IP Group news 0

Cash realisations trend continues, strong balance sheet, positive developments in portfolio

IP Group plc (LSE: IPO), the developer of intellectual property-based businesses, today announces its half-yearly results for the six months ended 30 June 2019.

HALF-YEAR HIGHLIGHTS

Portfolio highlights

• Fair value of portfolio broadly stable at £1,127.0m (FY18: £1,128.2m; HY18: £1,148.2m)
• Net portfolio fair value reduction of £36.7m, approximately 3% (HY18: gain of £0.7m; FY18: (£48.4m))
• Capital provided to portfolio companies and projects: £39.0m (HY18: £46.9m; FY18: £100.9m)
• Portfolio cash realisations: £7.1m (HY18: £2.5m; FY18: £29.5m)
• Oxford Nanopore more than doubled revenue and orders in 2018 to $43.7m and $60.6m respectively and this year opened a new factory to support rapid growth in demand for nanopore sequencing technology
• Ceres Power and Japan’s Miura announced a first fuel cell product launch using Ceres technology
• First Light Fusion’s ‘Machine 3’ fully operational and management targeting demonstration of fusion in 2019
• Successful funding rounds for Inivata (£40m), Featurespace (£25m) and Azuri Technologies (£20m)

Financial and operational update

• Hard NAV¹ of £1,171.8m or 110.6p per share (FY18: £1,217.5m, 115.0p; HY18: £1,283.0m, 121.1p)
• Net assets of £1,172.4m (FY18: £1,218.2m; HY18: £1,489.8m)
• Return on Hard NAV² of negative £46.9m (HY18: (£13.1m); FY18: (£75.6m))
• Strong liquidity with gross cash and deposits at 30 June 2019 of £161.1m (FY18: £219.0m; HY18: £258.5m;) and net cash of £71.0m (FY18: £121.2m; HY18: £156.0m)
• Integration cost savings now complete following return of technology transfer operations to Imperial College, run rate savings of £8m per annum secured (0.7% of Hard NAV)
• Board strengthened through appointment of two additional independent non-executive directors

Post period-end update

• Further portfolio cash realisations of £38.8m since 30 June, a total of £45.9m for the year to date and already significantly in excess of the £29.5m total for FY18
• Istesso announced positive outcome from P2a study of MBS2320 for rheumatoid arthritis
• Ceres Power announced £8m collaboration and licensing agreement with Korea’s Doosan and stated FY results to exceed forecasts driven by strong commercial performance
• MOBILion completed third-party investment resulting in reclassification from a subsidiary to a portfolio company, with an associated c. £10m fair value gain
• Mirriad Advertising completed £14m fundraising

Commenting on the Group’s half-yearly results, Alan Aubrey, Chief Executive Officer of IP Group, said:

“The Group has made good operational and strategic progress, notwithstanding the significant decline in the Group’s share price during the period. In particular, as the portfolio matures our business is approaching self-sustainability. In the year to date, the Group has achieved cash realisations totalling £45.9m, which exceeds the £29.5m for full year 2018. This, combined with a continued focus and rationalisation of our portfolio, tight cost control, and a strong cash position, enables the Group to fund its current priorities from existing capital resources. It is particularly encouraging in the current environment to see that our portfolio companies, which have an aggregate total value of around £5bn, have raised approximately £240m in the first half of the year from a broad range of investors.

We are pleased with our ongoing containment of cost through the integration process, which is now delivering an ongoing benefit to NAV. At the same time, we continue to rationalise our portfolios and are particularly pleased with the progress made in three of our most valuable holdings during the period, Oxford Nanopore, Istesso and Ceres Power. Internationally, we see significant upside opportunities in the US as a source of both IP and potential returns from a maturing portfolio, and in Australasia and the wider Asian region where there are significant opportunities to work closely with local long-term capital providers.

IP Group remains confident in the prospects for its maturing portfolio, which is both geographically and sectorally diverse. We look forward to updating on progress and developments in the second half.”

For more information, please contact:

IP Group plc – www.ipgroupplc.com

Alan Aubrey, Chief Executive Officer Greg Smith, Chief Financial Officer Liz Vaughan-Adams, Communications

+44 (0) 20 7444 0050

Charlotte Street Partners

Andrew Wilson	+44 (0) 7810 636995
David Gaffney	+44 (0) 7854 609998

Further information on IP Group is available on our website: www.ipgroupplc.com

This half-yearly results release 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 portfolio companies within the Group’s portfolio of investments. Throughout this half-yearly results release the Group’s holdings in portfolio companies reflect the undiluted beneficial equity interest excluding debt, unless otherwise explicitly stated.

Interim management report

Summary

In the first six months of 2019 and the period since, the Group, through many of its portfolio companies, made good progress but also faced a number of challenges. Importantly, three of the Group’s most valuable portfolio company holdings, Oxford Nanopore, Istesso and Ceres Power, announced significant technical and/or commercial developments in recent months, while management at First Light Fusion remain confident of demonstrating fusion during 2019. In challenging market conditions for our sector, the Group continued to invest capital cautiously, primarily into its most compelling ‘focus’ opportunities. The Group prioritised maintaining strong liquidity and our targeted disposals programme has resulted in more cash realisations in the year to date (£45.9m) than for full year 2018 (£29.5m).

Market sentiment towards the sector in which the Group operates was impacted by the well-publicised difficulties experienced by Woodford Investment Management (“WIM”), one of the sector’s longest-standing supporters. In some cases, this has adversely impacted valuations and constrained funding availability. Funds managed by WIM remain the Group’s second largest shareholder. WIM-managed funds have holdings in 12 of the Group’s portfolio companies, which make up 34% of the Group’s total portfolio value. The largest commonly-held company by value is Oxford Nanopore, which represents 24% of the Group’s portfolio by value, with the remaining 11 companies representing 10% of the Group’s portfolio.

There were fewer large-scale capital raises by the Group’s portfolio companies in the first half of 2019 compared to 2018, however many companies did successfully raise significant capital. The Group’s broad co-investor network was again demonstrated, evidenced by the fact that less than 3% of the £239m total capital raised by portfolio companies in the first half of 2019 was from parties with a shareholding of 1% or more in IP Group (FY18: 6% of £717m total capital raised). Further details of co-investors across the portfolio and the significant co-investors in our 20 most valuable holdings are set out in the portfolio review below.

The financial priorities for the Group this year remain focused on the actions required to secure a strong return on Hard NAV over the investment cycle, continuing to generate realisations and managing the Group’s Net Overheads. In terms of geography, the UK, which continues to represent more than 90% of the Group’s assets, is in a consolidation and realisation phase. The team directs time and resources primarily to the focus assets that are considered the most likely to have a meaningful impact on Group NAV in the short to medium term. The US operation gives the Group access to the world’s most prolific producer of university research and an increasing network of local commercial and financing partners. The Group’s Australasian operation, which is in its second full year of operation, is focused on creating a small group of initial spin-outs and identifying and working with significant pools of long-term, strategically aligned capital across Asia.

During the six months to 30 June 2019, the fair value of the Group’s portfolio remained broadly stable at £1,127.0m (FY18: £1,128.2m; HY18: £1,148.2m). This reflects net portfolio fair value reductions of 3.3% or £36.7m (HY18: £0.7m gain; FY18: £48.4m loss) during the period, of which £20.4m resulted from reductions in the quoted portfolio and £16.3m resulted from reductions in the private portfolio (FY18: £99.7m quoted loss, £51.3m private gain; HY18: £23.0m quoted loss, £23.7m private gain). Including Net Overheads, the overall Return on Hard NAV for the period was negative £46.9m (HY18: (£13.1m); FY18: (£75.6m)), or around 4p per share, with the Group finishing the period with Hard NAV per share of 110.6p (FY18: 115.0p; HY18: 121.1p).

As noted above, there has been excellent commercial progress from a number of our most valuable company holdings. In July, the Group’s most valuable therapeutic development holding, Istesso, announced a positive outcome from its Phase 2a study of MBS2320. Cleantech asset Ceres Power 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. Oxford Nanopore meanwhile 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. While the successful Phase 2a study led to an increase in the fair value of the Group’s interests in Istesso, the absence of any new market-based transaction data for Oxford Nanopore meant that the Group continued to base its fair value on the price of the primary and secondary transactions completed during 2018 and early 2019. In the event of a further financing round for Oxford Nanopore during the second half of 2019, the possibility of which has been reported, we would review our valuation in light of that financing round. Also reported during this year has been the company's intention to explore a stock market listing, an action that we support. Further details of the valuation bases adopted by the Group for its portfolio companies are set out in the portfolio review below.

Elsewhere in Life Sciences, Diurnal Group plc announced it was on track to submit a Marketing Authorisation Application (“MAA”) for Chronocort® (modified release hydrocortisone) in Q4 2019 based upon the existing clinical data, including data to support Orphan Drug Status in the treatment of Congenital Adrenal Hyperplasia. Cell Medica and Pulmocide both generated promising data in areas of severe unmet need, being neuroblastoma and fungal infections in lung transplant respectively. However, clinical and technical setbacks at PsiOxus, Topivert, and Creavo Medical resulted in fair value reductions totalling £28.1m for the Group’s holdings in these companies.

In Technology and Cleantech, many of the largest assets in the portfolio, including Ultrahaptics, Featurespace and Garrison, successfully completed large funding rounds during 2018 or early 2019 and have been focused on deploying that capital to achieve commercial progress. One of these, Ultrahaptics, completed the acquisition of Silicon Valley based Leap Motion, which further improves the potential for the company to become one of the defining players in the rapidly evolving field of human machine interaction. It was also pleasing 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$26m (£20m), led by Fortune Global 500 company, Marubeni Corporation. Azuri was one of three IP Group portfolio companies to feature in this year’s The Sunday Times Tech Track 100, alongside Oxford Nanopore and Featurespace.

Further information on the performance of the Group’s portfolio businesses is provided in the portfolio review below.

Parkwalk Advisors

Parkwalk, the Group’s specialist EIS fund management subsidiary, celebrated its ten-year anniversary by winning the EIS Association’s ‘Best Fund Manager’ for the third year in a row. Parkwalk now has assets under management of almost £300m including alumni 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. Its funds deployed £35.1m in the university spin-out sector during the period (HY18: £33.9m; FY18: £64.3m), backing companies from plant genetics to graphene production through to AI driven insurance platforms and genomics. Global Data named them seventh in the global top ten IoT venture capital investors in 2018 alongside an impressive list of VC firms around the world. Beauhurst also named Parkwalk the most active investor into venture deals in 2018 and the most prolific investor into AI deals in the UK since 2011.

North America

In North America, IP Group, Inc. and its portfolio companies continued to make progress, achieving a number of financial and developmental milestones. These include securing investment rounds for two portfolio companies – Exyn Technologies (University of Pennsylvania) and MOBILion (Pacific Northwest National Laboratory) with strategic investors, for a total of $31m, of which 74% was from parties external to the Group. The investment into MOBILion will result in this company no longer being treated as a subsidiary of the Group in the second half, which will give rise to a fair value gain of c. £10m. Optimeos Life Sciences (Princeton University) signed 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 (“J&J”) Quickfire Challenge and will be collaborating with J&J on cancer diagnostics; and Carisma Therapeutics (University of Pennsylvania) was selected as a top 10 spin-out for 2018 by Nature Biotechnology.

The team also continued to attract strategic local investment into the business, securing a further minority investment from a second US-based blue-chip family office. This provides further evidence of the attractiveness of the North American opportunity, business model and team.

Australasia

In Australasia, the Group has now completed five investments and continues to build on the strong pipeline of opportunities arising from its partnership with the Group of Eight universities in Australia and the University of Auckland in New Zealand. Investments completed in the period were AMSL Aero, Additive Assurance and GroWave. The Group continues to work with Hostplus, one of Australia’s largest superannuation funds with over AU$34bn in funds under management, through the AU$100m IP Group Hostplus Innovation Fund.

Greater China

Having announced the launch of its Greater China Office in Hong Kong in September 2018, the Group has now established a rep office in Hong Kong and relocated two full-time employees there. The team focuses on market entry, business partnership and investment discussions with partners covering a number of major cities in mainland China and we anticipate that the office will be broadly cost-neutral to the Group. In October 2019, the third annual “IP Group Global Deep Tech Forum” will be held in Beijing to continue building on the successes of the previous two events by developing and enhancing the relationships with relevant Chinese partners at the portfolio as well as the Group level. We have seen increasing interest in the Group’s portfolio from Chinese investors and commercial partners, with China Construction Bank’s participation in the most recent Oxford Nanopore financing and Ceres Power’s partnership with, and investment from, Weichai being two significant examples of this interest.

Board changes

The Board was delighted to announce the appointment of two additional independent Non-executive Directors, Dr Caroline Brown and Aedhmar Hynes, with effect from 1 July 2019 and 1 August 2019 respectively. Dr Brown is currently Chair of NAHL Group plc and is also a non-executive director of Georgia Capital plc and Luceco plc. Her early career was spent in corporate finance with Merrill Lynch (New York), UBS and HSBC, advising global corporations and governments and she is also experienced in managing early-stage companies and divisions of FTSE100 groups in the energy and technology sectors. She holds a First-Class degree and PhD in Natural Sciences from the University of Cambridge, a Master of Business Administration from the Cass Business School, London and is a Fellow of the Chartered Institute of Management Accountants.

Ms. Hynes was Chief Executive Officer of Text100, a digital communications agency with 22 offices and over 600 consultants across Europe, North America and Asia. Through her consulting work she has advised and supported many of the world’s most important brands through digital transformation and technology disruption. Ranked among the 50 most powerful communications professionals in the world, according to PRWeek, she is Chairman of the Board of Trustees of The Page Society, the preeminent industry body for Chief Communications Officers of Fortune 500 companies. In 2016, she was appointed to the Advisory Council of the MIT Media Lab, a leading technology research institute addressing many of the world’s biggest challenges. She also serves as a Board Director of Technoserve, helping entrepreneurs emerge from poverty in the developing world. She is on the US Foundation Board of the National University of Ireland, Galway and is a Henry Crown Fellow at The Aspen Institute.

Outlook

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. While the listed technology commercialisation sector in the UK continues to experience some headwinds, many of the Group’s 61 ‘focus’ portfolio companies that represent almost 90% of the value are now beginning to fulfil their potential.

While the UK and its economy continue to face uncertainty with regard to Brexit and this may impact on specific funding rounds and valuations for some of our companies in the short term, the nature of the opportunities addressed by our companies are often global in nature. The Board believes that the achievement of key inflection points at portfolio companies, including First Light Fusion and Oxford Nanopore, will enable development capital and realisation opportunities at attractive valuations across the portfolio.

The Board continues to believe the Group has a balanced and diverse portfolio that will deliver significant benefits for all stakeholders over time.

Half-yearly results can be viewed in the PDF file format