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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Touchstone Innovations PLC       GB00B170L953

TOUCHSTONE INNOVATIONS PLC

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Touchstone Innovations : Half Yearly Report

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03/31/2017 | 02:10am EDT

31 March 2017

Touchstone Innovations plc

Increased partnership drives value growth as unlisted portfolio companies mature

Touchstone Innovations plc (AIM: IVO, 'Innovations' or 'the Group'), a leading technology commercialisation and investment group, has published its results for the six months ended 31 January 2017.

Portfolio

· Strong dealflow and notable pick-up in activity in maturing accelerated growth portfolio:

o PsiOxus Therapeutics signed licence agreement with Bristol-Myers Squibb for up to US $936.0 million

o Crescendo Biologics signed collaboration and licence agreement with Takeda Pharmaceutical for up to US $790.0 million

o Circassia signed US $230.0 million collaboration with AstraZeneca (March 2017)

o Cell Medica completed £60.0 million funding round (March 2017)

· Number of maturing unlisted portfolio companies approaching inflexion points and potential realisations

· Profitable cash realisations: disposal of Oxford Immunotec Global plc and Permsense raised £11.3 million and £3.7 million respectively

Financial highlights

· Net portfolio value up by £47.7 million to £382.8 million (FY 2016: £335.1 million)

o Unquoted portfolio value up 16% to £340.3 million (FY 2016: £292.2 million)

· Pre-tax profit of £16.0 million (H1 2016: loss of £5.9 million) including £26.5 million in net fair value gains:

o Unquoted portfolio - net fair value gain of £23.1 million

o Quoted portfolio - marked to market net fair value gain of £3.4 million

· £29.0 million invested in 18 companies (H1 2016: £27.5 million in 17 companies)

o Continuing to back portfolio: £23.0 million invested into 14 existing portfolio companies

o Investing for the future: £6.0 million invested in four new unquoted companies

o Further £11.6 million invested since half year end - total invested in financial year £40.6 million

· Net assets increased to £472.4 million (FY 2016: £455.9 million), NAV per share £2.93

· £163.3 million available for investment and operations, including £50.0 million loan facility from European Investment Bank, which was drawn down post period end

Russ Cummings, Chief Executive of Touchstone Innovations, said:

'Our patient and focussed approach to investing for the long-term is now showing real results, with a number of substantial transactions endorsing our model - notably the recent PsiOxus Therapeutics' and Crescendo Biologics' collaborations worth potentially $936.0 million and $790.0 million respectively. More recently, Cell Medica and Pulmocide completed material funding rounds and Circassia agreed a $230.0 million collaboration with AstraZeneca.

'We have a dozen companies of material scale and considerable potential. Most of our larger and maturing unlisted companies made significant progress and are approaching key inflexion points. We have great depth to our portfolio, with another 20 portfolio companies or so making significant progress and showing rapid development.

'This not only reflects the fruits of ten years of investment, but also the more recent acceleration of capital deployment, with 63% of all funds invested by Innovations being made within the last three and a half years. The vast majority of this capital has gone into existing portfolio companies that we know well.

'We are actively involved in discussions about partnerships, licensing and other corporate developments across a number of our larger unlisted portfolio companies. Despite the macro-economic backdrop, we have the people, platform and skills to continue to build on our successful investments for the long-term. Furthermore, our participation in the UCL Technology Fund and Apollo Therapeutics, means we are in a great position to access and invest in some of the best IP coming out of the Golden Triangle.'

A pdf copy of the results is available at http://www.touchestoneinnovations.com/interim2017

For further information contact:

Touchstone Innovations plc

020 3053 8834

Russ Cummings, Chief Executive Officer

Jon Davies, Director of Communications

Instinctif Partners

020 7457 2020

Adrian Duffield/Melanie Toyne-Sewell/Chantal Woolcock

J.P. Morgan Cazenove (Nominated Adviser)

020 7742 4000

Michael Wentworth-Stanley/Alec Pratt

RBC Capital Markets

020 7653 4000

Darrell Uden/Marcus Jackson/Laura White

About Touchstone Innovations - www.touchstoneinnovations.com

Touchstone Innovations plc (formerly Imperial Innovations Group plc or just 'Innovations') creates, builds and invests in pioneering technology companies and licensing opportunities developed from outstanding scientific research from the 'Golden Triangle', the geographical region broadly bounded by London, Cambridge and Oxford.

This area has an unrivalled cluster of outstanding academic research and technology businesses, and is home to four of the world's top 10 universities, as well as leading research institutions, the cream of the UK's science and technology businesses and many of its leading investors.

Innovations supports scientists and entrepreneurs in the commercialisation of their ideas through protecting and licensing out intellectual property (through its Technology Transfer subsidiary, Imperial Innovations Limited), by leading the formation of new companies, by recruiting high calibre management teams and by providing investment and encouraging co-investment. Innovations remains an active investor over the life of its portfolio companies, with the majority of Innovations' investment going into businesses in which it is already a shareholder.

Since becoming a public company in 2006, Innovations has raised more than £440 million of equity from investors, which has enabled it to invest in some of the most exciting spin-outs to come out of UK academic research. In addition, post period end the Group has drawn down the outstanding £50.0 million from the European Investment Bank (EIB) taking the total loan to £80.0 million.

Between Innovations' admission to AIM (August 2006) and 31 January 2017, Innovations has invested a total of £335.7 millionacross its portfolio companies, which have collectively raised investment of £1.5 billion.

Chief Executive's Report

Overview

The fundamentals of the Group's business remain very strong. Innovations has a strong and diverse portfolio of 47 accelerated growth companies with the Group's top 10 assets accounting for 61% of net portfolio value. Many of these portfolio companies made significant technical, clinical and commercial progress during the period.

Significantly, the keen interest in the portfolio has continued to build; and a number of the portfolio companies announced high value partnership and licensing agreements, with further discussions ongoing.

The two most notable of these were signed by PsiOxus Therapeutics and Crescendo Biologics, with potential deal values up to US $936.0 million and US $790.0 million respectively. These values are subject to achievement of preclinical and clinical milestones, but the size of these transactions is a clear indication of the value that global pharma companies have placed on the underlying technology developing.

The strategic partnerships signed this time last year to broaden the Group's visibility of intellectual property from the elite universities within the 'Golden Triangle' are beginning to bear fruit, with both Apollo Therapeutics and UCL Technology Fund now fully established and actively reviewing and funding their first projects.

Innovations continues to back its portfolio companies both financially and also with the insights and skills of its people. In the period, nearly 80% of investments were made into existing portfolio companies. The Group expects to continue to allocate a broadly similar proportion of its investments into existing companies in the future, as it continues to back selected companies within its accelerated growth portfolio from inception to maturity. Five years ago this portfolio comprised three companies in which the Group had invested more than £5.0 million, now there are 19 companies with this level of investment, illustrating both the acceleration in the Group's investment activity and increasing maturity of its portfolio.

Visibility of new investment opportunities from the academic, research and entrepreneurial community within the 'Golden Triangle' remains high. The quality and experience of the Group's team means its ability to identify potential stars is continually improving. Innovations is excited by the quality of investments made and the opportunities that it continues to see. As the Group is only looking to add 6-8 new companies to the portfolio per annum, it takes a rigorous and measured approach to growing the portfolio, with a resolute focus on quality over quantity.

The Group added four new companies to its accelerated growth portfolio and generated net proceeds to Innovations of £3.7 million from the disposal of Permasense. Innovations' equity stake was largely derived from early commercial support provided to the founders by Innovations' Technology Transfer Office and was acquired at nil cost.

Other notable developments included the opening of a new corporate office in Air Street, London and the change of name from Imperial Innovations Group plc to Touchstone Innovations plc, both of which were completed in early January 2017. The Group also secured a new five-year contract to run the incubator at the I-HUB, a new building at Imperial College London's new White City Campus.

The Group's overall net portfolio value increased by £47.7 million to£382.8 million (FY 2016: £335.1 million) driven by a combination of increased investment and net fair value gains in its portfolio.

The increase comprises investments of £29.0 million across 18 companies and fair value gains of £36.5 million, offset by fair value losses of £10.0 million and disposals of £7.8 million. The net fair value gain of £26.5 million represents a 7.9% increase on opening net portfolio value.

As at 31 January 2017, the Group's portfolio consisted of holdings in 112 companies.

The Group's quoted portfolio comprised four companies (Circassia Pharmaceuticals plc, Abzena plc, Oxford Immunotec Global plc and IXICO plc) and was marked to market at close of trading on 31 January 2017 and valued at £42.5 million. Fair value gains of £5.0 million, were mostly attributable to Oxford Immunotec, as the Group took advantage of the strong share price to crystallise value in its holding. Post period end the Group sold the balance of its holding in Oxford Immunotec, generating total proceeds of £11.3 million. This represents a 1.5 times return on its original investment and generated a fair value gain of £5.0 million in this financial year.

The Group's unquoted portfolio increased in value by £48.1 million (16%) to £340.3 million (31 July 2016: £292.2 million). The increase includes investments of £29.0 million and fair value gains of £31.5 million.Most of the net fair value gain (£21.9 million) was attributable to an increase in the value of PsiOxus Therapeutics following its worldwide licencing agreement with Bristol-Myers Squibb (BMS). Other notable fair value gains included Crescendo Biologics (£3.7 million) and Autifony Therapeutics (£4.3 million). The gain was offset by fair value losses of £8.4 million, largely resulting from a full write down in the value of Kesios Therapeutics of £6.2 million, as the underlying technology failed to live up to expectations. In addition, the portfolio value decreased by £4.0 million as a result of disposals, most notably from the sale of Permasense, which accounted for £3.4 million.

As of 31 January 2017, the Group had £163.3 million (FY 2016: £198.3 million) available for investment and operations, including the £50.0 million second loan facility from European Investment Bank (EIB) which was drawn down post period end.

Operational review

Partnerships, collaborations and exits

As reported in the last set of results, there is growing evidence of keen partnership interest in Innovations' portfolio, both from corporate venture investors and industry, with collaboration an increasing feature of the business.

In October 2016, Crescendo signed a multi-target collaboration and licence agreement with Takeda Pharmaceutical worth up to US $790.0 million, subject to successful completion of milestones. Crescendo will use its proprietary transgenic platform and engineering expertise to discover and optimally configure Humabody candidates (drug conjugates and immuno-oncology therapeutics) against multiple targets selected by Takeda.

Under the terms of the agreement, Crescendo is eligible to receive up to US $36.0 million, in a combination of an upfront payment, investment, research funding and preclinical milestones. Takeda will have the right to develop and commercialise any Humabody-based therapeutics resulting from the collaboration. Crescendo is also eligible to receive further clinical development, regulatory and sales-based milestone payments of up to US $754.0 million over the years post preclinical development, and in addition, will be eligible to receive royalties on Humabody-based product sales by Takeda. In the light of this significant agreement Innovations is reporting a net fair value gain of £3.7 million in its investment in Crescendo.

In December 2016, PsiOxus signed an exclusive worldwide licence agreement with BMS for the rights to a single pre-clinical product, NG-348, PsiOxus' first 'armed' oncolytic virus. The agreement comprises an upfront payment of US $50.0 million to PsiOxus, but is potentially worth up to US $886.0 million in development, regulatory and sales-based milestones, subject to successful completion of milestones. BMS will also be responsible for providing PsiOxus funding to support activities related to the preclinical development of NG-348.

Albeit that there is a high degree of risk associated with clinical trials, the size of this transaction, and the fact that it is for a single preclinical product, demonstrates the potential value of PsiOxus' platform technology. This is the second collaboration that PsiOxus has signed with BMS and follows on from the first clinical collaboration of PsiOxus' oncolytic adenovirus therapeutic enadenotucirev, in combination with BMS's Immuno-Oncology (I-O) agent Opdivo(nivolumab) to treat a range of tumour types in late-stage cancer patients (announced in June 2016).

The combination of the initial upfront payment of US$50.0 million and the potential value of the licensing agreement for NG-348 has resulted in the Group reporting a net fair value gain of £21.9 million in its investment in PsiOxus.

Abzena plc is continuing to see interest in its novel site-specific ThioBridge antibody drug conjugate (ADC) linker technology, which links antibodies and other proteins to drugs. In January 2017, the company announced a licensing agreement with a San Diego-based biopharmaceutical company covering the use of ThioBridge in up to 10 Antibody Drug Conjugates (ADCs) across a wide range of indications. The agreement has the potential to reach over US $300 million to Abzena, comprising licence fees and milestone payments.

This is Abzena's biggest ever technology deal and is the second major partnership for its ThioBridge antibody drug conjugate (ADC) linker technology, following a similar licensing agreement worth up to US$150.0 million announced in January 2016.

Post period-end on 17 March 2017, Circassia announced that it had entered an agreement with AstraZeneca to secure certain U.S. commercial rights to two chronic obstructive pulmonary disease products, Tudorza and Duaklir, for a maximum total consideration of US $230.0 million. These products represent a clear strategic fit with Circassia's focus on respiratory medicines and provide the company with an opportunity to transform its product portfolio and expand its commercial infrastructure in the USA.The transaction thus allows Circassia to accrue the benefits of a broader product portfolio as well as significant infrastructure expansion. The collaboration is anticipated to be earnings enhancing for Circassia after one year and broadly cash neutral for three years, then cash generative.

Significantly, the deal is structured such that there is no funding requirement from Circassia shareholders. Instead, Circassia will issue AstraZeneca US $50.0 million in Ordinary Shares on completion of the transaction, followed by a deferred non-contingent consideration of US $100.0 million and a second payment of up to a further US $80.0 million should Circassia decide to exercise an option to sub-license the commercial rights to Tudorzain the US.

In October, Permasense Limited was acquired by Emerson Electric, a Fortune 500 company, for an initial consideration of £30.6 million, with further amounts of up to £7.7 million subject to the Permasense business achieving certain performance targets over the subsequent 13 months.

Permasense is the world leader in the field of continuous integrity monitoring for the oil & gas production, refining and power industries and provides a great example of Innovations' added value when working with Imperial College to commercialise IP over and above the Group's venture investment activity. The company was co-founded by Innovations in 2008 to develop and commercialise technology originally developed at the College and Innovations' 23.0% equity stake was largely derived from early commercial support provided to the founders by Innovations' Technology Transfer Office, as well as from licensing the founding intellectual property.

Permasense generated revenues, rapidly becoming self-financing, and hence did not require funding as part of the Group's investment portfolio. Innovations 'IP Equity' stake was therefore acquired at nil cost. In the sale to Emerson Electric, the initial consideration generated net proceeds to Innovations of £3.7 million and in addition, an equal payment of £3.7 million for ImperialCollege as part of the revenue share agreement.

Putting Innovations' capital to work

Innovations continued to deploy its substantial capital resources into its investment portfolio, investing £29.0 million in 18 companies (H1 2016: £27.5 million in 17 companies). Of this, 79.3% (£23.0 million) was invested into existing portfolio companies, with the balance being invested in four new unquoted accelerated growth companies. These four new companies comprise two additions to the therapeutics portfolio (Artios Pharma and ApcinteX Ltd) and two new ICT & digital companies (ThisWay Global and Resolving Limited).

Of the £29.0 million invested in the period, 72.4% (£21.0 million) was made into the healthcare portfolio reflecting the higher capital demands of these companies. This included £3.9 million invested in MISSION Therapeutics as part of the company's £60.0 million funding round (announced on 2 February 2016); £3.3 million invested in Inivata, £2.8 million invested in Veryan Medical and £2.5 million invested in Ieso Digital Health.

The Group is continuing to develop its investment portfolio by scaling its activities in non-therapeutics sectors and invested in seven technology companies during the period, including significant investments in Cortexica (£2.6 million), Import.IO (£1.7 million), Plaxica (£1.0 million), Yoyo Wallet (£0.9 million) and ThisWay Global (£0.9m).

As at 31 January 2017, the Group's accelerated growth portfolio comprised 47 companies (FY2016: 45 companies) which collectively account for 99% of the portfolio by value. Post period end the Group completed the sale of its holding in Oxford Immunotec, so that the accelerated growth portfolio now comprises 46 companies.

Post period-end, the Group invested a further £11.6million to funding rounds in Garrison Technology (£3.9 million), Resolving (£0.6 million), Concirrus (£0.6 million), Pulmocide (£1.5 million), Wave Optics (£0.5 million) and Cell Medica (£4.6 million) taking the total invested in this financial year to £40.6 million.

Building the pipeline for future value creation

Whilst the vast majority of Innovations investment capital is deployed in existing portfolio companies that have been substantially de-risked and validated over time, the Group continues to selectively add a small number of new portfolio companies per annum. Four new companies were added during the period:

· Artios Pharma Limited: a new Cambridge-based private biotech company, focused on the development of novel DNA Damage Response (DDR) cancer therapies formed from assets from Cancer Research Technology Ltd. In September 2016, Innovations committed £5.1 million to the £25.0 million Series A funding round alongsideanimpressive syndicate of leading European and US life science investors including SV Life Sciences, Merck Ventures, Arix Bioscience PLC, CRT Pioneer Fund (managed by Sixth Element Capital) and AbbVie Ventures.

· ApcinteX: a University of Cambridge spin-out company that is developing a new therapy for haemophilia. Innovations and Medicxi co-led a £14.0 million Series A funding round alongside Cambridge Enterprise, who helped in ApcinteX's formation, licensing key intellectual property to the company. Innovations committed £7.0 million to the round, investing £2.7 million during the period.

· ThisWay Global Limited: a Cambridge-based technology company that is developing an innovative software platform for the recruitment industry that uses machine learning to streamline the recruitment process by matching high-quality candidates to the most appropriate job opportunities. In September 2016, Innovations led a £1.6 million funding round alongside US-based Jetstream Ventures and Grupa Pracuj, a global recruitment technology company with a dedicated investment arm for emerging HR tech companies.

· Resolving Limited: this is the parent company of Resolver.co.uka website dedicated to making it easier for consumers to make complaints or raise issues with brands, companies and organisations. During the period Innovations committed £0.5 million as the first part of a £1.1 million commitment to a £2.9 million funding round announced on 14 March 2017. Innovations invested alongside Draper Esprit.

UCL Technology Fund and Apollo Therapeutics

In January 2016, the Group completed two new initiatives aimed at expanding its licence portfolio and broadening its visibility of, and access to, intellectual property from the elite universities within the 'Golden Triangle'. Both of these initiatives are now up and running and productive.

The first of these was participation in the new £50.0 million UCL Technology Fund LP. This is the first investment fund that University College London (UCL) has created to commercialise its multidisciplinary research. Participation in this fund has significantly increased Innovations' access to deal-flow from one of the world's leading universities, and is already beginning to bear fruit.

In the first year of its formation, this fund has now completed a detailed review of 54 projects which fitted funding criteria and approved 13 investment projects at a cost of £7.0 million. These included seven Proof of Concept (PoC) projects, four spin-out opportunities and two licensing projects.

The second initiative was Innovations' contribution of £3.3 million to Apollo Therapeutics, a new £40.0 million joint venture between Innovations, Cambridge Enterprise (the technology transfer office of the University of Cambridge), UCLB (the technology commercialisation company of UCL) and three of the world's leading pharma companies, AstraZeneca, GlaxoSmithKline and Johnson & Johnson.

This new venture was created to foster the translation of outstanding academic therapeutic science into innovative new medicines by combining the skills of the university academics with industry expertise at an early stage. The ultimate aim of the fund being to speed up the development of new medicines, as well as reducing the cost and improving the attrition rate of potential opportunities, whilst sharing the risk of early development.

After evaluating initial opportunities across all three universities, Apollo has now approved funding for and launched its first four drug discovery projects. This included two projects from the University of Cambridge and one each from Imperial College London and UCL. These initial projects represent novel and compelling drug discovery projects, emerging from academic research in areas of high medical need for which Apollo's Drug Discovery Team saw a clear route to value creation. A total of £8.5 million has been committed in milestoned project plans. Two further projects are currently being finalised, with multiple others in the evaluation process across all three academic institutions.

These two key strategic partnerships are delivering in line with expectations, and in time, the Group expects that they will deliver incremental opportunities for it to deploy its investment capital.

Continuing momentum in the portfolio

Since IPO in 2006 the Group has co-founded and invested in 106 portfolio companies. Of these, 23 companies have completed successful exits, generating an average return of 2.7x cash invested. A further 37 companies have been sold or written down to recover value. The balance of 46 companies comprises the accelerated growth portfolio which provide the investment opportunity and value potential, and collectively account for 99% of the portfolio by value.

The Group's Top 10 investee companies all have net investment carrying values between £10.0 million and £45.0 million spread across the Group's four specialist sectors. None of these companies have a disproportional weighting, with the largest, PsiOxus, representing 11.6% of net portfolio value. Nine of the Top 10 are private companies with an average age of 10.3 years. These are well-managed and well-capitalised businesses which have been de-risked and validated to varying degrees through the due diligence of the Group's co-investors. They have raised an average of £39.3 million each.

Portfolio highlights include:

· Abingdon Health: Abingdon has developed and commercialised its own range of rapid tests for haematology oncology specifically in the area of B-cell dyscrasias which are diseases caused by disorders of plasma cells. The Seralite Free Light Chain product range is used as an aid in the diagnosis and management of multiple myeloma. On 10 October 2016, Abingdon announced that the latest addition to the range, Seralite®-FLC ELISA had secured a CE mark. In June 2016, Abingdon announced a global distribution agreement with Sebia, a world leader in electrophoresis products, for Seralite- FLC Serum. This partnership is progressing well, as is its collaboration agreement with Sumitomo Chemical Co. Ltd ('Sumitomo Chemical') to develop a next generation multiplexed point of care biosensor device.

· Abzena: As previously mentioned Abzena plc is continuing to see interest in its novel site-specific ThioBridge antibody drug conjugate (ADC) linker technologyand in January 2017, announced a substantial licensing agreement with a San Diego-based biopharmaceutical company with the potential to reach over US $300 million in licence fees and milestone payments. In addition, the company is seeing good progress both within its services business and across its 'Abzena inside' portfolio with a further Composite Human Antibody™ product being taken into clinical development by a US biotech company. This takes the number of 'Abzena inside' products at a clinical stage to 12. The most advanced of these is GS-5745 in gastric cancer. Interim data for this Phase III trial is expected in late 2017.

· Autifony: In August 2016, Autifony announced the successful completion of a Phase I study of AUT00206, its first-in-class Kv3 modulator for schizophrenia. This was followed in January 2017 with news of a Phase 1a study providing further encouraging confirmation of human target engagement, and support for the progression of AUT00206 in schizophrenia. At the same time the company announced the start of two Phase Ib studies with the molecule. Meanwhile, the Quick+fire study in adult cochlear implant users, which started in July 2016 and will test AUT00063 in a population of patients with different hearing difficulties is continuing. On 15 March 2017, Autifony announced that it had secured £1.3 million in funding from Innovate UK and the Dementia Discovery Fund to explore novel approach to treatment of dementia based on its expertise in ion channel drug discovery.

· Cell Medica: continues to strike new partnerships to expand its capabilities in cellular immunotherapy and on 24 August 2016, announced a research collaboration with UCL which will see the company utilise UCL's novel T cell receptor (TCR) technology to generate leading-edge modified TCR products for the treatment of cancer. The collaboration also provides Cell Medica with an exclusive worldwide option and licence agreement for these technologies, as well as TCR gene sequences for the development and commercialisation of specific products. On 10 November 2016, Cell Medica announced that it had expanded its partnership with Baylor College of Medicine ('Baylor') to develop an off-the-shelf allogeneic cell therapy, taking advantage of the unique aspects of invariant natural killer T (NKT) cells which mean that they are not prone to serious side effect called graft versus host disease (GvHD) that is common in other allogenic treatments. Post period-end, on 16 March 2017, Cell Medica completed a £60.0 million funding round, with Innovations committing £13.7 million to the round alongside co-investors Invesco Asset Management and Woodford Investment Management.

· Circassia Pharmaceuticals: Notwithstanding the disappointing results of its Phase III cat allergy trial, on 27 September 2016, Circassia reported its interim results for the six months to 30 June 2016, noting substantially increased revenues from its asthma management products, robust growth in its respiratory portfolio and an expansion of its commercial footprint. The company also reported encouraging results from its Phase II birch allergy study but will wait for the results of its large-scale (700 patients enrolled) house dust mite field study which are due in spring 2017, before reassessing the wider strategy for its allergy immunotherapy portfolio. Post period-end on 17 March 2017, Circassia announced that it had entered into an agreement with AstraZeneca to secure certain U.S. commercial rights to two chronic obstructive pulmonary disease products, Tudorza and Duaklir, for a maximum total consideration of US $230.0 million. These products represent a clear strategic fit with Circassia's focus on respiratory medicines and provide the company with an opportunity to transform its product portfolio and expand its commercial infrastructure in the USA. - see Partnerships, collaborations and exitsfor further details.

· Cortexica Visual Systems: Cortexica is continuing to make commercial progress with its proprietary findSimilar™ technology being used by a growing list of global retailers including Macy's, Zalando and John Lewis. Cortexica is also working with Hammerson, the shopping centre group, to integrate findSimilar™ into the retailer's location-based mobile application, which is in use in 22 shopping centres across Europe. Cortexica is also diversifying its operations with the development of new applications for its visual search technology in other applications such as Health and Safety, and Clean Room environments.

· Crescendo Biologics:Crescendo is discovering and developing potent, highly differentiated mono- and multi-specific Humabody therapeutics in oncology based on its unique, patent protected, transgenic mouse platform. This platform, combined with the company's engineering expertise, could lead to the development of multiple drug candidates making it very attractive to pharma companies. In October 2016 Crescendo signed a multi-target collaboration and licence agreement with Takeda Pharmaceutical worth up to US $790 million (subject to successful completion of milestones) - see Partnerships, collaborations and exitsfor further details.

· Featurespace:is continuing to make good progress in the USA, following the announcement in May 2016 of its partnership with TSYS Inc, one of the world's largest payment solutions and services companies. As a result of this partnership Featurespace's adaptive behavioural analytics platform will be used to reduce fraud and false positives for TSYS' clients. Featurespace's solution is being implemented at the first two TSYS customers with very positive results, with the technology proving to be significantly better than existing systems. TSYS plans to roll out Featurespace's solution to many more of its customers, starting in Q2 this year.

· MISSION Therapeutics: Having raised £60.0 million from investors in February 2016, MISSION is well placed to continue to develop its world-leading platform for the discovery and development of first-in-class, small molecule drugs that selectively target deubiquitinating enzymes ('DUBs') - an emerging, and hitherto intractable drug class that is attracting significant commercial interest. On 5 December 2016, MISSION appointed Dr Colin Goddard as non-executive Chairman, with former Chairman Michael Moore moving to the position of Deputy Chairman. Prior to joining Mission Therapeutics, Dr Goddard was Chief Executive Officer of OSI Pharmaceuticals, which he led from being a technology platform services company into a profitable fully integrated biopharmaceutical organisation.

· Nexeon: With the benefit of the additional £30.0 million equity funding round completed in May 2016, Nexeon is continuing to optimise its silicon materials for the blended carbon/silicon anode applications currently being demanded by the battery industry. Nexeon is increasingly being recognised as the 'go to' company for silicon materials in the battery space, which is presenting exciting commercial opportunities. The company recently signed a joint development agreement with an automotive company and is actively sampling kilogram quantities of its products to several tier 1 battery companies. On 11 October 2016, Nexeon announced the opening of a new office and development laboratory in Yokohama, close to many of the company's development partners and prospective customers in the electronics and automotive sectors. This allows Nexeon to directly support customers in a territory where more than 90% batteries are currently made and has enabled the company to attract local talent, which will accelerate commercialisation.

· PsiOxus Therapeutics: PsiOxus' first generation oncolytic virus Enadenotucirev and the company's proprietary Tumor-Specific Immuno-Gene Therapy (T-SIGn) platform technology continues to garner significant interest from pharma companies. As a combination therapy Enadenotucirev could potentially expand the market for blockbuster checkpoint inhibitor drugs by increasing the range of cancer types for which they are effective, whereas the T-SIGn platform could potentially outperform new immuno-oncology platforms such as CAR-T by providing an off-the-shelf product that does not require the selection of a specific tumour antigen. In December 2016, PsiOxus announced an exclusive worldwide licence agreement with BMS for NG-348, its first 'armed' oncolytic virus, in a transaction worth up to US $936 million (subject to successful completion of milestones) - see Partnerships, collaborations and exits for further details.

· TopiVert: is continuing to see good progress with the development of narrow spectrum kinase inhibitors (NSKIs) as novel, locally-acting medicines for the local treatment of chronic inflammatory diseases of the gastrointestinal tract and eye. TopiVert's most advanced drug candidate, TOP1288 for the treatment of ulcerative colitis (UC), has successfully completed Phase I development and on 6 October 2016, the company announced that the first patients had been dosed in its Phase IIa proof-of-concept study. In November 2016, the company announced that its Investigational New Drug (IND) application for the evaluation of TOP1630 ophthalmic solution as a treatment of patients with dry eye syndrome (DES) has been approved by the US Food and Drug Administration (FDA). Post period end on the 22 February 2017, TopiVert announced the successful dosing of the first patients in this trial. This was followed on the 28 February with the news of the successful dosing of the first subjects in a Phase 1 study of its oral formulation of TOP1288 for the treatment of UC. Results from both oral and rectal studies of TOP1288 are expected in the second half of 2017.

· Veryan Medical: In October 2016, Veryan completed enrolment into the MIMICS2 clinical study of its BioMimics 3D® Self-Expanding Stent System (BioMimics 3D). This has been designed to evaluate the safety and effectiveness of BioMimics 3D in the treatment of patients with symptomatic femoropopliteal disease with a view to provide safety and effectiveness data that are intended to support future marketing applications for BioMimics 3D in both the USA and Japan. Enrolment concluded with a total of 271 patients who were enrolled across 47 investigational sites in Germany, the USA and Japan. In February 2017, Veryan secured a further £13.5 million of funding in the form of new equity funding secured from existing investors (including Innovations) supported with a €5.0 million loan from Silicon Valley Bank. The new investment will allow the company to continue its progress towards US and Japanese regulatory approvals for its patented a three-dimensional stent, BioMimics 3D™ which secured European approval in late 2012.

· Yoyo Wallet: is continuing to see firm traction for its mobile payments and loyalty application. The 'app' was launched in early 2014 across 32 food and drink outlets at Imperial College London and at 31 January 2017, the company had signed more than 40 universities as customers and deployed the solution at 110 head office corporate catering locations. Yoyo is now targeting high-street retail chains and inNovember 2016 the company announced it had been selected by Caffè Nero as the coffee chain's mobile payment and loyalty strategy partner. The roll-out to the retailer's network of more than 600 stores will begin spring 2017.

Not all companies performed to expectations and the Group reported £8.3 million of impairments from its unquoted portfolio.

More than 75% of this impairment is attributable to a £6.2 million write down in the value of Kesios Therapeutics. Disappointingly the underlying technology failed to live up to expectations and the decision was made with Kesios' management team to wind the company down. The £6.2 million loss on Kesios represents 1.9% of opening net portfolio value.

Outlook

The healthy balance sheet combined with the Group's policy of building strong investor syndicates, means that Innovations remains well positioned to create value for shareholders. In particular, the Group has the ability to scale up its investment in the significant opportunities within the maturing portfolio, whilst maximising the new opportunities expected from the new alliances with UCL Technology Fund and Apollo. Overall, the Group expects to maintain its current rate of investment for the full year. Meanwhile, cash realisations are expected to be higher than the prior year, which may reduce net cash outflow. This is a further demonstration of how the portfolio is maturing.

The majority of the investment capital will continue to be deployed in companies that Innovations has co-founded and knows intimately. Additionally, the Group will maintain its new business creation activity to build longevity in the portfolio, by selectively adding 6-8 new companies per annum.

Innovations plans to continue to balance its portfolio by proactively growing its investment in non-therapeutics businesses, whilst building further capacity in its tech ventures team. Over the last 2.5 years the ICT & Digital portfolio has grown from £18.3 million (7.3% of net portfolio value) to £41.5 million (11.7% of net portfolio value), whilst over the same period generating an additional £5.3 million of realisations.

The quality of new opportunities that the Group is seeing from the academic, research and entrepreneurial community within the 'Golden Triangle' remains high, with a healthy stream of new investment opportunities.

The UCL Technology Fund and Apollo Therapeutics Fund are both now fully operational and productive and will provide additional opportunities for the Group to invest, in addition to strengthening the Group's relationships with the participating universities and pharma companies.

The Board remains confident that Innovations' business model and key principles of attracting world class management, building stakes in selected portfolio companies alongside appropriate co-investors, and having the patience and capital resources to hold for the long-term, will generate attractive shareholder returns.

Russell Cummings

Chief Executive Officer

Financial review

Summary

The Group generated a profit during the period of £16.0 million (H1 2016: £5.9 million loss, FY 2016: £63.1 million loss). This was primarily driven by fair value gains in the quoted and unquoted portfolio. The cash balance remains healthy.

Net assets at the period end of £472.4 million (H1 2016: £415.9 million, FY 2016: £455.9 million) increased by £16.5 million from 31 July 2016, primarily as a result of the net fair value gain.

Cash and short-term liquidity investments

At 31 January 2017, the Group's cash and short term liquidity investments moved to £113.3 million (H1 2016: £91.6 million, FY 2016: £148.3 million). The key driver of this movement was the Group's investment activity.

The movement in cash and short term liquidity investments of £35.0 million from the opening balance as at 31 July 2016 is summarised below:

Six months to

31 Jan 2017

Six months to

31 Jan 2016

12 months to

31 July 2016

£m

£m

£m

Net cash used in operating activities

(5.4)

(5.3)

(10.8)

Purchase of trade investments

(29.0)

(27.5)

(69.9)

Investments in funds

(1.1)

-

(1.2)

Net proceeds from sale of trade investments

3.4

0.1

5.0

Funds in transit intended for trade investments

-

(5.2)

-

Net cash from other investing activities

(0.8)

0.3

1.1

Financing activities

(2.1)

1.1

96.0

Movement in net cash reserves during period

(35.0)

(36.5)

20.2

The Group invests cash surplus to working capital requirements in short-term deposits, classified as short term liquidity investments, across a number of banks with a focus on capital preservation rather than interest earned.

Post period end, on 2 February 2017 the Group drew down the £50.0 million second loan facility secured from the EIB in July 2015. Following this, the Group has £163.3 million available for investment and operations.

Revenues, cost of sales and operating costs

Total trading revenue of £2.4 million (H1 2016: £2.2 million; FY 2016: £4.3 million) was higher than the prior half year as a result of an increase in the licence and royalty income stream to £1.9 million (H1 2016: £1.3 million, FY 2016: £2.2 million). Corporate finance fees were £0.03 million (H1 2016: £0.04 million; FY 2016: £0.4 million) and were primarily generated by the Group-led funding rounds. Other income includes revenue from services of £0.5 million (H1 2016: £0.8 million, FY 2016: £1.6 million) and dividends received of £0.02 million (H1 2016: £0.02 million; FY 2016: £0.4 million).

Cost of sales, which mainly arises from the revenue sharing arrangements with Imperial College London, were £1.0 million (H1 2016: £0.8 million; FY 2016: £1.4 million) reflecting the increased licence and royalty activity.

Other administrative expenses were £7.7 million (H1 2016: £6.9 million; FY 2016: £12.6 million). The expenses are up on H1 2016 primarily due to costs associated with the Group's office move to the new premises. Other administrative expenses include costs of £0.8 million (H1 2016: £0.9 million; FY 2016: £1.5 million) incurred filing patents and protecting the as yet unexploited intellectual property from Imperial College London.

The Group's carried interest plan, which is a significant portion of its long term incentive arrangements, recognised a charge of £4.0 million (H1 2016: charge of £0.9 million, FY 2016: a release of £3.0 million) as a result of an increase in the value of the unquoted portfolio. There is no cash payment due to members of the scheme until the Group has made substantial cash realisations.

Finance income was lower than the prior period, at £0.3 million (H1 2016: £0.5 million, FY 2016: £1.1 million), reflecting the lower cash balance. During the period ended 31 January 2017, the Group made quarterly payments of interest of £0.5 million (H1 2016: £0.6 million, FY 2016: £1.1 million) on the EIB loan.

The Group reported a profit before tax of £16.0 million (H1 2016: £5.9 million loss, FY 2016: £63.1 million loss). The Group's basic profit per share was 10.0p (H1 2016: basic loss per share 4.3p, FY 2016: basic loss per share 43.2p). The Group did not pay a dividend (H1 2016: nil, FY 2016: nil).

Investment portfolio performance

The Group reported a net fair value gain arising from the portfolio of £26.5 million (H1 2016: £0.5 million gain, FY 2016: £56.2 million loss). An analysis of the change in fair value is set out in note 2 to the interim report and accounts and is summarised below:

Portfolio movements excluding cash invested/divestments

Six months to

31 January 2017

Six months to

31 January 2016

12 months to

31 July 2016

£m

£m

£m

Gains on revaluation of investments

36.5

12.7

22.1

Losses on the revaluation of investments

(10.0)

(12.2)

(78.3)

Net fair value gains / (losses)

26.5

0.5

(56.2)

As at 31 January 2017, the value of the Group's portfolio, net of £6.3 million due to revenue share agreements, increased to £382.8 million (FY 2016: £335.1 million). The increase represents £29.0 million (FY 2016: £69.9 million) of investments to fund 18 (FY 2016: 33) companies in its portfolio, net disposals of £7.8 million (FY 2016: £5.8 million) and fair value gains of £26.5 million (FY 2016: £56.2 million loss).

Investment and divestment

The Group's rate of investment in its portfolio companies was £29.0 million across 18 portfolio companies (H1 2016: £27.5 million, FY 2016: £69.9 million). At the end of the period the Group had outstanding investment commitments of £28.2 million in certain technology businesses under milestone provisions contained in investment agreements.

This takes the total invested since Innovations' IPO in July 2006 to £335.7 million and the total raised by the Group's portfolio companies to over £1.5 billion.

Divestments in the period amounted to £7.8 million and include proceeds on the sale of Permasense and the partial sale of stock in Oxford Immunotec, a quoted portfolio company.

Total net investment after net cash disposals in the period was £21.2 million (H1 2016: £27.4 million, FY 2016: £64.1 million).

UCL and Apollo

In addition to investments into its core portfolio, the Group committed £24.8 million towards the UCL Technology Fund LP and £3.3 million towards the partnership, Apollo Therapeutics LLP during the year ended 31 July 2016. The actual cash will be invested over a number of years. During the current period the Group invested £1.1 million into the fund and LLP, taking the total invested in these activities to £2.3 million.

Portfolio company creation

At 31 January 2017, the Group held equity stakes in 112 companies (H1 2016: 105 companies, FY 2016: 107 companies). The movement reflects formations during the period.

Portfolio company overview

The net value of the Group's investment portfolio grew to £382.8 million (FY 2016: £335.1 million spread across 107 companies) and portfolio companies raised £95.3 million in cash (FY 2016: £76.0 million) from all sources of investment. Since 31 January 2017 the portfolio companies have secured further commitments of £98.6 million from all sources of investments, with the Group committing £21.5 million.

The Group has a total of £299.1 million invested capital at work in the portfolio of currently active technology companies; £161.8 million invested in the top 10 companies and £137.3 million in the remaining companies.

The table on the next page sets out the top 10 companies in the portfolio by value to illustrate the spread of the investments held and their relative carrying value. All of the carrying values listed reflect the net fair value of the investment, being the gross value of the holding less the attributable revenue-sharing obligations associated with each investment. The percentage of issued share capital represents the absolute percentage of the shares held, without reflecting any revenue-sharing obligations.

The portfolio of companies is grouped into four sectors (as noted in the Chief Executive's Report) for the purpose of external reporting. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, which commercialises academic research and uses it to build businesses. The Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial statements.

Table of the net fair value movement

Name of company

Net carrying value

Investments

Cash divested

Fair value movement

Net carrying value

Cumulative

cash invested

% Issued share

capital held

as at

31 July

2016

6 months to

31 Jan 2017

6 months to

31 Jan 2017

6 months to

31 Jan

2017

as at

31 Jan 2017

as at

31 Jan

2017

as at

31 Jan

2017

£'000

£'000

£'000

£'000

£'000

£'000

%

PsiOxus Therapeutics Limited

22,623

-

-

21,858

44,481

13,676

26.5

Nexeon Limited

41,890

-

-

-

41,890

27,373

33.7

Veryan Holdings Limited

26,499

2,782

-

-

29,281

22,099

46.1

Cell Medica Limited

28,537

-

-

-

28,537

19,810

25.5

Circassia Pharmaceuticals PLC

24,932

-

-

(1,352)

23,580

25,500

9.3

MISSION Therapeutics Limited

14,060

3,937

-

-

17,997

13,708

21.6

TopiVert Pharma Limited

12,647

-

-

743

13,390

8,500

29.5

Crescendo Biologics Limited

8,175

-

-

3,673

11,848

8,175

22.7

Cortexica Vision Systems Ltd

9,028

2,600

-

-

11,628

11,753

30.0

Abingdon Health Limited

10,442

175

-

-

10,617

11,189

33.7

Top 10 investee companies

198,833

9,494

-

24,922

233,249

161,783

Other companies

136,253

19,537

(7,780)

1,565

149,575

137,304

Net Total

335,086

29,031

(7,780)

26,487

382,824

299,087

Currently active companies.

Quoted company.

The average carrying value multiple on invested capital is 1.4x for the top 10 investee companies, 1.1x for the other companies and 1.3x for the total portfolio.

Anjum Ahmad

Treasury and Finance Director

Consolidated interim statement of comprehensive income for the six month period to 31 January 2017

Unaudited

Unaudited

Audited

Six months to

31 January 2017

Six months to

31 January 2016

12 months to

31 July

2016

Note

£'000

£'000

£'000

Revenue

2,424

2,181

4,257

Cost of sales

(1,017)

(783)

(1,395)

Gross profit

1,407

1,398

2,862

Change in fair value of investments

2

26,487

499

(56,249)

Administrative expenses:

- Carried interest plan (charge)/ release

(3,972)

(888)

2,972

- Other administrative expenses

(7,678)

(6,880)

(12,634)

Total administrative expenses

(11,650)

(7,768)

(9,662)

Operating profit/ (loss)

16,244

(5,871)

(63,049)

Finance costs

(540)

(573)

(1,141)

Finance income

326

530

1,077

Profit/ (loss) before taxation

16,030

(5,914)

(63,113)

Taxation

-

-

-

Profit/ (loss) for the financial period and total comprehensive income

16,030

(5,914)

(63,113)

Basic earnings/(loss) per ordinary share (pence)

3

10.0

(4.3)

(43.2)

Diluted earnings/(loss) per ordinary share (pence)

3

10.0

(4.3)

(43.2)

The accompanying notes are an integral part of these consolidated interim financial statements.

Consolidated interim balance sheet as at 31 January 2017

Unaudited

Unaudited

Audited

As at 31 January 2017

As at 31 January 2016

As at 31 July

2016

Note

£'000

£'000

£'000

Assets

Non-current assets

Property, plant and equipment

1,038

23

18

Trade investments

2

389,138

362,387

343,973

University Challenge Seed Fund (UCSF) investments

104

174

163

Higher Education Innovation Fund (HEIF)

327

179

288

Apollo Therapeutics and UCL Technology Fund

2,318

-

1,173

Total non-current assets

392,925

362,763

345,615

Current assets

Trade and other receivables

7

8,404

7,692

4,486

Short term liquidity investments

-

20,000

15,000

Cash and cash equivalents

113,326

71,578

133,306

Total current assets

121,730

99,270

152,792

Total assets

514,655

462,033

498,407

Equity and liabilities

Equity attributable to equity holders

Issued share capital

4

4,885

4,172

4,885

Share premium

304,938

208,687

304,938

Capital redemption reserve

4

128,344

128,344

128,344

Retained earnings/(loss)

6,796

47,965

(9,234)

Share based payments

9,297

8,682

8,861

Other reserves

18,096

18,096

18,096

Total equity

472,356

415,946

455,890

Liabilities

Non-current liabilities

Borrowings

6

22,522

27,239

24,089

Higher Education Innovation Fund (HEIF) and University Challenge Seed Fund (UCSF) investments

458

380

477

Provisions for liabilities and charges

2

6,314

7,238

8,887

Carried interest plan liability

5,703

5,591

1,731

Total non-current liabilities

34,997

40,448

35,184

Current liabilities

Borrowings

6

3,167

1,500

3,167

Trade and other payables

4,135

4,139

4,166

Total liabilities

42,299

46,087

42,517

Total equity and liabilities

514,655

462,033

498,407

The accompanying notes are an integral part of these consolidated interim financial statements.

The consolidated interim financial statements on pages 15 to 36 were approved by the Board of Directors on 30 March 2017 and were signed on its behalf by R. Cummings.

R. Cummings

Chief Executive Officer

Consolidated interim cash flow statement for the six month period to 31 January 2017

Unaudited

Unaudited

Audited

Six months to 31 January 2017

Six months to 31 January 2016

12 months to 31 July 2016

Note

£'000

£'000

£'000

Cash flows from operating activities:

Operating profit/ (loss)

16,244

(5,871)

(63,049)

Adjustments to reconcile operating profit/ (loss) to net

cash flows used in operating activities:

Depreciation of property, plant and equipment

57

5

11

Fair value movement in investments

(26,487)

(499)

56,249

Share based payment charge

436

154

333

Carried interest plan charge/(release)

3,972

888

(2,972)

Working capital adjustments:

Decrease/(increase) in trade and other receivables

40

111

(273)

Increase/ (decrease) in trade and other payables

333

(98)

(1,098)

Net cash used in operating activities

(5,405)

(5,310)

(10,799)

Cash flows from investing activities:

Purchase of trade investments

5

(29,031)

(27,541)

(69,873)

Investments in funds

(1,145)

-

(1,173)

Proceeds from sale of trade investments

5

7,169

111

4,979

Funds in transit intended for trade investments

7

-

(5,187)

-

Revenue share paid on realisations of trade investments

5

(3,745)

-

-

Net cash flows used in investments in trade investments

(26,752)

(32,617)

(66,067)

Purchase of property, plant and equipment

(1,077)

-

-

Interest received

360

324

1,079

Decrease in short term liquidity investments

15,000

-

5,000

Net cash flows generated from other investing activities

14,283

324

6,079

Net cash used in investing activities

(12,469)

(32,293)

(59,988)

Cash flows from financing activities:

Proceeds from issuance of ordinary shares

-

1,635

101,636

Transaction costs relating to issuance of ordinary shares

-

-

(3,037)

Repayment of EIB loan

(1,583)

-

(1,500)

Interest paid

(523)

(551)

(1,103)

Net cash (used in)/ generated from financing activities

(2,106)

1,084

95,996

Net (decrease)/increase in cash and cash equivalents

(19,980)

(36,519)

25,209

Cash and cash equivalents at beginning of the period

133,306

108,097

108,097

Cash and cash equivalents at end of the period

5

113,326

71,578

133,306

The accompanying notes are an integral part of these consolidated interim financial statements.

Consolidated interim statement of changes in equity attributable to equity holders of the Group

For the six months to 31 January 2016:

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Share

Capital

Share

Premium

Capital Redemption

Reserve

Retained

Earnings

Share Based

Payments

Other

Reserves

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 August 2015

132,500

207,068

-

53,879

8,528

18,096

420,071

Comprehensive income

Loss for the period to 31 January 2016

-

-

-

(5,914)

-

-

(5,914)

Total comprehensive income

-

-

-

(5,914)

-

-

(5,914)

Transactions with owners

Value of employee services

-

-

-

-

154

-

154

Share capital issued

16

1,619

-

-

-

-

1,635

Cancellation of deferred shares

(128,344)

-

128,344

-

-

-

-

Transactions with owners

(128,328)

1,619

128,344

-

154

-

1,789

At 31 January 2016

4,172

208,687

128,344

47,965

8,682

18,096

415,946

For the year ended 31 July 2016:

Audited

Audited

Audited

Audited

Audited

Audited

Audited

Share

Capital

Share

Premium

Capital Redemption

Reserve

Retained

Earnings/ (accumulated loss)

Share Based

Payments

Other

Reserves

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 August 2015

132,500

207,068

-

53,879

8,528

18,096

420,071

Comprehensive income

Loss for the period to 31 July 2016

-

-

-

(63,113)

-

-

(63,113)

Total comprehensive income

-

-

-

(63,113)

-

-

(63,113)

Transactions with owners

Value of employee services

-

-

-

-

333

-

333

Share capital issued

729

100,907

-

-

-

-

101,636

Cost of share capital issued

-

(3,037)

-

-

-

-

(3,037)

Cancellation of deferred shares

(128,344)

-

128,344

-

-

-

-

Transactions with owners

(127,615)

97,870

128,344

-

333

-

98,932

At 31 July 2016

4,885

304,938

128,344

(9,234)

8,861

18,096

455,890

For the six months to 31 January 2017:

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Share

Capital

Share

Premium

Capital Redemption

Reserve

Retained

Earnings/ (accumulated loss)

Share Based

Payments

Other

Reserves

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 August 2016

4,885

304,938

128,344

(9,234)

8,861

18,096

455,890

Comprehensive income

Profit for the period to 31 January 2017

-

-

-

16,030

-

-

16,030

Total comprehensive income

-

-

-

16,030

-

-

16,030

Transactions with owners

Value of employee services

-

-

-

-

436

-

436

Transactions with owners

-

-

-

-

436

-

436

At 31 January 2017

4,885

304,938

128,344

6,796

9,297

18,096

472,356

The accompanying notes are an integral part of these consolidatedinterim financial statements.

Notes to the consolidated interim financial statements

1. Basis of preparation

These unaudited consolidated interim financial statements have been prepared in accordance with the AIM Rules and European Union endorsed International Financial Reporting Standards and International Financial Reporting Interpretation Committee Interpretations. These comprise the consolidated interim statement of comprehensive income, the consolidated interim balance sheet, the consolidated interim cash flow statement, the consolidated interim statement of changes in equity and the related notes ('the consolidated interim financial statements'). The Group adopted IAS 34, 'Interim Financial Reporting', in the preparation of these consolidated interim financial statements.

These consolidated interim financial statements have been prepared on a going concern basis 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 accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 July 2016, as described in those financial statements, with the exception of the following new standards which have been applied for the first time during the year commencing 1 August 2016:

(a) New Standards, amendments and interpretations adopted by the Group

There are no new standards and interpretations adopted by the EU in the period which would have a material financial impact on or disclosure requirement for the Group's interim report.

(b) New standards, amendments and interpretations not yet adopted

· IFRS 9 - Financial Instruments (effective for reporting periods commencing on or after 1 January 2018).

· IFRS 15 - Revenue (effective for reporting periods commencing on or after 1 January 2018).

· IFRS 16 - Leases (effective for reporting periods commencing on or after 1 January 2019).

· Amendments to IFRS 10 and IAS 28 on investment entities applying the consolidation exemption - effective for annual periods beginning on or after 1 January 2016.

· Amendment to IAS 1 'Presentation of Financial Statements' on the disclosure initiative - effective for annual periods beginning on or after 1 January 2016.

· Amendments to IAS 16 'Property, Plant and Equipment' and IAS 38 'Intangible Assets' on depreciation and amortisation -effective for annual periods beginning on or after 1 January 2016.

· Amendments to IAS 27 'Separate Financial Statements' on the equity method - effective for annual periods beginning on or after 1 January 2016.

· Annual Improvements to IFRS 2014 cycle - effective for annual periods beginning on or after 1 January 2016.

· IAS Amendments to IAS 7, Statement of cash flows on disclosure initiative - effective for annual periods beginning on or after 1 January 2017.

· Amendments to IAS 12,'Income taxes' on Recognition of deferred tax assets for unrealised losses (effective 1 January 2017) - effective for annual periods beginning on or after 1 January 2016.

· Amendments to IFRS 11 'Joint Arrangements' on acquisition of an interest in a joint operation - effective for annual periods beginning on or after 1 January 2016.

The Directors do not anticipate that the adoption of these standards, amendments and interpretations, where relevant, in future periods will have a material impact on the Group's financial statements, however the Group continue to assess the impact of IFRS 16.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

These consolidated interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 July 2016 were approved by the Board of Directors on 12 October 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2.Net change in fair value of trade investments held at fair value through profit or loss

Net change in fair value for the period represents the change in fair value less the revenue share charge on these fair value movements.

Included within the net fair value movement recognised in the Consolidated Statement of Comprehensive Income are provisions for liabilities and charges. These are made up of the revenue sharing provision which represents a fair value estimate of monies due to Imperial College London and other third parties such as co-funders of research work and the Appointee Directors' Pool. The provision will be payable upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London'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.

HEIF funded investment and University Challenge Seed Fund

The University Challenge Seed Fund (UCSF) reflects an award made by the UK government and third parties and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies from UCSF investments until the fund size has reached a multiple of three times the original investment of £4.15 million, excluding donations from industry parties. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.

The Higher Education Innovations Fund (HEIF) reflects an award made by the UK government and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies. Realisation must be paid back to the fund for re-deployment. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.

Non-current investments

All equity investments held by the Group are defined as financial assets under International Accounting Standard (IAS) 32 'Financial Instruments: Disclosure and Presentation' and are classified as financial assets held at fair value under IAS 39, 'Financial Instruments: Recognition and Measurement'. This includes all UCSF equity investments.

Under IAS 39 the carrying value of all investments is measured at fair value with changes in fair value between accounting periods being charged or credited to the Consolidated Statement of Comprehensive Income.

The following tables in this note set out how the net fair value gains recognised in the Consolidated Statement of Comprehensive Income for each of the periods is generated. The tables exclude any UCSF or HEIF related investments as returns are repayable to the respective funds based on the above terms.

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

Gross investments - designated at fair value through profit or loss

Unaudited

Unaudited

Unaudited

for the six months to 31 January 2017

Quoted

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2016

43,134

300,839

343,973

Gains on the revaluation of investments

4,983

32,643

37,626

Losses on the revaluation of investments

(1,621)

(8,710)

(10,331)

Fair value gains

3,362

23,933

27,295

Investments during the period

-

29,031

29,031

Disposal of investments

(3,794)

(7,367)

(11,161)

Net investment

(3,794)

21,664

17,870

At 31 January 2017

42,702

346,436

389,138

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the period, setting out any fair value gains and losses together with the impact arising as a result of disposals.

Provisions for liabilities and charges

Unaudited

Unaudited

Unaudited

for the six months to 31 January 2016

Quoted

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2016

211

8,676

8,887

Increase in liability arising from changes in fair value of investments

9

1,168

1,177

Decrease in liability arising from changes in fair value of investments

(3)

(366)

(369)

Net change in fair value of liability during the period

6

802

808

Disposal of investments

-

(3,381)

(3,381)

At 31 January 2017

217

6,097

6,314

The table below sets out the movement in the net carrying value of investments from the start to the end of the period, setting out the net fair value gains and losses together with any investments and disposals.

Investments - designated at fair value through profit or loss (net of revenue share)

for the six months to 31 January 2017

Unaudited

Unaudited

Unaudited

Quoted

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2016

42,923

292,163

335,086

Gains on the revaluation of investments

4,974

31,475

36,449

Losses on the revaluation of investments

(1,618)

(8,344)

(9,962)

Fair value (losses)/ gains

3,356

23,131

26,487

Investments during the period

-

29,031

29,031

Disposal of investments

(3,794)

(3,986)

(7,780)

Net investments

(3,794)

25,045

21,251

At 31 January 2017

42,485

340,339

382,824

Quoted companies are registered on AIM, NASDAQ and the Main Market of the London Stock Exchange.

The provision for liabilities and charges represents monies due to Imperial College London upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in these particular investments.

Additionally, monies are due to parties in the Appointee Directors' Pool in respect of the Imperial Innovations LLP assets acquired as part of the stepped acquisition in 2005 and to other third parties. These are included in 'Revenue Sharing Other' in the table below. 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 following table analyses the provision by obligation:

Revenue Sharing Imperial College

£000

Revenue Sharing Other

£000

Total

£000

At 1 August 2016

8,437

450

8,887

Settlements and provisions utilised

(3,381)

-

(3,381)

Changes in fair value attributable to revenue share

789

19

808

At 31 January 2017

5,845

469

6,314

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the prior year, setting out the fair value gains and losses together with any investments and disposals.

Gross investments - designated at fair value through profit or loss

Audited

Audited

Audited

for the year ended 31 July 2016

Quoted 1

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2015

107,113

226,155

333,268

Gains on the revaluation of investments

-

26,404

26,404

Losses on the revaluation of investments

(67,060)

(11,727)

(78,787)

Fair value gains

(67,060)

14,677

(52,383)

Investments during the year

3,081

66,793

69,874

Disposal of investments

-

(6,786)

(6,786)

Net investment

3,081

60,007

63,088

At 31 July 2016

43,134

300,839

343,973

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the prior year, setting out any fair value gains and losses together with the impact arising as a result of disposals.

Provisions for liabilities and charges

Audited

Audited

Audited

for the year ended 31 July 2016

Quoted 1

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2015

345

5,703

6,048

Increase in liability arising from changes in fair value of investments

-

4,321

4,321

Decrease in liability arising from changes in fair value of investments

(134)

(321)

(455)

Net (reduction)/ increase in fair value of liability during the year

(134)

4,000

3,866

Disposals during the year

-

(1,027)

(1,027)

At 31 July 2016

211

8,676

8,887

The table below sets out the movement in the net carrying value of investments from the start to the end of the prior year, setting out the net fair value gains and losses together with any investments and disposals.

Investments - designated at fair value through profit or loss (net of revenue share)

Audited

Audited

Audited

for the year ended 31 July 2016

Quoted 1

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2015

106,768

220,452

327,220

Gains on the revaluation of investments

-

22,083

22,083

Losses on the revaluation of investments

(66,926)

(11,406)

(78,332)

Fair value gains

(66,926)

10,677

(56,249)

Investments during the year

3,081

66,793

69,874

Disposal of investments

-

(5,759)

(5,759)

Net investments

3,081

61,034

64,115

At 31 July 2016

42,923

292,163

335,086

Quoted companies are registered on AIM, NASDAQ and the Main Market of the London Stock Exchange.

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the period, setting out the fair value gains and losses together with any investments and disposals.

Gross investments - designated at fair value through profit or loss

Unaudited

Unaudited

Unaudited

for the six months to 31 January 2016

Quoted

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2015

107,113

226,155

333,268

Gains on the revaluation of investments

-

14,220

14,220

Losses on the revaluation of investments

(9,911)

(2,620)

(12,531)

Fair value (losses) / gains

(9,911)

11,600

1,689

Investments during the period

3,081

24,460

27,541

Disposal of investments

-

(111)

(111)

Net investment

3,081

24,349

27,430

At 31 January 2016

100,283

262,104

362,387

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the period, setting out any fair value gains and losses together with the impact arising as a result of disposals.

Provisions for liabilities and charges

Unaudited

Unaudited

Unaudited

for the six months to 31 January 2016

Quoted

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2015

345

5,703

6,048

Increase in liability arising from changes in fair value of investments

-

1,529

1,529

Decrease in liability arising from changes in fair value of investments

(104)

(235)

(339)

Net change in fair value of liability during the period

(104)

1,294

1,190

At 31 January 2016

241

6,997

7,238

The table below sets out the movement in the net carrying value of investments from the start to the end of the period, setting out the net fair value gains and losses together with any investments and disposals.

Investments - designated at fair value through profit or loss (net of revenue share)

Unaudited

Unaudited

Unaudited

for the six months to 31 January 2016

Quoted

Companies

Total

Unquoted

Companies

Total

Total

£'000

£'000

£'000

At 1 August 2015

106,768

220,452

327,220

Gains on the revaluation of investments

-

12,691

12,691

Losses on the revaluation of investments

(9,807)

(2,385)

(12,192)

Fair value (losses)/ gains

(9,807)

10,306

499

Investments during the period

3,081

24,460

27,541

Disposal of investments

-

(111)

(111)

Net investments

3,081

24,349

27,430

At 31 January 2016

100,042

255,107

355,149

Quoted companies are registered on AIM, NASDAQ and the Main Market of the London Stock Exchange.

3. Earnings per share

Basic earnings per share is calculated by dividing the result for the financial period by the weighted average number of Ordinary Shares in issue during the period. Diluted earnings per share is computed by dividing the result for the financial period, by the weighted-average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options on an as-if-converted basis and excluding treasury shares. The potential dilutive shares are included in diluted earnings per share computations on a weighted average basis for the period. The results and weighted average number of shares used in the calculations are set out below:

Unaudited

Unaudited

Audited

Six months to

31 January 2017

Six months to

31 January 2016

12 months to

31 July

2016

Earnings/ (loss) per Ordinary Share

Profit/ (loss) for the financial period (£'000)

16,030

(5,914)

(63,113)

Weighted average number of Ordinary Shares (basic) (thousands)

160,234

136,418

146,063

Effect of dilutive potential Ordinary Shares

777

-

-

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share (thousands)

161,010

136,418

146,063

Earnings per ordinary share basic (pence)

10.0

(4.3)

(43.2)

Earnings per ordinary share diluted (pence)

10.0

(4.3)

(43.2)

4. Share capital and equity raised and EBT

Unaudited

As at

31 Jan 2017

£000

Unaudited

As at

31 Jan 2016

£000

Audited

As at

31 July 2016

£000

Ordinary Shares

Allotted and fully paid:

Balance at beginning of period of 161,204,124 Ordinary Shares of £0.0303 each (H1 2016 & FY 2016: 137,151,035 Ordinary Shares of £0.0303 each)

4,885

4,156

4,156

Issue of share capital during the period

-

16

729

Balance at end of period of 161,204,124 Ordinary Shares of £0.0303 each (H1 2016: 137,674,712 Ordinary Shares of £0.0303 each)

4,885

4,172

4,885

Deferred Shares

Allotted and fully paid:

Balance at beginning of period (36,990,086 Deferred shares of £3.4697 each)

-

128,344

128,344

Cancellation of shares and transfer to capital redemption reserve

-

(128,344)

(128,344)

Balance at end of period of nil

-

-

-

Total balance as at end of period

4,885

4,172

4,885

Share capital and equity

Deferred shares are not transferable and do not entitle the holder to the payment of any dividend or otherwise participate in the profits of the Company or to receive notice of or attend or vote at any general meeting of the Company and on any reduction of capital in accordance with the Companies Act 2006, may be cancelled without payment of consideration. The Deferred Shares are not listed on any stock exchange. The Company may purchase the Deferred Shares for not more than the sum of £0.01 in aggregate for all the Deferred Shares and cancel the Deferred Shares so purchased, without any requirement to obtain the consent or sanction of the holders of the Deferred Shares. Pursuant to this right, on 24 September 2015 the Company purchased all the Deferred Shares for the total sum of £0.01 in aggregate and the shares were then cancelled.

On 17 August 2015, the Company's total issued voting capital increased through the issue of 523,677 Ordinary Shares of 3 and 1/33 pence each at an average price of approximately 312 pence per Ordinary Share pursuant to the exercise of share options held by two former Directors.

On 4 February 2016 the Company announced a placing to raise £100,000,000 before issue costs, through the issue of 23,529,412 Ordinary Shares of 3 and 1/33 pence each (total nominal value of £713,000) at 425 pence each.

The total issued voting share capital as at 31 January 2017 was 161,204,124 voting shares (FY 2016: 161,204,124 voting shares).

Employee Benefit Trust

As at 31 January 2017, the Employee Benefit Trust (EBT) held 970,349 (FY 2016: 971,080) of the Group's Ordinary Shares, which have a cost of £2,562,079 (FY 2016: £2,564,009). These represent shares which are considered to be under the de-facto control of the Group and have therefore been netted against the retained earnings in the financial statements.

It is the intention of the Group to use these shares to settle the option liabilities at the point of exercise and they represent a partial hedge on the cost of the exercise. During October 2016, 731 shares have been issued from the EBT under the terms of its SAYE scheme (FY 2016: nil).

5. Short term liquidity investments and cash and cash equivalents

Unaudited

As at

31 Jan 2017

£000

Unaudited

As at

31 Jan 2016

£000

Audited

As at

31 July 2016

£000

Cash at bank and in hand

113,326

71,578

133,306

Total cash and cash equivalents

113,326

71,578

133,306

Total short term liquidity investments

-

20,000

15,000

Total cash and cash equivalents include restricted balances of £2.1 million (FY 2016: £2.1 million). Pursuant to the amended and restated EIB facility agreement the Group is required to maintain a debt service reserve account pledged in favour of the lender. The account is available solely to pay any outstanding interest and principal payments owed under the EIB agreement for the following six months (see note 6).

Reconciliation of amounts invested to trade investments:

Unaudited

6 months to

31 Jan 2017

£000

Unaudited

6 months to

31 Jan 2016

£000

Audited

12 months to

31 July 2016

£000

Investments in period

29,031

27,541

69,874

Investments unpaid at period end

-

-

(1)

Net cash invested in trade investments in the period

29,031

27,541

69,873

Reconciliation of cash flows arising from sale of trade investments:

Unaudited

6 months to

31 Jan 2017

£000

Unaudited

6 months to

31 Jan 2016

£000

Audited

12 months to

31 July 2016

£000

Disposals of trade investments

11,161

111

6,786

Deferred consideration received

177

-

430

Deferred consideration accrued

(4,169)

-

(2,237)

Cash flow arising on the proceeds from sale of investment in trade investments

7,169

111

4,979

Reconciliation of cash flows arising on revenue share paid on asset realisations of trade investments:

Unaudited

6 months to

31 Jan 2017

£000

Unaudited

6 months to

31 Jan 2016

£000

Audited

12 months to

31 July 2016

£000

Movement in revenue sharing liability arising from disposal of trade investments

3,381

-

1,027

Movement in revenue share outstanding (included within accruals)

364

-

(1,027)

Cash flow arising on the settlement of revenue sharing liabilities on sale of trade investments

3,745

-

-

6. Borrowings

Unaudited

As at

31 Jan 2017

£000

Unaudited

As at

31 Jan 2016

£000

Audited

As at

31 July 2016

£000

EIB Loan - non-current

22,522

27,239

24,089

EIB Loan - current

3,167

1,500

3,167

EIB Loan

25,689

28,739

27,256

On 1 July 2013 the Group entered into a £30.0 million loan agreement with the European Investment Bank (EIB) available to draw down in two tranches of £15.0 million. The purpose of the loan is to provide funding towards Biotech and Therapeutics investments.

The first tranche of £15.0 million was drawn down on 30 July 2013. Transaction costs in the year ended 31 July 2013 of £186,000 were incurred to obtain the loan and were set against the loan amount. These costs are subsequently amortised over the life time of the loan. During the half year ended 31 January 2017, £8,000 (H1 2016: £8,000; FY2016: £15,000) was charged to the statement of comprehensive income. The loan is based on a floating interest rate related to LIBOR and is repayable in 10 equal annual instalments over a twelve year period with the first payment due on 25 July 2016. There was an uncapped cash sweep of 25% of all investment realisations used to prepay the loan. This cash sweep was removed with the signing of the new loan during the year ended 31 July 2015. During the current period capital of £750,000 (H1 2016: £nil; FY2016: £1,500,000) was repaid.

The second tranche of £15.0 million was drawn down on 30 June 2015. Transaction costs of £181,000 were incurred to obtain the loan and were set against the loan amount. These costs are subsequently amortised over the life time of the loan. During the half year ended 31 January 2017, £9,000 (FY2016: £18,000) was charged to the statement of comprehensive income. The loan is based on a fixed interest rate of 4.199% and is repayable over a ten year period. The first repayment of £833,333 was made on 25 January 2017.

On 13 July 2015, the Group entered into a second loan agreement of £50.0 million with the European Investment Bank (EIB) available to draw down in up to four tranches with a minimum tranche value of £10.0 million. The purpose of the loan is to provide funding towards Biotech and Therapeutics investments. This loan has not been drawn down as at 31 January 2017. There is a non-utilisation fee calculated on the daily undrawn, uncancelled balance of the loan from the date falling six months after the date of the agreement at a rate of 0.10% per annum. Following the period end, on 2 Febraury 2017, the second loan facility was fully drawn down.

The 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 period. The Group will continue to monitor the covenant's position against forecasts and budgets to ensure that it operates within the prescribed limits.

The maturity profile of the borrowings was as follows:

Unaudited

As at

31 Jan 2017

£000

Unaudited

As at

31 Jan 2016

£000

Audited

As at

31 July 2016

£000

Due under 6 months

1,583

1,500

1,583

Due 6 to 12 months

1,583

1,583

1,584

Due 1 to 5 years

15,833

15,833

15,833

Due after 5 years

6,973

10,139

8,556

Total ¹

25,972

29,055

27,556

These are gross amounts repayable and exclude costs of £283,000 (H1 2016: £316,000; FY2016: £300,000) incurred on obtaining the loans and amortised over the life of the loans.

7. Financial risk management

Financial risk factors

In the normal course of business, the Group uses certain financial instruments including cash, trade and other receivables, equity rights, equity investments and loans to investee companies. The Group's financial liabilities include loans from the European Investment Bank and trade and other payables.

Monies provided by way of UCSF grants are loaned to individual technology businesses. These loans are repayable in cash or convertible to equity, at a rate mutually agreed by the Group and technology business, at the earliest opportunity after the technology business' formation. Loans are treated on the same basis as equity for valuation purposes.

Risk management objectives

The Group is exposed to a number of risks through the performance of its normal operations. The most significant are liquidity and market price risk. Income from surplus funds is dependent on market interest rates and expose the Group to interest rate risk.

The Group's main objective in using financial instruments is to promote the commercialisation of intellectual property held by technology businesses through the raising and investing of funds for this purpose. The Group's policies in calculating the nature, amount and timing of investments' equity fundraisings are determined by planned future investment activity.

Due to the nature of the Group's activities, the Directors may consider it necessary to use derivative financial instruments to hedge the Group's exposure to fluctuations in exchange rates, where these exposures have been significant.

(a) Financial Risk Factors

The Group is exposed to price risk in respect of equity rights, equity investments and loans to the technology businesses held by the Group and classified on the balance sheet as at fair value through profit or loss. The Group seeks to manage this risk by routinely monitoring the performance of these investments. The Group employs stringent investment appraisal processes prior to deciding on investment. Regular reports are made to the Board on the status and valuation of investments and significant disposals require Board approval. The value of the investment portfolio can be affected by the performance of the international equity markets and the carrying value is likely to be adversely affected by material declines in these markets. Furthermore, the ability to liquidate market positions will be affected by weak equity markets.

The consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group's annual financial statements as at 31 July 2016. There have been no changes in the risk management department or in any risk management policies since the year end.

(b) Liquidity risk

The Group seeks to manage financial risk, and in particular liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable requirements and to invest surplus cash in low risk instruments with reputable institutions.

Compared to year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities.

On 2 February 2017 the Group drew down the £50.0 million second loan facility secured from the EIB in July 2015. Following this, the Group has £163.3 million available for investment and operations.

(c) Credit risk

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and short-term liquidity investments as well as credit exposures to trade and other receivables.

There have been no changes in the Credit risk profile or any credit risk management since year end.

(d) Capital risk management

The Group is funded by equity finance and a long term loan. Total capital is calculated as 'total equity' as shown in the consolidated interim balance sheet.

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group maintains a maturity analysis profile for short-term liquidity investments.

There have been no changes in the capital risk management since year end.

(e) Fair values

The fair values of the Group's financial assets and liabilities are considered a reasonable approximation to the carrying values shown in the balance sheet. The basis for determining fair values is disclosed in note 8.

(f) Fair value estimation

The following table presents the Group's assets that are measured at fair value at 31 January 2017:

Level 1

£000

Level 2

£000

Level 3

£000

Total

£000

Financial assets at fair value through profit or loss

42,702

-

349,185

391,887

Total

42,702

-

349,185

391,887

The following table presents the Group's assets that are measured at fair value at 31 July 2016:

Level 1

£000

Level 2

£000

Level 3

£000

Total

£000

Financial assets at fair value through profit or loss

43,134

-

302,463

345,597

Total

43,134

-

302,463

345,597

The following table presents the Group's assets that are measured at fair value at 31 January 2016:

Level 1

£000

Level 2

£000

Level 3

£000

Total

£000

Financial assets at fair value through profit or loss

100,283

-

262,457

362,740

Total

100,283

-

262,457

362,740

Financial instruments in Level 1

The fair value of financial instruments traded in active markets is based upon quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, price service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market prices used for financial assets held by the Group is the current bid price. These instruments are included in Level 1. Instruments included in Level 1 comprise AIM, NASDAQ and the Main Market of the London Stock Exchange registered equity investments.

Financial instruments in Level 2

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. For the Group, this category includes derivatives used for hedging and quoted securities that are not actively traded in an active market.

Financial instruments in Level 3

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. For the Group, this includes all unquoted companies, UCSF investments and loans, HEIF investments and loans, Apollo Therapeutics LLP and UCL Technology Fund. For a detailed understanding of the valuation techniques for Level 3 financial instruments, see 'Valuation of investments' in note 1 of the group's annual financial statements as at 31 July 2016.

The following table presents the changes in Level 3 instruments for the period ended 31 January 2017 and 31 January 2016 and year ended 31 July 2016:

Unaudited

As at

31 Jan 2017

£000

Unaudited

As at

31 Jan 2016

£000

Audited

As at

31 July 2016

£000

Opening balance

302,463

226,794

226,794

Investments into Level 3

30,176

24,460

68,075

Realisations from Level 3

(7,367)

(111)

(6,786)

Fair value movements on UCSF

(59)

(286)

(297)

Fair value movements on HEIF

39

-

-

Gains and losses on investments recognised in profit or loss gross of revenue share

23,933

11,600

14,677

Closing balance

349,185

262,457

302,463

Information about fair value measurements using significant unobservable inputs (Level 3)

The Group's finance department, in consultation with the investment team, performs valuations of investments held for financial reporting purposes, including Level 3 fair values. Discussions of valuation processes and results are held at least twice a year, in line with the Group's reporting dates. The valuation techniques, unobservable inputs and the relationship of unobservable inputs to fair value are discussed in note 8.

Information about fair value measurements for the interim period ended 31 January 2017

Valuation technique

Level

Net fair value at 31 January 2017 £'000

Inputs

Unobservable inputs

Weighted average input

Reasonable possible shift +/-

Change in valuation

£'000

Relationship of inputs to value

Listed investments

1

42,485

Publically available share price at balance sheet date

-

-

-

-

-

Price of latest funding round adjusted for recent milestones or impairments

3

99,298

Performance against milestones

Unobservable inputs include management's assessment of performance against milestones, and considerations and calculation of any impairment. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Price of latest funding round (investment made within the last two years)

3

236,205

Price of the latest funding round

The price of latest funding round provides observable input into the valuation of any individual investment. However, subsequent to the funding round, management are required to re-assess the carrying value of investments at each period end, including assessment of any impairment indicators, which result in unobservable inputs into the valuation methodology. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Price of latest funding round (investment made more than two years ago)

3

250

Price of the latest funding round

Unobservable inputs include management's assessment of the performance of the investment company and considerations and calculation of any impairment. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Earnings multiple

3

4,586

Earnings of comparable companies and discount for lack of marketability

Discount for lack of marketability

40%

20%

1,249/ (1,249)

The greater the discount factor, the lower the fair value.

382,824

Information about fair value measurements for the year ended 31 July 2016

Valuation technique

Level

Net fair value at 31 July 2016 £'000

Inputs

Unobservable inputs

Weighted average input

Reasonable possible shift +/-

Change in valuation

£'000

Relationship of inputs to value

Listed investments

1

42,923

Publically available share price at balance sheet date

-

-

-

-

-

Price of latest funding round adjusted for recent milestones or impairments

3

41,405

Performance against milestones

Unobservable inputs include management's assessment of performance against milestones, and considerations and calculation of any impairment. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Price of latest funding round (investment made within the last two years)

3

246,150

Price of the latest funding round

The price of latest funding round provides observable input into the valuation of any individual investment. However, subsequent to the funding round, management are required to re-assess the carrying value of investments at each period end, including assessment of any impairment indicators, which result in unobservable inputs into the valuation methodology. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Price of latest funding round (investment made more than two years ago)

3

250

Price of the latest funding round

Unobservable inputs include management's assessment of the performance of the investment company and considerations and calculation of any impairment. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Earnings multiple

3

4,358

Earnings of comparable companies and discount for lack of marketability

Discount for lack of marketability

40%

20%

1,249/ (1,249)

The greater the discount factor, the lower the fair value.

335,086

Information about fair value measurements for the interim period ended 31 January 2016

Valuation technique

Level

Net fair value at 31 January 2016 £'000

Inputs

Unobservable inputs

Weighted average input

Reasonable possible shift +/-

Change in valuation

£'000

Relationship of inputs to value

Listed investments

1

100,042

Publically available share price at balance sheet date

-

-

-

-

-

Price of latest funding round adjusted for recent milestones or impairments

3

38,510

Performance against milestones

Unobservable inputs include management's assessment of performance against milestones, and considerations and calculation of any impairment. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Price of latest funding round (investment made within the last two years)

3

176,682

Price of the latest funding round

The price of latest funding round provides observable input into the valuation of any individual investment. However, subsequent to the funding round, management are required to re-assess the carrying value of investments at each period end, including assessment of any impairment indicators, which result in unobservable inputs into the valuation methodology. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Price of latest funding round (investment made more than two years ago)

3

34,087

Price of the latest funding round

Unobservable inputs include management's assessment of the performance of the investment company and considerations and calculation of any impairment. For further information on valuation methodology, see note 8. The main unobservable input relates to the assessment of impairment.

Assessment of impairment

The greater the assessment of impairment, the lower the fair value

Earnings multiple

3

5,828

Earnings of comparable companies and discount for lack of marketability

Discount for lack of marketability

40%

20%

1,249/ (1,249)

The greater the discount factor, the lower the fair value.

355,149

8. Critical accounting estimates and judgements

The Directors have made the following judgements and estimates that have had the most significant effect on the carrying amounts of the assets and liabilities in the financial statements.

The Group has concluded that it is not an investment company as identified by IFRS10.

Valuation of unquoted equity investments

The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is a risk of material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision whether or not to increase or decrease investment valuations.

The fair value of unlisted securities is established using International Private Equity and Venture Capital Valuation Guidelines (IPEVCVG). The valuation methodology used most commonly by the Group is the 'price of recent investment' or a 'milestone analysis' approach. 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, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a recent investment. The Group considers that fair value estimates that are based entirely on observable market data will be of greater reliability than those based on assumptions and accordingly where there has been any recent investment by third parties, the price of that investment will generally provide a basis of the valuation.

Where the Group considers that the price of recent investment, unadjusted, is no longer relevant and there are limited or comparable companies or transactions from which to infer value, the Group carries out an enhanced assessment based on milestone analysis and/or industry and sector analysis. In applying the milestone analysis approach to investments in companies in early or development stages the Group seeks to determine whether there is an indication of change in fair value based on a consideration of performance against any 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. When considered appropriate, the Group may use external valuers to assess the reasonableness of any change in fair value estimated by management.

The following considerations are used when calculating the fair value:

· where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value unless there is objective evidence that the investment has since been impaired, such as observable data suggesting a deterioration of the financial, technical, or commercial performance of the underlying business;

· 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 IPEVCVG 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;

· the length of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the investment and the stability of the external environment. During this period the Group considers whether any changes or events subsequent to the transaction would imply a change in the fair value of the investment may be required; 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. Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgement of the Group. However any adjustment is, by its very nature, subjective. Where 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 purchaser may place on positive developments given the potential outcome and the costs and risks to achieving that outcome;

· factors which 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; and

· 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 of the value of its investment.

Valuation of Carried Interest Plan liability

For several years, the Group has maintained a long term incentive arrangement known as the Carried Interest Plan. It is the intention of the Group to continue to use the Carried Interest Plan as part of the Group's long term incentive arrangements, alongside the introduction of share options.

The provision is measured by reference to the fair value of the relevant investments. The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is a corresponding risk of material adjustment to the carrying amounts of the Carried Interest Plan liability. The additional considerations used when calculating the Carried Interest Plan liability include estimates for an appropriate discount rate, leaver provisions and year of realisation.

9. Related party disclosures

The Group does not have an ultimate parent company.

The Group's ultimate parent company was Imperial College London (Imperial College of Science, Technology and Medicine, South Kensington Campus, London, SW7 2AZ, United Kingdom) by virtue of its shareholding in the Group, until the equity raise in 2011. The Group has a Technology Pipeline Agreement (TPA) with Imperial College London which stipulates the terms for sharing revenue generated from the commercialisation of Imperial College London intellectual property which is assigned to Imperial Innovations Limited. The Group has agreements with Imperial College London across a range of services, including an operating lease for office premises (from June 2010 at 52 Princes Gate, Exhibition Road) as disclosed in note 23 of the group's annual financial statements as at 31 July 2016 and an agreement covering information technology and intellectual property advice (services agreement). In addition, following the June 2014 placing, Imperial College London has the right to nominate one member to sit on the Board of Touchstone Innovations plc (down from two members prior to the placing). On this basis, the Directors have considered that Imperial College London continues to be a related party.

Transactions with Appointee Directors are excluded as these are not considered to exert influence on the Group, with the exception of Dr Martin Knight (in the prior year) where disclosures have been made on page 143 of the group's annual financial statements as at 31 July 2016.

The Group has considered whether Invesco Limited, Woodford Investment Management, and Landsdowne with their significant shareholdings in the Group (albeit in a number of different funds), are related parties under IAS 24, 'Related party disclosures'. As these shareholders cannot take part in financial or operating policy decisions, have no right to appoint a Board member, and do not exert significant influence over the Group, the Group has taken the view that they are not Related Parties under IAS 24,'Related party disclosures'.

Under the AIM rules, shareholders with a shareholding of more than 10% are considered to be related parties and therefore investments with the above shareholders are disclosed below. Given the substantial shareholdings, the Board of Directors manages the relationship with the relevant shareholders carefully to ensure that any co-investments are conducted on an arm's length basis.

Although the Group may have significant influence over an investee company, ultimately the investee company makes the final decision regarding the investors as part of a fundraising. Where the Group leads a fundraising all co-investors are responsible for their own evaluation and due diligence with no preferential treatment afforded to any particular investor.

During the period Invesco invested £2.1 million in total in Veryan (FY2016: £20.6 million in Cell Medica, Nexeon and Veryan).

During the year the Lansdowne partners invested nil (FY2016: nil).

During the year the Woodford Investment Management LLP invested £9.6 million in Mission and Inivata (FY2016: £39.1 million in in Cell Medica, Inivata, Mission, Nexeon and Econic).

Transactions with related parties are laid out in the tables below.

Sale of goods and services (including recovery of costs)

As at

31 Jan 2017

£000

As at

31 Jan 2016

£000

As at

31 July 2016

£000

Trading with Imperial College London

165

121

512

Government grants received via Imperial College London

61

319

867

Trading with portfolio companies

1,097

557

925

1,323

997

2,304

Purchases of goods and services

As at

31 Jan 2017

£000

As at

31 Jan 2016

£000

As at

31 July 2016

£000

Rent paid to Imperial College London

193

120

314

Revenue share and other expenditure with Imperial College London

5,205

671

1,783

5,398

791

2,097

Year end balances arising from sales/purchases of goods / services

As at

31 Jan 2017

£000

As at

31 Jan 2016

£000

As at

31 July 2016

£000

Receivables from portfolio companies

167

52

73

Receivables from Imperial College London

681

282

896

Payables to Imperial College London

(1,031)

(935)

(1,609)

(183)

(601)

(640)

The receivables from related parties arise mainly from sale transactions and are due one month after the date of sale. The receivables are unsecured in nature and bear no interest. The payables to related parties arise mainly from purchase transactions and are due one month after the date of purchase. The payables bear no interest.

Convertible loans to portfolio companies are expected to convert to equity and are of a long term investment nature. As a result, they are included within non-current investments (see note 2). Where the Group has a representative on the board of a portfolio company, this is considered a related party and the aggregate balance is shown below.

Loans to portfolio companies

As at

31 Jan 2017

£000

As at

31 Jan 2016

£000

As at

31 July 2016

£000

Beginning of the year

22,185

18,219

18,219

Loans advanced

11,288

862

7,876

Loans disposed

(4,629)

-

(296)

Loans converted or exchanged from debt to equity

(1,675)

(2,046)

(3,746)

Revaluation/(impairment) of loans

-

132

132

27,169

17,167

22,185

Transactions with Directors

The Group considers all members of the Board to be key management and their remuneration is disclosed in note 21 of the group's annual financial statements as at 31 July 2016. Directors' shareholdings in the Group are disclosed in the Directors' Remuneration Report of the group's annual financial statements as at 31 July 2016.

Touchstone Innovations plc published this content on 31 March 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 31 March 2017 06:09:25 UTC.


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Managers
NameTitle
David Graham Baynes Director
Gregory Simon Smith Director
Michael Charles Nettleton Townend Director
Angela Leach Secretary
Kelsey Bircher Lynn Skinner Director-Technology Ventures
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