A change in the fair value of investments held by Imperial Innovations, the hot-house for technology and healthcare ideas from Britain's universities, saw full year profits surge.

Revenues eased, however, reflecting the continuing difficult economic environment. Total revenues in the year to the end of July fell to £4.3m from £4.5m the year before, but were ahead of the market consensus forecast of £4.05m.

Licence and royalty revenue from initial licence payments and intellectual property licences was £1.6m, down from £1.9m the previous year.

Revenue from services, which includes intellectual property management consultancy fees, rose to £1.4m from £1.2m. Corporate finance fees of £1.2m, down from the previous year's £1.3m, were primarily generated by the group-led funding rounds.

Dividends received by the company from its investments were a bit skimpy, at £44,000, compared to divis of £0.2m the previous year.

Profit before tax leapt to £5.08m from £0.58m the previous year, as the value of the group's investments was marked up by a net £14.69m, versus a gain the prior year of £3.26m.

Fair value gains of £21.6m were offset by offset by general impairments of £6.9m and a £2.3m impairment specific to life sciences firm Thiakis, where milestone payments are looking less likely after US pharmaceuticals Pfizer announced in April 2012 it was discontinuing research & development investment in the firm's products.

At July 31st the group held equity stakes in 82 companies, up from 78 a year earlier. The value of the portfolio increased to £155.6m from £104.5m year-on-year, while the value of net assets rose to £228.2m from £224.1m, which might raise an eyebrow or two considering the stock market values the company at £195m or thereabouts.

"The challenge for the outsider is placing a value on the companies in the portfolio," Chief Executive Officer Susan Searle told Sharecast.

"We are a very early stage investor. With the pre-seed technologies we have, these are held on the books at nil value, so there is hidden value," Searle explained.

Obviously, as Imperial Innovations' portfolio companies get closer to commercialising their intellectual property, the worth of the company becomes more apparent, or, as Searle put it: "Our most advanced companies is where you start to see the valuation catching up to true worth."

During the course of the year the group invested a record £37.9m in 29 companies, up from £35.1m the year before, when the company ploughed money into 23 companies.

"This is consistent with our view that early stage technology companies need to be funded properly to attract strong management and build businesses of scale and significance. It is worth noting that some £94.2m has been invested by us in our top 15 investee companies. Some of these are significant businesses in their own right, far removed from the 'spin-out' tag," claimed Martin Knight, Chairman of Imperial Innovations.

Searle reinforced this theme of being in for the long-term. "We are trying to grow good businesses that have a good syndicate of backers behind them," she said.

Companies in the portfolio raised a total £147m in cash and investment commitments, up from £129m the year before.

"We are committed to building substantial businesses based on intellectual property emanating from the UK's leading research intensive universities. We are not investors distracted from this goal by one eye permanently on the door marked 'exit'," avowed Knight.

"We remain confident that our progress will be maintained, with continuing value being built in our portfolio of companies," Knight added.

Broker Cenkos described the figures as "a solid set of full year results"/

"A number of companies have now transitioned [sic] to late-stage, nearing
important value inflection points: these include Nexeon, Circassia, Cell
Medica and Veryan Medical (all of which are held at conservative carrying values in the balance sheet)," wrote Dr Navid Malik, Head of Life Sciences Research at Cenkos.

"We believe the next 12 months will be an exciting period for the company and reiterate our BUY rating and target price of 524p," the broker said.


JH

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