IMPERIAL INNOVATIONS GROUP PLC
INTERIM REPORT AND ACCOUNTS
FOR THE SIX MONTHS ENDED 31 JANUARY 2007
0
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
CHAIRMAN’S STATEMENT
In my Chairman’s Report for the year ended 31 July 2006, I identified a number of tasks ahead for Imperial Innovations which, if carried out
successfully, would provide evidence that the business was heading in the right direction. I am pleased to confirm that in its first 6 months
as a publicly quoted company, Imperial Innovations has made good progress.
Intellectual property exploitation has been excellent, with 155 invention disclosures, 42 patent filings and 24 licence and option agreements
being concluded in this period. In addition, 7 technology businesses have been added to the portfolio of investments and 11 companies
are now in full time residence in the Bioincubator. The intellectual property base has broadened: 2 of the new Spin Out companies, IDext
and Chembecell, were formed from Intellectual Property (“IP”) generated outside Imperial College and relationships with multi-national
companies have continued to grow, a partnership deal having been announced in October 2006 with BAE Systems.
The Group has also put to use the capital raised at its IPO: £5.2m was invested in the period in 11 companies, 5 being follow-on
investments and 6 being seed investments. The fact that an increasing number of third parties, including major shareholders, are coinvesting under the leadership of Imperial Innovations is, I believe, evidence of its increasing professionalism and the perceived quality of the
investment opportunities.
It is also pleasing to note that the fair value of the unquoted portfolio after revenue sharing obligations rose in the period by 24%. The
International Private Equity and Venture Capital Guidelines (“IPEVCG”) methodology adopted by the Group to ascertain the fair values tends
to understate the ongoing value enhancement in a maturing portfolio of early stage companies. This value growth has also not been
completely reflected to date in the company’s Income Statement, given the historically adopted accounting policies.
In this context, the Board has decided that it should adopt International Financial Reporting Standards (IFRS) for the year ending
31 July 2007, meaning that changes in the fair value of the quoted and unquoted portfolio will from now on be reported in the Income
Statements. Additionally the new accounting standard covering Share Based Payments has changed the treatment of equity-settled sharebased payments to employees and directors. This change may make the Group’s Income Statements more volatile in the future. But the
impact of the latter change will be non-cash and the former change will provide shareholders with a more up to date picture of the progress
being made in the creation of shareholder value.
Given the developments in the six months to 31 January 2007, the Board remains confident that this progress will be reflected in the
company’s results sooner rather than later.
Dr Martin Knight
Chairman
CONTENTS
Chairman’s Statement
Financial Highlights for the Six Months Ended 31 January 2007
Post 31 January 2007 Highlights
Overview
Operational and Financial Review
Consolidated Interim Income Statement
Consolidated Interim Balance Sheet
Consolidated Interim Cash Flow Statement
Consolidated Interim Statement of Changes in Equity
Notes to the Interim Results
Transition Statements
Independent Review Report
Company Information
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IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
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HIGHLIGHTS FOR THE SIX MONTHS ENDED 31 JANUARY 2007
GROSS FAIR VALUE OF INVESTMENTS: £39.2 MILLION
(H1 2006: £26.9 million, FY 2006: £33.5 million)
TECHNOLOGY BUSINESSES ADDED TO PORTFOLIO : 7
(H1 2006: 4, FY2006 : 10)
INVESTMENTS MADE : £5.2 MILLION
(H1 2006: £0.6 million, FY 2006: £1.8 million)
TECHNOLOGY BUSINESSES 70
(H1 2006: 61, FY2006 : 66)
INVENTION DISCLOSURES: 155
(H1 2006: 120, FY2006 : 284)
FUNDING ROUNDS COMPLETED : 9
(H1 2006: 2, FY2006 : 6)
PATENTS FILED : 42
(H1 2006: 31, FY2006 : 61)
TOTAL PATENT PORTFOLIO : 297
(H1 2006: 251, FY2006 : 285)
COMMERCIAL AGREEMENTS COMPLETED : 24
(H1 2006: 11, FY2006 : 21)
TOTAL LICENCE PORTFOLIO : 116
(H1 2006: 95, FY2006 : 99)
CASH AND CASH EQUIVALENTS : £27.0 MILLION
(H1 2006: £10.0 million, FY 2006: £32.5 million)
POST 31 JANUARY 2007 HIGHLIGHTS
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Since the period end the Group has invested a total of £1.5 million in funding rounds which raised a total of £6.2 million for Thiakis,
Veryan Medical, Cell Medica, Membrane Extraction Technology and Quantasol.
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The Group started to provide incubation services to Stoneglass Building Products and Rubber-Regen as part of the Imperial Innovations
Recycling Commercialisation Centre, an incubation facility contracted to Imperial Innovations by the Waste & Resources Action Programme
(”WRAP”). Stoneglass offers opportunities to displace traditional clay based bricks, pavers, and brick cladding by using glass waste to
develop construction materials with an exceptionally high recycled content of 97%. Rubber-Regen is developing devulcanisation
technology that will permit the reuse of rubber tyres in rubber compounds which has the potential to overcome existing limitations in
rubber recycling.
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The Group entered into a Memorandum of Understanding with International Technology Transfer Centre, a national technology transfer
centre for Greater China (Mainland China, Hong Kong, Macau, and Taiwan), to build a long-term and sustainable strategic relationship to
commercialise emerging technologies and to increase innovation networks between the UK and Chinese economy.
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The Group licensed to StormBio Inc, a US biopharmaceutical company, patents and know-how for development of a novel therapy for
treatment of life-threatening influenza and other inflammatory diseases.
These highlights reflect the adoption of IFRS for the year ending 31 July 2007 and therefore comparatives reflect IFRS and a change from
previous accounting policies. Reconciliations are set out in the Transition Statements on pages 14 to 18
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IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
OVERVIEW
The period ended 31 January 2007 was our first six months as a publically quoted company. During the period, we have maintained our
core focus, of investigating and commercialising ideas emanating from Imperial College and other sources of complementary intellectual
property and developing and investing in the arising technology companies. The funds raised at IPO have allowed us to take a more leading
and active role in assisting our technology companies in securing capital. We have moved from co-investing with other investors to leading
funding rounds where other investors are following, based on our due diligence. To manage this, Russ Cummings (formerly at 3i and
Scottish Equity Partners) joined in September 2006 as Chief Investment Officer.
In the six months to 31 January 2007 we invested £5.2 million in 9 funding rounds in our technology companies, gained 7 new companies
and exited 3 and continued to build the portfolio of licence agreements, signing a further 24 agreements in the period. The 24% growth in
the unquoted investment portfolio has been offset by a decline of 16% in the quoted portfolio and therefore the entire portfolio grew by a
modest 4% during the period.
The Group is reporting for the first time under IFRS and the changes resulting from this are reflected in the transition statements on pages
14 to 18. The Group reported revenue for the period of £2.5 million (UK GAAP H1 2006: £1.8 million; IFRS H1 2006: £1.8 million). The
change in fair value of equity investments was £0.7 million (IFRS H1 2006: £3.5 million). The Group broke even after adjusting for the
share based payment charge of £2.1 million for the period and its reported profit/loss for the six months ended 31 January 2007 amounted
to £2.1 million loss (UK GAAP H1 2006: £0.3 million loss; IFRS H1 2006: £3.2 million profit).
THE TECHNOLOGY PIPELINE – (invention disclosures, patents, and proof of concept projects)
We continue to see a flow of new ideas (155 invention disclosures, 42 patents filed) with many of these ideas being taken through proof of
concept stage (9 projects funded). The increase in the size of the patent portfolio to 297 is a good indicator of the yet un-commercialised
intellectual property asset within our commercialisation process. Getting technology through proof of concept is an important step towards
licensing or incorporating a new technology business. Imperial College is helping to bridge this proof of concept gap in the area of
therapeutics by committing £1.2 million to a Drug Discovery Facility.
IP AGREEMENTS – (Licences, options and commercial agreements)
The emphasis for the first part of the year has been on completing intellectual property agreements (“IP Agreements”). IP Agreements
include licences leading to potential future milestone payments and eventual royalty income, outright assignments of the intellectual
property, sales of reagents, pipeline agreements (which are options to future intellectual property arising from research groups within
Imperial College), and sales of technology arising from intellectual property. We have generated £1.1 million of income from IP Agreements
(H1 2006: £0.7 million, FY 2006: £1.8 million).
A total of 24 IP Agreements (H1 2006: 11, FY 2006: 21) were concluded. Whilst a significant proportion of the income continues to
represent milestones and upfront fees within the commercial portfolio, there are a number of licensed products that have potential for
substantial royalty streams. For example, we have licensed a new suite of peptides to Thiakis which are progressing well in their
development and have the potential to become effective treatments for obesity, the market for such products being in excess of US$5bn by
2010. In addition, we have acquired from GlaxoSmithKline, a drug discovery technology in the cell based assay area.
IP Agreements signed include:
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Medical Device Innovations Ltd – Licence for rotator cuff device to repair torn shoulder ligaments
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NovaThera Ltd - Licence and Option signed for hydrogel-based stem cell expansion technology
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Bayer Healthcare and Novartis AG - Licences to enabling technology for drug discovery
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Equinox Pharma Ltd – Licence to some software based drug discovery technologies for predictive protein folding
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Sanbio GmbH – Non-exclusive Licence to an antibody reagent for life sciences research
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A global pharma company - Non-exclusive licence for a Phyre-lite protein folding software
NEW TECHNOLOGY BUSINESSES
We formed or gained equity stakes in 7 new companies during the period (H1 2006: 4, FY 2006: 10). These included 5 based on Imperial
College technology and 2 from external sources:
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Evo-Electric Ltd - A producer of high performance electrical motor/generators for use in gensets, powertrains, and as traction motors,
in the hybrid-electric vehicle market
Respivert Ltd - A company developing therapeutics for asthma and COPD (smokers’ lung) based on technology developed by
Professor Peter Barnes and his team at the National Heart and Lung Institute (NHLI), Imperial College
Myotec Therapeutics Ltd - A drug re-positioning company initially concentrating on ‘nichebuster’ conditions such as cachexia (Muscle
wasting disease). This company arose from discoveries made by Professor Stefan Anker of the NHLI and Professor Andrew Coates
Smart Surgical Appliances Ltd - A company developing sensor enabled surgical tools. The company is founded around technologies
developed by Professor Ara Darzi in the Faculty of Medicine and Professor Guang-Zhong Yang in the Institute of Biomedical
Engineering
Circassia Holdings Ltd - A company developing a way of using peptides as a vaccine against allergies
Idext Ltd - A developer of a fuel additive that safely disperses water in fuel, capturing the water in a permanent emulsion that can be
combusted with the fuel
Chembecell Ltd - A company developing microfluidic technology
PROGRESS IN OUR EXISTING PORTFOLIO OF TECHNOLOGY BUSINESSES
There are three main indicators of progress in this portfolio. The first is the number of companies and the value of the portfolio. At the end
of the period, there were 70 technology businesses in our portfolio (H1 2006: 61, FY 2006: 66). The portfolio of companies can be
divided into quoted holdings (4 companies) and unquoted holdings (66 companies). The net growth in the value of the unquoted holdings
is a particularly important metric for the business as it reflects the opportunity for the future. It is in this portfolio that we have been making
investments and in which we expect, in time, to see substantial growth. The unquoted portfolio increased from £9.5 million to £16.8 million
after revenue sharing obligations. This comprised £5.2 million investments, £0.1m of transfers to quoted stock, £0.1m of net disposals and
£2.3 million (24%) fair value gains after revenue share.
The quoted portfolio decreased by 16% from the year end, Ceres Power, our largest quoted holding, represented 32% of the total portfolio
at the end of the period (H1 2006: 42%, FY 2006: 44%) and saw a drop in price from £2.80 per share at the beginning of the period to
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IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
£2.36 per share at the end of the period. At 17 April 2007, the last practical date prior to publication, its share price was £2.33 per share
and it represented 32% of the portfolio.
The second indicator is the people we are attracting into our technology businesses as this is vital to build successful companies for the
future. Andrew Carr, ex head of Amersham’s life science division has joined the deltaDOT board as Chairman and Peter Watson, ex CEO of
AEA Technology has joined as Chairman of Lontra. Charles Swingland and Steve Harris, an experienced team who worked together at
Powderject and Zeneus, have joined the Circassia Board, and Sir Richard Sykes has agreed to take on the role of Circassia’s Chairman.
David Gough joined as CEO of Equinox, Graham Richards as CEO of Acrobot, Ian Woolard as CEO of PPU Soft and David Cavella as CEO of
Myotec. These are all experienced CEOs who have successfully run start-ups and large scale successful businesses.
The third indicator is the demonstration of customer traction as the technology businesses start to generate revenue, sell products and are
recognised by industry. For example, Ionscope has taken orders for its products from 4 universities located in UK, France, China and Korea.
Acrobot has sold its first three navigator systems to Corin. DeltaDOT has made sales to GlaxoSmithkline and the Equinox technology has
been sold to two global pharmaceutical companies. InforSense signed deals enabling expansion into North America and Europe. HeliSwirl
won the 2006 Amec Award for Innovation and Excellence, and is currently negotiating a development deal with Stone and Webster. Veryan
Medical has accelerated the development of its vascular grafts and stents and is working closely with a range of partners.
The Bioincubator is a physical incubator supported by Imperial College and the London Development Agency and houses 11 of our
companies (Bioceramic Therapeutics, Deltadot, Aqix, Equinox, HydroVenturi, Midaz, Molecular Vision, Nexeon, Thiakis, Plasticell and
Circassia) and employs 78 people.
INVESTMENTS AND REALISATIONS
During the period we have invested £5.2 million comprising largely of commitments to three large funding rounds: Circassia, InforSense and
Thiakis. We led the Circassia funding round with co-investors Lansdowne Partners and Tudor Capital. Our co-investors in Thiakis were
Advent, Novo, The Royal Society, Esperante, Nikko and Consensus Business Group and investing with us in InforSense were FF&P and Sitka.
Other seed investments included: BioCeramic Therapeutics, Cardiak, Lontra, Equinox, Midaz Lasers and NanoBioDesign. The portfolio as a
whole raised a total of £15.7 million. We realised our holding in Integration Diagnostics through a trade sale to Biolin.
Since the period end the Group has invested a total of £1.5 million in funding rounds which raised a total of £6.2 million for Thiakis, Veryan
Medical, Cell Medica, Membrane Extraction Technology and Quantasol.
PARTNERSHIPS
We signed the following partnerships, further strengthening our network of relationships with international customers, and providing access
to complementary technology and technical expertise:
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BAE Systems - to exploit technologies emerging from the Technology Engineering Centre at BAE Systems
Carbon Trust and Shell Foundation - to establish a £2m seed fund for low carbon technologies
Consensus Imperial Innovations Centre – a technology broking service matching industry partners to technologies and companies
ITTC China – a cross commercialisation agreement to assist with the entry of technology and companies into China and vice versa
Our existing partnerships have continued to progress:
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Under our recycling programme contract with WRAP (Waste & Resources Action Programme) since 31 January 2007 we have signed
two companies, Rubber- Regen and Stoneglass, and taken an equity stake in the businesses. We are helping them to develop and
implement their business plans
Johnson and Johnson co-funded four projects to develop prototype medical devices. Match funding came from the Higher Education
Innovation Fund
We continue to develop a range of partnerships which help us to increase our global access providing links to international customers, new
sources of technology, access to entrepreneurs, market knowledge and co-investors.
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IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
OPERATIONAL AND FINANCIAL REVIEW
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘IFRS’)
The directors have decided to adopt IFRS for the year ending 31 July 2007. The most significant change involved in the adoption of IFRS is
that the Group will report changes in the fair value of its portfolio of equity investments and convertible loans and resulting movements in
revenue sharing liabilities in the Income Statement. All changes in the fair value of unquoted and quoted investments are passed through
the Income Statement; whereas under UK GAAP only movements in the value of quoted investments and impairments of unquoted
investments were reflected in the Income Statement.
The other significant effect is the charge arising from the equity based staff compensation and incentive scheme under IFRS2 “Share Based
Payment” with respect to equity-settled share based payments provided to directors and employees. This has had the effect of reducing
profitability with a significant charge in the period. This charge has no impact on the Group’s cash flow or equity.
The increase to equity arising from the introduction of IFRS is £1.4m (as at 1 August 2005) rising to £2.7m as at 31 July 2006. The Group
had already reflected an increase of £1.2 million to the value of the portfolio as a result of a stepped acquisition of a minority stake in
2005.
PORTFOLIO PERFORMANCE
The Group reported a change in fair value of £0.7 million (H1 2006: £3.5 million). An analysis of the changes in fair value is given below:
Unrealised/realised gain on investments
Losses on the revaluation of investments
Unaudited
six months to
31 January 2007
£’000
3,537
(2,791)
746
Unaudited
six months to
31 January 2006
£’000
4,975
(1,437)
3,538
Unaudited
12 months to
31 July 2006
£’000
9,157
(2,367)
6,790
Gains on revaluation of investments of £3.5 million (H1 2006: £5.0 million, FY 2006: £9.2 million) were attributable to restating the value
of existing unquoted shareholdings as a result of increased valuations in 9 unquoted company funding rounds and to surpluses arising on
realisations. The losses on the revaluation of investments of £2.8 million (H1 2006: £1.4 million, FY 2006: £2.4 million) were attributable,
in part, to market losses on the Group’s portfolio of AIM-listed investments of £1.7 million, and unrealised losses against investments in the
unquoted portfolio amounted to £1.1 million. The Group realised, on the disposal of 3 investments, the sum of £270,000 (£239,000 net of
revenue sharing obligations) following the sales of its investments in Integration Diagnostics Ltd, Lipoxen plc and IC VEC Ltd.
OPERATIONAL PERFORMANCE
After adjusting for Share Based Payments and including interest receivable the Group broke even. After accounting for the Share Based
payments charge of £2.1 million for the period (H1 2006: £nil million, FY 2006: £0.5 million) the Group reported a loss of £2.1 million
(H1 2006: £3.2 million profit, FY 2006: £4.8 million profit).
EQUITY STAKES
At 31 January 2007, the Group had equity stakes in 70 companies (H1 2006: 61 companies, FY 2006: 66 companies). A schedule setting
out the movement in the number of technology companies is given below
Technology Companies
At 1 August 2006
New technology companies
Companies floated during the period
Companies disposed of in the period
At 31 January 2007
Unquoted
(number)
62
7
(1)
(2)
66
Quoted
(number)
4
1
(1)
4
Total
(number)
66
7
(3)
70
During the period, the Group invested £1.1 million in 6 new technology companies and £4.1 million in follow-on funding and the portfolio
as a whole raised £15.7 million. Since 31 January 2007 the Group has invested £1.5 million out of a total raised of £6.2 million in 5
companies.
SHARE BASED PAYMENTS
As a result of the adoption of IFRS 2 “Share Based Payment”, the Group has incurred a charge in the period of £2.1 million (H1 2006: £nil,
FY 2006: £496,000). The prior year charge reflects options that were granted to directors and non-executive directors in July 2006. The
current period charge reflects options that were granted to non-executive directors in July 2006 and in addition options granted to directors
and employees in August and September 2006 as a carry forward of the equity settled remuneration arrangements prior to the IPO. IFRS 2
requires the Group to value the stock options at grant date and to charge this over the life of the options to the earliest exercise date.
Further analysis is provided in note 4 on page 13.
CASH
At 31 January 2007 the Group had cash of £27.0 million (31 July 2006: £32.5 million). The Group invested £5.2 million in new technology
companies (including commitments) and follow on funding during the period and received the proceeds of sale of equity stakes of £0.3
million and therefore the Group incurred a net cash outflow in the period of £5.6 million (H1 2006: £0.2 million inflow).
REVENUE AND EXPENSES
Revenue for the six months ended 31 January 2007 of £2.5 million is £0.6m higher than that for the six months ended 31 January 2006.
This is primarily due to higher licence and royalty income. Other expenses of £3.2 million are £1 million higher than that for the six months
ended 31 January 2006. This is primarily due to increased operational activity across the business.
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IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
CONSOLIDATED INTERIM INCOME STATEMENT
FOR THE SIX MONTH PERIOD TO 31 JANUARY 2007
Unaudited
six months to
31 January 2007
Unaudited
six months to
31 January 2006
Unaudited
12 months to
31 July 2006
Note
£’000
2,525
(751)
1,774
£’000
1,837
(319)
1,518
£’000
4,364
(873)
3,491
2
746
3,538
6,790
4
(3,207)
(2,133)
(2,820)
(2,190)
2,866
(5,454)
(496)
4,331
Interest receivable
(Loss) / profit before taxation
711
(2,109)
229
3,095
453
4,784
Taxation
(Loss) / profit for the period
(2,109)
82
3,177
4,784
(4.3)
(4.3)
7.5
7.5
11.3
11.3
Revenue
Cost of sales
Gross profit
Investments
Change in fair value of investments
Administrative expenses:
Other expenses
Share based payments
Operating (loss) / profit
Basic (loss) / earnings per ordinary share (pence)
Diluted (loss) / earnings per ordinary share (pence)
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IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
6
6
CONSOLIDATED INTERIM BALANCE SHEET
AS AT 31 JANUARY 2007
Unaudited
As at
31 January 2007
Assets
Non-current assets
Property, plant and equipment
Investments
University Challenge Seed Fund (UCSF):
- Investments
- Loans
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity attributable to equity holders
Issued share capital
Share premium
Retained earnings
Share based payments
Other reserves
Total equity
Non-current liabilities
University Challenge Seed Fund
Provisions for liabilities and charges
Total non-current liabilities
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
7
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Unaudited
As at
31 January 2006
Unaudited
As at
31 July 2006
Note
£’000
£’000
£’000
2
45
37,319
16
24,766
24
31,498
881
1,039
39,284
982
1,175
26,939
987
1,046
33,555
1,559
26,954
28,513
67,797
998
10,036
11,034
37,973
1,135
32,547
33,682
67,237
1,501
22,713
4,173
2,629
18,096
49,112
1,251
18,096
4,675
24,022
1,501
22,713
6,282
496
18,096
49,088
1,910
12,041
13,951
2,205
9,465
11,670
2,039
12,003
14,042
4,734
18,685
67,797
2,281
13,951
37,973
4,107
18,149
67,237
4
3
CONSOLIDATED INTERIM CASH FLOW STATEMENT
FOR THE SIX MONTHS PERIOD TO 31 JANUARY 2007
Unaudited
six months to
31 January 2007
Unaudited
six months to
31 January 2006
Unaudited
12 months to
31 July 2006
£’000
£’000
£’000
(2,820)
2,866
4,331
9
(746)
2,133
7
(3,538)
-
18
(6,790)
496
(Increase) / decrease in trade and other receivables
Increase in trade and other payables
Net cash (used in) / generated from operating activities
(383)
95
(1,712)
110
273
(282)
(191)
1,593
(543)
Investing activities
Purchase of property, plant and equipment
Purchase of investments
Proceeds from sale of investments
Purchase of UCSF investments
Interest income
Net cash (used in) / generated from investing activities
(29)
(4,739)
270
(19)
632
(3,885)
(5)
(625)
928
236
534
(24)
(1,788)
1,373
(23)
463
1
(30)
(30)
25,983
(2,658)
(50)
23,275
222
9,814
22,733
9,814
10,036
32,547
Operating activities
Operating (loss) / profit
Adjustments to reconcile operating (loss) / profit to net cash
flows from operating activities
Depreciation of property, plant and equipment
Fair value movement in investments
Share based payments
Working capital adjustments
Financing activities
Proceeds from share issues
Transaction cost of issue of shares
Income / repayments to UCSF fund
Net cash generated from / (used in) financing activities
4
4
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
(5,593)
32,547
Cash and cash equivalents at end of the period
26,954
8
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the group
At 1 August 2005
Consolidated profit for the period to 31 January 2006
At 31 January 2006
Consolidated profit for the period to 31 July 2006
Share based payments
Merger reserve
Issued of share capital
At 31 July 2006
Consolidated loss for the period to 31 January 2007
Share based payments
At 31 January 2007
9
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Unaudited
Unaudited
Share
Capital
Share
Premium
£’000
1,251
1,251
250
1,501
£’000
18,096
18,096
4,617
22,713
1,501
Unaudited Unaudited Unaudited
Retained Share Based
Payments
Earnings
Other
Reserves
Unaudited
Total
£’000
496
496
£’000
18,096
18,096
-
£’000
1,498
3,177
4,675
1,607
6,282
(2,109)
-
2,133
-
£’000
20,845
3,177
24,022
1,607
496
18,096
4,867
49,088
(2,109)
2,133
22,713
4,173
2,629
18,096
49,112
NOTES TO THE INTERIM RESULTS
1. ACCOUNTING POLICIES
Basis of preparation
The interim results of Imperial Innovations Group plc (‘the Group’) are for the six months to 31 January 2007. The European Union (EU)
regulation [1606/2002] requires European Companies with securities traded on an EU regulated market to prepare their consolidated
financial statements in accordance with EU endorsed International Financial Reporting Standards (“IFRS”) for accounting periods beginning
on or after 1 January 2005. On 7 October 2004, the Alternative Investment Market (‘AIM’) of the London Stock Exchange announced that it
was to become an exchange regulated market instead of an EU regulated market, which became effective from 12 October 2004. The
change of status brings the market outside the scope of the EU directive on International Accounting Standards (IAS) adoption although the
London Stock Exchange announced that it intended to mandate IAS for all AIM companies for financial years commencing on or after 1
January 2007. As such, IFRS is not mandatory for AIM traded companies until accounting periods beginning on or after 1 January 2007.
The directors have decided to adopt IFRS for the year ending 31 July 2007 as permitted by The Companies Act 1985 (International
Accounting Standards and Other Accounting Amendments) Regulations that became law on 11 November 2004. The date of transition to
IFRS for the Group is therefore, 1 August 2005.
The interim results have been prepared on the basis of the recognition and measurement requirements of IFRS in issue that have been
endorsed by the EU for the year ending 31 July 2007, the Group’s first annual reporting date under IFRS. The respective standards that will
be applicable for the year ending 31 July 2007, including those that will be available on an optional basis, are not known with certainty at
the time of preparing these interim results. Accordingly, the accounting policies for that accounting period will be determined finally only
when the annual financial statements for the year ending 31 July 2007 are prepared.
The Group’s results were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (‘UK GAAP’) until the year
ended 31 July 2006. UK GAAP differs in a number of areas from IFRS. In preparing the Group’s interim results for the period to 31 January
2007, the directors have amended certain accounting, valuation and consolidation methods applied in the UK GAAP financial statements.
The comparative figures in respect of 2006 have been restated to reflect these IFRS adjustments.
The effect of the transition from UK GAAP to IFRS on the Group’s profit, net assets and cash flows for the period ended 31 January 2007 are
provided in the numerical reconciliation and narrative statements, beginning on page 14.
The interim financial statements of Imperial Innovations Group plc for the six months to 31 January 2007, which were approved by the
Directors on 26 April 2007, are un-audited but have been reviewed, in accordance with Auditing Practices Board Bulletin 1999/4 “Review
of Interim Financial Information”, by the auditors’.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain
financial assets at fair value, as required by IAS 39 “Financial Instruments: Recognition and Measurement”. The basis of consolidation is set
out below.
Basis of consolidation
The Group’s consolidated Financial Statements consist of Imperial Innovations Group plc and all of its subsidiaries. The consolidated
Financial statements exclude intra-group transactions.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be
consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the
investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of more than half of the voting rights,
(currently exercisable or convertible potential voting rights) or by way of contractual agreement.
The cost of acquisition is measured at fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of
exchange plus costs directly attributable to the transaction. Identifiable assets acquired, and liabilities assumed, in a business combination
are initially measured at their fair values at acquisition date, irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Group's share of the identifiable net assets is recorded as goodwill.
The Group has elected not to apply IFRS 3, “Business Combinations,” retrospectively to business combinations that took place before 1
August 2005.
Associates
Associates are entities over which the Group has significant influence, but not control, generally accompanied by a shareholding of between
20% to 50% of the equity or voting rights.
Investments in associates are accounted for in accordance with IAS 39 “Financial Instruments: Recognition and Measurement” and upon
initial recognition are designated at fair value through profit or loss.
Equity investments and other financial assets
Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through the profit and loss, loans or
receivables, held to maturity investments or available for sale financial assets except in the case of University Challenge Seed Fund (“UCSF”)
investments. When financial assets are recognised initially they are measured at fair value, plus, in the case of investments not at fair value
through profit or loss, directly attributable transaction cost. Changes in the fair value of the UCSF investments are set against the value of
the UCSF fund and not through the profit or loss in recognition that the value of the fund has to increase threefold before any repayments
or disbursements can be made to the Group.
Financial assets at fair value through profit or loss
The Group classifies all its equity investments as financial assets at fair value through profit and loss. Investments in associated undertakings
that are held by the Group with a view to the ultimate realisation of capital gains are designated as financial assets at fair value through
10
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
profit and loss. Investments in undertakings that do not meet the definition of an associate undertaking are also designated as financial
assets at fair value through profit and loss on initial recognition. The fair value movement is net of revenue share.
Treatment of gains and losses arising on fair value
Realised and unrealised gains and losses on financial assets at fair value through profit or loss are included in the income statement in the
period in which they arise.
Valuation of investments
The fair values of quoted investments are based on bid prices at the balance sheet date.
The fair value of unlisted securities is established using International Private Equity and Venture Capital Guidelines (“IPEVCG”). The valuation
methodology used most commonly by the Group is the 'price of recent investment' contained in the IPEVCG valuation guidelines. The
following considerations are used when calculating the fair value using the 'price of recent investment' guidelines:
ƒ
ƒ
ƒ
ƒ
ƒ
Where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value
Where there has been any recent investment by third parties, the price of that investment will provide a basis of the valuation
If there is no readily ascertainable value from following the 'price of recent investment' methodology, the Group considers alternative
methodologies in the IPEVCG guidelines, being principally discounted cash flows and price-earnings multiples requiring management to
make assumptions over the timing and nature of future earnings and cash flows when calculating fair value
Where a fair value cannot be estimated reliably, the investment is reported at the carrying value at the previous reporting date unless
there is evidence that the investment has since been impaired
All recorded values of investments are regularly reviewed for any indication of impairment and adjusted accordingly
Recognition of financial assets
The purchase or sale of financial assets is recognised using trade date accounting for all assets held at fair value through profit and loss. The
recognition of an asset and the liability to pay for it or the de-recognition of an asset, recognition of any gain or loss on disposal and the
recognition of a receivable from a buyer occur on the date that an irrevocable commitment is made to purchase or to sell the asset.
Revenue recognition and cost of sales
Revenue, which excludes value added tax, represents the income generated by the Group from licensing activities, from Intellectual Property
(IP) management services provided by the Group to Imperial College and other parties. Revenue is stated gross of any revenue share due to
Imperial College with any revenue share included in cost of sales.
When granting a licence, an initial up-front fee is receivable on signing followed by subsequent payments when milestone conditions are
met. In addition, sales royalties may also be due under licence agreements. The initial up-front fee receivable on the execution of a licence is
generally recognised in full on signing as long as all the Group’s obligations under the licence have been completed and the fees are not
refundable. Milestone payments are recognised at the date all the conditions are satisfied for the particular milestone payment and all the
Group’s obligations have been completed and the fees are not refundable. Sales royalties receivable under a licence are generally
recognised on receipt of a royalty statement unless accurate sales information is available to accrue revenue for royalty over the financial
period.
Income received in the form of listed or unlisted investments from licensing activities is recognised as licensing income for those investments
that have either a market value or a value attributed to them by other independent third parties. Income from IP management services is
recognised on a straight line basis over the period to which the services relate. Grant and investment awards are recognised on a receivable
basis.
Proof of concept type awards are recognised in the balance sheet and matched to related expenditure.
Deferred tax
Deferred tax arises from temporary timing differences as a result of the different treatment for accounts and taxation purposes of
transactions and events recognised in the financial statements of the current period and previous periods. Deferred tax assets are not
currently recognised in the accounts because of the uncertainty of future taxable profits against which they may be recovered.
Property, plant and equipment
All property, plant and equipment is stated at historical cost, together with any incidental costs of acquisition. Depreciation is provided on
all property, plant and equipment at rates calculated to write each asset down to its estimated residual value on a straight line basis over its
expected useful life, as follows:
Office equipment
Computers
- over 4 years
- over 4 years
Intangible fixed assets
Intangible fixed assets, which include acquired patent rights, are stated at recoverable amount (fair value) and are tested annually for any
impairment and whenever circumstances indicate that the carrying amount may not be recoverable. Patent costs incurred on internally
generated intellectual property are written off to the income statement in the period in which they are incurred.
Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of the fair value of the consideration given over the fair value of the
identifiable net assets acquired. Goodwill is recognised as an asset and is reviewed annually for impairment and is carried at cost less
accumulated impairment. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or
loss on disposal.
Pensions
The Group makes payments to a defined contribution scheme. The assets of the scheme are held separately from the Group in independently
administered funds. Contributions made by the Group are charged to the income statement in the period to which they relate.
11
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Share based payments
Equity settled transactions
Employees (and Directors) receive remuneration in the form of share based payments, whereby employees render services in exchange for
shares or for rights over shares. The fair value of the employee services received in exchange for the grant of options or shares is
recognised as an expense. The total amount to be expensed on a straight line basis over the vesting period is determined by reference to
the fair value of the options or shares determined at the grant date, excluding the impact of any non-market based vesting conditions (for
example, continuation of employment and performance targets). The share options are valued using the binomial option pricing model.
Non-market based vesting conditions are included in assumptions about the number of options that are expected to become exercisable or
the number of shares that the employee will ultimately receive. This estimate is revised at each balance sheet date and the difference is
charged or credited to the income statement, with a corresponding adjustment to equity.
Foreign currency translation
The consolidated financial statements are presented in pounds sterling, which is the Group’s functional and presentational currency. The
Group determines the functional currency of each entity and items included in the financial statements of each entity are measured using
that functional currency. Transactions denominated in foreign currencies are translated into sterling at the actual rate of exchange ruling at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at rates ruling at the balance
sheet date. Exchange differences are included in the income statement.
Operating leases
Costs in respect of operating leases are charged to the income statement on a straight line basis over the lease term.
Provisions (revenue sharing)
Technology Pipeline Agreement
The Group provides for liabilities in respect of revenue sharing with Imperial College, arising under the Technology Pipeline Agreement (“TPA”), and
other parties. Provision for revenue share, based on fair value, on the future realisation of listed stock and unlisted stock is recognised.
Appointee Director Pool
Imperial Innovations LLP, a wholly owned subsidiary of Imperial Innovations Group plc, has entered into a Carry Plan Agreement with members of
the Appointee Director Network. Upon a sale by Imperial Innovations LLP of all or part of a shareholding in one of the specified companies, an
“allocated amount” (based on a fixed percentage of net proceeds) will be paid to the appointee directors. The provision is based on fair value.
Trade receivables
Trade receivables are recognised initially at fair value. A provision for impairment of trade receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is
the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted at the effective interest
rate. The amount of the provision is recognised in the income statement within administrative expenses.
Cash and cash equivalents
'Cash and cash equivalents' includes cash in hand, deposits held with banks and bank overdrafts.
Segmental reporting
Activities are allocated to one business segment. A business segment is a group of assets and operations engaged in providing products or
services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that is subject to risks and returns which are different from those
segments operating in other economic environments.
2. INVESTMENTS – DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Quoted
companies
Unquoted
companies
Other
Investments
Total
£’000
£’000
£’000
£’000
At 1 August 2006
Investments during the period
Reclassification during the period
(i)
Changes in fair value during the period
Realisation during the period
16,906
250
(2,752)
(49)
14,162
4,971
(60)
2,256
(136)
430
258
(190)
1,273
-
31,498
5,229
At 31 January 2007
14,355
21,193
1,771
37,319
777
(185)
(i)
This unrealised gain amount is before deducting revenue share of £86 thousand (see note 3). Change in fair value of investments in
income statement additionally includes realised gains. Other Investments comprise loans and reclassifications to equity.
3. PROVISIONS FOR LIABILITIES AND CHARGES - REVENUE SHARE
At 1 August 2006
Settlements
Changes in fair value attributable to revenue
share
At 31 January 2007
12
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Revenue sharing
Imperial College
Revenue sharing
other
Deferred
consideration
Total
£000
10,288
(48)
£000
173
-
£000
1,542
-
£000
12,003
(48)
261
16
(191)
86
10,501
189
1,351
12,041
The revenue sharing provision represents monies due to Imperial College upon the eventual realisation of investments held by the Group
under the revenue sharing arrangements of the Technology and Pipeline Agreement (“TPA”) and in recognition of Imperial College’s right to
call for a transfer of its share of the Group’s holding in investments. The timing and amount of the realisation of the provision is dependent
on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.
The other revenue share represents monies due to other third parties in the Appointee Directors Pool in respect of the Imperial Innovations
LLP assets acquired as part of the stepped acquisition in 2005. The timing and amount of the realisation of the provision is dependent on
the timing of the disposal of investments, which is uncertain.
Deferred consideration represents monies due to Imperial College upon the eventual realisation of the Imperial Innovations LLP assets
acquired from Imperial College as part of the private share placement in 2005. The deferred consideration at the date of acquisition (April
2005) was £554,000. At each balance sheet date, a fair value adjustment is made until the eventual realisation of the assets. The timing of
the realisation of the provision is dependent on the realisation of the Imperial Innovations LLP assets acquired from Imperial College, which
is uncertain.
Gross fair value of investments of £37.3 million (31 July 2006: £31.5 million) (note 2) less revenue share of £12.0 million (31 July 2006:
£12.0 million) (note 3) gives a net fair value of £25.3 million (31 July 2006: £19.5 million).
4. SHARE BASED PAYMENTS
Share based incentives are provided to directors and employees. Share options granted, and which will vest over the period to 27 April
2008, were valued as at the date of grant using the binomial option pricing model and are charged to the income statement over the
vesting period. The model includes assumptions with respect to volatility and the expected life of the options. It also considers risk free
rate at date of grant, exercise price of the options, market based vesting conditions, market value of the shares at date of grant and
expected dividend yield. Options granted in July 2006 produced a charge of £496,000 in the prior year. The current period charge of
£2.1 million includes the effects of options granted in July 2006 and of options granted in August and September 2006. The annual charge
is reviewed at each balance sheet date and is modified for the impact of non-market related performance conditions (such as leavers during
the vesting period or any forfeiture of rights to share options).
5. POST BALANCE SHEET EVENTS
Since the period end of 31 January 2007, until and as at 17 April 2007, the last practical date prior to the approval of the interim accounts,
the value of the Group’s publicly quoted investments, including Ceres Power, had decreased by 3% and the effect of this is to decrease
investments by £0.4 million and to increase provisions for liabilities and charges by £0.2 million.
6. (LOSS) / EARNINGS PER SHARE
The basic and fully diluted (loss) / earnings per share is calculated on an after tax loss of £2.1 million for the 6 months to 31 January 2007,
an after tax profit of £3.2 million for the 6 months to 31 January 2006 and an after tax profit of £4.8 million for the 12 months to 31 July
2006.
The basic and fully diluted loss per share for the 6 months to 31 January 2007 is based on 49,522,205 weighted average ordinary shares
in issue. Share options are non-dilutive for the period because of the loss.
The basic and fully diluted earnings per share for the 6 months to 31 January 2006 is based on 42,403,605 weighted average ordinary
shares in issue. There were no dilutive instruments in this period.
The basic earnings per share for the 12 months to 31 July 2006 is based on 42,405,230 weighted average ordinary shares in issue. The
diluted earnings per share reflects the effect of 5,452 weighted average potential dilutive share options.
13
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
TRANSITION STATEMENTS
Impact of the first time adoption of IFRS/IAS
For all periods up to and including the year ended 31 July 2006, the Group prepared its financial statements in accordance with United
Kingdom General Accepted Accounting Practice (UK GAAP). The Group’s financial statements for the year ending 31 July 2007 will be the
first annual financial statements that comply with International Financial Reporting Standards (IFRS). These transition statements have been
prepared on the basis set out in note 1 to the interim financial statements.
In preparing these financial statements, the Group has started from an opening balance sheet as at 1 August 2005, the Group’s date of
transition to IFRS, and made those changes in accounting policies and other restatements required by IFRS 1 (“First-time Adoption of
International Reporting Standards”) for the first-time adoption of IFRS.
This section explains the principal adjustments made by the Group in restating its UK GAAP balance sheet as at 1 August 2005, its half year
results for the period ended 31 January 2006 and its previously published UK GAAP financial statements for the year ended 31 July 2006.
Balance sheet reconciliation as at 1 August 2005 (Transition date)
Note
Assets
Non-current assets
Property, plant and equipment
Investments
University Challenge Seed Fund (UCSF):
- Investments
- Loans
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity attributable to equity holders
Issued share capital
Share premium
Revaluation reserve
Retained (deficit) / earnings
Total equity
Non current liabilities
UCSF Fund
Provisions for other liabilities and charges
Total non-current liabilities
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
UK GAAP
Effect of transition to
IFRS
IFRS
£’000
£’000
£’000
18
15,412
3,442
18
18,854
341
1,159
16,930
522
121
4,085
863
1,280
21,015
4,085
1,034
9,814
10,848
31,863
1,251
18,096
3,941
(3,824)
19,464
(3,941)
5,322
1,381
1,251
18,096
0
1,498
20,845
F
G
1,577
4,792
6,369
643
2,003
2,646
2,220
6,795
9,015
H
1,945
8,314
27,778
58
2,704
4,085
2,003
11,018
31,863
A
B
C
1,034
9,814
10,848
27,778
E
D
A
Equity investments have been increased to reflect a fair value uplift (£3,441,782).
B
UCSF investments have been increased to reflect a fair value uplift (£522,753).
C
UCSF convertible loans have been increased to reflect a fair value uplift (£120,488).
D
Retained (deficit)/ earnings have been adjusted for the share of the fair value uplift on equity investments (£1,438,520), a holiday pay
charge (£57,797) and the transfer from the revaluation reserve (£3,941,519). The balance of the increase in equity investments
(£2,003,262) is reflected in the increase in provisions for liabilities and charges – i.e. an increase in the provision for revenue share
(see G).
E
Previously, under UK GAAP, revaluations of listed investments were taken to the revaluation reserve. Under IFRS, fair value adjustments
are taken to the income statement. The balance on the revaluation reserve (£3,941,519) is therefore transferred to retained earnings.
F
Increase in UCSF Fund (£643,241) reflects the corresponding increase in UCSF investments and convertible loans (see B&C).
G
Provision for revenue share increase (£2,003,262) reflects the corresponding increase in equity investments (see D).
H
Previously, under UK GAAP no provision for holiday pay was made. Under IFRS, a provision for accrued holiday outstanding at the
balance sheet date is required (£57,797).
14
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Reconciliation of income statement for the six months ended 31 January 2006
Note
Revenue
Cost of sales
Gross profit
Investments
Change in fair value of investments
Administrative expenses:
Other administrative expenses
Operating profit / (loss)
Interest receivable
(Loss) / profit before taxation
Taxation
(Loss) / profit for the period
I
J
UK GAAP
Effect of transition
to IFRS
IFRS
£’000
1,837
(319)
1,518
£’000
£’000
1,837
(319)
1,518
121
3,417
3,538
78
3,495
(2,190)
2,866
229
3,095
82
3,177
(2,268)
(629)
229
(400)
82
(318)
3,495
3,495
I
Fair value gains recognised on equity investments (net of revenue share of £2,670,267) during the period (£3,417,426).
J
The increase in holiday pay accrual required (see D and O) from the previous balance sheet date (£10,531) plus investments impaired
under UK GAAP (£88,018) written back.
15
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Balance sheet reconciliation as at 31 January 2006
Note
Assets
Non-current assets
Property, plant and equipment
Investments
University Challenge Seed Fund (UCSF):
- Investments
- Loans
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity attributable to equity holders
Issued share capital
Share premium
Revaluation reserve
Retained (deficit) / earnings
Total equity
Non current liabilities
UCSF Fund
Provisions for other liabilities and charges
Total non-current liabilities
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
K
L
M
UK GAAP
Effect of transition to
IFRS
IFRS
£’000
£’000
£’000
16
20,698
4,068
16
24,766
583
1,045
22,342
399
130
4,597
982
1,175
26,939
4,597
998
10,036
11,034
37,973
998
10,036
11,034
33,376
1,251
18,096
6,695
(4,004)
22,038
(6,695)
8,679
1,984
4,675
24,022
P
Q
1,676
7,456
9,132
529
2,009
2,538
2,205
9,465
11,670
R
2,206
11,338
33,376
75
2,613
4,597
2,281
13,951
37,973
N
O
1,251
18,096
K
The uplift of £4,068,199 represents brought forward fair value gains recognised as at 1 August 2005 (£3,441,782) – see A, current
period gross fair value gains recognised (£6,094,680) less current period revaluation previously recognised under UK GAAP
(£5,468,263).
L
UCSF investments have been increased to reflect a fair value uplift (£399,192).
M
UCSF convertible loans have been increased to reflect a fair value uplift (£130,487).
N
Previous and current period revaluations (£6,695,305) of listed investments were previously (under UK GAAP) taken to the revaluation
reserve. Under IFRS, fair value adjustments are taken to the income statement. The balance on the revaluation reserve is therefore
transferred to retained earnings to take account of this change.
O
Retained earnings have been adjusted for:
ƒ brought forward (£1,438,520) and current period (£3,424,377) net fair value gains (giving a total of £4,862,897);
ƒ brought forward (£57,797) and current period (£10,531) increase in holiday pay accrual;
ƒ an adjustment to the surplus on disposal of shares (£81,067);
ƒ reversal of revaluation transferred from revaluation reserve to retained earnings on the shares realised under UK GAAP
(£137,654); and
ƒ the transfer from the brought forward revaluation reserve (£3,941,520).
P
Increase in UCSF Fund (£529,679) reflects the corresponding increase in UCSF investments and convertible loans (see L&M).
Q
Provision for revenue share increase (£2,008,721) reflects the cumulative corresponding increase required following the fair value
uplifts in equity investments.
R
Previously, under UK GAAP, no provision for holiday pay has been made. Under IFRS, a provision for the number of holidays
outstanding at the Balance Sheet date is required (£68,328). Revenue share due on shares realised (£6,953) is also recognised.
16
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Reconciliation of income statement for the year ended 31 July 2006
Note
Effect of transition to
IFRS
IFRS
£’000
4,364
(873)
3,491
£’000
£’000
4,364
(873)
3,491
S
519
6,271
6,790
T
U
(5,617)
163
(496)
5,938
5,938
(5,454)
(496)
4,331
453
4,784
5,938
4,784
Revenue
Cost of sales
Gross profit
Investments
Change in fair value of investments
Administrative expenses:
Other administrative expenses
Share based payments
Operating (loss) / profit
Interest receivable
(Loss) / profit before tax
Taxation
(Loss) / profit for the period
UK GAAP
(1,607)
453
(1,154)
(1,154)
S
Fair value gains on equity investments (i.e. net of revenue share) during the period were (£6,271,919).
T
Impairment charge recognised under UK GAAP has been reclassified to “Change in fair value of equity investments” (£172,897), and
the increase in holiday accrual (see D and O) from the previous balance sheet date (£10,531).
U
An IFRS 2 share option charge has been recognised during the period (£495,992).
17
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Balance sheet reconciliation as at 31 July 2006
Note
Assets
Non-current assets
Property, plant and equipment
Investments
University Challenge Seed Fund (UCSF):
- Investments
- Loans
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity attributable to equity holders
Issued share capital
Share premium
Revaluation reserve
Retained earnings
Share based payments
Other reserves
Total equity
Non current liabilities
UCSF Fund
Provisions for liabilities and charges
Total non-current liabilities
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
V
W
X
UK GAAP
£’000
£’000
£’000
24
25,694
5,804
24
31,498
679
808
27,205
308
238
6,350
987
1,046
33,555
6,350
1,135
32,547
33,682
67,237
1,135
32,547
33,682
60,887
Y
Z
AA
IFRS
Effect of transition to
IFRS
1,501
22,713
8,875
(4,832)
1,501
22,713
(8,875)
11,114
496
18,096
46,353
2,735
6,282
496
18,096
49,088
AB
AC
1,493
9,150
10,643
546
2,853
3,399
2,039
12,003
14,042
AD
3,891
14,534
60,887
216
3,615
6,350
4,107
18,149
67,237
V
In addition to the brought forward fair value uplift (£3,441,782), current period fair value gains have been recognised (£11,623,788),
an adjustment to cost of shares disposed (£4,751) has been made and revaluations previously recognised under UK GAAP
(£9,265,759) have been reversed.
W
UCSF investments have been increased to reflect fair value (£307,544).
X
UCSF convertible loans have been increased to reflect a fair value uplift (£238,195).
Y
Previous revaluations of listed investments were taken to revaluation reserve under UK GAAP. Under IFRS, fair value adjustments are
taken to the income statement. The balance on the revaluation reserve is therefore transferred to retained earnings to take account of
this change (£8,874,777).
Z
Retained earnings have been adjusted for:
ƒ brought forward and current period fair value gains (£7,793,869);
ƒ brought forward (£57,797) and current period (£10,531) increase in the holiday pay accrual,
ƒ reduction in the surplus on disposal of shares (83,430);
ƒ the share option charge (£495,992);
ƒ reversal of movement transferred from revaluation reserve to retained earnings on the shares realised under UK GAAP
(£147,180);
ƒ the transfer from the brought forward revaluation reserve (£3,941,520);
ƒ impairment charge recognised under UK GAAP has been reclassified to “Change in fair value of equity investments” (£172,897).
AA
A share option reserve has been recognised during the period (£495,992).
AB
Increase in UCSF Fund (£545,740) reflects the corresponding increase in UCSF investments and convertible loans (see W&X).
AC
Provision for revenue share increase due to cumulative increase in valuation of equity investments (£2,853,456).
AD Previously under UK GAAP no provision for holiday pay had been made. Under IFRS, a provision for the number of holidays
outstanding at the balance sheet date is required (£68,328). Revenue share due on shares realised (£148,265) is also recognised.
18
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Independent review report to Imperial Innovations Group plc
Introduction
We have been instructed by the company to review the financial information for the six months ended 31 January 2007 which comprises the
unaudited consolidated interim balance sheet as at 31 January 2007 and the related unaudited consolidated interim statements of income,
cash flows and changes in shareholders' equity for the six months then ended and related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. As
disclosed in note 1, the next annual financial statements of the group will be prepared in accordance with International Financial Reporting
Standards as adopted for use by the European Union. This interim report has been prepared in accordance with the basis set out in note 1.
The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. As explained in
note 1, there is, however, a possibility that the directors may determine that some changes are necessary when preparing the full annual
financial statements for the first time in accordance with International Financial Reporting Standards as adopted for use by the European
Union. The IFRS standards and IFRIC interpretations that will be applicable and adopted for use by the European Union at 31 July 2007 are
not known with certainty at the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the
United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. A
review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in
scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial
information. This report, including the conclusion, has been prepared for and only for the company and for no other purpose. We do not, in
producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for
the six months ended 31 January 2007.
PricewaterhouseCoopers LLP
Chartered Accountants
Cambridge
Notes:
(a) The maintenance and integrity of the Imperial Innovations Group plc website is the responsibility of the directors; the work carried out by
the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may
have occurred to the interim report since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in
other jurisdictions.
19
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007
Company Information
DIRECTORS
M Knight
S Searle
J Smith
R Cummings
T Maini
P Atherton
M Rowan
(Chairman)
(Chief Executive Officer)
(Chief Financial & Operations Officer)
(Chief Investment Officer)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
COMPANY SECRETARY
J Bowen
REGISTERED OFFICE
Level 12, Electrical and Electronic Engineering Building
Imperial College
London SW7 2AZ
AUDITORS
PricewaterhouseCoopers LLP
Abacus House
Castle Park
Cambridge CB3 0AN
PRINCIPAL BANKERS
National Westminster Bank plc
P O Box No 592
18 Cromwell Place
London SW7 2LB
SOLICITORS
Mayer, Brown, Rowe & Maw LLP
11 Pilgrim Street
London EC4V 6RW
FINANCIAL ADVISERS AND NOMAD
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
SHARE REGISTRARS
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex BN99 6DA
20
IMPERIAL INNOVATIONS
INTERIM REPORT AND ACCOUNTS 2007