ANNUAL REPORT AND ACCOUNTS
For the year ended 31 March 2018
OVERVIEW
Welcome to Cambridge Innovation Capital Building category leading businesses from brilliant technologies in Europe’s innovation capital
Cambridge Innovation Capital (CIC) combines a unique relationship with the University of Cambridge with deep financial and industry links to support rapidly growing, intellectual property rich companies in the Cambridge Cluster. As well as being a world-renowned academic institution and the crucible of many world-changing ideas, the University of Cambridge is home to Europe’s most successful technology innovation ecosystem. Many of these innovations have been transformed into significant commercial products such as Humira, the anti-arthritis drug, ARM’s chip design architecture and Solexa’s gene sequencing technology. This pioneering spirit radiates into the surrounding area such that the Cambridge Cluster is regarded as the largest technology hub in Europe with more than 4,700 knowledge intensive companies, employing over 60,000 people and generating in excess of £12 billion in annual revenues. READ MORE ABOUT OUR MARKET ON PAGES 6 TO 9
£125m FUNDS RAISED FOR INVESTMENT
£89m INVESTED/ COMMITTED
22
PORTFOLIO COMPANIES
AT 31 MARCH 2018
IFC Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Our value proposition World-class intellectual property generated by the Cambridge Cluster READ MORE ABOUT OUR MARKET ON PAGES 6 TO 9
Unique access
to opportunities through our relationship with the University of Cambridge READ ABOUT OUR BUSINESS MODEL ON PAGE 10 TO 11
Proven sourcing engine
and a strong pipeline of opportunities READ MORE IN THE OPERATIONAL REPORT ON PAGES 14 TO 23
A diverse portfolio
of rapidly growing technology and healthcare companies READ MORE IN THE OPERATIONAL REPORT ON PAGES 14 TO 23
“ CIC is a fundamental component of the University’s strategy to support its commercialisation activities, working alongside Cambridge Enterprise. It has provided significant support for the regional economy, creating jobs and opportunities by investing over £80 million in Cambridge businesses.” Professor Stephen Toope
Experienced team with deep Cambridge and University connections
VICE-CHANCELLOR OF THE UNIVERSITY OF CAMBRIDGE
READ MORE IN GOVERNANCE ON PAGES 32 TO 33
CONTENTS GOVERNANCE
OVERVIEW Welcome to Cambridge Innovation Capital Our value proposition
IFC 1
STRATEGIC REPORT At a glance Our market Our business model Our objectives Our key performance indicators Operational report Financial review
2 6 10 12 13 14 24
Corporate governance and risk management framework 26 Board of Directors 32 Directors’ report 34 Statement of Directors’ responsibilities 36
FINANCIAL STATEMENTS Independent auditors’ report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Company balance sheet Company statement of changes in equity Notes to the company financial statements COMPANY INFORMATION
37 39 40 41 42 43 56 57 58 IBC
1 www.cicplc.co.uk
STRATEGIC REPORT
At a glance
“ CIC has an outstanding opportunity, underpinned by its unique relationship with the University of Cambridge, to support businesses with the potential to change the world of tomorrow and create sustainable value for its stakeholders.” Edward Benthall NON-EXECUTIVE CHAIRMAN
Cambridge Innovation Capital was founded in 2013 by the University of Cambridge to create a trusted local entity that would be able to provide growth capital, advice and support to promising technology and healthcare businesses emerging from the University and the Cambridge Cluster.
Our ambition is to build global category leaders in rapidly growing technology sectors, thereby generating long-term capital growth for our shareholders.
We provide patient capital and other support to enable our portfolio companies to flourish into sustainable businesses. We strive to provide fair and equitable returns to all parties, including academic founders, entrepreneurs, angel investors and University seed funds.
Highlights
NET ASSETS
FINANCIAL
PROFIT
CASH AND DEPOSITS
£144.0m
86.1p (2017: 75.8p)
(2017: £0.04m loss)
£17.3m
£33.7m
FAIR VALUE OF PORTFOLIO
CAPITAL INVESTED IN THE YEAR
FAIR VALUE CHANGES IN THE YEAR
NUMBER OF PORTFOLIO COMPANIES
(2017: £4.4m)
(2017: 19)
(2017: £126.7m)
PORTFOLIO
NET ASSETS PER SHARE
£110.7m (2017: £58.2m)
£32.7m (2017: £29.0m)
2 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
£19.8m
(2017: £68.9m)
22
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Our relationship with the University of Cambridge We are a preferred investor for the University of Cambridge and have a unique relationship with the University and Cambridge Enterprise, the commercialisation arm of the University, the terms of which are governed by a Memorandum of Agreement. The Memorandum of Agreement provides us with: unique access to Cambridge Enterprise investment meetings, information systems and spin-out pipeline details; co-investment rights alongside Cambridge Enterprise at inception/seed stage; and preemption rights alongside existing and future University of Cambridge equity stakes as a University affiliate.
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Third most successful University innovation ecosystem worldwide1 Over 85% of research groups are characterised as world leading or internationally excellent2 98 Nobel Prize winners
Our business model Our business model is underpinned by our relationship with the University of Cambridge. We apply our key resources to invest in and support businesses with the potential to change the world of tomorrow. We focus on commercialising technology emerging from the University of Cambridge and the Cambridge Cluster and have established a network of contacts to support us in our activities. We aspire, through providing patient capital and other support to a diversified portfolio of companies, to create sustainable value for our stakeholders. 1 2
Behind MIT and Stanford 2014 Research Excellence Framework
3 www.cicplc.co.uk
STRATEGIC REPORT
At a glance When considering potential opportunities we look for
POTENTIAL GLOBAL CATEGORY LEADER
VISIONARY ENTREPRENEUR
WORLD-CLASS IP
CLEAR PATH TO COMMERCIALISATION
GROWTH/ SCALABILITY
We have seen a thousand opportunities since foundation, from which we have invested in 22 carefully selected businesses
SECTOR
SOURCE
Opportunities
Portfolio
Cluster
University
Cluster
University
60%
40%
41%
59%
Technology
Healthcare
Technology
Healthcare
56%
44%
45%
55%
We have a balanced portfolio with strong momentum that includes several companies already demonstrating significant potential
OTHER
KEY: TECHNOLOGY HEALTHCARE
Graphic represents carrying value and future commitment at 31 March 2018
4 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
0
We have a growing number of businesses in the portfolio and we expect that growth to continue
22
£29.95m
£28.3m
19 KEY:
12
£8.5m CASH INVESTED FAIR VALUE CHANGES NUMBER OF COMPANIES IN PORTFOLIO
£4.1m
7
Carrying value CASH INVESTED of investment at 31 March 2018
£0.8m 0
2014
FAIR VALUE CHANGES
£6.7m
£20.7m
£49.7m
£82.4m
2015
2016
2017
2018
We have an experienced senior team, supported by a balanced Board and a worldclass Advisory Panel, each with deep University and Cambridge connections
NUMBER OF COMPANIES IN PORTFOLIO
SENIOR TEAM
BOARD CEO CFO CHAIRMAN*
UNIVERSITY
CAMBRIDGE ENTERPRISE
KEY: INDEPENDENT NED/MEMBER UNIVERSITY NED/MEMBER INVESTMENT TEAM EDUCATED AT CAMBRIDGE
* Previously Chairman of Cambridge Enterprise
ADVISORY PANEL 5 www.cicplc.co.uk
STRATEGIC REPORT
Our market We are based in, and focused on, the Cambridge Cluster. Our privileged position in Europe’s largest entrepreneurial ecosystem helps us source and secure the “raw material” from which we endeavour to build category leading businesses.
Why Cambridge? Cambridge innovation can fundamentally change the way we view the world and lead to commercial opportunities with global impact. Cambridge excels in making the impossible possible. Particular strengths include artificial intelligence, wireless and wired devices, materials, genomics, epigenetics, next generation biologics and handling and generating insights from big data.
COMPUTING 1800s Charles Babbage Difference Engine
1937 Alan Turing Theoretical computing machine
1978–86 Nigel Searle and Clive Sinclair Sinclair Research
1967 Establishment of Computer-Aided Design (CAD) Centre as a breakaway from the University
1988 World’s first plant walk-through visualisation system (now AVEVA Review)
2001 CAD Centre changed its name to AVEVA
1953 Francis Crick and James Watson discovered structure of DNA
1977 Fred Sanger first genome sequenced
1998 Shankar Balasubramanian and John Berriman founded Solexa
1975 George Köhler and César Milstein monoclonal antibodies
1986 Greg Winter invented first humanised monoclonal antibody
1989 Greg Winter and David Chiswell founded Cambridge Antibody Technology (CAT)
SOFTWARE
GENOMICS
MONOCLONAL ANTIBODIES
6 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
Acquired by SoftBank for £24 billion (2017)
Merged with Schneider Electric in a £3 billion deal (2017)
Acquired by Illumina for $0.6 billion (2006)
Acquired by AstraZeneca for £0.7 billion (2006)
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
What is the Cambridge Cluster?
Cambridge was the fastest growing city in the UK in 2017 and is predicted to remain so for the next decade1
The city of Cambridge’s development has been intertwined with that of the University for more than 800 years. Over the last 50 years the University, together with its colleges, has played a central role in establishing and culturing innovation in the city. Trinity College founded the UK’s first ever science park, Cambridge Science Park, in 1970 and this was followed by St John’s Innovation Centre in 1987. These ground-breaking events have engendered a proliferation of similar developments such that there are now more than 20 science and research parks surrounding the city.
FINANCIAL STATEMENTS
Cambridge’s focus on facilitating innovation has fuelled expansion in and around the city, known as the Cambridge Cluster, and, along with a constant flow of innovation, staff and graduates from the University to companies in the Cluster, has driven the associated economy. The Cluster is now regarded as the largest technology hub in Europe with more than 4,700 knowledge intensive companies, employing over 60,000 people and generating in excess of £12 billion in annual revenues.
Cambridge also benefits from a substantial seed and early-stage investment ecosystem which includes the University, through its seed funding activity managed by Cambridge Enterprise, and a sophisticated network of serial entrepreneurs and business angels that take an active role in creating and supporting early stage businesses. The combination of commercial and scientific expertise, working in lock-step, has promoted the propagation of a wide range of intellectual property rich businesses.
1
Centre for Economics and Business Research, UK Powerhouse report
7 www.cicplc.co.uk
STRATEGIC REPORT
Our market
Recent developments in the Cluster The University continues to develop a £1 billion, 150 hectares expansion in north west Cambridge to help it maintain its position as one of the world’s leading universities. The new development will include up to 100,000 square metres of academic research and development space, of which up to 40% may be private research with a University or research institute connection. The site already has a new school and, once completed, will also contain up to 3,000 new homes. Similarly, the Cambridge Biomedical Campus, home to renowned research institutes, pharmaceutical businesses and hospitals, has planning permission for an additional 75,000 square metres of clinical and science related facilities. As the largest employment site in Cambridge, this development is expected to enhance the thriving community of academics and industry, clinical and research professionals as they work together to tackle some of today’s significant healthcare challenges.
8
Cambridge City Council has opened a new railway station to the north of the city to serve the local science parks and is proposing to accelerate the development of another new station to the south of the city to serve the Cambridge Biomedical Campus, both of which help connect Cambridge to the emerging technology and healthcare hub around King’s Cross in London. The UK Government, in its 2017 Autumn Budget, recognised the potential for the development of a Cambridge to Oxford link and announced its support for a £7 billion expressway scheme along the so-called “brain belt” recommended by the National Infrastructure Commission. This initiative, which would see the creation of new towns and up to one million new homes, has been predicted to add as much as £160 billion a year to the region’s economy by 2050. In the centre of Cambridge, the CB1 development is partially complete and provides a mixture of commercial, residential and leisure facilities in the heart of the city. Station Road, at the heart of this development, has been populated by many of the Cluster’s leading software and artificial intelligence companies who are taking advantage of the proximity to the central station to hire employees from London via a 46-minute commute to the heart of the commercial artificial intelligence activity in Cambridge.
Trinity College’s Bradfield Centre has opened for business at Cambridge Science Park. This purposely designed centre aims to accelerate technology businesses by attracting smart, ambitious, like-minded entrepreneurs and companies to Cambridge from around the world. With the Bradfield Centre completed, Trinity College has agreed a £200 million joint venture with TUS Park, the science park development body of Tsinghua University. The collaboration includes the development of 350,000 square feet of office and research space in five buildings on Cambridge Science Park, including a Biohub that will provide laboratory space for early stage companies and inventors working on healthcare products and technologies. Cambridge’s global reputation, unique heritage and more recent commercial expansion, including improved transport links to London, together with the deep scientific expertise, highly educated workforce and established networks for earlystage funding, combine to make the Cluster a particularly attractive place to establish, nurture and cultivate intellectual property rich businesses.
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
CIC
CLUSTER HEAT MAP KEY: CIC
CIC CIC PORTFOLIO COMPANIES UNIVERSITY SCIENCE PARKS RESEARCH INSTITUTES TECHNOLOGY CONSULTANTS NETWORK ORGANISATIONS INCUBATORS MAJOR TECHNOLOGY AND HEALTHCARE COMPANIES
Opportunities arising from these developments Over the years the Cluster has produced a number of home-grown, world-leading companies valued in excess of $1 billion, several specialist technology consultancies and a diverse community of successful entrepreneurs and angel investors. Importantly, many of the individuals behind these success stories have remained active in the Cluster and continue to not only provide ongoing support to the ecosystem, but are also instrumental in guiding the next generation of Cambridge businesses.
More recently multinational companies have started to move into Cambridge. Apple, Microsoft and Amazon each have research and development centres to access the locally available innovation and talent. AstraZeneca moved its global headquarters to Cambridge in May 2016 and continues to develop a new site in the Cambridge Biomedical Campus, already one of the largest clusters of its type in the world, which it will occupy during 2018. As the various developments complete and stateof-the-art facilities open for business, Cambridge will have the physical space to accommodate an increasing number of new and expanding local companies, and will also be an attractive proposition for further multinational companies to move into the area.
We believe that the Cluster will continue to generate and attract companies that have the potential to become global category leaders and we offer financial and other resources, together with a deep network of contacts, to support such companies as they grow to commercial maturity. Cambridge’s burgeoning innovation community provides a significant opportunity for us to capitalise on our initial achievements and to continue to build a business headquartered in Cambridge and focused on healthcare and technology companies arising from the University and the Cambridge Cluster.
9 www.cicplc.co.uk
STRATEGIC REPORT
Our business model We are committed to building leading businesses from brilliant technologies
OUR UNIQUE POSITION HELPS US TO SOURCE OPPORTUNITIES
AND THEN APPLY OUR KEY RESOURCES
As a preferred investor for the University
Our balance sheet
●●
Founded by the University to support the Cambridge ecosystem
●●
Net assets of £144.0 million and no long-term liabilities
●●
Unparalleled access to opportunities emerging from the University
●●
Cash and deposits of £33.7 million and no debt
●●
Complementary and collaborative relationship with Cambridge Enterprise
Our focus on Cambridge ●●
The largest technology cluster in Europe with more than 4,700 knowledge intensive companies, employing over 60,000 people
●●
A global hub for scientific research and its commercialisation
●●
Based in the same office as Cambridge Enterprise, on the site of the University’s world-famous laboratories and research centres
●●
Ideally placed to influence the path of University spin-out opportunities
Deeply connected to the University and the Cambridge Cluster
●●
A track record in identifying, nurturing and cultivating intellectual property rich businesses
●●
Direct access to the University’s leadership team and senior academics
●●
Advisory Panel of business leaders, entrepreneurs and worldrenowned scientists
Our network
Our network ●●
●●
Our relationships
Our location
●●
Our people
Connections of our senior team, Board and Advisory Panel
●●
Corporate and financial syndicate partners
Links with research institutes, angel and network groups and intellectual property rich companies across the Cluster
●●
Technology and healthcare companies, nationally and internationally
Our business model is underpinned by our relationship with the University
PRIVILEGED ACCESS TO INFORMATION
LONG-TERM PARTNERSHIP
●●
Ten-year agreement extendable thereafter for rolling five-year periods by mutual agreement
●●
Formalised role for CIC, Cambridge Enterprise and the University when commercialising intellectual property
10 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
●●
Unique access to Cambridge Enterprise’s information systems, including disclosures of new discoveries, investment meetings and potential spin-out pipeline
OVERVIEW
STRATEGIC REPORT
TO SUPPORT BUSINESSES WITH THE POTENTIAL TO CHANGE THE WORLD OF TOMORROW
GOVERNANCE
FINANCIAL STATEMENTS
AND CREATE SUSTAINABLE VALUE FOR OUR STAKEHOLDERS
Our expertise
Our ambition
●●
In commercialising intellectual property and building technology and healthcare businesses
●●
To build global category leaders in rapidly growing technology sectors
●●
Our Board, senior team and Advisory Panel has over 300 years of experience in technology entrepreneurship
●●
To create a sustainable and prosperous business
Our philosophy ●●
To be a trusted provider of long-term capital
●●
Disciplined screening and approval process
●●
Simple, transparent investment structures
●●
Actively involved in the development of the business
Value creation ●●
Growth in net asset value and net asset value per share
●●
Realisations - at the optimal time for the portfolio companies concerned
Societal benefits ●●
The potential impact of our portfolio companies should not be underestimated
●●
If successful they will make a material difference to society by, for example, improving cancer treatment, diagnosing genetic diseases, using energy more efficiently and making cities smarter
Our corporate structure ●●
Ensures the alignment of objectives
●●
Does not limit our horizon period
●●
Facilitates access to capital
Our network ●●
Our shareholders
●●
Investment banking, corporate finance, M&A and other advisers
PERMANENT LINK TO THE UNIVERSITY
EQUITY INVESTMENT RIGHTS
●●
Co-investment rights alongside Cambridge Enterprise at inception/seed stage
●●
Pre-emption rights alongside existing and future University equity stakes as a University affiliate
●●
Two Board members appointed by University
11 www.cicplc.co.uk
STRATEGIC REPORT
Our objectives Generating long-term capital growth for our shareholders 5 +3.14% PWLR
% PWLR 41.5 +1.28%
MND 1.5 +3.14% PWLR 41.5 +1.28%
SECURE AND SUSTAIN A STRONG PIPELINE OF OPPORTUNITIES
●●
A preferred investor for the University of Cambridge
●●
Leverage our network
●●
Focus on Cambridge
ACTIVELY NURTURE PORTFOLIO COMPANIES TO HELP THEM FLOURISH
CONSTRUCT A DIVERSIFIED PORTFOLIO OF PROMISING BUSINESSES
●●
●●
Focus on opportunities with world-class intellectual property, visionary entrepreneur(s), potential to be a global category leader, ability to scale and a clear path to commercialisation
●●
●●
●●
●●
Execute our disciplined screening and approval process
Proactive board representation Implement management changes and incentives Forge syndicates that fit the business Deploy capital and other resources
CULTIVATE AND HARVEST PORTFOLIO COMPANIES FOR VALUE
●●
●●
●●
Influence corporate strategy and business development Facilitate access to capital markets and M&A advisers Generate realisations, as and when appropriate
LINK TO KPIs
NET ASSETS NUMBER OF PORTFOLIO COMPANIES
TOTAL VALUE OF PORTFOLIO
CAPITAL INVESTED IN THE YEAR
GROWTH IN NEW ASSETS
CAPITAL INVESTED IN THE YEAR
FAIR VALUE CHANGES IN THE YEAR
NET ASSETS PER SHARE
NUMBER OF PORTFOLIO COMPANIES
REALISATIONS
LINK TO PRINCIPAL RISKS
1
5
7
1
2 6
5 7
3
5
3
4
6
7
5
7
READ OUR PRINCIPAL RISKS ON PAGES 28 TO 31
12 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Our key performance indicators Monitoring the effectiveness of our activities against our objectives KPIs
NET ASSETS
DESCRIPTION The value of the Group’s assets less the value of its liabilities
2018 PERFORMANCE £144.0m
2018
£51.1m
2016
The growth in net assets during the year
2018
The growth in 2017 included net proceeds from the issue of shares of £73.2 million
£17.3m
2017
2016
NET ASSETS PER SHARE
Net assets divided by the number of issued ordinary shares
£75.6m £1.6m
86.1 p
2018
2017
75.8 p
2016
TOTAL VALUE OF PORTFOLIO
The value of the Group’s interests in portfolio companies
CAPITAL INVESTED IN THE YEAR
The total capital deployed into portfolio companies during the year
NUMBER OF PORTFOLIO COMPANIES
The net change in the valuation of portfolio companies, such valuation determined in accordance with the Group’s accounting policy
2017
The number of portfolio companies in the Group
£19.8m £4.4m
Fair value changes in the year increased cumulative fair value changes to £28.3 million (2017: £8.5 million), representing a 34% (2017: 17%) uplift on deployed capital
£3.3m
22
2018
19
2017
The total amount received from the disposal of interests in portfolio companies
Funds were deployed into three new and 11 existing portfolio companies, increasing the cumulative amount invested to £82.4 million (2017: £49.7 million) from 255 (2017: 244) opportunities reviewed in the year
£13.9m
12
2016
REALISATIONS
£32.7m £29.0m
2018
2016
The £52.5 million increase is attributable to capital invested and fair value changes during the year
£24.7m
2018
2017
£110.7m £58.2m
2017
2016
FAIR VALUE CHANGES IN THE YEAR
The number of issued ordinary shares has remained the same and therefore the increase in net assets per share is directly attributable to the rise in net assets
69.6 p
2018
2016
The increase arises from fair value changes during the year less net operational expenditure
£126.7m
2017
GROWTH IN NET ASSETS
COMMENTARY
2018
£0.0m
2017
£0.0m
2016
£0.0m
One healthcare and two technology companies were added during the year such that the portfolio comprised 12 healthcare and 10 technology companies at 31 March 2018, 13 of which have a direct connection to the University of Cambridge The Group’s first investment was in May 2014 and there have been no disposals to date
13 www.cicplc.co.uk
STRATEGIC REPORT
Operational report
We have made solid progress in the last year as we added three new companies to our portfolio, continued to provide financial and other support to our existing portfolio companies and strengthened our Board.
Victor Christou CHIEF EXECUTIVE OFFICER
Putting our capital to work
The three new portfolio companies were:
During the year ended 31 March 2018, the Group made 17 investments (2017: 16) and deployed a total of £32.7 million (2017: £29.0 million) in three new and 11 existing portfolio companies, such that cumulatively £82.4 million (2017: £49.7 million) had been invested in 22 (2017: 19) companies.
●●
Bicycle Therapeutics, where we were a key participant in a £40 million Series B round, and which is developing a new class of therapeutics to treat cancer and other debilitating diseases based on its proprietary bicyclic peptide (Bicycle®) platform;
●●
PROWLER.io, where we led a £10 million Series A round, and which is building an artificially intelligent decision-making platform; and
●●
Cytora, where we participated in a £4.4 million round alongside the insurance companies QBE and Starr, and which has built a risk engine applying artificial intelligence to identify patterns of good and bad risks over time, allowing commercial insurers to target, select and price risk more accurately.
TRANSACTIONS OF £1 MILLION OR MORE KEY:
50
TECHNOLOGY HEALTHCARE
Bicycle Therapeutics
Funding round (£ million)
Bubble size reflects the value of CIC’s contribution to the round
CMR Surgical
Origami Energy Carrick Therapeutics
Inivata
PROWLER.io Inivata Storm Therapeutics
GeoSpock
Microbiotica
0 June 2017
September 2017
December 2017
14 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
March 2018
OVERVIEW
Bicycle Therapeutics is currently focused on developing targeted cytotoxics (Bicycle Toxin Conjugates), targeted innate immune activators and T-cell modulators for cancers of high unmet medical need. The company’s unique intellectual property is based on the work initiated at the MRC Laboratory of Molecular Biology in Cambridge by its scientific founders, Sir Gregory Winter, who is also on our Advisory Panel, and Professor Christian Heinis. In February 2018, Bicycle dosed its first patient in a 120 patient Phase I/IIa trial evaluating the lead candidate BT1718 in patients with advanced solid tumours. BT1718 is a first-in-class Bicycle Toxin Conjugate that targets Membrane Type 1 Matrix Metalloproteinase (MT1-MMP/MMP-14), which has been shown to be highly expressed in solid tumours.
STRATEGIC REPORT
GOVERNANCE
We expanded our interests in artificial intelligence and machine learning by adding PROWLER.io and Cytora to our existing interests in Jukedeck, Audio Analytic and GeoSpock. PROWLER.io’s platform is based on interpretable principles of mathematics and learning developed by Professor Carl Rasmussen, joint head of the Machine Learning Group in the Engineering Science Department at the University of Cambridge and Cytora arose from an idea nurtured by the University’s Judge Business School Accelerate Programme. The origins of the deep experience in artificial intelligence and machine learning in the Cambridge Cluster can be traced back to the University’s Computer Laboratory, home to several world-leading academics with a long history of entrepreneurialism. There are now many early stage companies working in artificial intelligence in Cambridge, and several multinationals have established research offices here to take advantage of the local expertise. These businesses, which are primarily based around Cambridge’s central station, are forging a vibrant community with the potential to cross-fertilise ideas. We expect to make further investments in this exciting and burgeoning area in the near future.
FINANCIAL STATEMENTS
We also invested in 11 existing portfolio companies including: ●●
CMR Surgical (previously Cambridge Medical Robotics), which in a second close raised a further $26 million to complete a Series A round of $46 million. CMR Surgical will use the proceeds to progress its versatile surgical robotic system, Versius®, through ongoing validation studies and to start production of further systems.
●●
Origami Energy, where we participated in an £19 million funding round alongside Aggreko plc, the global leader in on-site power generation. Over the last 12 months Origami Energy has progressed from deploying commercial projects with industrial and commercial customers to signing multi-year partnership agreements with leading energy suppliers including SmartestEnergy (owned by Marubeni, the Japanese-headquartered global trading company) and the renewables specialist Good Energy plc.
●●
GeoSpock, where we led a £5 million Series A funding round that included Japanese strategic investors Global Brain and 31 Ventures. GeoSpock aims to become the de facto processing engine at the heart of nextgeneration infrastructure, including smart cities and internet of everything, as well as powering future mobility applications, such as the management of autonomous vehicle fleets.
●●
Carrick, Inivata, Microbiotica and Storm Therapeutics in which we completed followon or tranche drawdown investments as these businesses achieved their previously agreed development milestones.
15 www.cicplc.co.uk
STRATEGIC REPORT
Operational report
Investments in existing portfolio companies have resulted in a fair value gain of £19.8 million (2017: £4.5 million) which has increased the cumulative fair value gain to £28.3 million (2017: £8.5 million), representing a 34% (2017: 17%) uplift on invested capital as set out below. £ million
31 March 2017 Case study page
Significant investments
Cost of investment
Fair value changes
31 March 2018
Activity during the year Carrying value
Cost of investment
Fair value changes
Carrying value
21
4.0
–
4.0
3.5
15.9
23.4
–
6.8
1.3
8.1
4.8
–
12.9
PragmatIC
19
8.4
2.9
11.3
–
–
11.3
Bicycle Therapeutics
22
–
–
–
8.5
1.3
9.8
Origami Energy
20
3.4
1.9
5.3
2.5
1.3
9.1
–
5.0
3.2
8.2
–
–
8.2
22.1
(0.8)
21.3
13.4
1.3
36.0
49.7
8.5
58.2
32.7
19.8
110.7
CMR Surgical Inivata
Congenica Other investments
Since the year end, the Group has invested a further £8.8 million in followon investments into Abcodia, CMR Surgical (see below), Morphogen-IX and Undo, such that the total capital currently committed to the portfolio is £99.6 million. The portfolio continues to comprise 12 healthcare companies and 10 technology companies and there are 13 companies with a direct University of Cambridge connection. In April/May 2018 CMR Surgical closed a $100 million Series B fundraising. CMR Surgical will use the proceeds to prepare its Versius® system for planned commercialisation. Activities will include the completion of validation studies for regulatory approval processes in both Europe and the USA, international expansion, and commercial scale-up in response to considerable industry interest in adoption of this new product. In May 2018, the results of Exvastat’s Phase 1 clinical trial were received. The trial failed to demonstrate a benefit in either reduction in inflammatory response or improvement in vascular integrity. Further analysis of the data is planned, but given the negative result, we have written down our investment from £1.6 million to zero following the year end. While this outcome is hugely disappointing, the early stage businesses that we support are inherently high risk and it is inevitable that a certain proportion of these businesses will not succeed. While we strive hard to minimise such risks, our business model is sufficiently robust that we can prosper even if some of our individual portfolio companies fail to achieve their potential.
16 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
SIGNIFICANT PORTFOLIO COMPANY EVENTS Our portfolio companies continue to make significant commercial and technical progress, raising additional capital at increased valuations and gaining third party recognition for their achievements. We have highlighted some of our portfolio companies on pages 19 to 23 and summarise below the notable achievements of other companies within our portfolio. Audio Analytic increased the range of sounds covered by its technology, including a dog bark software sensor. The company also gained commercial traction, announcing partnerships with both Hive and Bragi, to incorporate sound recognition capabilities into their devices. Carrick Therapeutics’ lead product, CT7001, a cyclindependent kinase 7 inhibitor for the treatment of cancer, entered clinical trials at the end of 2017. Carrick also expanded its board with the addition of Dr Burt Adelman as Chair and Dr Clive Dix as a non-executive director. GeoSpock appointed technology entrepreneur Richard Baker as CEO in November 2017, with founder Steve Marsh moving to Chief Technology Officer. The leadership team has since been expanded with the appointments of Ian Hammond as COO and Simon Peace as CFO. In early 2018 the company raised a £5 million Series A round and its revolutionary data engine continues to develop towards commercialisation. Jukedeck continues to improve the quality of the music and the range of styles available on its AI platform and has created an API geared towards the B2B market. The company collaborated with a group of Korean musicians to create three “K-pop” songs which were released globally. Microbiotica won a number of awards during the year, including Biotech and Money’s “Life Science Spin-out of the Year” and “Best Start-up Biotech” at the OBN awards. Interest in the importance of the microbiome as it relates to human health continues to grow, and the multi-year strategic collaboration with Genentech, a member of the Roche Group, signed after the year end shows tangible evidence of this. Storm Therapeutics extended its Series A funding, raising an additional £4 million from Taiho Ventures, enabling the company to expand and accelerate its pipeline. In addition, Evotec expanded a collaboration with Storm on its RNA epigenetics platform and data was published in Nature linking an essential RNA-modifying enzyme to acute myeloid leukaemia.
17 www.cicplc.co.uk
STRATEGIC REPORT
Operational report
Our management team Our management team is responsible for sourcing opportunities, allocating resources, managing our interests in portfolio companies and monitoring the performance of these businesses against defined key performance indicators. Robert Tansley has recently transitioned from Investment Director to Operating Partner but retains an active role in the business and remains a director of several of our healthcare portfolio companies. Given the recent growth in our activities, we are seeking two additional Investment Directors with expertise in healthcare and technology sectors to complement our existing team and enhance our offering to our portfolio companies.
Our Board During the year we strengthened the Board with the appointment of Humphrey Battcock and Dipti Amin as independent Non-executive Directors. The Board now comprises a Chairman, two Executive Directors, five independent Non-executive Directors and two University nominated Directors. Humphrey has extensive private equity experience gained from more than 20 years at Advent International where he was on the executive committee. Humphrey also has a deep knowledge of the workings of the University of Cambridge as a member of the Cambridge University Campaign Board and the Downing College Investment Committee. Dipti has more than 20 years of highly relevant experience from her time at Quintiles (now IQVIA), the global clinical research and pharmaceutical services organisation, where she was on the Executive Committee and her most recent roles included Chief Compliance Officer and Senior Vice
President and Global Head of Medical and Scientific Services, Regulatory Affairs, Safety and CEVA services, Medical Writing, and Late Phase Services. Dipti was a Clinical Investigator for 12 years as well as a member of a UK Department of Health ethics committee for ten years and is licensed to practise medicine in the UK. On 1 April 2018 we welcomed Professor Andy Neely, Pro-Vice-Chancellor: Enterprise and Business Relations at the University of Cambridge, as he succeeded Professor Duncan Maskell as a University nominated Director. Previously Andy was Head of the Institute for Manufacturing (IfM) and of the Manufacturing and Management Division of Cambridge University Engineering Department and is a Fellow of Sidney Sussex College. Duncan, the University’s Senior Pro-ViceChancellor, has been appointed Vice-Chancellor of the University of Melbourne, Australia’s leading university and considered to be one of the world’s top 40 higher education institutions. We thank Duncan for his considerable contribution to CIC over the last few years and wish him well in his new role.
Our Advisory Panel During the year we welcomed William TunstallPedoe, the founder of Cambridge start-up Evi, which was sold to Amazon as the core of its Alexa product, to our Advisory Panel of business leaders, entrepreneurs and world-renowned scientists. William has provided valuable expertise in artificial intelligence and machine learning as we have expanded our interests in these areas.
18 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
Outlook We have made good progress in fulfilling our ambition to build leading businesses from brilliant technologies in the Cambridge Cluster. We have established a solid portfolio of highly promising companies that we continue to guide and support as they develop from early-stage businesses and begin to demonstrate technical and commercial traction. However, these companies will require further funding to enable them to maximise their full potential. In addition, the flow of opportunities emanating from the Cluster shows no sign of abating. We will continue to work closely with the University of Cambridge and Cambridge Enterprise, as well as our networks within and outside the Cambridge community, to identify more opportunities to add to our portfolio. Having raised £125 million to date, we have commenced the process to raise additional funds to support the growth of our own business and that of our portfolio companies. We have confidence in our ability to secure additional funds to invest in our current and new portfolio companies, continue building substantial value for shareholders and create a sustainable business for our stakeholders. Cambridge is an exciting place to be and we look forward to the year ahead.
Victor Christou CHIEF EXECUTIVE OFFICER
22 June 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
PragmatIC Electronics for a flexible world
COMPANY DESCRIPTION ●●
PragmatIC’s flexible integrated circuits (FlexICs) deliver electronics without the need for silicon
●●
The technology potentially enables trillions of smart objects that can engage with consumers and their environment, introducing intelligence and interactivity
RECENT DEVELOPMENTS ●●
PragmatIC is installing its first FlexLogIC system capable of producing billions of FlexICs
●●
First FlexICs were produced on this line in 2018
POTENTIAL TO CHANGE THE WORLD ●●
The ultra-low cost of FlexICs, a fraction of the cost of silicon based ICs, provides the potential to expand connectivity into a wealth of everyday items
●●
Potential uses include tracking and stock control for consumer goods, introducing interactivity into toys and games and “smart” packaging for pharmaceuticals to combat counterfeiting and confirm correct storage conditions
£11.3m 31.2% CARRYING VALUE
EQUITY HOLDING
“ PragmatIC is the first company to bring flexible electronics to market at the price level previously unavailable for smart packaging technologies.” MARCIN PILARZ, CEO OF TALKIN’ THINGS
19 www.cicplc.co.uk
STRATEGIC REPORT
Origami Energy Intelligent management of distributed energy assets
COMPANY DESCRIPTION ●●
Origami’s Energy Technology Platform allows energy generators, storage providers and energy users to trade energy flexibility
●●
This helps Origami’s customers maximise the value of their assets and stabilise the operations of the electric grid
RECENT DEVELOPMENTS ●●
Origami Energy has now progressed to signing multiyear partnership agreements with energy suppliers including SmartestEnergy and the renewables specialist Good Energy plc
●●
In March 2018 CIC participated in a £19 million Series B round which included Aggreko plc, the global leader in on-site power generation
POTENTIAL TO CHANGE THE WORLD ●●
Origami Energy’s technology enables market participants to respond quickly to changes in the energy market, increase their profitability, access new revenue opportunities and improve trading positions
●●
This in turn incentivises energy market participants to use their assets in the most energy efficient way possible, cutting overall carbon emissions
£9.1m CARRYING VALUE
14.9% EQUITY HOLDING
“The energy world is changing rapidly; we see Origami Energy at the forefront of developing technology to capitalise on the opportunities presented to energy market participants.” NICK EMERY, FRED. OLSEN GROUP OF COMPANIES
20 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
CMR Surgical (previously Cambridge Medical Robotics) Next generation robotic system for minimal access surgery
COMPANY DESCRIPTION ●●
CMR Surgical is developing a next generation robotic system for minimal access surgery
●●
The Versius® robotic system is versatile, ergonomic, portable, lightweight, easy to set up and cost-effective
●●
The innovative and intuitive design increases flexibility of use and reduces training time
RECENT DEVELOPMENTS ●●
In September 2017 CIC participated in a $26 million extension to the Series A round
●●
In May 2018 CMR Surgical completed a $100 million Series B funding in which CIC also participated
●●
CMR Surgical is using this funding to progress Versius® through ongoing validation studies, regulatory approval in different territories and to start commercialisation
POTENTIAL TO CHANGE THE WORLD ●●
Versius® aims to make robotic assisted minimal access surgery economically viable for many more procedures than is currently the case
●●
Minimal access surgery delivers acknowledged clinical benefits which include less trauma, reduced scarring, faster recovery times and lower costs for healthcare providers
●●
Robot assisted surgery is easier to master and less physically demanding than manual laparoscopy
£23.4m 10.5% CARRYING VALUE
EQUITY HOLDING
“Versius® has been designed with the surgeon in mind. By equipping them with a remarkable tool fit for their demanding job, together we can change the way surgery is delivered.” MARTIN FROST, CEO, CMR SURGICAL 21 www.cicplc.co.uk
STRATEGIC REPORT
Bicycle Therapeutics Pioneering therapeutics based on proprietary bicyclic peptides
COMPANY DESCRIPTION ●●
Bicycle Therapeutics’ technology is based on groundbreaking work conceived in the laboratory of Sir Greg Winter and Professor Christian Heinis, and is pioneering the development of bicyclic peptides, or Bicycles® — a new class of versatile, chemically synthesised medicines
●●
The business is rapidly advancing its robust pipeline of Bicycles® for oncology, while pursuing collaborative partnerships with other companies in additional disease areas. This strategy enhances their ability to bring this important class of medicines to patients with debilitating diseases
RECENT DEVELOPMENTS ●●
Bicycle Therapeutics joined the CIC portfolio in May 2017 as part of a £45 million funding round
●●
In September 2017, Bioverativ (Sanofi) and Bicycle Therapeutics entered into a strategic research collaboration to develop therapies for Haemophilia and Sickle Cell Disease
●●
In February 2018, the lead molecule, BT1718, developed to target solid tumours of high unmet need, entered a phase I/IIa clinical trial
POTENTIAL TO CHANGE THE WORLD ●●
Bicycles® address therapeutic needs unreachable with any other existing modality
●●
Their small size and exquisite tumour targeting delivers rapid tumour penetration and retention while clearance rates and routes can be tuned to minimise exposure of healthy tissue and toxicities
£9.8m CARRYING VALUE
10.7% EQUITY HOLDING
“BT1718 is a potentially transformative treatment that has shown great promise in preclinical studies, and trials like this are a big step towards helping more patients survive their cancer.” DR NIGEL BLACKBURN, DIRECTOR OF DRUG DEVELOPMENT, CANCER RESEARCH UK
22 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
PROWLER.io Taking artificial intelligence beyond pattern recognition
COMPANY DESCRIPTION ●●
PROWLER.io’s artificial intelligence platform provides customers with decision support and optimisation
●●
The platform is built on the three core areas of: —— probabilistic modelling using statistical tools —— interpretable machine learning based on mathematical principles —— autonomous agents that interact with each other using the principles of game theory
RECENT DEVELOPMENTS ●●
CIC led a £10 million Series A round in the third quarter of 2017
●●
In May 2018 PROWLER.io launched VUKU, its artificial intelligence platform
POTENTIAL TO CHANGE THE WORLD ●●
●●
PROWLER.io’s VUKU platform has a wide variety of potential uses
5 +3.14% PWLR
Initial applications include smart investment algorithms in the financial services sector, optimising the efficiency of logistics operations and improving the user experience in computer games
5 +3.14% PWLR
% PWLR 41.5 +1.28%
MND 1.5 +3.14% PWLR 41.5 +1.28%
% PWLR 41.5 +1.28%
MND 1.5 +3.14% PWLR 41.5 +1.28%
£3.9m CARRYING VALUE
14.9% EQUITY HOLDING
“We are convinced that AI enhanced decision making will drive the world economy by 2025 and our platform is best positioned to lead the charge.” VISHAL CHATRATH, CEO OF PROWLER.IO
23 www.cicplc.co.uk
STRATEGIC REPORT
Financial review
Statement of comprehensive income During the year ended 31 March 2018 the Group made a profit of £17.30 million (2017: loss of £0.04 million). The principal components of the profit are fair value changes on investments and administrative expenses as summarised below: 2018 £ million
2017 £ million
Fair value changes in investments
19.80
4.44
Administrative expenses
(2.90)
(4,.86)
Other operating income
0.05
0.06
0.36
0.32
Rob Sprawson
Finance income
CHIEF FINANCIAL OFFICER
Tax
(0.01)
Profit/(loss) and total comprehensive income/(expense) for the year
17.30
– (0.04)
The Group measures the fair value of its unquoted investments in line with International Private Equity and Venture Capital (“IPEV”) Valuation Guidelines. The IPEV valuation methodology used most commonly is the “price of recent investment” approach and this is the de facto starting position for any fair value estimate made by the Group. Using this approach, the Group considers that fair value estimates based entirely on observable market data are of greater reliability than those based on assumptions. Accordingly, where there has been a recent investment by a third party, the price of that investment will generally provide the basis of the valuation, subject to adjustment for any subsequent milestones or impairments. The Group’s accounting policy for valuing its investments is provided in note 3 to the consolidated financial statements. During the year the Group recorded an unrealised fair value gain of £19.80 million (2017: £4.44 million). Further details are provided in the Operational Report on pages 14 to 23.
Administrative expenses 2018 £ million
2017 £ million
Core administrative expenses
2.87
2.07
Share based payments
0.03
2.45
Employer’s NIC due on exercise of options
Average number of employees during the year
–
0.34
2.90
4.86
9
7
Core administrative expenses, which primarily relate to people costs, facilities expenses and professional fees, have increased as a result of a rise in the average number of employees, together with the implementation of a market standard remuneration plan with effect from 1 September 2016, following completion of the £75 million fundraising. The significant charge for non-cash share based payments in the prior year, primarily arose from the share capital reorganisation, but also from the reallocation of previously lapsed options, with all such reallocated options being over existing shares held by the Employee Benefit Trust. The Group is also liable for employer’s National Insurance Contributions due on the exercise of these options.
24 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY HOLDERS
GOVERNANCE
NET ASSETS
£17.30m
£126.66m
CASH AND SHORT-TERM DEPOSITS £68.92m
£143.99m £49.32m
£49.26m
£49.44m
£51.09m
2014
2015
2016
FINANCIAL STATEMENTS
£42.03m
£33.68m £26.93m
£1.69m
2014
2015
£(1.18)m
£(0.37)m
2016
2017
2018
2017
2018
2014
2015
2016
At 31 March 2018 the Group had net assets attributable to shareholders of £143.99 million (2017: £126.66 million) and 167.2 million ordinary shares in issue (2017: 167.2 million). Net assets per share was 86.1 pence (2017: 75.8 pence), a rise of 10.3 pence (13.6%) over the prior year.
Investments Cash and short-term deposits
2018 £ million
2017 £ million
110.71
58.16
33.68
68.92
(0.40)
Other assets and liabilities (net) Net assets Share capital and premium account Capital reserve Retained profit Total equity
CARRYING VALUE OF INVESTMENTS AT YEAR END 22
19
£28.30m
12 £8.50m
7 £4.05m £0.78m £6.75m
£20.67m
£49.67m
£82.41m
2015
2016
2017
2018
KEY: CASH INVESTED
FAIR VALUE CHANGES
The value of the Group’s holdings in portfolio companies increased to £110.71 million at 31 March 2018 (2017: £58.16 million) after fair value gains of £19.80 million (2017: £4.44 million) and investments of £32.75 million (2017: £29.00 million). In addition, the Group had committed, subject to milestones, a further £6.36 million (2017: £14.24 million) at the end of the year. The Operational Report on pages 14 to 23 contains further details on the Group’s portfolio, including key developments during the year. At 31 March 2018 cash and short-term deposits amounted to £33.68 million (2017: £68.92 million). The Group continues to place cash, which is surplus to near-term investment and working capital requirements, on short-term deposits with financial institutions, in accordance with the Group’s treasury policy. Details of the credit ratings of the Group’s cash and deposit counterparties are provided in note 19 to the consolidated financial statements.
(0.42)
143.99
126.66
50.07
50.07
3.37
3.34
28.30
8.50
Share based payments reserve
2014
2018
£(0.04)m
Statement of financial position
0
2017
62.25
64.75
143.99
126.66
Taxation The Group’s business model seeks to deliver long-term value to its stakeholders by supporting category leading businesses in rapidly growing technology sectors. The Group primarily seeks to generate capital growth from its holdings in these companies over the longer term but has historically made losses from its operations from a UK tax perspective.
Rob Sprawson CHIEF FINANCIAL OFFICER
22 June 2018
NUMBER OF COMPANIES IN PORTFOLIO
25 www.cicplc.co.uk
GOVERNANCE
Corporate governance and risk management framework
BOARD
Schedule of matters reserved for the Board Audit and Risk Management Committee
Nomination Committee
Remuneration Committee
Investment activities
Operational matters
Investment Committee
Executive Directors
Legal advisers Financial advisers Independent assurance
Advisory Panel Legal advisers Technical consultants
KEY:
STRATEGIC
OPERATIONAL
INFORMATION, ANALYSIS AND RECOMMENDATIONS
ENTREPRENEURIAL LEADERSHIP AND MONITORING PERFORMANCE
The Board is focused on becoming the leading provider of finance and support to selected high-growth, intellectual property rich companies arising from the University of Cambridge and the Cambridge Cluster and is accountable to the Company’s shareholders for its corporate governance and risk management framework which is summarised below.
EXTERNAL
The Board
The Directors are responsible for:
The Board consists of the Non-executive Chairman, two Executive Directors and seven Non-executive Directors, five of whom are considered by the Board to be independent. The biographies of the Directors are provided on pages 32 to 33.
●●
promoting the long-term success of the Group, taking into account the interests of its shareholders and other key stakeholders;
●●
ensuring that obligations to shareholders and other key stakeholders are understood and met; and
The Board seeks to provide entrepreneurial leadership, albeit in compliance with its corporate governance and risk management framework, to help identify, invest in and support rapidly growing intellectual property rich companies that have the potential to grow into global businesses. The Board acknowledges that nurturing great ideas into global businesses can take a long time and, as such, presents certain strategic and operational challenges.
●●
maintaining a satisfactory dialogue with shareholders.
The Board meets at least six times a year to review, formulate and approve the Group’s strategy, budgets and corporate actions and oversee progress towards defined goals. The Board recognises that to achieve its ambition it needs to maintain and periodically review its policy and decision-making framework while: ensuring that the necessary financial and human resources are in place to implement its strategy; and regularly monitoring the Group’s performance against key financial and non-financial indicators.
All Directors are equally accountable to the Group’s shareholders for the proper stewardship of its affairs and the long-term success of the Group. The responsibility of the Directors is collective, taking into account their respective roles as Executive Directors and Non-executive Directors. The Executive Directors are directly responsible for developing and implementing strategy and running the day-to-day operations. The Non-executive Directors are responsible for constructively challenging and contributing to proposals on strategy, scrutinising the performance of management, determining levels of remuneration and for succession planning for the Executive Directors. The Non-executive Directors must also satisfy themselves as to the integrity of financial information and that financial controls and risk management systems are robust and comprehensive.
26 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
The Board has adopted a schedule of matters that are significant to the Group, due to their strategic, financial or reputational implications, and reserved for its decision and approval. Otherwise the Board has delegated: ●●
portfolio company, and potential portfolio company, related matters to the Investment Committee, which comprises the Executive Directors and investment directors of the Company, although Directors are provided with all briefing papers and may attend meetings; and
●●
operational matters to the Executive Directors.
CIC maintains an ongoing dialogue with its shareholders, with the Executive Directors offering them regular updates, usually at least following publication of full and half year results. The Non-executive Directors are also available to discuss corporate governance and other matters with shareholders as and when required.
Board Committees The Board has established an Audit and Risk Management Committee, a Remuneration Committee and a Nomination Committee, each with formally delegated duties and responsibilities and written terms of reference as summarised below. In addition, separate committees may be established by the Board to consider specific issues as and when the need arises.
Audit and Risk Management Committee The Audit and Risk Management Committee is chaired by Clive Birch and its other members are Dipti Amin (since 1 November 2017) and Edward Benthall. The Committee meets formally at least twice a year and otherwise as required. It is responsible for ensuring that the financial performance of the Company is properly reported on and reviewed and its role includes monitoring the integrity of the financial statements of the Company, reviewing internal control and risk management systems, reviewing any changes to accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by external auditors and advising on the appointment of external auditors.
Nomination Committee The Nomination Committee comprises Edward Benthall (chair of the Committee), Ian Leslie (from 1 April 2018) and Mike Muller. Duncan Maskell was a member of the Committee until his resignation as a Director on 31 March 2018. The Committee is expected to meet when appropriate, but at least once a year, to consider the structure, size and composition of the Board, retirements and appointments of additional and replacement Directors and make appropriate recommendations to the Board.
Remuneration Committee The Remuneration Committee is chaired by Humphrey Battcock (from 14 September 2017) and its other members are Clive Birch and Adam Glinsman. Prior to 14 September 2017 Clive Birch was chair of the Committee and its other members were Adam Glinsman and Edward Benthall. The Committee is expected to meet not less than twice a year and at such other times as required. It is responsible for determining, within the agreed terms of reference, the Company’s policy on the remuneration packages of the Company’s Chief Executive Officer, Chairman, and the Executive Directors, the company secretary, senior managers and such other members of the executive management as it is designated to consider.
GOVERNANCE
FINANCIAL STATEMENTS
The Committee also has the responsibility for determining, within the terms of the Company’s policy and in consultation with the Chairman of the Board and/or the Chief Executive Officer, the total individual remuneration package for each Executive Director, the company secretary and other designated senior executives and such other members of the executive management as it is designated to consider (including bonuses, incentive payments and share options or other share awards). The remuneration of Non-executive Directors is a matter for the Chairman and Executive Directors of the Board. No Director or manager is allowed to partake in any discussions as to their own remuneration.
Internal control The Board is responsible for establishing and monitoring internal control systems and for reviewing the effectiveness of these systems. The Board views the effective operation of a rigorous system of internal control as critical to the success of the Group. It recognises that such systems can provide only reasonable and not absolute assurance against material misstatement or loss. The key elements of the Group’s internal control system, all of which have been in place during the financial year and up to the date of these financial statements were approved, are summarised below. In addition, the Group’s financial risk management objectives and policies and exposure to market, liquidity and credit risk are provided in note19 to the consolidated financial statements.
Control environment and procedures The Group has a clear operational structure with defined responsibilities and accountabilities and expects its employees to adopt the highest values surrounding quality, integrity and ethics. The Group has detailed written policies and procedures in place, including a formal whistleblowing policy, which has been communicated to employees, that sets out the process to follow if an employee feels that it is appropriate to make a disclosure.
Identification and evaluation of principal risks and uncertainties The operations of the Group and the implementation of its strategy and objectives are subject to a number of key risks and uncertainties as set out on pages 28 to 31. The Board ensures that appropriate controls and procedures are in place to monitor and, where possible, mitigate these risks and formally reviews them at least once a year. The Board reviews the Group’s interests in its portfolio companies on a quarterly basis, although the performance of specific portfolio companies may be reviewed more frequently if there are likely to be any strategic, financial or reputational implications.
Information and financial reporting systems The Group has systems and controls in place to ensure adequate accounting records are maintained and transactions are recorded accurately and fairly to permit the preparation of the financial statements in accordance with IFRS. The Board approves the Group’s annual budget each year and reviews the actual performance in comparison to the budget as presented in the management accounts each month.
Internal audit The Group does not maintain a separate internal audit function due to the size of the Group and the fact that the Executive Directors exercise close control over operations. Notwithstanding the above, the Audit Committee considers the need for an internal audit function each year.
27 www.cicplc.co.uk
GOVERNANCE
Corporate governance and risk management framework Summary of principal risks, potential impact and mitigation A summary of the principal risks affecting the Group and the steps taken to manage each risk is set out below.
RISK AND TREND
1
I f the Group ceases to invest in opportunities arising from the University of Cambridge or the Cambridge Cluster, the University may terminate its relationship with the Group.
TREND:
2
The Group may overestimate or underestimate the opportunity and/or future potential of a portfolio company
DESCRIPTION
IMPACT
MITIGATION
The Group may not be aware of potential opportunities because of an ineffective working relationship with the University of Cambridge, Cambridge Enterprise or the Cambridge Cluster
The quality and quantity of opportunities may diminish which would have an adverse effect on the value and long-term growth prospects of the Group
The Group has a Memorandum of Agreement with Cambridge Enterprise, the commercialisation arm of the University, which describes the Group’s rights of access to University of Cambridge spin-outs and its working relationship with Cambridge Enterprise
The Group may not be included in funding rounds because the academics, entrepreneurs and companies concerned may choose to accept funding from third parties
The University and Cluster may not generate opportunities that are sufficiently attractive to warrant investment
The Group’s assessment of an opportunity may not accurately reflect the actual value or eventual outcome of the opportunity
KPIs
Read more on page 13
SECURE AND SUSTAIN A STRONG PIPELINE OF OPPORTUNITIES
NUMBER OF PORTFOLIO COMPANIES
CONSTRUCT A DIVERSIFIED PORTFOLIO OF PROMISING BUSINESSES
TOTAL VALUE OF PORTFOLIO
CAPITAL INVESTED IN THE YEAR
The University of Cambridge is represented on the Group’s Board and Advisory Panel and the Group’s office is co-located with Cambridge Enterprise. In addition, every employee works, lives and socialises in the Cambridge Cluster amongst the resident academics and entrepreneurs
Competition for opportunities may increase, thus reducing the number of attractive opportunities available
The Group may not identify and acquire appropriate investments
OBJECTIVES
Read more on page 12
The Group’s Board, Advisory Panel and employees are actively engaged in sourcing new opportunities from key organisations and contacts within the Cambridge Cluster The Group may pass on credible investment opportunities and portfolio companies may not generate a return, both of which would have an adverse effect on the value and long-term growth prospects of the Group
The Group’s Board, employees and Advisory Panel have significant experience in evaluating opportunities and the commitment of financial and other resources is subject to a rigorous due diligence and approval process
TREND:
28 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
NUMBER OF PORTFOLIO COMPANIES
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
RISK AND TREND
3
The Group’s portfolio companies may not fulfil their potential
TREND:
IMPACT
MITIGATION
There is no guarantee that intellectual property protection is obtained, or effectively enforced, by portfolio companies
The Group’s portfolio companies may not flourish as anticipated, and indeed may fail, which would have an adverse impact on the value and long-term growth prospects of the Group
The Group’s Board, employees and Advisory Panel have significant experience in developing and growing early-stage technology companies to significant value
Under-performance and failure of portfolio companies may make it more difficult for the portfolio company to secure additional capital
The Group usually requires, as a condition of its support, representation on the board of a portfolio company to help identify and resolve critical issues promptly
The technology and intellectual property held by portfolio companies may be rendered obsolete by, for example: ●●
other technological advances;
●●
competing products;
●●
changes in market/ demand; and/or
●●
evolving industry standards
TREND:
There is no guarantee that the investments that the Group has made will generate gains or income for the Group The Group typically holds minority stakes so may not be able to exercise its influence over portfolio companies, including in the sale or transfer of its holding in that portfolio company The Group may not be able to realise value from its portfolio companies for a number of years
NO RISK MOVEMENT
OBJECTIVES
RISK DECREASING
KPIs
Read more on page 12
Read more on page 13
ACTIVELY NURTURE PORTFOLIO COMPANIES TO HELP THEM FLOURISH
GROWTH IN NET ASSETS
CULTIVATE AND HARVEST PORTFOLIO COMPANIES FOR VALUE
FAIR VALUE OF CHANGES IN THE YEAR
CULTIVATE AND HARVEST PORTFOLIO COMPANIES FOR VALUE
GROWTH IN NET ASSETS
CAPITAL INVESTED IN THE YEAR
The Group has a significant cash balance which it deploys diligently to help minimise the Group’s exposure to loss and has commenced the process to raise additional funds The Group maintains close relationships with a variety of strategic and financial syndicate partners-investors that focus on differing stages of development and horizon periods
Portfolio companies may not be able to attract sufficient additional capital to achieve their business objectives
The Group may not be able to realise value from its portfolio companies
DESCRIPTION
Portfolio companies may fail to bring products to market on a timely basis and in line with market requirements and expectations
4
RISK INCREASING
KEY:
Portfolio companies may not develop and mature in line with the Group’s expectations The Group may be forced to exit from a portfolio company, may be unable to realise value from a portfolio company or may suffer dilution of its interest in a portfolio company, all of which may have an adverse impact on the value and long-term growth prospects of the Group
The Group usually requires, as a condition of its support, representation on the board of a portfolio company to help identify and resolve critical issues promptly and, when appropriate, to encourage and support realisations
NET ASSETS PER SHARE REALISATIONS
29 www.cicplc.co.uk
GOVERNANCE
Corporate governance and risk management framework
RISK AND TREND
5
The Group’s ability to achieve its objectives is dependent on attracting and retaining key personnel within the Group and its portfolio companies
DESCRIPTION
IMPACT
MITIGATION
The ability to attract and retain key individuals is often critical to successful commercialisation of intellectual property
A loss of key personnel or a delay in recruiting or an inability to recruit and integrate a suitable replacement may have an adverse impact on the value and long-term growth prospects of the Group
The Group compares executive and staff remuneration of its, and its portfolio companies, to relevant peer groups
Key personnel, including the founders, may leave a portfolio company if, for example, they are not incentivised appropriately Portfolio companies may not have the financial resources to offer competitively attractive salaries and other incentivisation packages
The Group seeks, and encourages its portfolio companies to seek, to offer balanced incentive packages comprising an appropriate mix of salary, benefits and performance based incentives The Group encourages staff development through internal coaching and external training and performs regular objective setting and appraisal
OBJECTIVES
KPIs
Read more on page 12
Read more on page 13
SECURE AND SUSTAIN A STRONG PIPELINE OF OPPORTUNITIES CONSTRUCT A DIVERSIFIED PORTFOLIO OF PROMISING BUSINESSES ACTIVELY NURTURE PORTFOLIO COMPANIES TO HELP THEM FLOURISH CULTIVATE AND HARVEST PORTFOLIO COMPANIES FOR VALUE
GROWTH IN NET ASSETS TOTAL VALUE OF PORTFOLIO CAPITAL INVESTED IN THE YEAR
CONSTRUCT A DIVERSIFIED PORTFOLIO OF PROMISING BUSINESSES ACTIVELY NURTURE PORTFOLIO COMPANIES TO HELP THEM FLOURISH
NET ASSETS TOTAL VALUE OF PORTFOLIO CAPITAL INVESTED IN THE YEAR
TREND:
6
The Group has limited capital and is exposed to portfolio and liquidity risk
TREND: The Group’s cash and short term deposits have decreased by £35 million during the year
The Group will need additional capital to fund the development and scaleup of portfolio companies to allow them to fulfil their potential A significant proportion of the overall value of the Group may reside within a small proportion of the Group’s portfolio companies at any one time The Group may not manage its liquidity requirements sufficiently
The failure of portfolio companies may make it more difficult for the Group to raise additional capital The Group’s interest in portfolio companies may be diluted due to its inability to participate in funding rounds The Group’s overall performance may become overly dependent on a small number of portfolio companies Liquid funds may not be available as and when required to support portfolio companies
The Group has a significant cash balance that it can deploy in attractive portfolio companies and has commenced the process to raise additional funds The aggregate commitment to any portfolio company is limited to a percentage of net assets at the time of deploying, or committing to deploy, additional capital. In addition, the Group considers portfolio risk when considering new opportunities The Group has a Treasury Policy that is periodically reviewed to ensure that it is fit for purpose The Group monitors the future funding requirements of its portfolio companies and the aggregate requirement helps to determine the Group’s funding strategy
30 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
RISK AND TREND
7
Changes in legislation, government policy and economic environment, including but not limited to the impact of Brexit, may have an adverse effect on the Group and its portfolio companies
RISK INCREASING
DESCRIPTION
IMPACT
MITIGATION
Such changes may impact:
The quality and quantity of opportunities may diminish and the Group’s portfolio companies may not flourish as anticipated, and indeed may fail, each of which would have an adverse impact on the value and long-term growth prospects of the Group
The Group utilises professional advisers as appropriate to support its monitoring of, and response to, capital market conditions and legislative changes
●●
Cambridge Enterprise and/or the University of Cambridge directly;
●●
the quantum of research funding made available to research institutions which may impact on the quality and quantity of their research output;
●●
the resources available to generate intellectual property and commercial opportunities;
●●
the availability of tax credits and other incentives for research and development;
●●
the terms on which monies are provided to generate intellectual property; and
●●
the way in which intellectual property can be commercialised
TREND:
The success of those portfolio companies which require significant capital may be influenced by the market’s appetite for supporting early-stage companies A downturn in the UK’s economic health may have an adverse effect on trading environment of, and availability of capital for, portfolio companies
The Group prepares an annual budget, which is reviewed and revised six months into the year, and monitors actual performance against these budgets The Group monitors the future funding requirements, trading performance and development progress of its portfolio companies
NO RISK MOVEMENT
OBJECTIVES
KEY: RISK DECREASING
KPIs
Read more on page 12
Read more on page 13
SECURE AND SUSTAIN A STRONG PIPELINE OF OPPORTUNITIES CONSTRUCT A DIVERSIFIED PORTFOLIO OF PROMISING BUSINESSES ACTIVELY NURTURE PORTFOLIO COMPANIES TO HELP THEM FLOURISH CULTIVATE AND HARVEST PORTFOLIO COMPANIES FOR VALUE
NET ASSETS TOTAL VALUE OF PORTFOLIO CAPITAL INVESTED IN THE YEAR NUMBER OF PORTFOLIO COMPANIES
31 www.cicplc.co.uk
GOVERNANCE
Board of Directors
Edward Benthall NON-EXECUTIVE CHAIRMAN
A
N
Edward has been involved with CIC since its inception. He was Chairman of Cambridge Enterprise Limited, the University of Cambridge’s commercialisation arm, between 2010 and 2014. Before that he was Chairman of the Campaign Council for the University’s 800th Anniversary Campaign. Until April 2012, Edward was a Partner of Charterhouse Capital Partners, a leading UK private equity firm. During his tenure, Charterhouse raised six funds totalling around €13 billion and realised over 40 investments, achieving a gross internal rate of return of more than 40%. Edward is a Chartered Accountant and a graduate of Magdalene College, University of Cambridge.
Victor Christou CHIEF EXECUTIVE OFFICER Victor has considerable experience as both an entrepreneur and an investor. Immediately prior to CIC, Victor was at panEuropean venture capital investors Wellington Partners, where he was a Venture Partner in the Tech Team. Before that he founded Opsys, an organic electronics business focusing on OLEDs which was sold to Cambridge Display Technology, Inc. Victor has a BSc and PhD in Chemistry from Imperial College, London and was a Sloan Fellow in the Graduate School of Business at Stanford University. In the early stages of his career, he conducted postdoctoral research at the University of California at Berkeley and then at the University of Oxford. Victor is a Chartered Fellow of the Chartered Institute for Securities & Investment, a Chartered Chemist and a Member of the Royal Society of Chemistry.
Rob Sprawson CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY Rob has more than 25 years of professional and commercial experience providing strategic, financial and corporate finance advice to boards and shareholders of both private and publicly quoted companies, especially in the pharmaceutical, biotechnology, technology and technology consulting industries in the Cambridge Cluster and further afield. His previous roles have included being Chief Financial Officer of an ophthalmic specialty pharmaceutical company, a molecular diagnostic company and of Warwick Ventures Limited, the commercialisation arm of the University of Warwick, having worked for ten years in Corporate Finance at PricewaterhouseCoopers. Rob is a Fellow of the Institute of Chartered Accountants in England and Wales and holds a BA (Hons) in Accounting and Financial Analysis from Newcastle University.
Dipti Amin INDEPENDENT NON-EXECUTIVE DIRECTOR
A
Dipti is currently a director at Maaya Associates Limited. Previously she was Senior Vice President and Chief Compliance Officer at Quintiles Transnational (recently rebranded as IQVIA). Over the last 25 years Dipti has held positions of operational and strategic responsibility within Pharmaceutical Services at the C-suite and board level, delivering consistently on growth, quality, customer, employee and process targets in businesses of £50-£500 million. Her broad and significant experience covers clinical pharmacology, as a Principal Investigator in Phase I clinical pharmacology studies, ethical issues in clinical research, drug development, ethics and compliance programmes as well as leadership and management of large, multi-functional, multi-geography groups.
Humphrey Battcock INDEPENDENT NON-EXECUTIVE DIRECTOR Humphrey was previously co-head of Europe and on the executive committee of Advent International which he joined in 1994. Advent International is one of the world’s leading private equity firms with operations in ten countries. During his tenure, the firm increased its assets under management from £200 million to £30 billion. Prior to Advent, Humphrey was at Trinity Capital Partners, a UK-focused, technology venture capital firm. Humphrey is a chartered accountant, with an MBA from London Business School and a Physics degree from Cambridge University. Humphrey is also a member of the Cambridge University Campaign Board and the Downing College Investment Committee and is a trustee of the Woodland Trust and the Institute for Research in Schools.
32 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
R
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
KEY:
A
AUDIT AND RISK MANAGEMENT COMMITTEE
N
NOMINATION COMMITTEE
Clive Birch INDEPENDENT NON-EXECUTIVE DIRECTOR
R
REMUNERATION COMMITTEE CHAIRMAN
A
R
Clive Birch is a retired PricewaterhouseCoopers partner. Clive’s role at PricewaterhouseCoopers was that of an auditor and reporting accountant and his industry specialism was in early stage technology and healthcare companies. He was also partner in charge of the Cambridge office for 15 years up to 2010, during which time he was responsible for all aspects of that stand-alone business. The majority of Clive’s clients were technology and healthcare companies and, as the partner responsible for them, he not only looked after their audit needs but also helped them deal with the rigours of setting up systems and processes, dealing with outside stakeholders and corporate governance. He was also part of the teams involved in fundraising and listing those clients on various markets. Clive is a Governor of Birkbeck College, part of London University, and is Chairman of Pigeon Land Limited and Pigeon Land 2 Limited.
Adam Glinsman
R
INDEPENDENT NON-EXECUTIVE DIRECTOR
Adam is Co-Head of GAM Systematic and focuses on the management and evolution of all non-investment aspects of the business. He was CEO of Cantab Capital Partners, which was acquired by GAM in October 2016. Before joining Cantab, Adam was COO and a Partner of Lansdowne Partners between 2003 and 2009, having previously held a variety of senior roles in the equity capital markets. Adam holds a BSc (Econ) with First Class Honours from the London School of Economics and an MPhil in International Relations from the University of Cambridge.
Mike Muller
INDEPENDENT NON-EXECUTIVE DIRECTOR
N
Mike Muller was appointed chief technology officer of ARM in October 2000 and joined the board of directors in 2001. Mike was one of the founding members of ARM and has extensive knowledge within marketing and business development, having worked as vice president for both divisions of ARM. Before joining ARM, he worked for Orbis Computers and had responsibility for hardware strategy and development of portable products at Acorn Computers.
Ian Leslie
NON-EXECUTIVE DIRECTOR
N
Ian Leslie is Director of Information Services at the University of Cambridge. He was previously Professor of Computer Science at the University’s Computer Laboratory with interests in operating systems, distributed systems and networks. Ian was also formerly Head of the Computer Laboratory and Pro-Vice-Chancellor for Research for the University, with responsibility for coordinating research policy, providing academic oversight of grants and contracts and interacting with both industrial sponsors and the UK Government. Ian is a Fellow of Christ’s College.
Andy Neely
NON-EXECUTIVE DIRECTOR
Andy Neely is Pro-Vice-Chancellor: Enterprise and Business Relations at the University of Cambridge and former Head of the Institute for Manufacturing (IfM) and of the Manufacturing and Management Division of Cambridge University Engineering Department. He is a Fellow of Sidney Sussex College and founding director of the Cambridge Service Alliance. Previously he was a Fellow of Churchill College and has held appointments at Cranfield University, London Business School, Nottingham University and British Aerospace. He was also Deputy Director of AIM Research, the UK’s management research initiative, from 2003 until 2012.
33 www.cicplc.co.uk
GOVERNANCE
Directors’ report
Report of the Directors The Directors present their report together with the audited financial statements for the year ended 31 March 2018. The objectives and future developments of the Company are addressed within the Strategic Report.
Corporate governance and risk management framework Information on the Group’s corporate governance and risk management framework is provided on pages 26 to 31.
Results and dividends During the year, the Group made a profit after tax for the year ended 31 March 2018 of £17.30 million (2017: loss of £0.04 million). The Directors do not recommend the payment of a dividend (2017: £nil).
Directors The Directors who served during the year and up to the date of signing the financial statements were as follows: Edward Benthall
Non-executive Chairman
Victor Christou
Chief Executive Officer
Rob Sprawson
Chief Financial Officer and Company Secretary
Dipti Amin
Independent Non-executive Director
Appointed 1 November 2017 Appointed 25 July 2017
Humphrey Battcock
Independent Non-executive Director
Clive Birch
Independent Non-executive Director
Adam Glinsman
Independent Non-executive Director
Mike Muller
Independent Non-executive Director
Ian Leslie
Non-executive Director
Duncan Maskell
Non-executive Director
Resigned 31 March 2018
Andy Neely
Non-executive Director
Appointed 1 April 2018
Directors’ emoluments Directors’ emoluments are disclosed in note 7 to the consolidated financial statements.
Directors’ interests in shares The Directors who held office during the year ended 31 March 2018 had the following beneficial interests in the ordinary shares of the Company: At 31 March 2018
At 31 March 2017
Number of ordinary shares
% of issued share capital
Number of ordinary shares
% of issued share capital
Edward Benthall
361,250
0.22%
361,250
0.22%
Adam Glinsman
168,750
0.10%
168,750
0.10%
The Directors who held office during the year ended 31 March 2018 had the following beneficial interests in options over the ordinary shares of the Company: Granted during the year
At 31 March 2018
Exercise price (pence)
1,435,709
–
1,435,709
0.17
–
51,650
51,650
0.01
29,228
–
29,228
0.17
–
18,018
18,018
0.01
At 31 March 2017
Victor Christou
Rob Sprawson
34 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Directors’ indemnities
Political donations
As detailed in the Company’s Articles of Association, indemnities are in force between the Company and each of its Directors under which the Company has agreed to indemnify each Director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out his/her duties as a Director of the Company. The Company has Directors’ and Officers’ Liability Insurance and it is the intention to maintain such a policy in the future.
The Group did not make any political donations during the year (2017: £nil).
Substantial shareholders As at 22 June 2018, the Company had the following shareholders with interests of 3% or more in its ordinary share capital. The ordinary shares carry equal voting rights, equal rights to income and distributions of assets on liquidation, or otherwise, and no right to fixed income. Other than as shown below, so far as the Company and its Directors are aware, no other person holds or is beneficially interested in a disclosable interest in the Company. Shareholder
%
Cambridge University as trustee of the Cambridge University Endowment Fund
20.0
The Chancellor, Masters and Scholars of the University of Cambridge
13.5
Lansdowne Partners
13.5
Legal & General
7.5
Oman Investment Fund
7.5
Woodford Investment Management
7.5
Lisbet Rausing
6.7
Invesco
6.0
IP Group
5.0
ARM
3.1
Post balance sheet events Material events occurring since the balance sheet date are disclosed in the Strategic Report and in note 21 to the consolidated financial statements.
Disclosure of information to the independent auditors In accordance with Section 418 of the Companies Act 2006, each Director in office at the date the Directors’ report is approved confirms that: ●●
so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
●●
he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
Appointment of auditors A resolution to reappoint PricewaterhouseCoopers LLP, together with a resolution to authorise the Directors to determine their remuneration, will be proposed at the forthcoming Annual General Meeting.
Going concern The Group’s cash and short term deposits are sufficient to meet existing commitments to new and existing portfolio companies and the operational needs of the Group for at least a year from the date of approval of the financial statements. The Directors have commenced the process to raise additional funds and are confident that funds will be secured to support the growth of the business and for investment in portfolio companies. Given the above, the Directors confirm that they have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future and accordingly they continue to adopt the going concern basis in preparing the financial statements. Approved by the Board of Directors and signed on its behalf by
Edward Benthall CHAIRMAN
22 June 2018
35 www.cicplc.co.uk
GOVERNANCE
Statement of Directors’ responsibilities IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to: ●●
select suitable accounting policies and then apply them consistently;
●●
state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;
●●
make judgements and accounting estimates that are reasonable and prudent; and
●●
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. In the case of each Director in office at the date the Directors’ Report is approved: ●●
so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and
●●
they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information.
Approved by the Board of Directors and signed on its behalf by
Edward Benthall CHAIRMAN
22 June 2018
36 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Independent auditors’ report
TO THE MEMBERS OF CAMBRIDGE INNOVATION CAPITAL PLC
Report on the audit of the financial statements
Reporting on other information
Opinion
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In our opinion: ●●
Cambridge Innovation Capital plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2018 and of the Group’s profit and cash flows for the year then ended;
●●
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union;
●●
the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law); and
●●
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the consolidated statement of financial position and the Company balance sheet as at 31 March 2018; the consolidated statement of comprehensive income, the consolidated statement of cash flows, and the consolidated and Company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Basis for opinion
Strategic Report and Directors’ Report
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: ●●
the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
●●
the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 March 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements set out on page 36, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
37 www.cicplc.co.uk
FINANCIAL STATEMENTS
Independent auditors’ report
TO THE MEMBERS OF CAMBRIDGE INNOVATION CAPITAL PLC
Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: ●●
we have not received all the information and explanations we require for our audit; or
●●
adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
●●
certain disclosures of Directors’ remuneration specified by law are not made; or
●●
the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Simon Ormiston (SENIOR STATUTORY AUDITOR)
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Cambridge 22 June 2018
38 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Consolidated statement of comprehensive income FOR THE YEAR ENDED 31 MARCH 2018
At 31 March 2018 £
2017 £
Fair value changes in investments
19,798,701
4,444,183
Administrative expenses
(2,895,567)
(4,855,719)
Note
Other operating income Operating profit/(loss)
6
Finance income
9
Profit/(loss) on ordinary activities before taxation Tax on profit/(loss) on ordinary activities
10
50,233
55,104
16,953,367
(356,432)
360,342
317,864
17,313,709
(38,568)
(10,877)
–
17,302,832
(38,568)
Basic
0.105
(0.000)
Diluted
0.103
(0.000)
Profit/(loss) and total comprehensive income/(expense) for the year attributable to the equity holders Profit/(loss) per share
11
All activities derive from continuing operations. The notes on pages 43 to 55 are an integral part of these financial statements.
39 www.cicplc.co.uk
FINANCIAL STATEMENTS
Consolidated statement of financial position AS AT 31 MARCH 2018
At 31 March Note
2018 ÂŁ
2017 ÂŁ
Property, plant and equipment
12
79,039
120,996
Investments
13
110,708,908
58,163,591
110,787,947
58,284,587
Assets Non-current assets
Current assets Trade and other receivables
14
Short-term deposits Cash and cash equivalents
Total assets
849,167
165,157
1,400,000
11,400,000
32,285,169
57,518,607
34,534,336
69,083,764
145,322,283
127,368,351
Liabilities Current liabilities Trade and other payables
15
Net assets
(1,329,248)
(707,110)
143,993,035
126,661,241
50,009,375
50,009,375
57,200
57,200
Equity Issued share capital Share premium account
17
3,369,044
3,340,082
Capital reserve
28,297,128
8,498,427
Retained earnings
62,260,288
64,756,157
143,993,035
126,661,241
Share based payment reserve
Total equity The notes on pages 43 to 55 are an integral part of these financial statements.
The consolidated financial statements on pages 39 to 55 of Cambridge Innovation Capital plc, registered number 08243718, were authorised for issue by the Board of Directors on 22 June 2018 and were signed on its behalf by
Rob Sprawson CHIEF FINANCIAL OFFICER
40 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Consolidated statement of changes in equity AS AT 31 MARCH 2018
Note
At 1 April 2016 Loss for the year and total comprehensive expense Fair value changes in investments
13
Issued share capital £
Share premium account £
Share based payment reserve £
Capital reserve £
50,000,000
57,200
891,283
4,054,244
–
–
–
–
–
–
(Accumulated losses) / retained profit £
Total equity £
(3,916,921)
51,085,806
–
(38,568)
(38,568)
4,444,183
(4,444,183)
–
Transactions with owners Share capital issued (net of expenses) Share premium account reduction Share based payments
8
At 31 March 2017 Profit for the year and total comprehensive income Fair value changes in investments
13
9,375
73,155,829
–
–
–
73,165,204
–
(73,155,829)
–
–
73,155,829
–
–
–
2,448,799
–
–
2,448,799
50,009,375
57,200
3,340,082
8,498,427
64,756,157
126,661,241
–
–
–
–
17,302,832
17,302,832
–
–
–
19,798,701
(19,798,701)
–
–
28,962
Transactions with owners Share based payments At 31 March 2018
8
–
–
28,962
–
50,009,375
57,200
3,369,044
28,297,128
62,260,288 143,993,035
The notes on pages 43 to 55 are an integral part of these financial statements.
41 www.cicplc.co.uk
FINANCIAL STATEMENTS
Consolidated statement of cash flows FOR THE YEAR ENDED 31 MARCH 2018
At 31 March Note
2018 £
2017 £
Cash flows from operating activities 16,953,367
Operating profit/(loss) Adjustments for: Fair value changes in investments Share based payments Depreciation
13 8 12
(Increase)/decrease in trade and other receivables
(19,798,701) 28,962
2,448,799
43,194
35,261
(647,889)
24,762
622,138
Increase/(decrease) in trade and other payables Cash used in operating activities Income tax paid Net cash used in operations
(356,432) (4,444,183)
( 83,732)
(2,798,929)
(2,375,525)
(10,877)
–
(2,809,806)
(2,375,525)
Cash flows from investing activities Purchase of property, plant and equipment
12
(1,237)
(92,776)
Purchase of investments
13
(32,746,616)
(28,998,409)
10,000,000
5,205,007
324,221
294,239
Movement in short-term deposits Treasury investment returns and interest received Net cash used in investing activities
(22,423,632)
(23,591,939)
Cash flows from financing activities Net proceeds from issue of ordinary shares
–
73,165,204
Net cash generated from financing activities
–
73,165,204
(25,233,438)
47,197,740
Cash and cash equivalents at beginning of the year
57,518,607
10,320,867
Cash and cash equivalents at end of the year
32,285,169
57,518,607
Net change in cash and cash equivalents
The notes on pages 43 to 55 are an integral part of these financial statements.
42 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
1 GENERAL INFORMATION
Segmental reporting
Cambridge Innovation Capital plc is incorporated and domiciled in the UK, the address of its registered office being Hauser Forum, 3 Charles Babbage Road, Cambridge, CB3 0GT. Cambridge Innovation Capital plc and its wholly owned subsidiary, Cambridge Innovation Capital (Jersey) Limited, form “the Group” and the Group’s consolidated financial statements presented herein are in sterling. The Group supports rapidly growing intellectual property rich companies based in and around Cambridge and/or with a connection to the University of Cambridge.
The Chief Operating Decision Maker has been identified as the Company’s Board of Directors. The Board is of the opinion that the Group operates one operating segment, that of investing in technology and healthcare businesses. The Board assesses the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial statements. All of the assets of the Group are related to that operating segment and are held in either the UK or Jersey, a British Crown dependency.
2 BASIS OF PREPARATION
Property, plant and equipment
The Group’s cash and short term deposits are sufficient to meet existing commitments to new and existing portfolio companies and the operational needs of the Group for at least a year from the date of approval of the financial statements. The Directors have commenced the process to raise additional funds and are confident that funds will be secured to support the growth of the business and for investment in portfolio companies.
Property, plant and equipment is stated at cost (or deemed cost) less accumulated depreciation and accumulated impairment losses. Cost includes the original purchase price and costs directly attributable to bringing the asset to its working condition for its intended use.
Given the above, the financial statements have been prepared: ●●
●●
Depreciation on assets is calculated, using the straight-line method, to allocate the cost to their residual values over their estimated useful lives, as follows:
on a going concern basis and under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities at fair value through the income statement as required by International Accounting Standard (“IAS”) 39 “Financial Instruments: Recognition and Measurement”; and
●●
leasehold improvements, 5 years;
●●
furniture and equipment, 3 years; and
●●
computer equipment, 3 years.
in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”), interpretations of the IFRS Interpretations Committee (formerly the IFRIC) and the Companies Act 2006 applicable to companies reporting under IFRS.
The Group classifies all its equity investments which are not subsidiaries as financial assets at fair value through profit or loss. These financial assets are initially recognised at fair value, which is normally the transaction price, and subsequently carried at fair value with any changes in fair value recognised in profit or loss in the period in which they arise.
The principal accounting policies adopted in the preparation of these financial statements have been consistently applied to all the years presented, unless otherwise stated. The preparation of the financial statements in conformity with IFRS as endorsed by the EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 4. The following new standards have not been applied in these financial statements: ●●
IFRS 9, “Financial Instruments”, effective 1 January 2018;
●●
IFRS 15, “Revenue from Contracts with Customers”, effective 1 January 2018; and
●●
IFRS 16, “Leases”, effective 1 January 2019.
The Directors do not anticipate that the adoption of these standards, where relevant, in future years will have a material impact on the Group’s financial statements.
3 SIGNIFICANT ACCOUNTING POLICIES
Investments
The Group measures the fair value of its equity investments in line with International Private Equity and Venture Capital (“IPEV”) Valuation Guidelines. Given that the Group’s investments are in unquoted companies, where there are often no current earnings, no short-term future earnings or positive cash flows, it is often difficult to make reliable cash flow forecasts. In such circumstances, the IPEV valuation methodology used most commonly is the “price of recent investment” approach and this is the de facto starting position for any fair value estimate made by the Group. Using this approach, the Group considers that fair value estimates based entirely on observable market data are of greater reliability than those based on assumptions. Accordingly, where there has been a recent investment by a third party, the price of that investment will generally provide the basis of the valuation, subject to adjustment for any subsequent milestones or impairments. 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 industry and sector analysis. When appropriate, the Group may consider the use of external advisers to assess the reasonableness of any change in fair value estimated by the Group.
Basis of consolidation The consolidated financial statements include the financial information of the Company and its subsidiary undertaking. The financial information of the subsidiary undertaking is prepared for the same reporting period as the Company, using consistent accounting policies. Subsidiary undertakings are consolidated from the date on which control is transferred to the Group and would cease to be consolidated from the date on which control is transferred out of the Group. Intra-group transactions, profits and balances are eliminated in full on consolidation. 43 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
The following factors are considered in the assessment of the fair value of any investment: ●●
where the investment was made recently, its cost will generally provide the basis of fair value. The length of period for which it remains appropriate to use the price of a recent investment depends on the specific circumstances of the investment and the stability of the external environment;
●●
the price of any recent third party investment; and
●●
where the equity structure of a portfolio company involves different class rights in a sale or liquidity event, the Group takes these rights into account when forming a view of the value of its investment.
At each measurement date, or if the Group considers that there is a reason to believe that the fair value might have changed between measurement dates, an assessment is made of the required adjustment to the fair value estimate of the investment. Wherever possible, the adjustment is based on objective data from the company in which the investment was made. When 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 investment, as well as taking into consideration key market drivers for the investee company and the overall economic environment. Where deterioration in value is assessed to have occurred, the Group reduces the carrying value of the investment to reflect the estimated decrease. In these circumstances, the fair value of the investment is reduced by 25%, 50%, 75% or 100%, as judged appropriate by the Group. If there is evidence of positive developments and value creation unrelated to recent investments, the Group may increase the fair value estimate of the investment. However, it is often difficult to determine the specific value attributable to those positive developments and the costs and risks associated with realising that value. Factors which the Group considers in its assessment of the fair value of an investment include, inter alia: technical measures such as product development phases and patent approvals; financial measures such as changes in the rate of cash consumption; changes in profitability expectations; and market and sales measures such as product development phases, market launches and geographic expansions.
Trade and other receivables Trade and other receivables are classified as loans and receivables and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the consolidated statement of comprehensive income.
Short-term deposits Short-term deposits represent bank deposits with an original maturity of over three months.
Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities, unless required to be categorised as at fair value through profit or loss, are recorded initially at fair value and subsequently at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the consolidated statement of comprehensive income. A financial liability is derecognised only when the obligation is extinguished.
Share based payments The Group operates an equity-settled, share based payment compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Company. The fair value of the employee service received in exchange for the grant of the options is recognised as an expense over the vesting period. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At each reporting date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the consolidated statement of comprehensive income, with a corresponding adjustment to equity. The social security contributions payable in connection with the grant of options is considered an integral part of the grant itself, and the charge is treated as a cash-settled transaction. The fair value of cash-settled transactions is measured at each balance sheet date and is recognised as an expense over the vesting period.
Pension costs The Group makes payments for each employee to a defined contribution scheme or a scheme of their choice. The assets of the defined contribution scheme are held separately from the Group in independently administered funds. Contributions made by the Group are charged to the consolidated statement of comprehensive income in the period to which they relate.
Operating leases Operating lease payments are expensed in the consolidated statement of comprehensive income on a straight-line basis over the period of the lease.
Taxation Taxation expense comprises current and deferred tax recognised in the reporting period. Tax is recognised in the profit and loss account, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case tax is also recognised in other comprehensive income or directly in equity respectively. Current or deferred taxation assets and liabilities are not discounted. Current tax Current tax is the amount of income tax payable in respect of the taxable profit for the period or prior periods. Tax is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the period end.
Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.
44 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
Deferred tax
Equity
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Equity comprises the following:
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
FINANCIAL STATEMENTS
●●
share capital represents the nominal value of equity shares;
●●
share premium represents the excess over nominal value of the fair value of consideration received for equity;
●●
share based payment reserve represents equity-settled share based remuneration until such instruments are exercised;
●●
capital reserve represents fair value gains and losses on investments which are initially recorded through the statement of comprehensive income but are transferred to the capital reserve to track the cumulative gains and losses; and
●●
retained profit/(accumulated losses) represents retained profits/ (accumulated losses).
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy, accounting estimate or assumption to be followed could materially affect the reported results or the net asset position of the Group. Management considers that certain accounting estimates and assumptions relating to the valuation of investments are critical accounting estimates. The treatment of equity investments has been detailed above.
5 SEGMENTAL REPORTING The Group’s property, plant and equipment (note 12) and investments (note 13) are held in the UK and Jersey, respectively. The Group’s short-term deposits and cash and cash equivalents are held in Jersey except for £2,003,653 (2017: £1,903,091) which is held in the UK.
6 OPERATING PROFIT/(LOSS) At 31 March 2018 £
2017 £
43,194
35,261
(50,233)
(55,104)
18,350
15,000
Operating profit/(loss) is stated after charging/(crediting): Depreciation Other operating income Services provided by the Group’s auditors Fees payable to the Group’s auditors and their associates for the audit of the Company and the consolidated financial information Fees payable to the Group’s auditors for other services Tax compliance services Other assurance services Other services
6,000
4,225
–
25,000
10,000
14,450
34,350
58,675
During the year ended 31 March 2018, fees payable to the Group’s auditors of £nil (2017: £25,000) were charged to the share premium account.
45 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
7 EMPLOYEES AND DIRECTORS The average monthly number of persons (including Executive Directors but excluding Non-executive Directors) employed by the Group during the year was: At 31 March 2018 Number
2017 Number
Investment staff
6
4
Support staff
3
3
9
7
By primary activity
At 31 March 2018 ÂŁ
2017 ÂŁ
1,500,359
983,831
Social security costs
193,037
270,239
Other pension costs
177,843
122,051
28,962
2,448,799
1,900,201
3,824,920
625,014
518,831
59,248
52,967
Employee benefit expenses for the above persons Wages and salaries
Share based payments (note 8)
Key management, being Executive and Non-executive Directors, compensation Emoluments Other pension costs Employer national insurance
78,267
64,478
Share based payments
14,040
920,255
776,569
1,556,531
294,283
270,730
Emoluments of the highest paid Director Emoluments Other pension costs
34,899
32,567
329,182
303,297
No Directors exercised options during either year. At 31 March 2018 there were two Directors (2017: two) who were members of a defined contribution pension scheme to which the Company contributed.
46 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
8 SHARE BASED PAYMENTS The Company has issued options over ordinary shares held by the Cambridge Innovation Capital plc Employee Benefit Trust and options over ordinary shares to be issued, on exercise of the options, in relation to the Company’s incentive schemes. The total share based payments charge in the year was £28,962 (2017: £2,448,799). Certain employees have been granted call options over ordinary shares of the Company held by the Cambridge Innovation Capital plc Employee Benefit Trust. The terms provide that shares may be acquired at a fixed price in tranches commencing one year from the date of employment and expiring on the earlier of six months after an Initial Public Offering and ten years from the date of the award. If an employee leaves, there is no impact on vested tranches but unvested tranches expire on the leaving date. Certain employees have been granted options over ordinary shares of the Company in accordance with the Company’s incentive schemes. The options granted to date provide that shares may be acquired at a fixed price in tranches commencing two years, and expiring after five years, from the date of the award. If an employee leaves and is considered a good leaver, vested tranches expire one year after leaving and unvested tranches expire one year after the future vesting date. If an employee leaves and is considered a bad leaver, vested and unvested tranches expire on the leaving date. Movements in the number of options outstanding and their related weighted average exercise prices are as follows: At 31 March 2017
Granted during the year
At 31 March 2018
Options over shares held by the Employee Benefit Trust Number
2,842,188
–
2,842,188
Exercisable
2,824,651
n/a
2,842,188
Exercise price for all options (pence)
0.1711
–
0.1711
Weighted average remaining contractual life (years)
6.7496
n/a
5.7496
The fair value of the options over shares held by the Employee Benefit Trust has been calculated based on the fair value of the shares at the date of grant less the nominal exercise price. During the year a charge of £3,668 (2017: £2,448,799) has been recorded in relation to options over shares held by the Employee Benefit Trust. At 31 March 2017
Granted during the year
At 31 March 2018
Number
–
169,894
169,894
Exercisable
–
n/a
–
Exercise price for all options (pence)
–
0.0100
0.0100
Weighted average remaining contractual life (years)
–
n/a
6.8233
Proceeds receivable on exercise (£)
–
17
17
Options over shares issued in accordance with the Company’s incentive schemes
The fair value of the options over ordinary shares issued in accordance with the Company’s incentive schemes has been calculated using the Black–Scholes valuation model. The inputs into the model for awards granted in the year were as follows: At 31 March
Share price at date of grant
2018 £
2017 £
£0.7960
–
100%
–
4 years
–
Expected dividend yield
0%
–
Risk free rate
1%
–
Expected volatility Expected life
During the year a charge of £25,294 (2017: £nil) has been recorded in relation to options issued in accordance with the Company’s incentive schemes.
47 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
9 FINANCE INCOME At 31 March
Bank and other interest
2018 £
2017 £
360,342
317,864
10 TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES The relationship between the expected tax expense based on the standard corporation tax rate of the Company and the tax expense actually recognised in the income statement is reconciled as follows: At 31 March 2018 £
Profit/(loss) on ordinary activities before taxation Standard corporation tax rate Expected tax expense Income not subject to tax (fair value changes)
17,313,709
2017 £
(38,568)
19%
20%
3,289,605
(7,714)
(3,761,753)
(888,837)
Expenses not tax deductible
485,821
646,365
Tax loss (offset)/carried forward
(24,550)
250,186
Tax on profit/(loss) on ordinary activities
(10,877)
–
The standard rate of UK Corporation Tax reduced from 20% to 19% on 1 April 2017 and will reduce from 19% to 17% from 1 April 2020. As a result, deferred tax has been calculated at 17% in these financial statements (see note 16).
11 PROFIT/(LOSS) PER SHARE The calculation of the basic earnings per share is based on the profits or losses attributable to the Company’s shareholders divided by the weighted average number of shares in issue during the year. All earnings per share calculations relate to continuing operations of the Company. The weighted average number of shares does not include the deferred shares (see note 17). The options outstanding at 31 March 2017 are considered to be non-dilutive as the Group is lossmaking. At 31 March 2018
2017
Profit/(loss) attributable to shareholders (£)
17,302,832
(38,568)
Weighted average number of shares (basic)
164,345,312
127,982,984
2,957,623
–
167,302,935
127,982,984
Basic profit/(loss) per share (£)
0.105
(0.000)
Diluted profit/(loss) per share (£)
0.103
(0.000)
Impact of options Weighted average number of shares (diluted)
48 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
12 PROPERTY, PLANT AND EQUIPMENT Leasehold improvements
Furniture and equipment
Computer equipment
Total
–
35,130
38,508
73,638
Additions
60,840
21,039
10,897
92,776
At 31 March 2017
60,840
56,169
49,405
166,414
–
–
1,237
1,237
60,840
56,169
50,642
167,651
Cost At 1 April 2016
Additions At 31 March 2018 Accumulated depreciation At 1 April 2016 Provided in the year At 31 March 2017
–
1,294
8,863
10,157
8,768
13,982
12,511
35,261
8,768
15,276
21,374
45,418
Provided in the year
12,168
18,125
12,901
43,194
At 31 March 2018
20,936
33,401
34,275
88,612
39,904
22,768
16,367
79,039
52,072
40,893
28,031
120,996
2018 £
2017 £
At 1 April
58,163,591
24,720,999
Investments
32,746,616
28,998,409
Fair value changes in investments
19,798,701
4,444,183
110,708,908
58,163,591
Net book amount At 31 March 2018 At 31 March 2017
13 INVESTMENTS
At 31 March
The Directors have determined that the Company meets the definition of an investment entity as set out in IFRS 10, “Consolidated Financial Statements” and, therefore, investments that are held as part of the Group’s investment portfolio are carried in the consolidated statement of financial position at fair value even though the Group may have significant influence over these companies.
49 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
At 31 March 2018 the Group held investments in the following companies: Name
Abcodia Limited Audio Analytic Limited Bicycle Therapeutics Limited CMR Surgical Limited (previously Cambridge Medical Robotics Limited) Carrick Therapeutics Limited
Primary instrument
% held
Convertible loan
19.6%
Series A Preferred shares
16.2%
B Ordinary shares
10.7%
Series A Preferred shares
10.5%
Preferred shares
7.1%
A Ordinary shares
35.9%
Ordinary shares
1.3%
Exvastat Limited
Series A shares
50.7%
Fluidic Analytics Limited
Series A shares
2.7%
Congenica Limited Cytora Limited
GeoSpock Limited
Series A1 Preferred shares
25.5%
Imagen Limited
Series A shares
48.4%
Inivata Limited
Series A shares
25.7%
A Ordinary shares
27.8%
Seed shares
33.6%
Series A shares
11.3%
Jukedeck Limited Microbiotica Limited Morphogen-IX Limited Origami Energy Limited PervasID Limited PragmatIC Printing Limited PROWLER.io Limited Storm Therapeutics Limited Undo Limited Z Factor Limited
A Ordinary shares
14.9%
Ordinary shares
11.0%
A Ordinary shares
31.2%
Series A Preferred shares
14.9%
A Preferred shares
17.4%
Ordinary shares
21.5%
Series A shares
0.2%
All of the Group’s investments are in unquoted companies and all of the companies are incorporated in England and Wales with the exception of Carrick Therapeutics Limited, which is registered in Ireland. At 31 March 2018 the Group had committed, subject to certain milestone provisions contained in the relevant investment agreements, to make further investments of £2.0 million and $6.1 million (2017: £7.5 million and $8.3 million). As these relate to future investments they have not been included in the financial statements. Please also see the post balance sheet events disclosed in note 21.
14 TRADE AND OTHER RECEIVABLES At 31 March
Prepayments and accrued income Other receivables
2018 £
2017 £
799,999
145,035
49,168
20,122
849,167
165,157
All amounts are short-term. The carrying values of receivables are considered reasonable approximations to fair value. All of the receivables have been reviewed for indicators of impairment.
50 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
15 TRADE AND OTHER PAYABLES At 31 March 2018 £
2017 £
118,464
63,638
Social security and other taxes
60,483
49,936
Accruals and deferred income
1,150,301
593,536
1,329,248
707,110
Trade payables
All trade and other payables are unsecured, interest free and payable on demand. The carrying values of trade and other payables are all in pounds sterling and are considered reasonable approximations to fair value.
16 DEFERRED TAX There were no deferred tax assets or liabilities recognised by the Group during the year reported on. A deferred tax asset would be recognised only when sufficient taxable profits are expected to be generated to relieve the trading losses. At 31 March 2018 £
2017 £
397,800
404,600
Deferred tax amounts not provided for are as follows: Trade losses unrelieved
The Company may also benefit from a tax deduction when the outstanding call options over ordinary shares of the Company are exercised. Such a benefit would create an additional tax deductible expense. The Company’s trading tax losses at 31 March 2018 were approximately £2,340,000 (2017: £2,380,000).
17 EQUITY At 31 March 2018 £
2017 £
16,719
16,719
49,992,656
49,992,656
50,009,375
50,009,375
Allotted, called up and fully paid 167,187,500 (2017: 167,187,500) ordinary shares of £0.0001 each 499,926,562,500 (2017: 499,296,562,500) deferred shares of £0.0001 each
The ordinary shares carry equal voting rights, equal rights to income and distributions of assets on liquidation, or otherwise, and no right to fixed income. The deferred shares: ●●
carry no right to participate in the income of the Company;
●●
carry no right to receive notice of, or to attend, speak or vote at, any general meeting of the Company;
●●
entitle the holders of the deferred shares to £1.00 for the entire class of shares on a return of assets on liquidation or capital reduction or otherwise;
●●
are not transferable; and
●●
may be purchased by the Company at any time, at its option, for a total of £1.00 for the entire class of deferred shares.
At 31 March 2018 the Cambridge Innovation Capital plc Employee Benefit Trust held 2,842,188 ordinary and 12,495,820,312 deferred shares of £0.0001 each.
51 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
18 RELATED PARTY TRANSACTIONS The Group discloses transactions with related parties which are not wholly owned within the same Group. Convertible loans to portfolio companies are expected to convert to equity and typically have the potential to be long-term in nature. As a result, they are included within non-current investments (see note 13). 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: 2018 £
2017 £
Loans at 1 April
1,556,000
500,000
Loans advanced
2,286,000
1,056,000
(1,000,000)
Loans converted or exchanged for equity Loans at 31 March
2,842,000
– 1,556,000
Income from related parties primarily relates to investment related fees and interest on convertible loans as set out below: Income during the year ended 31 March
Portfolio companies
Amounts due from at 31 March
2018 £
2017 £
2018 £
2017 £
172,939
107,245
127,622
81,770
Purchases from related parties primarily relate to the Group’s office and the provision of other services as set out below: Purchases during the year ended 31 March
University of Cambridge and its subsidiaries
Amounts due to at 31 March
2018 £
2017 £
2018 £
2017 £
56,663
48,896
6,614
7,216
19 FINANCIAL INSTRUMENTS The Group is entirely equity funded and uses certain financial instruments including cash, trade and other receivables, trade and other payables and equity interests in, and loans to, investments held by the Group. The carrying amounts of assets and liabilities may be categorised as follows: At 31 March 2018 £
2017 £
110,708,908
58,163,591
14,419
242
1,400,000
11,400,000
32,285,169
57,518,607
33,699,588
68,918,849
1,265,765
657,174
Financial assets at fair value through profit or loss Investments
Loans and receivables Trade and other receivables Short-term deposits Cash and cash equivalents
Financial liabilities at amortised cost Trade and other payables
52 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Risk management objectives The main risks associated with the Group’s financial instruments relate to market (price and interest rate risk), liquidity and credit risk. The Group does not have any committed borrowing facilities and it is the Group’s policy not to trade in derivative instruments, or to enter into hedging transactions. The Group’s main objective in using financial instruments is to invest in rapidly growing intellectual property rich companies based in and around Cambridge and/or with a connection to the University of Cambridge from funds raised specifically for this purpose. Within the context of this objective, the Group seeks to maximise returns from funds held on deposit while maintaining liquidity and credit risk at acceptable levels. Balance sheets at 31 March 2018 and 2017 are not necessarily representative of the positions throughout the year, as investments, short-term deposits and cash and cash equivalents vary considerably depending on when equity raisings, investments and placing amounts on short-term deposits have actually occurred.
Market (price) risk Investments are held for strategic rather than trading purposes and are not actively traded by the Group. The Group is exposed to price risk in respect of equity interests in, and loans to, investments 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 and reporting to the Board the status, performance and valuation of these investments. Proposed investments are subject to a detailed analysis and approval process and significant investments and disposals require Board approval. Post tax profit for the year may increase or decrease as a result of fair value gains/losses on investments classified at fair value through profit or loss and are allocated to the capital reserve.
Market (interest rate) risk The Group has no liabilities that are exposed to interest rate risk. The Group receives interest from short-term deposits and cash and cash equivalents, all of which is held in sterling, and the level of this interest is dependent upon the prevailing interest rates. The Group seeks to maximise the receipt of interest subject to acceptable levels of credit and liquidity risk. The interest rate risk profile of the Group’s financial assets was as follows: At 31 March
Floating rate
2018 £
2017 £
33,685,169
58,909,785
–
10,008,822
33,685,169
68,918,607
Fixed rate
Floating rate interest
0.00% to 1.53% 0.15% to 1.24%
Fixed rate interest
0.25% to 0.41% 0.41% to 0.95% 31 to 91 days
Fixed rate period
31 to 91 days
The following table illustrates the sensitivity of the profit/(loss) for the year and total equity to a reasonably possible change in interest rates to +2% and 0% for all years with effect from the beginning of each year. The changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group’s financial assets held during the year. All other variables are held constant. At 31 March 2018 +2.0% £
2018 0% £
2017 +2.0% £
2017 0% £
Result for the year
1,026,038
(360,342)
958,445
(317,864)
Equity
1,026,038
(360,342)
958,445
(317,864)
Liquidity risk Liquidity risk is the risk that the Group may not be able to meet its financial obligations. The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet forecast cash flows. Net cash requirements are compared to available cash and updated on a monthly basis.
53 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the consolidated financial statements FOR THE YEAR ENDED 31 MARCH 2018
Credit risk In order to minimise the risk of loss, short-term deposits and cash and cash equivalents are only held with European authorised financial institutions of good credit rating, being those at or above the credit rating of the main UK clearing banks. The credit rating profile, as per Standard & Poor’s rating services, of the Group’s financial assets was as follows: At 31 March 2018 £
2017 £
70,306
25,553,727
A
10,247,519
25,134,295
A-
23,367,344
18,230,585
33,685,169
68,918,607
AA-
Foreign exchange risk The Group occasionally enters into transactions in currencies other than sterling. At 31 March 2018 the Group had committed, subject to certain milestone provisions contained in the relevant investment agreements, to make further investments of $6.1 million (2017: $8.3 million). The Group has not hedged this commitment because of its policy not to enter into hedging transactions.
Capital risk management The capital structure of the Group is limited to its equity comprising share capital, reserves and retained losses. The Group manages its capital to ensure that entities within the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of any equity balance. The Group’s overall strategy remains unchanged for the years under review.
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 statement of financial position. The basis for determining fair values is described in note 3.
Estimation of fair values If one or more of the significant inputs to the fair value is not based on observable market data, the instrument is included in Level 3. All of the Group’s investments are in unquoted companies, which the Group classifies as Level 3, and are held at fair value in accordance with the investments policy in note 3. The movement in Level 3 instruments is summarised in note 13. The Audit Committee and Board review the investment valuation process, and resultant fair values, at least twice a year in line with the Group’s reporting dates. The valuation of investments is prepared by the investment team, and reviewed by the Executive Directors, before being submitted to the Audit Committee and Board for approval. The fair value profile of investments is summarised as follows: At 31 March 2018 £
2017 £
Adjusted for milestones or impairments
742,000
556,000
Investment completed within one year
80,089,016
49,142,437
Investment completed between one and two years
26,873,720
8,465,154
3,004,172
–
110,708,908
58,163,591
Price of recent investment
Investment completed more than two years ago
If the fair value of the Group’s investments varied by +/-10%, the profit for the year would change by +/- £11,070,891 (2017: +/- £5,816,359).
54 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
20 OPERATING LEASE COMMITMENTS The future aggregate minimum lease payments under non-cancellable operating leases are as follows: At 31 March 2018 £
2017 £
Within one year
7,525
24,161
Later than one year but not later than five years
3,601
6,502
11,126
30,663
Lease payments primarily relate to amounts payable for the Group’s office. The lease term is five years from 1 July 2016 but the Group may terminate the lease at any time after 1 July 2018.
21 POST BALANCE SHEET EVENTS On 4 April 2018 the Group invested £166,700 in Morphogen-IX Limited. On 23 April 2018 the Group invested £4,021,677 in CMR Surgical Limited. On 30 April 2018 the Group invested £499,998 in Undo Limited. On 17 May 2018 the Group invested £663,333 in Abcodia Limited. On 31 May 2018 the Group invested a further £3,449,982 in CMR Surgical Limited. In May 2018 Exvastat Limited received the results of its Phase 1 clinical trial. Following confirmation of a negative result, the Group’s investment was written down by 100% to £nil in accordance with the Group’s accounting policy. Further details are provided in the Strategic Report.
22 CONTROLLING PARTY There is no ultimate controlling party.
55 www.cicplc.co.uk
FINANCIAL STATEMENTS
Company balance sheet AS AT 31 MARCH 2018
At 31 March Note
2018 ÂŁ
2017 ÂŁ
Fixed assets Tangible assets
G
79,039
120,996
Investments
H
120,000,000
120,000,000
120,079,039
120,120,996
Current assets Debtors
I
Short-term deposits Cash at bank and in hand
Creditors: amounts falling due within one year
J
707,497
62,387
1,400,000
1,400,000
603,653
503,091
2,711,150
1,965,478
(1,307,796)
(676,044)
1,403,354
1,289,434
Total assets less current liabilities
121,482,393
121,410,430
Net assets
121,482,393
121,410,430
50,009,375
50,009,375
57,200
57,200
Net current assets
Capital and reserves Called up share capital
L
Share premium account Share based payment reserve Retained profit Profit/(loss) for the year Total shareholders' funds
M
3,369,044
3,340,082
68,003,773
70,641,112
43,001
(2,637,339)
121,482,393
121,410,430
The notes on pages 58 to 62 are an integral part of these financial statements. The financial statements on pages 56 to 62 of Cambridge Innovation Capital plc, registered number 08243718, were authorised for issue by the Board of Directors on 22 June 2018 and were signed on its behalf by
Rob Sprawson CHIEF FINANCIAL OFFICER
56 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Company statement of changes in equity FOR THE YEAR 31 MARCH 2018
Note
At 1 April 2016
(Accumulated losses) / retained profit £
Total shareholders’ funds £
Called up share capital £
Share premium account £
Share based payment reserve £
50,000,000
57,200
891,283
(2,514,717)
48,433,766
–
–
–
(2,637,339)
(2,637,339)
9,375
73,155,829
–
–
73,165,204
–
(73,155,829)
–
73,155,829
–
–
–
2,448,799
–
2,448,799
50,009,375
57,200
3,340,082
68,003,773
121,410,430
–
–
–
43,001
43,001
–
–
28,962
–
28,962
50,009,375
57,200
3,369,044
68,046,774
121,482,393
Loss for the year and total comprehensive expense Transactions with owners Share capital issued (net of expenses) Share premium account reduction Share based payments
M
At 31 March 2017 Profit for the year and total comprehensive income Transactions with owners Share based payments At 31 March 2018
M
The notes on pages 58 to 62 are an integral part of these financial statements.
57 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the company financial statements FOR THE YEAR ENDED 31 MARCH 2018
A GENERAL INFORMATION
Share based payments
Cambridge Innovation Capital plc (the “Company”) is incorporated and domiciled in the UK, the address of its registered office being Hauser Forum, 3 Charles Babbage Road, Cambridge, CB3 0GT.
The Company operates an equity-settled, share based payment compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Company. The fair value of the employee service received in exchange for the grant of the options is recognised as an expense over the vesting period. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At each reporting date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the profit and loss account, with a corresponding adjustment to equity. The social security contributions payable in connection with the grant of options is considered an integral part of the grant itself, and the charge is treated as a cash-settled transaction. The fair value of cash-settled transactions is measured at each balance sheet date and is recognised as an expense over the vesting period.
B STATEMENT OF COMPLIANCE The Company meets the definition of a qualifying entity under Financial Reporting Standard (“FRS”) 100 issued by the Financial Reporting Council (“FRC”). The financial statements have therefore been prepared in compliance with UK Accounting Standards including FRS 102 “The Financial Reporting Standard Applicable in the UK and Republic of Ireland” and the Companies Act 2006.
C SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The Company’s existing cash and short-term deposits, together with the cash generated from expected trading activities, will be sufficient to meet the operational needs of the Company for at least a year from the date of approval of the financial statements. The Directors have commenced the process to raise additional funds and are confident that funds will be secured to support the growth of the business.
Pension costs
Given the above, these financial statements are prepared on a going concern basis, under the historical cost convention, as modified by the revaluation of certain assets and liabilities measured at fair value through profit or loss.
Operating leases
The principal accounting policies adopted in the preparation of these financial statements have been consistently applied to all the years presented, unless otherwise stated.
Tangible fixed assets Tangible fixed assets are stated at cost (or deemed cost) less accumulated depreciation and accumulated impairment losses. Cost includes the original purchase price and costs directly attributable to bringing the asset to its working condition for its intended use Depreciation on assets is calculated, using the straight-line method, to allocate the cost to their residual values over their estimated useful lives, as follows: ●●
leasehold improvements, 5 years;
●●
furniture and equipment, 3 years; and
●●
computer equipment, 3 years.
Investments Investments in subsidiary companies are held at cost less any accumulated impairment losses. An impairment review is performed to assess the carrying value of those investments with no investment in the year at each reporting date.
Financial instruments The Company does not have any financial instruments other than equity investments, cash, debtors and creditors. Cash, debtors and creditors are all measured at cost on the date the transaction was entered into and financial assets are subsequently reviewed for possible impairment.
Short-term deposits Short-term deposits represent bank deposits with an original maturity of over three months.
The Group makes payments for each employee to a defined contribution scheme or a scheme of their choice. The assets of the defined contribution scheme are held separately from the Group in independently administered funds. Contributions made by the Group are charged to the profit and loss in the period to which they relate. Operating lease payments are expensed in the profit and loss on a straightline basis over the period of the lease.
Taxation Taxation expense comprises current and deferred tax recognised in the reporting period. Tax is recognised in the profit and loss account, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case tax is also recognised in other comprehensive income or directly in equity respectively. Current or deferred taxation assets and liabilities are not discounted. Current tax Current tax is the amount of income tax payable in respect of the taxable profit for the period or prior periods. Tax is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the period end. Deferred tax Deferred tax arises from timing differences that are differences between taxable profits and total comprehensive income as stated in the financial statements. These timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is recognised on all timing differences at the reporting date except for certain exceptions. Unrelieved tax losses and other deferred tax assets are only recognised when it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Cash at bank and in hand Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. 58 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
Capital and reserves Capital and reserves comprises the following: ●●
called up share capital represents the nominal value of equity shares;
●●
share premium represents the excess over nominal value of the fair value of consideration received for equity;
●●
share based payment reserve represents equity-settled share based remuneration until such instruments are exercised; and
●●
retained profit/(accumulated losses) represents retained profits/ (accumulated losses).
Exemptions for qualifying entities under FRS 102 The Company has not provided a statement of cash flows or certain disclosures in relation to key management and related party transactions, as this information is included in the consolidated financial statements.
GOVERNANCE
FINANCIAL STATEMENTS
D CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy, accounting estimate or assumption to be followed could materially affect the reported results or the net asset position of the Company. Management considers that certain accounting estimates and assumptions relating to the carrying value of investment in subsidiaries are critical accounting estimates. The treatment of investments in subsidiary companies has been detailed above.
E RESULTS OF THE COMPANY The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included a profit and loss account. The Company’s profit for the year ended 31 March 2018 is £43,001 (2017: loss of £2,637,339).
F EMPLOYEES AND DIRECTORS
G TANGIBLE ASSETS
All of the Group’s employees are employed by the Company. Employee numbers and employee benefit expenses are disclosed in note 7 to the consolidated financial statements. Leasehold improvements £
Furniture and equipment £
Computer equipment £
Total £
Cost At 1 April 2016
–
35,130
38,508
73,638
Additions
60,840
21,039
10,897
92,776
At 31 March 2017
60,840
56,169
49,405
166,414
Additions
–
–
1,237
1,237
60,840
56,169
50,642
167,651
–
1,294
8,863
10,157
Provided in the year
8,768
13,982
12,511
35,261
At 31 March 2017
8,768
15,276
21,374
45,418
Provided in the year
12,168
18,125
12,901
43,194
At 31 March 2018
20,936
33,401
34,275
88,612
39,904
22,768
16,367
79,039
52,072
40,893
28,031
120,996
At 31 March 2018 Accumulated depreciation At 1 April 2016
Net book amount At 31 March 2018 At 31 March 2017
59 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the company financial statements FOR THE YEAR ENDED 31 MARCH 2018
H INVESTMENTS Cambridge Innovation Capital (Jersey) Limited, whose principal activity is to invest in high growth technology businesses, is a wholly owned subsidiary of the Company, is registered in Jersey and its registered address is Gaspé House, 66-72 Esplanade, St Helier, Jersey, Channel Islands, JE2 3QT.
I DEBTORS At 31 March 2018 £
Prepayments and accrued income Other debtors
2017 £
671,924
42,265
35,573
20,122
707,497
62,387
All amounts are short-term. The carrying values of debtors are considered reasonable approximations to fair value. All of the debtors have been reviewed for indicators of impairment.
J CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR At 31 March 2018 £
Trade payables Taxation and social security Accruals and deferred income
2017 £
118,464
63,638
60,483
49,936
1,128,849
562,470
1,307,796
676,044
All creditors are unsecured, interest free and payable on demand. The carrying values of creditors are all in pounds sterling and are considered reasonable approximations to fair value.
K DEFERRED TAX There were no deferred tax assets or liabilities recognised by the Company during the year reported on. A deferred tax asset would be recognised only when sufficient taxable profits are expected to be generated to relieve the trading losses. At 31 March 2018 £
2017 £
397,800
203,400
Deferred tax amounts not provided for are as follows: Trade losses unrelieved
The Company may also benefit from a tax deduction when the outstanding call options over ordinary shares of the Company are exercised. Such a benefit would create an additional tax deductible expense. The Company’s trading tax losses at 31 March 2018 are approximately £2,340,000 (2017: £2,380,000).
60 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
L CALLED UP SHARE CAPITAL At 31 March 2018 £
2017 £
16,719
16,719
49,992,656
49,992,656
50,009,375
50,009,375
Allotted, called up and fully paid 167,187,500 (2017: 167,187,500) ordinary shares of £0.0001 each 499,926,562,500 (2017: 499,926,562,500) deferred shares of £0.0001 each
The ordinary shares carry equal voting rights, equal rights to income and distributions of assets on liquidation, or otherwise, and no right to fixed income. The deferred shares: ●●
carry no right to participate in the income of the Company;
●●
carry no right to receive notice of, or to attend, speak or vote at, any general meeting of the Company;
●●
entitle the holders of the deferred shares to £1.00 for the entire class of shares on a return of assets on liquidation or capital reduction or otherwise;
●●
are not transferable; and
●●
may be purchased by the Company at any time, at its option, for a total of £1.00 for the entire class of deferred shares.
At 31 March 2018 the Cambridge Innovation Capital plc Employee Benefit Trust held 2,842,188 ordinary and 12,495,820,312 deferred shares of £0.0001 each.
M SHARE BASED PAYMENTS The Company has issued options over ordinary shares held by the Cambridge Innovation Capital plc Employee Benefit Trust and options over ordinary shares to be issued, on exercise of the options, in relation to the Company’s incentive schemes. The total share based payments charge in the year was £28,962 (2017: £2,448,799). Certain employees have been granted call options over ordinary shares of the Company held by the Cambridge Innovation Capital plc Employee Benefit Trust. The terms provide that shares may be acquired at a fixed price in tranches commencing one year from the date of employment and expiring on the earlier of six months after an Initial Public Offering and ten years from the date of the award. If an employee leaves, there is no impact on vested tranches but unvested tranches expire on the leaving date. Certain employees have been granted options over ordinary shares of the Company in accordance with the Company’s incentive schemes. The options granted to date provide that shares may be acquired at a fixed price in tranches commencing two years, and expiring after five years, from the date of the award. If an employee leaves and is considered a good leaver, vested tranches expire one year after leaving and unvested tranches expire one year after the future vesting date. If an employee leaves and is considered a bad leaver, vested and unvested tranches expire on the leaving date. Movements in the number of options outstanding and their related weighted average exercise prices are as follows: At 31 March 2017
Granted during the year
At 31 March 2018
Options over shares held by the Employee Benefit Trust Number
2,842,188
–
2,842,188
Exercisable
2,824,651
n/a
2,842,188
Exercise price for all options (pence)
0.1711
–
0.1711
Weighted average remaining contractual life (years)
6.7496
n/a
5.7496
61 www.cicplc.co.uk
FINANCIAL STATEMENTS
Notes to the company financial statements FOR THE YEAR ENDED 31 MARCH 2018
The fair value of the options over shares held by the Employee Benefit Trust has been calculated based on the fair value of the shares at the date of grant less the nominal exercise price. During the year a charge of £3,668 (2017: £2,448,799) has been recorded in relation to options over shares held by the Employee Benefit Trust. At 31 March 2017
Granted during the year
At 31 March 2018
Number
–
169,894
169,894
Exercisable
–
n/a
–
Options over shares issued in accordance with the Company’s incentive schemes
Exercise price for all options (pence)
–
0.0100
0.0100
Weighted average remaining contractual life (years)
–
n/a
6.8233
Proceeds receivable on exercise (£)
–
17
17
The fair value of the options over ordinary shares issued in accordance with the Company’s incentive schemes has been calculated using the Black–Scholes valuation model. The inputs into the model for awards granted in the year were as follows: At 31 March
Share price at date of grant
2018
2017
£0.7960
–
100%
–
4 years
–
Expected dividend yield
0%
–
Risk free rate
1%
–
Expected volatility Expected life
During the year a charge of £25,294 (2017: £nil) has been recorded in relation to options issued in accordance with the Company’s incentive schemes.
N OPERATING LEASE COMMITMENTS The future aggregate minimum lease payments under non-cancellable operating leases are as follows: At 31 March 2018 £
2017 £
Within one year
7,525
24,161
Later than one year but not later than five years
3,601
6,502
11,126
30,663
Lease payments primarily relate to amounts payable for the Group’s office. The lease term is five years from 1 July 2016 but the Group may terminate the lease at any time after 1 July 2018.
O RELATED PARTY TRANSACTIONS The Company’s related party transactions are limited to transactions with: the University of Cambridge and its subsidiaries; its wholly owned subsidiary; and portfolio companies of its wholly owned subsidiary. Related party transactions for the Group are disclosed in note 18 to the consolidated financial statements.
P CONTROLLING PARTY There is no ultimate controlling party.
62 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
COMPANY INFORMATION
Shareholder notes
63 www.cicplc.co.uk
COMPANY INFORMATION
Shareholder notes
64 Cambridge Innovation Capital plc | Annual Report and Accounts for the year ended 31 March 2018
COMPANY INFORMATION
Company information
Company registration number 08243718
Registered office Hauser Forum 3 Charles Babbage Road Cambridge CB3 0GT
Directors Edward Benthall Victor Christou Rob Sprawson Dipti Amin Humphrey Battcock Clive Birch Adam Glinsman Michael Muller Ian Leslie Andy Neely
Non-executive Chairman Chief Executive Officer Chief Financial Officer Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Non-executive Director Non-executive Director
Company secretary Rob Sprawson
Bankers Barclays Bank PLC 9-11 St Andrew’s Street Cambridge CB2 3AA
Legal advisers Taylor Wessing LLP 5 New Street Square London EC4A 3TW
Independent auditors PricewaterhouseCoopers LLP Abacus House Castle Park Gloucester Street Cambridge CB3 0AN
Financial PR Consilium Strategic Communications Limited 41 Lothbury London EC2R 7HG
IBC 06 www.cicplc.co.uk
Cambridge Innovation Capital plc Hauser Forum 3 Charles Babbage Road Cambridge CB3 0GT cicplc.co.uk +44 (0)1223 764875