIC CLIMATE AND
MARKET CONDITIONS, AS WELL AS SPECIFIC FACTORS RELATING TO THE FINANCIAL
OR COMMERCIAL PROSPECTS OR PERFORMANCE OF INDIVIDUAL COMPANIES
WITHIN THE GROUP ’S PORTFOLIO. FURTHER DETAILS CAN BE FOUND IN THE RISK
MANAGEMENT SECTION ON PAGES 36 TO 49.
THROUGHOUT THI S AN NUAL RE PO RT AN D ACCO U NTS, I P GROUP PLC AND ITS
SUBSI DIA RI E S AR E R E FER RE D TO AS ‘I P GR O UP ’, THE ‘GR OUP ’ OR THE ‘COMPANY’ ,
AS AP P ROP R IATE . THE GR O U P ’S H O LDI NGS I N PO RTFOL I O COMPANIE S RE FLECT THE
UNDILUTE D B E N EFI CI AL EQ U I TY I NT ER EST E XCLU DI N G D EBT, UNLESS OTHERWISE
EXPLI CITLY STATE D.
B A L A N C E D A N D M AT U R I N G
P O R T F O L I O O F E XC I T I N G
C O M PA N I E S B A S E D O N ‘ D E E P
S C I E N C E ’.
I N T E R N AT I O N A L G R O U P W I T H
O P E R AT I O N S I N T H E U K ,
U S , A U S T R A L I A A N D A S I A ,
A N D A N I N T E R N AT I O N A L
S H A R E H O L D E R A N D
C O - I N V E S T O R N E T W O R K .
P E R M A N E N T C A P I TA L
S T R U C T U R E , E N A B L I N G T H E
P R O V I S I O N O F F U N D I N G
F R O M ‘ C R A D L E T O M AT U R I T Y ’
U N C O N S T R A I N E D B Y
T R A D I T I O N A L F I X E D - L I F E V C
F U N D A P P R O A C H .
E S TA B L I S H E D PA R T N E R
R E L AT I O N S H I P S W I T H
L E A D I N G R E S E A R C H
I N S T I T U T I O N S , G I V I N G
A C C E S S T O P O T E N T I A L LY
D I S R U P T I V E I P A R O U N D
T H E W O R L D .
D E E P T E C H N I C A L A N D
B U S I N E S S - B U I L D I N G
E X P E R T I S E , I N C L U D I N G
B O A R D R E P R E S E N TAT I O N A N D
S U P P O R T, C A P I TA L S O U R C I N G ,
I P S T R AT E G Y, E X E C U T I V E
S E A R C H .
T R A C K R E C O R D B U I LT O V E R
1 5 + Y E A R S .
S T R O N G P O R T F O L I O F O C U S
O N E S G A N D P O S I T I V E I M PA C T
O N S O C I E T Y.
I F C
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
HIGHLIGHTS
CONTENTS
+169%
CASH
REALISATIONS
£194.9m
GROSS CASH
AND DEPOSITS
Portfolio highlights
• Fair value of portfolio: £1,045.6m
(2018: £1,128.2m)
•
169% increase in cash realisations to
£79.5m, which exceeded investment
into portfolio for the first time since
2007 (2018: £29.5m)
•
Investment into portfolio: £64.7m
(2018: £100.9m)
• Net portfolio fair value reduction1
of £43.9m, approximately 4%
(2018: £48.4m, 4%)
• Oxford Nanopore announced
investment and secondary share
sales totalling £109.5m, having
more than doubled revenue and
orders in 2018 to $43.7m and
$60.6m respectively
•
Istesso announced positive
outcome from Phase 2a study of
MBS2320 for rheumatoid arthritis
• Significant commercial progress
at Ceres Power including first
product launch with Japan’s Miura
and further £8m licence and joint
development agreement with
Korea’s Doosan
• Total funds raised by portfolio
companies of £430m (2018: £717m)
including financing rounds for Inivata
(£40.0m), Featurespace (£25.0m)
and Azuri Technologies (£20.0m)
READ ABOU T OU R
BUSI NESS M O DE L O N
PAGE S 10 AN D 11
READ ABOU T OU R
PORTFOL IO O N
PAG ES 21 TO 3 1
Business Overview
Highlights
Group at a glance
Strategic Report
Chairman’s summary
Market
Business model
Our strategy
Financial and
operational highlights
• Hard NAV1 £1,141.5m or 108 pence per
share (2018: £1,217.5m, 115 pence per
share)
Our strategy in action
Key performance indicators
Chief Executive’s operational review
• Net assets £1,141.9m (2018: £1,218.2m)
Portfolio review
• Strong liquidity with gross cash and
deposits at 31 December 2019 of
£194.9m (2018: £219.0m) and net
cash of £112.4m (2018: £121.2m)
• Return on Hard NAV1 of negative
£73.7m (2018: negative £75.6m)
Portfolio review: Life sciences
Portfolio review: Technology
Portfolio review:
Multi-sector platforms
Financial review
Risk management
• Loss for the year of £78.9m (2018:
Sustainability
£293.8m loss)
• Net overheads reduced by 13% to
£22.6m (2018: £26.0m)
• Parkwalk Advisors, the Group’s
specialist EIS subsidiary, grew assets
under management to £300m
(2018: £220m)
• Further encouraging progress made
in developing the Group’s businesses
in the US and Australia
• Board strengthened through
appointment of two additional
independent non-executive directors
Post period end
highlights
• Ceres Power announces Bosch to
increase stake to 18% from 4% with
£38m strategic investment, which
included a £22m partial realisation
by IP Group
• Total further cash realisations from
the portfolio of £55.4m in 2020
Working with the Group’s
stakeholders
Our Governance
Board of directors
Corporate governance
statement
Nomination committee report
Directors’ remuneration report
Report of the audit and
risk committee
Other statutory
Directors’ report
Statement of directors’
responsibilities
Our Financials
Independent auditor’s report
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Company balance sheet
Company statement of
changes in equity
Notes to the Company
financial statements
Company information
1
2
6
8
10
12
14
16
18
21
26
28
30
32
36
50
66
78
82
92
98
115
120
123
126
134
135
136
137
138
171
172
173
187
0 1
1 Alternative performance measure, see note 29 for definition and reconciliation
to IFRS primary statements.
BUSINESS OVERVIEW GROUP AT A GLANCE
GROUP AT A GLANCE
IP Group’s purpose is to evolve great ideas into world-changing businesses. We
achieve this by systematically helping to create, build and support outstanding
intellectual property-based companies.
We partner with leading research institutions in countries where leading
research is produced. The Group has three areas of geographic focus:
the UK, the US and Australasia.
Accessing intellectual and financial capital from leading global hubs
Hong Kong
Australasia
US
UK
Engagement and impact
Since the Group was founded, we have formed and supported over 300 companies in total and have invested more
than £850m into those businesses which, in turn, have raised more than £4.4bn of funding. We estimate that more
than 5,000 jobs have been created through IP Group and its portfolio companies. IP Group’s vision is to create an
international leader in IP commercialisation. Through our two divisions, Life Sciences and Technology, we evolve great
ideas into world-changing businesses.
£4.4bn
RAISED BY
PORTFOLIO COMPANIES
300+
COMPANIES
CREATED
£850m+
INVESTED IN DEEP
TECH BUSINESSES
£1.1bn
NET ASSET VALUE
108 PENCE PER SHARE
5,000+
JOBS
CREATED
ALIGNED WITH
SUSTAINABLE
DEVELOPMENT
GOALS
READ ABOUT OU R PARTN E RS
IN OUR BUSIN ESS MO DEL O N
PAG ES 10 AND 1 1
0 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 READ ABOU T OU R
PORTFOL IO P ERFO RMA N CE
ON PAGES 21 TO 3 1
Portfolio summary by stage, sector and geography
FAIR VALUE BY STAGE
VALUE BY SECTOR/GEOGRAPHY
72%
TOP 20
16%
FOCUS
12%
OTHER
£314M
LIFE SCIENCES
(EX.ONT)
£205M
TECHNOLOGY
£57M
US
£4M
AUSTRALASIA
B U S I N E S S
O V E R V I E W
£264M
ONT
£124M
CLEANTECH
£27M
MULTI-SECTOR
Portfolio analysis – UK breakdown
Technology
Cleantech
Life Sciences
Multi-sector
Total UK
Portfolio
Value of
companies in
the portfolio
2019 net
portfolio
gain/(loss)
Number of
portfolio
companies1
£204.5m £124.3m £578.1m £26.7m £946.6m
(£38.7m) £25.8m (£43.8m) £0.3m (£51.5m)
41
16
42
2
101
Top 20 £114.5m £104.1m £463.5m £23.9m £706.0m
E
G
A
T
S
Focus £57.4m £15.0m £71.3m
–
£143.7m
Other £32.6m £5.2m £43.3m £2.8m £83.9m
1 Excluding organic and de minimis (89 companies)
R EAD THE F ULL
PO RT FOLIO A N ALYSIS
ON PAGES 30 TO 31
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P
O
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T
S
T
R
A
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IP Group plc Annual Report and Accounts for the year ended 31 December 2019
S T R AT E G I C
R E P O R T
Chairman’s summary
Market
Business model
Our strategy
Our strategy in action
Key performance indicators
Chief Executive’s operational review
Portfolio review
Portfolio review: Life sciences
Portfolio review: Technology
Portfolio review: Multi-sector platforms
Financial review
Risk management
Sustainability
Working with the Group’s stakeholders
6
8
10
12
14
16
18
21
26
28
30
32
36
50
66
R EAD ABOU T WHER E
WE OP ER AT E O N
PAGE 02
R EAD ABOU T OU R
B USIN ESS MO DE L O N
PAGE S 10 AN D 1 1
0 5
CHAIRMAN’S SUMMARY
During 2019, the Group focussed on its financial priorities
including generating realisations and managing the
Group’s net overheads.
2019 was a pivotal year for IP Group.
It was the year in which the resilience
of the Group, its operating and
funding models and the cohesion and
adaptability of its management team,
were all severely tested. Our share
price fell by 35% during the year to
close at 71p, while net assets per share
reduced by 6% to 108p. It is testament
to the strength of the Group’s culture,
in particular executive management’s
determination to demonstrate the latent
value within the portfolio of companies,
that we enter 2020 in a more
sustainable financial position than that
in which we entered 2019. This has yet
to be reflected in the share price which,
after an initial recovery, has fallen further
in 2020 as part of the recent general
market decline. The share price therefore
remains significantly below the Group’s
year end net asset value per share, a gap
that the Board is focused on reducing.
At the outset of 2019, the Board
recognised that it was no longer
prudent to continue to rely upon a
funding model dominated by a small
number of shareholders, a number
of whom were facing their own
challenges, due in part to weakening
public market sentiment for smaller,
technology driven companies. This led
to the Board exploring the full range
of alternative operating and funding
models to determine which were best
suited to support the Group’s backing
of world-changing technology
through its ‘cradle to maturity’
operating model. The urgency of this
review was accelerated upon the
well-publicised difficulties surrounding
Woodford Investment Management
who had hitherto been a leading
supporter and investor in IP Group.
Management’s response to the
challenges the Group faced was
both insightful and pragmatic. There
was a clear recognition that hard
choices needed to be made, first to
realise cash from the portfolio and
second, to be even more selective
in deploying our valuable financial
and management resources to the
portfolio companies most likely to
demonstrate returns in the short
to medium term. The cohesion and
adaptability displayed by executive
management in making the necessary
choices was impressive. Through
the course of 2019, the Group made
cash realisations from the portfolio
of £79.5m, a record sum, and ended
the year with gross cash resources
of £194.9m, significantly ahead of
its plan. This was achieved after
supporting the portfolio with a further
£64.7m of investment.
2019 was also the year in which
the maturity of the portfolio began
to show clearly the value inherent
from the range and depth of past
investment activity. A few examples
illustrate this well. Life Sciences
portfolio company, Istesso, successfully
concluded Phase 2a trials for its
leading investigational drug, with
no serious adverse events and
some evidence of clinical benefit.
Oxford Nanopore’s technology was
selected for the population-scale
‘Genome Program’ launched by
Abu Dhabi’s Department of Health.
Oxford Nanopore also successfully
negotiated primary and secondary
funding deals at the turn of the year,
which confirmed its valuation and
encouraged optimism over future
growth. Finally, Ceres Power further
developed its industrial partnerships
with leading global companies in the
power generation and supply sectors,
building on its global leadership in
fuel cell technology. The company
is on track to make a meaningful
contribution to the achievement
of a lower carbon future. The Chief
Executive’s review covers these in
more detail together with other
notable developments within the
portfolio.
Coincident with this, the Group’s
recent expansion of its University
partnership model into both Australia
and the United States showed
encouraging progress, both in
terms of portfolio investment and
fresh sources of funding. A highly
successful roadshow of portfolio
Sir Douglas Flint
Chairman
A number of our key
assets are emerging
as the leaders in their
respective fields."
Sir Douglas Flint,
Chairman
0 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
companies in Beijing in October
added to the growing international
reach and reputation of the Group.
This progress, without doubt,
contributed to the company’s ability
during 2019 to reshape its shareholder
base. A bookbuild led by BofA
Securities in September facilitated
liquidity for departing shareholders
and attracted a broad range of new
shareholders including leading public
pension fund, RPMI Railpen, who have
built their stake in the Company to
just over 15%. We are delighted to
welcome them as shareholders.
We took steps during the year to
strengthen the Board in terms of
experience and prepare for known
retirement plans. Dr. Caroline Brown,
a seasoned Non-executive Director
(“NED”) in energy and technology
focussed companies, with a successful
investment banking career behind
her, joined the Board on 1 July. On
1 August we welcomed Aedhmar
Hynes to the Board who brought
with her invaluable experience from
having founded and led a global,
US-based, digital marketing and
communications business. Jonathan
Brooks, who served on the Board for
nearly nine years, is stepping down
from the Board as of today. On behalf
of shareholders and the Board I want
to record our sincere appreciation
of his dedication and wise counsel
over his period of service. Dr. Brown
has taken over his role as Chair of
the Audit and Risk Committee, and
Heejae Chae succeeds him as Chair of
the Remuneration Committee.
The current year has started well with
the Group realising a further £55.4m
of cash from its portfolio in the year
to date. The major contributors to
this have been Oxford Nanopore, as
described above, and Ceres, who in
January announced that Bosch was
increasing its equity shareholding in
the company to c.18% from c.4% - a
significant strategic step forward
in the partnership, established in
August 2018 following successful
collaboration on technology
development and manufacturing in
both the UK and Germany. IP Group
took this opportunity to realise a
small portion of its investment in
Ceres while retaining a significant
holding in the company. Following this
announcement, Ceres Power has seen
its share price rise 37% in early 2020
adding approximately £25m to the
value of our shareholding. Overall, as
at 10 March 2020, the Group’s quoted
portfolio has seen a net fair value gain
of £20m, versus a decline in the AIM
market of 16% over the same period.
There is still, however, much to do
to build on the reshaping of the
Group, which commenced last
year but we start from a good
position, with momentum within the
portfolio and against a backdrop of
strong commitment from the new
Government to expand support and
development to the UK’s leadership
positions in science and technology.
We also benefit from a strong
purpose-led and entrepreneurial
culture at IP Group, one in which
our team are deeply committed
to the Group’s aim of delivering
and supporting world-changing
businesses for the benefit of all
stakeholders. IP Group recognises
that meaningful engagement with
stakeholders is critical as it enables
the Board to make informed decisions.
In my role as Chair, I held a number
of meetings with shareholders during
the course of the year. Engagement
with all stakeholders is reported in
further detail on pages 66 to 75.
As the world seeks expanded support
from technology to contribute to
addressing the major challenges of
our time in terms of climate change,
demographic ageing and more
productive use of scarce resources,
IP Group is well placed through our
portfolio companies to be part of
the solutions needed. The Group is
monitoring the spread and impact
of Coronavirus, which has caused
significant volatility in global equity
markets, focusing on the safety
of our employees and monitoring
potential impacts within our portfolio.
Oxford Nanopore is supporting and
collaborating with public health
professionals enabling real-time
genomic surveillance to be used in the
fight against the virus around the world.
Finally, I want to express the Board’s
appreciation of all our colleagues
working for the Group who, in
challenging times, worked tirelessly
and effectively to secure the strong
position from which the Group can
now build.
Sir Douglas Flint
Chairman
10 March 2020
0 7
MARKET
The purpose of
IP Group is to evolve
great ideas into world-
changing businesses.
interim executive support, technical
and commercial networks and senior
team recruitment and development in
addition to the provision of capital.
The Group also provides operational,
legal, and business support to its
companies, with a view to minimising
the most common administrative
factors that can contribute to early-
stage company failure. The Group has
also successfully carried out several
innovative programmes to accelerate
company growth, including working
with CEOs and company boards to
improve performance.
In the UK, the Group also considers
tax-advantaged Enterprise Investment
Scheme (“EIS”) funds to be an
important source of financing for
early-stage technology companies
and has seen strong operating
performance from its subsidiary,
Parkwalk, the UK’s largest EIS growth
fund manager focused on university
spin-outs, which links leading
institutional wealth managers and
university partners.
R EA D MORE O N
PAR KWALK O N
PAGE 1 4
Competitive
environment
The directors consider that the
Group is operating and competing
in two major areas. Firstly, IP Group
competes for access to great ideas
with significant commercial potential
sourcing these ideas primarily
from a network of world-leading
academic research institutions,
many of which we have long-term
partner relationships with. Secondly,
the Group competes for capital
to develop these great ideas into
viable businesses against other
investment opportunities. While the
market for capital is very broad and
deep, the Group’s companies are
typically seeking earlier stage and
development risk capital.
Market environment
The year was characterised by
significant geopolitical developments,
including the US/China trade war and
the spectre of Brexit in the UK, and
the consequent increased political
and economic uncertainty. In addition,
there were significant developments
in investor appetite and sentiment
in the UK following the closure of
Woodford Investment Management.
As a result, the number of companies
and organisations seeking to
commercialise intellectual property,
and/or provide capital to spin-out
companies from universities and
research-intensive institutions in the
UK, declined this year. This caused a
significant downturn in sentiment in
the sector in the UK with a number
of other capital providers also taking
a far more cautious approach with
0 8
access to capital in the UK coming
under pressure in 2019. In response, IP
Group focussed on driving value from
its diversified and maturing portfolio
of assets by substantially increasing
cash realisations, either by partially
or fully exiting holdings in some
companies.
In addition, there was a continuation
of the trend that private companies
have, on the whole, found it easier to
raise finance at attractive valuations
than those on the public markets and
thus we have seen companies staying
private for longer.
As is more fully described in the risk
management section on pages 36 to
49, while the ongoing European Union
exit negotiations may have an impact
on the Group’s business, management
has taken mitigating actions in recent
years, including diversification of
access to both research and capital.
The Group has operations, portfolio
companies and co-investors in the UK,
US, Australasia and Asia. In addition,
the Group continues to take steps to
broaden its shareholder register and
counts several large global investors
among its shareholder base.
IP Group’s key
differentiators
IP Group’s approach to building
and supporting businesses is one of
the ways in which it differentiates
itself from more traditional venture
and fixed life funds. As described
in the business model on pages 10
to 11, the Group actively supports
the development of its portfolio
companies through access to early-
stage business-building expertise,
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
IP Group aims to
address some of the
world’s most pressing
challenges through
the companies and
innovation we back
and support, allowing
us to generate positive
social and environmental
impact alongside
financial returns.
One of our core beliefs is that
overcoming many of the world’s
common problems will require
multiple scientific solutions. The
common challenges facing both
the developed and developing
world include issues such as ageing
population, climate change, resource
scarcity, energy availability and
storage, rapid urbanisation, health
challenges and increasing digitisation.
Historically, many of the solutions
to these global problems have
come from fundamental research
and development (“R&D”) carried
out in the world’s leading research
universities and institutions. IP Group
believes that this will continue to be
the case and therefore the directors
feel that the Group’s model, of helping
commercialise cutting-edge science,
is of real importance, and has and will
continue to have a positive impact.
Key differentiators
INTERNATIONAL GROUP WITH OPERATIONS
IN THE UK, US, AUSTRALIA AND ASIA, AND
AN INTERNATIONAL SHAREHOLDER AND
CO-INVESTOR NETWORK.
ESTABLISHED PARTNER RELATIONSHIPS WITH
LEADING RESEARCH INSTITUTIONS, GIVING
ACCESS TO POTENTIALLY DISRUPTIVE IP AROUND
THE WORLD.
BALANCED AND MATURING PORTFOLIO OF
EXCITING COMPANIES BASED ON ‘DEEP SCIENCE’.
DEEP TECHNICAL AND BUSINESS-BUILDING
EXPERTISE, INCLUDING BOARD REPRESENTATION
AND SUPPORT, CAPITAL SOURCING, IP STRATEGY,
EXECUTIVE SEARCH.
PERMANENT CAPITAL STRUCTURE, ENABLING
THE PROVISION OF FUNDING FROM ‘CRADLE TO
MATURITY’ UNCONSTRAINED BY TRADITIONAL
FIXED-LIFE VC FUND APPROACH.
TRACK RECORD BUILT OVER 15+ YEARS.
STRONG PORTFOLIO FOCUS ON ESG AND POSITIVE
IMPACT ON SOCIETY.
R EA D ABOU T OU R
SUSTA IN AB ILIT Y
ON PAGES 50 TO 53
0 9
BUSINESS MODEL
The Group focuses on evolving great ideas, based on scientific research mainly from universities, into world-changing
businesses. We aim to address some of the world’s most pressing challenges through the companies we back, allowing us
to achieve a positive impact on the environment and society as well as a financial return. Over the years, we have developed
a unique approach to creating, building and supporting outstanding businesses along the journey from ‘cradle to maturity’
to provide attractive returns for all of our stakeholders.
Our key resources
Our key activities
Intellectual capital
Our knowledge, expertise
and experience provides
a unique understanding
of how to generate value
from scientific research as
well as our industry and our
portfolio.
Capital
We deploy capital, whether
from our balance sheet or
from funds raised through
our 100%-owned FCA-
authorised subsidiaries
IP Capital and Parkwalk
Advisors (read more about
Parkwalk on page 14), to
back, build and develop
promising companies.
Employees
Our employees enable us
to identify, back, build and
support businesses that
have a positive impact on
the world.
Relationships
We work closely with
university and/or research
and corporate partners
around the world to identify
and back promising research
as well as with a number
of capital partners and
individuals to help finance
promising companies.
How we ensure our
business model is
sustainable
The Group remains extremely focused
on actions that will bring it into a more
sustainable position, having taken
steps to streamline its operations
following the Touchstone acquisition
in late 2017, reducing both cost and
complexity in the business. We have
also slimmed the portfolio, disposed
of a number of smaller investments
and increased the rate of realisations.
These actions have positioned the
Group well to deliver significant
benefits for all stakeholders over time.
1 0
POTENTIAL
OPPORTUNITY
M E N T
T
S
E
V
R EI N
B
M
U
A
E
S
T
X
I
U
I
T
N
R
I
E
N
S
E
G
S
3-15+ YE A R S
O
P
P
E
O
X
R
T
I
T
U
N
I
T
I
E
S
EXIT
OPPORTUNITIES
The Group applies its policy and ethical
framework to its selection and investment
decisions and ongoing portfolio management
to ensure that the Group focuses only on
companies which create a positive impact.
R EA D MORE O N ESG
ON PAGES 50 TO 53
How we add value
Companies need more than just capital to thrive. IP
Group’s technical experts are critical in identifying
opportunities and understanding the markets these
companies operate in and the issues that they face.
The knowledge that the Group has accumulated in
building and supporting growth companies over time
is crucial to our success.
R EAD ABOU T OU R
SUSTA INA B ILITY ON
PAGE S 5 0 TO 53
0
-
3
Y
E
A
R
S
EXIT
O PP O RTU NITIES
Value created for
stakeholders
For portfolio
companies
• Working with a trusted
partner with a strong
track record
• Working with the
global industry leader
• Business building
and capital markets
expertise
Provided £67.4m to
portfolio companies
and projects
(2018: £100.9m)
For society
including the
community and
For universities
and research
institutions
For capital
partners
the environment
For employees
For shareholders
• Solutions to global
• Employee
•
Investing in a
• Working with a
•
Investing in
challenges such as a
cleaner environment,
a healthier population
and more secure data
engagement
• Talent development
• Working for a
• New company
creation and job
creation
• Sustainable value
business that helps
create companies
that can change the
world (purpose-
led employment
opportunities)
business that has a
meaningful impact
on society
• A diverse portfolio
trusted partner with
a strong track record
• Working with the
global industry
of opportunities and
leader
exposure to high-
growth businesses in
growth markets
• Financial returns
• New company
creation and job and
value creation
More than 5,000 jobs
created (2018: more
The Group has set
up an employee
(2018: £1.2bn)
Hard NAV of £1.1bn
More than 300
companies that have
a positive social and
environmental impact
• A diverse portfolio
of opportunities and
exposure to high-
growth businesses in
growth markets
• Financial returns
Hard NAV of £1.1bn
(2018: £1.2bn)
than 5,000 jobs
created)
forum and a number
of working groups
around ESG
companies formed
and supported (2018:
more than 300
companies formed)
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
S T R AT E G I C
R E P O R T
R EAD ABOU T OU R
SUSTA INA B ILITY ON
PAGE S 5 0 TO 53
Our supporting framework
Deep sector expertise
Our sector experts take a hands-on role in
identifying promising opportunities and are the
primary interface between the Group and the
universities/research institutions, evaluating very
early-stage opportunities and then developing
and shaping them into businesses. They work
closely with founders to shape strategic direction
and frequently take an interim commercial
management role. As the portfolio companies
develop, the sector experts’ interactions remain
hands-on but become increasingly strategic
and non-executive in nature as the company
management team builds out.
IP Capital
Our specialist FCA-authorised fund management
and corporate advisory business seeks to create
value for the Group’s portfolio companies,
primarily by supporting their access to capital
as well as providing advice on corporate finance
matters including M&A.
IP Exec
Our specialist early-stage in-house executive
search team recruits experienced and high-calibre
individuals to lead our businesses alongside
founders and IP Group team members.
Additional support
We also provide operational and legal support, to
our portfolio companies with a view to minimising
the most common administrative factors that can
contribute to early-stage company failure. Our
in-house IP specialism assists companies with
optimising their IP strategy.
SELECTION
IP Group’s specialists, who have deep technical and sector expertise, work
closely with our university and/or research and corporate partners to identify
promising research and to create and build businesses around this research.
Working with technology transfer teams and academics, we assess initial
‘disclosures’ for their potential commercial viability alongside possible
exploitation pathways.
INCUBATION
Typically, a company will be set up and owned by the academic team, the
university and any other founders. IP will be transferred in and an initial
investment made with IP Group represented on the Board and typically
taking a very hands-on approach. Time and a limited level of capital are then
deployed by IP Group, often alongside ‘soft’ grant funding, to develop the
ideas to early commercial and technical validation using stringent milestones.
SEED
As incubation opportunities show signs of traction, an investment case is
made for seed funding to accelerate technical and commercial developments.
Engagement with potential customers is sought and feedback used to direct
effort. As milestones are met, further investment is released while commercial
and technical teams are expanded.
SCALE-UP AND ACTIVE MANAGEMENT
As companies mature, IP Group pro-actively sources co-investment, often
through our IP Capital corporate finance function or alongside our EIS-
specialist fund manager, Parkwalk Advisors. We continue to take an active
role in company development, commonly through continued Board presence,
to help grow the value of the company over time. Resources and capital are
focused on those opportunities that are considered to represent the most
attractive opportunities from a risk/reward perspective. The Group continues
to offer support and can help inform discussions around strategic direction,
including licensing, industrial partnering and M&A, as well as exit strategies,
whether trade sale or IPO.
For society
including the
community and
the environment
For employees
For shareholders
For universities
and research
institutions
For capital
partners
• Solutions to global
• Employee
challenges such as a
cleaner environment,
a healthier population
and more secure data
• New company
creation and job
creation
• Sustainable value
More than 5,000 jobs
created (2018: more
than 5,000 jobs
created)
engagement
• Talent development
• Working for a
business that helps
create companies
that can change the
world (purpose-
led employment
opportunities)
The Group has set
up an employee
forum and a number
of working groups
around ESG
•
Investing in a
business that has a
meaningful impact
on society
• A diverse portfolio
of opportunities and
exposure to high-
growth businesses in
growth markets
• Financial returns
Hard NAV of £1.1bn
(2018: £1.2bn)
• Working with a
•
trusted partner with
a strong track record
• Working with the
global industry
leader
• New company
creation and job and
value creation
More than 300
companies formed
and supported (2018:
more than 300
companies formed)
Investing in
companies that have
a positive social and
environmental impact
• A diverse portfolio
of opportunities and
exposure to high-
growth businesses in
growth markets
• Financial returns
Hard NAV of £1.1bn
(2018: £1.2bn)
1 1
Value created for
stakeholders
For portfolio
companies
• Working with a trusted
partner with a strong
track record
• Working with the
global industry leader
• Business building
and capital markets
expertise
Provided £67.4m to
portfolio companies
and projects
(2018: £100.9m)
OUR STRATEGY
Systematically building businesses
Our strategic aims
What we did in 2019 to address our objectives
Objectives for 2020
Link to KPIs
• Provided capital for the first time to 10 companies
or projects: two UK, two US1, six Australasia
(2018: nine total: five UK, two US, two Australasia)
• Maintain a similar level of new opportunity
• Number of new portfolio companies
formation in the UK and US
• Purchase of equity and debt investments
To create and maintain a
pipeline of compelling intellectual
property-based opportunities
• Maintained board representation on more than 90%
• Increase value of portfolio company holdings
• Number of new portfolio companies
To develop and support
these opportunities into
a diversified portfolio
of robust businesses
of our 57 ‘focus’ companies
• IP Exec team placed eleven senior executives
with portfolio companies, of which six were chair
appointments and three were non-executive
director appointments
• Portfolio fair value decreased to £1,045.6m after net
portfolio losses2 of £43.9m
• Total capital raised by portfolio companies of
£430m during 2019
• Purchase of equity and debt investments
• Hard NAV
• Return on Hard NAV
• Purchase of equity and debt investments
• Create additional opportunities from Australasian
partner universities
• Maintain exposure to similar level of world-class
commercialisable IP through partner relationships
with UK, US and Australasian academic institutions
through hands-on support and development
• Replicate our successful UK support model in the
US and Australasia through the provision of local
business support, IP Exec and IP Capital offerings
• Seek to maintain approach of direct IP Group
representation on spin-out company boards
• Increase the number of executive search mandates
within IP Exec and assist portfolio companies to
increase diversity of boards
• Complete capital raising mandates for certain
portfolio companies requiring finance from non-
Group sources
• Continue to provide specialist support services
such as IP Exec and corporate finance advice
To deliver attractive
financial returns on our assets
and third-party funds
• Generated cash proceeds of £79.5m
• Net portfolio losses1 of £43.9m
• Provided £64.7m of capital to 55 distinct portfolio
investments
• Portfolio of 130 companies and two multi-sector
investments with a combined total value of
approximately £5bn
• Over £50m of EIS funds raised by Parkwalk during
2019, with £65m invested into companies
• Total funds managed or advised by Group
subsidiaries now in excess of £400m
1 Excluding pre-incorporation sponsored research projects.
2 Alternative performance measure, see note 29 for definition and reconciliation to IFRS primary statements.
1 2
• Seek to continue net long-term increase in portfolio
• Return on Hard NAV
• Net portfolio gains/(losses)
• Proceeds from sale of equity investments
value and net assets
• Assist, directly or indirectly, portfolio companies
to access public and private markets to raise
development capital
• Where appropriate, generate cash realisations from
• Generate attractive performance in Group’s
portfolio
managed funds
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Systematically building businesses
Our strategic aims
What we did in 2019 to address our objectives
Objectives for 2020
Link to KPIs
READ ABO UT O UR K PIs
ON PAGES 1 6 AN D 1 7
• Provided capital for the first time to 10 companies
or projects: two UK, two US1, six Australasia
(2018: nine total: five UK, two US, two Australasia)
• Maintain a similar level of new opportunity
• Number of new portfolio companies
formation in the UK and US
• Purchase of equity and debt investments
• Create additional opportunities from Australasian
partner universities
• Maintain exposure to similar level of world-class
commercialisable IP through partner relationships
with UK, US and Australasian academic institutions
To create and maintain a
pipeline of compelling intellectual
property-based opportunities
To develop and support
these opportunities into
a diversified portfolio
of robust businesses
• Maintained board representation on more than 90%
of our 57 ‘focus’ companies
• IP Exec team placed eleven senior executives
with portfolio companies, of which six were chair
appointments and three were non-executive
director appointments
• Portfolio fair value decreased to £1,045.6m after net
portfolio losses2 of £43.9m
• Total capital raised by portfolio companies of
£430m during 2019
To deliver attractive
financial returns on our assets
and third-party funds
• Generated cash proceeds of £79.5m
• Net portfolio losses1 of £43.9m
• Provided £64.7m of capital to 55 distinct portfolio
investments
• Portfolio of 130 companies and two multi-sector
investments with a combined total value of
approximately £5bn
• Over £50m of EIS funds raised by Parkwalk during
2019, with £65m invested into companies
• Total funds managed or advised by Group
subsidiaries now in excess of £400m
1 Excluding pre-incorporation sponsored research projects.
2 Alternative performance measure, see note 29 for definition and reconciliation to IFRS primary statements.
• Increase value of portfolio company holdings
through hands-on support and development
• Number of new portfolio companies
• Purchase of equity and debt investments
• Hard NAV
• Return on Hard NAV
• Purchase of equity and debt investments
• Replicate our successful UK support model in the
US and Australasia through the provision of local
business support, IP Exec and IP Capital offerings
• Seek to maintain approach of direct IP Group
representation on spin-out company boards
• Increase the number of executive search mandates
within IP Exec and assist portfolio companies to
increase diversity of boards
• Complete capital raising mandates for certain
portfolio companies requiring finance from non-
Group sources
• Continue to provide specialist support services
such as IP Exec and corporate finance advice
• Seek to continue net long-term increase in portfolio
• Return on Hard NAV
value and net assets
• Assist, directly or indirectly, portfolio companies
to access public and private markets to raise
development capital
• Where appropriate, generate cash realisations from
portfolio
• Generate attractive performance in Group’s
managed funds
• Net portfolio gains/(losses)
• Proceeds from sale of equity investments
1 3
STRATEGIC REPORT OUR STRATEGY IN ACTION:
PARKWALK
Parkwalk is an award-
winning EIS growth fund
manager, which IP Group
acquired in 2017.
Parkwalk has co-invested
£71.8m with IP Group since
inception, including £43.9m
in the last three years of IP
Group ownership.
Acquired
complementary
business that is well
aligned with the
Group’s strategy.
READ ABOUT OU R
PORTFOLIO STEWAR DS H I P
ON PAGES 60 A ND 61
The company
Link to strategy
Through the EIS funds that Parkwalk
manages, it provides capital to
growth companies. The Group is also
focussed on generating attractive
performance in its managed funds for
stakeholders.
Link to sustainability
and the SDGs
Parkwalk is aligned with the Group’s
work on sustainability and influences
SDGs 17 (partnerships for the goals),
8 (decent work and economic growth)
and 5 (gender equality) in particular,
and has also mapped its portfolio
against the SDGs, see more on
page 52 to 53.
Parkwalk is an award-winning EIS
growth fund manager which IP
Group acquired in 2017. Parkwalk
is closely aligned with the Group,
backing world-changing technologies
out of UK universities and research
institutions with the aim of delivering
world-class returns.
Parkwalk now has assets under
management of over £300m including
funds managed in conjunction with
the universities of Oxford, Cambridge
and Bristol and was the largest
EIS fund (by monies raised) in the
2018/2019 tax year. In March 2020,
Parkwalk announced a new EIS fund
with Imperial College London, its
first Innovation Fund, to invest in
early-stage, high-growth, knowledge-
intensive companies.
In 2019, Parkwalk invested £65m in the
university spin-out sector across 38
companies including four companies
in the core IP Group portfolio. These
investments include opportunities in
plant genetics, graphene production,
AI and genomics.
PARKWALK: 2019 IN NUMBERS
44
DEALS
COMPLETED
NAMED
TOP 10
GLOBAL INVESTOR IN IOT
APPROACHING
£300m
AUM
£1bn
RAISED BY
PORTFOLIO IN CO-
INVESTMENT TO DATE
15
NEW COMPANIES
(95 TOTAL)
10
EXITS THIS YEAR
(29 EXITS IN TOTAL)
£65m
INVESTED
(£240M TOTAL)
2
UNIVERSITY SEED FUNDS
CLOSED (OXFORD V
AND BRISTOL III)
LARGEST
EIS FUND
BY AMOUNT RAISED
1 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
OUR STRATEGY IN ACTION:
DUKOSI
S T R AT E G I C
R E P O R T
IP Group first invested in
Dukosi in 2014, seeing the
potential for its disruptive
technology in the rapidly
growing battery market.
We have worked closely
with the business ever
since and, through multiple
investment rounds, built a
substantial stake.
The Company
Dukosi is a pioneer in battery
optimisation and management. Its
patented approach maximises the
performance, reliability and safety of
batteries in applications from electric
vehicles to grid storage systems,
bringing benefits through the whole
battery value chain.
Link to strategy
The IP Group Cleantech team
had been tracking batteries as a
potential investment area for some
time, and was particularly interested
in innovations focused on the
electronics/control of the batteries
that could be applied across multiple
different battery chemistries. Dukosi
was identified when it was a small
team of three people as having an
interesting approach to the battery
market and the Cleantech team
believed that with appropriate
funding and support, it could have
real potential.
This has proven to be the case. Dukosi
was acquired by KCK in October
2019, delivering an overall gross
IRR of 32.5%, following five years of
investment and close support from
IP Group. Jamie Vollbracht, IP Group
Cleantech partner, was the Group’s
representative on Dukosi’s board and
was very hands-on in supporting the
business from the early days working
on value proposition enhancement
to latterly guiding the exit process.
The expertise of IP Exec, IP Group’s
in-house executive search function,
was also used to identify and recruit
new senior executives and strengthen
the board.
Link to sustainability
and the SDGs
IP Group’s investment in Dukosi
reflects our commitment to building
world-changing businesses that
have positive environment impacts.
It is also aligned with our work
on the SDGs on 7 (Affordable
and Clean Energy), 9, (Industry,
Innovation and Infrastructure) and 13
(Climate Action).
This sale marks the start of the next phase for
the business and represents a great result
for all stakeholders.”
Jamie Vollbracht, Cleantech partner, IP Group
1 5
KEY PERFORMANCE INDICATORS
Measuring our performance: focusing on delivery against our strategy
Financial KPIs
Hard NAV1
Return on Hard NAV1
Further description
2019 performance
Strategic element
The value of the Group’s assets less the
value of its liabilities, including minority
interest, less intangible assets
£1,141.5m
(2018: £1,217.5m)
Total comprehensive income or loss
for the year excluding amortisation of
intangible assets, share-based payment
charges and the charge in respect of
deferred and contingent consideration
deemed to represent post acquisition
services under IFRS 3
Negative
£73.7m
(2018: negative £75.6m)
Risks potentially
impacting KPI
Link to performance-related
director remuneration
1
2 5 6 7
LTIP 2017 – 2019
1
2 5 6 7
2019 annual incentive
To grow the value of our assets (and
those we manage on behalf of third
parties) and deliver attractive financial
returns from these assets
Portfolio fair value movement has the
most material impact on this figure,
which also reflects corporate expenses.
Measures the development of portfolio
companies and return on our assets
Purchase of equity and
debt investments
The total level of capital deployed from
the Group’s balance sheet into portfolio
companies during the year
£64.7m
(2018: £100.9m)
Build and maintain a pipeline of IP-based
opportunities and develop these into
2
3 4 6 7
Indirectly impacts both Return on
Hard NAV and Hard NAV
robust businesses
Net portfolio
gains/(losses)1
Movement in the fair value of holdings in
portfolio companies due to share price
movements, other increases/decreases in
fair value
(£43.9m)
(2018: £48.4m)
To develop IP-based businesses and
grow their value
1
2
5 7
Indirectly impacts both Return on
Hard NAV and Hard NAV
Net overheads1
The Group’s core overheads less
operating income
£22.6m
(2018: £26.0m)
To control the Group’s operating
cost base
1
4 6 7
2019 annual incentive
Proceeds from sale of
equity investments
The total amount received from
the disposal of interests in portfolio
companies
£79.5m
(2018: £29.5m)
Cash from proceeds can be used for
redeployment into the portfolio or for
1
2
5
new opportunities
2019 annual incentive
Non-Financial KPIs
Number of new
portfolio investments
The number of portfolio investments that
received initial capital from the Group
during the year
10
(2018: 9)
Build and maintain a pipeline of IP-based
opportunities and develop these into
3 4
5
6 7
Indirectly impacts both Hard NAV
and Return on Hard NAV (see
robust businesses
above)
1 Alternative performance measure, see note 29 for definition and reconciliation to IFRS primary statements.
1 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Key
1
2
Insufficient capital: Group
4 Failure of university relationships
7 Legislation, governance and regulation
Insufficient capital:
Portfolio companies
5 Personnel risk
8 Cyber & IT security
3 Uncertain investment returns
6 Macroeconomic conditions
9 International operations
Measuring our performance: focusing on delivery against our strategy
Further description
2019 performance
Strategic element
To grow the value of our assets (and
those we manage on behalf of third
parties) and deliver attractive financial
returns from these assets
Portfolio fair value movement has the
most material impact on this figure,
which also reflects corporate expenses.
Measures the development of portfolio
companies and return on our assets
Financial KPIs
Hard NAV1
Return on Hard NAV1
The value of the Group’s assets less the
value of its liabilities, including minority
interest, less intangible assets
£1,141.5m
(2018: £1,217.5m)
Total comprehensive income or loss
for the year excluding amortisation of
intangible assets, share-based payment
charges and the charge in respect of
deferred and contingent consideration
deemed to represent post acquisition
services under IFRS 3
Negative
£73.7m
(2018: negative £75.6m)
Risks potentially
impacting KPI
Link to performance-related
director remuneration
1
2 5 6 7
LTIP 2017 – 2019
1
2 5 6 7
2019 annual incentive
Purchase of equity and
debt investments
The total level of capital deployed from
the Group’s balance sheet into portfolio
companies during the year
£64.7m
(2018: £100.9m)
Build and maintain a pipeline of IP-based
opportunities and develop these into
robust businesses
2
3 4 6 7
Indirectly impacts both Return on
Hard NAV and Hard NAV
Net portfolio
gains/(losses)1
Movement in the fair value of holdings in
portfolio companies due to share price
movements, other increases/decreases in
(£43.9m)
(2018: £48.4m)
fair value
To develop IP-based businesses and
grow their value
1
2
5 7
Indirectly impacts both Return on
Hard NAV and Hard NAV
Net overheads1
The Group’s core overheads less
operating income
£22.6m
(2018: £26.0m)
To control the Group’s operating
cost base
1
4 6 7
2019 annual incentive
Proceeds from sale of
equity investments
The total amount received from
the disposal of interests in portfolio
companies
£79.5m
(2018: £29.5m)
Cash from proceeds can be used for
redeployment into the portfolio or for
new opportunities
1
2
5
2019 annual incentive
Non-Financial KPIs
Number of new
portfolio investments
The number of portfolio investments that
received initial capital from the Group
during the year
10
(2018: 9)
Build and maintain a pipeline of IP-based
opportunities and develop these into
robust businesses
3 4
5
6 7
Indirectly impacts both Hard NAV
and Return on Hard NAV (see
above)
1 Alternative performance measure, see note 29 for definition and reconciliation to IFRS primary statements.
READ ABOU T OU R
STRATE GY O N
PAG ES 12 AN D 13
R EAD ABOU T OU R
R ISKS ON
PAGE S 36 TO 49
R EAD ABOU T OU R
R EMUN ER ATI ON ON
PAGE S 9 8 TO 115
1 7
STRATEGIC REPORT
CHIEF EXECUTIVE’S OPERATIONAL REVIEW
During 2019, the Group focussed on its financial priorities
including generating realisations and managing the
Group’s net overheads.
Summary
During 2019, the Group focussed
on its financial priorities including
generating realisations and managing
the Group’s net overheads. The Group
continued to prioritise maintaining
strong liquidity and our targeted
disposals programme resulted in
record cash realisations from our
portfolio in 2019 of £79.5m (2018:
£29.5m), resulting in year-end cash
balances of £194.9m while net
overheads for the year reduced to
£22.6m (2018: £26.0m).
This was a positive outcome in a
year characterised by significant
geopolitical developments and the
consequent increased political and
economic uncertainty as well as
challenging market sentiment. Against
that backdrop, there were fewer
large-scale capital raises completed
by the Group’s portfolio companies
in 2019 than in the previous year. As
a result, the total portfolio capital
raised reduced to £430m of which
the Group contributed £64.7m
(2018: £717m; £100.9m). Further, and
continuing a trend also evident in
2018, less than 1% of the £430m total
capital raised was from parties with
a shareholding of 1% or more in IP
Group (2018: 6% of £717m).
In addition to the recent success in
generating cash realisations from
its increasingly mature portfolio, the
Group has been seeking to broaden
its formal access to third-party private
capital. The Group’s ‘hybrid’ strategy
for accessing capital for its portfolio
companies comprises funds from
its ‘evergreen’ balance sheet, third-
party funds under management or
advisement, and its wide network of
international co-investors. In recent
years, the Group has developed the
second category through its market
leading EIS fund management
business, Parkwalk Advisors, and
in Australia through its advisory
mandate with Hostplus, one of the
largest Australian Superannuation
Funds. In addition, the Group has seen
recent success in attracting blue-chip
family office investment into its US
platform. The Group continues to
explore several similar opportunities.
In 2019, the Group also took further
actions to focus the portfolio, aimed at
returning to NAV growth in the short
to medium term, while our three most
valuable assets Oxford Nanopore,
Ceres Power and Istesso, which
account for 37% of net asset value, all
performed strongly in the year.
As at 31 December 2019, the fair
value of the Group’s portfolio was
£1,045.6m (2018: £1,128.2m). This
reflects net portfolio fair value
reductions of 3.9% or £43.9m (2018:
£48.4m) during the period. Including
Net Overheads, the overall Return on
Hard NAV for the period was negative
£73.7m (2018: negative £75.6m), or
around 7p per share, with the Group
finishing the period with Hard NAV
per share of 107.8p (2018: 115.0p).
The Group’s purpose of addressing
some of the world’s most pressing
challenges through the companies
we back remains highly relevant.
Our portfolio is well aligned with the
UN’s Sustainable Development Goals
and we have made good progress
this year in embedding ESG matters
across our organisation. Our team
are deeply committed to the Group’s
purpose, which is reflected in our
culture and this, as well as our focus
on sustainability, is reported in greater
detail on pages 50 to 65.
UK portfolio
The UK portfolio continues to
represent more than 80% of the
Group’s net assets and our teams have
directed time and resources primarily
at the focus assets considered most
likely to have a meaningful impact on
Group NAV in the short to medium
term. The Group also continued to
invest capital cautiously, primarily into
those focus assets.
Individual company highlights in
the portfolio came from Oxford
Nanopore, Istesso and Ceres Power,
which all announced significant
Alan Aubrey
Chief Executive Officer
The Group’s portfolio
saw a net fair value
reduction of 4%
during 2019 and,
while disappointing,
this reflects ongoing
rationalisation and
significant headwinds,
particularly in the UK
market. Importantly,
our three most valuable
holdings, Oxford
Nanopore, Istesso and
Ceres Power, made
excellent progress during
the year with Oxford
Nanopore and Ceres
Power also announcing
positive developments
since the year end.”
Alan Aubrey,
Chief Executive Officer
1 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 technical and/or commercial
developments. Oxford Nanopore
confirmed a more than doubling
of revenues in 2018 to $43.7m and
orders to $60.6m, alongside opening
a new factory in Oxfordshire this year
to support rapid growth in demand
for nanopore sequencing technology.
In January 2020, Oxford Nanopore
announced it had raised £29.3m
of new capital and facilitated the
secondary sale of £80.2m of shares,
an aggregate investment of £109.5m.
The resulting fair value gain was
reflected in the Group’s 2019 results
while the £22.0m cash proceeds were
received in February 2020.
Istesso, the Group’s most valuable
life sciences company holding,
announced positive headline results
from its Phase 2a study of MBS2320,
its investigational drug for the
treatment of rheumatoid arthritis. In
the third quarter of the year, Istesso
was notified by its collaboration
partner J&J that it did not intend to
exercise its option in respect of the
programme. We see this as a neutral
development when offset against
the increase in value conferred by
the positive Phase 2a data. The J&J
partnership was signed in 2014 at
a pre-clinical stage, whereas the
drug is now in Phase 2 with a novel
mechanism-of-action that has
potential in rheumatoid arthritis, other
autoimmune conditions and cancer.
Thus, we believe that the product has
significant development potential and
licensing value as an unencumbered
asset. Ceres Power also announced a
number of key milestones, including
its first product launch, having jointly
developed a fuel cell heat and power
system with Miura Co. Ltd, Japan’s
largest industrial boiler company,
as well as an £8m collaboration and
licensing agreement with South
Korea’s Doosan. In January 2020,
Ceres completed a £38m financing,
and announced that Bosch increased
its holding in Ceres to c.18% from c.4%,
and extended its strategic relationship.
These positive performances were,
however, offset by the reduction in
value of a number of life sciences
companies due to clinical or
commercial setbacks. The Group
regularly assesses its portfolio and,
particularly in light of their recent
performance, has given consideration
to those therapeutic development
companies in its life sciences portfolio,
which, excluding Istesso, are valued at
£144m. Management considers that
there continues to be a significant
opportunity to generate value for
stakeholders through therapeutic
development companies, a view
supported by a significant recent
McKinsey & Company report, Biotech
in Europe: A strong foundation for
growth and innovation. However,
recognising the risk profile typically
associated with such companies,
going forward it intends to direct
capital expenditure at a smaller
number of high conviction assets with
a target ownership of at least 25%.
In the Cleantech portfolio, while
First Light Fusion successfully
commissioned its pulsed power fusion
demonstrator, ‘Machine 3’, it has not
yet demonstrated a fusion reaction,
a delay to the targeted schedule that
it had previously communicated.
The company remains confident,
however, that achieving fusion is a
matter of time and believes there is no
fundamental issue with its approach.
This view is supported by the eminent
First Light Scientific Advisory Board.
Further information on the
performance of the Group’s portfolio
businesses is provided in the Portfolio
Review on pages 21 to 30.
Parkwalk Advisors
Parkwalk, the Group’s specialist EIS
fund management subsidiary, now
has assets under management of
over £300m (2018: £220m) including
funds managed in conjunction with
the universities of Oxford, Cambridge
and Bristol and, for the first time
in 2020, Imperial College London.
Parkwalk has managed the largest
EIS fund (by monies raised) in each of
the last three years. In 2019, Parkwalk
invested £65.0m (2018: £64.3m) in the
university spin-out sector across 38
companies including four companies
in the core IP Group portfolio. Fifteen
new companies joined the portfolio
and Parkwalk achieved ten exits:
five higher than cost (between
1.7x and 12.8x) and five lower.
Investments were made across a
range of technologies including plant
genetics, graphene-based electronics,
autonomous driving, cleantech,
healthcare, AI and genomics. In 2019
Parkwalk liaised with the government
and universities on improving the
financial ecosystem for knowledge-
intensive spin-out companies. Over
the period Parkwalk received five
awards, including ‘Growth Investor of
the Year’.
North America
In North America, IP Group, Inc. and
its portfolio companies continued to
make progress, achieving a number
of financial and developmental
milestones. Most notably, two
companies in the portfolio secured
external investment rounds from
strategic and financial investors.
Exyn Technologies, Inc. (University of
Pennsylvania) raised $16m in a Series
A round, including investment from
Centricus Asset Management, Yamaha
Ventures, In-Q-Tel, Corecam Family
Office, and Red and Blue Ventures;
and MOBILion Systems, Inc. (Pacific
Northwest National Laboratory) raised
$15.4m in a Series A financing, which
included investment from Agilent
Technologies, Hostplus, Cultivation
Capital, and iSelect Fund. The total
amount raised by the US portfolio was
$31m with 75% of the funds coming
from external investment.
Prior to its Series A funding, MOBILion
was deemed to be controlled by IP
Group, and hence consolidated as
a subsidiary. The successful Series
A financing resulted in a dilution of
the Group’s shareholding and loss
of control of the board of MOBILion,
resulting in its deconsolidation as
a subsidiary and recognition as a
portfolio company. This resulted in a
fair value gain of £10.6m.
Other advancements include
Optimeos Life Sciences (Princeton
University) signing a commercial
agreement with an undisclosed
pharmaceutical company, marking
their third commercial deal to
date. Chip Diagnostics (University
of Pennsylvania) was awarded
the Johnson & Johnson Quickfire
1 9
STRATEGIC REPORT CHIEF EXECUTIVE’S OPERATIONAL REVIEW
CONTINUED
Challenge and will be collaborating
with J&J on cancer diagnostics.
MOBILion Systems partnered
with strategic investor, Agilent
Technologies Inc. to integrate its
patented ion mobility separations
technology, called Structures for
Lossless Ion Manipulation (SLIM), with
Agilent’s Q-TOF mass spectrometry
platform as its first commercial
product offering. MOBILion also
partnered with investigators at the
Complex Carbohydrate Research
Center at the University of Georgia
to explore ion mobility technology
in glycoscience. Exyn Technologies
announced the commercial
availability of its Autonomy Aerial
Robots (“A3Rs”), the first and
most advanced fully autonomous
aerial system for data collection in
GPS-denied environments. The US
team closed six proof-of-concept
investments with the University of
Pennsylvania, National Renewable
Energy Laboratory (NREL), Princeton
University, the University of
Washington and Yale University
In March 2020, IP Group, Inc.
attracted further strategic investment
into the US business, building on the
investment made by two US-based
blue-chip family offices during late
2018 and early 2019.
Australasia
In Australasia, the Group continued
to build on the solid foundation of
its partnerships with the Group of
Eight and the University of Auckland,
completing a further six new
investments, bringing the portfolio
to eight companies. Among these
new investments were AMSL Aero
(University of Sydney) which is
developing a highly efficient novel
electric vertical take-off and landing
(eVTOL) aircraft platform, and Kira
Biotech which is developing an
2 0
antibody against a novel target for
the treatment of GvHD and other
autoimmune diseases. Alongside
these companies, the Group continues
to build a strong pipeline of projects
from across its university partners.
The IP Group team in Australasia
now stands at eleven, split between
Melbourne, Sydney, Brisbane and
Perth. In terms of capital, the Group
continues to work with Hostplus, one
of Australia’s largest superannuation
funds with over AUD46bn in funds
under management through the
AUD100m IP Group Hostplus
Innovation Fund, which is invested in
a number of companies across the
global portfolio.
Greater China
Following the launch of IP Group
Greater China in Hong Kong in 2018,
two employees relocated from London
HQ in 2019 to establish the office.
The Greater China office continued to
facilitate market entry and business
partnership engagement with relevant
Chinese partners for our portfolio
companies. The Group hosted its third
annual ‘Global Deep Tech Forum’
event in Beijing in October where 13
of our portfolio companies introduced
their technology and business to over
200 attendees from the Greater China
area. Having seen increasing business
needs from our portfolio companies
for local partnership, joint-venture,
and/or supply chain management in
China, the Group is working with top
tier financial institutions in China to
explore ways of providing our portfolio
companies with support in accessing
local capital as well as relationships
with local customers and suppliers.
Outlook
During 2019 the Group realised
a record £79.5m in cash from its
portfolio, which exceeded investment
for the first time since 2007. This
strong cash generation has continued
into 2020, with realisations to date
now totalling more than £55m.
Realisations from our maturing
companies, the ongoing focusing and
rationalisation of the portfolio as well
as tight cost control has placed the
Group in a strong financial position
and these remain three areas of focus
for the Group in 2020.
Our three most valuable holdings,
Oxford Nanopore, Istesso and Ceres
Power, made excellent progress during
the year with Oxford Nanopore and
Ceres Power also announcing positive
developments since the year end. We
also anticipate further commercial
and technical updates from a number
of other companies over the coming
twelve months, including Diurnal,
Featurespace, First Light Fusion,
Microbiotica, PsiOxus, Ultraleap and
Wave Optics. Consequently, we remain
confident in the prospects of our
portfolio, which we continue to believe
includes world-changing businesses
that will deliver significant benefits for
multiple stakeholders.
Our portfolio aligns well with the UN’s
Sustainable Development Goals, such
as Climate Action and Human Health,
and we are well positioned to benefit
from the increased investor interest
in impact investing given the efforts
being made by portfolio companies
to address climate change, disease
prevention, and an ageing population,
among other issues.
Alan Aubrey
Chief Executive Officer
10 March 2020
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 PORTFOLIO REVIEW
OUR PORTFOLIO: ON THE PATH TO SELF-SUSTAINABILITY, WITH PORTFOLIO REALISATIONS EXCEEDING INVESTMENT
Overview
Performance summary
A summary of the Income Statement gains and losses that are directly
attributable to the portfolio is as follows:
Unrealised gains on the revaluation of investments
Unrealised losses on the revaluation of investments
Effects of movement in exchange rates
Change in fair value of equity and debt
investments
Gain on disposals of equity investments
Gain on deconsolidation of subsidiary
Net portfolio gains/(losses)
2019
£m
86.3
(154.6)
(2.3)
(70.6)
16.1
10.6
(43.9)
2018
£m
99.7
(153.1)
3.0
(50.4)
2.0
—
(48.4)
The largest contributors to unrealised gains on the revaluation of investments
were Ceres Power Holdings plc (£27.5m), Istesso Limited (£24.7m) and Oxford
Nanopore Technologies Limited (£12.2m). These unrealised gains were principally
offset by unrealised losses on the revaluation of Autifony Therapeutics Limited
(£13.0m), PsiOxus Therapeutics Limited (£10.9m), Topivert Limited (£10.7m),
AIM-quoted Actual Experience plc (£10.6m), and AIM-quoted Circassia
Pharmaceuticals plc (£8.4m).
The performance of the Group’s holdings in companies quoted on AIM saw a net
unrealised fair value decrease of £12.4m (2018: decrease of £99.8m) while the
Group’s holdings in unquoted companies experienced a net fair value decrease
of £58.2m (2018: increase of £46.4m).
Investments and realisations
The Group deployed a total of £64.7m across 55 new and existing projects
during the period (2018: £100.9m, 77 projects), versus realisations of £79.5m
(2018: £29.5m), resulting in overall net realisations for the year of £14.8m (2018:
net investment of £71.4m).
An analysis of amounts invested by company focus as follows:
Top 20
Focus
Other (including companies exited by 31 December
2019)
Total United Kingdom
United States1
Australasia
Total purchase of equity and debt investments
Less cash proceeds from sales of equity
investments
Net (realisations) / investment
2019
£m
21.8
21.2
11.8
54.8
6.9
3.0
64.7
(79.5)
(14.8)
2018
£m
26.0
41.6
19.4
87.0
13.2
0.7
100.9
(29.5)
71.4
1 United States investment total includes £1.6m (2018: £1.1m) invested in Uniformity Labs, Inc.,
which is one of the Top 20 holdings by value.
As at 31 December 2019, the value of
the Group’s portfolio was £1,045.6m
(2018: £1,128.2m) reflecting net
investment offset by net portfolio
losses of £43.9m (2018: loss £48.4m).
The portfolio consists of interests in
57 ‘focus’ companies, representing
over 87% of the portfolio value, and
75 other companies (2018: 61, 90%,
76). Of these, 99 are based in the UK,
23 in the US and eight in Australasia
(2018:122, 23, 2). In addition, the
Group has holdings in two multi-
sector platform businesses as well as
a further 49 de minimis holdings and
40 organic holdings. (2018: 3, 44, 47).
The Group exited its interest in eight
companies (2018: three) and realised
total cash proceeds during the year
of £79.5m (2018: £29.5m). In addition,
£22.0m of cash from the Group’s
partial realisation of its holding in
Oxford Nanopore was received in
February, while a further £5.3m
of deferred consideration was
outstanding at year end (2018: £nil).
The largest contributors to this
cash figure were the Group’s partial
realisation of its holdings in Oxford
Sciences Innovation plc (£32.1m),
Concirrus Limited (£6.1m), Cambridge
Innovation Capital plc (£4.3m) and
Nexeon Limited (£4.0m), and the
full realisation of its holdings in
Process Systems Enterprise Limited
(£13.8m), Dukosi Technologies
Limited (£5.3m cash received in
year, £5.0m deferred consideration),
Circassia Pharmaceuticals plc (£4.6m)
and Cortexica Vision Systems
Limited (£4.5m).
During the year to 31 December
2019, the Group provided pre-seed,
seed and post-seed capital totalling
£64.7m to its portfolio companies
(2018: £100.9m). The Group deployed
capital into ten new companies and
six new pre-incorporation projects
during the year (2018: nine, zero). Two
of the companies were sourced from
the UK, two from the US and six from
Australasia (2018: five, two, two), and
the six pre-incubation projects were
sourced from the US (2018: zero).
2 1
STRATEGIC REPORT PORTFOLIO REVIEW
CONTINUED
Co-investment analysis
Including the £65m invested by the Group, the Group’s portfolio raised a total of £430m during the year to 31 December 2019 (2018: £717m).
Co-investment in 2019 came from more than 200 different investors, excluding individuals, and less than 1% of the funding came from parties
with a greater than 1% shareholding in IP Group plc (2018: 6%). An analysis of this co-investment by source is as follows:
Portfolio capital raised
2019
2018
IP Group 1
Funds managed by Parkwalk Advisors
IP Group plc shareholders (>1% holdings)
Institutional investors
Corporate, other EIS, individuals, universities and other
Capital into multi-sector platforms
Total
£m
64.5
13.2
0.7
147.0
138.6
66.3
430.3
%
15%
3%
0%
34%
33%
15%
100%
£m
100.9
20.8
43.1
291.6
234.6
26.0
717.0
%
14%
3%
6%
41%
33%
3%
100%
1. Reflects primary investment only; the Group made further £0.2m investment via secondary purchase of shares
Portfolio analysis by focus
At 31 December 2019, the Group’s portfolio fair value of £1,045.6m was distributed across the portfolio as follows:
As at 31 December 2019
As at 31 December 2018
Fair value
Number
Fair value
Number
Stage
Top 20 by value
Focus
Other
Total
De minimis and organic holdings
Total Portfolio
Attributable to third parties1
Gross Portfolio
£m
720.2
164.0
110.2
994.4
13.0
1,007.4
38.2
1,045.6
%
72%
16%
12%
100%
20
37
75
132
%
15%
28%
£m
732.5
204.4
57%
147.7
100% 1,084.6
8.3
1,092.9
35.3
1,128.2
%
68%
19%
13%
100%
%
13%
27%
60%
100%
20
41
89
150
1 In the above table, the amount attributable to third parties consists of £17.2m attributable to minority interests represented by third party
limited partners in the consolidated fund, IP Venture Fund II, £7.2m attributable to minority interests represented by third party limited
partners in the consolidated US portfolio, £10.9m attributable to Imperial College London and £2.9m attributable to other third parties (2018:
£18.7m, £5.5m, £8.1m and £3.0m).
Top 20 investments consist of the 20 most valuable holdings in the Group’s portfolio by the period-end value. Focus
investments are those investments that are not within the 20 most valuable, but on which the Life Sciences and Technology
teams focus a significant proportion of their resources and capital. These investments typically, although not exclusively, fall
within the 100 most valuable portfolio company holdings by period-end value, and they comprise 88% of the portfolio by
value (2018: 84%). Outside of these companies, the portfolio contains a broad selection of potentially exciting opportunities,
categorised as ‘other’. Many of these opportunities are at an early stage, and they typically receive a lower level of capital
and management resource.
Companies that are at a very early stage or in which the Group’s holding is of minimal value, but remain as operating
businesses, are classed as de minimis holdings. Organic holdings are investments in which the Group has acquired a
shareholding upon creating the company as a result of our technology transfer relationship with Imperial College London,
but in which we have not actively invested.
The total value of the Group’s portfolio companies (excluding multi-sector platforms, organic investments and de minimis
holdings) is almost £5bn.
2 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Portfolio analysis by sector
The Group funds spin-out companies based on a wide variety of scientific research emerging from leading research-
intensive institutions and does not limit itself to funding companies from particular areas of science. The Group splits
its core opportunity evaluation, investment and business-building team into two specialist divisions, Life Sciences and
Technology. Where the Group invests in businesses that cannot be classified within these divisions, primarily those portfolio
companies which also invest in other opportunities, they are recorded as multi-sector platforms. An update on the two
primary operating segments is included in the financial review below.
As at 31 December 2019
As at 31 December 2018
Fair value
Number
Fair value
Number
Sector
Life Sciences
Technology
Multi-sector platforms
Total
De minimis and organic holdings
Total portfolio
Attributable to third parties1
Gross portfolio
%
60%
37%
3%
100%
56
74
2
132
£m
598.7
372.0
26.7
994.4
13.0
1,007.4
38.2
1,045.6
%
42%
56%
£m
624.5
396.9
2%
63.2
100% 1,084.6
8.3
1,092.9
35.3
1,128.2
%
57%
37%
6%
100%
%
43%
55%
2%
100%
64
83
3
150
1 The amount attributable to third parties consists of £17.2m attributable to minority interests represented by third party limited partners
in the consolidated fund, IP Venture Fund II, £7.2m attributable to minority interests represented by third party limited partners in the
consolidated US portfolio, £10.9m attributable to Imperial College London and £2.9m attributable to other third parties (2018: £18.7m, £5.5m,
£8.1m and £3.0m)
2 3
STRATEGIC REPORT PORTFOLIO REVIEW
CONTINUED
The following table lists information on the 20 most valuable portfolio company investments, which represent 71% of the
total portfolio value (2018: 63%). Additional detail on the performance of these companies is included in the Life Sciences
and Technology portfolio reviews.
Company name
Sector
Description
Significant named co-investors
at 31 Dec 2019
Oxford Nanopore
Technologies Limited
Istesso Limited
Life Sciences
Life Sciences
Enabling the analysis of any living thing,
by any person, in any environment
Amgen, CCB, GIC, Hostplus, Invesco,
Lansdowne
Reprogramming metabolism to treat
autoimmune disease
Puhua Capital
Ceres Power Holdings plc
Technology
Cheaper, cleaner power for a changing world
Bosch, Oceanwood
Featurespace Limited
Technology
Leading predictive analytics company
Garrison Technology Limited
Technology
Anti-malware solutions for enterprise cyber
defences
Highland Europe, Insight, Invoke,
MissionOG, TTV Capital, Robert Sansom
BGF, Dawn Capital, NM Capital
Ultraleap Holdings Limited
Technology
Inivata Limited
Life Sciences
Contactless haptic technology
"feeling without touching"
Cornes, Dolby Ventures, Hostplus, Mayfair
Partners
Transforming clinical cancer care with liquid
biopsy
Cancer Research, CIC, J&J Innovation, RT
Partners
Oxford Sciences
Innovation plc
Multi-sector
University of Oxford preferred IP partner
under 15-year framework agreement
Blue Pool, Fosun Pharma, Invesco,
Lansdowne, Redmile, Sequoia, Temasek,
Tencent
Ieso Digital Health Limited
Life Sciences
Digital therapeutics for psychiatry
Draper Esprit
First Light Fusion Limited
Technology
Solving fusion with the simplest possible
machine
OSI
Wave Optics Limited
Technology
Novel optical waveguides and modules for
augmented reality displays
Bosch Venture Capital, Gobi Partners,
GoerTek Inc., Octopus
PsiOxus Therapeutics Limited
Life Sciences
Gene and viral therapies for cancer
Invesco, Lundbeckfonden, Mercia, SR One
Uniformity Labs, Inc.
Technology
Equipment, materials and software for
additive manufacturing
Not disclosed
Mission Therapeutics Limited
Life Sciences
Targeting deubiquitylating enzymes for the
treatment of CNS and mitochondrial disorders
Pfizer, Roche, Sofinnova Partners, SR one,
Schroder
YoYo Wallet Limited
Technology
Autifony Therapeutics
Limited
Life Sciences
Mobile payments with integrated loyalty
schemes
Developing high value, novel medicines to
treat serious diseases of the central nervous
system
Hard Yaka, LeadX Capital
Pfizer, SV Health Investors
Crescendo Biologics Limited
Life Sciences
Biologic therapeutics eliciting the immune
system against solid tumours
Andera Partners, Astellas, EMBL Ventures,
Quan Capital, Sofinnova Partners, Takeda
Oxbotica Limited
Technology
Creavo Medical Technologies
Limited
Life Sciences
Genomics plc
Life Sciences
Software to enable every vehicle to
become autonomous
Next generation cardiac diagnostic device
platform bringing magnetocardiography to
the point of care
Leading the genomic transformation of
healthcare
Fundamental Insurance Investments
Recent financing (within 0–6 months)
Puhua Capital, University of Leeds
Vertex, Foresight, F-Prime Capital,
Tamorer, Invesco, Lansdowne, Schroder,
OSI
Other companies
(112 companies)
De minimis and organic
investments
Value not attributable to
equity holdersII
Total
2 4
Primary valuation basis
at 31 Dec 2019
Recent financing (within 0–6 months)
DCF*
Quoted
(bid price)
Recent financing
(within 6–12 months)
Recent financing
(within 12–18 months)*
Recent financing
(within 12–18 months)*
Recent financing
(within 6–12 months)
Post–balance sheet transaction
Recent financing (anticipated)
DCF, market–based*
Recent financing (within 0–6 months)
PWERM*
Recent financing
(within 18–24 months)*
PWERM
Recent financing
(within 12–18 months)
DCF*
Recent financing
(within 12–18 months)
Recent financing (18–24 months)
adjusted downwards
Recent financing
(within 12–18 months)
2019I
%
16.7
56.4
18.6
22.3
23.4
22.6
28.2
3.2
46.6
35.9
17.5
26.3
22.8
20.2
39.6
27.6
18.7
17.2
39.3
12.7
Group Stake
Fair value of
investment/
movement and
at 31 Dec
Group holding
(divestment)
fees settled in
at 31 Dec 2018
equity
at 31 Dec 2019
Unrealised
Fair value
Fair value
of Group
holding
Net
III
£m
(22.5)
4.1
4.1
(31.8)
2.0
2.8
1.4
–
–
–
–
–
–
–
–
–
–
–
5.0
3.0
14.0
(0.2)
(1.2)
£m
274.1
57.9
47.1
25.2
28.8
27.5
18.9
55.5
13.9
17.9
15.2
22.6
13.1
13.7
13.7
25.6
12.3
5.5
14.4
10.3
371.4
8.3
35.3
£m
12.2
24.7
27.5
0.1
1.0
0.2
2.5
–
–
–
–
–
–
(10.9)
(0.4)
(13.0)
–
1.1
–
(6.1)
(111.2)
4.9
4.1
£m
263.8
82.6
74.6
29.4
28.8
27.5
24.0
23.9
18.4
17.9
15.2
14.5
14.1
13.7
13.7
12.6
12.3
11.6
11.3
10.3
274.2
13.0
38.2
1,128.2
(19.3)
(63.3)
1,045.6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Oxford Nanopore
Technologies Limited
Istesso Limited
by any person, in any environment
Life Sciences
Reprogramming metabolism to treat
autoimmune disease
Lansdowne
Puhua Capital
Ceres Power Holdings plc
Technology
Cheaper, cleaner power for a changing world
Bosch, Oceanwood
Featurespace Limited
Technology
Leading predictive analytics company
Highland Europe, Insight, Invoke,
MissionOG, TTV Capital, Robert Sansom
Garrison Technology Limited
Technology
Anti-malware solutions for enterprise cyber
BGF, Dawn Capital, NM Capital
Ultraleap Holdings Limited
Technology
Contactless haptic technology
Cornes, Dolby Ventures, Hostplus, Mayfair
"feeling without touching"
Inivata Limited
Life Sciences
Transforming clinical cancer care with liquid
Cancer Research, CIC, J&J Innovation, RT
Partners
Partners
Tencent
Draper Esprit
augmented reality displays
GoerTek Inc., Octopus
PsiOxus Therapeutics Limited
Life Sciences
Gene and viral therapies for cancer
Invesco, Lundbeckfonden, Mercia, SR One
Uniformity Labs, Inc.
Technology
Equipment, materials and software for
Not disclosed
additive manufacturing
Mission Therapeutics Limited
Life Sciences
Targeting deubiquitylating enzymes for the
Pfizer, Roche, Sofinnova Partners, SR one,
treatment of CNS and mitochondrial disorders
Schroder
YoYo Wallet Limited
Technology
Mobile payments with integrated loyalty
Hard Yaka, LeadX Capital
Autifony Therapeutics
Life Sciences
Developing high value, novel medicines to
Pfizer, SV Health Investors
Limited
treat serious diseases of the central nervous
Crescendo Biologics Limited
Life Sciences
Biologic therapeutics eliciting the immune
Andera Partners, Astellas, EMBL Ventures,
system against solid tumours
Quan Capital, Sofinnova Partners, Takeda
Creavo Medical Technologies
Life Sciences
Next generation cardiac diagnostic device
Puhua Capital, University of Leeds
Limited
platform bringing magnetocardiography to
Genomics plc
Life Sciences
Leading the genomic transformation of
Vertex, Foresight, F-Prime Capital,
become autonomous
the point of care
healthcare
Tamorer, Invesco, Lansdowne, Schroder,
OSI
defences
biopsy
machine
schemes
system
Other companies
(112 companies)
De minimis and organic
investments
Value not attributable to
equity holdersII
Total
Company name
Sector
Description
Significant named co-investors
at 31 Dec 2019
Primary valuation basis
at 31 Dec 2019
Life Sciences
Enabling the analysis of any living thing,
Amgen, CCB, GIC, Hostplus, Invesco,
Recent financing (within 0–6 months)
Oxford Sciences
Innovation plc
Multi-sector
University of Oxford preferred IP partner
Blue Pool, Fosun Pharma, Invesco,
Post–balance sheet transaction
under 15-year framework agreement
Lansdowne, Redmile, Sequoia, Temasek,
Ieso Digital Health Limited
Life Sciences
Digital therapeutics for psychiatry
First Light Fusion Limited
Technology
Solving fusion with the simplest possible
OSI
Recent financing (anticipated)
DCF, market–based*
Wave Optics Limited
Technology
Novel optical waveguides and modules for
Bosch Venture Capital, Gobi Partners,
Recent financing (within 0–6 months)
DCF*
Quoted
(bid price)
Recent financing
(within 6–12 months)
Recent financing
(within 12–18 months)*
Recent financing
(within 12–18 months)*
Recent financing
(within 6–12 months)
Oxbotica Limited
Technology
Software to enable every vehicle to
Fundamental Insurance Investments
Recent financing (within 0–6 months)
Recent financing (18–24 months)
adjusted downwards
Recent financing
(within 12–18 months)
PWERM*
Recent financing
(within 18–24 months)*
PWERM
Recent financing
(within 12–18 months)
DCF*
Recent financing
(within 12–18 months)
Group Stake
at 31 Dec
2019I
%
Fair value of
Group holding
at 31 Dec 2018
£m
16.7
56.4
18.6
22.3
23.4
22.6
28.2
3.2
46.6
35.9
17.5
26.3
22.8
20.2
39.6
27.6
18.7
17.2
39.3
12.7
274.1
57.9
47.1
25.2
28.8
27.5
18.9
55.5
13.9
17.9
15.2
22.6
13.1
13.7
13.7
25.6
12.3
5.5
14.4
10.3
371.4
8.3
35.3
Net
investment/
(divestment)
III
£m
(22.5)
–
–
4.1
–
–
4.1
(31.8)
2.0
–
–
2.8
1.4
–
–
–
–
5.0
3.0
–
14.0
(0.2)
(1.2)
Unrealised
Fair value
movement and
fees settled in
equity
£m
12.2
24.7
27.5
0.1
–
–
1.0
0.2
2.5
–
–
(10.9)
(0.4)
–
–
(13 .0)
–
1.1
(6.1)
–
(111.2)
4.9
4.1
Fair value
of Group
holding
at 31 Dec 2019
£m
263.8
82.6
74.6
29.4
28.8
27.5
24.0
23.9
18.4
17.9
15.2
14.5
14.1
13.7
13.7
12.6
12.3
11.6
11.3
10.3
274.2
13.0
38.2
1,128.2
(19.3)
(63.3)
1,045.6
i. Represents the Group’s undiluted beneficial economic equity interest (excluding debt), including only the Group’s portion of IPVF II, and the Group’s
portion of the US portfolio. Voting interest is below 50%.
ii.
Includes £2.7m increase in revenue share to Imperial College London, with a corresponding increase in revenue share liability resulting in no net fair
value movement.
iii. Includes £11.2m movement in respect of the deconsolidation of MOBILion Systems, Inc. and recognition as a portfolio company.
* Third party valuation specialists used for 31 December 2019 valuation
2 5
STRATEGIC REPORT PORTFOLIO REVIEW: LIFE SCIENCES
Review of the year
IP Group’s Life Sciences portfolio
comprises 56 companies worth
£598.7m as at 31 December 2019.
Oxford Nanopore
Oxford Nanopore Technologies Ltd, the
Group’s most valuable holding, made
further significant progress in 2019. The
company, whose goal is to enable the
analysis of any living thing, by anyone,
anywhere, is behind the only real-time
DNA/RNA sequencer that can sequence
any read length. The technology
is also fully scalable from smaller
portable formats to larger devices for
population-scale sequencing.
In 2019, expansion of the customer
community continued as evidenced
by the bank of more than 650
scientific publications, driven by
continued technology improvement
and a greater range of devices that
serve broader market segments.
Between 2017 and 2018, sales
growth of 2.3x was achieved, whilst
maintaining margins, and managing
a small increase in operating
expenditure (8%).
More recently, in January 2020,
Oxford Nanopore announced that it
had completed another successful
fundraising, raising £29.3m of new
capital and facilitating the secondary
sale of £80.2m of shares, representing
an aggregate investment of £109.5m.
Funds were raised from both new
investors and existing shareholders
from the US, Europe and Asia
Pacific. The fundraising brings the
total primary investment in Oxford
Nanopore to approximately £480m.
In early 2020, highlights also
include the heavy involvement of
Oxford Nanopore’s technology in
genomic surveillance during the
novel coronavirus outbreak with
the company shipping an additional
200 MinION sequencers and related
consumables to China.
2019 highlights
Oxford Nanopore’s technology has
continued to be proven in broader
applications. New publications and
applications citing the technology
in 2019 included workflows for
rapid, accurate and data-rich cancer
genome analysis, pathogen analysis,
crop genomes and human genetics
and, in 2020, COVID-19 pathogen
analysis and outbreak surveillance.
The total number of publications
citing nanopore technology for
sequencing is now in excess of 750.
The technology is also starting to be
adopted beyond research laboratories
into more regulated environments,
and 2019 saw tests becoming
available in infectious disease, HLA
tissue typing and food safety.
Oxford Nanopore also continued
to scale up production and in
July, the first processes at its new
manufacturing facility in Oxfordshire
came online. The MinION building
features what is one of the largest
clean rooms in Europe and when fully
fitted out will have the ability to run
20 modular production lines for the
manufacturing of 1.2m flow cells a
year. This will be achieved with deep
automation, for consistent high-
quality product and increasingly cost-
efficient manufacturing.
In December 2019, Oxford Nanopore
noted that its technology had been
selected for the population-scale
‘Genome Program’ launched by Abu
Dhabi’s Department of Health. The
project aims to be the first of its kind
worldwide to provide citizens with
their own high-quality genome as
a baseline and aims to incorporate
genomic data into healthcare
management.
Technology
Oxford Nanopore has developed and
commercialised a novel generation of
DNA/RNA sequencing technology.
Unlike any other sequencing
technology on the market, nanopore
sequencing provides all of the
following features:
• The ability to sequence any length
fragment of DNA/RNA, whether
short to ultra-long – conferring
benefits in genome assembly,
the characterisation of structural
variation, phasing and other
advantages
• Real time analysis – with data
available as soon as an experiment
starts, analysis workflows can
be shortened for rapid insights.
Dr Sam Williams
Managing Partner,
Life Sciences
Oxford Nanopore
technology has
been selected for
the population-scale
‘Genome Program’
launched by Abu
Dhabi’s Department of
Health. The project aims
to be the first of its kind
worldwide to provide
citizens with their own
high-quality genome as
a baseline and aims to
incorporate genomic
data into healthcare
management.”
2 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Dynamic workflows are possible, for
example ‘adaptive sampling’ where
the device selects regions of interest
(typically this has been done with
sample preparation techniques)
• Scalability – to portable devices.
This provides the unique ability to
take the device into the field, or
simply for researchers to operate a
personal sequencer on-demand
• Scalability – to ultra-high yields,
catering to large genome projects
or larger genomes (e.g. human or
plant genomes, at scale)
• Direct electronic analysis – resulting
in rich biological information such
as direct methylation or direct RNA
sequencing
Notable technical developments in
2019 included:
• The delivery of PromethION 48
to the market in 2019. This device
can run the full 48 flow cells
concurrently. A single run using
all flow cells, performed internally,
has generated more than 7Tb
of data. (for context, a human
genome is ~3Gb). P48 is designed
to address ultra- high throughput
opportunities such as human or
plant genomes, at scale.
• The introduction of Flongle, a flow
cell adapter for MinION or GridION.
This is the first on-demand, low
cost sequencing solution for
smaller tests on the market and
is designed to open up new users
and markets. Demand for Flongle
has been very high and the
company is currently scaling up
production of this technology.
• Device upgrades in 2019 include
GridION Mk1, PromethION 24,
VolTRAXv2. The latter provides an
automated, programmable sample
prep solution that is designed to
drive consistent high performance
for any user – with or without lab
skills or kit.
In addition, the company has
focused on improving performance
by enhancing yield, accuracy and
usability, adding to existing disruptive
properties such as portability, real-
time data and long reads.
Recent customer records include
the generation of 43Gb data from a
MinION Flow Cell and 180Gb from a
PromethION Flow Cell. This translates
to better value experiments for
customers and increased uptake
of the technology as it becomes
increasingly cost competitive and
able to enable larger projects. Yields
have been driven by multiple factors
including software upgrades and new
kits that can ‘refuel’ flow cells. Oxford
Nanopore has also addressed the
increasing power of nanopore devices
by providing high-performance GPUs
for real time analysis in PromethION
and GridION devices, as well as the
MinIT accessory for MinION.
Multiple strategies have also been
deployed to continuously increase
accuracy, including the improvement
of basecalling algorithms/onward
analysis tools and new nanopore
chemistries. A range of applications
are enabled by the current, improved
performance of the R9.4.1 nanopore,
and the newest R10.3 nanopore is
also showing positive results in high
consensus accuracy. In addition,
Oxford Nanopore continues to focus
on delivering even further enhanced
accuracy through a combination of
data analysis and chemistry, with
a goal of providing across-the-
board competitive and disruptive
performance.
Other significant portfolio
company updates
At 31 December 2019, the Life
Sciences division, excluding Oxford
Nanopore, consisted of 55 companies,
with a combined value of £334.9m
(2018: 63 companies; £350.4m). The
reduction in number of companies
and a £60.2m net fair value reduction,
excluding net investment, reflects
three main factors:
1. poor performance in the public
markets;
2. technical and commercial setbacks
in several key private companies;
and
3. ongoing rationalisation of the
portfolio.
In terms of the performance of
the quoted Life Sciences portfolio,
there was a net reduction of £18.6m,
equating to 33% of the net fair value
loss, with the biggest impact coming
from Circassia and Tissue Regenix
(each down approximately £8m).
Diurnal’s development of its late-
stage portfolio of endocrinology
products continued to show progress,
with marketing applications filed for
Alkindi in the US and Chronocort in
Europe.
In the private portfolio, the key write-
downs related to Autifony (£13.0m),
PsiOxus (£10.9m), Topivert (£10.7m),
Creavo (£7.4m) and Cell Medica
(£7.0m), each resulting from financing,
partnering or technical setbacks.
In terms of positive developments,
Istesso announced positive headline
data from its Phase 2a study of its
investigational drug for rheumatoid
arthritis, MBS2320, which led to
a £25m write-up of the division’s
holding value. In the third quarter of
the year, Istesso was notified by its
collaboration partner J&J that it did
not intend to exercise its option in
respect of the programme. We see
this as a neutral development when
offset against the increase in value
conferred by the positive Phase 2a
data. The J&J partnership was signed
in 2014 at a pre-clinical stage, whereas
the drug is now in Phase 2 with a
novel mechanism-of-action that has
potential in rheumatoid arthritis, other
autoimmune conditions and cancer.
Thus, we believe that the product has
significant development potential and
licensing value as an unencumbered
asset. Elsewhere, Pulmocide
generated promising data in a study
of its novel agent for the treatment of
fungal infection in lung transplant.
Rationalisation of the portfolio has
been ongoing since the combination
of the Life Sciences portfolios of
both IP Group and Touchstone in late
2017. This rationalisation process will
continue over the next year or so and
will result in a smaller, more focussed
but diverse portfolio of 10-20
companies, each one with ‘NASDAQ
potential’ and with a target ownership
of at least 25%.
During 2020, several companies
are expected to go through key,
potentially value-enhancing inflection
points, for example, Diurnal,
Microbiotica and PsiOxus.
2 7
STRATEGIC REPORT PORTFOLIO REVIEW: TECHNOLOGY
Review of the year
IP Group’s Technology portfolio
comprises 74 companies worth
£369.0m as at 31 December 2019.
Technology
The Technology division had two
strategic priorities in 2019: focus and
sustainability. We aimed to ensure
that our human and capital resources
were focused on a small group of
assets that we believe to have the
greatest potential to deliver strong
returns, whilst also achieving cash
sustainability by taking advantage
of a maturing portfolio to increase
cash realisations compared to
previous years. Both objectives were
comprehensively achieved: investment
capital was directed to a narrow group
of high conviction portfolio company
holdings and in parallel we were able
to realise significant proceeds from
equity sales with an overall IRR of 9.1%
and 1.3x multiple. As a result of the
full and partial exits achieved during
2019, the sale proceeds (including £5m
deferred funds) from the Tech portfolio
exceeded the investment outflow
by £13.1m, whilst the portfolio overall
decreased in value by roughly £10.0m
against a challenging market backdrop.
The largest realisation in the Tech
portfolio came from the sale of our
portfolio company Process Systems
Enterprise Ltd (PSE) to Siemens in
a deal that yielded £13.8m for the
Group. This transaction served as an
excellent example of the strength in
depth of the portfolio: PSE was not
amongst our most valuable holdings
and may not have been particularly
well-known to IP Group shareholders,
but the company was profitable
with healthy revenue streams and
had a compelling product suite that
attracted a top-tier acquirer. We were
also pleased to be able to realise
around £6m from the sale of some of
our stake in insurance data analytics
company Concirrus, which allowed us
the opportunity to realise all monies
invested to date alongside increasing
ownership from co-investors deeply
connected to the sector.
In terms of major investment
transactions, Featurespace closed a
£25m round led by Insight Partners,
a leading US venture capital and
private equity firm, in early 2019. The
company continues to grow strongly,
closing commercial deals with Enfuce,
RBS and Circulo de Credito. The
market Featurespace is addressing
continues to expand rapidly and the
company is well positioned to take
advantage of this growth. Elsewhere
in the Tech portfolio, we saw relatively
few major fundraise transactions as
many of the most valuable portfolio
company holdings in the portfolio,
including UltraLeap (formerly
Ultrahaptics) and Garrison, completed
large funding rounds during 2018
and so were focused on deploying
that capital to achieve commercial
progress in 2019.
In another positive move, UltraLeap,
acquired the Silicon Valley company
Leap Motion, which owned a broad
portfolio of fundamental patents
relating to hand tracking. The Leap
Motion technology, which was
already embedded in UltraLeap’s
own products, can very accurately
recognise human hand gestures. We
believe that the combined company
now owns the most compelling
technology stack for gesture-based
computer input and feedback. The
merger presents an opportunity for
UltraLeap to become one of the
defining players in the rapidly evolving
field of human-machine interaction.
The company is seeing strong early
commercial progress, recording a
doubling of booked orders in Q4 2019
compared to the previous quarter.
Also in the field of Virtual and
Augmented Reality, our portfolio
company WaveOptics made excellent
progress this year with further
investment secured from Goertek and
Hostplus alongside the achievement
of some very encouraging commercial
milestones.
Progress has also been made by the
new management team at Mirriad
plc, which announced a major deal
with Tencent in June 2019 that the
company reported would generate
multiple millions of pounds of revenue
for Mirriad over the 24-month
contract term. This followed proactive
management of the asset by IP Group
Mark Reilly
Managing Partner,
Technology
2019 objectives were
comprehensively
achieved: investment
capital was directed
to a narrow group of
high-conviction assets
and in parallel we
were able to realise
significant proceeds
from equity sales.”
2 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
that precipitated a fundamental
change in the leadership team and
strategy last year.
The share price of AIM-listed Actual
Experience plc decreased significantly
during the year, despite that company
announcing 1.8x revenue growth to
£1.9 million, “significant customer
deployments” and a successful
evaluation with Vodafone, resulting
in a £10.6m fair value reduction in the
Group’s holding. We reduced the fair
value of the Group’s holding in private
company, Impression Technologies,
that is developing ‘lightweighting’
solutions for manufacturing processes,
as well as holdings in a handful of other
assets. This followed an assessment
of each company’s value in light of
delayed technical and/or commercial
progress or based on investor feedback
where such companies are seeking to
raise further capital.
Cleantech
It has been a very successful year
for the Cleantech portfolio’s most
valuable asset, Ceres Power. The
company has seen significant
commercial progress including the
doubling of revenue for a fourth
consecutive year, the first product
launch with Japan’s Miura Co. using
Ceres’ SteelCell® in a combined heat
and power system for commercial
use, and the signing of a new system
licence and joint development
agreement with Doosan worth £8m
over two years. This progress was
recognised in the company’s share
price, which continued to increase
during 2019, adding around £27.5m to
the Group’s holding value. Since the
year-end, the share price has risen
a further 37%, resulting in a further
increase of approximately £25m to
the value of the Group’s holding.
In January 2020 Bosch announced
a strategic move to increase its
holding in Ceres to c.18%, and as
part of this transaction the Group
sold approximately a quarter of its
shareholding, generating £22.4m cash
proceeds and realising a 5.1x equity
multiple and a 46% IRR.
Elsewhere in the Cleantech portfolio,
and as highlighted in ‘Strategy in
Action’ on page 15, our cell-level battery
controls company, Dukosi, was sold to
the investment group KCK, delivering an
overall gross IRR of 33%. The Cleantech
team identified battery management
systems as an attractive part of the
value chain, assembled a compelling
offering from university and industrial
IP and expertise, funded the company
from an early stage and dedicated
considerable effort to developing and
helping to shape the business into an
attractive exit proposition.
We were also pleased to see Azuri, the
provider of pay-as-you-go solar home
solutions to off-grid households across
Africa, close a new investment of
US$26 million, led by Fortune Global
500 company Marubeni Corporation.
In the first half of the year, First Light
Fusion successfully commissioned its
pulsed power fusion demonstrator,
‘Machine 3’. Constructing the world’s
highest-current (14 MA) pulsed
power machine dedicated to fusion
for a capital cost of only £4m was a
remarkable achievement. In October,
the UK Atomic Energy Authority
(UKAEA), the leading government lab
for fusion energy research, completed
a project to establish the basic
operating parameters for First Light’s
‘fusion island’ concept at the heart of
its power plant design, and concluded
that it is fundamentally viable, the
first time a start-up in the space has
received this endorsement. As at the
results publication date, First Light
has not yet demonstrated a fusion
reaction, a delay to the targeted
schedule that it had previously
communicated. The company remains
confident that achieving fusion is a
matter of time and believes there is no
fundamental issue with its approach.
This view is supported by the eminent
First Light Scientific Advisory Board.
Balancing the progress since the
last financing round, particularly
on reactor development, with the
more recent delay to the forecast
achievement of fusion, the Group has
maintained the fair value of its 35.9%
holding in First Light at £17.9m.
2 9
PORTFOLIO REVIEW:
MULTI-SECTOR PLATFORMS
The Group has shareholdings in two multi-sector platform
companies, Oxford Sciences Innovation plc (“OSI”) and
Cambridge Innovation Capital plc (“CIC”). During 2019, the
Group has reduced its exposure to OSI and CIC, and has
exited its small holding in AIM-quoted Frontier IP Group plc,
generating total proceeds of £36.8m. As at 31 December
2019, IP Group has a 3.3% holding in OSI valued at £23.9m
and a 1.0% holding in CIC valued at £2.8m.
As a result of its 15-year framework agreement with the
University of Oxford, OSI is the preferred intellectual
property partner for the provision of capital to, and
development of, Oxford spin-out companies and is
entitled to 50% of the university’s founder equity in spin-
out companies. In 2019 OSI has continued to support its
existing portfolio, with £58.2m further investment being
made and OSI leading on 32 investments. The number of
investments now stands at 78 with a total portfolio value of
£290.6m and cash and deposits of £173.7m. Net asset value
per share has risen from 116.1p to 118.0p during 2019.
CIC is a preferred investor for the University of Cambridge
for the commercialisation of intellectual property created
at the University under a ten-year memorandum of
understanding, and a Cambridge-based investor in
technology and healthcare companies from the Cambridge
Cluster. Since its inception, CIC has secured £275m of
investment, invested £155.3m, and its current portfolio of 31
investments is held at £253.6m.
Additional portfolio analysis
Value of compa ni es
in the portfolio
2019 net portfol io
gain/(l oss) (re al ised
and unre ali sed)
Nu mbe r of portfol io
compani es 1
Cost of holdings
sold in 2 019
Proceeds of
holdings sold in
2019 - cash
Proceeds of
holdings sold in
2019- non cash
Attention:
Top 20
Focus
Other
Organ ic and
De minimis
Tech
Cleantech
Life
Sciences
Multi
Sector
Organic and
De minimis
Total UK
Portfolio
£204.5m
£124.3m
£578.1m
£26.7m
£13.0m
£946.6m
(£38.7m)
£25.8m
(£43.8m)
£0.3m
£5.3m
(£51.1m)
41
16
42
2
n/a
101
£20.7m
£8.8m
£57.9m
£5.3m
–
£92.7m
£25.9m
£9.4m
£39.3m
£4.8m
£0.1m
£79.5m
£0.3m
£5.0m
£22.0m
–
£114.5m
£104.1m
£463.5m
£23.9m
£57.4m
£15.0m
£71.3m
–
£32.6m
£5.2m
£43.3m
£2.8m
–
–
–
–
£27.3m
£706.0m
£143.7m
£83.9m
–
–
–
–
£13.0m
£13.0m
1 Excluding organic and de minimis (89 companies)
3 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
Additional portfolio analysis
United
States
Australasia
Attributable
to third party
investors in
VF II & US
Total Net
Portfolio
Revenue
share
Total Gross
Portfolio
£57.1m
£3.7m
£24.4m
£1,031.8m
£13.8m £1,045.6m
£9.2m
(£0.1m)
(£1.9m)
(£43.9m)
£7.2m
(£36.7m)
Valu e of companies
in th e portfolio
2019 net p ortfolio
ga in/ (loss)
(reali sed and
un real ised)
23
–
–
–
£14.2m
8
–
–
–
–
–
–
–
–
132
£92.7m
£79.5m
£27.3m
–
–
–
–
132
N umber of
portfoli o
compa nies 1
£92.7m
Cost of holdings
sol d in 2019
£79.5m
£27.3m
Proceed s of
hold ings s old in
2019 - cas h
Proceed s of
hold ings s old in
2019- non cash
At ten ti on:
£13.1m
£733.3m
£0.1m
£733.4m Top 2 0
£19.2m
£1.1m
£5.7m
£169.7m
£0.1m
£169.8m Focus
£23.7m
£2.6m
£5.6m
£115.8m
£5.1m
£120.9m Oth er
–
–
–
£13.0m
£8.5m
£21.5m
Organ ic an d
De mini mis
3 1
FINANCIAL REVIEW
The Group recorded a loss for the year of £78.9m (2018:
loss of £293.8m) and a negative Return on Hard NAV, i.e.
on the Group’s net assets excluding goodwill and intangible
assets, of £73.7m (2018: negative £75.6m). Net assets at
31 December 2019 were £1,141.9m (2018: £1,218.2m) and
Hard NAV totalled £1,141.5m at 31 December 2019 (2018:
£1,217.5m), representing 107.8p per share (2018: 115.0p).
Consolidated statement of comprehensive income
A summary analysis of the Group’s financial performance is provided below:
Net portfolio losses (1)
Change in fair value of limited and limited liability
partnership interests
Net overheads (2)
Administrative expenses –
consolidated portfolio companies
Administrative expenses –
share-based payments charge
IFRS 3 charge in respect of acquisition of subsidiary
Carried interest plan release
Amortisation of intangible assets
Goodwill impairment
Net finance (expense)/income
Taxation
(Loss)/profit for the year
Other comprehensive income
Total comprehensive income/(loss) for the year
Exclude:
Amortisation of intangible assets
Goodwill impairment
Share-based payment charge
IFRS charge in respect of acquisition of subsidiary
Return on Hard NAV
2019
£m
(43.9)
(0.7)
(22.6)
(5.4)
(2.3)
(2.5)
1.3
(0.3)
—
(2.4)
(0.1)
(78.9)
0.1
(78.8)
0.3
—
2.3
2.5
(73.7)
2018
£m
(48.4)
2.3
(26.0)
(2.6)
(1.9)
(3.3)
1.1
(9.9)
(203.2)
(1.8)
(0.1)
(293.8)
(0.1)
(293.9)
9.9
203.2
1.9
3.3
(75.6)
1 Defined in note 29 Alternative Performance Measures.
2 See net overheads table below and definition in note 29 Alternative Performance Measures.
Net portfolio gains/(losses) consist primarily of realised and unrealised fair
value gains and losses from the Group’s equity and debt holdings in spin-out
businesses, which are analysed in detail in the portfolio review on pages 21 to 31.
Greg Smith
Chief Financial Officer
In 2019, cash realisations
hit a record £79.5m and
exceeded investment
into the portfolio for the
first time since 2007. This
strong cash generation
has continued into
2020, with realisations
to date totalling £55m.
The Group remains in a
strong financial position.”
3 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
A WaveOp tics wafer with wavegu id e, en a bl in g t he pro j ectio n of im a ge s for AR
Net overheads
Other income
Administrative expenses – all other expenses
Administrative expenses – Annual Incentive Scheme
Net overheads
2019
£m
8.6
(29.2)
(2.0)
(22.6)
2018
£m
9.9
(34.5)
(1.4)
(26.0)
Other income totalled £8.6m, a
decrease on the year (2018: £9.9m)
due in part to the transfer of future
commercialisation operations of
the Group’s Technology Transfer
Office to Imperial College London
on 28 February 2019. Under this
arrangement, the Group retains
its rights to earnings in respect
of existing licences, while new
commercialisation activity is
undertaken directly by Imperial,
resulting in reduced income in respect
of these activities in 2019. Additionally,
2019 saw a lower level of corporate
finance fees earned by its IP Capital
team, reflecting the lower level of
funding raised by the portfolio in 2019.
Other income comprises fund
management fees, licensing and
patent income from Imperial
Innovations, corporate finance fees
as well as consulting and similar fees,
typically chargeable to portfolio
companies for services including
executive search and selection as well
as legal and administrative support.
Other central administrative expenses,
excluding performance-based staff
incentives and share-based payments
charges, have decreased to £29.2m
during the period (2018: £34.5m),
primarily as a result of cost savings
realised from the transfer of the TTO
noted above, as well as the surrender
of the lease on 7 Air Street, the former
Touchstone head office on 22 March
2019. Offsetting these savings was
growth in the cost of the Group’s
US and Australasian operations. Of
the £29.2m gross overheads, £6.5m
relates to the cost of the Group’s
US, Australasian and Greater China
operations (2018: £5.8m).
The charge of £2.0m in respect of
the Group’s Annual Incentive Scheme
(2018: £1.4m), reflects performance
against 2019 AIS targets as described
in the report on page 98.
Other income
statement items
The share-based payments charge
of £2.3m (2018: £1.9m) reflects the
accounting charge for the Group’s
Long-Term Incentive Plan and Deferred
Bonus Share Plan. This non-cash
charge reflects the fair value of services
received from employees, measured by
reference to the fair value of the share-
based payments at the date of award,
but has no net impact on the Group’s
total equity or net assets.
Included within the Group’s
administrative expenses are costs in
respect of a small number of other
portfolio companies. Typically, the
Group owns a non-controlling interest
in its portfolio companies; however,
in certain circumstances, the Group
takes a controlling stake and hence
consolidates the results of a portfolio
company into the Group’s financial
statements. The administrative
expenses included in the Group’s
results for such companies primarily
comprise staff costs, R&D and other
operating expenses. These costs
included consolidated costs in
respect of MOBILion Systems, Inc.,
for the first half of the year until its
deconsolidation on 1 July 2019.
The carried interest plan release of
£1.3m (2018: release of £1.1m) relates
to the recalculation of liabilities under
the Group’s carry schemes, which
include the current UK scheme,
as well as historic IP Group and
Touchstone schemes. Payments
are generally only due to carry plan
participants when sufficient asset
realisations have occurred.
Costs of £2.5m (2018: £3.3m) were
recognised in relation to contingent
consideration payable to the sellers
of Parkwalk Advisors Limited deemed
under IFRS 3 to be a payment for
post-acquisition services.
Acquisition intangibles relate
to separately identifiable assets
recognised through the acquisition of
Touchstone Innovations plc, Parkwalk
Advisors Limited and Fusion IP plc;
these assets are amortised over
the period to which the contractual
commitments relate and were fully
amortised as at 31 December 2019.
3 3
FINANCIAL REVIEW
CONTINUED
Consolidated statement of financial position
A summary analysis of the Group’s assets and liabilities is provided below:
Goodwill and other intangible assets
Portfolio
Other non-current assets
Cash and deposits
EIB debt facility
Other net current liabilities
Other non-current liabilities
Total Equity or Net Assets
Exclude:
Goodwill and other intangible assets
Hard NAV
Hard NAV per share
Year ended
31 December
2019
£m
Year ended
31 December
2018
£m
0.4
1,045.6
22.5
194.9
(82.5)
6.3
(45.3)
1,141.9
(0.4)
1,141.5
107.8p
0.7
1,128.2
18.8
219.0
(97.8)
(9.9)
(40.8)
1,218.2
(0.7)
1,217.5
115.0p
The composition of, and movements in, the Group’s portfolio is described in the
Portfolio review on pages 21 to 31.
Portfolio Valuation Basis
Quoted
Recent financing (<12 months)
Recent financing (>12 months)
Other valuation methods
Debt
Total portfolio
Year ended
31 December
2019
£m
Year ended
31 December
2018
£m
117.7
455.3
251.1
197.8
23.7
1,045.6
133.2
657.3
197.9
106.7
33.1
1,128.2
The table above summarises the valuation basis for the Group’s portfolio. Further
details on the Group’s valuation policy can be found in notes 1 and 15. The Group
seeks to use observable market data as the primary basis for determining asset
fair values where appropriate. Other valuation methods include: market-derived
valuations adjusted to reflect considerations including (inter alia) technical
measures, financial measures and market and sales measures; discounted cash
flows and price-earnings multiples.
The Group engages third party valuation specialists to provide valuation support
where required; during 2019 we commissioned third party valuations on ten out of
the top 20 holdings in respect of our half-yearly or full year reporting (2018: five).
Other Assets/Liabilities
The majority of non-current assets relate to holdings in LP and LLP funds, namely
UCL Technology Fund LP, Apollo Therapeutics LLP and Technikos LLP. These
funds give us both economic interest and direct investment opportunities in
a portfolio of early-stage companies, as well as relationships with high-quality
institutional co-investors.
The largest items within other non-current liabilities are loans from LPs of
consolidated funds. The Group consolidates the assets of two managed funds
in which it has a significant economic interest, specifically co-investment fund
IP Venture Fund II LP and IPG Cayman LP. The latter was created in late 2018 to
facilitate third-party investment into the Group’s US portfolio. Loans from third
parties of consolidated funds represent third-party loans into these partnerships.
These loans are repayable only upon these funds generating sufficient realisations
to repay the Limited Partners.
3 4
At 31 December 2019, the Group
held gross cash and deposits of
£194.9m (2018: £219.0m). It remains
the Group’s policy to place cash
that is surplus to near-term working
capital requirements on short-term
and overnight deposits with financial
institutions that meet the Group’s
treasury policy criteria or in low-
risk treasury funds rated Prime or
above. The Group’s treasury policy
is described in detail in note 2 to
the Group financial statements
alongside details of the credit ratings
of the Group’s cash and deposit
counterparties.
At 31 December 2019, the Group had
a total of £16.6m (2018: £40.2m) held
in US Dollars and £0.2m (2018: £0.1m)
held in AUS Dollars.
Both IP Group and Touchstone
Innovation plc arranged debt facilities
with the European Investment Bank
(“the EIB”), total borrowings under
which totalled £82.5m at the period
end (2018: £97.8m). Of these facilities,
£15.4m is due to be repaid within
twelve months of the period end (2018:
£15.4m). The facility provides IP Group
with an additional source of long-term
capital to support the development of
the portfolio.
Share Capital
In November 2019, the Board
approved in principle a capital
reduction involving a reduction of the
Group’s share premium and merger
reserves, with a corresponding
increase in the Group’s retained
profit reserve, in order to create
distributable reserves at the IP Group
plc individual company level. This
gave the Group the flexibility to make
future purchases of its own shares
and/or to make future distributions
of profits in cash or specie although
at the time the Board confirmed that
it had no current plans to do so. The
capital reduction was completed in
December 2019, and the impact is
shown in the Group Statement of
Changes in Equity, page 137.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Cash and deposits
The principal constituents of the movement in Cash during the year are summarised as follows:
Net cash generated/(used) by operating activities
Net cash generated/(used) in investing activities (excluding cash flows
from deposits)
Cash acquired on acquisition of subsidiary undertakings net of cash
acquired)
Repayment/drawdown of debt facility
Other financing activities
Effect of foreign exchange rate changes
Movement during period
Year ended
31 December 2019
£m
Year ended
31 December 2018
£m
(17.3)
9.3
(2.5)
(15.3)
1.7
—
(24.1)
(24.9)
(76.0)
—
(6.3)
—
(0.1)
(107.3)
At 31 December 2019, the Group’s Cash and deposits totalled £194.9m, a decrease of £24.1m from a total of £219.0m at 31
December 2018 due largely to net cash used by operating activities of £17.3m, net cash generated by investing activities of
£9.3m and debt repayments of £15.3m.
A categorisation of the Group’s cash and deposits is provided below:
Held within Group subsidiaries
Held by consolidated funds – US portfolio
Held by consolidated funds – all other funds
Held by consolidated portfolio companies
Total Cash
Year ended
31 December 2019
£m
Year ended
31 December 2018
£m
188.1
5.8
0.5
0.5
194.9
199.6
15.7
1.8
1.9
219.0
Under the terms of its term loans with the EIB, the Group is required to maintain a minimum cash balance of £30m. The
Group is also required to hold six months of debt service costs (interest and capital repayments) in a separate bank
account, which totalled £9.4m at 31 December 2019 (2018: £9.4m).
Taxation
The Group’s business model seeks to deliver long-term value to its stakeholders through the commercialisation of
fundamental research carried out at its partner universities. To date, this has been largely achieved through the formation
of, and provision of services and development capital to, spin-out companies formed around the output of such research.
The Group primarily seeks to generate capital gains from its holdings in spin-out companies over the longer term but has
historically made annual net operating losses from its operations from a UK tax perspective. Capital gains achieved by the
Group would ordinarily be taxed upon realisation of such holdings; however, since the Group typically holds in excess of 10%
in its portfolio companies and those companies are themselves trading, the Directors continue to believe that the majority
of its holdings will qualify for the Substantial Shareholdings Exemption (“SSE”). This exemption provides that gains arising
on the disposal of qualifying holdings are not chargeable to UK corporation tax and, as such, the Group has continued not
to recognise a provision for deferred taxation in respect of uplifts in value on those equity holdings that meet the qualifying
criteria. Gains arising on sales of non-qualifying holdings would ordinarily give rise to taxable profits for the Group, to the
extent that these exceed the Group’s operating losses from time to time.
The Group complies with relevant global initiatives including the US Foreign Account Tax Compliance Act (“FATCA”) and
the OECD Common Reporting Standard.
Alternative Performance Measures (“APMs”)
The Group discloses alternative performance measures, such as Hard NAV, Hard NAV per share and Return on Hard NAV, in
this Annual Report. The directors believe that these APMs assist in providing additional useful information on the underlying
trends, performance and position of the Group. Further information on APMs utilised in the Group is set out in note 29.
3 5
STRATEGIC REPORT RISK MANAGEMENT
Managing risk: our framework for balancing risk and reward
Governance
Overall responsibility for the risk
framework and definition of risk
appetite rests with the Board, who,
through regular review of risks ensure,
that risk exposure is matched with an
ability to achieve the Group’s strategic
objectives. The IP Group Risk Council
is the executive body that operates to
establish, recommend and maintain
a fit-for-purpose risk management
framework appropriate for the Group
and oversees the effective application
of the framework across the business.
The Risk Council is chaired by
the CFO, has representation from
operational business units as required
during the year, and is supported in its
operation by PwC. Risk identification
is carried out through a bottom-up
process via operational risk registers
maintained by individual teams, which
are updated and reported to the
Risk Council at least bi-annually, with
additional top-down input from the
management team with non-executive
review being carried out by the Audit
and Risk Committee at least annually,
see page 116 for details.
Risk management
process
Ranking of the Group’s risks is carried
out by combining the financial,
strategic, operational, reputational,
regulatory and employee impact of
risks and the likelihood that they may
occur. Operational risks, are collated
into strategic risks, which identifies
key themes and emerging risks, and
ultimately informs our principal risks
which are detailed in the Principal Risk
and Uncertainty section of this report.
The operations of the Group, and the
implementation of its objectives and
strategy, are subject to a number of
principal risks and uncertainties. Were
more than one of the risks to occur
together, the overall impact on the
Group may be compounded.
The design and ongoing effectiveness
of the key controls over the Group’s
principal risks are documented using
a “risk and control matrix”, which
includes an assessment of the design
and operating effectiveness of the
controls in question. The key controls
over the Group’s identified principal
risks are reviewed as part of the
Group’s risk management process,
by management, the Audit and Risk
Committee and the Board during
the year. However, the Group’s risk
management programme can only
provide reasonable, not absolute,
assurance that principal risks are
managed to an acceptable level.
During 2019 we have continued
to build on our existing risk
management framework, enhancing
risk management and internal control
processes and working with PwC in
an outsourced internal audit capacity.
This activity included refreshing the
Group’s operational, strategic and
principal risk registers, an assessment
of the strategic risks and the
appropriateness of our principal risks,
which resulted in the identification of
two new principal risks, as described
below. Testing of key controls over our
principal risks, a refresh of the Group’s
risk appetite statements over the
principal risks and developing key risk
indicators to aid Board monitoring
also took place. Internal audit reviews
were conducted over the investment
process, financial controls and Cyber
and IT security and an updated
assessment of the risk posed by Brexit
was led by the Risk Council. The Risk
Council has continued to support the
Board in exercising its responsibility
surrounding risk management
through its regular meetings. Priorities
for 2020 include further business
reviews by the internal audit function,
enhancing risk reporting across the
business and communicating the
key outputs of the risk management
programme to the wider employee
group.
A robust and effective
risk management
framework is essential
for the Group to achieve
its strategic objectives
and to ensure that the
directors are able to
manage the business in
a sustainable manner,
which protects its
employees, partners,
shareholders and other
stakeholders. Ongoing
consideration of, and
regular updates to, the
policies intended to
mitigate risk enable the
effective balancing of
risk and reward.”
3 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
IP Group risk management framework
KEY
Direct Reporting
Review and Challenge
FIRST LINE
OF DEFENCE
SECOND LINE
OF DEFENCE
THIRD LINE
OF DEFENCE
New Business
& Partnerships
Australia
Parkwalk
Hong Kong
IP Group Inc.
IP Capital
IP Assist
IP Group Inc.
Front Line Operations
Life Sciences
Technology
Oversight and challenge by the
Risk Council, Central Functions
and Management
Independent assurance
Board
Executive
Management
Risk Council
Collated risk
registers
Central Functions
HR
Finance
IT
Legal & Cosec
Communications &
Investor Relations
Audit & Risk
Committee
Internal &
external audit
READ ABO UT OUR
STR ATEGY
ON PAGES 12 A ND 13
REA D A BO UT OUR
GOVER N AN CE
ON PAGES 77 TO 1 23
I
G
N
N
R
A
E
L
,
K
C
A
B
D
E
E
F
,
E
G
N
E
L
L
A
H
C
I
T
H
G
S
R
E
V
O
,
I
G
N
T
R
O
P
E
R
,
I
S
S
Y
L
A
N
A
,
I
N
O
T
A
D
I
L
O
S
N
O
C
3 7
RISK MANAGEMENT
CONTINUED
EMERGING RISKS
The Group’s management and Board regularly considers emerging risks and opportunities,
both internal and external, which may affect the Group in the near, medium and long term.
The Board also considered this subject in detail at its strategy day in October. Set out below
are examples of some of the potential emerging risks that are currently being monitored by
management and the Board:
NEAR TERM – COVID-19 (NOVEL CORONAVIRUS)
As the Covid-19 virus has developed over recent weeks, we have been assessing the impact on our employees and our
business to ensure that both are effectively supported and managed. We are regularly communicating advice to all of our
employees, based on local government advice in each of our geographies, that focuses on safety, travel, hygiene (including
self-quarantine) and recognising the symptoms of the virus. Contingency planning, primarily centred around remote working,
has been carried out to help ensure that the Group can continue to operate as effectively as possible. It is too early for us
to be able to fully assess the likely impact on our portfolio companies although the fair values of a number of the Group’s
quoted portfolio companies have experienced volatility in recent weeks. In addition, management teams are generally
following government travel advice, which may limit fundraising or commercial activities in the short term. However, certain
companies, such as Oxford Nanopore, have seen both disruption for certain customers alongside an increase in recent
demand for their products and services as a result of the outbreak. We will continue to monitor the impact.
NEAR TERM – CYBER AND IT SECURITY
Cyber and IT security continue to be areas of risk for the Group and its portfolio as we continue to invest in intellectual-
property based portfolio companies which could be targets for hackers or competitors and the regulatory landscape
which is evolving rapidly around data security and the increasing powers of regulators to impose significant fines on
companies who inadvertently breach new legislation such as GDPR. It is against this backdrop that the Group has now
considered that Cyber and IT security now constitutes a principal risk for the Group in its own right. While historically this
risk was recognised and captured within the risk of failing to comply with legislation, government policy and regulation
risk, it has now been elevated to a stand-alone risk.
MEDIUM TERM – THE UK’S WITHDRAWAL FROM THE EU
The UK left the EU on 31 January 2020 and at the time of writing, had entered into a transition period scheduled to last
until the end of 2020, during which it will continue to be bound by EU laws until it negotiates a new trade deal with
the remaining 27 member states. While the Group has considered that the risk posted by Brexit does not constitute a
principal risk for the Group, uncertainty in the medium term remains over certain areas that could impact the Group’s
strategic aims, as follows:
Key risks
Access to capital
Macroeconomic environment
could cause a short-term UK
recession which would reduce
investor confidence and
impact access to capital for
both IP Group and its portfolio
companies.
Uncertainty over grant funding
capital available for the
Group’s early-stage portfolio
companies could cause
funding risks for university
spin out companies in the UK.
Performance and
management of portfolio
companies
The performance and
management of portfolio
companies is crucial to the
success of the Group and,
as a result, the preparation
that portfolio company
management teams have
undertaken to address key
Brexit risks will be central
to the successful navigation
of operational and other
issues that may impact
their performance.
LONGER TERM – CLIMATE CHANGE
People
Partnerships
University research
funding risks could mean
that the UK becomes
a less attractive place
for academics to come
and perform research
projects in the UK.
The macroeconomic
environment has an
impact on long-term
recruitment and planning
for companies. Additional
visa restrictions will also
impact academics and
student movement to the
UK, thus affecting the
pool for potential portfolio
companies and the quality
of university partnerships.
Climate change continues to be a key concern of the Group and all its stakeholders. IP Group invests in technology which
has the potential to have positive impacts on the environment and the Group is well positioned to take advantage of the
changing preferences of governments, businesses and individuals, see case study on C-Capture Ltd on page 55.
3 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
Summary of principal risks and mitigants
A summary of the principal risks affecting the Group and the steps taken to manage
these is set out below. Further discussion of the Group’s approach to principal risks and
uncertainties are given on page 90 of the Corporate Governance Statement and pages
115 to 119 of the Report of the Audit and Risk Committee, while further disclosure of the
Group’s financial risks is set out in note 2 to the consolidated financial statements on
pages 146 to 148.
Following the 2019 annual review process, the
Group’s principal risks were updated to elevate
Cyber and IT Security Risk to an independent risk
where historically this risk was captured within
the legislation and regulation risk and Access to
Capital has been split into two separate risks to
better capture the funding risks for the Group as a
corporate entity and the funding risks associated
with its portfolio companies. The heatmap below
describes the relative potential risks posed by each
of the Group’s identified principal risks.
PRINCIPAL RISKS
1
Insufficient capital: Group
2 Insufficient capital: portfolio companies
3 Uncertain investment returns
4 Failure of university relationships
5 Personnel risk
6
1 2 3
4
7 9
5
8
t
c
a
p
m
I
4.
3.
2.
1.
1.
2.
3.
4.
Likelihood
Risk appetite ratings defined:
Very low
following a marginal-risk, marginal-reward approach that
represents the safest strategic route available
6 Macroeconomic conditions
Low
7 Legislation, governance and regulation
8 Cyber and IT security
9 International operations
seeking to integrate sufficient control and mitigation
methods in order to accommodate a low level of risk,
though this will also limit reward potential
Balanced
an approach which brings a high chance of success,
considering the risks, along with reasonable rewards,
economic and otherwise
High
willing to consider bolder opportunities with higher levels
of risk in exchange for increased business payoffs
Very high
pursuing high-risk, inherently uncertain options that carry
with them the potential for high-level rewards
3 9
RISK MANAGEMENT
CONTINUED
Consideration of risk appetite:
The industry the Group operates in inherently involves accepting risk in order to achieve the Group’s strategic aims of
creating and maintaining a pipeline of compelling intellectual property-based opportunities, developing and supporting
its portfolio companies into a diversified portfolio of robust businesses and delivering attractive financial returns on those
assets and third-party funds. The Group accepts risk only as it is consistent with the Group’s purpose and strategy and
where they can be appropriately managed and offer a sufficient reward. The Board has determined its risk appetite in
relation to each of its principal risks and considered appropriate metrics to monitor performance to ensure it remains within
the defined thresholds. The Board’s assessment of risk appetite is described in the summary of each principal risk below.
1 It may be difficult for the Group to maintain the required level of capital to continue to operate at optimum levels
of investment, activity and overheads
The Group’s business has historically been reliant on capital markets, particularly those in the UK. While the Group’s
business model is moving towards self-sustainability with realisations contributing to the Group’s ongoing capital needs,
the ability of the Group to raise further capital, either through equity issues, debt or realisations is influenced by the general
economic climate and capital market conditions, particularly in the UK.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
Access to sufficient levels of capital allows the Group
to invest in its investment assets, develop early-stage
investment opportunities and invest in its most
exciting companies to ensure future financial returns.
• The Group has significant internal capital and
managed funds capital to deploy in portfolio
opportunities
• The Group regularly forecasts cash requirements
of the portfolio and ensures all capital allocations
are compliant with budgetary limits, treasury policy
guidelines and transaction authorisation controls
• The Group ensures that minimum cash is available
for maintain sufficient headroom over debt
covenants and regulatory capital requirements
KPI
DEVELOPMENT DURING THE YEAR
• Change in fair value of equity and debt
• Significant proceeds from sale of equity and debt
investments
• Total equity (“Net Assets”)
• Profit/loss attributable to equity holders
investments in the year (£79.5m)
• The Group’s share register diversified in the year
and saw significant changes in the constitution of
its major shareholders.
• The Group’s share price traded below NAV during
the year which makes it less attractive to raise new
capital through share issues
EXAMPLES OF RISK
CHANGE FROM 2018
• The Group may not be able to provide the
necessary capital to key strategic assets which
may affect the portfolio companies’ performance
or dilute future returns of the Group
KEY
Create
Develop
Deliver
Increase
Decrease No change
N
New
Very low
Low
Balanced
High
Very high
4 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 2 It may be difficult for the Group’s portfolio companies to attract sufficient capital
The Group’s portfolio companies are typically in their development or growth phases and therefore require new capital
to continue operations. While a proportion of this capital will generally be forthcoming from the Group, subject to capital
allocation and company progress, additional third-party capital will usually be necessary. The ability of portfolio companies
to attract further capital is influenced by their financial and operational performance and the general economic climate and
trading conditions, particularly (for many companies) in the UK.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
Access to sufficient levels of capital allows the
Group’s portfolio companies to invest in its
technology and commercial opportunities to
ensure future financial returns.
• The Group operates a corporate finance function
which carries out fundraising mandates for portfolio
companies
• The Group maintains close relationships with a wide
variety of co-investors that focus on companies at
differing stages of development
• The Group regularly forecasts cash requirements of
the portfolio
• While Parkwalk Advisors operates independently
they have been and continue to be an important
co-investor of the Group, supporting shared
portfolio companies
KPI
DEVELOPMENT DURING THE YEAR
• Change in fair value of equity and debt
investments
• Total equity (“Net Assets”)
• Profit/loss attributable to equity holders
•
IP Group hosted investor events in 2019 including
a Deep Tech Forum in China and the IP Group
Technology Summit in the US to showcase portfolio
technology to investors
• Continued management of an AUS$100m trust for
an Australian Super Fund which has a mandate to
co-invest with IP Group plc portfolio companies. In
the year, four Group portfolio companies received
funding from this investment vehicle.
EXAMPLES OF RISK
CHANGE FROM 2018
• The success of those portfolio companies which
require significant funding in the future may be
influenced by the market’s appetite for investment
in early stage companies, which may not be
sufficient
• Failure of companies within the Group’s portfolio
may make it more difficult for the Group or its
spin-out companies to raise additional capital
4 1
STRATEGIC REPORT RISK MANAGEMENT
CONTINUED
3 The returns and cash proceeds from the Group’s early-stage companies can be very uncertain
Early-stage companies typically face a number or risks, including not being able to secure later rounds of funding at
crucial development inflection points and not being able to source or retain appropriately skilled staff. Other risks arise
where competing technologies enter the market, technology can be materially unproven and may ultimately fail, IP may be
infringed, copied or stolen, may be more susceptible to cybercrime and other administrative taxation or compliance issues.
These factors may lead to the Group not realising a sufficient return on its invested capital at an individual company or
overall portfolio level.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
Uncertain cash returns could impact the Group’s
ability to deliver attractive returns to shareholders
when our ability to react to portfolio company
funding requirements is negatively impacted or
where budgeted cash proceeds are delayed.
• The Group’s employees have significant experience
in sourcing, developing and growing early-stage
technology companies to significant value,
including use of the Group’s systematic opportunity
evaluation and business building methodologies
within delegated board authorities
• Members of the Group’s senior leadership team
often serve as non-executive directors or advisers
to portfolio companies to help identify and remedy
critical issues promptly
• Support on operational and legal matters is offered
to minimise failures due to common administrative
factors
• The Group has spin-out company holdings across
different sectors managed by experienced sector-
specialist teams to reduce the impact of a single
company failure or sector demise
• The Group maintains significant cash balances
and seeks to employ a capital efficient process
deploying low levels of initial capital to enable
identification and mitigation of potential failures at
the earliest possible stage
KPI
DEVELOPMENT DURING THE YEAR
• Change in fair value of equity and debt
investments
• The Group’s portfolio companies raised
approximately £430m of capital in 2019
• Purchase of equity and debt investments
• The Group maintained board representation on
• Proceeds from the sale of equity investments
more than 92% of its “focus” companies by number
EXAMPLES OF RISK
CHANGE FROM 2018
• Portfolio company failure directly impacts the
Group’s value and profitability
• At any time, a large proportion of the Group’s
portfolio may be accounted for by very few
companies which could exacerbate the impact of
any impairment or failure of one or more of these
companies
• The value of the Group’s drug discovery and
development portfolio companies may be
significantly impacted by a negative clinical trial
result
• Cash realisations from the Group’s portfolio
through trade sales and IPOs could vary
significantly from year to year
4 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 4 Universities or other research-intensive institutions may terminate their partnerships or other collaborative
relationships with the Group
The Group’s business, results of operations and prospects are at least partially dependent on access to leading scientific
research through partnerships and other collaborative relationships with research-intensive institutions. Failure to maintain
such relationships may impact the Group’s ability to source new investment opportunities.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
The Group’s strategic objective of building and
maintaining a pipeline of compelling intellectual
property-based opportunities, in part depends on
the quality of the commercialisation partnerships and
other collaborative relationships the Group holds.
• The Group continues to consider and, where
appropriate, enter into new and innovative
partnerships and collaborations with research
institutions
• The Group has been able to source opportunities
through non-exclusive relationships and other
sources
• Members of the Group’s senior team work closely
with partner institutions to ensure that each
commercial relationship is mutually beneficial and
productive
• The Group’s track record in IP commercialisation
may make the Group a partner of choice for
other institutions, acting as a barrier to entry for
competitors
KPI
DEVELOPMENT DURING THE YEAR
• Number of new portfolio companies
•
Integrated the management of UK university
partnerships within the UK investment partnership
teams
• Completed investments with four new university
partnerships in Australasia
EXAMPLES OF RISK
CHANGE FROM 2018
• Termination or non-renewal of arrangements
through failure to perform obligations may result
in the loss of exclusive rights
• The loss of exclusive rights may limit the Group’s
ability to secure attractive IP opportunities to
commercialise
• This could potentially have a material adverse
effect on the Group’s long-term business, results
of operations, performance and prospects
• Competition in the market may reduce the
opportunities available to create new spin-out
companies
KEY
Create
Develop
Deliver
Increase
Decrease No change
N
New
Very low
Low
Balanced
High
Very high
4 3
STRATEGIC REPORT RISK MANAGEMENT
CONTINUED
5 The Group may lose key personnel or fail to attract and integrate new personnel
The industry in which the Group operates is a specialised area and the Group requires highly qualified and experienced
employees. There is a risk that the Group’s employees could be approached and solicited by competitors or other
technology-based companies and organisations or could otherwise choose to leave the Group. Scaling the team,
particularly in foreign jurisdictions such as Australasia and Hong Kong, presents an additional potential risk.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
The Group’s strategic objectives of developing and
supporting a portfolio of compelling intellectual
property-based opportunities into robust businesses
capable of delivering attractive financial returns on
our assets is dependent on the Group’s employees
who work with the portfolio companies and those
who support them.
KPI
• Total equity
• “Net Assets”
• Number of new portfolio companies
• Senior team succession plans have been developed
• The Group carries out regular market comparisons
for staff and executive remuneration and seeks
to offer a balanced incentive package comprising
a mix of salary, benefits, performance-based
long-term incentives and benefits such as flexible
working and salary sacrifice arrangements
• The Group encourages employee development
and inclusion through coaching and mentoring and
carries out annual objective setting and appraisals
• The Group promotes an open culture of
communication and provides an inspiring and
challenging workplace where people are given
autonomy to do their jobs. The Group is fully
supportive of flexible working and has enabled
employees to work flexibly.
DEVELOPMENT DURING THE YEAR
• Created IP Connect employee forum and appointed
designated non-executive director to facilitate
dialogue with Board in both directions. Part of IP
Connect’s remit is also to support the evolution
of the culture and continuous improvement of
working life at the Group.
• Continued to support the 30% Club initiative and
during the year 17 employees across the Group took
part in the Club’s annual cross-company mentoring
programme.
• Continued to dedicate resources to remuneration
and incentivisation.
• Staff attrition, excluding the technology transfer
operations, was 18.5%, broadly flat with 2018.
• Approximately 42% of employees have been with
the Company for at least five years.
EXAMPLES OF RISK
CHANGE FROM 2018
• Loss of key executives and employees of the
Group or an inability to attract, retain and
integrate appropriately skilled and experienced
employees could have an adverse effect on the
Group’s competitive advantage, business, financial
condition, operational results and future prospects
4 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 6 Macroeconomic conditions may negatively impact the Group’s ability to achieve its strategic objectives
Adverse macroeconomic conditions could reduce the opportunity to deploy capital into opportunities or may limit the
ability of such portfolio companies to receive third party funding, develop profitable businesses or achieve increases in
value or exits. Political uncertainty, including impacts from Brexit or similar scenarios, could have a number of potential
impacts, including changes to the labour market available to the Group for recruitment or regulatory environment in which
the Group and its portfolio companies operate.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
The Group’s strategic objectives of developing
a portfolio of commercially successful portfolio
companies and delivering attractive financial
returns on our assets and third-party funds can be
materially impacted by the current macroeconomic
environment.
• Senior management receive regular capital market
and economic updates from the Group’s capital
markets team and its brokers
• Six-monthly budget and quarterly capital allocation
process and monitoring against agreed budget
• Regular oversight of upcoming capital requirements
of portfolio from both the Group and third parties
• The Group’s Risk Council conducts horizon
scanning for upcoming events which may impact
the Group such as a hard Brexit or climate change.
KPI
DEVELOPMENT DURING THE YEAR
• Change in fair value of equity and debt
• Macroeconomic and geopolitical conditions
investments
• Total equity
• “Net Assets”
• Profit or loss attributable to equity holders
remain uncertain in the UK. The UK left the EU on
31 January 2020 and at the time of writing, had
entered into a transition period scheduled to last
until the end of the year, during which it will continue
to be bound by EU laws until it negotiates a new
trade deal with the remaining 27 member states.
Uncertainty remains on the long-term impacts of
Brexit and anticipated future trade deals.
• Brexit process remained a source of uncertainty in
the year. The Risk Council reconsidered the risks
posed by a hard Brexit for the Group’s operations
and portfolio companies and took precautionary
actions to ensure any impacts were mitigated
appropriately.
EXAMPLES OF RISK
CHANGE FROM 2018
• The success of those portfolio companies which
require significant external funding may be
influenced by the market’s appetite for investment
in early-stage companies, which may not be
sufficient
• 11.2% of the Group’s portfolio value is held in
companies quoted on the AIM market and
decreases in values to this market could result in
a material fair value impact to the portfolio as a
whole
KEY
Create
Develop
Deliver
Increase
Decrease No change
N
New
Very low
Low
Balanced
High
Very high
4 5
STRATEGIC REPORT RISK MANAGEMENT
CONTINUED
7 There may be changes to, impacts from, or failure to comply with, legislation, government policy and regulation
There may be unforeseen changes in, or impacts from, government policy, regulation or legislation (including taxation
legislation). This could include changes to funding levels or to the terms upon which public monies are made available to
universities and research institutions and the ownership of any resulting intellectual property.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
The Group’s strategic objectives of creating and
maintaining a portfolio of compelling opportunities
to deliver attractive returns for shareholders could
be materially impacted by failure to comply with
or adequately plan for a change in legislation,
government policy or regulation.
KPI
• Total equity
• “Net Assets”
• University partners are incentivised to protect their
IP for exploitation as the partnership agreements
share returns between universities, academic
founders and the Group
• The Group utilises professional advisers as
appropriate to support its monitoring of, and
response to changes in, tax, insurance or other
legislation
• The Group has internal policies and procedures
to ensure its compliance with applicable FCA
regulations
• The Group maintains D&O, professional indemnity
and clinical trial insurance policies
DEVELOPMENT DURING THE YEAR
• Ongoing focus on regulatory compliance, including
third party reviews and utilisation of specialist
advisers
• UK Government has committed to university
funding and has emphasised the importance of
science and innovation
• Group of specialist therapeutics advisors
continually consulted
EXAMPLES OF RISK
CHANGE FROM 2018
• Changes could result in universities and
researchers no longer being able to own, exploit or
protect intellectual property on attractive terms.
• Changes to tax legislation or the nature of the
Group’s activities, in particular in relation to the
Substantial Shareholder Exemption, may adversely
affect the Group’s tax position and accordingly its
value and operations.
• Regulatory changes or breaches could ultimately
lead to withdrawal of regulatory permissions for
the Group’s FCA-authorised subsidiaries, resulting
in loss of fund management contracts, reputational
damage or fines.
• The UK’s decision to leave the EU could have an
adverse impact on the level of research funding
made available to UK universities from which the
Group sources new opportunities.
4 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 8 The Group may be subjected to phishing and ransomware attacks, data leakage and hacking.
This could include taking over email accounts to request or authorise payments, GDPR breaches and access to sensitive
corporate and portfolio company data.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
The Group’s strategic objectives of creating and
maintaining a portfolio of compelling opportunities
to deliver attractive returns for shareholders could
be materially impacted by a serious cyber security
breach at a corporate or portfolio company level.
• The Group reviews its data and cyber-security
processes with its external outsourced IT provider
and applies the UK Government’s “ten steps”
framework
• Regular IT management reporting framework in
KPI
• Total equity
• “Net Assets”
place
•
Internal and third-party reviews of policies
and procedures in place to ensure appropriate
framework in place to safeguard data
• Assessment of third-party suppliers of cloud-based
and on-premises systems in use
DEVELOPMENT DURING THE YEAR
• Ongoing focus on IT security and staff training,
including internal audit reviews and utilisation of
specialist advisers
•
Implementation of network and infrastructure
security systems to respond to emerging threats
• Continued programme of penetration testing
• Review of business continuity and disaster recovery
plan undertaken in the year
EXAMPLES OF RISK
CHANGE FROM 2018
• The Group or one or a combination of its portfolio
companies could face significant fines from a data
security breach
N
• The Group or one of its portfolio companies could
be subjected to a phishing attack which could
lead to invalid payments being authorised or a
sensitive information leak
• A malware or ransomware attack could lead to
systems becoming non-functioning and impair the
ability of the business to operate in the short term
KEY
Create
Develop
Deliver
Increase
Decrease No change
N
New
Very low
Low
Balanced
High
Very high
4 7
STRATEGIC REPORT RISK MANAGEMENT
CONTINUED
9 The Group may be negatively impacted operationally as a result of its recent international expansion
The potential for a negative impact to the Group arising from the overseas operations through non-compliance with local
laws and regulations, failure to integrate overseas operations with the Group, an inability to foresee territory-specific risks
and macro-events. The Group may also fail to establish effective control mechanisms, considering different working culture
and environment, leading to significant senior management time requirement, distracting from core day-to-day business.
LINK TO STRATEGY
ACTIONS TAKEN BY MANAGEMENT
RISK
APPETITE
The Group’s strategy includes building a portfolio of
compelling intellectual-property based companies
across the UK, US and Australasia. The scale of the
Group’s international operations represents increased
importance of successful execution of this element of
the Group’s strategy.
KPI
• Total equity
• “Net Assets”
• Local legal and regulatory advisers have been
engaged in the establishment phase of overseas
operations. US and Australasian teams have their
own in-house legal teams who regularly report to
the UK-based General Counsel
•
IP Exec and HR are involved in senior hires for new
territories. Senior international personnel include
current and former UK employees, encouraging a
shared culture across territories
• There is regular travel between the UK and other
territories to ensure the Group is aligned in its
strategy and culture
• The risk management framework in place across
each business unit has been established in each
international territory and is integrated into the
Group’s regular risk management processes and
reporting
• Third party suppliers are used for accounting and
payroll services to reduce the risk of fraud
DEVELOPMENT DURING THE YEAR
• Coordination of risk reporting across Australia,
Hong Kong and USA
• Developed a US operating manual alongside
professional advisors having restructured the US
operation in late 2018
• Application for Hong Kong regulatory permissions
being explored with specialist local advisors
EXAMPLES OF RISK
CHANGE FROM 2018
• A legal or regulatory breach could ultimately lead
to the withdrawal of regulatory permissions in
Australia, resulting in loss of trust management
contracts, reputational damage and fines
• Divergent group cultures may lead to difficulties
in achieving the Group’s strategic aims
• A major control failure could lead to a successful
fraudulent attack on the Group’s IT infrastructure
or access to bank accounts
• Senior management may spend a significant
amount of time in setting up and establishing new
territories which could detract from central Group
strategy and operations
4 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 which would adversely impact
the Group’s financial returns. In all
scenarios modelled the Group remains
solvent at the end of the three-year
period and no breach of EIB financial
covenants occur. Given the severity of
the assumptions used in the scenarios
it is considered that Brexit-related
risks are adequately incorporated into
the sensitivity analysis.
Based on this assessment, the
directors have a reasonable
expectation that the Group will
continue to operate and meets its
liabilities, as they fall due, up to
December 2022.
Viability statement
The directors have carried out a
robust assessment of the viability of
the Group over a three-year period
to December 2022, considering
its strategy, its current financial
position and its principal risks. The
three-year period reflects the time
horizon over which the Group places
a higher degree of reliance over the
forecasting assumptions used.
The strategy and associated principal
risks underpin the Group’s three-
year financial plan and scenario
testing, which the directors review at
least annually. As a business which
seeks to develop great ideas into
world-changing businesses, our
business model seeks to balance
cash investments, the generation
of portfolio returns and ultimately
portfolio realisations. The three-year
plan is built using a bottom-up model
and makes assumptions about the
level of capital deployed into, and
realisations from, its portfolio of
companies, the financial performance
(and valuation) of the underlying
portfolio companies, the Group’s
utilisation of its debt finance facility
and ability to raise further capital, and
the level of the Group’s net overheads.
To assess the impact of the Group’s
principal risks on the prospects
of the Group, the plan is stress-
tested by modelling several severe
downside scenarios as part of the
Board’s review of the principal risks
of the business. The severe downside
scenarios model situations where, at
the end of 2020, the Group has been
unable to raise additional equity or
debt finance or generate significant
portfolio realisations. Under these
scenarios, significant reductions to
portfolio and fund investments and
the Group’s operating cost base are
made in the following two years to
preserve the Group’s remaining cash.
Specifically, management has
identified the most likely and
potentially significant adverse impacts
from Brexit, over the three-year
period under consideration, to be
reduced availability of capital and a
weaker macroeconomic environment,
4 9
STRATEGIC REPORT SUSTAINABILITY
SUSTAINABILITY
Our goal is to
build a sustainable
and viable business.
IP Group’s approach to
sustainability in 2019
• ESG at a corporate level in our operations
• Stewardship across our portfolio
• Supporting diversity
•
Implementing best practice governance
IP Group’s core purpose is to evolve great ideas into
world-changing businesses that will have a positive
impact on the environment and society as well as
generate financial returns. Through the companies
we back, we aim to address some of the world’s most
pressing challenges in areas such as disease prevention
and mitigation, the transition to a less carbon intense
energy world and support productivity improvement.
Our approach therefore considers ESG factors and their
impact both at Group level and across our portfolio and
investment approach.
Year of action
In 2019, the Group focused on putting its approach to
ESG into practice by implementing the range of initiatives
committed to in 2018. This includes our approach to
managing environmental impacts, diversity and community
engagement.
The Group established an ESG Working Group in 2018 and
has also put in place guidelines to ensure our portfolio
management and investment process is aligned to our ESG
aims. We have collected data from portfolio companies to
enable us to get a clearer picture of current ESG standards
with an aim of advising about and improving them where
needed as well aiming to provide a benchmark for future
measurement.
Key activities:
• Through regular meetings the ESG Working Group has
developed a Sustainability & ESG Policy and an Ethical
Investment Framework;
• Developed an approach to ‘responsible stewardship’
across the portfolio, read more about this on pages 60
to 61;
• Communicated our portfolio companies’ links to the
SDGs through our website and other communications
channels such as social media;
•
Implemented a training programme for employees with
a focus on waste reduction and education around the
principles of ESG;
• Committed to offsetting 100% of IP Group’s carbon
emissions through our offsetting project and reducing
our carbon emissions which have fallen for the second
year running, see page 58; and
• Became a signatory of the UN Global Compact.
5 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
S T R AT E G I C
R E P O R T
5 1
Looking to 2020
The Group will continue its efforts this year and with a particular
focus on the following areas:
E N S U R E T H AT O U R
S U S TA I N A B I L I T Y A N D E S G P O L I C Y
A N D E T H I C A L I N V E S T M E N T
F R A M E W O R K A R E I M P L E M E N T E D
A C R O S S T H E G R O U P
F O R M A N E T H I C S C O M M I T T E E
E X P L O R E B E C O M I N G A
S I G N AT O R Y O F A R E S P O N S I B L E
I N V E S T M E N T B O DY S U C H A S
T H E U N P R I A N D A D O P T I N G A N
A P P R O P R I AT E E S G R E P O R T I N G
F R A M E W O R K A N D M E T R I C S
S C O P E A N A P P R O A C H AT H OW
W E A S S E S S , M O N I T O R A N D
C O M M U N I C AT E I M PA C T O F
P O R T F O L I O C O M PA N I E S
F U R T H E R I M P L E M E N T
R E S P O N S I B L E S T E WA R D S H I P
A C R O S S O U R P O R T F O L I O
C O M PA N I E S ;
C O N S I D E R W H E T H E R A N E S G
L I N K E D K P I I S A P P R O P R I AT E
F O R I P G R O U P.
SUSTAINABILITY
How does IP Group and its portfolio
companies map against these SDGs?
However, to build on work done around mapping these companies
to the SDGs last year, we have looked at which SDG targets are
associated with individual goals and how our portfolio companies can
help achieve these targets.
We have concentrated on the six most relevant SDGs to the Group.
While SDG 13 is a high-level goal aimed at governments, we believe
that the technologies and services provide by some of our portfolio
companies can help to achieve the targets associated with this goal.
At Group level we:
• Support the wellbeing of our employees
• Provide training opportunities to continually develop our
employees
• Have implemented a quarterly speaker series with ‘high impact
women’ in our industry
• Have committed to offsetting IP Group’s carbon emissions (see
page 58) and waste impact
• Support community projects that support talented young people
from disadvantaged backgrounds
• Endeavour to conduct our business in accordance with best
practice
A sustainability framework
In order to reiterate our commitment to
responsible business practices and investment,
IP Group has aligned its portfolio with the
Sustainable Development Goals (“SDGs”).
The SDGs, created by the UN, are the blueprint
to achieve a better and more sustainable future
for all. Through the activities of IP Group, we
address a number of the global challenges
identified by the SDGs.
As mentioned earlier in the report and by way
of illustration of the positive impact of IP Group,
we have invested more than £850m in the UK in
science and technology, created more than 300
companies and approximately 5,000 jobs.
We invest in businesses that are developing
cutting-edge solutions in the fight against
non-communicable diseases such as cancer and
lung disease as well as diagnostics companies
that can identify and reduce national and global
health risks. Read more in the Oxford Nanopore
case study on page 54. These companies can
help to change the world through a healthier
society.
One key global challenge is affordable and clean
energy. IP Group’s portfolio includes companies
that provide cheaper and cleaner energy. Within
our portfolio, we also have businesses that
focus on the development of carbon capture
technology in order to reduce CO2 emissions
and develop energy management systems for
electric cars.
There are positive impacts from the technology
and innovation supplied by IP Group’s portfolio.
We estimate that the Group and/or its portfolio
companies are currently influencing all 17 SDGs.
5 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 THEMATIC FOCUS
PORTFOLIO COMPANY
SDG TARGET
DATA
ANALYTICS
CYBER
DEFENCE
H
C
E
T
IT TO IMPROVE
EFFICIENCY
AMSL Innovations
Featurespace
Garrison Technology
Helio Display Materials
C-Capture
Mixergy
Oxbotica
11.2 Affordable and sustainable transport
systems
11.3 Inclusive & sustainable urbanisation
11.6 Reduce the environmental impact of
cities
9.1 Develop sustainable, resilient & inclusive
infrastructures
9.4 Upgrade all industries and
infrastructures for sustainability
9.5 Enhance research and upgrade
industrial technologies
9.C Universal access to ICT
Azuri Technologies
7.1 Universal access to modern energy
ENERGY
H RENEWABLE
C
E
T
N
A
E
L
C
ENERGY
TRANSITION
SUSTAINABLE
TRANSPORT
S
E
C
N
E
I
C
S
E
F
I
L
DIAGNOSTICS
THERAPEUTICS
ONCOLOGY
DIGITAL HEALTH
L
A
O
G
T
N
E
M
P
O
L
E
V
E
D
E
L
B
A
N
A
T
S
U
S
I
7.2 Increase global percentage of
renewable energy
7.3 Double energy efficiency
7.A Promote R&D and investment into
cleantech
7.B Expand & upgrade energy services in
developing countries
13.2 Integrate climate change measures into
policies & planning
13.3 Build knowledge & capacity to meet
climate change
12.2 By 2030, achieve the sustainable
management and efficient use of
natural resources
12.4 Achieve the environmentally sound
management of chemicals and all
wastes throughout their life cycle
3.3 By 2030, end the epidemics of AIDS,
tuberculosis, malaria and neglected
tropical diseases and combat hepatitis,
water-borne diseases and other
communicable diseases
3.4 By 2030, reduce by one third premature
mortality from non-communicable
diseases and promote mental health
and well being
3.d Strengthen the capacity for
early warning, risk reduction and
management of national and global
health risks.
Bramble Energy
C-Capture
Ceres Power Holdings
Econic Technologies
First Light Fusion
Oxbotica
Oxford Nanopore
Technologies
Mixergy
RFC Power
Azuri Technologies
Econic Technologies
Mixergy
Artios Pharma
Cell Medica
Creavo Medical Tech
Crescendo Biologics
Diurnal Group
Enterprise Therapeutics
Genomics
Ieso Digital Health
Iksuda Therapeutics
Inivata
Istesso
Mission Therapeutics
MOBILion
Oxehealth
Oxford Nanopore
Technologies
Oxular
PsiOxus Therapeutics
S T R AT E G I C
R E P O R T
5 3
CASE STUDY: OXFORD NANOPORE
Helping the fight against Coronavirus
In January 2020, Oxford
Nanopore announced it was
working with a number of
public health laboratories
in China and elsewhere,
to support the rapid
sequencing of the novel
Coronavirus that was first
seen in Wuhan, China.
READ ABOUT OU R
SUSTAI NAB IL IT Y
ON PAGES 50 TO 53
Sequencers provide
rapid, near sample
sequencing to monitor
the virus
Sequencing the virus can support
‘genomic epidemiology’- characterising
the virus and helping public health
authorities to understand the identity
of the virus, whether it is changing and
how it is being transmitted.
Nanopore sequencing workflows can
map the virus’s genome within eight
hours. It is the only technology in the
world that can provide this field-based,
real-time sequencing capability and has
provided support in many outbreaks in
this field setting, including Ebola, Zika,
yellow fever and Dengue.
In January, Oxford Nanopore sent 200
of its MinION sequencers to China to
support surveillance of the outbreak
of the Coronavirus. The portable
sequencer, which is approximately
the size of stapler, was designed for
broad accessibility. It weighs under
100g and is run with a laptop or special
accessory, the MinIT, to perform data
analysis.
Oxford Nanopore staff have also been
working with communities in China to
support the development and sharing
of best practice and protocols for the
sequencing of this virus. Staff also
offer technical support to public health
authorities all over the world, the
technology is also being used in the
USA, UK and many other countries.
How IP Group has
supported ONT
IP Group provided the original seed
funding to Oxford Nanopore (ONT)
in 2005 and has backed numerous
follow-on funding rounds. The
Group has introduced many new
shareholders and helped recruit
directors, including a number of
members of the executive team.
Oxford Nanopore is the Group’s
largest holding by value and its work
is aligned with a number of the SDGs,
including:
SDG 3 and SDG 3 target – 3.3 Fight
Communicable Diseases
5 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
CASE STUDY: C-CAPTURE
Helping to achieve ‘net zero’
In 2019, the UK became
the first major economy
in the world to commit to
‘net zero’ by 2050. The
target will require the UK
to bring all greenhouse gas
emissions (GHGs) to net
zero with any emissions
balanced by schemes to
offset equivalent amount
of emissions through
technology such as carbon
capture and storage (CCS).
READ ABOU T OU R
SUSTAI NAB IL IT Y
ON PAGES 5 0 TO 53
Partnership with Drax
Power Station
C-Capture is currently one of three
providers conducting a demonstration
project at Drax Power Station in North
Yorkshire which, when scaled up, will
remove carbon dioxide from emissions
produced by Drax’s four generating
units that are fuelled by sustainable
biomass.
The bioenergy carbon capture and
storage (BECCS) project at Drax,
which is the first of its kind in the
world to capture carbon from a
100% biomass feedstock, has the
potential to be the greatest single
CO2 mitigation project serving the UK
electricity sector. This is because it
has the capacity to produce negative
emissions meaning CO2 is removed
from the atmosphere at the same time
as electricity is being produced.
As work towards decarbonisation and
achieving net zero has progressed
in 2019, so too has the adoption of
C-Capture’s technology. The company
started the year being named as
a Sunday Times Volvo Visionary,
received a further £3.5 million in
funding from IP Group, BP and Drax,
signed an agreement to work with
Norway’s SINTEF institute on a new
phase of R&D into carbon capture
technologies and was in the ‘Leading
on Clean Growth: The Government’s
Response to the Committee on
Climate Change’s 2019 Progress
Report to Parliament – Reducing UK
emissions report, which highlighted
the BECCS plant at Drax and its roles
in helping in the UK’s energy transition
to net zero. The company ended
the year on a high, being named as
Business Green’s ‘Breakthrough of the
Year’ in its Technology Awards.
Link to SDGs
C-Capture’s goal is to make energy
cleaner through decarbonisation
and use of renewable fuels, without
making it prohibitively expensive to
the consumer.
C-Capture provides new,
world- leading technolo gy fo r
capturing carbo n diox ide fro m
large-scale emissio ns
5 55 5
STRATEGIC REPORT SUSTAINABILITY
CONTINUED
Carbon offsetting at
Arnott's Loan, Dunbar, S co tla n d
Environment
As described above, we believe
the indirect environmental impact
of the Group to be positive when
considering the potential of our
portfolio companies to influence
major global challenges addressed
by the UN’s 17 SDGs. However, we
also consider the direct negative
environmental impact of IP Group
plc and its subsidiary companies,
including through emissions caused
by staff activity (e.g. travel) and
premises and are committed to
ensuring these remain as low
as possible. We aim to ensure
that the business operates in an
environmentally responsible and
sustainable manner. The single biggest
contributor to our direct emissions
remains business travel, particularly
overseas flights. Employees are
therefore encouraged to host
meetings via video conference where
possible, thereby only engaging in
business travel when necessary, and
to use public transport. The Group
also focuses on waste prevention,
has recycling facilities within its
offices and has trained employees on
their use. You can read more on the
Group’s greenhouse gas emissions on
page 58..
5 6
Woodland Carbon Code credits are an
accepted mitigation mechanism under
government corporate environmental
reporting guidelines.
All Woodland Carbon Code certified
projects offer public access as a core
requirement, and woodlands also have
a significant role to play in mitigating
flooding, reducing air pollution,
cleaning watercourses and creating
habitat for biodiversity. An investment
in woodland creation contributes to
the UK’s rural economy by helping to
create jobs in the forestry and nursery
sector, and also makes a contribution
to the UK’s national carbon budget,
enabling the country to meet its
climate change obligations.
The Code ensures that:
• The right trees have been planted,
in the right place;
• Carbon capture estimates are site
specific, scientifically sound and
risk adjusted;
• The woodlands are managed to a
high standard and protected in the
long term;
• Projects will be subject to
long-term monitoring and
re-certification; and
• The trees would not be there but
for the intervention of carbon
offset buyers.
Carbon offset
Despite the relatively low direct
negative environmental impact of
the Group, we have, for the second
year, offset 100% of the Group’s direct
2019 CO2 equivalent greenhouse
gas emissions. As in 2018, we have
done this through a programme of
supporting UK woodland creation
certified under the Government’s
Woodland Carbon Code. Our
commitment has supported the
planting of 4,022 trees, 1,000 tonnes
of CO2 capture and three hectares of
new woodland near Dunbar, Scotland.
Our support for woodland creation
will not only mitigate our entire
carbon footprint but also deliver
additional benefits to society and the
environment.
The specific project that IP Group
is supporting through its carbon
offset activity is called Arnott’s Loan
and it consists of 75% oak with the
remainder silver birch, alder, hazel,
hawthorn and rowan. The woodland
connects two existing mature oak
woodlands and will improve water
quality and biodiversity over one
mile of streambank. The site will be
sustainably managed on a continuous
cover basis, meaning long-term and
gradual thinning and replacement of
trees creating a natural all-age forest.
The Woodland Carbon Code delivers
independently certified woodland
creation projects – audited by UKAS
accredited bodies to ISO standards
– that offer tangible social and
environmental benefits; it is the
only standard of its kind in the UK.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Social
Governance
Cyber Security
Over the course of 2019, the
Group conducted a cyber maturity
assessment with the PwC internal
audit team and engaged cyber
security specialists, the NCC Group,
to carry out a further review.
These reviews led to a series of
recommendations that have been
implemented to reduce the risk to the
Group of a cyber incident or a data
breach. Notable changes included
the establishment of a cyber security
working group, increased automated
IT management reporting, a review of
the policies and procedures in force
and the implementation of additional
security systems. An ongoing
programme of security training for
employees and penetration testing
remains in place. The Group takes
the threat of a cyber incident very
seriously and endeavours to mitigate
this risk wherever possible.
The Group seeks to conduct all of
its operating and business activities
in an honest, ethical and socially
responsible manner and these values
underpin our business model and
strategy. We are committed to acting
professionally, fairly and with integrity
in all of our business dealings and
relationships with consideration for
the needs of all of our stakeholders,
including university partners,
investors, suppliers, employees, and
the businesses in which the Group
has holdings. IP Group 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. As a publicly
traded entity, IP Group actively seeks
to engage and maintain an open
dialogue with both institutional and
private shareholders through its
investor relations programme. You
can read more in the Stakeholder
Engagement section on pages 66
to 75.
Policies
Copies of the Group’s policies in
relation to anti-slavery, environmental,
equal opportunities and diversity,
prompt payments, speaking up, anti-
corruption and bribery, anti-facilitation
of tax evasion and data protection
can be found on the Group’s website:
www.ipgroupplc.com.
IP Group 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. We recognise
the importance of diversity and
have instigated a number of
initiatives on this detailed on page
64 under “employee diversity”. A
key community initiative for the
Group has been its three-year
strategic charity partnership with
Generating Genius, a charity set up
to support talented young people
from disadvantaged backgrounds to
help realise their potential in STEM
(science, technology, engineering and
maths) subjects. More information
on this is set out under “Community
Engagement” on page 58.
The Group also seeks to ensure
that there is diversity in the supply
chain, working with SMEs as well
as larger organisations. Where
possible, we work with local
suppliers, therefore impacting
positively on the communities where
we operate. The Group is also a
signatory to the Prompt Payment
Code. IP 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. We take a zero-tolerance
approach to bribery and corruption
and implement and enforce effective
systems. The Group is bound by the
laws of the UK, including the Bribery
Act 2010, and has implemented
policies and procedures based on
such laws.
5 7
STRATEGIC REPORT Target and baselines
Although IP Groups total emissions have reduced, IP Group’s carbon intensity has
increased in 2019 compared to 2018. Carbon intensity for the Australian offices is
much higher than other parts of the business and has been a growth area for the
business.
Absolute emissions
The total greenhouse emissions from IP Group plc’s operations in the financial year
2019 (year ending 31 December 2019) were: 721.4 tonnes of CO2 equivalent (tCO2e)
which we completely offset through the Dunbar woodland project as described on
page 56.
GHG emissions
Scope 1(1)
Scope 2 (location-based)(2)
Scope 3(3)
2019
Tonnes
CO2
721.4
8.9
134.4
565.1
2018
restated4
Tonnes
CO2e
908.8
14.8
126.0
768.0
Carbon offset via woodland projects
Total GHG emissions post carbon offset
(721.4)
(908.8)
–
–
(1) Scope 1 being emissions from the Group’s combustion of fuel (direct emissions) and
operation of facilities.
(2) Scope 2 being electricity (indirect emissions), heat, steam and cooling purchased for the
Group’s own use.
(3) Scope 3 being all indirect emissions (not in scope 2) that occur in the value chain of
the reporting company, including both upstream and downstream emissions 2019
(112 employees and 2.245m2 office space).
(4) Restated to reflect consistent estimation basis with 2018 GHG emissions.
Intensity ratio
In order to provide context to IP Group’s emissions year-on-year we’ve calculated
the total carbon in relation to two relevant metrics, floor area and FTE, which
give an indication to the size of the organisation and its potential impact on the
resulting carbon emissions.
Carbon
tCO2e
721.4
908.8
2019
2018
FTE
111
167
m2
tCO2e/FTE
tCO2e/m2
2,245
4,706
6.4
5.4
0.32
0.19
Flights
As with previous years, flights are still the largest contributor to IPG’s carbon
emissions despite a gradual reduction in emissions from flights from 581 tCO2e in
2018 to 426.9 tCO2e to 2019.
SUSTAINABILITY
CONTINUED
Greenhouse gas
emissions
This year, the Group has reported on
all of the emission sources required
under the Companies Act 2006
(Strategic Report and Directors’
Reports) Regulations 2013. These
sources fall within our consolidated
financial statement. In 2020 IP Group
will be required to report in line
with the new Streamlined Energy
and Carbon Reporting (SECR)
requirements for the first time for the
period 1 January 2020 to 31 December
2020.
An operational control approach
has been used in order to define
our organisational boundary. This
approach requires us to report on all
assets that are under our operational
control. As a result, any investment
subsidiaries and tenanted offices have
not been included in the scope of this
report. All carbon emissions classified
under Scopes 1, 2 and 3 have been
included, including well to tank
emissions where available.
Methodology
The Group has employed the
services of a specialist adviser, Ditto
Sustainability, to quantify the GHG
emissions associated with the Group’s
operations. The analysis was done
in accordance with the international
standard ISO14064.
The greenhouse gas inventory has
been calculated in accordance with
ISO14064 and the World Resources
Institute’s greenhouse gas protocol.
Emissions factors calculated based on
an office location:
• UK – 2019 UK Government
Greenhouse Gas Conversion
Factors for Company Reporting
• USA – Emissions Factors for
Greenhouse Gas Inventories 2018
• Australia - National Greenhouse
Accounts Factors August 2019
5 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
Gen erating genius
stu den ts p articipate in
a n IP Grou p ' host day'
I was able to
network with so
many different
people of so many
different academic
backgrounds and
gain so much insight
into how they got
to where they are.
I also got to speak in
front of the CEO and
COO of IP Group.”
(Student when asked
about the best part of their
work experience)
Outside IP Group, Generating Genius
students participated in a series
of events, masterclasses, and work
experiences to further develop their
skills and inform their future education
and career decisions at institutions
such as St Anne’s College at the
University of Oxford, the University of
Leeds, Barclays Bank, and Kilburn &
Strode.
A list of the other charities that IP
Group has supported to date can be
found on the Group’s website:
www.ipgroupplc.com.
5 9
Community engagement
The 50 students recruited at the
start of the Group’s partnership
with Generating Genius:
• 60% are female
• 64% have previously
claimed/are currently
claiming free school meals
• 38% will be the first in their
family to go to university
• 28% come from local areas
with the lowest participation
in higher education
In 2019, IP Group entered the final
year of its three-year strategic
partnership with Generating Genius.
The charity aims to address the
attainment gap of black, Asian and
minority ethnic (BAME) students
compared with other demographics
within STEM (science, technology,
engineering and maths) subjects
and related industries by supporting
talented and able students over a
prolonged period of time with a
mix of academic and professional
engagement.
During the year, the original cohort of
50 students supported by the Group’s
donation completed their GCSE
examinations. Out of these:
• 42 studied Maths – of which 88%
achieved grades 9-7
(A**-A equivalent)
• 37 studied Chemistry –
64% grades 9-7
• 29 studied Biology –
82% grades 9-7
• 34 studied Physics –
69% grades 9-7
The original 50 have now joined
Generating Genius’ Uni Genius
programme (for years 12 and 13),
along with newly recruited individuals.
The Group’s donation has also
been used to support an additional
104 students at different stages of
Generating Genius’ programmes.
In addition to its donation of £33,333
(2018: £33,333), the Group continued
to work with Generating Genius
through its Charity Liaison Team to
deliver a Host Day and two weeks of
work experience for four students. At
the Host Day, students gained insight
from the careers and professional
history of speakers from both IP
Group and selected Group portfolio
companies. This was followed by a
design challenge, where young people
were put into groups and asked to
solve a question sourced from the
speakers’ own work. Students were
challenged to decide on the next step
of a drug’s development path, think
of ways to commercialise quantum
computing, and even grappled with
business ethics.
Work experience weeks saw
students learn about how IP Group
works in more detail. This was
achieved through meetings with
representatives from teams across the
Group and projects that ranged from
making investment recommendations
to formulating policy advice.
SUSTAINABILITY
CONTINUED
Responsible stewardship
In 2019, IP Group increased its focus
on stewardship of our portfolio to
ensure that investee companies are
mindful of issues such as climate
change, diversity and strong
governance, themes which are key to
the values of the Group.
We recognise the importance of
ensuring that the businesses we help
create comply with all applicable
environmental, ethical and social
legislation. Furthermore, our direct
involvement in many of these
companies allows greater scope to
engage with their management teams
and offer guidance.
As a first step IP Group collected data
from portfolio companies to enable us
to get a clearer picture of current ESG
standards and to set a benchmark for
future measurement.
In 2019 we engaged with 49
companies representing 75% of the
companies held in the focus portfolio
at June 30th 2019.
Excellent compliance across governance with room for improvement in
environmental and diversity policies
ENVIRONMENTAL POLICY
DIVERSITY POLICY
REPORTING ON GHG EMISSIONS
32%
56%
68%
44%
2%
98%
No
Yes
No
Yes
No
Yes
GOVERNANCE:
POLICIES
100%
HEALTH & SAFETY
92%
ANTI-
CORRUPTION/
ANTI-BRIBERY
92%
HUMAN
RIGHTS
92%
DATA
PROTECTION
6 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Parkwalk
Parkwalk is closely aligned with IP Group’s mission of evolving great
ideas into world-changing businesses that achieve a positive impact. This
alignment also applies to ESG and stewardship across portfolios. As well
as mapping investment companies to the SDGs (as IP Group has done, see
pages 52 and 53). Parkwalk carried out a survey of specific ESG policies
across its portfolio. The numbers largely reflect those of IP Group’s survey.
To ensure high standards of
compliance are reached in
ESG, IP Group, will in 2020,
offer help to companies,
including:
1. A ‘Sustainability’ toolkit – outlining
best practice and encouraging a
more progressive approach to ESG
issues;
2. Engaging in meaningful dialogue
with portfolio companies in
relation to routine and event-driven
shareholder resolutions; and
Highlights
Data Protection
Policies
3. A list of suppliers (for example
Anti-Bribery
measuring GHG data, supplying HR
training, analysing flight data, 30%
Club).
In addition to the support they
receive from the Group, our portfolio
companies often seek funding
from other sources, both public
(such as government-backed grant
funding) and private (from sources
ranging from angel investors and
small privately owned funds to large
institutional investors), and the Group
will often assist in gaining access
to this financial capital. The Group
complies with all applicable legislation
in this respect and communicates
with its co-investors in an appropriate
and transparent manner.
Human Rights
Policy
Diversity
JOBS CREATED
BY IP GROUP AND
PARKWALK TOTAL
75001
1 Approximately, from current and exited
investments.
91%
80%
100%
51%
SEE O UR ST RATEGY IN
ACTIO N O N PAGES 52
TO 53
6 1
STRATEGIC REPORT
SUSTAINABILITY
CONTINUED
Culture
A purpose-led culture
IP Group’s success is highly
dependent on attracting, developing
and engaging exceptional people
across a range of disciplines. We have
always had a strong story that people
can relate to and find compelling – the
basic concept of creating businesses
that address some of the most
challenging issues in the world is a
powerful one.
As a result, IP Group has always had
a purpose-led and entrepreneurial
culture - one in which our diverse
team are deeply committed to what
we do, and together help to deliver
ground-breaking work.
In 2014 we codified that culture in our
first set of values, an exercise which
involved all members of the team. The
output was the three Ps – Passionate,
Pioneering and Principled.
Over recent years, the IP Group team
has evolved in a number of ways:
1. Becoming more international
with operations in the UK, US,
Australasia and Greater China
2. Growing the team through the
acquisitions of Touchstone
Innovations plc and Parkwalk
Advisors
3. Shifting to a partnership model,
with Technology and Life
Sciences partnerships with
increased delegated investment
and divestment decision making
authority, working alongside the
internal specialist teams
As the team and Group have evolved,
so too has the culture. To help us
take stock, at the end of 2018, we
undertook our first engagement
survey and, in 2019, we gathered
feedback from the team on the IP
Group culture.
6 2
Engaging the team
In the engagement survey, we saw
good scores and feedback around
pride in working for the company.
The responses showed a particular
strength around flexible working and
people feeling able to balance home
and working lives. Areas flagged
for improvement included internal
communication; in particular people
wanting to hear more about the IP
Group strategy and decision making.
As a result, the Group undertook
a number of initiatives aimed at
increasing the accessibility of the
senior team to employees. These
included increasing the frequency of
our All Staff meetings, a weekly update
from the CEO as well as face-to-face
sessions with our executive team.
The Group also launched a new
intranet and reviewed its onboarding
communication for new joiners. We
continue, through our regular internal
communications, to share stories
of the great work happening in the
portfolio. These initiatives have been
positively received by the team.
Employees have also had the
opportunity to get involved in our
Generating Genius collaboration – our
thirst for new ideas and passion for
science has been a great fit.
Reviewing the IP Group
culture
Following the integration of
Touchstone Innovations plc in
particular, we also felt it was the
right time to reflect on the culture of
the Group. At our summer All Staff
meeting ran a session with the UK
team to start the conversation on
what culture is, how each individual
contributes to it and actions we could
take to positively influence the culture.
One of the key themes from the day
was the desire to encourage a more
collegiate and communal working
environment. As a result, a range of
cross-team social activities have taken
place, as well as improvements to the
working environment.
In addition, we asked for volunteers to
provide feedback against a range of
cultural dimensions. We received input
from a wide range of people (teams,
geographies and seniority) including
the CEO and his direct reports. The
responses reflected the diversity of
the participants, however, there were
some common themes.
Strengths
• People continue to feel deeply
passionate about the company’s
purpose – both building businesses
and the impact that those
businesses have.
• People report that they enjoy
working with their fellow
colleagues who are fun, smart and
committed
• The team values the very
flexible nature of IP Group as a
place to work – in line with our
entrepreneurial roots. As per the
results from the engagement
survey, people on the whole feel
able to strike a work-life balance,
and this is seen as a significant
plus.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 S T R AT E G I C
R E P O R T
Secondly, the Group appointed
Aedhmar Hynes as the Designated
Non-executive Director for workforce
engagement ("Designated NED")
to act as conduit for dialogue
between Board and the wider team,
via IP Connect. Aedhmar brings
deep experience of leading global
organisations, and with it a passion for
engaging and developing people.
Though early days, these mechanisms
are a positive step forward and will
help us continue to evolve our culture
and embed the values.
Meaningful dialogue with
the Board
This year we established two new
and exciting mechanisms to increase
the dialogue between the Board and
employees. Firstly, we established
our first employee forum, IP Connect.
Made up of a representative group
of employees, IP Connect has
been set up to enable the Board to
understand and consider the interests
of the wider team in its discussions
and decisions, and to increase
engagement of employees overall.
IP Connect meets regularly, with the
agenda in part determined by topics
raised by employees. Minutes from the
sessions are published on the intranet
and discussed with the executive
team and Board.
Areas for improvement
• People are keen for even more
transparency, in particular around
how decisions are made and the
organisation’s future plans
• As our international teams continue
to expand, some people felt that
there is an opportunity to develop
more global ways of working.
As part of this review, people were
also asked to share their feedback on
the three Ps. Encouragingly, 86% of
people felt that these values were still
relevant; though only 52% felt they
saw evidence of them in action.
There is work to do in 2020 to reflect
on how we can bring the values to
life in a more meaningful way that
supports us in realising our purpose
and delivering the strategy. This will
include fleshing out the behaviours
that underpin our values and bringing
those behaviours into our appraisal
process and incentives more clearly.
Culture 2020
Our plans to further strengthen the IP Group culture for the coming year include:
Increasing dialogue between
Board and the wider team to
increase transparency e.g.
• We will improve the process
of cascading the output of
Board meetings to the wider
team
Embedding IP Group values e.g.
• We will expand the definitions
of the values so it is clearer
what they look like in practice
and they will be reflected in
the appraisal process more
explicitly
• We are exploring a range
• We will refresh how we
of ways in which NEDs and
employees can spend time
together productively
• We will continue to build upon
2019 initiatives, in particular IP
Connect
recognise people who embody
our values
Fast-tracking initiatives that make IP
Group a better place to work e.g.
• We will review our family-friendly policies
to ensure they reflect our value of being
pioneering
• We will expand the range of learning
and development opportunities offered
to the team including driving forward
initiatives such as the Board development
framework (see more on page 65)
• We will introduce pulse surveys to gather
feedback on a more regular basis
• We will continue to support and
encourage diversity and inclusion
through initiatives such as the 30% Club
(see page 65).
6 3
SUSTAINABILITY
CONTINUED
Training
Our people gain significant experience
from working with a number of start-
up enterprises and seeing first-hand
what works and what doesn’t, sharing
knowledge and discussing these
experiences (notably at our company
away days). All employees who are
involved with the regulated business
of managing investment transactions
receive compliance and anti-money
laundering training, with periodic
refresher courses. In 2019, all staff
undertook training on the following
topics: GDPR, IT/cyber security
training, anti-bribery, unconscious bias
and ESG training; as well as gaining
access to an online learning platform.
Recruitment and
development
All vacancies are advertised internally
to offer opportunities to current
employees in the first instance.
Thereafter, we use our extensive
networks to recruit for staff with
candidates solicited from various
backgrounds and expertise. All
staff have now undertaken annual
Employee diversity
performance reviews to summarise
their achievements as well as to
highlight development needs which
are then converted into learning and
development plans.
Reward and retention
We believe that exceptional
people doing exceptional things
should be well-rewarded for
achieving exceptional results. While
heavily weighted to successful
performance over the medium to
long-term, we consider that the
Group offers an attractive overall
remuneration package to all our
employees with both short and
longer-term components relevant
to the seniority of the person.
We benchmark remuneration and
benefits regularly against industry
peers. Our remuneration and benefits
package focusses on supporting
health (through private medical and
Ride-to-Work) and family (insurance
and through inclusion of families in
some of our other benefit options
and Childcare Vouchers) while also
offering opportunities for investment
and saving through certain schemes.
Staff turnover in 2019 was unusually
high at 37.5% as a result of the return
of technology transfer operations to
Imperial College earlier in the year
and some small structural changes
in the final quarter. Excluding the
technology transfer operations,
turnover was 18.5%, broadly flat with
2018.
Health and safety
All our people are responsible for
the promotion of, and adherence
to, health and safety measures in
the workplace. The Chief Operating
Officer has overall responsibility for
the implementation of the Group’s
health and safety policies and
procedures. The primary purpose of
the Group’s health and safety policy
is to enable all of the Group’s people
to go about their everyday business
at work in the expectation that they
can do so safely and without risk to
their health. During the years ended
31 December 2019 and 31 December
2018, no reportable accidents
occurred under UK Health and Safety
regulations.
Diversity is key to the culture and to how we work at IP Group. We are committed to equal opportunities for all people
when it comes to recruitment, selection and career development.
In 2019, two new female non-executive directors joined the Group’s main Board, bringing the total number of female
directors to three or 27.3%. In March 2020, Jonathan Brooks retired from the Board and therefore the percentage of female
directors on the Board has now risen to 30%.
In addition, the Group also put several initiatives in place to support gender diversity and women in the workplace.
For the year ended 31 December 2019, the Group employed 111 employees and had seven non-executive directors. A
breakdown of our people by gender can be seen in the table below. IP Group supports the rights of all people as set out in
the UN Universal Declaration of Human Rights and, insofar as it is able to, ensures that all transactions the Group enters into
uphold these principles.
Gender split as at 31 December 2019
Board
Senior Leadership Team (1)
Senior managers/partners
Senior Leadership Team & senior managers/partners
All Employees
Total employees 111 (2)
Male
Female
8
8
14
22
57
73%
100%
67%
76%
51%
3
0
7
7
54
27%
0%
33%
24%
49%
(1) Defined for these purposes as executive directors and other direct reports to CEO
(2) Excludes non-executive directors
The above table illustrates the gender balance across the Group. During the year, the Group made significant progress in
support of the “30% Leadership” campaign to improve gender diversity with female representation of the Group’s Board of
Directors having risen to 27% from 11% on a like-for-like basis compared to last year.
6 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Female representation on the
Group’s Senior Leadership Team
remains below the desired level. The
Senior Leadership Team has been
in transition since the Touchstone
transaction in late 2017, when the
previous Executive Committee
was disbanded, and the plc board
widened through the addition of
two observers to the four executive
directors to create a single, unitary
board structure. A wider Executive
Committee, with delegated
responsibility for implementing the
Group’s strategy and policies, day-
to-day management of the business
and monitoring performance, will be
reconstituted in 2020 with diversity
(in gender and perspective) as a key
element. The Chief Executive Officer
is progressing this as a matter of
urgency and will include an update
on progress for diversity in senior
leadership in the half-year report.
The Group recognises the need for
improvement at the most senior
levels in the business and continues
to aspire to at least 30% female
representation in the senior leadership
team, having now reached this
proportion at Board level.
Female representation in senior
employees just below the interim
Senior Leadership Team is 33% which
meets targets set by the Hampton-
Alexander Review. The combined
Senior Leadership Team and senior
direct reports (senior managers and
partners) together account for female
gender representation of 24.1%, similar
to the Hampton-Alexander reported
average of 24.9% at ExecCo & Direct
Reports across the FTSE 250.
IP Group formed a ‘30% Club Working
Group’ in 2018. At the end of 2018, a
focussed set of initiatives were drawn
up and 2019 saw the working group
meeting regularly with CEO Alan
Aubrey as the accountable Executive
Director. Initiatives to support women
in the workplace during 2019 included:
•
Improved gender diversity at the
Board level, with the goal of at
least three female directors (based
on research showing effectiveness
levels of Board diversity), see
pages 94 to 95 for more detail;
• Unconscious bias training for all
employees;
• External mentoring scheme
through 30% Club;
•
Inspirational speaker series
focusing on women executives and
directors;
• Board development framework.
2019 highlights
Mentoring
IP Group joined the External
Mentoring Scheme of the 30% Club,
which sees some 2,346 senior leaders
from 100 organisations provide
mentors to high potential women of
every level of the career pyramid. At
the end 2019, mentors and mentees
from IP Group were paired with
people from other organisations for
a nine-month mentoring programme
that concludes in 2020. Pairs are
recommended to meet every four
to six weeks and explore diverse
areas such as work-life balance and
career development identified by
the mentee as areas where support
is required. Initial feedback from the
programme has been positive and
will be reviewed in full when the
programme concludes. In addition
to the mentoring sessions, the 30%
Club hold masterclass events that
are free to programme participants.
The most recent events (attended by
IP Group participants) included an
‘In conversation with’ panel session
with a diverse set of senior female
leaders and an interactive event with
an organisational psychologist and
mental health expert.
Inspirational speaker series
The 30% Club working group
introduced a speaker series whereby
high-profile women talk about their
career paths and how, in some cases,
they have achieved a successful
career. Speakers referenced concepts
including building mental resilience,
handling corporate politics, balancing
career with family, therefore providing
invaluable insight and motivation to
both women and men at IP Group.
These are carried out in a ‘fireside
chat’ format and are filmed and
posted on the Group’s intranet for
those that cannot attend in person.
Speakers in 2019 included new non-
executive director Aedhmar Hynes
as well as Ceres Power Director Dr.
Caroline Hargrove (CTO of Babylon
Health and previously CTO of
McLaren).
The speaker series also provides the
opportunity to raise the profile of IP
Group’s own female employees as the
hosts for the fireside chats alongside
the high-profile speakers.
Board development
framework
This initiative is to enable a
programme framework within
IP Group to give everybody the
opportunity to observe portfolio
company boards when it is a relevant
personal development area. Studies
have indicated that board experience
is seen as valuable and relevant for
career progression amongst women.
This framework recognises that IP
Group has a diverse set of people
having different levels of expertise
in different sectors and hence this
framework cannot be a one size fits
all. It is envisaged the framework
will be used to guide the initiatives
and pilots that may be progressed in
2020.
2020 initiatives
IP Group’s ‘30% Club working group’
will build on the achievements of
2019 aimed at supporting women
in the workplace and encouraging
diversity. The working group will
continue to support and progress
the current initiatives of a gender
balanced board; a mentoring scheme
to support female progression;
and an inspirational speaker series
focused on highly accomplished
women. The Group will also review
and create additional initiatives
for 2020, including examination of
gender diversity opportunities in the
senior management team as well
as improvement of family friendly
policies across the firm.
6 5
STRATEGIC REPORT WORKING WITH THE GROUP’S STAKEHOLDERS
Statement by the Directors in performance of their duties in accordance with
s172(1) Companies Act 2006
The directors of IP Group plc consider, both individually and together as a Board, that they have acted in the way that they
consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a
whole. This statement sets out how the Board has had regard to the matters set out in s172(1) Companies Act 2006 when
performing its duties under s172 Companies Act 2006 (“s172”) for the year ended 31 December 2019.
Identifying key stakeholders
Employees
Shareholders
Governance bodies
including proxy
advisors
Analysts
The environment
and wider
community
Board
engagement
with the Group's
stakeholders
Regulators
Co-investors
The European
Investment Fund
and the European
Investment Bank
Universities and
other research
partners
Portfolio
companies
The Group’s stakeholders are people, communities and
entities with an interest in the Group’s purpose, strategy
and business and who are or may be impacted by the
Board's decisions. The Board is responsible for creating
sustainable value for the Group’s shareholders and in order
to ensure the Group’s long-term success, it is critical that
the Board engages with and considers the interests of the
Group’s wider stakeholders when making decisions.
During 2019, the Group undertook a complete analysis of
its stakeholders, to ensure that those stakeholders whom it
had previously identified remained accurately characterised
and relevant in 2019. The first stage of this process was to
create a list of all stakeholders who had or might have an
interest in the Group and its objectives.
The Board then analysed each potential stakeholder to
assess their relevance and the perspective that they offer.
The following questions were considered by the Board:
• Does the stakeholder have information or expertise on
matters helpful or relevant to the Group?
• How legitimate is the stakeholder’s claim for
engagement?
•
Is the stakeholder willing to engage?
• How much influence does the stakeholder have?
• What are the possible consequences if a potential
stakeholder is not included in the engagement process?
• Does the Group have a specific s172 duty and/or a moral
responsibility to that stakeholder?
6 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 The Board is aware that when considering potential decisions, there may be other stakeholders not included in the key
stakeholder list above whose interests may be relevant and the Group will engage with and consider such stakeholders’
views in its deliberations as necessary.
Engaging with key stakeholders
Engaging with stakeholders is an integral part of the Group’s business and critical to ensuring the future success of the
business. The table below sets out the Group’s focus on the key relationships with stakeholders which enable the Group to
discuss the potential impact of its decisions on the stakeholders affected by or relevant to the issue in question.
Name of
stakeholder
SHAREHOLDERS
Why we engage
How we engage
To ensure shareholders
have a strong
understanding of
and confidence in
the Group’s strategy,
performance, purpose
and culture, and to
ensure that the Group
has strong relationships
with its shareholders,
and the Board
understands the issues
that are important to
them.
• Direct meetings/calls, primarily
with the Executive Directors
and senior management and
consultation on various key issues
for the Group with the Chairman
and Senior Independent Director
Issues that matter
to this stakeholder group
• Financial performance
• Strategy
• The Group’s funding model
• Capital allocation
• Long-term growth
• Results announcements and
• ESG factors
• Culture
• Significant changes to the
Board
• Remuneration of directors
• Capital allocation
• Matters affecting the share
capital
• Diversity
• Compliance and governance
presentations
• The Group’s website
• Meeting with analysts and
feedback from the Group’s
brokers
• Annual General Meeting/other
General Meetings
• Annual Report and Accounts
• RNS and RNS Reach
announcements
• Shareholder circulars
• Group capital markets events
(including the China Deep Tech
Forum and US Hard Science
Innovation Forum)
EMPLOYEES
To attract, develop,
incentivise and retain
the best people which
is critical to achieving
the Group’s strategy
and vision.
Meaningful
engagement with
employees also helps
to create a strong and
supportive culture.
•
IP Connect employee forum
• Strategy
• Appointment of Designated NED
• Culture
for employees
• Transparency of decision
• Regular all-staff meetings in
making
person and via video conference
• Opportunities for
• Annual all-staff off-site
development and progression
•
Informal employee lunch sessions
with CEO
• Talent management
• Diversity and inclusion
• Weekly all-staff emails from the
CEO
•
Internal newsletter
• Speaking up hotline and web
reporting tool
• Culture and engagement survey
• Regular all-staff social events
• Employee/workplace policies
• Strong communication
• Remuneration and benefits
• Wellbeing
6 7
STRATEGIC REPORT WORKING WITH THE GROUP’S STAKEHOLDERS
Why we engage
How we engage
Issues that matter
to this stakeholder group
• Strategy
• Financial performance
• ESG factors
• Fundraising
• Building strong boards
• The Group’s funding model
• Capital allocation
• Culture
•
Investment Committee
decision-making process
• Hands-on approach via portfolio
company boards as investor
directors/observers
• Offering fundraising and capital
markets expertise via IP Capital
(the Group’s fund management
and corporate advisory business)
and executive search services to
help build strong boards via IP
Exec (in-house executive search
function)
• Regular portfolio company events
• Facilitating access to co-investors
• Group capital markets events
•
Interacting with IP Capital,
the Group’s specialist fund
management and corporate
advisory business
• Via portfolio company boards
where several investors have a
Board seat
• Attending conferences and sector
events (for example, JP Morgan
Healthcare Conference and the
Consumer Electronics Show)
• Group capital markets events
• Strategy
• Financial performance
• Realisations
• ESG factors
•
Investment evaluation and
decision-making process
• Culture
• Regular interaction with
• Strategy
investment teams
• Financial performance
• Regular review meetings in the UK
and US
• Annual relationship review in
Australia
• ESG factors
• Culture
• Realisations
• The Group’s funding model
• Capital allocation
CONTINUED
Name of
stakeholder
PORTFOLIO
COMPANIES
CO-INVESTORS
UNIVERSITIES
AND OTHER
RESEARCH
INSTITUTIONS
6 8
To build successful
businesses to address
some of the world’s
most pressing
challenges. Part of the
Group’s purpose is to
build businesses that
have a positive social
and environmental
impact, and this
builds into the Board’s
consideration of the
long-term impact of its
decisions.
This engagement
supports one of the
Group’s strategic aims,
which is to develop and
support opportunities
into a diversified
portfolio of robust
businesses.
To build an investment
network to support
the Group’s portfolio
companies and to
co-invest in portfolio
companies.
This helps to ensure
that the Group’s
portfolio companies are
adequately supported,
both financially and
also in other areas
such as board support,
corporate governance
and strategy.
To build, develop and
maintain relationships
with universities to
identify promising
research and create
and build businesses
around such research.
This builds into one of
the Group’s strategic
aims, which is to
create and maintain a
pipeline of compelling
intellectual property-
based opportunities.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Name of
stakeholder
Why we engage
How we engage
Issues that matter
to this stakeholder group
THE
ENVIRONMENT
AND WIDER
COMMUNITY
To generate social and
environmental impact,
which is part of the
Group’s core purpose.
THE EUROPEAN
INVESTMENT
BANK AND THE
EUROPEAN
INVESTMENT
FUND
REGULATORS
INCLUDING
THE FINANCIAL
CONDUCT
AUTHORITY,
TAKEOVER
PANEL AND THE
AUSTRALIAN
SECURITIES AND
INVESTMENT
COMMISSION
INDUSTRY
ANALYSTS
GOVERNANCE
BODIES
To maintain strong
partnerships with the
EIB, as lender to the
Group, and the EIF, a
significant investor in
the Group’s managed
funds.
To maintain strong
relationships with
regulators.
To ensure analysts have
a strong understanding
of the Group’s strategy,
performance, purpose
and culture and to
ensure that the Group
has strong relationships
with its analysts
To maintain strong
relationship with
proxy advisers, the
Investment Association,
the Financial Reporting
Council and other
governance bodies
• Via the Group’s portfolio
• ESG factors
• Capital allocation
• Strategy
• Diversity and inclusion
companies. See page 55 for a
specific example of the impact of
C-Capture, a portfolio company
in the Cleantech division, on the
environment
• Supporting UK woodland creation
via Woodland Carbon Code
• Partnering with Generating Genius
charity
• Website
• Regular reporting requirements
• Strategy
• Direct conversations and
• Financial performance
consultation on matters relevant
to them
• Attendance and presentation at
EIB and EIF conferences
• The Group’s funding model
• Realisations
• Compliance and governance
• ESG factors
• Direct correspondence on matters
• Strategy
as necessary
• Correspondence with the
Takeover Panel on concert party
matters
• Regular reporting to the Financial
Conduct Authority
• Regular reporting to the
Australian Securities and
Investment Commission,
Australian Prudential Regulation
Authority and the Australian
Transaction Reports Analysis
Centre
• Regular dialogue and
correspondence with
management team led by the
CFO.
• Financial performance
• Compliance and governance
• The Group’s funding model
• Portfolio liquidity
• ESG factors
• Strategy
• Financial performance
• The Group’s funding model
• Capital allocation
• Compliance and governance
• ESG factors
• Direct correspondence on matters
• Compliance and governance
as necessary
• Correspondence with proxy
bodies in relation to the Group’s
AGM and any other general
meetings
• Remuneration Policy
• ESG factors
• Diversity and inclusion
6 9
STRATEGIC REPORT WORKING WITH THE GROUP’S STAKEHOLDERS
CONTINUED
Stakeholder engagement in action
Employees
Focus on: IP Connect and Designated
Non-executive Director
During 2019, Aedhmar Hynes joined the Group’s Board
and was appointed the Designated NED responsible
for engaging with the Group’s workforce. This role
complements Aedhmar’s passion and commitment to
ensuring a meaningful two-way communication between
the Board and the Group’s employees. In order to further
facilitate the dialogue between employees and the
Board, the Group set up an employee forum called ‘IP
Connect’ during the year.
IP Connect allows the Board (via Aedhmar Hynes)
to engage with employees, to ensure the views of
employees are taken into account in the Board's
decision-making process on those decisions that may
have an impact on them. IP Connect’s composition is
comprised of 8 colleagues (plus Karen Callaghan, the
Group’s HR Consultant, acting as the Chair) from across
the business, including representatives across different
teams and jurisdictions and a mix of people in terms
of gender, seniority and length of time with the Group.
IP Connect meets with Aedhmar on a quarterly basis
to discuss relevant HR matters requiring input, Board
matters brought to the forum by Aedhmar for input and
other matters tabled by the members for wider team
input, together with hearing feedback from Aedhmar on
how the Board has taken into account their views in any
decisions it has made in the preceding quarter.
7 0
The Group’s 2019 annual All- Staff meeting off-site
focused on culture and engagement. Following a
workshop at the session, feedback was taken and
developed into a number of initiatives which are
described on page 62. IP Connect sought further
feedback from employees on culture and values and
intends to feedback to the Board via Aedhmar the results
of this. The Executive Directors also sought the views of
IP Connect in relation to communications to be issued
to the wider workforce regarding certain small structural
changes within the Group in the final quarter of 2019,
and amended the communications as a result of such
feedback.
In 2020, IP Connect has committed to focus on: (i)
facilitating constructive dialogue with both the Executive
team and the Board, to increase transparency within the
Group; (ii) providing input on development of specific
people and culture related initiatives (including the
development of the Group’s values); and (iii) engaging
with HR to fast track various initiatives which will make
the Group a better place to work (including actions
identified at the 2019 annual All-Staff off-site).
IP Group considers employees
to be important stakeholders,
key to the performance of
our business. The creation of
IP Connect provides us with
a forum, to bring the Board
closer to employees, driving
greater transparency and
engagement. As a strong
believer that the integration
of culture and values within
an organisation drives positive
business outcomes, I’m
pleased to act as the liaison
between these two important
groups”.
Aedhmar Hynes,
Non-executive Director
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Universities and
research institutions
By way of a specific example of
stakeholder engagement in action, IP
Group’s US team proactively engages
with its partner universities as follows:
1. Develops a partner plan
collaboratively with the relevant
IP Group lead contact and the
university partner.
2. Holds informal quarterly meetings
with the partner.
3. Holds annual formal partner
meetings to discuss progress over
the past year and plan for the
upcoming year.
4. Receives additional feedback
following a partner survey.
The US team had 186 meetings with
its partner universities in 2019, broken
down as follows:
ENGAGEMENTS BY TYPE
46
60
80
Opportunity management
Strategic
Scouting
Culture
As described on pages 62 and 63,
one of the key purposes for the
Board is to help to establish and
embed the Group’s purpose, values
and culture, and the Board identified
the Group's stakeholders (as set
out above) with this in mind. The
Group’s strategy has an inbuilt focus
on long-term investment and its core
purpose, to evolve great ideas into
world-changing businesses, requires
strong engagement with portfolio
companies. The Group prides itself
on its high standards of business
conduct and expects that its portfolio
companies, co-investors and suppliers
hold the same high standards
when conducting their respective
businesses.
How stakeholders’
views are reported to
the Board and influence
the Board agenda
By understanding the views of its
stakeholders, the Board can take
into account their opinions, needs
and concerns when debating and
making decisions. Where considered
appropriate, major institutional
shareholders are consulted on
significant decisions and transactions,
changes to the Board and the
structure of the executive directors’
remuneration. For example, the major
shareholders were consulted on the
Group’s recent capital reduction (see
below). Shareholders are increasingly
asking the Board about the Group’s
ESG credentials, and the Group has
shared its Sustainability & ESG policy
and Ethical Investment Framework
with shareholders when requested to
do so. Further details on the Group’s
approach to ESG matters are set out
on pages 50 to 53.
Consideration of long-
term consequences in
decision-making
The Group’s long-term strategy is
to develop and support intellectual
property-based businesses that
will have a positive impact on the
environment and society into robust
businesses, from cradle to maturity,
with the aim of delivering attractive
financial returns for the Group. A
detailed explanation of the long-term
strategy is set out on pages 12 to 13,
and the Group’s business model is set
out on page 10.
The Group considers environmental,
social and governance (ESG) factors
at both Group level and across its
portfolio and investment approach.
Two directors of the Group, Alan
Aubrey and Greg Smith are members
of the Group’s ESG Working Group,
which was established in 2018. One of
the key purposes of the ESG Working
Group is to ensure that the Group’s
strategy, of building businesses with
a positive impact on the environment
and society whilst achieving financial
returns, is aligned with its investment
process. Further details of the actions
the ESG Working Group completed
during 2019 and its planned focus
for 2020 are detailed on pages
50 to 53. In particular, the Group’s
new Sustainability & ESG Policy
and Ethical Investment Framework,
codifies its commitment to invest in
an ethical and sustainable manner.
The Group also plays a role as a
responsible steward to its portfolio
companies. This includes setting
expectations of high levels of
corporate governance, taking up
director positions on the boards
of the Group’s focus companies to
ensure robust corporate governance
processes are in place, facilitating
introductions to external advisers, and
sharing any best practice or helpful
tips on new legislation. Further details
of the Group’s stewardship activities
are detailed on pages 60 to 61.
7 1
STRATEGIC REPORT WORKING WITH THE GROUP’S STAKEHOLDERS
CONTINUED
The following table details some examples of matters debated by the Board during 2019 following discussion with and
feedback from shareholders.
Theme
Discussion topics with and feedback
from shareholders
Action taken by the Board as a result of
shareholder feedback
OXFORD
NANOPORE
TECHNOLOGIES
Shareholders frequently request updates on
Oxford Nanopore’s commercial, technical
and operational progress.
As Oxford Nanopore has continued to
develop and increase in value, shareholders
have also sought to better understand the
Board’s strategy regarding the Group’s
shareholding in this company.
NET ASSET
VALUE (NAV)
MEASUREMENT
Some shareholders sought further clarity
on how the Group calculates its net asset
value (NAV).
AVAILABILITY OF
CO-INVESTMENT
CAPITAL FOR
THE GROUP’S
PORTFOLIO
COMPANIES
Shareholders sought to understand the
availability of co-investment capital for
portfolio companies, particularly in light
of the well-publicised withdrawal from the
sector of two of the Group’s major long-
term shareholders
CAPITAL MODEL
Some shareholders expressed a desire for
the Group to continue to move towards a
more sustainable capital model.
CAPITAL
ALLOCATION
Some shareholders requested a greater
understanding of the Board’s approach to
capital allocation including when or if the
Group’s existing cash resources should
be used to buy back the Group’s shares,
particularly when shares are trading at a
discount to NAV per share.
7 2
The Board considered the differing views of
various shareholders as part of its decision to sell a
proportion of its holding in Oxford Nanopore during
the company’s recent fundraising, whilst deciding to
maintain the majority of its holding.
The Board has also given consideration to various
potential methods for optimising the value of the
Group’s holding in the future for its stakeholders,
including, for example, selling shares at a future
value inflection point, distributing shares in specie
and/or retaining some shares as the company
continues to develop. The Group’s recent capital
reduction has given the Board flexibility to pursue
such approaches, as appropriate.
The feedback was considered by management and,
in conjunction with the Audit and Risk Committee,
the Board decided to include more detailed
disclosures on how it measures its NAV, particularly
in relation to unlisted portfolio company holdings, in
its half-year and full-year report and accounts.
The Board decided to make more detailed
disclosures around the sources and availability of
co-investment capital in its half-year and full-year
accounts. This included highlighting the significant
proportion of co-investment capital into the Group’s
portfolio that is from sources other than the Group’s
direct shareholders
The Group took a highly proactive approach to
realisations in 2019. As a result, the Group’s highest
realisations were achieved in 2019 and early 2020.
This has helped to ensure that the business has put
itself in the position to enable it to fund its near-term
priorities from existing resources.
In addition, the Remuneration Committee has sought
to ensure that executive remuneration is aligned
with the Group's realisation strategy by determining
that a greater proportion of management’s annual
incentives will be linked to realisations.
The Board also discussed different capital models
including consideration of various potential longer-
term hybrid capital models, continuing to combine
balance sheet capital with third-party managed
funds.
The Board discussed this issue at length and
obtained advice from its external advisers. Following
this consideration, the Board resolved to undertake
a capital reduction to ensure the Group was well
positioned to take advantage of a share buyback or
other distribution of capital opportunities (if any) as
they arise in the future. Please see below detailed
case study on the capital reduction decision.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 In each case, the directors considered
how a short-term decision to sell an
asset and achieve a financial return
linked into the longer-term strategy
to create long-term value for its
shareholders. In certain circumstances,
such as the partial disposal of Oxford
Nanopore, the directors concluded
that a partial disposal was the most
appropriate action, achieving a
financial return and strengthening the
Group’s cash position, whilst allowing
the Group to retain a significant
shareholding (by size and value) in
the company to further grow in value
over the longer term.
Principal decisions
Disposal of certain assets
During 2019, the Board debated the
disposal or partial disposal of certain
investments in portfolio companies,
including certain strategic assets
for which the Board has direct
oversight and divestments, which
have been referred up from the sector
investment committees given the
transaction size mandates a Board
decision. In particular, the Board
approved partial disposals of its
shares in Oxford Nanopore and Ceres
Power. When debating and making
these decisions, the Board’s approach
was as set out below:
Training and board
processes
During 2019, the Board received
training on the s172 requirements
and an update from the Company
Secretary on the procedures in place
to enable sufficient information about
stakeholder issues to be included
in Board packs. This included the
implementation of a new cover sheet
for relevant Board papers setting out
the possible impacts of decisions on
relevant stakeholders.
A Board pack is circulated to the
Board in advance of every Board
meeting, containing both matters for
information and matters for decision
by the Board. The Board considers
the s172 factors in all of its decisions,
using the Board paper presented
to the Board as a helpful starting
point for its own deliberations on the
relevant factors to be considered.
Once a decision has been made,
the decision (including the s172
considerations) is documented in the
Board minutes and the Board feeds
back to the relevant stakeholders as
appropriate as part of its continued
meaningful stakeholder engagement
process. Where appropriate and
being mindful of its listing rules,
market abuse regulations and other
legislative obligations, together
with confidentiality, the Board seeks
feedback from stakeholders prior to
a decision being implemented. The
Board then documents its decision-
making process for its principal
decisions in its s172 statement.
In relation to decisions regarding
disposals in 2019, the Board
considered the following factors to
be relevant:
• Shareholders and consideration
of long-term effects of the
decision and link with Group’s
strategy: Alongside the specific
stakeholder interests, the directors
considered any long-term effects
of the disposal and how this
linked to the Group’s strategy.
One consideration was how these
assets fit in with the Group’s ESG
policy and ethical framework,
whilst noting that a key part of
the Group’s strategy is to return
financial value from its investee
companies to shareholders and a
disposal would meet this aim.
• Portfolio companies: As any
disposal decision relates to a
sale of the Group’s shares in
another company, the interests
of the underlying company are
highly relevant and need to
be considered. The directors
considered in each case whether
the disposal of the investment
could be beneficial to the company,
for example by allowing new
investors to be introduced to the
company, or whether it may have
a possible negative effect, perhaps
due to the perception in the market
of the Group selling its shares.
Engagement with the portfolio
company would most typically take
place by a direct communication
prior to the decision taking place.
In relation to the partial disposal of
shares in Ceres Power, the Group
7 3
HEADINGSTRATEGIC REPORT WORKING WITH THE GROUP’S STAKEHOLDERS
CONTINUED
was able to support the strategic
transaction to facilitate Bosch’s
increased holding in the company,
which the directors believed was in
the interests of Ceres Power and all
of its stakeholders.
• Co-investors: The directors also
considered the interests of any co-
investors invested in the relevant
portfolio company. Depending on
the portfolio company in question,
a disposal may be beneficial for co-
investors, for example, giving them
the opportunity to increase their
own shareholdings in the company
or alternatively co-investors may
be concerned about the wider
perception as a result of the
Group’s sale of shares.
• Employees: When considering
disposals, the directors considered
the impact on its employees
generally and in particular any
employees who may be working
with the asset being discussed
or acting as a director of such
company. In addition, the impact
on any other internal teams
providing services to portfolio
companies (such as IP Capital)
were considered. To understand
the views of employees, where
appropriate, the directors sought
feedback via IP Connect or
otherwise liaised directly with
specific employees.
Consideration of
any conflicts
When making decisions, the directors
were aware of the duty to act fairly
between members of the company.
This was relevant in particular where
a shareholder of the Group was
also a shareholder in the portfolio
company or otherwise had an interest
in the disposal. Any director who
had or may have a conflict declared
this conflict, and if necessary, was
excluded from the decision-making
process.
Feedback
Once the Board had agreed to
dispose of certain of its shares in an
asset, direct feedback was delivered
to the portfolio company, employees
and any co-investors. In addition, and
as referenced above, given the size
and significance of Oxford Nanopore
to the Group, the Board’s intentions
regarding the Group’s holding in it
almost always features as a topic
for discussion at any shareholder
meetings, whether these are ad hoc
or during results roadshows.
Capital Allocation and Dividend Policy
The Board seeks to ensure that the Group has sufficient
capital to optimally pursue its long-term strategic aims:
• Potential M&A opportunities are considered
periodically.
Capital allocation
• The Board considers capital allocation in the context
Dividend policy
• IP Group does not currently pay a dividend.
of organic growth (primarily through portfolio
company holdings), potential M&A opportunities,
servicing of debt and return of capital to
shareholders.
• Investment capital allocation is considered at least
annually by the Board with management reviews
typically on a quarterly basis, involving the executive
directors and country/partnership heads as required.
• The Board has considered potential methods for
returning any excess capital to shareholders and is
now in a stronger position to do so, either by way of
a share buyback or dividend (including distribution
in specie), following the capital reduction completed
in 2019.
74
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 The below case study provides an overview of the relevant stakeholder interests that were considered by the Board in
taking the principal decision to approve the Group carrying out a capital reduction in late 2019.
IP Group capital reduction
In November 2019, the Board approved in principle
a capital reduction involving a reduction of the
Group’s share premium account and capitalisation of
the entire amount of IP Group plc’s merger reserves,
with a corresponding increase in the Group’s retained
profit reserve, in order to create distributable
reserves at an IP Group plc individual company level.
This gave the Group the flexibility to make future
purchases of its own shares and/or to make future
distributions of profits in cash or specie although, at
the time, the Board confirmed that it had no current
plans to do so. The capital reduction was completed
in December 2019.
The Board decision paper detailing the proposed
capital reduction contained an analysis of the impact
that the capital reduction would or could have on
its key stakeholders and the considerations that
the Board would need to take into account when
deciding whether to approve the proposal. When
making its decision, each director had consideration
(amongst other things) to the following stakeholders:
Shareholders: The Board confirmed that the capital
reduction would allow flexibility to carry out a future
market purchase of its own shares or to make a
distribution in profit, although the Group noted that
it had no current plans to do so. The Board noted
that all these possible future actions would return
value to shareholders and therefore would be carried
out for the benefit of the Group’s shareholders. When
considering the interests of its shareholders, the
Board also noted that there was no specific guidance
from proxy advisory bodies in terms of purchases of
its own shares.
The Executive Directors held meetings and/or calls
with its major institutional shareholders and were
also able to engage with its shareholders who
attended its general meeting to discuss their views.
Creditors: The Board discussed that the interests of
creditors would need to be considered to ensure that
creditors would not be adversely affected by the
decision. The Board considered its principle creditors
including, but not limited to, the landlord of its office
premises in London and the European Investment
Bank (“EIB”).
Regarding engagement, although the Group was not
legally required to seek the consent of the landlord
or the EIB, the Board determined that it would be
prudent to engage with such parties and accordingly
their agreement to the proposed capital reduction
was sought and received.
Portfolio companies: Although the Board considered
that portfolio companies were unlikely to be
directly affected by the capital reduction, the
Board nonetheless considered whether this would
impact on portfolio companies and the Group’s
future investments into such companies. The Board
concluded that the interests of portfolio companies
would not be adversely affected by the decision
and conversely, it may allow the Group to access
additional capital which could be re-invested so
could therefore be beneficial to this stakeholder
group.
Based on the Board's consideration of the interests
of the relevant stakeholders, the Board resolved
that the capital reduction would be most likely to
promote the success of the company for the benefit
of its members as a whole so made the decision
that, subject to the relevant shareholder approval
being obtained, it should proceed with the capital
reduction.
Board approval
The Strategic Report as set out on pages 6 to 75 has been approved by the Board.
On behalf of the board
Sir Douglas Flint
10 March 2020
7 5
STRATEGIC REPORT O
U
R
G
O
V
E
R
N
A
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7 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 O U R
G O V E R N A N C E
Board of Directors
Corporate governance statement
Nomination committee report
Directors’ remuneration report
Report of the audit and risk committee
Directors’ report
Statement of directors’ responsibilities
78
82
92
98
116
120
123
R EAD ABOU T WHER E
WE OP ER AT E O N
PAGE 2
R EAD ABOU T OU R
B USIN ESS MO DE L O N
PAGE S 10 AN D 1 1
7 7
BOARD OF DIRECTORS
Sir Douglas Flint NON-EXECUTIVE CHAIRMAN
Effective date of current letter of
appointment:
Appointed as a Non-executive Director from
17 September 2018 and as Chairman from
1 November 2018
expertise to the Board. Former positions
include Group Chairman of HSBC for 7 years,
HSBC’s Group Finance Director for 15 years and
Non-executive Director of BP plc for 6 years.
Formerly a partner in KPMG.
Age: 64
Independent: N/A1
Tenure: 1 year
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience: Sir Douglas has a strong
track record of Board leadership and in-depth
knowledge of financial reporting, banking and
investment business and brings this wealth
of finance and governance experience and
Current external appointments: Chairman
of Standard Life Aberdeen plc, HM
Treasury’s Special Envoy to China’s Belt and
Road Initiative, Chairman of the Just Finance
Foundation, Director of the Centre for Policy
Studies, sits on the Global Advisory Council of
Motive Partners, Chairman of the Corporate
Board of Cancer Research UK, and a Trustee of
the Royal Marsden Cancer Charity.
Committee memberships: Nomination (chair)
and Remuneration
Alan Aubrey CHIEF EXECUTIVE OFFICER
Effective date of current service agreement:
20 January 2005
Age: 58
Independent: No
Tenure: 15 years
Term of office:
Permanent, 6 months’ notice
Re-election to Board:
Annually at AGM
Alan has significant experience in finance as well
as in the commercialisation of science and the
creation of new businesses that address global
markets, particularly in the high-technology
manufacturing, clean technology and life
science sectors. He brings 7 years’ experience as
partner at KPMG and significant experience of
audit and risk processes in both the private and
public sectors.
Skills and Experience: Alan was the joint
founder of Techtran Group, which went on to
merge with IP2IPO Limited and the combined
business was subsequently renamed IP Group.
Current external appointments:2
Non-executive Chairman Proactis Holdings plc
Committee memberships: None
Mike Townend CHIEF INVESTMENT OFFICER
Effective date of current service agreement:
5 March 2007
Age: 57
Independent: No
Tenure: 13 years
Term of office:
Permanent, 6 months’ notice
Re-election to Board:
Annually at AGM
Greg Smith CHIEF FINANCIAL OFFICER
Effective date of current service agreement:
2 June 2011
Skills and Experience: Mike’s knowledge and
experience of all aspects of equity capital
markets and investment process are invaluable
to the Board. He holds over 17 years’ equity
capital markets experience from positions at
Lehman Brothers and Donaldson, Lufkin and
Jenrette.
Current external appointments:2
Green Urban Transport Limited
Committee memberships: None
Skills and Experience: Greg’s financial expertise
plays a fundamental role in driving the Group
to meet its financial goals. Prior to joining IP
Group, Greg worked in senior positions at
Tarchon Capital Management and KPMG. Greg
is a Fellow of the ICAEW and holds a degree in
Mathematics.
Current external appointments:2 None
Committee memberships: None
Age: 41
Independent: No
Tenure: 8 years
Term of office:
Permanent, 6 months’ notice
Re-election to Board:
Annually at AGM
1
Sir Douglas Flint was considered by the Board to be independent on appointment.
2 Excludes appointments to Group portfolio company boards.
7 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
O U R
G O V E R N A N C E
David Baynes CHIEF OPERATING OFFICER
Effective date of current service agreement:
20 March 2014
Age: 56
Independent: No
Tenure: 6 years
Term of office:
Permanent, 6 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience: David was appointed
to the Board in March 2014 following the
acquisition by the Group of Fusion IP plc where
he held the position of Chief Executive for 10
years. David also brings previous experience
taking companies from start-up to full listing
on the London Stock Exchange. David was also
previously CFO of Codemasters Limited, the
UK’s largest privately held games company.
Current external appointments:2 None
Committee memberships: None
Professor David Begg
SENIOR INDEPENDENT DIRECTOR
Effective date of current letter of
appointment:
18 October 2017
Age: 69
Independent: Yes
Tenure: 2 years
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience:
Previously a Non-Executive Director at
Imperial Innovations, Touchstone Innovations,
and Trace Group, Professor Begg has also
held a number of distinguished advisory and
academic appointments including Principal of
Imperial College Business School, Vice Master
of Birkbeck College, Visiting Professor at M.I.T,
and Economic Policy Advisor to the Bank of
England.
Current external appointments: None
Committee memberships: Nomination, Audit
and Remuneration
Jonathan Brooks NON-EXECUTIVE DIRECTOR
(Resigned from the Board on 10 March 2020)
Effective date of current letter of
appointment: 31 August 2011
Age: 64
Independent: Yes
Tenure: 8 years
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience: Jonathan has extensive
commercial, financial, investor relations and
public company experience with former
appointments as CFO of ARM Holdings plc
and 20+ years technology sector experience.
Jonathan is a Fellow of the Chartered Institute
of Management Accountants.
Current external appointments: NCC Group plc
Committee memberships: Nomination, Audit
and Remuneration
Dr Elaine Sullivan NON-EXECUTIVE DIRECTOR
Effective date of current letter of
appointment: 30 July 2015
Age: 59
Independent: Yes
Tenure: 4 years
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience:
Dr Elaine Sullivan has over 25 years’
international experience working in the
pharmaceutical industry, and was a member
of the senior management teams in R&D at Eli
Lilly and
Astra Zeneca. Dr Sullivan is also co-founder
and former CEO of Carrick Therapeutics. She
has extensive experience in partnerships with
venture, equity and strategic collaborations and
was a member of the Investment Committees of
Lilly Ventures and Lilly Asian Ventures. She has
an outstanding track record of identifying drug
hunting cutting-edge technologies at beta stage
and working with the inventors to produce the
commercial product.
Current external appointments: Supervisory
Board of Evotec AG
Committee memberships: Nomination, Audit
and Remuneration
7 9
BOARD OF DIRECTORS
CORPORATE GOVERNANCE STATEMENT
CONTINUED
CONTINUED
Heejae Chae NON-EXECUTIVE DIRECTOR
Effective date of current letter of appointment:
3 May 2018
Age: 51
Independent: Yes
Tenure: 1 year
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience:
Heejae is an experienced public company
Director, bringing both knowledge of finance
and industry, having spent the early part of
his career in finance at The Blackstone Group
and Credit Suisse First Boston before moving
into industry. He was also former Group Chief
Executive of Volex Group plc and Group General
Manager for Amphenol Corporation.
Current external appointments: CEO of Scapa
Group plc and Board of Overseers at Boston
Children’s Hospital
Committee memberships: Nomination, Audit
and Remuneration (Chair)
Dr Caroline Brown NON-EXECUTIVE DIRECTOR
Effective date of current letter of
appointment: 1 July 2019
Age: 57
Independent: Yes
Tenure: Less than 1 year
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience:
Dr Brown has a wealth of experience covering
accounting and audit, banking and investments,
as well as science and technology, all of which
are highly relevant for the Board. She has 20
years plc board experience and held previous
positions in corporate finance at Merrill Lynch
(New York), USB and HSBC. Caroline is a Fellow
of the Chartered Institute of Management
Accountants
Current external appointments: Non-Executive
Chair of NAHL Group plc; independent Director
of Georgia Capital plc and Luceco plc; and
Trustee of the Raspberry Pi Foundation.
Committee memberships: Nomination, Audit
(chair) and Remuneration
Aedhmar Hynes NON-EXECUTIVE DIRECTOR
Effective date of current letter of appointment:
1 August 2019
and is the former CEO of Text100, a digital
communications agency with 22 offices and over
600 consultants across Europe, Asia and North
America. Aedhmar is also the Group’s employee
Designated NED.
Current external appointments: Chair of the
Board of Trustees of The Page Society, member
of the Advisory Council of the MIT Media Lab,
Board Director of Technoserve, Board Director of
Tupperware Brands Corporation, Board Director
of Rosetta Stone Inc and member of the US
Foundation Board of the National University of
Ireland, Galway.
Committee memberships: Nomination, Audit
and Remuneration
Age: 53
Independent: Yes
Tenure: Less than 1 year
Term of office:
3 years, 3 months’ notice
Re-election to Board:
Annually at AGM
Skills and Experience:
Aedhmar brings fresh and valuable experience
to the Board in relation to technology disruption,
digital transformation and marketing and
strategic communications. Aedhmar has
multiple years’ experience in communications
8 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 O U R
G O V E R N A N C E
CORPORATE GOVERNANCE FRAMEWORK
Compliance with the UK Corporate Governance Code
The directors are committed to a high
standard of corporate governance
and to compliance with best practice
as set out in the Code (available at
www.frc.org.uk/directors/corporate-
governance-and-stewardship/uk-
corporate-governance-code). The
directors consider that the Group
has been and continues to be in
compliance with all of the relevant
provisions set out in the Code.
Further explanation as to how the
main principles set out in the Code
have been applied by the Group is
set out in the following statement,
the s172 statement, the Directors’
Remuneration Report, the Audit
and Risk Committee Report, the
Nomination Committee Report and
the Strategic Report.
Board of Directors
Audit & Risk
Committee
Remuneration
Committee
Nomination
Committee
Pages 116 to 119
Pages 98 to 115
Pages 92 to 97
Disclosure
Committee
Page 85
Senior Independent
Director
Available to shareholders to
discuss their views
Intermediary between the Board
and the Chair
Leads the Board in deliberations where
the Chair is conflicted
Leads assessment of the
Chair’s performance
Company
Secretary
Responsible for governance matters
Ensures Board procedures are followed
Ensures compliance with laws and regulations
Ensures Board papers are concise, clear and
that their purpose is explicitly stated
Executive Directors
Responsible for executing day-today
decisions (other than matters reserved for
the Board) within the risk tolerance and
operating and financial constraints set
by the Board
Non-executive Directors
Approve Group strategy and operating plans
Approve business and financing models
Discuss and constructively challenge
executive recommendations within matters
brought to the Board
Monitor and performance manage delivery
of strategy and operating plans
Chairman
Leadership and conduct of the Board,
encouraging open and constructive discussion
Promotes high standards of governance
and effectiveness
Ensures active engagement with shareholders
Sets the Board’s agenda and responsible for
ensuring the committees carry out their duties
Ensures that Board members receive timely,
accurate and clear information about the
Group’s activities
Ensures Board members receive appropriate
induction and ongoing training on the Group’s
activities and their own responsibilities
Leads performance assessment of
Board members
Chief Executive Officer
Leads on development and delivery of strategy
Leads with the senior executive team the
management of the Group
Leads delivery of the Group’s operating
plans and budgets and the execution of
Board decisions
Monitors operating and financial performance
and reports thereon to the Board
Ensures the Group’s financial structure and
capacity supports the Group’s objectives
Leads with the Head of HR succession
planning for the senior executive positions
Represents the Group to external stakeholders
Investment Committees, Life Sciences and Technology
Portfolio investment and realisation decisions (other than those reserved for the Board) are delegated to the Investment
Committees of the Life Sciences and Technology Partnerships.
8 1
8 1
CORPORATE GOVERNANCE STATEMENT
During 2019, the Group focused on reviewing and, where
necessary, updating its governance procedures to ensure
it is in full compliance with the UK Corporate Governance
Code 2018 (the “Code”).
The Group upholds strong business
values which focus on being
passionate, principled and pioneering
in all of its activities and actions.
These values continue to guide the
Group in implementing our strategy
and employees are committed
to demonstrating these values
throughout their work. The Group’s
ESG policy and Ethical Investment
Framework as outlined on page 50
ensures that the Group’s values and
culture are also implemented in our
approach to its investments.
The Board looks forward to having
the opportunity to discuss any
matters relating to corporate
governance with shareholders at the
Group’s forthcoming AGM in June
2020 or indeed at any other point
during the year.
Sir Douglas Flint
Chairman
The Board is committed to the
execution of the Group’s strategy
and recognises that it is critical to
build strong relationships with its
stakeholders in order to develop
and support outstanding businesses
based on unique intellectual property.
The Group continues to foster
a culture of innovation, support
and diversity, whilst encouraging
employees to engage in healthy
debate to consider a wide range of
opinions when making decisions. For
more information on the culture the
Group and its Board wishes to foster,
see page 62. A key focus during the
year has been to ensure that the
Group has strong practices relating to
stakeholder engagement in place. This
engagement is a two-way process
and involves seeking feedback from
stakeholders on issues that are
important to them, and then ensuring
that stakeholder views are properly
reported to the Board so that it can
make informed decisions and update
stakeholders accordingly. For further
details on how the directors have
complied with their duties under s172
of the Companies Act 2006 (the “CA
2006”), please refer to pages 66 to 75.
The Board aims to ensure the
highest standards of corporate
governance and accountability are
met alongside promoting a culture
of risk identification, reporting and
mitigation. The Board is accountable
to the Group’s shareholders for good
governance, and this report, together
with the Reports of the Remuneration,
Nomination, and Audit and Risk
Committees of the Board, describes
the Group’s detailed approach to
corporate governance and further
information on the key developments
which have taken place in this area
during the year.
Sir Douglas Flint,
Chairman
Good governance is
the essential underpin
to fulfilling the Group
purpose and strategic
objectives, as well as to
delivering transparent
and understandable
reports covering the
fiduciary responsibilities
of the Board to
shareholders. Together
with the Board’s
broader responsibilities
to all stakeholders
under s172 of the
Companies Act 2006,
it is something we take
extremely seriously."
8 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 The Board
Role and responsibilities
of the board
The Board is responsible to
shareholders for the overall
management of the Group. The Board
defines, challenges and interrogates the
Group’s strategic aims and direction,
and provides entrepreneurial leadership
within a framework of controls for
assessing and managing risk.
The Board recognises that, in
discharging its responsibilities, it is
necessary to support the maintenance
and evolution of a 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 those aims; monitoring
performance against key financial
and non-financial indicators; planning
for Board and senior management
succession; overseeing the system
of risk management; setting values
and standards in governance matters;
monitoring environmental, social and
governances policies and performance
and helping to shape and embed the
Group’s purpose, values and culture.
The Board recognises that its role in
setting and maintaining the Group’s
culture is of key importance. The
Group’s culture is one of the key
strengths of its business and plays a
strong role in attracting, retaining and
incentivising the most talented people.
Further information on the Group’s
culture is on page 62.
In supporting the Group’s business
and its portfolio companies, the
Board acknowledges the key roles
of Group functions in the fields of
executive search, capital raising and
legal support, alongside the hands-on
approach and high level of support
provided by the experienced, sector
specific investment partnership team
members. The directors believe that
the Group’s approach to supporting
its portfolio companies in this way is
unique and serves not only to build
sustainable businesses with longevity,
but also to provide attractive returns
for stakeholders by creating value over
the longer term.
The directors are responsible for
promoting the long-term success of
the Company and thereby the Group,
taking into account the interests of
shareholders and all other relevant
stakeholders in carrying out this
responsibility. The responsibility of
the directors is collective, taking into
account their respective roles as
executive directors and non-executive
directors. The non-executive directors
are responsible for constructively
challenging and contributing to
proposals on strategy, scrutinising
the performance of management and
determining levels of remuneration.
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 and
comprehensive.
The Board reviews the purpose
and strategy of the Group and any
issues arising from it on a regular
basis, and exercises control over the
performance of the Group by agreeing
budgetary targets and monitoring
performance against those targets.
8 3
OUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT
CONTINUED
Board activities during
2019
Principal decisions
• Approved a capital reduction
(please see page 75 for
further details including s172
considerations)
• Approved the disposal of certain
significant assets (please see page
73 for further details including
s172 considerations)
• Approved the Group’s capital
allocation (please see page 74
for further details including s172
considerations)
• Approved the transfer of the
technology transfer office back to
Imperial College
• Approved one of the Group’s
brokers exploring a book building
operation to identify shareholder
appetite to replace departing
shareholders
Board and committee
composition and conduct
• Approved the appointments of
Dr Caroline Brown and Aedhmar
Hynes as directors
• Approved the appointments of
Dr Caroline Brown as Chair of
the Audit and Risk Committee
and Heejae Chae as Chair of the
Remuneration Committee
• Appointed an external adviser to
assess Board performance (for
further details please see page 96)
Strategy and Risk
• Considered various strategic
options including, in particular, the
Group’s access to capital and its
funding model
• Considered the Group’s short,
medium and long-term strategy
and objectives
• Debated in detail the Board’s risk
appetite to its principal risks
• Agreed the Group’s capital allocation
• Discussed the evolution of the
shareholder base
Corporate governance
• Reviewed and updated processes
and procedures to ensure
compliance with the Code, in
particular in relation to stakeholder
engagement
• Received training on corporate
governance, s172 requirements and
shareholder activism
• Reviewed and improved
engagement with the workforce;
in particular, approved the
appointment of Aedhmar
Hynes as the new Designated
NED responsible for employee
engagement and the creation of
employee forum
• Approved updated terms of
reference for its Committees
• Received presentations from
the Group’s 30% Club and ESG
working groups
Shareholders
• Attracted new strategic
shareholders
• Considered the Group’s ability to
return cash to shareholders
• Discussed the Group’s share price
performance
• Monitored and discussed the
evolving situation with Woodford
Investment Management
Updates from the business
and portfolio companies
• Received updates each Board
meeting from the managing
partners of the Life Sciences and
Technology Partnerships, such
updates which included detail on
the short to medium-term strategy
for each partnership and their
focus portfolio companies
• Received bi-annual updates from
the managing partners from the US
and Australia
• Received an update on the
progress in building group
presence in Hong Kong and
mainland China
• Received bi-annual updates from
Parkwalk
• Received presentations from or
on certain portfolio companies
including Ceres Power
Board effectiveness
• Oversaw the implementation of the
recommendations from the 2018
Board evaluation
• Reviewed plans for the external
Board effectiveness review that
was carried out in 2019
Schedule of matters
Except for a formal schedule of
matters which are reserved for
decision and approval by the Board,
the Board has delegated the day-
to-day management of the Group’s
operations to the Executive Directors,
supported closely by its 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 and/or reputational
implications. The schedule, along
with the terms of reference for each
of the Audit and Risk Committee,
Remuneration Committee and
Nomination Committee can be found
within the Corporate Governance
section of the Group’s website at
www.ipgroupplc.com and are also
available from the Group’s Company
Secretary. This schedule was reviewed
in 2019 and no changes were deemed
necessary at that time. The schedule
will be reviewed again in 2020.
Committees and
Oversight
In addition to the Executive Directors,
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 and Risk, Remuneration
and Nomination) play an essential
role in supporting the Board in
8 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 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.
Separate reports on the role,
composition, responsibilities and
operation of the Nomination
Committee, the Remuneration
Committee and the Audit and Risk
Committee are set out on page 92 to
97, pages 98 to 114 and pages 115 to
119 respectively.
The composition of the three
Committees of the Board and a
record of the attendance of the
members throughout the year is set
out in the table on page 87.
The Disclosure Committee assists the
Group to make timely and accurate
disclosure of all information that is
required to be disclosed in order for the
Group to meet its legal and regulatory
obligations arising from its listing on the
London Stock Exchange. It also enables
the Group to meet its obligations under
the Market Abuse Regulation and takes
responsibility for the assessment and
control of inside information, both in
respect of the Group and its quoted
portfolio companies.
The Group has investment committees
for each of its Technology and Life
Sciences Partnerships, as well as
in each of Australasia and the US.
Decisions relating to investments and
divestments in portfolio companies
(other than those reserved for
the Board) are delegated to these
investment committees within defined
parameters and with specific quorum
requirements.
Board size and
composition
As at 31 December 2019, there were
eleven directors on the Board: the
Chairman, four executive directors
and six non-executive directors.
The biographies of all directors are
provided on pages 79 and 80.
2019 saw two changes to the Board:
Dr Caroline Brown was appointed as
Non-executive Director of the Group
with effect from 1 July 2019 and
Aedhmar Hynes was appointed as
Non-executive Director of the Group
with effect from 1 August 2019.
Jonathan Brooks, who served on the
Board for nearly nine years, stepped
down on 10 March, upon finalisation
of the 2019 Annual Report and
Accounts. Dr Caroline Brown took
over his role as Chair of the Audit and
Risk Committee in September 2019,
and Heejae Chae succeeded him as
Chair of the Remuneration Committee
in December 2019 allowing for an
orderly handover of committee chair
responsibilities.
New directors may be appointed
by the Board from time to time, but
the appointee is always subject to
election by shareholders at the first
Annual General Meeting following
their appointment. Accordingly, Dr
Caroline Brown and Aedhmar Hynes
will submit themselves for election by
shareholders at the Group’s Annual
General Meeting to be held on 18 June
2020. In accordance with both the
Code and the Group’s policy, all of the
other directors (other than Jonathan
Brooks) will also submit themselves
for re-election by shareholders at that
Annual General Meeting.
The Board unanimously recommends
to shareholders the appointment
of Dr Caroline Brown and Aedhmar
Hynes as directors of the Company:
Dr Caroline Brown brings a wealth
of experience covering accounting
and audit expertise to banking and
investment, as well as science and
technology from her studies and time
at Merrill Lynch (New York), UBS
and HSBC, and is currently Chair of
NHAL Group plc. Aedhmar Hynes
brings to the Board considerable
experience in communications, having
previously been CEO of Text100, a
digital communications agency with
22 offices and over 600 consultants.
The Board is satisfied that, having
considered the other demands on
their time, Dr Brown and Ms. Hynes
have sufficient time to devote to their
respective roles and to be effective
members of the Board and the
various Board Committees on which
they sit. The Board also unanimously
recommends to shareholders the
reappointment of all of the other
directors offering themselves for re-
election, on the basis that the results
of the annual Board evaluation and
the annual one-to-one performance
appraisal process demonstrated that
they are all effective directors of the
Company and continue to display the
appropriate level of commitment in
their respective roles.
Board observers
Dr Sam Williams and Dr Mark Reilly,
the Group’s Managing Partners of Life
Sciences and Technology respectively,
continue to attend the Group’s Board
meetings as observers. The Board
considers it is important for the
managing partners to have a degree
of direct representation at Board
meetings and to be available to report
to, and respond directly to questions
and challenge from, the Board over
the assets they manage.
The attendance of observers is, at all
times, at the Chairman’s discretion
and any observers are required to
disclose and manage any conflicts
of interest (which may require the
relevant observer to be excluded from
all or part of future Board meetings).
The observers are able to speak and
participate in the discussions of the
Board, but not vote on any decisions
required by the Board.
Company Secretary
All directors have access to the
impartial advice and services of the
Company Secretary. The Company
Secretary acts as a key point of contact
for the Chairman and has an important
role in the quality of information that
flows between the executive and non-
executive directors, and in ensuring
that agreed actions are completed.
The Company Secretary supports the
Chairman on performance evaluation,
the induction of new directors and the
continuing development of current
directors to enable them to comply
with their duties and effectively carry
out their roles.
8 5
OUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT
CONTINUED
Non-executive
Directors
The non-executive directors
provide a wide range of unique
skills and experience to the Group.
By virtue of such a diverse mix
of skills and experience, the non-
executive directors are well placed
to constructively challenge and
scrutinise the performance of
executive management at both Board
and Committee meetings.
Since 2009, the Board’s policy has
been to prohibit personal investments
by the non-executive directors in any
of the Group’s portfolio companies.
This policy remains unchanged
and accordingly, none of the non-
executive directors presenting
themselves for election or re-election
at the Annual General Meeting in
2020 have holdings in any of the
Group’s portfolio companies.
Non-executive directors are required
to obtain the formal written approval
of the Chairman before taking on
any further directorial appointments
or other engagements with an
organisation which competes with the
Group (whether directly or indirectly),
and the Chairman requires the
approval of the Board before adding to
his commitments. In all cases, the non-
executive directors must ensure that
their external appointments do not
involve excessive time commitments.
Board meetings,
provision of
information and
decisions
The Board meets regularly during the
year as well as on an ad hoc basis, as
required in response to the needs of
the Group’s business.
The Board had six scheduled Board
meetings in 2019 with six Board
meetings and a two-day strategy
session scheduled for 2020 to ensure
that the meeting schedule is sufficient
to meet the needs of the business.
The requirement for additional
scheduled meetings shall be kept
under review by the Chairman and the
Company Secretary.
8 6
The majority of Board meetings are
held at the Group’s offices in London.
To encourage further interaction with
the Group’s stakeholders, each year
the Board receives presentations
from certain of the Group’s portfolio
companies. Meetings between the
Chairman and the non-executive
directors, both with and without
the presence of the Chief Executive
Officer, are also held throughout the
year.
In addition to the six scheduled Board
meetings in 2019, the Board held a
two-day strategy meeting in October
2019. The strategy days provided
an opportunity for all directors,
and particularly the non-executive
directors, to discuss in detail the
current strategy of the Group and its
funding model, and whether action or
changes are required in the short to
medium term to bring the Group to a
more sustainable position; to discuss
medium and longer term strategic
objectives, and the key drivers
underpinning these; and to review the
combined Group’s risk framework and
risk appetite, including considering
the major risks facing the combined
Group and its strategy, its appetite
towards these risks and how to assess,
manage, mitigate and/or monitor
these risks taking into account its level
of appetite.
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 are expected
to attend each meeting. Board and
Committee meetings are often split
over two days to ensure sufficient
time is allocated for the business
of the committees and the Board
and that full engagement is possible
from those in attendance. Such
scheduling also seeks to enable more
in-depth engagement between the
non-executive directors, executive
directors and managing partners
and other staff of the Group outside
of the formally scheduled meetings,
primarily through Board and observer
dinners and social drinks with
staff around the Board meetings.
Accordingly, throughout 2019, the
Board (including both executive
and non-executive directors and
the managing partners) met for
two dinners and the non-executive
directors also met with the Group’s
employees in July 2019 and in
November 2019. In addition, the
Chairman and the non-executive
directors met without the presence of
the executive directors twice during
the year.
Three to five business days prior
to each scheduled Board meeting,
every member of the Board receives
detailed Board packs, which include
an agenda based upon the schedule
of matters reserved for its approval
along with appropriate reports and
briefing papers, save in respect of
meetings called on short notice or
where late papers are permitted to
be included with the consent of the
Chairman.
The Chairman, Chief Executive Officer,
Chief Financial Officer, Company
Secretary and Managing Partners of
the Life Sciences and Technology
Partnerships 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
monthly management accounts
containing an analysis of performance
against budget and other forecasts,
as well as written reports from each
of the Life Sciences and Technology
Partnerships, IPG Australia, IPG
US, IP Capital and Parkwalk.
Additional information is provided as
appropriate or if requested. At each
Board meeting, the Board receives
information, reports and presentations
from the Chief Executive Officer,
the other Executive Directors,
the Managing Partners of the Life
Sciences and Technology Partnerships
and, by invitation, other members of
senior management. 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.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Board and committee attendance
The following table shows the attendance of directors at meetings of the Board, Audit and Risk, Remuneration and
Nomination Committees during the year:
Scheduled Board Meetings
Audit Committee
Remuneration Committee
Nomination Committee
Sir Douglas Flint
Alan Aubrey
Mike Townend
Greg Smith
David Baynes1
Jonathan Brooks
Dr Elaine Sullivan
Prof. David Begg
Heejae Chae2
Dr Caroline Brown3
Aedhmar Hynes4
–
–
–
–
5
5
5
–
–
–
–
–
–
–
–
5
5
1. David Baynes was unable to attend the Board meeting in November 2019 as he was the keynote speaker at the Group’s inaugural
Australian Showcase conference and time zones meant it was difficult to dial in.
2. Heejae Chae was unable to attend the Audit and Risk Committee and the Remuneration Committee in February 2019 due to a prior
binding commitment.
3. Appointed to the Board with effect from 1 July 2019.
4. Appointed to the Board with effect from 1 August 2019.
5. Including one attendance by telephone.
Attended
Did not attend
Directors’ conflicts
of interest
Each director has a statutory duty
under the CA 2006 to avoid a
situation in which he or she has, or
could 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 or 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 CA 2006 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 authorising 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. Notwithstanding this, the
Board considers it prudent to conduct
a detailed review of its conflict
policies and procedures during 2020
and has mandated the Company
Secretary to take this forward.
8 7
OUR GOVERNANCE
CORPORATE GOVERNANCE STATEMENT
CONTINUED
The Board’s policy permits personal
investments by the executive directors
in the Group’s portfolio companies
but this is tightly controlled by the
Group’s internal policy ‘Holdings
in Portfolio Companies’ in order
to ensure conflict management.
Amongst other restrictions, the
policy includes maximum levels of
investment by directors and staff in
portfolio company financing rounds,
requires that all interests of executive
directors in portfolio companies are
fully disclosed and regulates any
potential conflicts that could arise.
Board support
There is an agreed procedure for
directors to take independent
professional advice at the Company’s
expense. In accordance with the
Company’s Articles of Association,
directors have been granted an
indemnity issued by the Company
to the extent permitted by law in
respect of liabilities incurred as a
result of their office. The indemnity
would not provide any coverage
where a director is proved to have
acted fraudulently or dishonestly. A
copy of the indemnity is available
for inspection as required by the
CA 2006. The Company has also
arranged appropriate insurance cover
in respect of legal action against its
directors and officers.
Induction, awareness and development
Induction
Training
Induction
meetings with
Executive Directors
and management
Listing Rules
and Market
Abuse
Regulation
Site visits to
key portfolio
companies
Overview of
business,
structure, functions,
aims, risks and
remuneration
Detailed
presentations
and meetings
with
management
Corporate
governance
policies
and Board
procedures
Meeting
with the Group’s
auditors and
internal audit
function
Meeting
with the Group’s
brokers and
other advisers
Access to
external advisors
Training
requirements
assessed and
provided
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 in advance and
monitored throughout the process
to ensure that he or she can gain a
better understanding of the Group
and its businesses.
This process includes:
• an overview of the Group and its
businesses, structure, functions,
strategic aims, risk management
framework and remuneration
policies;
• meetings/calls with all executive
directors, the Company Secretary,
the managing partners of the
Life Sciences and Technology
8 8
Partnerships, heads of the various
internal functions and Parkwalk
executives;
• a meeting with both the Group’s
auditor and internal audit function;
• training on key legal matters
relevant to the Group and its
policies;
• site visits to a number of the
Group’s portfolio companies,
including, where possible, at least
one or more within the Group’s
top ten holdings (by value), which
will include meeting with such
companies’ management and a
presentation from them on their
businesses; and
• sessions as appropriate with the
Group’s advisers, as well as with
appropriate external 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 and legislative
framework within which they must
operate.
The content of the induction process
is regularly re-evaluated by the
Board to ensure it remains tailored
to the needs of the business of the
Group and the specific profile of any
incoming candidate. Following the
completion of an induction process
for a new director, the Company
Secretary will seek feedback from
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Director rotation and
independence
The Nomination Committee and the
Company Secretary have agreed
a standardised rotation schedule
for each of the non-executive
directors (including the Chairman),
with each being appointed for an
initial three year term pursuant to
the terms of their respective letters
of appointment, such initial three
year term is then subject to renewal
for subsequent three year term(s)
and, other than the Chairman, to a
maximum of three rolling three year
terms in order to maintain his or her
independence from a governance
perspective in accordance with the
Code. There is currently no maximum
term on the Chairman’s appointment,
but, notwithstanding the relatively
short tenure of the current Chairman
meaning that it will not be an issue
for some time, the Nomination
Committee has agreed to revisit this
in light of the implementation of the
Code.
Statement of non-
executive directors’
independence
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 10 of
the Code, the Board has concluded
this year that all of the non-executive
directors are considered to be
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.
the relevant incoming director to
assist with this refreshing of induction
processes. Induction programmes
were completed in 2019 for both
Dr Caroline Brown and Aedhmar
Hynes following their respective
appointments to the Board.
On an ongoing basis for all directors,
the Company Secretary arranges for
an external governance specialist to
attend one Board meeting annually
to present on the key corporate
governance changes over the
previous twelve months and to
signpost expected developments
going forwards. In addition, the Board
is kept updated on key legislative
changes affecting the Group and how
the Group is ensuring its compliance.
The Chairman and non-executive
directors are encouraged to continue
to visit a number of the Group’s
portfolio companies, as well as to
attend portfolio company events both
at the Group’s head office and off-site.
In addition, 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 2020, it is intended
that presentations will be provided
on a rolling basis by members of
the Life Sciences and Technology
Partnerships, the US team, the
Australasian team and the Hong Kong
team, as well as representatives from
the Group’s various working groups,
in order to continue to update the
Board on progress and to enhance
the awareness of the Board as to
how the Group operates on a day-
to-day basis. 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 the Chairman reviews
and agrees with each director their
training and development needs for
the year ahead. Access to training and
development opportunities, including
those relevant to the non-executive
directors’ membership on the Board’s
committees, is facilitated through the
Company Secretary. Details relating
to the assessment of the Board’s
performance are set out on page 96.
8 9
OUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT
CONTINUED
Internal control
The Board fully recognises the
importance of the Financial
Reporting Council’s Guidance on
Risk Management, Internal Control
and Related Financial and Business
Reporting. The Group’s internal
controls, which are Group-wide
and were in place throughout 2019,
were reviewed by the Board. No
significant failings or weaknesses
were identified in respect of the year
ended 31 December 2019 and up
to the date of the Annual Report.
Where the Board has identified areas
requiring improvement, processes
have been put in place to ensure that
the necessary action is taken and that
progress is monitored.
The Board is 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 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 of approval
of these financial statements, are as
follows:
9 0
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.
The Group outsources its internal
audit function to PwC. Details of the
internal audit activity during 2019
including internal audit reviews is
detailed on page 126.
Detailed written policies and
procedures have been established
covering key operating and
compliance risk areas. These are
reviewed and updated at least
annually by the Audit and Risk
Committee. No significant failings or
weaknesses were identified in respect
of the year ended 31 December 2019
and up to the date of the Annual
Report and Accounts.
Identification and
evaluation of 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. The
Board actively identifies and evaluates
the risks inherent in the business,
formally reviews these on at least
an annual basis (or as market or
business developments require) and
ensures that appropriate controls
and procedures are in place to
monitor and, where possible, mitigate
these risks. Specifically, all decisions
relating to strategic partnerships and
other collaborations and strategic
acquisitions and disposals entered
into by the Group are reserved for the
Board’s review and approval.
The Board regularly reviews any
significant fair value movements in
individual portfolio companies, the
Group’s investments in its strategic
assets and the top 20 most valuable
portfolio company holdings. In
addition, the managing partners of
the Life Sciences and Technology
Partnerships attend Board meetings
as observers and present updates on
their respective portfolios during each
Board meeting.
As described on page 36, the Group
maintains risk registers setting out
mitigations in place in each case. The
key risks and uncertainties faced by
the Group, as well as the relevant
mitigations, are set out on pages 38
to 48. If more than one of the risks
occurred together, the overall impact
on the Group may be compounded.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 O U R
G O V E R N A N C E
Information and
financial reporting
systems
The Group evaluates and manages
significant risks associated with the
process of preparing consolidated
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 receives details of actual
performance measured against the
budget at each meeting.
Further details in relation to the
Group’s approach to the management
of its business risks, and the function
and ongoing roles and responsibilities
of its internal risk council are set out
on pages 36 to 49 and on pages 115
to 119.
Share capital and
related matters
Details of the structure of the
Company’s share capital and the
rights attaching to the Company’s
shares are set out in note 1 to the
consolidated financial statements.
Details of powers of the Company’s
directors in relation to the issuing or
buying back by the company of its
shares are set out in pages 120 to 121
of the Directors' Report.
Articles of association
Details of the rules that the Company
has about the amendment of the
Company’s articles of association are
set out on page 121 of the Directors'
report. The Company’s articles of
association may be amended by a
special resolution of the shareholders.
Substantial
shareholders
Details of persons who hold a
significant direct or indirect holding of
securities in the Company are set out
on page 121 of the Directors' report.
Annual General Meeting
Notice of the AGM, which will be
held at 11.00am on 18 June 2020
at IP Group plc, The Walbrook
Building, 25 Walbrook, London, EC4N
8AF, is included with this report,
containing details of the resolutions
to be proposed at the meeting
and explanatory notes on those
resolutions. 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 are
published on the Group’s website
after the meeting and declared at the
meeting itself to those shareholders
who attend. Shareholders who attend
the AGM will have the opportunity
to ask questions and all directors
are expected to be available to take
questions.
The Group’s website (www.
ipgroupplc.com) is the primary
source of information on the Group.
The website includes an overview of
the activities of the Group; details of
its portfolio companies, and its key
university relationships and other
strategic collaborations; and details
of all recent Group and portfolio
announcements.
On behalf of the board
Sir Douglas Flint
Chairman
10 March 2020
9 1
NOMINATION COMMITTEE REPORT
Purpose
The Nomination Committee leads the process for Board and senior management
appointments and the re-election and succession of directors, the Chairman
and senior management. Its key objective is to ensure that the Board comprises
individuals with the necessary skills, knowledge, experience and diversity to
ensure that the Board is effective in discharging its duties and is independent for
the purposes of the 2018 Corporate Governance Code.
Key responsibilities
• Makes recommendations to the Board concerning the composition and skills
of the Board including any changes considered necessary in the identification
and nomination of new directors and senior management, the reappointment
of existing directors and the appointment of members to the Board’s
Committees
• Assesses the roles of the existing directors in office to ensure there
continues to be a balanced Board in terms of skills, knowledge, experience,
independence and diversity
• Reviews the senior management needs of the Group which will enable the
Group to compete effectively in the marketplace
• Advises the Board on succession planning for directors and other senior
management appointments, although the Board as a whole is responsible for
succession generally
• Oversees a diverse pipeline for succession and considers the setting of
diversity objectives and strategies, alongside the Group’s 30% Club working
group
• Oversees the induction of new directors and the training requirements of the
Board as a whole
• Assists the Chairman in the annual evaluation of the Board and ensures an
externally facilitated evaluation at least once every three years
Membership and meetings
The Committee is chaired by Sir Douglas Flint. Its other members, as at
31 December 2019, were all of the other non-executive directors ensuring a
majority of independent non-executive directors as prescribed by the Code.
The Nomination Committee meets as and when required, or as requested by the
Board, and had three scheduled meetings and one ad hoc meeting during 2019.
The attendance by each member of the Committee at the meetings during 2019
is set out on page 87.
Sir Douglas Flint
Chairman
The effort made
during the year to
augment the range
and diversity of skills
on the Board were
highly successful,
with benefits already
evidenced in the
quality and depth of
discussion within the
Board and through
greater employee
engagement, in
better understanding
within the Group of
the role of the Board"
9 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Committee activities
during 2019
Appointments
• Reviewed the composition of the
Board, and recommended role
profiles for two additional non-
executive positions to the Board
• Recommended to the Board
the appointments of Dr Caroline
Brown and Aedhmar Hynes as
new independent Non-executive
Directors
• Considered membership of the
Board Committees in light of these
new appointments to the Board in
2019, recommending the new non-
executives should join the Board’s
committees
• Considered the chair roles of the
Audit and Risk Committee and
the Remuneration Committee
in light of Jonathan Brooks’
expected retirement in 2020 and
recommended replacements to the
Board
• Considered the newly created role
of Designated NED for workforce
engagement and recommended
Aedhmar Hynes for appointment
into this role
Succession planning
• Continued to develop a formal
succession plan for the Board
• Considered succession plans for
each Executive Director
•
In conjunction with the Group’s
HR Consultant, reviewed senior
management succession planning
and the development of the
internal talent pipeline
Governance
• Reviewed and approved updates
to its terms of reference and
recommended the same to the
Board for approval
• Reviewed corporate governance
trends in light of the 2018
Corporate Governance Code
Evaluation
• Oversaw the externally facilitated
evaluation of the Board and its
Committees
Terms of reference
In light of the 2018 Corporate
Governance Code, the terms of
reference for the Nomination
Committee were reviewed by the
Nomination Committee and updated
and adopted by the Board in May
2019. Changes were made to reflect
the expansion of the Nomination
Committee’s responsibilities with
respect to senior management and
succession planning, and to take
into account the wider definition of
diversity. The Nomination Committee
will review its terms of reference at
least annually and will propose updates
where necessary and/or appropriate to
reflect current market practice.
Appointments
The Nomination Committee
recommended the appointments of
both Dr Caroline Brown and Aedhmar
Hynes as additional independent Non-
executive Directors during 2019. The
process of their appointments is set
out below.
At the end of 2018, following the
appointment of Sir Douglas Flint
as Chairman, Stuart Thompson,
Director of IP Exec, the Group’s
in-house executive search function,
conducted a gap analysis on the
Board’s current skills and composition
in order to define the profile of two
new non-executive directors, one
of whom would also be a future
candidate for the chair of the Audit
Committee. After considering the
various available options and the
positives and negatives of each,
the Committee concluded that the
existence of an experienced in-house
executive search function within the
Group meant that it did not require
the services of an external search
consultancy in relation to these
appointments.
The analysis carried out by Mr
Thompson identified skills, experience
and attributes that would be required
for both non-executive positions.
The conclusions of this analysis
were reviewed by the Nomination
Committee, following which detailed
job specifications were prepared,
and Mr Thompson was asked to
run the search and recruitment
process on behalf of the Nomination
Committee. Using the analysis, Mr
Thompson compiled a diverse list
of candidates. When considering
potential candidates, the Nomination
Committee was mindful of diversity
considerations including the
recommendations of the Hampton-
Alexander Review and the Parker
Review, and its desire to increase
female representation on the Board
during the year.
Following interviews with the
Chairman and certain of the other
directors, Dr Caroline Brown and
Aedhmar Hynes were duly appointed
to the Board, with effect from 1 July
2019 and 1 August 2019 respectively.
Following these appointments, IP
Group had three female directors
on its Board, equivalent to 30% of
the Board including the Chairman,
following the resignation of Jonathan
Brooks, who retired from the Board
on 10 March 2020.
In making future appointments to the
Board and the senior management,
the Committee will continue to
adopt a formal, rigorous and
transparent procedure. It will give
full consideration to the balance,
skills, knowledge, independence
and diversity (including diversity
of gender, social and ethnic
backgrounds, cognitive and personal
strengths) of the Board and the senior
management team, as well as the
future challenges facing the business.
In addition, for appointments to the
Board, the Committee will always
assess whether identified candidates
have enough time available to devote
to the role.
No new senior managers were
appointed during 2019.
9 3
OUR GOVERNANCE NOMINATION COMMITTEE REPORT
CONTINUED
Diversity and inclusion
The Board is committed to a culture
that attracts and retains talented
people to deliver outstanding
performance and further enhance
the success of the Group. In that
culture, diversity across a range
of criteria is valued. The Board
recognises that diversity, in all its
forms, is key to introducing different
perspectives into Board debate and
decision making. A genuinely diverse
Board and senior management team
comprises individuals with a range
of personal attributes, perspectives,
skills, knowledge, experiences and
backgrounds, as well as representing
differences in nationality gender,
social and ethnic backgrounds,
cognitive and personal strengths.
The Board’s policy is to make
appointments based upon merit
measured against objective criteria.
In addition, the Board agrees that
diversity (including diversity of
gender, age, social, ethnic and
educational backgrounds, cognitive
and personal strengths) along with
inclusion remain key aspects in
creating an optimal board in terms of
balance and composition.
The terms of reference of the
Nomination Committee include a
requirement that it considers diversity
in the wider sense including, but
not limited to, gender, nationality
and ethnicity in evaluating the
composition of the Board and the
senior management team, and in
identifying suitable candidates for
Board and senior management
appointments. In relation to gender
diversity, the Nomination Committee
gave further consideration throughout
the year as to whether to set a fixed
target in relation to the number of
women on the Board and in the
senior management team, and
with reference to the Hampton-
Alexander Review. While the Group
continues to endorse the target of
33% women in FTSE 350 Board and
senior management teams contained
in the Hampton-Alexander Review
and remains committed towards
attaining this, including setting itself
aspirational targets as described
further below, it does not yet
consider it appropriate nor in its best
interests to set either Board, senior
management or Group-wide fixed
targets at this stage. It will instead
continue to consider all aspects of
diversity in the wider sense (including,
but not limited to, gender) when
assessing the overall Board and senior
management composition and in
making new appointments.
Consistent with the Group’s
aspirational target of at least 30%
female representation at both Board
and senior management level (see
more below), the Board increased its
female representation during 2019
with the appointments of Dr Caroline
Brown and Aedhmar Hynes. Following
these appointments, the Board now
has three female directors equivalent
to 30% following Jonathan Brooks’
retirement from the Board in March
2020, thus attaining its aspirational
target at this level. In relation to ethnic
diversity, the Nomination Committee
acknowledges the recommendation
from the Parker Review Committee
Report on the ethnic diversity of
boards issued in October 2017 that
each FTSE 250 board should have
a director of colour by 2024 and is
pleased that the Company currently
complies with such recommendation.
Consistent with the approach
adopted by the Committee to gender
diversity, the Committee does not
consider it appropriate to set Board,
senior management or Group-wide
fixed targets at this stage with respect
to ethnic diversity and will continue to
consider all aspects of diversity when
making further appointments.
When Board or senior management
vacancies arise, the Group’s
Nomination Committee will engage
the Group’s in-house executive
search function and/or external
search consultants (as appropriate)
and will require them to identify and
present qualified people from a range
of diverse backgrounds, gender,
nationality, age and ethnicity to be
considered for appointment. The
Group also carried out compulsory
unconscious bias training for all of its
employees in 2019, which included
unconscious bias awareness training
regarding recruitment.
The Group’s commitment to
diversity and inclusion at the senior
management level is also strong
and it is actively working to increase
the number of women, ethnic and
other cultural and social diversities in
leadership positions within the Group.
Specifically on gender, while, as stated
above, the Group does not have
fixed targets for women in leadership
positions at this stage, the Group
signed up to the 30% Club in January
2018, setting an aspirational target for
itself of 30% female representation in
the Group’s leadership team by 2020.
In order to help it attain this target,
the Group set up a 30% Club working
group during 2018, which progressed
certain initiatives during 2019 aimed
at supporting and developing women
in the workplace. For further details of
these initiatives, see page 68.
The Group’s CEO, Alan Aubrey, is
the accountable Executive Director
on this working group. Whilst, as
described above, good progress has
been made at Board level with female
representation having risen to 30%,
female representation on the Group’s
senior leadership team remains
below the desired level. The Group
recognises the need for improvement
at the most senior levels in the
business and the 30% Club working
group has already met in early 2020
to review and critically analyse the
2019 progress in detail. It is also in
the process of developing a further
action plan for 2020 to include the
reconstitution of a wider executive
committee in 2020 with diversity
(including, but not limited to, gender)
as a key element. Further details
on the plan for 2020 are set out on
page 65.
9 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Composition of the Board
A breakdown of the Group’s people by gender, including the gender balance of senior management, as at 31 December
2019 can be found on page 64.
GENDER BALANCE
BOARD TENURE
EXECUTIVE/NON-EXECUTIVE SPLIT
3
5
4
4
1
8
Male
Female
2
1-2 years
3-5 years
Over 5 years
6
Executive Director
Non-executive Director
Non-executive Chairman
9 5
OUR GOVERNANCE NOMINATION COMMITTEE REPORT
CONTINUED
Succession planning
The Nomination Committee
recognises that the Group’s
performance is highly dependent
on its ability to attract, recruit and
retain the highest-quality people and
that maintaining a robust succession
planning framework is a key factor
in ensuring the Group’s long-term
success. Succession planning also
mitigates the risk of any unforeseen
circumstances and ensures
that changes in Board or senior
management positions are effectively
managed and do not cause significant
disruption to the Group.
As referenced above, towards the
end of 2018, the Board undertook
a gap analysis of the Board using
a skills matrix, supported by Stuart
Thompson, the head of the Group’s
in-house executive search function,
and its conclusions led to the
appointments of Dr Caroline Brown
and Aedhmar Hynes in 2019. Whilst
mindful of its requirement to keep
succession planning for its non-
executive directors under continuous
review, given the changes to the
Board over the last two years and
the resultant relatively short tenure
of three of the Non-executives and
the Chairman, together with the skills,
experience and diversity which have
been added in 2019, the Nomination
Committee is not anticipating any
new non-executive appointments over
the next twelve months.
Insofar as the executive directors are
concerned, the Group’s Head of HR
Board evaluation process
worked closely with the Chairman
and the other members of the
Nomination Committee through 2019
to further develop and update the
existing succession plans in place for
each of the positions to fit to current
circumstances. Such plans cover three
timeframes: immediate, three year
and five year. As part of her work,
the Group’s Head of HR spent time
meeting face-to-face with each of the
non-executive directors, executive
directors, Managing Partners of Life
Sciences and Technology and Stuart
Thompson seeking their views on,
amongst other things, role profiles. In
addition, during the last few months
of the year, the Group’s Chairman had
the opportunity to discuss the topic
of executive succession at meetings
he had with some of the Group’s
significant shareholders. With all of
this input, the Nomination Committee
then debated the matter in detail at
its meeting at the end of November
2019 and will continue to refine its
thinking and formalise the plan as it
moves through 2020.
In addition to succession planning at
Board level, developing internal talent
at all levels within the Group remains
a continuous process. The Nomination
Committee is responsible for ensuring
that suitable leadership and talent
development plans and processes
are in place to maximise the
potential of the Group’s employees
and that the Group has effective
recruitment policies to continue to
attract and retain a diverse mix of
talented employees. The Nomination
Committee intends to work closely
with the Group’s new HR Consultant
through 2020 on her plans to drive
forward the development of internal
talent, including putting processes in
place to identify “rising stars” and to
continue the development of a diverse
pipeline for the senior management
and their direct reports.
Board effectiveness
and performance
evaluation
In line with best practice under the
Code, a performance evaluation of
the effectiveness of the Board, its
Committees and individual directors
is conducted annually to ensure that
Board performance continues to be
effective, that each of the directors
demonstrates commitment to his or
her respective role and has sufficient
time to meet their commitment to
the Group. Further, the Code requires
FTSE 350 companies to have an
externally facilitated evaluation at
least every three years.
Bvalco, an external independent
board review consultancy, was
selected to undertake a full external
board evaluation in respect of the
year to 31 December 2019 to consider
the Board’s overall effectiveness and,
amongst other things, its composition,
diversity and how effectively
members work together to achieve
objectives. Bvalco has no connection
with the Group or any individual
directors.
Meeting to
confirm 2019
external evaluation
and priority
topics to be covered
Topics selected in
conjunction
with the Chairman
1 to 1 interviews
with the Board
and key personnel
who regularly
attend and interact
with the Board
Board and
Committee
observations to
view how the
Board and its
Committees
work in practice
Board and
Committee
discussions with
findings prioritised
into actions
Finals report
including next
steps in
implementation
delivered to
the Board
Date set
for the mid-year
review of the
Board’s progress
9 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 The results of the evaluation exercise
were reported back, in the first
instance, via verbal presentations to
the Chairman, Company Secretary
and non-executive directors and
then to the full Board, through both
a written report and by Bvalco
facilitating an open discussion at a
Board meeting. The following key
actions have been agreed by the
Board in response:
• to bring more formality to the
succession plans in place for the
senior employees within the Group,
including the executive directors
and to keep these updated;
• to hold dedicated Board session
to agree alignment of the role and
objectives of the Board and its
committees with the Group’s s172
responsibilities;
• to review the construct and
composition of the forum through
which the Board’s delegated
authority to the executive is
conducted, taking into account the
Group’s commitment to diversity in
all its forms and specifically gender;
• to continue to build on and
strengthen the work carried out
in 2019 to ensure that the views
of the Group’s stakeholders are
considered by the Board in its
deliberations and decisions;
• for the Executive Directors and
Company Secretary to ensure there
is greater clarification in Board
and committee papers of the
actions and input required by the
Board and committee members in
response to each agenda item;
• building on the appointment of
Aedhmar Hynes as the Designated
NED for workforce engagement,
to formalise how the outcomes of
Board and Committee meetings
are communicated to the wider
workforce to ensure, amongst
other things, consistency of
messaging; and
• to continue to build on the Board’s
strategic dialogue and to further
define the strategy development
process ahead of the Board’s
strategy days in 2020.
Finally, the Board considered the
actions which had been identified
from the 2018/19 review and noted
the following progress during 2019:
• the increased diversity on the
Board, in terms of both gender and
board experience, following the
appointment of Dr Caroline Brown
and Aedhmar Hynes as further
described in the Appointments
section on page 83. The skillsets
and experience of both Dr Caroline
Brown and Aedhmar Hynes are
additive to the existing skillset
of the Board and have assisted
towards the achievement of the
Chairman’s vision of the optimal
board composition and size;
• the delivery of training to the
Board in 2019 by external
advisers on the new corporate
governance requirements and on
the directors duties under s172 of
the CA 2006, together with the
associated reporting requirements
in connection therewith, as well as
a session on shareholder activism
facilitated by the Company’s brokers;
• the further development of the
Group’s succession plan for the
executive directors as described in
the Succession Planning section on
page 93, including the discussions
regarding succession planning
which have taken place with the
Group’s major shareholders to
ensure their views are taken into
account in any decisions in relation
to succession planning; and
• the consideration of the objectives
of the Board including updating
the Board rolling agenda for the
year to ensure that sufficient
time could be dedicated at Board
meetings to achieve its aims/
actions throughout the year.
Overall, it was concluded that the
Board continues to work effectively,
with demonstrable improvements
being identified as a result of the
implementation of the findings of the
previous year’s review.
Director performance
assessment and review
The performance of each of the
non-executive directors is reviewed
by the Chairman with support
from the Company Secretary, the
performance of the CEO is reviewed
by the Chairman and the operational
performance of the other executive
directors is reviewed by the Chief
Executive Officer as part of the
annual appraisal process. In addition
to those reviews, the performance of
the Executive Directors is reviewed
by the Board on an ongoing basis.
One-to-one meetings have been held
amongst the individuals concerned
using, amongst other things, the
input collated on the performance of
each of the individual from the Board
evaluation process and development
plans are now in the process of being
put in place for each of the directors
for the year ahead.
9 7
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
REMUNERATION STATEMENT
Dear fellow shareholder,
I am pleased to present my first Directors’ Remuneration Report (“DRR”)
since assuming the role of Chairman of the Group’s Remuneration Committee.
In October, the Group’s Nomination Committee appointed me as the new
Committee Chairperson, assuming the role from Jonathan Brooks with effect
from December 2019. On behalf of the Group and its shareholders, I would
like to place on record my gratitude to Jonathan for the role he has played in
developing our remuneration approach and I look forward to continuing this
work following his departure.
This DRR is made on behalf of the Board and covers the year ended
31 December 2019. I believe that the highly shareholder-aligned nature of the
Group’s variable incentive schemes has once again resulted in remuneration
out-turns for the executives, and wider staff, that are appropriate in light of the
Group’s performance. I elaborate on this further below, as well as the largely
consistent approach to remuneration that we intend to employ for 2020.
2019 Remuneration Policy review
Last year, the Committee reviewed and amended our Remuneration Policy, with
enhancements made predominantly to take into account the 2018 UK Corporate
Governance Code. The two primary changes made were a reduction in the
pension maximum to align with the wider workforce, and the introduction of a
post-cessation shareholding policy. The revised Policy received 96.6% support at
our AGM in May 2019.
2019 Performance and incentive out-turns
As has been discussed in the Strategic Review, the Group’s Return on Hard NAV
for 2019 was negative £73.7m and therefore did not meet the minimum levels of
return that the Group targeted in 2019. The Group did however achieve a record
level of realisations to date, with £79.5m cash being realised from the portfolio.
Given the significant weighting of the AIS outcomes to Return on Hard NAV, the
quantitative targets indicated a bonus out-turn of 27.9% of maximum, primarily
as a result of these cash realisations.
The Committee members discussed the output of the quantitative targets and
considered that this out-turn appropriately reflected the overall performance
of the business for the period in question. The Committee considered that it
was appropriate to reward the Group’s directors for their success in delivering
one of the Board’s key objectives for the year, that of demonstrating increasing
sustainability through cash generation from the portfolio. The Committee was
also aware of the external market factors that may have contributed to the
poor performance of the Group’s portfolio, however, also mindful of the Group’s
35% share price decline during the year, we determined that a nil out-turn in
connection with portfolio performance was appropriate. The Committee therefore
considered the formulaic AIS out-turn of 27.9% of maximum was appropriate.
Consistent with the Group’s annual performance in 2019, the cumulative three-
year return on the Group’s Hard NAV did not meet the 8% per annum threshold
target for the Group’s 2017 LTIP awards scheduled to vest in March 2020.
The wider Committee and I are very conscious of and, as fellow shareholders,
disappointed by the Group’s share price performance during 2019. So, while the
actual absolute Total Shareholder Return (“TSR”) performance period for the
2017 LTIP awards runs until 31 March 2020, based on the Group’s share price at
the date of this report, the Committee does not expect that the minimum 8%
annualised return will be met. As a result, it is anticipated that the vesting of the
LTIP awards in 2020 will again be zero.
The Committee considers that these outcomes appropriately reflect the
Committee’s ‘pay for performance’ principles and the stretching, objective
incentive targets that are aligned with our shareholders.
Heejae Chai
Chair of the
Remuneration Committee
Embedding our
approach to
remuneration to
engage and motivate
our people."
9 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 We provide transparent disclosure of our AIS performance targets on both a retrospective and, where appropriate,
prospective basis. Full details of the AIS targets for 2019 and forward-looking targets for 2020 are contained in this report.
The framework for our Executive Directors is summarised below:
Salary
• Typically, salaries approach the bottom end of a market competitive range for similar sized companies
Pension
• 10% of salary contribution to Company defined contribution plan, personal pension plan or cash equivalent
• The pension level is in line with the wider workforce
AIS
• Maximum 100% of salary
• Based on stretching return on Hard NAV targets disclosed retrospectively and prospectively and other
relevant ‘leading indicators’ of performance as determined by the Committee each year
• Formulaic outcomes may be adjusted at the discretion of the Committee to reflect overall business or
individual performance
• Half of any bonus above a minimum amount deferred into equity over two-year period
• AIS arrangements cascade to all employees in the business, with components based on team and/or
individual objectives for non-director employees
LTIP
• Annual awards of 300% of salary (CEO) and 200% of salary (other Executive Directors)
• Based on stretching Hard NAV and TSR growth targets (with a discretionary relative TSR underpin)
• Formulaic outcomes may be adjusted at the discretion of the Committee to reflect overall business or
individual performance
•
Includes a two-year post-vesting holding period
• LTIP arrangements reserved for senior managerial levels and roles which are expected to have a material
financial impact on the Group’s outcomes
• 200% of salary (CEO) and 150% (other Executive Directors)
• Post-employment shareholding policy in place
• Comprehensive malus and clawback provisions on all variable elements
Shareholding
guidelines
Malus and
clawback
Executive Directors’ base salaries
for 2020
In the Group’s 2019 Directors’ Remuneration Report, the
salaries of the executive directors were increased by 2%,
well below the average level of salary increases in the wider
employee population. Since late 2017, the Committee has
planned to carry out a more comprehensive review of the
salaries of its Executive Directors as it is conscious that the
overall remuneration levels could be seen to be well below
market levels for listed companies of similar size, scale and
complexity. However, mindful of the Group’s share price
and net asset per share performance over this time, the
Committee intends to carry out a more comprehensive
review in due course.
The Group’s total salary costs, including executive directors,
decreased by approximately 13% from £14.9m to £13.0m
between 2018 and 2019, largely as a result of the continued
realisation of synergies following the Group’s combination
with Touchstone Innovations in late 2017, offset by the
full year effect of the newly-formed Australasian team.
However, largely as a result of promotional and role
expansions for a number of the Group’s continuing team
members, the average like-for-like base salary increase
for UK employees, excluding executive directors, was
6.4%. Following further headcount reviews towards the
end of 2019 to ensure that the business remains optimally
sized for the management of its portfolio and operations,
management expects a similar pattern to be seen in 2020,
where the Group’s overall salary costs are anticipated to be
at or below 2019 levels while the average like-for-like base
salary increase in the UK is expected to be around 6.4%.
Against this backdrop, the Committee has determined that
the base salary increases for the Executive Directors, to
be implemented in April 2020, will again be no more than
the average for the wider employee population. In the case
of the Group’s CEO, we intend to implement a base salary
increase of 2.0%. For the CFO, the increase will be 5.9%,
which is lower than the average workforce increase but at
a higher level than the other executive directors to ensure
that his remuneration continues to progress towards what
9 9
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
REMUNERATION STATEMENT CONTINUED
the Committee considers to be market levels of salary and
overall remuneration opportunity for this key executive
board role. The increase for the Group’s other executive
directors will be 2.0%.
• The CEO’s base salary will be £432,000;
• The CFO’s base salary will be £297,000;
• The base salary for the other Executive Directors’ will be
£286,000
Executive Directors’ AIS and LTIP
opportunities
Consistent with the Group’s recently approved
Remuneration Policy, there will be no change to the
maximum AIS or LTIP opportunities for 2020. For 2020,
the Committee will base the AIS outcome for directors on
(i) the return on Hard NAV, (ii) cash realisations from the
portfolio, (iii) the level of net operating expenses and (iv)
the engagement levels of the Group’s employees. Where
appropriate from a commercial point of view, disclosure
of the forward-looking targets for the AIS has again been
made, as has full disclosure of all backward-looking targets
and outcomes.
The Committee will again assess performance under the
LTIP against growth in Hard NAV and TSR. As I described
earlier, the Committee is very mindful of the fall in the
Group’s share price during 2019. Assuming there is no
significant recovery in the Group’s share price by the date
of award, we would anticipate reducing the normal level of
each award made under our LTIP this year. We will assess
the appropriate level of reduction at the time of award but
expect that the level of award to be 275% of salary (rather
than 300%) for the CEO and 185% of salary (rather than
200%) for the other executive directors.
LTIP rules
In May 2019, the Group became aware of a technical issue
concerning the administration of its LTIP. Shareholders
approved various amendments to the LTIP in 2011 rather
than the LTIP rules being renewed in full. The Group will
therefore seek approval of the LTIP by shareholders, in
accordance with the Listing Rules, at the 2020 AGM.
Further details are provided on page 91.
Terms of Reference and key
responsibilities
In light of the 2018 Corporate Governance Code, the
terms of reference for the Remuneration Committee were
reviewed by the Remuneration Committee and updated
and adopted by the Board in July 2019. The Remuneration
Committee will review its terms of reference at least
annually and will propose updates where necessary and/
or appropriate to reflect current market practice. The key
responsibilities of the Committee are as follows:
• Determine the policy for executive director remuneration
• Design and set the remuneration for the Chairman,
executive directors and senior management
• Review workforce remuneration and related policies to
ensure they operate to attract and retain the best talent
• Review remuneration practice and its cost to the Group
• Consider pension and superannuation arrangements and
other benefits
• Consider the engagement and independence of external
remuneration advisers
Approval of the Remuneration Policy
and 2018 Remuneration Report
Our updated Remuneration Policy and 2018 Directors’
Remuneration Report received 96.6% and 99.2% of votes
cast in favour at our AGM in May 2019. While this indicated
a strong level of shareholder support, both I and the Group
are committed to maintaining high levels of transparency
and engagement surrounding our remuneration principles
and practices. I welcome the opportunity to discuss the
Group’s remuneration with any shareholder, either at our
AGM or at any other time during the year.
Structure of this report
The following pages contain an extract of our
Remuneration Policy (as approved by shareholders in 2019),
a summary of how we intend to implement the policy
during 2020, and the detailed disclosure of outcomes in
respect of 2019.
ON BEHALF OF THE BOARD
Heejae Chae
Chairman of the Remuneration Committee
10 March 2020
1 0 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
Statement of implementation of
remuneration policy in the following
financial year
The Group targets a remuneration package for its executive
directors that will enable the attraction, retention and
incentivisation of individuals of the highest calibre in order
to successfully deliver the Group’s strategic objectives.
We have continued to apply our performance-based
philosophy with a focus on the long term and consistent
with a ‘lower base/higher variable’ approach.
Salary and fixed components
With effect from 1 April 2020, the base salaries of the
executive directors will be:
Alan Aubrey (CEO)
2019/20
base salary
£432,000
2020/21
base salary
£423,500
Mike Townend (CIO)
£286,000
£280,500
Greg Smith (CFO)
£297,000
£280,500
David Baynes (COO) £286,000
£280,500
Increase
%
2.0%
2.0%
5.9%
2.0%
As has been the case for a number of years, the Committee
considers that, as part of a competitive overall package,
base salaries should be within a market-competitive range.
Given IP Group’s business model and stage of development,
this is currently considered to be at around the lower
quartile of companies of a similar size and complexity.
For context, the Group’s total salary costs, including
executive directors, decreased by approximately 13%
between 2018 and 2019, largely as a result of the continued
realisation of synergies following the Group’s combination
with Touchstone Innovations in late 2017, offset by the
full year effect of the newly-formed Australasian team.
However, largely as a result of promotional and role
expansions for a number of the Group’s continuing team
members, the average like-for-like base salary increase
for UK employees, excluding executive directors, was
6.4%. Following further headcount reviews towards the
end of 2019 to ensure that the business remains optimally
sized for the management of its portfolio and operations,
management expects a similar pattern to be seen in 2020,
where the Group’s overall salary costs are anticipated to be
at or below 2019 levels while the average like-for-like base
salary increase in the UK is expected to be around 6.0%.
The Committee intends to complete a review of executive
directors’ overall remuneration this year and looks
forward to discussing this important topic with our major
shareholders. For this coming year, in order to ensure that
the Group’s remuneration package does not become any
less market relevant, we intend to increase the base salaries
for the executive directors other than the CFO by 2%.
For the CFO, the increase will be 5.9%, which while lower
than the average workforce rate is a higher level than the
other executive directors. This reflects the Committee’s
views that the CFO’s overall remuneration opportunity
remains significantly below market levels for this important
executive role and that this level of salary increase will help
to substantially mitigate the potential risk presented by this
situation.
Pension and benefits will continue to be in line with the
levels stated in the policy table. Pension levels are in line
with those for the wider workforce, at up to 10% of salary.
Incentives
The maximum AIS opportunity will remain at 100% of base
salary for all executive directors. The 2020 AIS, similar to
2019, will be based on four performance measures:
• 60% on annual return achieved on the Group’s Hard
NAV;
• 30% on cash realisations from the portfolio;
• 5% on the level of net operating expenses; and
• 5% employee engagement and culture.
These measures are considered appropriate leading
indicators of underlying business performance, including
one that explicitly takes into account the engagement of
our most valuable asset, our people. This latter objective
will be measured with input from the Group’s Designated
NED, Aedhmar Hynes, who in this regard has Board
responsibility for bringing the voice of our employees into
the Boardroom.
As in prior years, the Committee has determined the
performance metrics that are required to be achieved.
In terms of the Return on Hard NAV target, as before,
the Committee has taken into consideration the blend of
assets that constitute the Group Hard NAV, particularly
the relative level of cash on which it is not currently
possible to achieve a return in excess of approximately 1%.
Reflecting our commitment to transparency, we are again
disclosing this AIS target on a prospective basis. For 2020
the Committee has determined that threshold vesting of
25% of this element of the award will be available provided
a minimum return of 5% is achieved while the maximum
amount of this element will be available should a return of
15% or greater be achieved. In absolute terms, this requires
the achievement of a return on Hard NAV in excess of £57m
before any of the AIS component relating to return on Hard
NAV may be awarded and a return in excess of £170m in
order for this component to be awarded in full. The targets
relating to the measures outlined above, as well as the
performance against these targets, will be disclosed in the
1 0 1
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT
2020 Directors’ Remuneration Report. Overall, the targets
are considered by the Committee to be appropriately
stretching, especially in light of the current economic
climate and 2019 performance out-turns.
The AIS operates as a discretionary plan and as is the case
in 2019, in line with the UK Corporate Governance Code,
the Committee may adjust the 2020 outcome to take into
account overall business or individual performance or any
other factors it considers appropriate.
Consistent with the maximum opportunity for the 2019 LTIP
awards, the Committee would ordinarily have continued
to make the 2020 LTIP awards at 300% of base salary for
the CEO and 200% of base salary for all other executive
directors. However, in light of the fall in the Group’s share
price during 2019, except in the event of a significant
recovery in the Group’s share price by the time of award,
we expect the LTIP award levels for 2020 will be reduced
to 275% of salary for the CEO and 185% of salary for the
other executive directors. Performance will continue to be
assessed against growth in Hard NAV and TSR as per the
vesting table set out below.
Vesting matrix: 2020 LTIP awards
.
)
.
a
p
(
R
S
T
15%
10%
8%
<8%
60%
30%
12.5%
0%
<8%
75%
45%
25%
12.5%
8%
90%
60%
45%
30%
10%
100%
90%
75%
60%
15%
Growth in NAV (p.a.)
Any awards that vest will be subject to a further two-year
holding period (net of any tax and NICs where holding is
not on a gross basis).
Post-cessation shareholding policy
Departing executive directors will normally be required
to retain shares following the date of cessation of their
employment under the Group’s post-cessation shareholding
guidelines. This policy came into effect on 1 January 2019
and applies to any shares vesting from Company incentive
plans following this date. The policy operates as follows:
• The post-cessation shareholding shall be 100% of the
guideline that applied at the date of cessation, or, if
lower, the actual holding excluding personal investment.
• The holding determined at the date of leaving shall
apply for a period of 24 months, on a tapered straight-
line basis, reducing to nil over this period.
• Shares that are no longer subject to performance
conditions, such as deferred shares or holding period
shares, shall count towards the guidelines (on a net of
assumed tax basis).
• The Committee shall have the discretion to operate
the policy flexibly and may waive part or all of
the requirement, for example in compassionate
circumstances.
During the course of 2019, the Committee put in place a
framework to assist it in applying the policy. The Committee
also explored structures to best enforce the requirements
of the policy and will be working with its Employee Benefit
Trust in 2020 to put in place a nominee arrangement
whereby any shares vesting under the Company’s incentive
schemes will be held on behalf of the relevant executive
director until the required shareholding amount is met.
1 0 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
Chairman and non-executive directors
The fee for the Group’s chairman has been set at £175,000 per annum since September 2018 and shall increase by 2.0%
to £178,500 for 2020/21. The fees for the non-executive directors will be increased from £44,500 to £45,500, reflecting a
2.2% increase from 2019/20. Additional fees for chairing a Board committee and for being senior independent director shall
remain at £10,000. During the year, the Group introduced an additional fee of £10,000 for the role of Designated NED.
Single figure for total remuneration (audited)
The following table sets out the single figure for total remuneration for directors for the financial years ended 31 December
2019 and 2018.
Base salary/
fees1
2018
2019
Benefits10
2018
2019
Annual bonus
(AIS)2
2018
2019
All £000s
LTIP
2018
Pension9
2018
2019
2019
Executive directors
Alan Aubrey3
Mike Townend
Greg Smith
David Baynes4
Non-executive directors
Douglas Flint
Jonathan Brooks5
Elaine Sullivan
David Begg
Caroline Brown6
Aedhmar Hynes7
Heejae Chae8
335
279
279
279
175
61
44
54
25
19
53
301
273
273
273
50
62
43
51
–
–
29
9
6
3
23
110
–
110
–
–
810
110
7
8
6
20
–
–
2
–
–
–
1
118
78
78
78
–
–
–
–
–
–
–
70
46
46
46
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36
24
26
28
–
–
–
–
–
–
–
35
23
27
27
–
–
–
–
–
–
–
Total
2018
413
350
352
366
50
62
45
51
–
–
30
2019
498
387
386
408
176
61
45
54
25
27
54
NOTES
1.
Base salary/fees represent amounts earned and paid by the Group during the year in question.
2 AIS executive’s bonus outturn was 27.9% of maximum for 2019. The first 25,000 will be paid in cash and thereafter 50% paid in cash and
50% deferred in shares over two years.
3. Alan Aubrey’s contractual base salary was £423,500 from 1 April 2019. In addition, Alan Aubrey retained board fees in 2019 totalling
£86,346 (reduced due to retirement from Avacta in Jan 2019) (2018: £110,000) from portfolio companies in which the Group is a
shareholder and that were deducted from his base salary.
4. David Baynes receives an annual car allowance or equivalent thereof of £12,000.
5. Jonathan Brooks stepped down as Chair of the Audit & Risk Committee on 18 September 2019 and the Chair of Remuneration Committee
on 25 November 2019.
6. Caroline Brown joined the Board on 1 July 2019 and assumed the role of Chair of the Audit & Risk Committee on 18 September 2019.
7. Aedhmar Hynes joined the Board on 1 August 2019.
8. Heejae Chae assumed the role of Chair of the Remuneration Committee on 25 November 2019.
9. Pension includes payments made to defined contribution schemes on behalf of the directors or the value of a cash equivalent, if
applicable.
10. Commuting costs for non-executive directors are reimbursed and are subject to PAYE.
1 0 3
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
Additional disclosures for single figure for total
remuneration table (audited)
Annual Incentive Scheme
The targets for the 2019 AIS were predominantly based on the annual return on Hard NAV alongside two further leading
indicators of underlying business performance. The targets for 2019 and the outturn against these were as follows:
Performance condition
(% weighting)
Return on Hard NAV
(60%)
Cash realisations from
the portfolio (30%)
Vesting criteria
6% return (£73.1m): 25% of maximum opportunity (‘threshold’)
16% return (£194.8m): 100% of maximum opportunity
£nil to £100m (sliding scale)
Actual performance
(% of component)
Negative 6.1% return (£73.7m):
0% of component
£79.5m realisations:
79% of component
Level of net overheads
(10%)
Net overheads (before AIS costs) lower than £21m (25%) to
£19m (100%)
£20.6m:
40% of component
Total weighted outturn
27.9% of maximum
The Committee members discussed the output of the
quantitative targets and considered that this outturn
appropriately reflected the overall performance of the
business for the period in question, therefore no discretion
was applied. The resulting AIS outturn for 2019 for the
executive directors was therefore determined as 27.9% of
maximum opportunity. In accordance with the Group’s
Remuneration Policy, all amounts to individuals above an
initial minimum amount paid in cash, which for the 2019
AIS is £25,000, will be paid 50% in cash and 50% in shares
(deferred over two years using the Group’s DBSP).
Long-term incentive scheme
2017 LTIP awards due to vest in March
2020
The 2017 LTIP awards are based on the performance of
the Group’s Hard NAV (the Group’s net assets excluding
intangibles and the Oxford Equity Rights asset) for the
three financial years ending on 31 December 2019 and
Total Shareholder Return (“TSR”) from March 2017 to the
ordinary vesting date, being 31 March 2020, using a one-
month average. Both performance measures are combined
into a matrix format as per the vesting table below. The
total award is subject to an underpin based on the relative
performance of the Group’s TSR to that of the FTSE 250
index, which can reduce the awards by up to 50%.
Vesting matrix:
estimated 2017 LTIP outturn
.
)
.
a
p
(
R
S
T
15%
10%
8%
<8%
60%
30%
15%
0%
<8%
75%
45%
30%
15%
8%
90%
60%
45%
30%
10%
100%
90%
75%
60%
15%
Growth in NAV (p.a.)
Performance
condition
Hard NAV1
(at 31 Dec 2019)
Annual TSR2
(share price)
Target
performance
8%: £1,568m
15%: £1,859m
Actual/forecast
performance
£1,142m
(-4% p.a.)
8%: 171p
15%: 201p
71p
(-24% p.a. growth)
Comparative TSR
FTSE 250 +4.4%
IP Group -49%
1. Hard NAV target increased by Committee to reflect £353.6m
Touchstone Hard net assets acquired in 2017 and net proceeds of
£181.1m from the Group’s 2017 placing.
2. TSR performance shown reflects the Group’s one-month average
share price to 6 March 2020. Actual performance period is the
one-month average to 31 March 2020.
The actual performance of the Group in terms of Hard NAV
growth was below threshold and, based on the one-month
average share price to 6 March 2020, was below the lower
TSR target and that of the FTSE 250 TSR performance. On
this basis, the 2017 LTIP award is not expected to meet the
minimum performance criteria required for vesting. The
amounts disclosed above in the single remuneration figure
table are based on this performance and resulting expected
outcome. Actual vesting will be based on TSR performance
to 31 March 2020.
2016 LTIP awards that were due to vest in
March 2019
As reported last year, the Hard NAV growth target was not
met. TSR measured over the three-year period to 31 March
2019 was negative and therefore the TSR condition was not
met. Consequently, none of the 2016 LTIP awards vested.
1 0 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
2019 LTIP awards
The 2019 LTIP awards were made with a face value of 300% of salary for the CEO and 200% of salary for other executive
directors, based on the share price at date of grant and vesting subject to performance. Awards are calculated by reference
to the salary effective for the 2019/2020 salary year. Any shares that vest shall be subject to a two-year holding period.
The performance conditions that apply to both of these awards will follow the same matrix structure with the same vesting
parameters as that set out above for the previous awards. Hard NAV growth will be measured over the three-year period
to 31 December 2021 (starting point: £1,217.5m at 31 December 2018). TSR shall be measured from 26 April 2019 to 31 March
2022 with a one-month average starting point of 94.9p (being the 30-day average to 25 April 2019).
The award is subject to an underpin whereby vesting may be reduced by the Committee by up to 50%, taking into account
a range of performance factors including relative TSR against the FTSE 250.
Executive director
Alan Aubrey
Mike Townend
Greg Smith
David Baynes
Type of
interest
2019 LTIP
Basis of award
(% salary)
300%
Face value1
(000s)
£1,270
Threshold
vesting2
25%
2019 LTIP
2019 LTIP
2019 LTIP
200%
200%
200%
£561
£561
£561
25%
25%
25%
End of performance period
31 Dec 2021 (NAV) / 31 Mar 2022 (TSR)
31 Dec 2021 (NAV) / 31 Mar 2022 (TSR)
31 Dec 2021 (NAV) / 31 Mar 2022 (TSR)
31 Dec 2021 (NAV) / 31 Mar 2022 (TSR)
1. The number of shares corresponding to the face value is calculated using the share price of 99.10p for all executive directors.
2. Represents threshold vesting against both elements of the performance matrix. Lower vesting is possible if only one element of the matrix
is partially met or as a result of the application of the performance underpin.
Loss of office payments or payments to former directors (audited information)
No payments for loss of office were made to past directors during the year nor were any payments made to former
directors for director duties that have not already been included in their historic single figures of remuneration.
Change in remuneration of the Chief Executive Officer compared
to Group employees
The table below sets out the change in the remuneration of the CEO and that of our UK employees (excluding directors and
new joiners/leavers):
CEO
UK employees
% change in base
salary 2018 to 2019
2.0%
% change in bonus
2018 to 2019
69.2%
% change in benefits
(excluding pensions)
2018 to 2019
9.8%
6.4%
30.0%
8.6%
1 0 5
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
Historical executive pay and Group performance
The table and graph below allow comparison of the Total Shareholder Return (“TSR”) of the Group and the Chief Executive
Officer remuneration outcomes over the last ten years.
The chart below shows the Group’s TSR performance against the performance of the FTSE All Share, FTSE Small Cap
and FTSE 250 indices over the ten-year period to 31 December 2019. The Directors have selected these indices as, in their
opinion, these indices comprise the most relevant equity indices of which the Company was a member during a significant
proportion of the period in question and against which total shareholder return of IP Group plc should be measured.
Historical Chief Executive Officer remuneration outcomes
The table below summarises the Chief Executive Officer single figure for total remuneration, annual bonus pay-out and LTIP
vesting as a percentage of maximum opportunity for the current year and previous nine years.
Chief Executive Officer: Alan Aubrey
CEO single figure of remuneration (£000s)
Annual bonus pay-out (% of maximum)
LTIP vesting (% of maximum)
2010
193
n/a
0%
2011
209
n/a
n/a
2012
3,257
2013
2,231
2014
902
2015
669
n/a
100%
0% 100%
81% 100% 100%
57%
2016
265
0%
0%
2017
20181
2019
552
57%
0%
413
17%
0%
498
28%
0%
LTIP vesting is based on the current expectations of the performance against the 2017 LTIP targets as discussed on page 104.
1 0 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Relative spend on pay
The chart below shows the total employee costs, change in
Hard NAV and change in share price from 2018 to 2019.
2019
2018
19.5
21.3
1,217.5
1,146.5
108.6
71.1
Total employee costs
(£m) -8%
Hard NAV
(£m) -6%
Share price
(p) -35%
The information shown in this chart is based on the
following:
Total employee pay: total employee costs from note 9 on
page 152 including wages and salaries, social security costs,
pension and share-based payments.
Change in Hard NAV: change in the Group’s net assets
excluding goodwill, intangibles and the Oxford Equity
Rights asset taken from the statement of financial position
on page 34.
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 2018 to 31 December 2019.
Interests in shares
Directors’ shareholdings and share
interests (audited information)
The Group’s Remuneration Policy contains minimum
shareholding requirements for each of its executive
directors.
The Committee has set the current limits at 2.0x salary
for the Chief Executive Officer, and 1.5x salary for all other
executive directors.
This level of shareholding is required to be met within four
years of each director’s date of appointment. If the guideline
is not met by any executive director within this timeframe,
or the level of shareholding falls below this level for any
other reason, including share price fluctuations, then the
Committee will discuss with the relevant executive director
a plan to ensure that the guideline can be met within a
reasonable timeframe. The Committee will ordinarily require
executive directors to retain all shares received under the
AIS or LTIP, other than as required to meet tax and NIC
liabilities, until the guideline is met.
At the end of the year, Alan Aubrey and Mike Townend
continued to meet this requirement. Both Greg Smith
and David Baynes have previously met this requirement;
however, the reduction in the Group’s share price during
the year has resulted in this requirement being off targeted
levels at 10 March 2020. Both Mr Smith and Mr Baynes are
mindful of Committee guidance on this matter and bought
shares on the open market during 2018. Both directors have
agreed with the Committee that they will, at a minimum,
retain all post-tax shares received under the DBSP or LTIP to
ensure that minimum levels are met and maintained.
The directors who held office during 2019 had the following beneficial interests in the ordinary shares of the Company:
As at 31 December 2019
Current directors
Alan Aubrey
Mike Townend
Greg Smith
David Baynes
Elaine Sullivan
David Begg
Sir Douglas Flint
Heejae Chae
Caroline Brown
Aedhmar Hynes
Vested but
unexercised
options1
Number
(net of tax)
43,740
26,880
25,107
26,880
–
–
–
–
–
–
Shares
owned
Number
2,663,538
1,156,902
298,351
262,975
–
42,391
18,500
16,073
–
–
Total interest in shares
Number
2,707,278
1,183,782
323,458
289,855
–
42,391
18,500
16,073
–
–
% of share
capital
0.26%
0.11%
0.03%
0.03%
–
0.00%
0.00%
0.00%
–
–
There have been no changes in the interests of the directors set out above between 31 December 2019 and 10 March 2020.
1. Reflects executive directors’ interest in vested but unexercised DBSP
2. Share options relating to the deferral of the 2015 AIS award, net of estimated 47% income tax and employees’ NICs liability.
Former directors (as at date of leaving)
(Jonathan Brooks (stepped down on 10 March 2020)
Number of shares
81,826
1 0 7
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
Long Term Incentive Plan
Directors’ participations in the Group’s LTIP are:
Number
of shares
conditionally
held at
1 January 2019
Conditional
shares
notionally
awarded in
the year
664,313
857,142
–
–
Alan Aubrey
2016 LTIP
2017 LTIP
2018 LTIP
894,397
2019 LTIP
Mike Townend
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP
Greg Smith
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP
David Baynes
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP
–
1,282,038
2,415,852
1,282,038
327,342
378,571
–
–
395,115
–
1,101,028
–
306,803
378,571
395,115
–
1,080,489
–
327,342
378,571
395,115
–
1,101,028
566,094
566,094
–
–
–
–
566,094
566,094
–
–
–
–
566,094
566,094
Vested
during
the year
Lapsed
during
the year
Potential
conditional
interest in
shares at 31
December
2019
Share price
at date of
conditional
award
(p)
Earliest
vesting
date(s)
–
–
–
–
(664,313)
–
–
–
857,142
894,397
1,282,038
155.80
112.50*
139.20
31–Mar–19
31–Mar–20
31–Mar–21
99.10
31–Mar–22
(664,313)
3,053,577
–
–
(327,342)
–
–
–
(327,342)
–
(306,803)
–
–
–
(306,803)
–
(327,342)
–
–
–
378,571
395,115
566,094
1,339,781
–
–
378,571
395,115
566,094
1,339,780
–
–
378,571
395,115
566,094
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
155.80
112.50*
139.20
31–Mar–19
31–Mar–20
31–Mar–21
99.10
31–Mar–22
–
–
155.80
112.50*
139.20
31–Mar–19
31–Mar–19
31–Mar–20
99.10
31–Mar–21
–
–
155.80
112.50*
139.20
31–Mar–19
31–Mar–19
31–Mar–20
99.10
31–Mar–21
(327,342)
1,339,780
–
*note that the number of conditional LTIP awards made in 2017 was calculated using the Group’s 140p placing price from 2017
1 0 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019
Deferred bonus share plan (“DBSP”)
Directors’ interests in nil-cost options under the Group’s DBSP that have been granted in order to defer AIS bonuses in
accordance with our Policy are as follows:
Options held
at 1st Jan 2019
Option
awarded in
the year
Exercised
during the
Year
Lapsed
during the
year
Options
held at
31 December
2019
Share price
at date of
award (p)
Earliest
vesting
dates
–
11,282
122,351
22,564
Alan Aubrey
Deferral from 2015 AIS 42,710
Deferral from 2017 AIS
Deferral from 2017 AIS
Deferral from 2018 AIS
Deferral from 2018 AIS
Mike Townend
Deferral from 2015 AIS
Deferral from 2017 AIS
Deferral from 2017 AIS
Deferral from 2018 AIS
Deferral from 2018 AIS
39,820
39,821
25,981
24,736
24,736
–
–
75,453
Greg Smith
Deferral from 2015 AIS 22,637
Deferral from 2017 AIS
Deferral from 2017 AIS
Deferral from 2018 AIS
Deferral from 2018 AIS
David Baynes
Deferral from 2015 AIS
Deferral from 2017 AIS
Deferral from 2017 AIS
Deferral from 2018 AIS
Deferral from 2018 AIS
24,736
24,736
–
–
72,109
25,981
24,736
24,736
–
–
75,453
–
–
–
11,282
–
–
–
5,349
5,349
10,698
–
–
–
5,349
5,349
10,698
–
–
–
5,349
5,349
10,698
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42,710 175.60
31-Mar-18
39,820 128.20
31-Mar-19
39,821
128.20
31-Mar-20
11,282
11,282
144,915
99.10
31-Mar-20
99.10
31-Mar-21
25,981
175.60
31-Mar-18
24,736
128.20
31-Mar-19
24736
128.20
31-Mar-20
5,349
5,349
86,151
99.10
31-Mar-20
99.10
31-Mar-21
22,637
175.60
31-Mar-18
24,736
128.20
31-Mar-19
24,736
128.20
31-Mar-20
5,349
5,349
82,807
99.10
31-Mar-20
99.10
31/-Mar-21
25,981
175.60
31-Mar-18
24,736
128.20
31-Mar-19
24,736
128.20
31-Mar-20
5,349
5,349
86,151
99.10
31-Mar-20
99.10
31-Mar-21
1 0 9
OUR GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
Save as You Earn (“SAYE”)
The Group operates an HMRC-registered SAYE share save scheme for all UK employees in which three executive directors
are current participants. Their currently outstanding option contracts under the SAYE and the respective maturity dates are
listed in the table below.
Options
held at
1 January
2019
Options
awarded in
the year
Exercised
during the
year
Lapsed
during the
year
Options
held at
31 December
2019
Option
exercise
price (p)
Share price
at date of
award (p)
Earliest
vesting
date(s)
Greg Smith
2017 SAYE
2019 SAYE
David Baynes
2017 SAYE
2019 SAYE
Mike Townend
2019 SAYE
12,631
–
–
34,816
9,473
–
–
-
34,816
34,816
–
–
–
–
–
12,631
–
–
34,816
–
34,816
9,473
–
–
114
51.70
114
51.70
141.3
31-Aug-20
64.60 31-Aug -22
141.30
64.60
31-Aug-20
31-Aug-22
34,816
51.70
64.60
31-Aug-22
Other long-term interests – legacy arrangements (audited information)
In addition to the executive directors’ remuneration arrangements, the Group also operates co-investment and carried
interest arrangements relating to certain venture capital funds that are under its management. Under the co-investment
arrangements, executive directors make minority capital and loan commitments to IP Venture Fund (“IPVF”) alongside the
Group. Executives are entitled to participate in a carried interest scheme in respect of IPVF and The North East Technology
Fund LP alongside the Group. Carried interest provides a preferential return to participants once the partnership in question
has returned all funds contributed by limited partners together with a pre-agreed rate of return. The carried interest and co-
investment arrangements will generally contain forfeiture provisions in respect of leavers over the investment period of the
relevant partnership (typically five to six years).
As described in the Policy, no new allocations of this kind will be made to executive directors in future, however the current
outstanding interests in co-investment and carried interest schemes in connection with the Group’s managed funds are as
follows:
IPVF co-investment arrangements
The executive directors’ commitments to, and returns from, IPVF are set out below. Commitments are made indirectly
through the IP Venture Fund (FP) LP, which is the founder partner of IPVF.
Total
commitment
£000
Limited
partnership
interest of
IPVF
Total capital
contributed
to 1 January
2019
£000
Capital
contributions
during the
year
£000
Total capital
contributions
at
31 December
2019
£000
Capital
amounts
repaid
during the
year
£000
Total capital
amounts
repaid to
31 December
2019
£000
Executive directors
Alan Aubrey
Mike Townend
Greg Smith
Total
56
56
35
147
0.18%
0.18%
0.11%
0.47%
55
55
35
145
1
1
–
2
56
56
35
147
15
15
11
41
65
65
41
171
1 1 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Carried interest arrangements
The executive directors’ interests in carried interest schemes are set out below:
Carried
interest(ii) at
1 January
2019
Awarded
during the
year
Transferred
during the
year
Lapsed
during the
year
Scheme
Interest at
31 December
2019(iii)
Accrued
value of
scheme
interest at
31 December
2019
£000
1.81%
1.55%
1.81%
1.15%
1.14%
0.85%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.81%
1.55%
1.81%
1.15%
1.14%
0.85%
–
–
–
–
–
–
Executive directors
Alan Aubrey
Mike Townend
Greg Smith
Fund(i)
IPVF
NETF
IPVF
NETF
IPVF
NETF
External appointments for
executive directors
Any proposed external directorships are considered by the
Board to ensure they do not cause a conflict of interest
but, subject to this, executive directors may accept a
maximum of two external non-executive appointments and,
indeed, the Board believes that it is part of their ongoing
development to do so. Where an executive director accepts
an appointment to the board of a company in which the
Group is a shareholder, the Group generally retains the
related fees. In the circumstances where the executive
director receives such fees directly, such sums are generally
deducted from their base salary from the Group. Fees
earned for directorships of companies in which the Group
does not have a shareholding are normally retained by the
relevant director.
Any external appointments (i.e. excluding those companies
in which the Group is a shareholder) held by executive
directors are set out on page 78.
Under the IPVF fund LPA, payments to participants are
made when all limited partners have been repaid their
contributions together with a hurdle rate of 8% compound
interest. Under the North East Technology Fund (“NETF”)
scheme, payments to participants are made when all
limited partners have been repaid their contributions
together with a hurdle rate of 3.5% compound interest.
Scheme interest represents the percentage of the relevant
pool of investments in respect of which the participant is
entitled to participate in the realised profits assuming the
relevant hurdle return has been met.
The schemes contain forfeiture provisions over the
investment period of the fund which may reduce the
scheme interest accruing to any participant. The table
reflects the maximum scheme interest receivable should no
forfeiture occur.
Accrued value of scheme interests is calculated based upon
the current fair value of the relevant limited partnership’s
assets in excess of the capital contributed and the hurdle
rate of return. Any payments will only be made following
full repayment of limited partners’ loan commitments and
the hurdle return and, accordingly, actual payments under
the scheme, if any, may be materially different to those set
out above.
During 2019, the final remaining assets in IPVF were
disposed of and it is expected that the fund will be wound
up in 2020 with no carried interest payments being due to
participants.
1 1 1
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
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 IP Group 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.
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 2019.
As at 31 December 2019, the Company’s headroom position,
which remains within such guidelines, was as shown in the
chart.
0.9%
0.6%
0.7%
1.0%
0.3%
6.5%
Vested LTIP awards in past 10 years – Executives
Vested LTIP awards in past 10 years – Other staff
Outstanding LTIP and awards – Executives
Outstanding LTIP and Former Touchstone LTIP
awards – Other staff (1.0)
Other Share schemes (Sharesave, DBSP, etc.)
Additional headroom (to 10%)
LTIP resolution
Service agreements
The executive directors have service contracts that
commenced on the dates set out in the chart on page 113
and contain a contractual notice period of six months by
either party. The non-executive directors have letters of
appointment that commenced on the dates set out in the
chart below, are generally for an initial fixed term of three
years, which is reviewed and may be extended for a further
three years, and are terminable on three months’ notice by
either party.
The letters of appointment and service contracts are
available for inspection at the Company’s registered office.
In accordance with the Code, all directors submit themselves
for annual re-election by shareholders at each AGM.
In May 2019, the Group became aware of a technical issue
concerning the administration of its LTIP. Shareholders
approved various amendments to the LTIP in 2011 rather
than the LTIP rules being renewed in full, however due
to an administrative error the documentation reflected
2011 as the LTIP’s adoption date rather than the date of
amendment. The effect of this was that the LTIP technically
expired in 2017. The Group is therefore seeking approval
of the LTIP by shareholders, in accordance with the Listing
Rules, at the 2020 AGM.
The LTIP rules reflect the Remuneration Policy approved by
shareholders at the 2019 AGM, with the maximum award
possible under the rules having been reduced to 300%
from 400%, such latter maximum having previously been
permitted under the Policy only to be used in exceptional
circumstances. Existing LTIP awards remain in place
however no awards will vest, nor will any further grants be
made, until the LTIP is formally approved. As a result, the
Committee anticipates that the 2020 LTIP awards set out
on page 102 will be made following the 2020 AGM rather
than following the release of the Group’s annual results, as
is usually the case.
1 1 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Effective dates of service contracts of the Executive Directors
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Present
20 January 2005
5 March 2007
Alan
Aubrey
Mike
Townend
Greg
Smith
David
Baynes
2 June 2011
Effective dates of letters of appointment of the non-executive directors
Elaine
Sullivan
David
Begg
Heejae
Chae
Sir Douglas
Flint1
Dr Caroline
Brown
Aedhmar
Hynes
1. Effective as Chair from November 2018
20 March 2014
30 July 2015
18 October 2017
03 May 2018
17 Sep 2018
1 July 2019
1 August
2019
Consideration by the directors of matters relating to directors’ remuneration
The full terms of reference of the Committee, which are reviewed annually, are available on the Group’s website at
www.ipgroupplc.com. In summary, the Remuneration Committee has specific responsibility for advising the Group’s
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.
The Remuneration Committee currently comprises the following independent non-executive directors whose backgrounds
and experience are summarised on pages 78 to 80.
Heejae Chae (Chair)
Jonathan Brooks (stepped down on 10 March 2020)
Douglas Flint
Elaine Sullivan
David Begg
Caroline Brown
Aedhmar Hynes
Committee meetings are administered and minuted by the Company Secretary. In addition, the Committee received
assistance from the CFO, CEO, COO and Head of HR who attend meetings by invitation, except when matters relating to
their own remuneration are being discussed.
During the year, the key activities carried out by the Committee were:
• Consideration of the Group’s overall remuneration philosophy to ensure it continues to promote the Group’s strategy,
including the blend of fixed and short and longer-term variable pay.
• Consideration of the skills and experience of the executive directors and carrying out of benchmarking in order to
determine base salaries and total remuneration opportunity for the period 1 April 2019 to 31 March 2020, and giving further
consideration to base salaries and total remuneration opportunity with effect from 1 April 2020.
• Review of the Group’s approach to non-director remuneration, including base salaries and incentive scheme targets and
pay-outs, with focus on those employees earning more than £150,000 or local currency equivalent
• Consideration of LTIP awards and vesting targets for 2019 and 2020 awards and out-turns for the 2016 and 2017 awards.
1 1 3
OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT
ANNUAL REMUNERATION STATEMENT CONTINUED
• Consideration of AIS awards and targets for 2019 and 2020 as well as outturns for 2019
• Review and consideration of the further evolution of the application of the Group’s Remuneration Policy for non-director
employees with particular consideration given to matters related to the UK, US and Australian LTICS and remuneration in
the Group’s regulated fund management subsidiaries.
• Approval of the Group’s DRR, including the updated Remuneration Policy.
Adherence to Corporate Governance Code principles
When considering the proposed operation of the Remuneration policy for the forthcoming year, the Committee took into
consideration the following principles set out in the 2018 Corporate Governance Code.
Clarity
• The Company seeks to provide full transparency to shareholders on the operation of the
Remuneration policy, including prospective disclosure of our Hard NAV target range under the AIS.
The Committee encourages open and frequent dialogue on executive director remuneration with
shareholders, including on a formal basis when reviewing the remuneration policy.
Simplicity
• Our ongoing remuneration arrangements for executive directors, including the AIS and LTIP, are
simple in nature and well understood by both participants and shareholders.
• Our incentive arrangements are cascaded down through the Group to provide alignment and
overall simplicity in our approach to remuneration. All employees participate in the AIS (with
components based on team and/or individual objectives for non-director employees), with the
LTIP extended to senior managerial levels and roles which are expected to have a material financial
impact on the Group’s outcomes.
• The Committee intends to review the Group’s remuneration arrangements again in 2020 to ensure
that this principle continues to be appropriately met.
Risk
• Under the AIS and LTIP, discretion may be applied where formulaic outturns are not considered
reflective of overall business or individual performance or any other reason considered appropriate.
• Deferral of a proportion of AIS awards, the LTIP holding period and our shareholding requirement,
including post-cessation shareholding requirement, provide a clear link to the ongoing performance
of the business and the experience of our shareholders.
• Malus and clawback provisions apply to both AIS and LTIP awards.
Predictability
• Our Remuneration Policy contains details of the maximum opportunities and pre-determined
target ranges under our AIS and LTIP, with actual outcomes dependent on performance achieved
against these targets.
Proportionality
• We operate a performance-based philosophy with a ‘lower base/higher variable’ approach and a
focus on the long term.
• Our performance measures and target ranges under the AIS and LTIP, including the use of Hard
NAV, are selected based on their alignment to Company strategy.
• The Committee’s ability to apply discretion ensures appropriate out-turns in the context of long-
term Company performance.
• The focus on the long term within our remuneration approach, including the delivery of a
significant proportion of our incentives in the form of Company shares and the use of an LTICS
for non-director employees, provides significant alignment between employees’ and executive
directors’ remuneration outcomes and long-term Company performance.
Alignment to culture • All employees are entitled to participate in the pension scheme and the SAYE scheme. Executive
Director participation in these schemes is on the same terms as for other employees.
• Strong individual and Company performance is incentivised and recognised through our AIS and,
for our most senior employees, the LTIP.
• For 2020, we have introduced employee engagement and culture as a performance measure under
the AIS, which explicitly takes into account the engagement of our most valuable asset, our people.
1 1 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 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 Deloitte LLP in respect of the development of the Group’s Remuneration Policy and its application,
and reporting under the revised Directors’ Remuneration Reporting Regulations. Deloitte is a founding member of the
Remuneration Consultants Group and adheres to its Code in relation to executive remuneration consulting in the UK. Fees
paid to Deloitte LLP in connection with advice to the Committee in 2019 were £35,320. Deloitte LLP also provided advice to
the Group in 2019 in connection with the updating of its LTIP rules, the restructuring of its long term incentive carry scheme
and in connection with valuations of certain of its assets including goodwill and unlisted portfolio company holdings.
Statement of shareholder voting
The table below sets out the proxy results of the votes on the Group’s Remuneration Report at the Group’s 2019 AGM.
Votes for
Votes against
Remuneration Policy
Remuneration Report
Number
875,879,024
898,843,951
% of
votes cast
96.6
Number
30,524,396
% of
votes cast
3.4
Total votes cast
906,403,420
99.2
7,563,470
0.8
906,407,421
Votes
withheld
18,335
14,335
Remuneration disclosure
This report 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 (July 2018) and the Listing Rules.
1 1 5
OUR GOVERNANCE REPORT OF THE AUDIT AND
RISK COMMITTEE
well as conducting an annual robust
assessment of these.
A full copy of the Committee’s Terms
of Reference is available from the
Company’s website at
www.ipgroupplc.com.
Terms of Reference
In light of the 2018 Corporate
Governance Code, the Committee
reviewed its terms of reference and
these were updated and adopted by
the Board in July 2019. The changes
also took into account the FRC
Guidance on Audit Committees. The
Committee will continue to review its
terms of reference at least annually
and will propose updates where
necessary and/or appropriate to
reflect current market practice.
Committee membership
I joined the Committee on 1 July 2019
and took over as Committee Chair on
18 September 2019, and would like
to thank my predecessor, Jonathan
Brooks, for his long service. I would
also like to welcome Aedhmar Hynes,
who joined the committee on 1
August 2019.
At 31 December 2019, the Committee
comprised six independent non-
executive directors, with myself
as Chair, and now comprises five
independent directors following
the retirement of Jonathan Brooks
from the Board. As the Chair of the
Committee, I am deemed by the
Board to have recent and relevant
financial experience, being a
Fellow of the Chartered Institute of
Management Accountants and having
held senior financial positions in my
career. The Board is satisfied that for
the year under review, and thereafter,
the Audit and Risk Committee as a
whole has competence relevant to
the sector in which the Company
operates.
The Committee met six times during
the year, see Board and committee
attendance table, page 87. The
Group’s Chairman, Chief Financial
Officer, Group Financial Controller,
Company Secretary, outsourced Head
of Internal Audit and the external
auditor were also invited to attend all
of the meetings and did so.
Other members of the Group’s
management were invited to attend
as required for specific subjects. At
the end of the March 2019 meeting,
and the March 2020 meeting, the
Committee met with the auditor
without any members of the executive
management team being present.
Activities during
the year
During 2019 the Committee continued
on its journey to formalise and
enhance its oversight of matters it is
responsible for, in line with increasing
regulatory requirements. The key
areas of focus were the enhancement
of the Group’s valuation process
through the creation of a Valuation
Committee (see below), the launch of
the Group’s outsourced internal audit
function which included the delivery
of three control reviews, enhanced
coordination with the auditor in
respect of the audit of the Group’s
subsidiary the statutory accounts,
and further development of the
Group’s risk management framework,
including embedding operational
risk reporting as a ‘business as usual’
activity, and updating the Group’s risk
appetite statement.
Valuation portfolio
assets
This remains the most material area of
judgment in the financials statements,
and the key audit risk for the Group.
At each reporting date the Audit
and Risk Committee discusses with
management and the auditor the
approach that has been taken in
assessing the key estimates in respect
of portfolio valuations (see pages 21
to 25, 142 to 143, 148 and 156 to 157).
As in previous years, the Committee
has paid significant attention to the
valuation of the Group’s holding
in Oxford Nanopore Technologies
Limited, the Group’s most valuable
portfolio company holding, as well as
the valuation of assets which have not
completed a funding round within the
last year, of those assets which have
seen significant positive or negative
developments in the year, and on
those companies with a heightened
funding risk.
Dr Caroline Brown
Chair of the Audit
and Risk Committee
Audit and Risk
Committee (“ARC”
or the “Committee”)
responsibilities
The Committee monitors the integrity
of the financial statements of the
Group, and reviews all proposed
annual and half-yearly results
announcements to be made by the
Group with consideration being given
to any significant financial reporting
judgements contained in them. The
Committee also advises the Board on
whether it believes the Annual Report
and Accounts, taken as a whole, is
fair, balanced and understandable and
provides the information necessary
for shareholders to assess the
Company’s performance, business
model and strategy. The Committee
considers internal controls,
compliance with legal requirements,
accounting standards and the Listing,
Disclosure and Transparency Rules
of the Financial Conduct Authority,
and also reviews any proposed
change in accounting policies and any
recommendations from the Group’s
auditor regarding improvements to
internal controls and the adequacy of
resources within the Group’s finance
function. Finally, the Committee takes
responsibility on behalf of the Board
for the review of risk management
and controls within the Group, as
1 1 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 During the year, a formal Valuation Committee was constituted comprising the Group CEO, CFO and COO and with the
Managing Partners of the Technology and Life Sciences partnerships, the Group Financial Controller, external auditors and
myself in attendance. The Audit and Risk Committee views the Valuation Committee as a meaningful development in the
formalisation and documentation of management’s valuation judgments. observer.
The Group has continued to utilise external valuations specialists where considered appropriate as part of its valuation
procedures, with external valuation reports being commissioned on 10 out of the top 20 holdings during the year.
Summary agendas for the Audit & Risk Committee meetings in 2019
February 2019
Primarily audit-focused business
• Review of draft 2018 Annual Report and
Primarily risk-focused business
• Brexit review
Accounts
• Significant accounting and
disclosure judgements
• Valuation meeting summary
• KPMG FY18 audit update
• Risk Council update, objectives and plan of work
for 2019
• Review of annual report risk disclosures
• Long-term viability statement review
• ARC and Auditor effectiveness review
•
Internal audit update
March 2019
• 2018 Annual Report and Accounts: review and
recommendation for approval
• Significant accounting and disclosure
judgements
• KPMG FY18 audit report
May 2019
• Draft Valuation Committee terms of reference
• Risk Council update
• KPMG HY19 update
•
Internal audit update
• Auditor effectiveness review
• Regulated business update
• Cyber and IT update
• Review of Group Treasury policy
• Review of draft ESG Policy and Ethics Framework
July 2019
• HY19 Report: review of draft report
• Risk Council update
• Portfolio valuations update
• Cyber security maturity assessment: response to
internal audit findings
• KPMG HY19 auditor review update
•
Internal audit update
• Review Valuation Committee terms of reference • Review of ARC terms of reference and Board
Authorities
September 2019 • HY19 Report: Review and recommendation for
approval
• Portfolio valuations update
• Key accounting judgements and disclosures
• KPMG HY19 audit review report
November 2019 • 2019 Annual Report and Accounts planning
• Risk Council update
• KPMG FY19 Planning document
• Risk register review
• Key Performance Indicator review
• Risk appetite review
•
Internal audit update
• Cyber and IT update
• Regulated business update
• Review of Group insurance
• Discussion of draft Capital Allocation policy
• Annual review of Related party transaction policy
1 1 7
OUR GOVERNANCE REPORT OF THE AUDIT AND
RISK COMMITTEE CONTINUED
Regulatory compliance
Risk and internal controls
Ensuring compliance for FCA regulated businesses also
represents an important control risk from the perspective
of the ARC. Ongoing internal reviews are conducted
through the use of a compliance monitoring programme
and specialist advisory firms and local advisers are
employed to advise on areas of regulation relevant to the
Group’s operations where required.
Review of Annual Report and
Accounts and Half-yearly Report
The Committee carried out a thorough review of the
Group’s 2019 Annual Report and Accounts and its 2019
Half-yearly Report resulting in the recommendation of both
for approval by the Board. In carrying out its review, the
Committee gave particular consideration to whether the
Annual Report, taken as a whole, was fair, balanced and
understandable, concluding that it was. It did this primarily
through consideration of the reporting of the Group’s
performance, business model and strategy, the competitive
landscape in which it operates, the significant risks it faces,
the progress made against its strategic objectives and the
progress made by, and changes in fair value of, its portfolio
companies during the year.
Going concern and viability
On an annual basis the Committee reviews and approves
the long-term viability review prepared by management,
and satisfies itself that the going concern basis for the
preparation of the Group’s results remains appropriate.
In advance of year end, the Committee reviewed the
Group’s proposed approach to viability reporting, including
its stress testing scenarios. At the year end, the Committee
reviewed a report from management setting out its view of
the Group’s long-term viability, which in line feedback from
the FRC in its thematic review included a description of the
factors considered in forming an assessment of the Group’s
prospects. The report was based on the Group’s three-year
strategic plan, including forecast investment, realisations,
overheads and financing cashflows. The Committee agreed
that a three-year time horizon remained appropriate.
Management’s assessment included scenarios where
adverse impacts across the Group’s principal risks set out
on page 38 relating to insufficient capital, and macro-
economic conditions were considered. Under the severe
scenario, a 75% reduction in realisation and a 50% decline
in portfolio fair values was considered, with a series of
mitigating actions being demonstrated which resulted in
the Group remaining viable over the three-year horizon. The
Committee agreed to recommend the Viability statement
to the Board for approval.
The key elements of the Group’s internal control framework
and procedures are set out on page 36. The principal risks
the Group faces are set out on pages 40 to 48. During the
year, the Audit and Risk Committee devoted part of each
meeting to items concerning risk and its management.
One important element of the Group’s risk management
framework is the Risk Council whose permanent members
are the Chief Financial Officer, Company Secretary and
Group Financial Controller, with other executives and
management from across the business attending during the
year as necessary. The purpose of the Risk Council is to co-
ordinate the review and oversight for the governance, risk
and controls at IP Group prior to reporting to the ARC and
Board. The Risk Council met six times during the year and
reported to the Committee after each meeting.
During 2019, the Committee approved a revised risk
appetite statement, developed incorporating input from
executive management workshops and Board discussion.
The Committee reviewed output from the Risk Council
summarising the Group’s strategic risk profile, and
accepted management’s proposal to split the Insufficient
Capital principal risk into principal risks in relation to
corporate and portfolio company capital, reflecting the
difficult fundraising environment, and the creation of a new
principal risk in respect of cyber security (see below). The
Committee also considered the Group’s emerging risks,
which are summarised on page 38, including consideration
of COVID-19 at its March 2020 meeting. The Committee
also reviewed the output of control work carried out
during the year by PwC and the Risk Council in assessing
the control design and operating effectiveness around the
Group’s control framework over its principal risks.
Cyber security
The Group has continued its focus on cyber and IT
security, with regular updates to the Committee on the
steps being taken by the Group to seek to mitigate cyber
risks, which included investment in additional security
measures and completing the process for UK Cyber
Essentials accreditation in early 2019. The Group’s IT and
cyber security function was the focus of one of the three
an internal audit reviews carried out during the year; the
Committee reviewed the findings of this work and has
received regular updates on recommended actions arising
from this review. As in prior years, employee awareness and
training on cyber security was conducted Group-wide in
the year.
1 1 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Internal audit
2019 was the first year that the Group operated an
outsourced internal audit function, delivered by PwC. In
its first year, the internal audit function designed a plan of
work having considered the Group’s principal, strategic
and operational risks, which the Committee approved.
The internal audit function delivered three internal control
reviews which were focussed on the Group’s investment
process, on IT and cyber security and the Group’s finance
function. The Committee reviewed the output of these
control reviews.
External audit
The effectiveness of the external audit process is
dependent on appropriate risk identification. In November,
the Committee discussed the auditor’s plan for the 2019
year-end audit. This included a summary of the proposed
audit scope and a summary of what the auditor considered
to be the most significant financial reporting risks facing
the Group together with the auditor’s proposed audit
approach to these significant risk areas. The main areas of
audit focus for the year were the valuation of unquoted
investments, notably Oxford Nanopore Technologies
Limited, given the proportion that this company represents
of the Group’s overall Hard NAV. The auditor’s plan included
enhancements in the approach to the categorisation and
testing of unquoted investments, and a detailed audit
timetable including completion of the Group’s subsidiary
statutory account audits, developed in conjunction with
management. by the Group in identifying and planning for
Brexit-related risks.
Appointment and independence
The Audit Committee advises the Board on the
appointment of the external auditor and on its
remuneration both for audit and non-audit work and
discusses the nature, scope and results of the audit with
the external auditor. The Committee keeps under review the
cost-effectiveness and the independence and objectivity
of the external auditor. Controls in place to ensure this
include monitoring the independence and effectiveness of
the audit, implementing a policy on the engagement of the
external auditor to supply non-audit services, and a review
of the scope of the audit and fee and performance of the
external auditor.
Mandatory audit firm rotation is required after 20 years and
a re-tender must be conducted at least every ten years.
The Code requires disclosure of the length of tenure of the
current audit firm and when a tender was last conducted,
as well as advance notice of any re-tendering plans. KPMG
LLP have acted as the auditor to the Company since
2014 and the lead audit partner rotates every five years
to assure independence. Having completed his five-year
tenure, Jonathan Mills has now passed responsibility
for the Group’s statutory audit to Jonathan Martin for
the 2019 year-end onwards. The Committee noted that
Jonathan Martin’s extensive valuation expertise makes
him an appropriate lead audit partner. The Committee last
undertook a comprehensive tender process in 2014 for the
audit in relation to the year ended 31 December 2014 and
has no plans to re-tender the audit at the present time.
Non-audit work
The Audit Committee approves all fees paid to the auditor
for non-audit work. In addition to the review of the Group’s
half-yearly results, in 2019 the Group’s auditor, KPMG LLP
once again carried out limited non-audit engagement
covering the review of the Group’s historic gross investment
track record and compliance reporting for the Group’s debt
facilities with the EIB. Given the natural overlap between
this work and the financial audit of the Group’s results,
the Committee judged KPMG the most effective party to
perform this work. In other matters, the Committee prefers
to engage other firms to perform consulting engagements
to ensure that the independence of the auditor is not
compromised and during 2019 engaged the services of
BDO (tax), PwC (internal audit, risk and governance),
Deloitte (valuations), Duff & Phelps (valuations) and
CFGI (US valuations). An analysis of audit and non-audit
fees paid to KPMG is provided in note 6 to the financial
statements on page 151.
Auditor independence
A formal statement of independence is received from the
auditor each year and the Board and the Audit and Risk
Committee are satisfied that the independence of the
auditor has been maintained.
Auditor effectiveness
In order to assess the effectiveness of the external audit
process, the Committee asked detailed questions of key
members of management and each Committee member
individually via a survey, the results of which were
collated and reviewed by my predecessor and the CFO.
These results were reviewed in conjunction with KPMG’s
reports to the Committee. The Committee concurred with
management’s view that there had been appropriate focus
and challenge of the primary areas of audit risk and the
Committee concluded that the substantive and detailed
approach taken by the auditor was entirely appropriate and
effective. As in the previous year, the vast majority of the
Group’s assets were reviewed as part of the audit, and once
again there was particular emphasis on the valuation of
unquoted investments. KPMG utilised specialist corporate
finance staff to support its audit work on selected portfolio
valuations and, overall, the auditor’s risk-based approach
drew on both his knowledge of the business and the wider
economic and business environment.
I will be available at the AGM to answer any questions
about the Committee’s work.
Dr Caroline Brown
Chair of the Audit and Risk Committee
10 March 2020
1 1 9
OUR GOVERNANCE DIRECTORS' REPORT
Report of the Directors
The directors present their report
together with the audited financial
statements for IP Group plc and its
subsidiaries for the year ended
31 December 2019.
Corporate governance
statement
Information that fulfils the
requirements of the Corporate
governance statement can be
found in the Corporate Governance
Statement on pages 82 to 91 and is
incorporated into this directors’ report
by reference.
Results and dividends
During the period, the Group made an
overall loss after taxation for the year
ended 31 December 2019 of £78.9m
(2018: £293.8m loss). The directors
do not recommend the payment of a
dividend (2018: £nil).
Directors
The names of directors who currently
hold office or did so during 2019 are
as follows:
Executive Directors
Alan Aubrey
David Baynes
Greg Smith
Mike Townend
Non-executive directors
Sir Douglas Flint (Chairman)
Professor David Begg
Jonathan Brooks (resigned from
the Board with effect from 10 March
2020)
Dr Caroline Brown (appointed with
effect from 1 July 2019)
Aedhmar Hynes (appointed with
effect from 1 August 2019)
Heejae Chae
Dr Elaine Sullivan
1 2 0
Details of the interests of directors in
the share capital of the Company are
set out in the Directors’ Remuneration
Report on page 98.
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
36 to 49 and in the Corporate
Governance report on page 82.
Further information 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 2 to
the consolidated financial statements,
along with further information on the
Group’s use of financial instruments.
Significant events
affecting the Group
Details of the important events
affecting the Group and future
development of the business are
described on pages 38 to 39 of the
Strategic Report.
Branches of the Group
outside of the UK
The Group has branches in the US,
Australia and Hong Kong.
Significant agreements
The Group has entered into various
agreements to form partnerships or
collaborations with nine universities
in Australasia which contain certain
change of control provisions. In
addition, various entities within the
Group have entered into agreements
to act as general partner and
investment manager to two limited
partnerships.
Share capital and
related matters
Details of the structure of the
Company’s share capital and the
rights attaching to the Company’s
shares are set out in note 22 to the
consolidated financial statements.
There are no specific restrictions on
the size of a holding or on the transfer
of shares, which are both governed
by the general provisions of the
Company’s Articles of Association
(the “Articles”) and prevailing
legislation.
At the last Annual General Meeting
of the Company held on 28 May
2019 (the “2019 AGM”), authority
was given to the directors pursuant
to the relevant provisions of the
Companies Act 2006 to allot shares
and grant rights over securities in the
Company up to a maximum amount
equivalent to approximately one-third
of the issued ordinary share capital
on 17 April 2019 at any time up to the
earlier of the conclusion of the next
Annual General Meeting (“AGM”) of
the Company and 1 August 2020.
In addition, at the 2019 AGM, the
directors were also given authority
effective for the same period as the
aforementioned authority to allot
shares and grant rights over securities
in the Company up to a maximum
of approximately two-thirds of the
total ordinary share capital in issue
on 17 April 2019 in connection with
an offer by way of a fully pre-emptive
rights issue. The directors propose
to renew both of these authorities
at the Company’s next AGM to be
held on 18 June 2020. The authorities
being sought are in accordance with
guidance issued by the Investment
Association.
A further special resolution passed at
the 2019 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 2006, both: (i)
up to a maximum of approximately
two-thirds of the total ordinary share
capital in issue on 17 April 2019 in
connection with a fully pre-emptive
rights issue; and (ii) up to a maximum
of approximately 5% of the aggregate
nominal value of the shares in issue
on 17 April 2019, each authority
exercisable at any time up to the
earlier of the conclusion of the next
AGM of the Company and 1 August
2020. The directors will seek to renew
these authorities for a similar period
at the next AGM to be held on 18 June
2020.
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 On 25 November 2019 the High Court
of England and Wales sanctioned
the Group’s application for its capital
reduction. Following the capital
reduction, the issued share capital of
the Company comprises 1,059,144,595
shares.
Under Part 18, Chapter 5 of the
Companies Act 2006, the Company
has the power to purchase its own
shares. At the 2019 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 2006 up to a
maximum of approximately 10% of the
Company’s issued share capital on 17
April 2019 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 2020. This authority
has not been used during the year.
The directors will seek to renew the
authority within similar parameters and
for a similar period at the next AGM to
be held on 18 June 2020.
Articles of Association
The Company’s Articles may be
amended by a special resolution of
the shareholders.
Substantial
shareholders
As at 31 December 2019, the following
shareholders held interests of 3% or
more in its ordinary share capital.
Other than as shown, so far as the
Company (and its directors) are
aware, no other person held or was
beneficially interested in a disclosable
interest in the Company.
.
Shareholder
Invesco Asset Management Limited
Railway Pension Trustee Company Limited
Lansdowne Partners
Imperial College of Science Technology and Medicine
Baillie Gifford
%
19.8
15.3
10.4
5.2
4.4
As at 10 March 2020, the Company has been advised of the following
shareholders with interests of 3% or more in its ordinary share capital. 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
Invesco Asset Management Limited
Railway Pension Trustee Company Limited
Lansdowne Partners
Imperial College of Science Technology and Medicine
Baillie Gifford
%
16.5
15.3
10.4
5.2
4.5
Regulation
Top Technology Ventures Limited and
Parkwalk Advisors Ltd, 100%-owned
subsidiaries of the Company are
authorised and regulated by the
Financial Conduct Authority under
the Financial Services and Markets
Act 2000. In Australia, the Group’s
wholly owned subsidiary IP2IPO
Australia Management Pty Limited
is authorised and regulated by the
Australian Securities and Investment
Commission.
Post balance sheet
events
Material events occurring since the
balance sheet date are disclosed in
the Strategic Report and in note 30 to
the Group’s financial statements.
Corporate and social
responsibility
Details on the Group’s policies,
activities and aims with regard to its
corporate and social responsibilities,
including details of its greenhouse
gas emissions, are included in the
Sustainability section on pages 50 to
53.
Directors’ indemnity
and liability insurance
During the year, the Company has
maintained liability insurance in
respect of its directors. Subject to
the provisions of the Companies Act
2006, the Articles provide that to
the extent that the proceeds of any
liability insurance are insufficient to
meet any liability in full, 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. A copy of the indemnity is
available for inspection as required by
the Companies Act 2006.
1 2 1
OUR GOVERNANCE DIRECTORS' REPORT CONTINUED
Political expenditure
Although 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, the
CA 2006 is very broadly drafted in
this area and the Board has raised a
concern that it may include activities
such as funding conferences or
supporting certain bodies involved
in policy review and law reform.
Accordingly, at the AGM held on
28 May 2019 and as at previous
AGMs, the shareholders passed a
resolution on a precautionary basis to
authorise the Group to incur political
expenditure (as defined in Section
365 of CA 2006) not exceeding
£50,000 in total at any time from
28 May 2019 up to the conclusion of
the 2020 AGM. The Board intends to
seek renewed authority for the Group
to incur political expenditure of not
more than £50,000 in total at the
Company’s 2020 AGM, to be held on
18 June 2020, which the Group might
otherwise be prohibited from making
or incurring under the terms of CA
2006.
Political donations
The Group did not make any political
donations during 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/she ought to have taken as a
Director in order to make himself/
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 2006.
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. A viability
statement, as required by the Code,
can be found on page 49.
Appointment of auditor
A resolution to reappoint KPMG LLP,
together with a resolution to authorise
the directors to determine their
remuneration, will be proposed at the
AGM to be held on 18 June 2020.
On behalf of the Board
Angela Leach
Company Secretary
10 March 2020
1 2 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report
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 IFRSs
as adopted by the EU and applicable
law and have elected to prepare the
parent company financial statements
in accordance with UK Accounting
Standards.
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;
• for the group financial statements,
state whether they have been
prepared in accordance with IFRSs
as adopted by the EU;
• for the parent company financial
statements, state whether
applicable UK Accounting
Standards have been followed,
subject to any material departures
disclosed and explained in
the parent company financial
statements;
• assess the group and parent
company’s ability to continue as
a going concern, disclosing, as
applicable, matters related to going
concern; 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
2006. They are responsible for such
internal control as they determine is
necessary to enable the preparation
of financial statements that are free
from material misstatement, whether
due to fraud or error, and 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 (which
includes a s172 statement), 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 Group’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 Company and
the undertakings included in the
consolidated group taken as a
whole; and
• the Directors’ Report includes a
fair review of the development
and performance of the business
and the position of the Company
and the undertakings included in
the consolidated group taken as a
whole, together with a description
of the principal risks and
uncertainties that they face.
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
Sir Douglas Flint
Chairman
10 March 2020
1 2 3
OUR GOVERNANCE O
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IP Group plc Annual Report and Accounts for the year ended 31 December 2019 O U R
F I N A N C I A L S
Independent auditor’s report
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of cash flows
Consolidated statement of
changes in equity
Notes to the consolidated
financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Company information
126
134
135
136
137
138
171
172
173
187
R EAD ABOU T WHER E
WE OP ER AT E O N
PAGE S 2 A ND 3
R EAD ABOU T OU R
B USIN ESS MO DE L O N
PAGE S 10 AN D 1 1
1 2 5
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IP GROUP PLC
1. Our opinion is unmodified
We have audited the financial statements of IP Group
plc (“the Company”) for the year ended 31 December
2019 which comprise the consolidated statement of
comprehensive income, the consolidated statement of
financial position, the consolidated statement of cash
flows, the consolidated statement of changes in equity, the
company balance sheet, the company statement of changes
in equity and the related notes, including the accounting
policies in note 1.
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 2019 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 UK accounting
standards, including FRS 101 Reduced Disclosure; 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities are described below. We believe
that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on
13 May 2014. The period of total uninterrupted engagement
is for the six financial years ended 31 December 2019. We
have fulfilled our ethical responsibilities under, and we
remain independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard
as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
We were first appointed as auditor by the shareholders on
13 May 2014. The period of total uninterrupted engagement
is for the six financial years ended 31 December 2019. We
have fulfilled our ethical responsibilities under, and we
remain independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard
as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality:
group financial
statements as a
whole
Coverage
Key audit matters
£10.4m (2018:£13.9m)
0.8% (2018: 1%) of Total Assets
100% (2018:100%)
of Total Assets
vs 2018
Recurring risks
(Group and Parent)
Valuation of unquoted
investments
(Parent)
Recoverability of investment in
subsidiary undertaking
Event driven
Brexit uncertainties
1 2 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the
financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in
the audit; and directing the efforts of the engagement team. We summarise below, the key audit matters, in decreasing
order of audit significance, in arriving at our audit opinion above together with our key audit procedures to address those
matters and our findings from those procedures in order that the Company's members as a body may better understand
the process by which we arrived at our audit opinion. These matters were addressed, and our findings are based on
procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and
in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion
on these matters.
The risk
Our response
The impact of
uncertainties due to
the UK exiting the
European Union on
our audit.
Refer to page 116 for
Audit Committee
Report),
pages 138 to 145
(for accounting
policy) and pages
153 to 157 (financial
disclosures).
Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness
of estimates, in particular as described in valuation of
unquoted investments below, and related disclosures and
the
appropriateness of the going concern basis of preparation
of the financial statements. All of these depend on
assessments of the future economic environment and the
group’s future prospects and performance.
In addition, we are required to consider the other
information presented in the Annual Report including the
principal risks disclosure and the viability statement and
to consider the directors’ statement 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.
Brexit is one of the most significant economic events for
the UK and its effects are subject to unprecedented levels
of uncertainty of consequences, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to
the consideration of the uncertainties arising from Brexit
in planning and performing our audits. Our procedures
included:
Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
Group’s business and financial resources compared with
our own understanding of the risks. We considered the
directors’ plans to take action to mitigate the risks.
Sensitivity analysis: When addressing valuation of
unquoted investments and other areas that depend on
forecasts, we compared the directors’ analysis to our
assessment of the full range of reasonably possible
scenarios resulting from Brexit uncertainty and, where
forecast cash flows are required to be discounted,
consider adjustments to discount rates for the level of
remaining uncertainty.
Assessing transparency: As well as assessing individual
disclosures as part of our procedures on the valuation
of unquoted investments we considered Brexit related
disclosures together, including those in the strategic
report, comparing the overall picture against our
understanding of the risks.
Our findings: As reported under valuation of unquoted
investments, we found the resulting estimates and related
disclosures of valuation of unquoted investments and
disclosures in relation to going concern to be balanced
(2018 finding: balanced). However, no audit should be
expected to predict the unknowable factors or all possible
future implications for a company and this is particularly
the case in relation to Brexit.
1 2 7
OUR FINANCIALS INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF IP GROUP PLC
The risk
Subjective Valuation
Our response
Our procedures included:
89% (2018: 72%) of the Group’s total assets (by value)
is held in investments where no quoted market price is
available.
Unquoted investments are measured at fair value which is
estimated by the directors based on methods established
in accordance with International Private Equity and
Venture Capital Valuations Guidelines
by using measurements of value such as recent funding
and discounted cash flows. Where recent funding rounds
are used, due to the relatively low number of investors
involved in funding rounds, there is a risk that recent
funding round prices on which fair value is based are not
sufficiently at arm’s length to ensure an independent fair
value.
Whether it remains appropriate to use the price of
the recent funding rounds depends on the specific
circumstances of the investment, the involvement of new
investors, the stability of the external environment and the
period since the last funding round occurred. There are a
number of assumptions made by the directors when using
alternative valuation methods such as discounted cash
flows, including the probability of achieving milestones
and the discount rate used.
There is a concentration risk within the unquoted
valuation of Oxford Nanopore Technologies (ONT), of
which the Group’s stake is valued at £263.8m (2018:
£274.1m), comprising 25% of
total investments (2018: 24%).
The effect of these matters is that, as part of our
risk assessment, we determined that the valuation of
unquoted investments has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality
for the financial statements as a whole, and possibly many
times that amount. The financial statements (note 15)
disclose the sensitivity estimated by the Group.
Our sector experience: For a sample of investments,
selected using a combination of specific item and
statistical sampling, assessing and challenging the
reasonableness of the valuation approach used and
considering these against the latest IPEV guidelines;
• For investments valued using a recent funding round
as an appropriate basis for the measurement of the fair
value, including ONT, we evaluate the independence of
the funding round on which this valuation is based (e.g.
presence of new external investors) and corroborate
the price to signed Share Subscription Agreements;
• For those valued based on a funding round aged
greater than 12 months, we corroborate judgements
through discussions with the investment team and
independent support, such as investee board minutes;
• For those valued using alternative valuation methods,
such as a discounted cash flows, we corroborate the
underlying information back to independent support,
such as signed license agreements;
• For those investments initially valued by directors and
challenged and reviewed by external experts engaged
by directors, we corroborate the observable inputs to
the valuations to underlying information;
• Challenging the internal investment manager on key
judgements affecting investee companies valuations,
such as events since the last funding round, probability
of achieving milestone achievements and discount rate
used where applicable. We compared key underlying
financial data inputs to external sources such as
signed legal documentation, the investee company
audited accounts and management information. We
challenged the assumptions included in the valuation
based on the plans of investee companies. in relation
to the unquoted financial investments to be balanced
(2018 finding: balanced) with proportionate disclosures
of the related assumptions and sensitivities (2018
finding: proportionate disclosures).
• Assessment of experts: Assessing the expertise and
experience of the Group’s external valuation experts
used in the corroboration of management’s valuation;
• Our valuation expertise: We utilised a KPMG valuation
specialist to assist us in assessing and challenging
the appropriateness of the valuation methodology.
This included assessing the information used in the
valuation model, in the context of our own industry
knowledge and external data;
• Assessing transparency: We consider the
appropriateness, in accordance with relevant
accounting standards, of the disclosures related to
unquoted investment;
• Assessing existence : We carried out a site visit to
the ONT manufacturing site in Oxfordshire to confirm
existence of their operation;
• Our findings: We found the resulting valuations in
relation to the unquoted financial investments to be
balanced (2018 finding: balanced) with proportionate
disclosures of the related assumptions and sensitivities
(2018 finding: proportionate disclosures).
Valuation of
unquoted
investments.
(£927.9 million; 2018:
£995.0 million)
Refer to page 116
(Audit Committee
Report), page
138 (accounting
policy) and page
155 (financial
disclosures).
1 2 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 In the prior year, the recoverability of goodwill was identified as a key audit matter. However given the size of Goodwill as
at 31 December 2019 (£0.4m) we have not assessed this as one of the most significant risks in our current year audit and
therefore it is not separately identified in our report this year.
The risk
Our response
Recoverability
of investment
in subsidiary
undertakings
(Parent).
(£960 million; 2018:
£1,036 million)
Refer to page 116
(Audit Committee
Report), page
138 (accounting
policy) and page
155 (financial
disclosures).
Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness
of estimates, in particular as described in valuation of
unquoted investments below, and related disclosures and
the
appropriateness of the going concern basis of preparation
of the financial statements. All of these depend on
assessments of the future economic environment and the
group’s future prospects and performance.
In addition, we are required to consider the other
information presented in the Annual Report including the
principal risks disclosure and the viability statement and
to consider the directors’ statement 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.
Brexit is one of the most significant economic events for
the UK and its effects are subject to unprecedented levels
of uncertainty of consequences, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to
the consideration of the uncertainties arising from Brexit
in planning and performing our audits. Our procedures
included:
Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
Group’s business and financial resources compared with
our own understanding of the risks. We considered the
directors’ plans to take action to mitigate the risks.
Sensitivity analysis: When addressing valuation of
unquoted investments and other areas that depend on
forecasts, we compared the directors’ analysis to our
assessment of the full range of reasonably possible
scenarios resulting from Brexit uncertainty and, where
forecast cash flows are required to be discounted,
consider adjustments to discount rates for the level of
remaining uncertainty.
Assessing transparency: As well as assessing individual
disclosures as part of our procedures on the valuation
of unquoted investments we considered Brexit related
disclosures together, including those in the strategic
report, comparing the overall picture against our
understanding of the risks.
Our findings: As reported under valuation of unquoted
investments, we found the resulting estimates and related
disclosures of valuation of unquoted investments and
disclosures in relation to going concern to be balanced
(2018 finding: balanced). However, no audit should be
expected to predict the unknowable factors or all possible
future implications for a company and this is particularly
the case in relation to Brexit.
Total Assets
£1,295.7m (2018: £1,373,3m)
Group Materiality
£10.4m (2018: £13.9m)
3. Our application of materiality and
an overview of the scope of our audit
The materiality for the Group financial statements as a
whole was set at £10.4 m (2018: £13.9m), determined with
reference to a benchmark of Group total assets, of which it
represents 0.8% (2018: 1%).
Materiality for the parent company financial statements
as a whole was set at £7.7m (2018: £12.8m), determined
with reference to a benchmark of total assets, of which it
represents 0.8% (2018: 1%).The scope of our work accounted
for 100% of the Group revenue (2018: 100%), 100% of Group
profit before tax
(2018: 100%) and 100% of the Group’s total assets
(2018: 100%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding
£520,000 (2018: £692,500), in addition to other identified
misstatements that warranted reporting on qualitative
grounds.
n Total assets Group
n Materiality
£10.4m
Whole financial
statements
materiality
(2018: £13.9m)
£0.52m
Misstatements
reported to the
audit committee
(2018: £0.69m)
1 2 9
OUR FINANCIALS INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF IP GROUP PLC
4. We have nothing to report
on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Group or the Company or to cease their operations, and as
they have concluded that the Group’s and the Company’s
financial position means that this is realistic. They have
also concluded that there are no material uncertainties
that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the
date of approval of the financial statements (“the going
concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this
auditor's report is not a guarantee that the Group and the
Company will continue in operation.
In our evaluation of the Directors’ conclusions, we
considered the inherent risks to the Group’s and Company’s
business model and analysed how those risks might affect
the Group’s and Company’s financial resources or ability to
continue operations over the going concern period.
5. We have nothing to report on
the other information in the Annual
Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do
not express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements
or our audit knowledge. Based solely on that work we
have not identified material misstatements in the other
information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the
strategic report and the directors’ report;
•
in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
•
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Based on this work, we are required to report to you if:
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
• we have anything material to add or draw attention to
in relation to the directors’ statement in note 1 to the
financial statements on the use of the going concern
basis of accounting with no material uncertainties
that may cast significant doubt over the Group and
Company’s use of that basis for a period of at least
twelve months from the date of approval of the financial
statements; or
• the related statement under the Listing Rules set out
on page 123 is materially inconsistent with our audit
knowledge.
We have nothing to report in these respects, and we did
not identify going concern as a key audit matter .
1 3 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
• the directors’ confirmation within the viability statement
page 49 that they have carried out a robust assessment
of the principal risks facing the Group, including
those that would threaten its business model, future
performance, solvency and liquidity;
• the risk management disclosures describing these
risks and explaining how they are being managed and
mitigated; and
• the directors’ explanation in the Viability Statement
of how they have assessed the prospects of the
Group, over what period they have done so and why
they considered that period to be appropriate, and
their statement as to whether they have a reasonable
expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due
over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the
Viability Statement. We have nothing to report in this
respect.
Our work is limited to assessing these matters in the
context of only the knowledge acquired during our financial
statements audit. As we cannot predict all future events
or conditions and as subsequent events may result in
outcomes that are inconsistent with judgments that were
reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee
as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures We are required to
report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our financial statements
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 section of the annual report describing the work of
the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We are required to report to you if the Corporate
Governance Statement does not properly disclose a
departure from the eleven provisions of the UK Corporate
Governance Code specified by the Listing Rules for our
review.
We have nothing to report in these respects.
6. We have nothing to report on
the other matters on which we are
required to report by exception
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.
We have nothing to report in these respects.
1 3 1
OUR FINANCIALS INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF IP GROUP PLC
7. Respective responsibilities
Irregularities – ability to detect
Directors’ responsibilities
As explained more fully in their statement set out on page
123, the directors are responsible for: the preparation of
the financial statements including being satisfied that
they give a true and fair view; such internal control as
they determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the
Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting
unless they either intend to liquidate the Group or the
parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue our opinion
in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements
can arise from fraud, other irregularities or error and are
considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and
sector experience, through discussion with the directors
and other management (as required by auditing standards),
from inspection of the group’s regulatory and legal
correspondence and discussion with the directors and
other management the policies and procedures regarding
compliance with laws and regulations. We communicated
identified laws and regulations throughout our team and
remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies
legislation), distributable profits legislation and taxation
legislation, and we assessed the extent of compliance with
these laws and regulations as part of our procedures on the
related financial statement items.
Secondly, the group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures
in the financial statements, for instance through the
imposition of fines or litigation. We identified the following
areas as those most likely to have such an effect: anti-
bribery, employment law, regulatory capital and liquidity
and certain aspects of company legislation recognising
the financial and regulated nature of the group’s activities
and its legal form. Auditing standards limit the required
audit procedures to identify non-compliance with these
laws and regulations to enquiry of the directors and other
management and inspection of regulatory and legal
correspondence, if any. These limited procedures did not
identify actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit
in accordance with auditing standards. For example, the
further removed non-compliance with laws and regulations
(irregularities) is from the events and transactions reflected
in the financial statements, the less likely the inherently
limited procedures required by auditing standards would
identify it. In addition, as with any audit, there remained
a higher risk of non-detection of irregularities, as these
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
We are not responsible for preventing non-compliance and
cannot be expected to detect non-compliance with all laws
and regulations.
1 3 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 8. The purpose of our audit work and
to whom we owe our responsibilities
This report is made solely to the company's members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and the terms of our engagement by
the company . Our audit work has been undertaken so that
we might state to the company's members those matters
we are required to state to them in an auditor's report, and
the further matters we are required to state to them in
accordance with the terms agreed with the company , and
for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other
than the company and the company's members, as a body,
for our audit work, for this report, or for the opinions we
have formed.
Jonathan Martin (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square London
E14 5GL
10 March 2020
1 3 3
OUR FINANCIALS CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Portfolio return and revenue
Change in fair value of equity and debt investments
Gain on disposal of equity investments
Gain on deconsolidation of subsidiary
Change in fair value of limited and limited liability partnership interests
Revenue from services and other income
Administrative expenses
Carried interest plan release
Share-based payment charge
Goodwill impairment
Amortisation of intangible assets
Other administrative expenses
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
Loss for the year
Other comprehensive income
Exchange differences on translating foreign operations
Total comprehensive loss for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Loss per share
Basic (p)
Diluted (p)
The accompanying notes form an integral part of the financial statements.
Note
2019
£m
2018
£m
15
16
17
25
24
12
13
8
7
10
11
11
(70.6)
(50.4)
16.1
10.6
(0.7)
8.6
2.0
—
2.3
9.9
(36.0)
(36.2)
1.3
(2.3)
—
(0.3)
(39.1)
(40.4)
(76.4)
1.2
(3.6)
(78.8)
(0.1)
(78.9)
1.1
(1.9)
(203.2)
(9.9)
(41.8)
(255.7)
(291.9)
1.2
(3.0)
(293.7)
(0.1)
(293.8)
0.1
(78.8)
(0.1)
(293.9)
(75.4)
(3.4)
(78.8)
(7.12)
(7.12)
(293.8)
(0.1)
(293.9)
(27.71)
(27.71)
1 3 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
ASSETS
Non-current assets
Intangible assets:
Goodwill
Acquired intangible assets
Property, plant and equipment
Portfolio:
Equity investments
Debt investments
Limited and limited liability partnership interests
Total non-current assets
Current assets
Trade and other receivables
Receivable on sale of debt and equity investments
Deposits
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Called up share capital
Share premium account
Merger reserve
Retained earnings
Total equity attributable to equity holders
Non-controlling interest
Total equity
Current liabilities
Trade and other payables
EIB debt facility
Non-current liabilities
EIB debt facility
Carried interest plan liability
Loans from limited partners of consolidated funds
Revenue share liability
Total equity and liabilities
Registered number: 4204490
Note
2019
£m
2018
£m
12
13
15
15
25
18
16,19
22
20
21
21
21
15
0.4
—
1.1
1,021.9
23.7
21.4
1,068.5
5.0
27.3
73.0
121.9
227.2
1,295.7
21.2
99.7
—
1,020.5
1,141.4
0.5
1,141.9
26.0
15.4
67.1
5.5
26.0
13.8
0.4
0.3
1.5
1,095.1
33.1
17.3
1,147.7
6.6
—
90.0
129.0
225.6
1,373.3
21.2
684.7
372.6
135.8
1,214.3
3.9
1,218.2
16.5
15.4
82.4
6.8
23.0
11.0
1,295.7
1,373.3
The accompanying notes form an integral part of the financial statements. The financial statements on pages 134 to 137
were approved by the Board of Directors and authorised for issue on 10 March 2020 and were signed on its behalf by:
Greg Smith
Alan Aubrey
Chief Financial Officer
Chief Executive Officer
1 3 5
OUR FINANCIALS CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Operating activities
Operating loss for the period
Adjusted for:
Change in fair value of equity and debt investments
Change in fair value of limited and limited liability partnership interests
Gain on disposal of equity investments
Gain on deconsolidation of subsidiary
Depreciation of property, plant and equipment
Amortisation of intangible non-current assets
Goodwill impairment
Long term incentive carry scheme release
Fees settled in the form of equity
Share-based payment charge
Changes in working capital
Decrease in trade and other receivables
Decrease in trade and other payables
Increase loans from limited partners of consolidated funds
Other operating cash flows
Net interest paid
Net cash outflow from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of equity and debt investments
Investment in limited and limited liability partnership funds
Distribution from limited partnership funds
Net cash flow from deposits
Cash disposed via deconsolidation of subsidiary
Proceeds from sale of equity and debt investments
Net cash inflow/(outflow) from investing activities
Financing activities
Proceeds from the issue of share capital by consolidated portfolio company
Lease principal payment
Repayment of EIB facility
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the financial statements.
Note
2019
£m
2018
£m
(76.4)
(291.9)
15
25
16
17
13
12
15
25
25
17
16
17
21
70.6
0.7
(16.1)
(10.6)
1.2
0.3
—
(1.3)
—
2.3
1.6
9.5
3.0
(2.1)
(17.3)
(0.7)
(64.7)
(6.8)
2.0
17.0
(2.5)
79.5
23.8
2.9
(1.2)
(15.3)
(13.6)
(7.1)
129.0
—
121.9
50.4
(2.3)
(2.0)
—
1.2
9.9
203.2
(1.1)
(0.3)
1.9
1.5
(3.6)
9.9
(1.7)
(24.9)
(0.6)
(100.9)
(4.8)
0.8
5.0
—
29.5
(71.0)
—
—
(6.3)
(6.3)
(102.2)
231.3
(0.1)
129.0
1 3 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Attributable to equity holders of the parent
At 1 January 2018
Comprehensive income
IFRS 3 charge – equity settled
Transfer between reserves on
impairment of subsidiaries
Equity-settled share-based
payments
At 1 January 2019
Capital reduction(v)
Comprehensive income
Purchase of treasury stock(vi)
Equity-settled share-based
payments
Currency translation
At 31 December 2019
Share
capital
£m
21.1
—
0.1
—
—
21.2
—
—
—
—
—
Share
premium(i)
Merger
reserve(ii)
Retained
earnings(iii)
£m
683.1
—
1.6
—
—
684.7
(585.0)
—
—
—
—
£m
508.6
—
—
£m
291.7
(293.8)
—
(136.0)
136.0
—
372.6
(372.6)
—
—
—
—
—
1.9
135.8
957.6
(75.4)
(0.2)
2.3
0.4
Non-
controlling
interest(iv)
£m
4.0
(0.1)
—
—
—
3.9
—
(3.4)
—
—
—
Total
£m
1,504.5
(293.8)
1.7
—
1.9
1,214.3
—
(75.4)
(0.2)
2.3
0.4
Total
equity
£m
1,508.5
(293.9)
1.7
—
1.9
1,218.2
—
(78.8)
(0.2)
2.3
0.4
21.2
99.7
1,020.5
1,141.4
0.5
1,141.9
(i) Share premium – Amount subscribed for share capital in excess of nominal value, net of directly attributable issue costs.
(ii) Merger reserve – Amount subscribed for share capital in excess of nominal value in relation to the qualifying acquisition of subsidiary
undertakings.
(iii) Retained earnings – Cumulative net gains and losses recognised in the consolidated statement of comprehensive income net of associated
share-based payments credits.
(iv) Non-controlling interest – Share of profits attributable to the Limited Partners of IP Venture Fund II LP – a consolidated fund which was
created in May 2013 – as well as the equity invested in partially-owned subsidiaries that is held by third parties.
(v) In 2019 Group effected a reduction of capital and cancellation of share premium account, which was count approved on 17th December
2019, resulting in the reduction in the share premium and merger reserves, and a corresponding increase in retained earnings. For further
details see page 75.
(vi) Reflects purchase of IP Group equity to settle exercise of options in respect of the Group’s Defined Benefit Share Plan.
(vii) Reflects currency translation differences on reserves non-GBP functional currency subsidiaries.
The accompanying notes form an integral part of the financial statements.
1 3 7
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Accounting policies
Basis of preparation
The Annual Report and Accounts of IP Group plc (“IP Group” or the “Company”) and its subsidiary companies (together,
the “Group”) are for the year ended 31 December 2019. The principal accounting policies adopted in the preparation of
the financial statements are set out below. The policies have been consistently applied to all the years presented, unless
otherwise stated. These financial statements have been prepared in accordance with 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 preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates.
It also requires Group management to exercise judgement in the most appropriate selection of the Group’s accounting
policies. The areas where significant judgements and estimates have been made in preparing the financial statements and
their effect are disclosed in note 3.
The financial statements are prepared on a going concern basis, as the directors are satisfied that the Group and parent
Company have the resources to continue in business for the foreseeable future. In making this assessment, the directors
have considered a wide range of information relating to present and future conditions, including future projections of
profitability, cash flows and capital resources.
Changes in accounting policies
(i) New standards, interpretations and amendments effective from 1 January 2019
The following new standards have been applied in these financial statements:
IFRS 16 Leases
IFRS 16 Leases was issued on 13 January 2016 and replaces IAS 17 Leases. IFRS 16 requires all operating leases in excess
of one year, where the Group is the lessee, to be included on the Group’s statement of financial position, and recognised
as a right-of-use (“ROU”) asset and a related lease liability representing the obligation to make lease payments. The ROU
asset will be amortised on a straight-line basis with the lease liability being amortised using the effective interest method.
Optional exemptions are available under IFRS 16 for short-term leases (lease terms less than 12 months) and for small-value
leases.
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has
not been restated and continues to be reported under IAS 17. The details of accounting policies under IAS 17 are disclosed
separately if they are different from those under IFRS 16 and the impact of changes is disclosed in note 23.
(ii) New standards, interpretations and amendments not yet effective
No new standards, interpretations and amendments not yet effective are expected to have a material effect on the Group’s
future financial statements.
Basis of consolidation
(i) Business combinations
The Group accounts for business combinations using the acquisition method from the date that control is transferred to
the Group (see (ii) Subsidiaries below). Both the identifiable net assets and the consideration transferred in the acquisition
are measured at fair value at the date of acquisition and transaction costs are expensed as incurred. Goodwill arising on
acquisitions is tested at least annually for impairment. In instances where the Group owns a non-controlling stake prior to
acquisition the step acquisition method is applied, and any gain or losses on the fair value of the pre-acquisition holding is
recognised in the consolidated statement of comprehensive income.
1 3 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 1. Accounting policies continued
(ii) Subsidiaries
Where the Group has control over an entity, it is classified as a subsidiary. Typically, the Group owns a non-controlling
interest in its portfolio companies; however, in certain circumstances, the Group takes a controlling interest and hence treats
the portfolio company as a subsidiary. As per IFRS 10, an entity is classed as under the control of the Group when all three
of the following elements are present: power over the entity; exposure to variable returns from the entity; and the ability of
the Group to use its power to affect those variable returns.
In situations where the Company has the practical ability to direct the relevant activities of the investee without holding the
majority of the voting rights, it is considered that de facto control exists. In determining whether de facto control exists the
Group considers all relevant facts and circumstances, including:
• The size of the Company’s voting rights relative to both the size and dispersion of other parties who hold voting rights;
• Substantive potential voting rights held by the Company and by other parties;
• Other contractual arrangements; and
• Historic patterns in voting attendance.
In assessing the IFRS 10 control criteria in respect of the Group’s private portfolio companies, direction of the relevant
activities of the company is usually considered to be exercised by the company’s board, therefore the key control
consideration is whether the Group currently has a majority of board seats on a given company’s board, or is able to obtain
a majority of board seats via the exercise of its voting rights. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single
entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. The consolidated
financial statements incorporate the results of business combinations using the acquisition method. In the statement of
financial position, the acquiree’s identifiable assets and liabilities are initially recognised at their fair values at the acquisition
date. Contingent liabilities dependent on the disposed value of an associated investment are only recognised when the fair
value is above the associated threshold. The results of acquired operations are included in the consolidated statement of
comprehensive income from the date on which control is obtained. They are consolidated until the date on which control
ceases.
(iii) Associates
Associates are portfolio companies over which the Group has significant influence, but does not control, generally
accompanied by a shareholding of between 20% and 50% of the voting rights.
As permitted under IAS 28, the Group elects to hold such investments at fair value through profit and loss in accordance
with IFRS 9. This treatment is specified by IAS 28 Investment in Associates and Joint Ventures, which permits investments
held by a venture capital organisation or similar entity to be excluded from its measurement methodology requirements
where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for
in accordance with IFRS 9 Financial Instruments. Therefore, No associates are presented on the consolidated statement of
financial position.
Changes in fair value of associates are recognised in profit or loss in the period of the change. The Group has no interests in
associates through which it carries on its business.
The disclosures required by Section 409 of the Companies Act 2006 for associated undertakings are included in note 10 of
the Company financial statements. Similarly, those investments which may not have qualified as an Associate but fall within
the wider scope of significant holdings and so are subject to Section 409 disclosure acts are also included in note 10 of the
Company financial statements.
1 3 9
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
1. Accounting policies continued
(iv) Limited Partnerships and Limited Liability Partnerships (“Limited Partnerships”)
Group entities act as general partner and investment manager to the following Limited Partnerships:
Name
IPG Cayman LP
IP Venture Fund II LP (“IPVFII”)
IP Venture Fund LP (“IPVF”)
The North East Technology Fund LP (“NETF”)
Interest in limited
partnership
%
87.0
33.3
10.0
—
The Group receives compensation for its role as investment manager to these Limited Partnerships, including fixed fees and
performance fees. The directors consider that these amounts are in substance and form “normal market rate” compensation
for its role as investment manager.
In order to determine whether these Limited Partnerships were required to be consolidated, the presence of the three
elements of control noted in part (ii) was examined.
In the case of IPG Cayman LP and IPVFII, the Group has power over the entity as fund manager, and Group’s significant
stake in these funds creates an exposure to variable returns from those interests, and the Group can use its power to affect
those variable returns. As such, IPG Cayman LP and IPVFII meet the criteria in IFRS 10 Consolidated Financial Statements
and are consequently consolidated.
In the case of IPVF, the directors consider that the minority Limited Partnership interest does not create an exposure of
such significance that it indicates that the Group acts as anything other than an agent for the other Limited Partners in the
arrangement. This is further supported by the presence of a strict investment policy and the inability for the general partner
to change the restrictive terms of that policy other than with agreement of 100% of IPVF’s Limited Partners.
Similarly, the lack of a stake in NETF indicates the Group’s role as an agent for the limited partner. As a result, the directors
consider that the Group does not have the power to govern the operations of these limited partnerships so as to obtain
benefits from their activities and accordingly do not meet the definition of a subsidiary under IFRS 10 Consolidated
Financial Statements. However, the Group does have the power to exercise significant influence over its limited partnerships
and accordingly the Group’s accounting treatment for the interest in IPVF is consistent with that of associates as described
earlier in this report, i.e. in accordance with IFRS 9 Financial Instruments and designated as at fair value through profit or
loss on initial recognition.
In addition to Limited Partnerships where Group entities act as general partner and investment manager, the Group has
interests in three further entities which are all managed by third parties:
Name
UCL Technology Fund LP (“UCL Fund”)
Technikos LLP (“Technikos”)
Apollo Therapeutics LLP (“Apollo Fund”)
Interest
in limited
partnership
%
46.4
18.0
8.3
The Group has a 46.4% interest in the total capital commitments of the UCL Fund. The Group has committed £24.8m to
the fund alongside the European Investment Fund (“EIF”), University College London and other investors. Participation in
the UCL Fund provides the Group with the opportunity to generate financial returns and visibility of potential intellectual
property from across University College London’s research base.
The Group has an 18.0% interest in the total capital commitments of Technikos, a fund with an exclusive pipeline agreement
with Oxford University’s Institute of Biomedical Engineering.
The Group has an 8.3% interest in the total capital commitments of Apollo Therapeutics LLP (“Apollo”), a £40.0m venture
between AstraZeneca, GlaxoSmithKline, Johnson & Johnson and the technology transfer offices of Imperial College London
(via IP2IPO Innovations Limited), University College London (via UCL Business plc) and the University of Cambridge (via
Cambridge Enterprise Limited). The venture supports the translation of academic therapeutic science into innovative new
medicines by combining the skills of the university academics with industry expertise at an early stage.
Investments in these Limited and Limited Liability Partnerships are recognised at fair value through profit and loss in
accordance with IFRS 9.
1 4 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 1. Accounting policies continued
(v) Non-controlling interests
The total comprehensive income, assets and liabilities of non-wholly owned subsidiaries are attributed to owners of the
parent and to the non-controlling interests in proportion to their relative ownership interests.
Portfolio return and revenue
Change in fair value
Change in fair value of equity and debt investments represents revaluation gains and losses on the Group’s portfolio of
investments. Gains on disposal of equity investments represent the difference between the fair value of consideration
received and the carrying value at the start of the accounting period on the disposal of equity investments. Change in fair
value of Limited Partnership investments represents revaluation gains and losses on the Group’s investments in Limited
Partnership funds. Changes in fair values of assets do not constitute revenue.
Revenue from services and other income
All revenue from services is generated primarily from within the United Kingdom and is stated exclusive of value added tax,
with further revenue generated in the Group’s Australian and US operations. Revenue is recognised when the Group satisfies
its performance obligations, in line with IFRS 15. Revenue from services and other income comprises:
Advisory fees
Fees earned from the provision of business support services including IP Assist and IP Exec services and fees for IP Group
representation on portfolio company boards are recognised as the related services are provided. Corporate finance advisory
fees are generally earned as a fixed percentage of total funds raised and recognised at the time the related transaction
is successfully concluded. In some instances, these fees are settled via the issue of equity in the company receiving the
corporate finance services at the same price per share as equity issued as part the financing round to which the advisory
fees apply.
Fund management services
Fund management fees include fiduciary fund management fees which are generally earned as a fixed percentage of total
funds under management and are recognised as the related services are provided and performance fees payable from
realisation of agreed returns to investors which are recognised as performance criterion are met.
Licence and royalty income
The Group’s IP licenses typically constitute separate performance obligations, being separate from other promised goods or
services. Revenue is recognised in line with the performance obligations included in the license, which can include sales-
based, usage-based on milestone-based royalties.
Dividends
Dividends receivable from equity shares are included within other portfolio income and recognised on the ex-dividend date
or, where no ex-dividend date is quoted, are recognised when the Group’s right to receive payment is established.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets and allocated
from the acquisition date to each of the Group’s cash generating units (“CGUs”) that are expected to benefit from the
business combination. Goodwill may be allocated to CGUs in both the acquired business and in the existing business.
Other intangible assets
Other intangible assets represent contractual arrangements and memorandums of understanding with UK universities
acquired through acquisition of subsidiaries. At the date of acquisition, the cost of these intangibles as a share of the larger
acquisition was calculated and subsequently the assets are held at amortised cost.
Impairment of intangible assets (including goodwill)
Goodwill is not subject to amortisation but is tested for impairment annually and whenever events or circumstances
indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment
when events or a change in circumstances indicate that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of the asset’s fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are
grouped at the lowest levels for which there are identifiable cash flows (i.e. CGUs).
1 4 1
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
1. Accounting policies continued
Financial assets
In respect of regular way purchases or sales, the Group uses trade date accounting to recognise or derecognise financial
assets.
Financial assets are derecognised when the rights to receive cash flows from the assets have expired or the Group has
transferred substantially all risks and rewards of ownership.
The Group classifies its financial assets into one of the categories listed below, depending on the purpose for which the
asset was acquired. None of the Group’s financial assets are categorised as held to maturity or available for sale.
(i) At fair value through profit or loss
Held for trading and financial assets are recognised at fair value through profit and loss. This category includes equity
investments, debt investments and investments in limited partnerships. Investments in associated undertakings, which are
held by the Group with a view to the ultimate realisation of capital gains, are also categorised as at fair value through profit
or loss. This measurement basis is consistent with the fact that the Group’s performance in respect of investments in equity
investments, limited partnerships and associated undertakings is evaluated on a fair value basis in accordance with an
established investment strategy.
Financial assets at fair value through profit or loss are initially recognised at fair value and any gains or losses arising from
subsequent changes in fair value are presented in profit or loss in the statement of comprehensive income in the period
which they arise.
Fair value hierarchy
The Group classifies financial assets using a fair value hierarchy that reflects the significance of the inputs used in making
the related fair value measurements. The level in the fair value hierarchy, within which a financial asset is classified, is
determined on the basis of the lowest level input that is significant to that asset’s fair value measurement. The fair value
hierarchy has the following levels:
Level 1 – Quoted prices in active markets.
Level 2 – Inputs other than quoted prices that are observable, such as prices from market transactions.
Level 3 – One or more inputs that are not based on observable market data.
Previously, the Group’s policy was to classify equity investments in unquoted spin-out companies as Level 3a where prices
had been determined from recent investments in the last twelve months, and as Level 3b where prices had been determined
from recent investments in more than twelve months and other valuation techniques. The Group has amended this policy
to reflect revised IPEV guidelines which specify that the Price of a Recent Investment represents one of a number of inputs
used to arrive at fair value, and now uses a single classification for all Level 3 equity investments. Comparative information
had been represented accordingly for consistency.
Equity investments
Fair value is the underlying principle and is defined as “the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date” (IPEV guidelines, December 2018).
Where the equity structure of a portfolio company involves different class rights in a sale or liquidity event, the Group takes
these different rights into account when forming a view on the value of its investment.
Valuation techniques used
The fair value of unlisted securities is established using appropriate valuation techniques in line with IPEV guidelines.
The selection of appropriate valuation techniques is considered on an individual basis in light of the nature, facts and
circumstances of the investment and in the expected view of market participants. The Group selects valuation techniques
which make maximum use of market-based inputs. Techniques are applied consistently from period to period, except where
a change would result in better estimates of fair value. Multiple valuation techniques may be used so that the results of one
technique may be used as a cross check/corroboration of an alternative technique.
1 4 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 1. Accounting policies continued
Valuation techniques used include:
• Quoted investments: the fair values of quoted investments are based on bid prices in an active market at the reporting
date.
• Milestone approach: an assessment is made as to whether there is an indication of change in fair value based on a
consideration of the relevant milestones typically agreed at the time of making the investment decision.
• Scenario analysis: a forward-looking method that considers one or more possible future scenarios. These methods
include simplified scenario analysis and relative value scenario analysis, which tie to the fully diluted (“post-money”)
equity value, as well as full scenario analysis vie the use of the probability-weighted expected return method (PWERM).
• Current value method: the estimation and allocation of the equity value to the various equity interests in a business as
though the business were to be sold on the Measurement Date.
• Discounted cash flows: deriving the value of a business by calculating the present value of expected future cash flows.
• Multiples: the application of an appropriate multiple to a performance measure (such as earnings or revenue) of the
Investee Company in order to derive a value for the business.
The fair value indicated by a recent transaction is used to calibrate inputs used with valuation techniques including those
noted above. At each measurement date, an assessment is made as to whether changes or events subsequent to the
relevant transaction would imply a change in the investment’s fair value. The Price of a Recent Investment is not considered
a standalone valuation technique (see further considerations below). Where the current fair value of an investment is
unchanged from the price of a recent financing, the group refers to the valuation basis as ‘Recent Financing’.
Price of recent investment as an input in assessing fair value
The Group considers that fair value estimates which are based primarily on observable market data will be of greater
reliability than those based on assumptions. Given the nature of the Group’s investments in seed, start-up and early-stage
companies, where there are often no current and no short-term future earnings or positive cash flows, it can be difficult
to gauge the probability and financial impact of the success or failure of development or research activities and to make
reliable cash flow forecasts. Consequently, in many cases the most appropriate approach to fair value is a valuation
technique which is based on market data such as the price of a recent investment, and market participant assumptions as
to potential outcomes.
Calibrating such scenarios or milestones may result in a fair value equal to price of recent investment for a limited period of
time. Often qualitative milestones provide a directional indication of the movement of fair value.
In applying a calibrated scenario or milestone approach to determine fair value consideration is given to performance
against milestones that were set at the time of the original investment decision, as well as taking into consideration the key
market drivers of the investee company and the overall economic environment. Factors that the Group considers include,
inter alia, technical measures such as product development phases and patent approvals, financial measures such as cash
burn rate and profitability expectations, and market and sales measures such as testing phases, product launches and
market introduction.
Where the Group considers that there is an indication that the fair value has changed, an estimation is made of the required
amount of any adjustment from the last price of recent investment.
Where a deterioration in value has occurred, the Group reduces the carrying value of the investment to reflect the
estimated decrease. If there is evidence of value creation the Group may consider increasing the carrying value of the
investment; however, in the absence of additional financing rounds or profit generation it can be difficult to determine the
value that a market participant may place on positive developments given the potential outcome and the costs and risks to
achieving that outcome and accordingly caution is applied.
Debt investments
Debt investments are generally unquoted debt instruments which are convertible to equity at a future point in time.
Such instruments are considered to be hybrid instruments containing a fixed rate debt host contract with an embedded
equity derivative. The Group designates the entire hybrid contract at fair value through profit or loss on initial recognition
and, accordingly, the embedded derivative is not separated from the host contract and accounted for separately. The
price at which the debt investment was made may be a reliable indicator of fair value at that date depending on facts
and circumstances. Any subsequent remeasurement will be recognised as changes in fair value in the statement of
comprehensive income.
1 4 3
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
1. Accounting policies continued
(ii) At amortised cost
These assets are non-derivative financial assets with fixed and determinable payments that are not quoted in an active
market. They arise principally through the provision of services to customers (trade receivables) and are carried at cost less
provision for impairment.
Deposits
Deposits comprise longer-term deposits held with financial institutions with an original maturity of greater than three
months and, in line with IAS 7 are not included within cash and cash equivalents. Cash flows related to amounts held on
deposit are presented within investing activities in the consolidated statement of cash flows.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and short-term deposits held with financial institutions with an original
maturity of three months or less.
Financial liabilities
Current financial liabilities are composed of trade payables and other short-term monetary liabilities, which are recognised
at amortised cost.
Non-current liabilities are composed of loans from Limited Partners of consolidated funds, outstanding amounts drawn
down from a debt facility provided by the European Investment Bank, carried interest plans liabilities, and revenue share
liabilities arising as a result of the Group’s former Technology Pipeline Agreement with University College London.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised
in the consolidated statement of comprehensive income over the period of the borrowing using the effective interest rate
method.
The Group consolidates the assets of two managed funds in which it has a significant economic interest, specifically
co-investment fund IP Venture Fund II LP and IPG Cayman LP. The latter was created in late 2018 to facilitate third-party
investment into the Group’s US portfolio. Loans from third parties of consolidated funds represent third-party loans into
these partnerships. These loans are repayable only upon these funds generating sufficient realisations to repay the Limited
Partners. Management anticipates that the funds will generate the required returns and consequently recognises the full
associated liabilities.
The Group operates a carried interest plan or Long Term Incentive Carry Scheme (“LTICS”) for eligible employees. Before
any payment to a participant becomes due under the scheme, the Group must first have received back the amount of their
investment in the relevant vintage together with a hurdle rate of 8% per annum compound on their investment. At the point
at which the hurdle rate has been exceeded a liability is recognised for the unrealised gain due to members of the scheme
vintage. The liability is measured by reference to the fair value of the relevant investments, with movements in the liability
being recognised in the consolidated statement of comprehensive income.
The Group provides for liabilities in respect of revenue sharing obligations arising under the former Technology Pipeline
Agreement with Imperial College London. Under this agreement, the Group received founder equity in spin out companies
from Imperial College, and following a sale of such founder equity, a pre-specified ‘revenue share’ (typically 50%) is payable
to Imperial College and other third parties. The liability for this revenue-share, based on fair value, is recognised as part of
the movement in fair value through profit or loss (see note 15 for further details).
Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation to their
fair value. Non-current liabilities are recognised initially at fair value net of transaction costs incurred, and subsequently at
amortised cost.
Share capital
Financial instruments issued by the Group are treated as equity if the holders have only a residual interest in the Group’s
assets after deducting all liabilities. The objective of the Group is to manage capital so as to provide shareholders with
above- average returns through capital growth over the medium to long-term. The Group considers its capital to comprise
its share capital, share premium, merger reserve and retained earnings.
Top Technology Ventures Limited, Parkwalk Advisors Ltd and Touchstone Investment Management Limited, are Group
subsidiaries which are subject to external capital requirements imposed by the Financial Conduct Authority (“FCA”) and as
such must ensure that it has sufficient capital to satisfy these requirements. The Group ensures it remains compliant with
these requirements as described in their respective financial statements.
1 4 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 1. Accounting policies continued
Employee benefits
(i) Pension obligations
The Group operates a company defined contribution pension scheme for which all employees are eligible. The assets of
the scheme are held separately from those of the Group in independently administered funds. The Group currently makes
contributions on behalf of employees to this scheme or to employee personal pension schemes on an individual basis. The
Group has no further payment obligations once the contributions have been paid. The contributions are recognised as
employee benefit expenses when they are due.
(ii) Share-based payments
The Group engages in equity-settled share-based payment transactions in respect of services receivable from employees,
by granting employees conditional awards of ordinary shares subject to certain vesting conditions.
Conditional awards of shares are made pursuant to the Group’s Long Term Incentive Plan (“LTIP”) awards and/or the
Group’s Annual Incentive Scheme (“AIS”). The fair value of the shares is estimated at the date of grant, taking into account
the terms and conditions of the award, including market-based performance conditions.
The fair value at the date of grant is recognised as an expense over the period that the employee provides services,
generally the period between the start of the performance period and the vesting date of the shares. The corresponding
credit is recognised in retained earnings within total equity. The fair value of services is calculated using the market value on
the date of award and is adjusted for expected and actual levels of vesting. Where conditional awards of shares lapse the
expense recognised to date is credited to the statement of comprehensive income in the year in which they lapse.
Where the terms for an equity-settled award are modified, and the modification increases the total fair value of the
share-based payment, or is otherwise beneficial to the employee at the date of modification, the incremental fair value is
amortised over the vesting period.
Deferred tax
Full provision is made for deferred tax on all temporary differences resulting from the carrying value of an asset or liability
and its tax base. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by
the reporting date and are expected to apply when the related deferred tax asset is realised or deferred tax liability settled.
Deferred tax assets are recognised to the extent that it is probable that the deferred tax asset will be recovered in the
future.
Leases
Following the adoption of IFRS 16 all operating leases in excess of one year, where the Group is the lessee, are included
on the Group’s statement of financial position, and recognised as a right-of-use (“ROU”) asset and a related lease liability
representing the obligation to make lease payments. The ROU asset is amortised on a straight-line basis with the lease
liability being amortised using the effective interest method. Short-term leases (lease terms less than 12 months) and small-
value leases are exempt from IFRS 16 and are charged to the statement of comprehensive income on a straight-line basis
over the term of the lease.
1 4 5
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
2. Financial risk management
As set out in the principal risks and uncertainties section on pages 39 to 48, the Group is exposed, through its normal
operations, to a number of financial risks, the most significant of which are market, liquidity and credit risks.
In general, risk management is carried out throughout the Group under policies approved by the Board of Directors. The
following further describes the Group’s objectives, policies and processes for managing those risks and the methods
used to measure them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
(a) Market risk
(i) Price risk
The Group is exposed to equity securities price risk as a result of the equity and debt investments, and investments in
Limited Partnerships held by the Group and categorised as at fair value through profit or loss.
The Group mitigates this risk by having established investment appraisal processes and asset monitoring procedures which
are subject to overall review by the Board. The Group has also established corporate finance and communications teams
dedicated to supporting portfolio companies with fundraising activities and investor relations.
The Group holds investments which are publicly traded on AIM (13 companies) and investments which are not traded on an
active market.
The net portfolio loss in 2019 of £43.9m represents a 4.4% reduction against the opening balance (2018: net loss of £48.4m,
a 4.3% reduction) and a similar increase or decrease in the prices of quoted and unquoted investments is considered to
be reasonably possible. The table below summarises the impact of a 1% increase/decrease in the price of both quoted and
unquoted investments on the Group’s post-tax profit for the year and on equity.
Equity and debt investments and
investments in limited partnerships
2019
Quoted
£m
Unquoted
£m
1.2
9.5
Total
£m
10.7
2018
Quoted
£m
Unquoted
£m
1.3
10.1
Total
£m
11.4
(ii) Interest rate risk
The Group holds three EIB debt facilities with the overall balance as at 31 December 2019 amounting to £82.7m (2018:
£97.8m) with £20.1m being subject to variable rate interest (2018: £24.0m) and £62.6m (2018: £73.8m) being subject to
fixed rate interest of 3.2%.
The variable rate consists of two elements. A facility of £30m which bears interest at a fixed rate of 1.98% with an additional
variable spread equal to the six-month GBP LIBOR rate as at the first date of each six-month interest period. The average
floating interest rate (including the fixed element) for 2019 was 2.9% (2018: 2.69%). The second facility of £8.1m is based on
a floating interest rate including LIBOR and the average interest in the year was 3.64% (2018: 3.42%). There are no hedging
instruments in place to cover against interest rate fluctuation as exposure is deemed insignificant.
The other primary impact of interest rate risk to the Group is the impact on the income and operating cash flows as a result
of the interest-bearing deposits and cash and cash equivalents held by the Group.
1 4 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 2. Financial risk management continued
(iii) Concentrations of risk
The Group is exposed to concentration risk via the significant majority of the portfolio being UK-based companies and thus
subject to the performance of the UK economy. The Group is increasing its operations in the US and the determination
of the associated concentrations is determined by the number of investment opportunities that management believes
represent a good investment.
The Group mitigates this risk, in co-ordination with liquidity risk, by managing its proportion of fixed to floating rate financial
assets. The table below summarises the interest rate profile of the Group.
Financial assets
Equity investments
Debt investments
Limited and limited liability
partnership interests
Deposits
Cash and cash equivalents
Trade receivables
Other receivables
Receivable on sale of debt and equity
investments
Financial liabilities
Trade payables
Other accruals and deferred income
EIB debt facility
Carried interest plan liability
Revenue share liability
Loans from limited partners of
consolidated funds
2019
2018
Fixed
rate
£m
Floating
rate
£m
Interest
free
£m
Total
£m
Fixed
rate
£m
Floating
rate
£m
Interest
free
£m
Total
£m
—
—
—
73.0
—
—
—
—
—
—
—
—
121.9
—
—
—
1,021.9
1,021.9
23.7
23.7
21.4
—
—
1.4
3.6
21.4
73.0
121.9
1.4
3.6
27.3
27.3
—
—
—
90.0
—
—
—
—
—
—
—
—
129.0
—
—
—
1,095.1
1,095.1
33.1
33.1
17.3
—
—
4.3
1.5
—
17.3
90.0
129.0
4.3
1.5
—
73.0
121.9
1,099.3
1,294.2
90.0
129.0
1,151.3
1,370.3
—
—
—
—
(62.6)
(19.9)
—
—
—
—
(62.6)
(19.9)
(1.5)
(24.5)
—
(5.5)
(13.7)
(1.4)
(24.5)
(82.5)
(5.5)
(13.7)
(26.1)
(71.3)
(26.0)
(153.8)
—
—
—
—
(73.8)
(24.0)
—
—
—
—
—
—
(73.8)
(24.0)
(1.7)
(14.7)
—
(6.8)
(11.0)
(1.7)
(14.7)
(97.8)
(6.8)
(11.0)
(23.0)
(57.2)
(23.0)
(155.0)
At 31 December 2019, if interest rates had been 1% higher/lower, post-tax profit for the year, and other components of
equity, would have been £1.6m (2018: £1.0m) higher/lower as a result of higher interest received on floating rate cash
deposits.
(b) Liquidity risk
The Group seeks to manage liquidity risk, to ensure sufficient liquidity is available to meet foreseeable needs and to invest
cash assets safely and profitably. The Group’s Treasury Management Policy asserts that at any one point in time no more
than 60% of the Group’s cash and cash equivalents will be placed in fixed-term deposits with a holding period greater
than three months. Accordingly, the Group only invests working capital in short-term instruments issued by reputable
counterparties. The Group continually monitors rolling cash flow forecasts to ensure sufficient cash is available for
anticipated cash requirements.
(c) Credit risk
The Group’s credit risk is primarily attributable to its deposits, cash and cash equivalents, debt investments and trade
receivables. The Group seeks to mitigate its credit risk on cash and cash equivalents by making short-term deposits with
counterparties, or by investing in treasury funds with an “AA” credit rating or above managed by institutions. Short-term
deposit counterparties are required to have most recently reported total assets in excess of £5bn and, where applicable,
a prime short-term credit rating at the time of investment (ratings are generally determined by Moody’s or Standard &
Poor’s). Moody’s prime credit ratings of “P1”, “P2” and “P3” indicate respectively that the rating agency considers the
counterparty to have a “superior”, “strong” or “acceptable” ability to repay short-term debt obligations (generally defined
as having an original maturity not exceeding 13 months). An analysis of the Group’s deposits and cash and cash equivalents
balance analysed by credit rating as at the reporting date is shown in the table opposite. All other financial assets are
unrated.
1 4 7
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
2. Financial risk management continued
Credit rating
P1
P2
AAAMMF *
Other
Total deposits and cash and cash equivalents
2019
£m
176.1
—
13.2
5.6
194.9
2018
£m
64.1
134.7
14.1
6.1
219.0
*The Group holds £13.2m (2018: £14.1m) with JP Morgan GBP liquidity fund, which has a AAAMMF credit rating with Fitch
The Group holds £3.1m (2018 £6.1m) with Arbuthnot Latham, a private bank with no debt in issue and, accordingly, on which
a credit rating is not applicable. Bloomberg assess Arbuthnot Latham’s 1-year default probability at 0.1127% (2018: 0.0457%).
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and
customers. The Group has detailed policies and strategies which seek to minimise these associated risks including defining
maximum counterparty exposure limits for term deposits based on their perceived financial strength at the commencement
of the deposit. The maximum single counterparty limit for fixed term deposits in excess of 3 months at 31 December 2019
was the greater of 25% of total group cash or £50.0m (2018: 25%, £50.0m). In addition, no single institution may hold
greater than great then 50% of total cash or £50m. (2018: 50%, £50m)
The Group’s exposure to credit risk on debt investments is managed in a similar way to equity price risk, as described earlier,
through the Group’s investment appraisal processes and asset monitoring procedures which are subject to overall review by
the Board.
The maximum exposure to credit risk for debt investments, receivables and other financial assets is represented by their
carrying amount.
3. Significant accounting estimates and judgements
The directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated
and are based on historical experience and other factors, such as expectations of future events, and are believed to be
reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions
which have the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are
discussed below.
(i) Valuation of unquoted equity and debt investments
The group’s accounting policy in respect of the valuation of unquoted equity investments is set out in Note 1. In applying
this policy, the key areas over which judgment are exercised include:
• Consideration of whether a funding round is sufficiently arm’s length to be representative of fair value
• The relevance of the price of recent investment as an input to fair value
•
In the case of companies with complex capital structures, the appropriate methodology for assigning value to different
classes of equity based on their differential economic rights
• Where using valuation methods such as discounted cash flows, inputs including the probability of achieving milestones
and the discount rate used.
• Debt investments typically represent convertible debt, in such cases judgment is exercised in respect of the estimated
equity value received on conversion of the loan.
In all cases, valuations are based on the judgement of the Directors after consideration of the above and upon available
information believed to be reliable, which may be affected by conditions in the financial markets. Due to the inherent
uncertainty of the investment valuations, the estimated values may differ significantly from the values that would have been
used had a ready market for the investments existed, and the differences could be material.
1 4 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 4. Revenue from services
Revenue from services is derived from the provision of advisory and venture capital fund management services or from
licensing activities, royalty revenues and patent cost recoveries.
5. Operating segments
For both the year ended 31 December 2019 and the year ended 31 December 2018, the Group’s revenue and loss before
taxation were derived largely from its principal activities within the UK.
For management reporting purposes, the Group is currently organised into two operating segments:
i. the commercialisation of intellectual property via the formation of long-term partner relationships with universities;
ii. the management of venture capital funds focusing on early-stage UK technology companies;
Consideration has been given to whether the UK Life Sciences and Technology partnerships or the US and Australasian
operations represent separate reporting segments. In light of the executive-level management of several strategic assets
in the portfolio, the involvement of the Board in the investment approval process for larger investments, and following
consideration of the criteria for aggregation of operating segments, we conclude that this is not the case.
These activities are described in further detail in the strategic report on pages 4 to 11.
Year ended 31 December 2019
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments
Gain on disposal of equity investments
Gain on deconsolidation of subsidiary
Change in fair value of limited and limited liability partnership interests
Revenue from services and other income
Administrative expenses
Carried interest plan release
Share-based payment charge
Amortisation of intangible assets
Administrative expenses
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
Loss for the year
STATEMENT OF FINANCIAL POSITION
Assets
Liabilities
Net assets
Other segment items
Capital expenditure
Depreciation
University
partnership
business
£m
Venture
capital fund
management
£m
Consolidated
£m
(70.6)
16.1
10.6
(0.7)
3.1
(41.5)
1.3
(2.3)
(0.3)
(35.0)
(77.8)
1.1
(3.6)
(80.3)
(0.1)
(80.4)
1,276.0
(146.2)
1,129.8
0.5
(1.1)
—
—
—
—
5.5
5.5
—
—
—
(4.1)
1.4
0.1
—
1.5
—
1.5
19.7
(7.6)
12.1
0.2
(0.1)
(70.6)
16.1
10.6
(0.7)
8.6
(36.0)
1.3
(2.3)
(0.3)
(39.1)
(76.4)
1.2
(3.6)
(78.8)
(0.1)
(78.9)
1,295.7
(153.8)
1,141.9
0.7
(1.2)
1 4 9
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
UK
£m
Non-UK
£m
Consolidated
£m
(47.2)
(29.4)
(76.6)
(2.4)
(79.0)
—
(79.0)
11.2
(11.0)
0.2
—
0.2
(0.1)
0.1
(36.0)
(40.4)
(76.4)
(2.4)
(78.8)
(0.1)
(78.9)
UK
£m
Non-UK
£m
Consolidated
£m
220.2
1,001.3
(40.0)
(103.0)
1,078.5
7.0
67.2
(1.4)
(9.4)
63.4
227.2
1,068.5
(41.4)
(112.4)
1,141.9
University
partnership
business
£m
Venture
capital fund
management
£m
Consolidated
£m
(50.4)
2.0
—
2.3
3.4
(42.7)
1.1
(1.9)
(9.2)
(201.1)
(34.3)
(288.1)
1.2
(3.0)
(289.9)
(0.1)
(290.0)
—
—
—
—
6.5
6.5
—
—
(0.7)
(2.1)
(7.5)
(3.8)
—
—
(3.8)
—
(3.8)
(50.4)
2.0
—
2.3
9.9
(36.2)
1.1
(1.9)
(9.9)
(203.2)
(41.8)
(291.9)
1.2
(3.0)
(293.7)
(0.1)
(293.8)
5. Operating segments continued
Year ended 31 December 2019
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue
Administrative expenses
Operating (loss)/profit
Net interest
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year
Year ended 31 December 2019
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total equity
Year ended 31 December 2018
STATEMENT OF COMPREHENSIVE INCOME
Portfolio return and revenue
Change in fair value of equity and debt investments
Gain on disposal of equity investments
Gain on deconsolidation of subsidiary
Change in fair value of limited and limited liability partnership interests
Revenue from services and other income
Administrative expenses
Carried interest plan charge
Share-based payment charge
Amortisation of intangible assets
Goodwill impairment
Administrative expenses
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
Loss for the year
1 5 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 5. Operating segments continued
Year ended 31 December 2018
STATEMENT OF FINANCIAL POSITION
Assets
Liabilities
Net assets
Other segment items
Capital expenditure
Depreciation
Year ended 31 December 2018
STATEMENT OF COMPREHENSIVE INCOME BY GEOGRAPHY
Portfolio return and revenue
Administrative expenses
Operating (loss)/profit
Net interest
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year
Year ended 31 December 2018
STATEMENT OF FINANCIAL POSITION BY GEOGRAPHY
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total equity
6. Auditor’s remuneration
Details of the auditor’s remuneration are set out below:
University
partnership
business
£m
Venture
capital fund
management
£m
Consolidated
£m
1,351.0
(145.2)
1,205.8
0.6
(1.2)
UK
£m
(50.4)
(247.7)
(298.1)
(1.8)
(299.9)
(0.1)
(300.0)
22.3
(9.9)
12.4
—
—
1,373.3
(155.1)
1,218.2
0.6
(1.2)
Non-UK
£m
Consolidated
£m
14.2
(8.0)
6.2
—
6.2
—
6.2
(36.2)
(255.7)
(291.9)
(1.8)
(293.7)
(0.1)
(293.8)
UK
£m
Non-UK
£m
Consolidated
£m
207.4
1,099.8
(24.4)
(107.5)
1,175.3
18.2
47.9
(7.5)
(15.7)
42.9
225.6
1,147.7
(31.9)
(123.2)
1,218.2
2019
£’000s
2018
£’000s
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
The audit of the Company’s subsidiaries, pursuant to legislation
Total fees for audit services
Audit-related assurance services
Total assurance services
All other services
Total non-assurance services
130
203
333
40
373
9
9
129
115
244
32
276
9
9
1 5 1
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
7. Operating loss
Operating loss has been arrived at after (charging) or crediting:
Amortisation of intangible assets
Goodwill impairment
Depreciation of tangible assets
Employee costs (see note 9)
Operating leases (see note 23)
Gain on deconsolidation of subsidiary (see note 17)
8. Other administrative expenses
Other administrative expenses comprise:
Employee costs (see note 9)
IFRS 3 charge in respect of acquisition of subsidiary1
Professional services
Consolidated portfolio costs
Depreciation of tangible assets
Other expenses
2019
£m
(0.3)
—
(1.2)
(19.6)
—
10.6
2019
£m
19.6
2.5
5.0
5.4
1.2
5.4
39.1
2018
£m
(9.9)
(203.2)
(1.2)
(21.3)
(1.1)
—
2018
£m
21.3
3.3
7.5
2.6
1.2
5.9
41.8
1 Costs of £2.5m (2018: £3.3m) were recognised in relation to contingent consideration payable to the sellers of Parkwalk Advisors Limited
deemed under IFRS 3 to be a payment for post-acquisition services.
9. Employee costs
Employee costs (including executive directors) comprise:
Salaries
Defined contribution pension cost
Share-based payment charge (see note 24)
Other bonuses accrued in the year
Social security
2019
£m
13.0
1.1
2.3
2.0
1.2
19.6
2018
£m
14.9
1.3
1.9
1.4
1.8
21.3
The average monthly number of persons (including executive directors) employed by the Group during the year was 130, all
of whom were involved in management and administration activities (2018: 167). Details of the Directors’ remuneration can
be found in the Directors’ Remuneration Report on pages 98 to 115.
10. Taxation
Current tax
UK corporation tax on losses for the year
Foreign tax
Deferred tax
Total tax
2019
£m
2018
£m
—
0.1
0.1
—
0.1
—
0.1
0.1
—
0.1
The Group primarily seeks to generate capital gains from its holdings in spin-out companies over the longer-term but has
historically made annual net operating losses from its operations from a UK tax perspective. Capital gains achieved by the
Group would ordinarily be taxed upon realisation of such holdings. The directors continue to believe that the Group qualifies
for the Substantial Shareholdings Exemption (“SSE”).
1 5 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 10. Taxation continued
The amount for the year can be reconciled to the loss per the statement of comprehensive income as follows:
Loss before tax
Tax at the UK corporation tax rate of 19% (2018: 19%)
Expenses not deductible for tax purposes
Income not taxable
Amortisation on goodwill arising on consolidation
Non-taxable income on deconsolidation of Mobilion
Fair value movement on investments qualifying for SSE
Movement on share-based payments
Movement in tax losses arising not recognised
Rate change on foreign tax
Total tax charge
2019
£m
(78.8)
(15.0)
4.0
(3.3)
0.1
(2.0)
9.5
0.4
6.3
0.1
0.1
2018
£m
(293.7)
(55.8)
0.2
—
40.5
—
8.8
0.3
6.1
—
0.1
At 31 December 2019, deductible temporary differences and unused tax losses, for which no deferred tax asset has been
recognised, totalled £285.4m (2018: £228.3m). An analysis is shown below:
Accelerated capital allowances
Share-based payment costs and other temporary differences
Unused tax losses
2019
2018
Amount
£m
Deferred tax
£m
Amount
£m
Deferred tax
£m
(0.7)
(13.8)
(270.9)
(285.4)
(0.1)
(2.3)
(46.1)
(48.5)
—
4.6
223.7
228.3
—
0.8
38.0
38.8
At 31 December 2019, deductible temporary differences and unused tax losses, for which a deferred tax asset/(liability) has
been recognised, totalled £nil (2018: £nil). An analysis is shown below:
Temporary timing differences
Unused tax losses
11. Loss per share
Loss
Loss for the purposes of basic and dilutive earnings per share
Number of shares
2019
2018
Amount
£m
Deferred tax
£m
Amount
£m
Deferred tax
£m
6.1
(6.1)
—
1.0
(1.0)
—
8.1
(8.1)
—
1.4
(1.4)
—
2019
£m
(75.4)
2018
£m
(293.8)
2019
Number
of shares
2018
Number
of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
1,059,144,595 1,058,678,987
Effect of dilutive potential ordinary shares:
Options or contingently issuable shares
Weighted average number of ordinary shares for the purposes of diluted earnings per share
—
1,059,144,595 1,058,678,987
—
No adjustment has been made to the basic loss per share in the year ended 31 December 2019, as the exercise of share
options would have the effect of reducing the loss per ordinary share, and therefore is not dilutive.
Potentially dilutive ordinary shares include contingently issuable shares arising under the Group’s LTIP arrangements, and
options issued as part of the Group’s Sharesave schemes and Deferred Bonus Share Plan (for annual bonuses deferred
under the terms of the Group’s annual incentive scheme).
1 5 3
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
12. Goodwill
At 1 January
Recognised on buyout of minority interest in US platform
Impairment of goodwill
At 31 December
2019
£m
0.4
—
—
0.4
2018
£m
202.5
1.1
(203.2)
0.4
Goodwill arising on business combinations is reviewed for impairment on an annual basis, or more frequently if there are
indications that goodwill may be impaired. Recoverable amounts for CGUs are based on the higher of value in use and fair
value less costs of disposal. Value in use is calculated from cashflow projections for the CGUs to which the goodwill has
been allocated. The goodwill allocated to each CGU is summarised in the table below.
Parkwalk Advisors CGU
13. Intangible assets
Cost
At 1 January 2019
Additions acquired through business combinations
At 31 December 2019
Accumulated amortisation
At 1 January 2019
Charge for the year
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
2019
£m
0.4
0.4
2018
£m
0.4
0.4
£m
30.6
—
30.6
30.3
0.3
30.6
—
0.3
The intangible assets represent contracts with customers and other contractual arrangements with UK universities acquired
through acquisition of subsidiaries. The individual contractual arrangements are amortised in a straight line over the
remainder of their terms with the expense being presented directly on the primary statements.
1 5 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 14. Categorisation of financial instruments
Financial assets
At 31 December 2019
Equity investments
Debt investments
Other financial assets
Limited and limited liability partnership interests
Trade and other receivables
Receivable on sale of debt and equity investments
Deposits
Cash and cash equivalents
Total
At 31 December 2018
Equity investments
Debt investments
Limited and limited liability partnership interests
Trade and other receivables
Deposits
Cash and cash equivalents
Total
At fair value
through
profit or loss
£m
Amortised
cost
£m
1,021.9
23.7
—
21.4
—
—
—
1,067.0
1,095.1
33.1
17.3
—
—
—
1,145.5
—
—
—
—
5.0
27.3
73.0
121.9
227.2
—
—
—
5.8
90.0
129.0
224.8
Total
£m
1,021.9
23.7
—
21.4
5.0
27.3
73.0
121.9
1,294.2
1,095.1
33.1
17.3
5.8
90.0
129.0
1,370.3
All financial liabilities are categorised as other financial liabilities and recognised at amortised cost.
In light of the credit ratings applicable to the Group’s cash and cash equivalent and deposits, (see note 2 for further details),
and given the nature of the Group’s other significant receivable balance balances in respect of amounts receivable on
sale of debt and equity investments which have either been received post year end or are bank guaranteed, we estimate
expected credit losses on the Group’s receivables to be under £0.1m and therefore not disclosed further (2018: less than
£0.1m), similarly we have not presented an analysis of credit ratings of trade and other receivable and receivables on sale of
debt and equity investments.
All net fair value gains in the year are attributable to financial assets designated at fair value through profit or loss on initial
recognition (2018: all net fair value gains in the year are attributable to financial assets designated at fair value through
profit or loss on initial recognition).
All interest income is attributable to financial assets not classified as fair value through profit and loss.
1 5 5
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
15. Net investment portfolio
Note 1 includes a description of the fair value hierarchy used.
At 1 January 2019
Investments during the year
Transaction-based reclassifications during the year
Other transfers between hierarchy levels during the year
Disposals
Fair value of investment in Mobilion recognised on
deconsolidation
Change in revenue share(i)
Change in fair value in the year(ii)
At 31 December 2019
At 1 January 2018
Investments during the year
Transaction-based reclassifications during the year
Disposals
Fees settled via equity
Change in revenue share(i)
Change in fair value in the year(ii)
At 31 December 2018
Level 1
Level 3
Total £m
Equity
investments
in quoted
spin-out
companies
£m
Unquoted
debt
investments
in spin-out
companies
£m
Equity
investments
in unquoted
spin-out
companies
£m
133.2
6.3
—
—
(9.0)
—
(0.6)
(12.4)
117.5
225.0
11.2
4.7
(7.9)
—
—
(99.8)
133.2
33.1
22.2
(10.3)
(1.0)
(0.1)
—
—
(20.2)
23.7
42.3
17.5
(17.0)
(8.0)
—
—
(1.7)
33.1
961.9
36.2
10.3
1.0
1,128.2
64.7
—
—
(81.6)
(90.7)
11.2
3.4
(38.0)
904.4
832.5
72.2
12.3
(11.6)
0.2
5.2
51.1
961.9
11.2
2.8
(70.6)
1,045.6
1,099.8
100.9
—
(27.5)
0.2
5.2
(50.4)
1,128.2
(i) For description of revenue share arrangement see description below.
(ii) The change in fair value in the year includes a loss of £1.4m (2018: gain of £3.1m) in exchange differences on translating foreign currency
investments. The total unrealised change in fair value in respect of Level 3 investments was a loss of £53.1m (2018: gain of £49.4m).
Previously, the Group’s policy was to classify equity investments in unquoted spin-out companies as Level 3a where prices
had been determined from recent investments in the last twelve months, and as Level 3b where prices had been determined
from recent investments in more than twelve months and other valuation techniques. The Group has amended this policy
to reflect revised IPEV guidelines which specify that the Price of a Recent Investment represents one of a number of inputs
used to arrive at fair value, and now uses a single classification for all Level 3 equity investments. Comparative information
had been represented accordingly for consistency.
Unquoted equity and debt investment are measured in accordance with IPEV guidelines with reference to the most
appropriate information available at the time of measurement. In addition to recent financing transactions, significant
unobservable inputs used in the fair value measurement include (inter alia) portfolio-company specific milestone analysis,
estimated clinical trial success rates, exit ranges, scenario probabilities and discount factors. Where relevant, multiple
valuation approaches may be used in arriving at an estimate of fair value for an individual asset. Such inputs are typically
portfolio-company specific and therefore cannot be aggregated for the purposes of portfolio-level sensitivity analysis. For
Level 3 companies where a DCF approach has been used, a 1% increase/decrease in the discount rate used would equate to
a £11.8m increase/decrease in fair value.
For assets and liabilities that are recognised at fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant
to the fair value measurement as a whole) at the end of each reporting period. Transfers between levels are then made as if
the transfer took place on the first day of the period in question, except in the cases of transfers between tiers based on an
initial public offering (“IPO”) of an investment wherein the changes in value prior to the IPO are calculated and reported in
level 3, and those changes post are attributed to level 1.
Transfers between level 3 and level 1 occur when a previously unquoted investment undertakes an initial public offering,
resulting in its equity becoming quoted on an active market. In the current period, transfers of this nature amounted to £nil
(2018: £nil). Transfers between level 1 and level 3 would occur when a quoted investment’s market becomes inactive, or the
portfolio company elects to delist. There have been no such instances in the current period (2018: no such instances).
1 5 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 15. Net investment portfolio continued
Transfers between level 3 debt and level 3 equity occur upon conversion of convertible debt into equity.
Within level 3 equity investments, the distribution by total portfolio company holding value is as follows: investments
>£10m: £684.2m (2018: £700.3m), investments £5m-£10m: £104.9m (£147.4m), investments £1.5m-£5m: £88.0m (2018:
£90.6m), investments < £1.5m: £27.2m (2018: £23.6m).
Within level 3 debt investments, the distribution by total portfolio company holding value is as follows: investments >£10m:
£6.3m (2018: £10.5m), investments £5m-£10m: £2.0m (£7.5m), investments £1.5m-£5m: £11.8m (2018: £10.7),
investments < £1.5m: £3.6m (2018: £4.4m).
Under the Group’s former Technology Pipeline Agreement with Imperial College London, the Group received founder
equity in spin out companies from Imperial College. Following a sale of such founder equity stakes, a pre-specified ‘revenue
share’ (typically 50%) is payable to Imperial College and other third parties. As at 31 December 2019, equity investments
which were subject to revenue sharing obligations totalled £13.8m (2018: £11.0m). A corresponding non-current liability is
recognised in respect of these revenue sharing obligations.
Change in fair value in the year
Fair value gains
Fair value losses
2019
£m
86.3
(156.9)
(70.6)
The Company’s interests in subsidiary undertakings are listed in note 2 to the Company’s financial statements.
16. Gain on disposal of equity investments
Disposal proceeds
Amounts receivable on sale of debt and equity investments (see note 19)
Carrying value of investments
Profit on disposal
2019
£m
79.5
27.3
(90.7)
16.1
2018
£m
103.3
(153.7)
(50.4)
2018
£m
29.5
—
(27.5)
2.0
17. Gain on deconsolidation of subsidiary
During the first half of 2019, MOBILion completed a first close of its Series A investment of £2.9m which did not result in a
loss of control by IP Group, and accordingly the proceeds of this issue of equity are disclosed within financing activities in
the Group consolidated cash flows
Following a second close of the Series A fundraise, IP Group lost control of the board of MOBILion, resulting in its
deconsolidation as a subsidiary and recognition as a portfolio company.
As part of this transaction, net assets including £2.5m of cash were deconsolidated from the Group consolidated statement
of financial position, this movement is disclosed within investing activities in the Group consolidated statement of cash
flows. The transaction resulted in a gain on deconsolidation of £10.6m, calculated as follows:
Fair value of equity investment recognised
Fair value of subsidiary net assets disposed:
Cash
Other net liabilities
2019
£m
11.2
2.5
(3.1)
10.6
2018
£m
—
—
—
—
1 5 7
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
18. Trade and other receivables
Trade debtors
Prepayments
Right of use asset
Other receivables
2019
£m
1.5
0.6
2.1
0.9
5.0
2018
£m
4.3
0.8
—
1.5
6.6
The directors consider the carrying amount of trade and other receivables to approximate their fair value. All receivables are
interest free, repayable on demand and unsecured.
19. Receivable on sale of debt and equity investments
Deferred consideration
Short-term receivables
2019
£m
5.3
22.0
27.3
2018
£m
—
—
—
Deferred consideration relates to amounts receivable in respect of the sale of Dukosi Limited (£5.0m) and Process Systems
Enterprise Limited (£0.3m).
Short-term receivables relates to £22.0m receivable in respect of shares in Oxford Nanopore Technologies Limited sold on
31 December 2019 and for which payment was received in February 2020.
20. Trade and other payables
Current liabilities
Trade payables
Social security expenses
Bonus accrual
Lease liability
Payable to Imperial College and other third parties under revenue share obligations
Current tax payable
Other accruals and deferred income
2019
£m
1.4
0.5
2.1
2.1
11.2
0.1
8.6
26.0
2018
£m
1.7
0.7
2.1
—
1.7
0.1
10.2
16.5
Amounts payable to Imperial College and other third parties under revenue share obligations include £9.7m payable in
respect of the disposal proceeds of Process Systems Enterprise Limited, which were settled in January 2020.
1 5 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 21. Borrowings
Non-current liabilities
Loans drawn down from the Limited Partners of consolidated funds
EIB debt facility
Current liabilities
EIB debt facility
2019
£m
26.1
67.1
93.1
2019
£m
15.4
15.4
2018
£m
23.0
82.4
105.4
2018
£m
15.4
15.4
Loans drawn down from the Limited Partners of consolidated funds
The loans from Limited Partners of consolidated funds are interest free and repayable only upon the applicable funds
generating sufficient returns to repay the Limited Partners. Management anticipates that the funds will generate the
required returns and consequently recognises the full associated liabilities. The classification of these loans as non-current
reflects the forecast timing of returns and subsequent repayment of loans, which is not anticipated to occur within one year.
EIB debt facility
The Group has a number of debt facilities with the European Investment Bank which it has used to fund UK university spin-
out companies as they develop and mature. The terms of the facilities are summarised below:
Description
IP Group Facility, tranche 1
IP Group Facility, tranche 2
Touchstone Facility A
Touchstone Facility B
Initial
amount
£15m
£15m
£30m
£50m
Date drawn
Dec 2015
Dec 2017
Interest rate
Floating, linked to LIBOR
Fixed 3.016%
Jul 2013
Floating, linked to LIBOR
Feb 2017
Fixed 3.026%
Repayment
terms
5 years
5 years
12 years
8 years
Repayment
commencement
date
Jan 2019
Jan 2019
Jan 2015
Jul 2018
The IP Group loans contain covenants requiring that the ratio between the value of the portfolio along with the value of
the Group’s cash net of any outstanding liabilities, and the outstanding debt facility does not fall below 6:1. The Group
must maintain that the amount of unencumbered funds freely available to the Group is not less than £15.0m. The Group is
also required to maintain a separate bank account which must at any date maintain a minimum balance equal to that of all
payments due to the EIB in the forthcoming six months.
The Touchstone loans contain a debt covenant requiring that the ratio of the total fair value of investments plus cash and
qualifying liquidity to debt should at no time fall below 4:1. The loan also stipulates that on any date, the aggregate of all
amounts scheduled for payment to the EIB in the following six months should be kept in a separate bank account.
The Group closely monitors that the covenants are adhered to on an ongoing basis and has complied with these covenants
throughout the year. The Group will continue to monitor the covenants’ position against forecasts and budgets to ensure
that it operates within the prescribed limits.
The maturity profile of the borrowings was as follows:
Due within 6 months
Due 6 to 12 months
Due 1 to 5 years
Due after 5 years
Total (i)
A reconciliation in the movement in debt is as follows:
At 1 January
Repayment of debt
At 31 December(i)
There were no non-cash movements in debt.
2019
£m
7.7
7.7
64.2
3.1
82.7
2019
£m
98.1
(15.4)
82.7
2018
£m
7.7
7.7
61.7
21.0
98.1
2018
£m
104.4
(6.3)
98.1
(i) These are gross amounts repayable and exclude costs of £0.2m (2018: £0.3m) incurred on obtaining the loans and amortised over the life
of the loans.
1 5 9
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
22. Share capital
Issued and fully paid:
Ordinary shares of 2p each
At 1 January
Issued in respect of post-acquisition services
Issued under employee share plans
2019
2018
Number
£m
Number
1,059,144,595
21.2
1,057,383,601
—
—
—
—
1,519,849
241,145
At 31 December
1,059,144,595
21.2
1,059,144,595
£m
21.1
0.1
—
21.2
The Company has one class of ordinary shares with a par value of 2p (“Ordinary Shares”) which carry equal voting rights,
equal rights to income and distributions of assets on liquidation, or otherwise, and no right to fixed income.
23. Operating lease arrangements
The Group leases office premises. Information about leases for which the Group is a lessee is presented below.
Right of use asset
At 1 January 2019
Additions
Depreciation charge for the year
At 31 December 2019
2019
£m
2.7
0.5
(1.1)
2.1
At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Lease Liabilities
Maturity analysis - contractual undiscounted cash flows
Within one year
In the second to fifth years inclusive
More than five years
Total undiscounted lease liabilities at 31 December 2019
Statement of financial position
Current
Non-current
At 31 December 2019
Statement of comprehensive income
Interest on lease liabilities
Amounts recognised in the statement of cash flows
Total cash outflow for leases
1 6 0
2019
£m
1.3
0.9
—
2.2
2019
£m
1.2
0.9
2.1
2019
£m
0.1
2019
£m
1.2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 23. Operating lease arrangements continued
Payments under operating leases recognised in the statement of comprehensive income for the year
2018
£m
1.1
At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
2018
£m
1.8
3.4
5.2
Operating lease payments represent rentals by the Group for its office properties. Leases are negotiated for an average
term of five years and rentals are fixed for an average of one year.
24. Share-based payments
In 2019, the Group continued to incentivise employees through its LTIP and AIS. Both are described in more detail in the
Directors’ Remuneration Report on pages 98 to 115.
Deferred Bonus Share Plan (“DBSP”)
Awards made to employees under the Group’s AIS above a certain threshold include 50% deferred into IP Group equity
through the grant of nil-cost options under the Group’s DBSP. The number of nil-cost options granted under the Group’s
DBSP is determined by the share price at the vesting date. The DBSP options are subject to further time-based vesting over
two years (typically 50% after year one and 50% after year two).
An analysis of movements in the DBSP options outstanding is as follows:
At 1 January
AIS deferral shares award during the year
Exercised during the year
Lapsed during the year
At 31 December
Exercisable at 31 December
Weighted
-average
exercise
price
2019
—
—
—
—
—
—
Number of
options
2018
394,494
468,901
(241,145)
(16,609)
605,641
153,349
Weighted
-average
exercise
price
2018
—
—
—
—
—
—
Number of
options
2019
605,641
192,106
(63,370)
(271,937)
462,440
114,028
The options outstanding at 31 December 2019 had an exercise price of £nil (2018: £nil) and a weighted-average remaining
contractual life of 0.5 years (2018: 0.6 years).
The weighted average share price at the date of exercise for share options exercised in 2019 was 98.6p (2018: 127p).
As the 2019 AIS financial performance targets were met and as the number of DBSP options to be granted in order to defer
such elements of the AIS payments as are required under our remuneration policy are based on a percentage of employees’
salary, the share-based payments line includes the associated share-based payments expense incurred in 2019.
Long term Incentive Plan (“LTIP”)
Awards under the LTIP take the form of conditional awards of ordinary shares of 2p each in the Group which vest over the
prescribed performance period to the extent that performance conditions have been met. The Remuneration Committee
imposes objective conditions on the vesting of awards and these take into consideration the guidance of the Group’s
institutional investors from time to time. Further information on the Group’s LTIP is set out in the Directors’ Remuneration
Report on pages 98 to 115.
1 6 1
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24. Share-based payments continued
The 2019 LTIP awards were made on 26 April 2019. The awards will ordinarily vest on 31 March 2022, to the extent that
the performance conditions have been met. The awards are based on the performance of the Group’s Hard NAV and
Total Shareholder Return (“TSR”). Both performance measures are combined into a matrix format to most appropriately
measure performance relative to the business, as shown in the Directors’ Remuneration Report within the Group’s 2019
Annual Report and Accounts. The total award is subject to an underpin based on the relative performance of the Group’s
TSR to that of the FTSE 250 index, which can reduce the awards by up to 50%. The 2019 LTIP matrix is designed such that
up to 100% of the award (prior to the application of the underpin) will vest in full in the event of both Hard NAV increasing
by 15% per year on a cumulative basis, from 1 January 2019 to 31 December 2021, and TSR increasing by 15% per year
on a cumulative basis from the date of award to 31 March 2022, using an industry-standard average price period at the
beginning and end of the performance period. Further, the matrix is designed such that 30% of the award shall vest (again
prior to the application of the underpin) if the cumulative increase is 8% per annum for both measures over their respective
performance periods (“threshold performance”). A straight-line sliding scale is applied for performance between the distinct
points on the matrix of vesting targets.
The 2018 LTIP awards were made on 10 May 2018. The awards will ordinarily vest on 31 March 2021, to the extent that the
performance conditions have been met. The awards are based on the performance of the Group’s Hard NAV and TSR
(“TSR”). Both performance measures are combined into a matrix format to most appropriately measure performance
relative to the business, as shown in the Directors’ Remuneration Report within the Group’s 2018 Annual Report and
Accounts. The total award is subject to an underpin based on the relative performance of the Group’s TSR to that of the
FTSE 250 index, which can reduce the awards by up to 50%. The 2018 LTIP matrix is designed such that up to 100% of the
award (prior to the application of the underpin) will vest in full in the event of both Hard NAV increasing by 15% per year
on a cumulative basis, from 1 January 2018 to 31 December 2020, and TSR increasing by 15% per year on a cumulative basis
from the date of award to 31 March 2021, using an industry-standard average price period at the beginning and end of the
performance period. Further, the matrix is designed such that 30% of the award shall vest (again prior to the application
of the underpin) if the cumulative increase is 8% per annum for both measures over their respective performance periods
(“threshold performance”). A straight-line sliding scale is applied for performance between the distinct points on the matrix
of vesting targets.
The 2017 LTIP awards were made on 29 August 2017. The awards will ordinarily vest on 31 March 2020, to the extent that
the performance conditions have been met. The awards are based on the performance of the Group’s Hard NAV and TSR
(“TSR”). Both performance measures are combined into a matrix format to most appropriately measure performance
relative to the business, as shown in the Directors’ Remuneration Report within the Group’s 2017 Annual Report and
Accounts. The total award is subject to an underpin based on the relative performance of the Group’s TSR to that of the
FTSE 250 index, which can reduce the awards by up to 50%. The 2017 LTIP matrix is designed such that up to 100% of the
award (prior to the application of the underpin) will vest in full in the event of both Hard NAV increasing by 15% per year
on a cumulative basis, from 1 January 2017 to 31 December 2019, and TSR increasing by 15% per year on a cumulative basis
from the date of award to 31 March 2020, using an industry-standard average price period at the beginning and end of the
performance period. Further, the matrix is designed such that 30% of the award shall vest (again prior to the application
of the underpin) if the cumulative increase is 8% per annum for both measures over their respective performance periods
(“threshold performance”). A straight-line sliding scale is applied for performance between the distinct points on the matrix
of vesting targets.
The 2016 LTIP awards did not meet the threshold performance target and lapsed on 31 March 2019.
1 6 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 24. Share-based payments continued
The movement in the number of shares conditionally awarded under the LTIP is set out below:
At 1 January
Lapsed during the year
Forfeited during the year
Vested during the year
Notionally awarded during the year
At 31 December
Exercisable at 31 December
Weighted-
average
exercise
price
2019
—
—
—
—
—
—
—
Weighted-
average
exercise
price
2018
—
—
—
—
—
—
—
Number of
options
2018
9,066,117
(1,262,697)
(452,484)
—
5,025,302
12,376,238
—
Number of
options
2019
12,376,238
(2,971,286)
(764,103)
—
7,018,906
15,659,755
—
The options outstanding at 31 December 2019 had an exercise price in the range of £nil (2018: £nil) and a weighted-average
remaining contractual life of 1.4 years (2018: 1.3 years).
The fair value of LTIP shares notionally awarded during the year was calculated using Monte Carlo pricing models with the
following key assumptions:
Share price at date of award
Exercise price
Fair value at grant date
Expected volatility (median of historical 50-day moving average)
Expected life (years)
Expected dividend yield
Risk-free interest rate
2019
£0.991
£nil
£0.34
37%
3.0
0%
1.0%
2018
£1.355
£nil
£0.57
36%
3.0
0%
1.0%
Former Touchstone LTIP
Also in 2017, as a result of the combination with Touchstone, award holders under existing Touchstone long term incentive
share schemes were entitled to receive 2.2178 new IP Group shares in exchange for each Touchstone share, an exchange
ratio set out in the offer document for the acquisition (the “exchange ratio”).
2016 schemes:
It was proposed that, given the short period of time since grant, awards would not become exercisable in connection with
the Offer and therefore that no progress towards meeting performance targets had been made. Instead award holders were
offered the opportunity to release their awards in exchange for the grant of a replacement award of equivalent value over
shares in IP Group and the exercise price was set at 3.33 pence divided by the exchange ratio. The vesting dates on the
replacement awards remained the same as the original award, being 1 December 2020, 1 December 2021 and 1 December
2022. The replacement awards are subject to performance conditions adjusted from those attaching to the original
Touchstone award as follows: a) the Net Asset Value (“NAV”) condition will be adjusted to reflect Touchstone’s portfolio
being part of the enlarged group following the acquisition and b) the Total Shareholder Return (“TSR”) condition will be
adjusted so that TSR shall be measured by reference to the performance of IP Group shares over the performance period
with the starting share price for such purpose being adjusted by dividing the existing starting share price of 290 pence by
the exchange ratio detailed above. The TTO specific targets remain the same.
At 1 January
Forfeited during the year
At 31 December
Exercisable at 31 December
Weighted-
average
exercise
price
2019
—
—
—
—
Number of
options
2019
1,146,810
(406,754)
740,056
—
Number of
options
2018
2,875,606
(1,728,796)
1,146,810
—
The options outstanding at 31 December 2019 had an exercise price of £1.366 (2018: £1.366) and a weighted-average
remaining contractual life of 1.9 years (2018: 2.9 years).
Weighted-
average
exercise
price
2018
—
—
—
—
1 6 3
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24. Share-based payments continued
2006 schemes:
Holders of 2006 Touchstone awards were offered the opportunity to release each of their awards in exchange for the grant
of a replacement award of equivalent value over shares in IP Group. The exercise period and time-based vesting provisions
for the replacement awards remained the same as the original Touchstone awards but the shareholder return performance
condition will be updated by reference to the exchange ratio. Awards under the 2006 scheme were exercisable to some
extent at the time of the grant of replacement awards, subject to meeting the applicable vesting conditions.
At 1 January
Forfeited during the year
At 31 December
Exercisable at 31 December
Weighted-
average
exercise
price
2019
—
—
2.13
2.13
Number of
options
2019
1,278,834
(200,735)
1,078,099
1,078,099
Weighted-
average
exercise
price
2018
—
—
2.14
2.14
Number of
options
2018
1,808,001
(529,167)
1,278,834
1,278,834
The options outstanding at 31 December 2019 had an exercise price of £2.13 (2018: £2.14) and a weighted-average remaining
contractual life of 4.9 years (2018: 5.9 years).
The fair value charge recognised in the statement of comprehensive income during the year in respect of all share-based
payments, including the DBSP, LTIP and Former Fusion IP LTIP, was £2.3m (2018: £1.9m).
25. Limited and Limited Liability Partnership interests
At 1 January 2018
Additions during the year
Realisations in the year
Change in fair value during the year
At 1 January 2019
Additions during the year
Realisations in the year
Change in fair value during the year
At 31 December 2019
£m
11.0
4.8
(0.8)
2.3
17.3
6.8
(2.0)
(0.7)
21.4
The Group considers interests in Limited and Limited Liability Partnerships to be level 3 in the fair value hierarchy
throughout the current and previous financial years. If the assumptions used in the valuation techniques for the Group’s
holding in each company are varied by using a range of possible alternatives, there is no material difference to the carrying
value of the respective spin-out company. The effect on the consolidated statement of comprehensive income for the
period is also not expected to be material.
26. Related party transactions
The Group has various related parties arising from its key management, subsidiaries, equity stakes in portfolio companies
and management of certain Limited Partnership funds.
a) Limited Partnerships
The Group manages a number of investment funds structured as Limited Partnerships. Group entities have a Limited
Partnership interest (see note 1) and act as the general partners of these Limited Partnerships. The Group therefore has
power to exert significant influence over these Limited Partnerships. The following amounts have been included in respect
of these Limited Partnerships:
Statement of comprehensive income
Revenue from services
Statement of financial position
Investment in Limited Partnerships
Amounts due from related parties
1 6 4
2019
£m
0.1
2019
£m
5.6
—
2018
£m
0.5
2018
£m
5.8
1.2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 26. Related party transactions continued
b) Key management transactions
The following key management held shares in the following spin-out companies as at 31 December 2019:
Director/ PDMR Company name
Alan Aubrey
Accelercomm Limited
Alesi Surgical Limited
Amaethon Limited – A Shares
Amaethon Limited – B Shares
Amaethon Limited – Ordinary shares
Avacta Group plc
Boxarr Limited
Capsant Neurotechnologies Limited
Crysalin Limited
Deep Matter Group plc
Number of
shares held at
1 January 2019
Number of
shares acquired/
(disposed of) in
the period
Number of
shares held at
31 December
2019
638
18
104
11,966
21
191,334
1,732
11,631
1,447
2,172,809
—
—
—
—
—
—
—
—
—
—
638
18
104
11,966
21
191,334
1,732
11,631
1,447
2,172,809
Ditto AI Limited – Ordinary Shares
72,092,028
1,025,820,000
1,097,912,028
Ditto AI Limited – B Shares
98,876,568
Diurnal Group plc
EmDot Limited
Getech Group plc2
hVivo plc
Ilika plc2
Istesso Limited
Itaconix plc
Karus Therapeutics Limited
Microbiotica Limited
Mirriad Advertising plc
Modern Water plc
Oxbotica Limited
Oxford Advanced Surfaces Limited
Oxford Nanopore Technologies Limited
Perachem Holdings plc
Salunda Limited
Structure Vision Limited
Surrey Nanosystems Limited
Tissue Regenix Group plc
Ultraleap Holdings Limited1
Xeros Technology Group plc
Mike Townend
Amaethon Limited – A Shares
Amaethon Limited – B Shares
Amaethon Limited – Ordinary shares
Applied Graphene Materials plc
Avacta Group plc
Capsant Neurotechnologies Limited
Creavo Technologies Limited
Crysalin Limited
Deep Matter Group plc
Ditto AI Limited
Diurnal Group plc
EmDot Limited
Getech Group plc2
15,000
15
15,000
37,160
14,476
1,185,150
88,890
223
10,000
33,333
519,269
16
1
101,208
108,350
53,639
212
453
2,389,259
1,224
22,847
104
11,966
21
22,619
20,001
11,282
117
1,286
932,944
613,048
15,000
14
20,000
—
—
—
—
—
—
—
—
—
—
—
—
13
—
(8,483)
—
—
(212)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
%
0.24%
0.14%
3.12%
1.04%
0.32%
<0.1%
0.24%
0.81%
0.13%
0.30%
12.41%
1.12%
<0.1%
0.87%
<0.1%
<0.1%
<0.1%
1.05%
<0.1%
<0.1%
<0.1%
<0.1%
98,876,568
15,000
15
15,000
37,160
14,476
1,185,150
88,890
223
10,000
33,333
519,269
0.42%
29
1
92,725
108,350
53,639
0
453
2,389,259
1,224
22,847
104
11,966
21
22,619
20,001
11,282
117
1,286
932,944
613,048
15,000
14
20,000
<0.1%
<0.1%
0.31%
0.29%
<0.1%
0.00%
0.22%
0.20%
<0.1%
<0.1%
3.12%
1.04%
0.32%
<0.1%
<0.1%
0.79%
<0.1%
0.11%
0.13%
<0.1%
<0.1%
0.81%
<0.1%
1 6 5
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
26. Related party transactions continued
Number of
shares held at
1 January 2019
Number of
shares acquired/
(disposed of) in
the period
Number of
shares held at
31 December
2019
Director/ PDMR Company name
Mike Townend
continued
Istesso Limited
Ilika plc2
Itaconix plc
Mirriad Advertising plc
Modern Water plc
Oxbotica Limited
Oxford Advanced Surfaces Limited
Oxford Nanopore Technologies Limited
Perachem Holdings plc
Structure Vision Limited
Surrey Nanosystems Limited
Tissue Regenix Group plc
Ultraleap Holdings Limited1
Xeros Technology Group plc
Greg Smith
Alesi Surgical Limited
Avacta Group plc
Capsant Neurotechnologies Limited
Crysalin Limited
Ditto AI Limited
Diurnal Group plc
EmDot Limited
Getech Group plc2
hVivo plc
Istesso Limited
Itaconix plc
Perachem Holdings plc
Mirriad Advertising plc
Modern Water plc
Oxbotica Limited
Oxford Nanopore Technologies Limited
Surrey Nanosystems Limited
Tissue Regenix Group plc
Xeros Technology Group plc
David Baynes
Alesi Surgical Limited
Arkivum Limited
Creavo Technologies Limited
Diurnal Group plc
Mirriad Advertising plc
Oxford Nanopore Technologies Limited
Ultrahaptics Holdings Limited1
Zeetta Networks Limited
Mark Reilly
Actual Experience plc
Ceres Power Holdings plc
Diurnal Group plc
Mirriad Advertising plc
Oxbotica Limited
Ultraleap Holdings Limited1
Wave Optics Limited
1 6 6
1,185,150
10,000
64,940
25,000
575,000
—
1
30,967
113,222
212
404
1,950,862
1,224
35,499
2
3,904
896
149
144,246
15,000
4
8,000
61,340
313,425
4,500
4,830
16,667
7,250
8
1,581
88
50,000
1,392
4
377
46
73,000
16,667
174
2,600
424
65,500
5,697
7,500
33,333
8
1,700
308
—
—
—
—
—
26
—
(2,316)
—
(212)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(44)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33,333
—
—
—
1,185,150
10,000
64,940
25,000
%
1.05%
<0.1%
<0.1%
<0.1%
575,000
0.46%
26
1
28,651
113,222
0
404
1,950,862
1,224
35,499
2
3,904
896
149
144,246
15,000
4
8,000
61,340
313,425
4,500
4,830
16,667
7,250
8
1,537
88
50,000
1,392
4
377
46
73,000
16,667
174
2,600
424
65,500
5,697
7,500
66,666
8
1,700
308
<0.1%
<0.1%
<0.1%
0.30%
0.00%
0.20%
0.17%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
0.23%
<0.1%
<0.1%
0.28%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
0.13%
0.14%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 26. Related party transactions continued
Director/ PDMR Company name
Sam Williams
Accelercomm Limited
Alesi Surgical Limited
Avacta Group plc
Creavo Medical Technologies Limited
Diurnal Group plc
Genomics plc
Istesso Limited
Microbiotica Limited
Mirriad Advertising plc
Oxehealth Limited
Oxford Nanopore Technologies Limited
Topivert Limited
Ultraleap Holdings Limited1
1 Previously called Ultrahaptics Holdings Limited
2 No longer a portfolio company at the balance sheet date
ii) Key management personnel compensation
Key management personnel compensation comprised the following:
Short-term employee benefits(i)
Post-employment benefits(ii)
Other long-term benefits
Termination benefits
Share-based payments(iii)
Total
Number of
shares held at
1 January 2019
Number of
shares acquired/
(disposed of) in
the period
Number of
shares held at
31 December
2019
127
1
19,537
23
52,248
333
7,048,368
7,000
3,333
—
340
—
558
—
—
—
—
—
—
—
—
—
27
—
1,000
—
127
1
19,537
23
52,248
333
%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
7,048,368
8.89%
7,000
3,333
27
340
1,000
558
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
<0.1%
2019
£m
2,776
93
—
—
1,195
4,064
2018
£m
2,402
114
—
—
1,089
3,605
(i) Represents key management personnel’s base salaries, benefits including cash in lieu of pension where relevant, and the cash-settled
element of the Annual Incentive Scheme.
(ii) Represents employer contributions to defined contribution pension and life assurance plans
(iii) Represents the accounting charge for share-based payments, reflecting LTIP and DBSP options currently in issue as part of these schemes.
See note 24 for a detailed description of these schemes.
c) Portfolio companies
i) Services
The Group earns fees from the provision of business support services and corporate finance advisory services to portfolio
companies in which the Group has an equity stake. Through the lack of control over portfolio companies these fees are
considered arms-length transactions. The following amounts have been included in respect of these fees:
Statement of comprehensive income
Revenue from services
Statement of financial position
Trade receivables
2019
£m
0.5
2019
£m
0.2
2018
£m
4.3
2018
£m
0.9
1 6 7
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
26. Related party transactions continued
ii) Investments
The Group makes investments in the equity and debt of unquoted and quoted investments where it does not have control
but may be able to participate in the financial and operating policies of that company. It is presumed that it is possible
to exert significant influence when the equity holding is greater than 20%. The Group has taken the Venture Capital
Organisation exception as permitted by IAS 28 and not recognised these companies as associates, but they are related
parties. The total amounts included for investments where the Group has significant influence but not control are as follows:
Statement of comprehensive income
Net portfolio losses
Statement of financial position
Equity and debt investments
2019
£m
(54.2)
2019
£m
532.7
2018
£m
(20.5)
2018
£m
618.1
d) Subsidiary companies
Subsidiary companies that are not 100% owned either directly or indirectly by the parent Company have intercompany
balances with other Group companies totalling as follows:
Statement of financial position
Intercompany balances with other Group companies
2019
£m
1.5
2018
£m
3.6
These intercompany balances represent funding loans provided by Group companies that are interest free, repayable on
demand and unsecured.
27. Capital management
The Group’s key objective when managing capital is to safeguard the Group’s ability to continue as a going concern so that
it can continue to provide returns for shareholders and benefits for other stakeholders.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure, and makes
adjustments to it, in light of changes in economic conditions and the risk characteristics of its underlying assets. In order to
maintain or adjust the capital structure, the Group may adjust the amount of issued new shares or dispose of interests in
more mature portfolio companies.
During 2019, the Group’s strategy, which was unchanged from 2018, was to maintain healthy cash and short-term deposit
balances that enable it to provide capital to all portfolio companies, as determined by the Group’s investment committee,
whilst having sufficient cash reserves to meet all working capital requirements in the foreseeable future.
The Group has an external debt facility with associated covenants that are described in note 21.
28. Capital commitments
Commitments to Limited Partnerships
Pursuant to the terms of their Limited Partnership agreements, the Group has committed to invest the following amounts
into Limited Partnerships as at 31 December 2019:
Year of
commencement
of partnership
Original
commitment
£m
Invested to
date
£m
Remaining
commitment
£m
2006
2013
2016
2016
3.1
10.0
24.8
3.3
41.2
3.1
7.6
10.2
1.0
21.9
—
2.4
14.6
2.3
19.3
Partnership
IP Venture Fund
IP Venture Fund II LP
UCL Technology Fund LP
Apollo Therapeutics LLP
Total
1 6 8
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 29. Alternative performance measures (“APM”)
IP Group management believes that the alternative performance measures included in this document provide valuable
information to the readers of the financial statements as they enable the reader to identify a more consistent basis for
comparing the business’ performance between financial periods and provide more detail concerning the elements of
performance which the managers of the Group are most directly able to influence or are relevant for an assessment of
the Group. They also reflect an important aspect of the way in which operating targets are defined and performance is
monitored by the directors. These measures are not defined by IFRS and therefore may not be directly comparable with
other companies’ APMs, including those in the Group’s industry. APMs should be considered in addition to, and are not
intended to be a substitute for, or superior to, IFRS measurements.
The directors believe that these APMs assist in providing additional useful information on the underlying trends,
performance and position of the Group. Consequently, APMs are used by the directors and management for performance
analysis, planning, reporting and incentive-setting purposes.
Reference for
reconciliation Definition and purpose
APM
Hard NAV
Primary
statements
Hard NAV is defined as the total equity of
the Group less intangible assets. Excluding
intangible assets highlights the Group’s assets
that management can be reasonably expected
to influence in the short term and therefore
reflects the short-term resources available
to drive future performance. Additionally,
excluding intangible assets allows better
comparison with the Group’s competitors,
many of which operate under fund structures
and therefore would not include intangible
assets.
The measure shows tangible assets managed
by the Group. It is used as a performance
metric for directors and employees as a part
of annual incentives in the Group.
Hard NAV per share is defined as Hard NAV,
as defined above, divided by the number of
shares in issue.
The measure shows tangible assets managed
by the Group per share in issue. It is a useful
measure to compare to the Group’s share
price.
Return on Hard NAV is defined as the total
comprehensive income or loss for the year
excluding charges which do not impact
on Hard NAV, specifically amortisation of
intangible assets, share-based payment
charges and the charge in respect of
consideration deemed to represent post-
acquisition services under IFRS 3 which is
anticipated to be a non-recurring item.
Return on Hard NAV is defined as the total
comprehensive income or loss for the year
excluding charges which do not impact
on Hard NAV, specifically amortisation of
intangible assets, share-based payment
charges and the charge in respect of
consideration deemed to represent post-
acquisition services under IFRS 3.
The measure shows a summary of the income
statement gains and losses which directly
impact Hard NAV.
Calculation
2019
£m
1,141.9
0.4
—
2018
£m
1,218.2
0.4
0.3
Total equity
Excluding:
Goodwill
Other intangible
assets
Hard NAV
1,141.5
1,217.5
Hard NAV
Shares in issue
Hard NAV
per share
Total
comprehensive
income
Excluding:
Amortisation of
intangible assets
Goodwill
impairment
Share-based
payment charge
IFRS 3 charge
in respect of
acquisition of
subsidiary (note
8)
Return on Hard
NAV
£1,141.5m
£1,217.5m
1,059,144,595 1,059,144,595
115.0p
107.8p
(78.8)
(293.9)
0.3
—
2.3
2.5
9.9
203.2
1.9
3.3
(73.7)
(75.6)
1 6 9
Hard NAV
per share
Primary
statements
Note 22
Return on
Hard NAV
Primary
statements,
Note 8
OUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
29. Alternative performance measures (“APM”) continued
APM
Net
portfolio
gains/
(losses)
Reference for
reconciliation Definition and purpose
Note 15
Net portfolio gains are defined as the
movement in the value of holdings in the
portfolio due to share price movements
or impairments in value, gains or losses on
realisation of investments and gains or losses
on disposals of subsidiaries.
The measure shows a summary of the
income statement gains and losses which
are directly attributable to the portfolio,
which is a headline measure for the Group’s
performance. This is a key driver of the Return
on Hard NAV which is a performance metric
for directors’ and employees’ incentives.
Net
overheads
Financial
review: note 8
Net overheads are defined as the Group’s core
overheads less operating income. The measure
reflects the Group’s controllable net operating
“cash-equivalent” central cost base and is
used as a performance metric in the Group’s
annual incentive scheme. Core overheads
exclude items such as share-based payments,
amortisation of intangibles and consolidated
portfolio company costs
Cash and
deposits
Primary
statements
Cash is defined as cash and cash equivalents
plus deposits.
The measures gives a view of the Group’s
liquid resources on a short-term timeframe.
The Group’s Treasury Policy has a maximum
maturity limit of 13 months for deposits.
Calculation
2019
£m
(70.6)
2018
£m
(50.4)
16.1
10.6
2.0
—
(43.9)
(48.4)
8.6
(39.1)
9.9
(41.8)
5.4
2.6
2.5
3.3
(22.6)
121.9
(26.0)
129.0
Change in
fair value of
equity and debt
investments
Gain on disposal
of equity
investments
Gain on
deconsolidation
of subsidiary
Net portfolio
(losses)/gains
Other income
Other
administrative
expenses (see
statement of
comprehensive
income)
Excluding:
Administrative
expenses –
consolidated
portfolio
companies
IFRS 3 charge
in respect of
acquisition of
subsidiary (note
8)
Net overheads
Cash and cash
equivalents
Deposits
73.0
90.0
Cash
194.9
219.0
The selection of the modified retrospective approach for adoption of IFRS 16 in which prior year comparative information is
not restated has not resulted in any inconsistencies in the Group’s APMs.
30. Post balance sheet events
As of the reporting date, the Group has completed realisations of £55.4m in respect of the 2019 disposal of shares in Oxford
Nanopore Technologies Limited, and other disposals including in Ceres Power Holdings plc.
As of the reporting date, realised and unrealised fair value gains in respect of the Group’s quoted portfolio totalled £20m,
largely in respect of Ceres Power Holdings plc, which has seen a overall fair value gain of £25m since 31 December 2019.
1 7 0
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2019
ASSETS
Non-current assets
Investment in subsidiary undertakings
Equity and debt investments
Other investments
Current assets
Loans to subsidiary undertakings
Trade and other receivables
Total assets
EQUITY AND LIABILITIES
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Retained earnings
Total equity
Current liabilities
Trade and other payables
EIB debt facility
Non-current liabilities
EIB debt facility
Deferred and contingent consideration payable on acquisition
Total liabilities
Total equity and liabilities
Registered number: 4204490
Note
3
4
5
6
7
7
7
7
2019
£m
331.6
0.8
2.0
627.9
—
962.3
21.2
100.0
—
814.2
935.4
2.6
6.3
18.0
—
26.9
2018
£m
398.7
9.5
2.0
637.5
—
1,047.7
21.2
684.7
372.6
(63.7)
1,014.8
0.1
6.0
23.9
2.9
32.9
962.3
1,047.7
The accompanying notes form an integral part of the financial statements. The financial statements on pages 171 to 172 were
approved by the Board of Directors and authorised for issue on 10 March 2020 and were signed on its behalf by:
Greg Smith
Alan Aubrey
Chief Financial Officer
Chief Executive Officer
1 7 1
OUR FINANCIALS COMPANY STATEMENT OF
CHANGES IN EQUITY
AS AT 31 DECEMBER 2019
At 1 January 2018
Comprehensive income
Transfer between reserves on impairment of
subsidiaries
Issue of equity
At 1 January 2019
Comprehensive income
Capital reduction (iv)
At 31 December 2019
Attributable to equity holders of the parent
Share
premium(i)
Merger
reserve(ii)
Retained
earnings(iii)
£m
683.1
—
—
1.6
684.7
—
(584.7)
100.0
£m
508.6
—
(136.0)
—
372.6
—
(372.6)
—
£m
36.1
(235.8)
136.0
—
(63.7)
(79.4)
957.3
814.2
Share
capital
£m
21.1
—
—
0.1
21.2
—
—
21.2
Total
£m
1,248.9
(235.8)
—
1.7
1,014.8
(79.4)
—
935.4
(i) Share premium – Amount subscribed for share capital in excess of nominal value, net of directly attributable issue costs.
(ii) Merger reserve – Amount subscribed for share capital in excess of nominal value in relation to the qualifying acquisition of subsidiary
undertakings.
(iii) Retained earnings – Cumulative net gains and losses recognised in the consolidated statement of comprehensive income net of associated
share-based payments credits.
(iv) In 2019 Group effected a reduction of capital and cancellation of share premium account, which was count approved on 17th December
2019, resulting in the reduction in the share premium and merger reserves, and a corresponding increase in retained earnings. For further
details see page 75.
The accompanying notes form an integral part of the financial statements.
1 7 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 NOTES TO THE COMPANY
FINANCIAL STATEMENTS
1. Accounting policies
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (“FRS 101”).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
of International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where
necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure
exemptions has been taken.
Under section s408 of the Companies Act 2006 the company is exempt from the requirement to present its own profit and
loss account.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the
following disclosures: a cash flow statement and related notes; disclosures in respect of transactions with wholly owned
subsidiaries; disclosures in respect of capital management; the effects of new but not yet effective IFRSs; and disclosures of
compensation of key management personnel.
As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions
under FRS 101 available in respect of the following disclosures: IFRS 2 Share Based Payments in respect of group settled
share-based payments; and certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by
IFRS 7 Financial Instrument Disclosures.
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements.
Subsidiary investments
Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment. The Company tests the
investment balances for impairment annually or whenever there is an indication that the value of carrying amount may not
be recoverable.
Equity and debt Investments
Investments are held at fair value through profit and loss vision for impairment in value and are held for long-term
investment purposes.
The valuation methods applied are the same as those at the Group level; details of which can be found in note 1 to the
Group’s financial accounts on pages 144 to 145.
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 fixed assets.
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.
2. Significant accounting estimates
(i) Valuation of subsidiary investments
The Company tests the investment balances for impairment annually or whenever there is an indication that the value of
carrying amount may not be recoverable. In light of the fact that the majority of the assets in the Company’s subsidiaries
are recorded at fair value, subsidiary net assets are taken as an approximation of their minimum recoverable amount. If the
carrying value of an investment in a subsidiary is in excess of the minimum recoverable amount, the value of the investment
is impaired.
1 7 3
OUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
3. Investments in subsidiary undertakings
At 1 January 2019
Impairment of subsidiary undertakings in the year
At 31 December 2019
£m
398.7
(67.1)
331.6
Details of the Company’s subsidiary undertakings as at 31 December 2019 are detailed in note 9 to the Company financial
statements.
4. Equity and debt investments
At 1 January 2019
Fair value gains in the year
At 31 December 2019
£m
9.5
(8.7)
0.8
Details of the Company’s associated undertakings and significant holdings as at 31 December 2019 are detailed in note 10 to
the Company financial statements.
5. Other investments
At 1 January 2019
Fair value gain during the year
At 31 December 2019
6. Loans to subsidiary undertakings
At 1 January 2019
Net advancement of loans to subsidiary undertakings during the year
At 31 December 2019
£m
2.0
–
2.0
£m
637.5
(9.6)
627.9
The amounts due from subsidiary undertakings are interest free, repayable on demand and unsecured.
The Company does not consider that any change in fair value of financial assets in the year is attributable to expected
credit losses (2018: £nil). We have not presented an analysis of credit ratings in respect of subsidiary undertakings.
7. Share capital and reserves
At 1 January 2019
Loss for the year
Capital reduction
At 31 December 2019
Share
capital
£m
21.2
–
–
21.2
Share
premium
£m
684.7
–
(584.7)
100.0
Merger
reserve
£m
372.6
–
(372.6)
–
Profit and
loss reserve
£m
(63.7)
(79.4)
957.3
814.2
Details of the Company’s authorised share capital and changes in its issued share capital can be found in note 18 to the
consolidated financial statements. Details of the movement in the share premium account can be found in the consolidated
statement of changes in equity.
8. 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 £79.4m (2018: £235.8m) mainly due to the impairment of
subsidiary undertakings.
Details of the auditor’s remuneration are disclosed in note 6 to the consolidated financial statements.
9. Directors’ emoluments, employee information and share-based payments
The remuneration of the directors is borne by Group subsidiary undertakings. Full details of their remuneration can be
found in the Directors’ Remuneration Report on pages 98 to 115.
Full details of the share-based payments charge and related disclosures can be found in note 21 to the consolidated
financial statements.
The Company had no employees during 2019 or 2018.
1 74
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 10. Details of subsidiary undertakings
Name of subsidiary undertakings
IP2IPO Limited
IP2IPO Carry Partner Limited
IP2IPO Americas Limited
IP2IPO FI Limited
IP2IPO US Partners Limited
IP Group Inc.
Top Technology Ventures Limited(iii)
Fusion IP Sheffield Limited
Fusion IP Cardiff Limited
IP Venture Fund (GP) Limited(iii)
IP Venture Fund II (GP) LLP(iii)
IP Ventures (Scotland) Limited(iii)
North East Technology (GP) Limited(iii)
IP2IPO Portfolio (GP) Limited(iii)
IP Capital Limited(ii)
IP2IPO Asia-Pacific Limited
IP2IPO Australia Pty Limited
IP Group Greater China Limited
IP2IPO Australia HP Pty Limited
IP2IPO Australia Management Pty Limited
IP Assist Services Limited
Parkwalk Advisors Limited
Touchstone Innovations Limited
Touchstone Innovations Investment
Management Limited
IP2IPO Innovations Limited
Touchstone Innovations Investments Limited
Innovations Limited Partner Limited
IP2IPO Company Maker Limited
Imperial Innovations Sárl
Touchstone Innovations Businesses LLP
IP2IPO Innovations 1 LLP
IP2IPO Cayman Limited
IPG USA (LP) Limited
IP Group Holdco Inc
IPG USA (GP) LLC
IPG USA Plan LLC
IPG Cayman LP
IP University Holdings LLC
Fed Impact LLC
IPG USA SCO LP
FedImpact LLC
IP2IPO Nominees Limited(ii)
IP2IPO Services Limited(ii)
LifeUK (IP2IPO) Limited(ii)
IP Industry Partners Limited(ii)
Union Life Sciences Limited – Ordinary
shares
Union Life Sciences Limited – Preference
shares(ix)
Union Life Sciences Limited – Total
Biofusion Licensing (Sheffield) Limited(ii),(vi)
Fusion IP Nottingham Limited(ii),(vi)
Fusion IP Two Limited(ii),(vi)
Asterion Limited
Proportion of
ownership interest
Proportion of
voting power held
%(i)
%(i)
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
89.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.0
100.0
95.0
100.0
100.0
100.0
66.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
89.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.0
100.0
95.0
100.0
100.0
100.0
66.8
Proportion of
nominal value held
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
89.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Held by
Parent/
Group
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
95.0
Indirect
100.0
99.9
100.0
100.0
100.0
66.5
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
1 7 5
OUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
10. Details of subsidiary undertakings continued
Name of subsidiary undertakings
PH Therapeutics Limited
Extraject Technologies Limited
Stratium Limited
IP Venture Fund II L.P.(vii)
Proportion of
ownership interest
Proportion of
voting power held
%(i)
60.0
60.0
52.9
33.3
%(i)
60.0
60.0
52.9
33.3
Proportion of
nominal value held
%
60.0
60.0
52.9
33.3
Held by
Parent/
Group
Indirect
Indirect
Indirect
Indirect
(i) All holdings are via Ordinary Shares unless separate classes are specified in the table.
(ii) Dormant/non-trading company.
(iii) Company/limited liability partnership engaged in fund management activity.
(iv) Acquired as part of the Fusion IP plc acquisition.
(v) As detailed in note 1 to the Group financial statements, though less than 33.3% of beneficial and nominal interest is held by the Group, the
Group’s position as fund manager to IP Venture Fund II L.P. means the Group fulfils the control criteria set out in IFRS 10 and the fund is
thus consolidated.
(vi) Not consolidated due to immateriality.
(vii) Shares which have no economic or voting rights attributed to them.
All companies above have their registered offices at The Walbrook Building, 25 Walbrook, London, EC4N 8AF unless
separately listed.
IP Group Inc: 1105 North Market Street, Suite 1800, Wilmington, DE 19801, USA.
IP Ventures (Scotland) Limited: 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ.
IP Assist Services Limited: Nexus, Discovery Way, Leeds, West Yorkshire, LS2 3AA.
MOBILion Systems Inc.: 1105 N. Market St, Suite 1800, Wilmington, DE 19801, USA.
Asterion Limited: Nexus, Discovery Way, Leeds, West Yorkshire, LS2 3AA.
PH Therapeutics Limited: Discovery Way, Leeds, West Yorkshire, LS2 3AA.
Extraject Technologies Limited: Discovery Way, Leeds, West Yorkshire, LS2 3AA.
Stratium Limited: C/O Uhy Hacker Young Lanyon House, Mission Court, Newport, NP20 2DW.
Parkwalk Advisors Ltd: Warwick House, 25 Buckingham Palace Road, London, SW1W 0PP.
Imperial Innovations Sarl: 17 Boulevard Prince Henri, Luxembourg, L1724.
IP2IPO Australia Pty Limited: Level 11, 1 Margaret Street, Sydney, NSW, 2000, Australia.
IP Group Greater China Limited: 6/F Alexandra House, 18 Chater Road, Central Hong Kong.
IP2IPO Australia HP Pty Limited: Level 11, 1 Margaret Street, Sydney, NSW, 2000, Australia.
IP2IPO Australia Management Pty Limited: Level 11, 1 Margaret Street, Sydney, NSW, 2000, Australia.
IP2IPO Cayman Limited: Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman
Islands.
IP Group Holdco Inc: Corporation Trust Center, 1209 Orange street, New Castle, DE 19801, USA.
IPG USA (GP) LLC: Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman
Islands.
IPG USA Plan LLC: Corporation Trust Center, 1209 Orange street, New Castle, DE 19801, USA.
IPG Cayman LP: Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
IP University Holdings LLC: Corporation Trust Center, 1209 Orange street, New Castle, DE 19801, USA.
Fed Impact LLC: 251 Little Falls Drive, Wilmington, New Castle, DE 19808, USA.
IPG USA SCO LP: 13 Queens Road, Aberdeen, AB15 4YL.
All companies above are incorporated in England and Wales with the exception of IP Ventures (Scotland) Limited
incorporated in Scotland, IP Group Inc, MobilION Inc, IP Group Holdco Inc, IPG USA Plan LLC, IP University Holdings LLC
and Fed Impact LLC which were incorporated in Delaware, USA, IP2IPO Cayman Limited, IPG USA (GP) LLC and IPG
Cayman LP which were incorporated in the Cayman Islands, IP2IPO Australia Pty Limited incorporated in Australia, Imperial
Innovations Sarl incorporated in Luxembourg and IP Group Greater China Limited incorporated in Hong Kong.
All companies above undertake the activity of commercialising intellectual property unless stated otherwise. All companies
are consolidated into the Group’s financial performance and position following the acquisition method bar those specified
which are omitted due being immaterial.
1 7 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 11. Details of significant holdings and associated undertakings
Name of undertaking
Registered address
IP Venture Fund(ii)
8Power Limited
The Walbrook Building, 25 Walbrook, London, EC4N 8AF
Future Business Centre, King’s Hedges Road, Cambridge,
United Kingdom, CB4 2HY
Absynth Biologics Limited:
Biohub at Alderley Park, Macclesfield, Cheshire, SK10 4TG
A ordinary shares
B ordinary shares
Ordinary shares
Accelercomm Limited:
A ordinary shares
Ordinary shares
Actual Experience plc
Alesi Surgical Limited:
B shares
Ordinary shares
Preferred B shares
Preferred ordinary shares
Amaethon Limited:
A ordinary shares
B ordinary shares
Ordinary shares
Anacail Limited:
A shares
Ordinary shares
2 Venture Road, Southampton Science Park, Chilworth,
Southampton, SO16 7NP
Quay House, The Ambury, Bath, Somerset, BA1 1UA
Cardiff Medicentre, Heath Park, Cardiff, CF14 4UJ
Heslington Hall, Heslington, York, North Yorkshire, YO10 5DD
First Floor, South Suite, Telford Pavilion West Of Scotland
Science Park, Maryhill Road, Glasgow, Scotland, G20 0XA
AnywhereHPLC Limited
52 Princes Gate, Exhibition Road, London, SW7 2PG
Apcintex Limited:
A preference shares
B ordinary shares
Ordinary shares
Aperio Pharma Limited
Aptatek Biosciences, Inc.
Aqdot Limited:
EIS shares
Ordinary shares
Preferred shares
Arkivum Limited
Art of Xen Limited:
A preference shares
B preference shares
Asterion Limited
C/o Medicxi, 25 Great Pulteney Street, London, England,
W1F 9LT
The Walbrook Building, 25 Walbrook, London, England,
EC4N 8AF
Corporation Trust Centre, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Lab 1 Iconix 2 Iconix Park, London Road, Cambridge, CB22 3EG
The Walbrook Building, 25 Walbrook, London, EC4N 8AF
NHS Liaison Unit, 4th Floor, Mckenzie House, 30–36 Newport
Road, Cardiff, CF24 0DE
The Innovation Centre, 217 Portobello, Sheffield, England,
S1 4DP
Proportion
of nominal
value held
%(i)
10.0%
23.5%
Held by
Parent/
Group
Group
Group
39.9%
37.4%
100.0%
43.3%
39.0%
40.0%
38.4%
21.4%
28.7%
100.0%
57.0%
9.7%
40.3%
27.6%
52.9%
27.6%
0.0%
39.7%
40.7%
38.8%
50.0%
31.9%
47.5%
0.0%
0.0%
46.1%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
40.1%
Group
45.6%
0.0%
0.0%
79.7%
33.7%
83.5%
100.0%
100.0%
66.8%
Group
Group
Group
Group
Group
Group
Group
Group
Group
1 7 7
OUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
11. Details of significant holdings and associated undertakings continued
Name of undertaking
Autifony Therapeutics Limited:
Registered address
Stevenage Bioscience Catalyst, Gunnels Wood Road,
Stevenage, Hertfordshire, England, SG1 2FX
Ordinary shares
A preference shares
A2 preference shares
A3 preference shares
Azuri Technologies Limited:
A preference shares
Ordinary shares
Boxarr Limited
St. John’s Innovation Centre, Cowley Road, Cambridge,
CB4 0WS
65 London Road, St. Albans, Hertfordshire, AL1 1LJ
Bramble Energy Limited
52 Princes Gate, Exhibition Road, London, SW7 2PG
Cagen Limited
52 Princes Gate, Exhibition Road, London, SW7 2PG
Calcico Therapeutics Limited:
Oxford Science Park, Magdalen Centre, Robert Robinson
Avenue, Oxford, OX4 4GA
A shares
Ordinary shares
Seed preference shares
Capsant Neurotechnologies
Limited
The Walbrook Building, 25 Walbrook, London,
EC4N 8AF
Proportion
of nominal
value held
%(i)
27.6%
Held by
Parent/
Group
Group
2.9%
38.4%
0.0%
35.5%
31.7%
29.5%
37.4%
45.4%
24.2%
22.5%
41.5%
50.0%
0.0%
33.3%
50.0%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
30 Broad Street Broad Street, Great Cambourne, Cambridge,
England, CB23 6HJ
34.5%
Group
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
1 Canal Side Studios, 8–14 St Pancras Way, London, NW1 0QG
Cardian Limited:
A preferred shares
Ordinary shares
C-Capture Limited:
A preference shares
A preference (NV) shares
Ordinary shares
Cell Medica Limited:
A pref (Rank 1) shares
A pref (Rank 2) shares
B preference shares
C preference shares
BCM preference shares
Ordinary shares
Celltron Networks Limited
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
Chip Diagnostics, Inc.
251 Little Falls Drive, Wilmington, New Castle, DE, 19808
Chromosol Limited
The Walbrook Building 25 Walbrook, London, EC4N 8AF
Clarity Vision Technologies, Inc.
1 Righter Parkway, Wilmington, Delaware, DE 19803
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
Creavo Medical Technologies
Limited:
A shares
Ordinary shares
Z shares
1 7 8
100.0%
13.6%
37%
37%
100.0%
36.7%
24.6%
15.0%
100.0%
30.0%
22.8%
0.0%
29.7%
30.0%
47.0%
34.6%
51.2%
37.8%
100.0%
38.2%
0.0%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 11. Details of significant holdings and associated undertakings continued
Name of undertaking
Crysalin Limited:
Registered address
The Walbrook Building, 25 Walbrook, London, EC4N 8AF
A shares
B shares
C shares
D shares
Ordinary shares
Cynash, Inc.
Deep Matter Group plc:
OAS ordinary shares
Ordinary shares
Defenition Limited:
B ordinary shares
Ordinary shares
Diurnal Group plc
251 Little Falls Drive, Wilmington, New Castle, DE, 19808
The Walbrook Building, 25 Walbrook, London, England,
EC4N 8AF
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
Cardiff Medicentre, Heath Park, Cardiff, CF14 4UJ
Dynamic Vision Systems Limited Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
Econic Technologies Limited:
Block 19s Alderley Park, Macclesfield, Cheshire, England, SK10
4TG
A ordinary shares
A preference shares
B preference shares
C preference shares
Ordinary shares
Edgetic Limited:
Ordinary shares
B ordinary shares
Enachip, Inc.
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
PHS Corporate Services, Inc., 1313 N Market Street, STE, 5100,
Wilmington, New Castle, DE, 19801
Proportion
of nominal
value held
%(i)
28.5%
0.0%
0.0%
0.0%
0.0%
30.6%
75.6%
27.8%
0.0%
27.8%
49.5%
100.0%
48.5%
40.1%
21.5%
49.7%
86.3%
41.2%
50.0%
42.9%
6.9%
55.8%
55.8%
100.0%
46.7%
Held by
Parent/
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Enterprise Therapeutics Limited: Sussex Innovation Centre Science Park Square, Falmer,
27.9%
Group
Brighton, England, BN1 9SB
Ordinary shares
Series A shares
Series B shares
Epsilon-3 Bio Limited:
A preferred shares
Ordinary shares
Moneta Building Babraham Research Campus, Babraham,
Cambridge, Cambridgeshire, CB22 3AT
Exyn Technologies, Inc.
203 NE Front Street STE 101, Milford, Kent, DE, 19963
FaultCurrent Limited:
The Maltings East Tyndall Street, Cardiff Bay, Cardiff, CF24 5EZ
A shares
Ordinary shares
0.0%
47.6%
16.4%
22.6%
28.1%
46.6%
37.5%
35.8%
35.7%
Group
Group
Group
Group
Group
Group
Group
Group
Group
1 7 9
OUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
11. Details of significant holdings and associated undertakings continued
Registered address
Broers Building 2nd Floor, 21 J Thomson Avenue, Cambridge,
CB3 0FA
Proportion
of nominal
value held
%(i)
27.5%
Held by
Parent/
Group
Group
Name of undertaking
Featurespace Limited:
A preference shares
B preference shares
C preference shares
D preference shares
E preference shares
F preference shares
Ordinary shares
X ordinary shares
First Light Fusion Limited:
Unit 10 Mead Road, Yarnton, Kidlington, Oxfordshire, OX5 1QU
Ordinary shares
A ordinary shares
Fluid Pharma Limited:
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
Ordinary shares
B ordinary shares
Garrison Technology Limited:
117 Waterloo Road, London, England, SE1 8UL
A preference shares
A1 preference shares
A2 preference shares
B preference shares
Ordinary shares
Gripable Limited
52 Princes Gate, Exhibition Road, London, SW7 2PG
Helio Display Materials Limited
The Walbrook Building, 25 Walbrook, London, EC4N 8AF
I2L Research Limited:
Capital Business Park, Wentloog, Cardiff, CF3 2PX
A ordinary shares
B ordinary shares
Ordinary shares
Ibex Innovations Limited
Ieso Digital Health Limited:
A preference shares
A ordinary shares
B ordinary shares
Ordinary shares
Explorer 2 – Netpark Thomas Wright Way, Sedgefield,
Stockton-on-Tees, TS21 3FF
The Stable Block The Grange, 20 Market Street, Swavesey,
Cambridge, CB24 4QG
Iksuda Therapeutics Limited:
The Biosphere, Draymans Way, Newcastle Helix, Newcastle
upon Tyne, NE4 5BX
Unit E, Lyons Park, 46 Sayer Drive, Coventry, CV5 9PF
A Ordinary shares
Ordinary shares
Impression Technologies
Limited:
Ordinary shares
Series A shares
Series B shares
1 8 0
33%
64.6%
63.6%
39.6%
8.6%
11.7%
0.0%
4.1%
35.9%
37.5%
0.0%
40.3%
39.6%
87.1%
23.4%
94.9%
25.0%
32.9%
14.0%
0.0%
38.9%
21.3%
31.0%
84.0%
13.3%
0.0%
38.5%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
85.1%
Group
46.9%
85.1%
0.0%
18.7%
55.1%
50.0%
56.5%
55.9%
47.6%
62.5%
50.0%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 11. Details of significant holdings and associated undertakings continued
Name of undertaking
Inivata Limited:
A preference shares
Ordinary shares
Series A shares
Series B shares
Instrumems, Inc.
Ionix Advanced Technologies
Limited:
B ordinary shares
Ordinary shares
Ipalk SAS
IR Pharma Limited
Istesso Limited:
A shares
Ordinary shares
Kira Biotech Pty Limited
Lorem Pharmaceuticals, Inc.
Lumiode, Inc.
Registered address
The Portway Granta Park, Great Abington, Cambridge,
CB21 6GS
Corporation Trust Centre, 1209 Orange Street, Wilmington,
New Castle, DE 19801
Proportion
of nominal
value held
%(i)
28.1%
37.5%
0.0%
31.7%
26.0%
43.4%
Held by
Parent/
Group
Group
Group
Group
Group
Group
Group
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
34.4%
Group
112 rye des hautes variennes, 45200, Amilly France
1st Floor Sir Alexander Fleming Building, Imperial College
London Exhibition Road, London, SW7 2AZ
The Walbrook Building, 25 Walbrook, London, EC4N 8AF
Renaissance Centre, 405 North King Street, Suite 500,
Wilmington, New Castle, DE, 19801
Corporation Trust Centre, 1209 Orange Street, Wilmington,
New Castle, DE 19801
100.0%
34.3%
23.5%
28.0%
44.9%
75.6%
42.7%
100%
34.6%
Group
Group
Group
Group
Parent
Parent
Parent
Group
Group
49.7%
Group
Magnomatics Limited:
Park House, Bernard Road, Sheffield, S2 5BQ
A shares
B shares
C shares
Ordinary shares
Medaphor Group plc
Microbiotica Limited:
Seed shares
Ordinary shares
The Cardiff Medicentre, Heath Park, Cardiff, CF14 4UJ
Biodata Innovation Centre Wellcome Genome Campus,
Hinxton, Cambridge, Cambridgeshire, CB10 1DR
Mission Therapeutics Limited:
Babraham Hall, Babraham, Cambridge, CB22 3AT
A preference shares
B preference shares
C preference shares
Ordinary shares
Mixergy Limited
30 Upper High Street, Thame, Oxfordshire, OX9 3EZ
MOBILion Systems, Inc.
4 Hillman Drive, Suite 130, Chadds Ford, PA 19317
A preferred stock
Common stock
Nascient Limited:
A shares
Ordinary shares
Preferred shares
30 Broad Street, Great Cambourne, Cambridge,
Cambridgeshire, CB23 6HJ
44.5%
52.1%
100.0%
100.0%
24.8%
25.8%
26.9%
39.8%
0.0%
20.2%
22.5%
22.5%
22.5%
0.0%
27.9%
52.6%
42.8%
100.0%
70.5%
0%
25%
100%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
1 8 1
OUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
11. Details of significant holdings and associated undertakings continued
Name of undertaking
NGenics Global Limited
Registered address
The Catalyst Baird Lane, Heslington, York, North Yorkshire,
YO10 5GA
Optimeos Life Sciences, Inc
251 Little Falls Drive, Wilmington, Delaware, 19808
Oxehealth Limited
Sadler Building Heatley Road, Oxford Science Park, Oxford,
Oxfordshire, OX4 4GE
Oxford Biotrans Limited:
30 Upper High Street, Thame, Oxfordshire, OX9 3EZ
Ordinary shares
Seed preferred shares
OxSyBio Limited:
A shares
Ordinary shares
Preference shares
Oxular Limited:
A preferred shares
Ordinary shares
The Walbrook Building, 25 Walbrook, London, C4N 8AF
Magdalen Centre, Robert Robinson Avenue, Oxford, OX4 4GA
Perachem Holdings plc:
55 Drury Lane, London, WC2B 5RZ
Convertible preferred shares
The Sheffield Bioincubator, 40 Leavy Greave Road, Sheffield,
S3 7RD
2 Venture, Southampton Science Park, Chilworth,
Southampton, SO16 7NP
Ordinary shares
Perlemax Limited
Perpetuum Limited:
Ordinary shares
Series B shares
Series C shares
Series C1 shares
Preference shares
PH Therapeutics Limited
The Innovation Centre, 217 Portobello, Sheffield, S1 4DP
Polar OLED Limited:
Leeds Innovation Centre, 103 Clarendon Road, Leeds, West
Yorkshire, LS2 9DF
A shares
Ordinary shares
Process Systems Enterprise
Limited
Quantima Limited
5th Floor East, 26-28 Hammersmith Grove, London, W6 7HA
Leeds Innovation Centre, 103 Clarendon Road, Leeds, West
Yorkshire, United Kingdom, LS2 9DF
Quantum Motion Technologies
Limited:
Leeds Innovation Centre, 103 Clarendon Road, Leeds, West
Yorkshire, LS2 9DF
B Ordinary shares
Ordinary shares
Reinfer Limited:
Seed Preference shares
Ordinary shares
Relitect Limited
Mindspace Whitechapel, 114 Whitechapel High Street, London,
E1 7PT
1 West Regent Street, Glasgow, Scotland, G1 2AP
Proportion
of nominal
value held
%(i)
30.7%
Held by
Parent/
Group
Group
41.8%
34.6%
42.3%
13.7%
70.4%
43.9%
100.0%
45.8%
40.0%
27.0%
44.1%
0.0%
46.2%
0.0%
46.2%
34.5%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
22.0%
Group
33.1%
13.4%
30.4%
0.0%
0.0%
60.0%
35.0%
55.9%
32.7%
23.3%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
33.3%
Group
20.3%
Group
0.0%
21.2%
23.1%
73.3%
0.0%
33.4%
Group
Group
Group
Group
Group
Group
1 8 2
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 11. Details of significant holdings and associated undertakings continued
Name of undertaking
Riotech Pharmaceuticals
Limited
Riptron Limited
Registered address
49 Arrivato Plaza, Hall Street, St Helens, United Kingdom,
WA10 1GH
Leeds Innovation Centre, 103 Clarendon Road, Leeds, West
Yorkshire, LS2 9DF
Saw DX Limited
11 The Square University Avenue, Glasgow, G12 8QQ
Seren Photonics Limited:
37b UK Technology Centre Pencoed Technology Park,
Pencoed, Bridgend, Mid Glamorgan, CF35 5HZ
A Ordinary shares
B Ordinary shares
Silicon Microgravity Limited:
Clarendon House, Clarendon Road, Cambridge, CB2 8FH
A Ordinary shares
B Ordinary shares
Ordinary shares
B Preference shares
Seed Preferred shares
Spinetic Energy Limited
The Old Post Office, 41-43 Market Place, Chippenham,
Wiltshire, England, SN15 3HR
Stratium Limited
15th Floor Brunel House, 2 Fitzalan Road, Cardiff, CF24 0EB
Surrey NanoSystems Limited:
The Walbrook Building, 25 Walbrook, London, England,
EC4N 8AF
A Ordinary shares
A2 Ordinary shares
Ordinary shares
Sweetgen Limited
Telectica Limited:
Ordinary shares
A Ordinary shares
Seed Preferred shares
Therapeutic Frontiers Limited
Topivert Limited:
A Ordinary shares
A Preference shares
B1 Preferred shares
B2 Preferred shares
Ordinary shares
Ubiquigent Limited
52 Princes Gate, Exhibition Road, London, England, SW7 2PG
49 Burnham Road, St. Albans, Hertfordshire, AL1 4QN
Gowran House, 56 Broad Street, Chipping Sodbury, Bristol,
BS37 6AG
265 Strand, London, WC2R 1BH
Dundee University Incubator Dundee Technopole, James
Lindsay Place, Dundee, DD1 5JJ
Ultrahaptics Holdings Ltd:
The West Wing, Glass Wharf, Bristol, BS2 0EL
B Ordinary shares
Ordinary shares
C Preference shares
Preference shares
Uniformity Labs, Inc.
Uniphy Limited
A shares
Ordinary shares
41400 Christy Street, Fremont, CA 94538, USA
Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF
Proportion
of nominal
value held
%(i)
20.3%
Held by
Parent/
Group
Group
33.3%
Group
35.0%
26.8%
49.1%
0.0%
27.7%
0.0%
0.0%
0.0%
47.2%
71.9%
29.6%
57.1%
21.4%
17.4%
9.1%
34.5%
25.0%
26.4%
0.0%
0.0%
90.5%
25.8%
29.4%
100.0%
0.0%
34.0%
37.1%
2.3%
39.3%
27.7%
0.0%
48.4%
1.8%
26.6%
25.8%
39.1%
16.0%
39.1%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
1 8 3
OUR FINANCIALS NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
11. Details of significant holdings and associated undertakings continued
Name of undertaking
Wave Optics Limited:
A Ordinary shares
B Ordinary shares
B1 Ordinary shares
C1 Ordinary shares
C2 Ordinary shares
Ordinary shares
Yoyo Wallet Limited:
Ordinary shares
Series 1 Seed shares
Series 2 Seed shares
Series A Preferred shares
Series B Preferred shares
Series B2 Preferred shares
Zeetta Networks Limited
Ordinary shares
Preference shares
Registered address
Wave Optics Ltd, Milton Park Innovation Centre 99 Park Drive,
Milton Park, Milton, Abingdon, Oxfordshire, England, OX14 4RY
78 2nd Floor, Whitfield Street, London, England, W1T 4EZ
The Walbrook Building, 25 Walbrook, London, United Kingdom,
EC4N 8AF
Proportion
of nominal
value held
%(i)
20.1%
Held by
Parent/
Group
Group
5.8%
39.3%
25.9%
5.8%
0.0%
0.0%
39.6%
10.%
31.9%
77.7%
83.8%
33.3%
33.3%
26.6%
12.3%
33.9%
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
(i) All holdings are via Ordinary Shares unless separate classes are specified in the table.
(ii) A fund in which the Group is a limited partner. Proportion of nominal value stated is equivalent to capital contributed to the
partnership in question.
All companies above are incorporated in the United Kingdom with the exception of Aptatek Biosciences, Inc., Chip
Diagnostics, Inc., Clarity Vision Technologies, Inc., Cynash, Inc., Enachip, Inc., Exyn Technologies, Inc., Instrumems, Inc.,
Lorem Pharmaceuticals, Inc., Lumiode, Inc., MOBILion Systems, Inc., Optimeos Life Sciences, Inc. and Uniformity Labs, Inc.
which were incorporated in Delaware, USA, Ipalk SAS which was incorporated in France and Kira Biotech Pty Limited which
was incorporated in Australia. The significant influence noted above has been determined in line with IAS 28 and Schedule 4
of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
1 8 4
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 SHAREHOLDER NOTES
1 8 5
OUR FINANCIALS SHAREHOLDER NOTES
1 8 6
IP Group plc Annual Report and Accounts for the year ended 31 December 2019 COMPANY INFORMATION
Company
registration number
04204490
Registered office
The Walbrook Building
25 Walbrook
London
EC4N 8AF
Directors
Sir Douglas Jardine Flint
(Non-executive Chairman)
Alan John Aubrey
(Chief Executive Officer)
Michael Charles Nettleton Townend
(Chief Investment Officer)
Gregory Simon Smith
(Chief Financial Officer)
David Graham Baynes
(Chief Operating Officer)
Jonathan Brooks
(Non-executive Director)
(resigned from the Board on
10 March 2020)
Dr Caroline Anne Brown
(Non-executive Director)
Heejae Richard Chae
(Non-executive Director)
Aedhmar Hynes
(Non-executive Director)
Dr Elaine Sullivan
(Non-executive Director)
Professor David Knox Houston Begg
(Senior Independent Director)
Company secretary
Angela Leach
Brokers
Bank of America Merrill Lynch
Financial Centre
2 King Edward Street
London
EC1A 1HQ
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Joh. Berenberg, Gossler & Co. KG
60 Threadneedle Street
London
EC2R 8HP
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Bankers
Royal Bank of Scotland
PO Box 333
Silbury House
300 Silbury Boulevard
Milton Keynes
MK9 2ZF
Solicitors
Pinsent Masons LLP
30 Crown Place
Earl Street
London
EC2A 4ES
Independent auditor
KPMG LLP
15 Canada Square
London
E14 5GL
1 8 7
OUR FINANCIALS IP Group plc
Top Floor,
The Walbrook Building,
25 Walbrook,
London, EC4N 8AF
T +44 (0)20 7444 0050
F +44 (0)20 7929 6415
www.ipgroupplc.com
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