Touchstone Innovations : Trading update - NAV increased to £502 million

14 July 2017

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014

Touchstone Innovations plc

Trading update - NAV increased to £502 million

Touchstone Innovations plc (AIM: IVO, 'the Group', 'Touchstone') is today publishing a trading update in order to provide shareholders with an updated net asset value as at 30 June 2017.

As at 30 June 2017, the Group's Net Assets were £502.2 million or £3.12 per share, up 10.2%(£46.3 million) since the start of the financial year (2016: £455.9 million and £2.83p respectively), primarily as a result of fair value gains in the unquoted portfolio. The Group's balance sheet remains strong with £142.9 million available for investment (2016: £198.3m).

The Group's portfolio now consists of holdings in 113 companies and as at 30 June the value of the Group's quoted and unquoted portfolios (the 'Net Portfolio Value') was approximately £440.3 million (2016: £335.1 million). The Group's unquoted portfolio was valued at £399.1 million (2016: £292.2 million). The Group's net cash was £67.2 million.

In addition, there are negotiations or other circumstances straddling Touchstone's year-end on 31 July 2017 in relation to five of the Group's portfolio companies that may lead to transactions resulting in fair value gains. These potential transactions include an externally validated funding round, two collaborative partnerships with large pharmaceutical companies and two potential trade sales. Whilst there is no certainty that any of these transactions will proceed to completion, the board believes that a number may do so, leading to further revaluations of the Group's investments in the relevant holdings in accordance with its valuation policies. Whilst these revaluations are unlikely to be significant in the context of the Group's portfolio as a whole, the board believes that they would further demonstrate the Group's business model achieving its aim.

During the 11-month period from 1 August 2016 to 30 June 2017, the Group invested £57.3million across 33 portfolio companies, including the addition of six new companies to the Group's accelerated growth portfolio, which now comprises 48 companies. Divestment proceeds were £15.6 million, so the net investment during the period was £41.7 million.

The Directors do not believe a potential tax charge would arise on the realisation of the fair value gains set out in this statement.

The Directors have prepared the unaudited numbers contained in this statement on a basis consistent with the Company's accounting policies. Those accounting policies applied in determining the Net Portfolio Value are set out in Appendix A, and, in the case of unquoted investments, in accordance with the guidelines set out by the International Private Equity and Venture Capital Valuation Board.

As required by the Takeover Code (the 'Code'), the unaudited reported values of the Net Portfolio Value are supported by an opinion of Deloitte LLP as independent valuer in accordance with Rule 29 of the Code. A copy of this valuation report of Deloitte LLP is included within this announcement in Appendix B.

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/James Robinson/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, 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 30 June 2017, Innovations has invested a total of £364.0 million across its portfolio companies, which have collectively raised investment of more than £1.5 billion.

Further Information

J.P. Morgan Limited, which conducts its UK investment banking business as J.P. Morgan Cazenove ('J.P. Morgan Cazenove'), is authorised and regulated in the United Kingdom by the Financial Conduct Authority. J.P. Morgan Cazenove is acting as financial adviser exclusively for Touchstone and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than Touchstone for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, or for providing advice in relation to any matter referred to herein.

RBC Capital Markets is the business name used by RBC Europe Limited, which is authorised in the United Kingdom by the Prudential Regulation Authority ('PRA') and regulated by the Financial Conduct Authority ('FCA') and the PRA and is a subsidiary of the Royal Bank of Canada. RBC is acting as Corporate Broker to the Company.

Forward-looking statements

This announcement (including information incorporated by reference) may contain statements which are, or may be deemed to be, 'forward-looking statements'.

All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Touchstone about future events, and are therefore subject to risks and uncertainties which could cause actual results, performance or events to differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements contained in this announcement include statements relating to the expected effects of the transaction and other statements other than historical facts. Often, but not always, forward-looking statements can be identified by the use of forward looking words such as 'plan', 'expect', 'budget', 'target', 'aim', 'scheduled', 'estimate', 'forecast', 'intend', 'anticipate', 'assume', 'hope', 'continue' or 'believe', or variations of such words and phrases or statements that certain actions, events or results 'may', 'could', 'should', 'would', 'might' or 'will' be taken, occur or be achieved. By their nature, forward-looking statements involve risks (known and unknown) and uncertainties (and other factors) that could cause actual results to differ materially from those suggested by them. Much of the risk and uncertainty relates to factors that are beyond the relevant companies' or directors' ability to control or estimate precisely, such as future market conditions and behaviours of other market participants or changes in tax rates.

Each forward-looking statement speaks only as of the date of the announcement. No representation, assurance or guarantee is provided that the occurrence of the events expressed or implied in any forward-looking statements in the information will actually occur. All forward-looking statements contained in the information are expressly qualified in their entirety by the cautionary statements contained or referred to in this disclaimer. Readers are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations (including under the Code), Touchstone, the directors of Touchstone, its subsidiaries and subsidiary undertakings are under no obligation and undertake no obligation, and expressly disclaim any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Responsibility

The directors of Touchstone accept responsibility for the information contained in this announcement (including expressions of belief) and, to the best of the knowledge and belief of the Touchstone directors (having taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.

Consent

Deloitte LLP has given and not withdrawn its written consent to the inclusion of its opinion on the value of the Group's quoted and unquoted portfolio as at 30 June 2017 in this announcement.

Additional Information

In accordance with Rules 26.1 and 26.3 of the Code, a copy of this announcement will be available atwww.touchstoneinnovations.comby no later than 12 noon (London time) on the business day following this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

Appendix A

The accounting policies followed by the Directors in their preparation of the Net Portfolio Value contained in this statement are set out below.

When a price for an asset or liability is not observable, the Group measures fair value using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs.

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 no 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. This is a critical accounting judgement as set out in note 20;

• 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

Appendix B

The Directors

Touchstone Innovations plc

7 Air St,

Soho,

London

W1B 5AD

J.P. Morgan Limited

25 Bank Street

London

E14 5JP

14 July 2017

Dear Sirs

We report on the net portfolio value at 30 June 2017 (the 'Net Portfolio Value') as set out in the trading statement (the 'Trading Statement') issued by the directors of Touchstone Innovations plc ('the Company') dated 14 July 2017. The report is required by Rule 29.1 of The City Code on Takeovers and Mergers (the 'City Code') and is given for the purpose of complying with that requirement and for no other purpose.

Save for any responsibility that we may have to those persons to whom this report is addressed, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such person as a result of, arising out of, or in connection with, this report or our statement, required by and given solely for the purposes of complying with Rule 23.2 of the City Code, consenting to its inclusion in the Trading Statement.

Accordingly, we assume no responsibility in respect of this report to IP Group plc (the 'Offeror') or any person connected to, or acting in concert with, the Offeror or to any other person who is seeking or may in future seek to acquire control of the Company or to any other person connected to, or acting in concert with, such a person.

Responsibilities

The directors of the Company have prepared the Net Portfolio Value in accordance with International Private Equity and Venture Capital Valuation Guidelines and are solely responsible for the estimate.

It is our responsibility to form an opinion as required by the City Code to support the Net Portfolio Value prepared by the directors of the Company.

Basis of opinion

We conducted our work in accordance with Standards for Investment Reporting 1000 issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the Net Portfolio Value. It also included an assessment of whether the accounting policies are consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide our opinion.

Our work has not been carried out in accordance with auditing or other standards and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

In carrying out our work we have:

· reviewed the work papers prepared by the Company;

· considered the basis of value and assumptions used;

· made enquiries of the Company;

· where necessary, considered supporting evidence obtained by the Company or from public sources; and,

· assessed whether the accounting policies adopted by the Company, as set out in the Trading Statement, have been applied.

The review was limited to the information provided by the Company.

We note the Directors' statement regarding the tax impact of the Net Portfolio Value.

Opinion

In our opinion, the Net Portfolio Value as at 30 June 2017:

· has been properly compiled and fairly presented on a basis consistent with the accounting policies adopted by the Company and, in the case of unquoted investments, in accordance with the guidelines set out by the International Private Equity and Venture Capital Valuation Board; and

· has been prepared after due care and consideration.

On the basis of our review, we are not aware of any material modifications that should be made to the Net Portfolio Value as presented for the Company as at 30 June 2017.

Limitations

Our review was substantially less in scope than an audit performed in accordance with International Financial Reporting Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the Net Portfolio Value.

Consent

Deloitte LLP has given and not withdrawn its consent for the inclusion of this letter in the Trading Statement.

Yours faithfully,

Deloitte LLP

Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and

its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ('DTTL'), a UK private

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www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

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