Ip Group (LSE:IPO) — Valuations deep-dive

0:01 Good morning, ladies and gentlemen, and welcome to the IP GROUP PLC Valuations Deep Dive Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so, and these will be available via your investor meet company dashboard.

0:34 Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CFO, David Baines. Good morning, sir. Good morning. Thank you very much indeed, please. Hello. I'm yes. I'm David Baines. I'm the CFO, actually, of IP GROUP. And I've got with me Chris Claston, who's our finance director. Chris is with me. I'm I'm gonna host it. Chris is gonna do most of the presenting, and that's with Chris and his team who do most of the work. So that seems appropriate. I I hope you're gonna enjoy. This is the first of our deep dive webinars where we actually gonna pick up one particular topic and look at it more closely. I did say to Chris when we first conceived that we did a deep dive evaluations of webinar, but it probably wouldn't be over attained that I said, look, Chris. It's gonna get 10 or 20 people. But it's okay.

1:20 It's be important to 10 or 20 people, and, you know, it's an important subject. But as I speak, we've got 257 people registered this event. So thank you very much to all of you for being there. I hope you find it as interesting as we do. So very quickly, we're gonna run you for a quick introduction, and then Chris is gonna go on to market context. He's gonna talk in detail about our valuation approach, how we value our assets, and then point out how valuations disposed in important accounts. And then finally, perhaps most importantly, look at our track record. How good we are at getting our values right? Is it litmus test is when you set an asset? Do you get it right? Do you you hopefully get it for more than you can carry with the book set? So we'll look at that at the end and see how well we've done on track record. So very briefly as a start, this is one of the key things that I know about our people. There is quite a divergence between our assets and our share price.

2:13 We've got net assets very fully valued at £1.33 a share. I think this morning, we're trading at about 55 p. To put that another way and as I pointed out at the year end results, you've got 15p of that, £1.33 is in cash. Well, that's obviously, you know, cash is cash. And then Netaport that time was about 20p even after a slight reverse instead of that 17p smoking. And then just a few the three other companies we talked about in the end results, Firstline, Esteso, Oxbodka, that gets you to over 60 p of value, and yet we trade below that. The other 91 companies of 95 aren't included in that valuation at all. Clearly, there's something going on around valuation, which is why we thought it was important to actually spend time looking at what we do to try and get valuations as right as we can.

2:59 I'll come back to this slide at the end. So at the beginning, we'll sort of start this is this is our level of knowledge at the beginning of this webinar. You know, 8% of what we have on our on our NAV from one pound for free is cash. That, you know, is right. And 18 17% is quoted portfolio companies. Again, you know that's right. That's just mark to market. That's the price out in the market. So it's that pesky 75% that we're talk about today. So that's the side to remember. At the end of this presentation, we'll come back to that side, and most hopefully, we'll all know and understand better what could make that up. So I think probably the last thing for me now, I don't wanna look like I'm telling you what to think, but I'm gonna tell you what our key messages are, and let's hope they come over the course of today. So firstly, we think we have a very thorough process, and we incorporate best practice in all the valuation work we do.

3:46 We think the work we do is consistent and mildly cautious. Glad said the auditors agree with us. We realize gains on disposals seem to provide evidence that we are cautious and we are getting our valuations right. It's not very slightly below what they might be. And finally, we believe we're very transparent, and we give detailed disclosure of our valuation processes. So we'll let you chat. We'll come back to these questions at the end of the presentation. For now, I'll hand over to Chris who'll take you through the part of the presentation. Okay? Great. Thanks, David. Thanks for the introduction. As David said, I'm Chris Basson. I'm the finance director here, and great to have everyone attending. Me and the the finance team spend a lot of our time valuing the portfolio, so it's great to have an opportunity to take you through what we do in in more detail. So first section I'm gonna cover is market context for 2022, and this is partly to give you a sort of indication of how we think about the market when we're evaluating our portfolio.

4:37 So the the next couple of slides contain PitchBook data where we find PitchBook to be our best source of private valuation data. They've got a very extensive database of US and European valuations, private valuations. So this is US data from PitchBook from their q four annual report. And at the very high level in the VC space, the two key themes, early stage valuations on the left, we see as higher in 2022, strong momentum from '21 and continuing in 2022 with valuations higher. Early stage, PitchBook defined as series b or earlier, which consists of about two out of our top 20 companies and then many of the earlier stage companies in our portfolio. And then on the right hand side, later stage valuations, so this is series c and onwards PitchBook data sees those softening in 2022.

5:23 So about 20% down in the year from 2021 levels and with much of that softening happening in the second half of the year. But it is worth noting that there is a large dispersion of experience within that data, so good companies can still raise at higher valuations. The drilling down to the next level of detail, cutting that data by our three thematic areas, we see the cleantech and life sciences data within PitchBook's data setters is indicating strong performance in 2022, so valuations up year on year. Within our tech dramatic area, more mixed picture. So fintech, flat, enterprise tech, down a little bit, and consumer tech, down somewhat more. We're saying that we've got very little direct exposure to consumer tech. Our exposure is more second second degree by potential customers or acquirers. So we do think that across our three thematic areas, we're actually playing into areas of strength in the market by 2022.

6:20 So just putting that in a bit more context for what that means for IP GROUP's portfolio. So our portfolio of early stage and and more mature companies are raising money as they go along. So we typically expect about a third of our companies to raise money in a given year in 2021 and 2022. Actually, 29 of our companies raise money in both years in in those years. And when we we have financing transactions in the portfolio, we track whether those transactions have happened to up, flat, or down valuations versus the previous financing round that the company has executed. And we saw in 2022 that there was no increase in down rounds within the financings done within our portfolio. In fact, a slight increase in up rounds. So we didn't see any evidence from our portfolio of a softening of valuations. It's also worth noting that we we manage around 700,000,000 of third party funds. We didn't see those trends in those third party funds that we manage either.

7:13 And then just drilling one level down into into the data within our portfolio, we also didn't see a softening in valuations in the second half of the year. So we weren't seeing that picture that I mentioned from the pitch book data. So that that's some high level information on our market context. Moving on to the group's valuation approach. So what do we mean when we're talking about valuation? So we're talking specifically about fair value for accounting purposes, and that's defined under international accounting standards and the practice guidelines for how to how to carry out of the private equity or venture capital portfolio were contained with the IPEV. So we follow those IPEV guidelines when we value our portfolio. And what we're doing when we're we're assessing fair value, we're estimating fair value for our private portfolio, and we're trying to arrive at the best estimate possible supported by as much evidence as we can. That's the sort of core thing that we're trying to do.

8:06 So some high level valuation principles that really sort of form the core of our approach. We have a thorough, well documented process. We take a mildly cautious approach to valuations. We have a policy that we have applied consistently for for many years, and that consistency, we think, is very important. We make maximum use of market based data, so we're always looking for market based evidence, and we'll always use that evidence in preference to non market based evidence where it's available. We we typically use multiple methods, so we don't just take a price of recent investment, for example. We'd also look at revenue multiples or a DCF. So we'll try and get multiple ways of looking at the same assets and and triangulate those approaches. Our investment team inputs extensively into the process, but they're not responsible for valuations.

8:54 The finance team are responsible with with oversight from the audit and risk committee and evaluation committee. So we have segregation of duties, which we think is an important part of part of best practice. We have multiple layers of challenge through the process, and then we have transparent disclosure of the resulting valuations. And just to give you some some stats on the process from from 2022, so this is both our annual reporting and our interim reporting for 2022. We carried out 301 internal valuations, which we documented. We had 18 external valuation reports commissioned. We made 63 private valuation adjustments outside to normal funding rounds, so that's about 20% of our valuations resulted in adjustments. We held four valuation committees, four audit risk committees focused on external disclosures, and our auditors included 93% of our portfolio value in their sample.

9:46 So what we're really aiming for from those principles is conservative approach. So I've piloted those areas where we feel help us to deliver that, and we're really looking to build best practice into our process. And, again, I've highlighted those best practice elements, which we feel are important. So before I get into the detail of of how we do our valuations, just a a handful of points on valuation capability and sort of what we feel really helps us to arrive at accurate valuations for our portfolio. So sort of key most important factors of the long standing expertise of our team. So that's the our investment team, also the board and support teams, many of whom have been involved for many years and and working with the companies in our portfolio for many years. So that consistency and that depth of knowledge is very, very helpful. The close relationships we've got, the majority of our portfolio companies also gives us insight and information that others might not have. So with a top shell shareholder in 10 out of our top 20 companies for that that close relationship over many years often often from inception is very important.

10:46 Our our wide portfolio, and that's breadth by stage, sector, and geography, as well as extensive history gives us a big data set to use. So we use that both sort of in in the year, but also looking back over time and seeing where we've got things right or wrong or could improve things. And then as a PLC, the governance and risk management processes that that we have as a PLC are very useful to bring independence into our process. So those are sort of the key elements of where we think we've got good valuation capability. So diving more into our process, this is the same process largely be it half year reporting or year end reporting with the main difference being the low level of work performed by our external auditor, but effectively from an internal point of view, the same process. So first step is a planning and risk assessment stage where we're looking at factors like the time since the last funding round, positive or negative mark milestones for specific companies, general market conditions, and we use that first step to to identify assets that we want to spend more time on, the most objective assets. And we also use that first step to select which companies we're going to give to our external valuers for them to take away and perform valuations on independent of us.

11:55 So the the next step, which is really the sort of meat of the valuation process, this is information gathering, both gathering company specific information such as board packs from the companies and worth noting that we've got almost three quarters of our companies, large companies we have board seats on. Discussion with our investment team to get their view on performance on the outlook for the company, financial modeling where appropriate, and then determining evaluation approach. And also worth noting that we do cross check our evaluations where other public investors have investments in disclosing. We will cross check our valuations to disclose public valuations. So after we've done that process, we've arrived at a set of initial valuations and then comes a review and challenge stage. So firstly, evaluation committee that comprises the CEO, CFO, and auditing risk committee chair, and that's where, really, the majority of the discussion and subjectivity is covered. That valuation committee covers typically around 80% of the portfolio by value and compute quoted portfolio.

12:52 Then there's an audit risk committee consisting solely of independent directors, and we also have our external auditors who, as I said earlier, sampled 93% of our portfolio for the event reporting. So, finally, once we've gone through all that process, we're in a point to go ahead with our external reporting. So just a a note on our use of external valuation specialists, which I I referenced earlier. So we use those for larger and more subjective valuations typically. And Deloitte, who are the two valuation specialists we've used in 2022. They value 10 out of our largest companies, and those overall contributed to 40% of the of the portfolio. And we feel that that's an important part of our process. It introduces independence. They have good market insights across a wide range of companies that they're working on, and they have specialist technical expertise.

13:42 And in terms of the process, do a similar process to where we were doing an an internal evaluation. They give us an output, which is typically a valuation range, and I've summarized the valuation range on the right for a section of the assets that they that they worked on. And you can see there's a top of the range of 577,000,000 and bottom of the range at 392,000,000. So in all cases, we took no higher than the middle of the range given to us by our external valuation experts. And in some cases, we took lower or indeed the bottom of the range. So overall, that comes out at around a third of the way up the valuation range that we were given. And we actually think that that's a a really good sort of indication for the mildly cautious approach that we think we take. That's a sort of good benchmark for how we would describe it. So going on to talk to the specifics of evaluation approaches that we take.

14:30 So I I've listed them out here. These are in order of preference, and they're ordered top to bottom, and that's based on the degree of market input that there is in each of the approaches. So at the top quoted market prices, which obviously the the gold standard used wherever possible, and towards the bottom, more subjective approaches with less direct market inputs. And you can see on the right, we've just got a little set of bars showing a proportion of the nav used by each approach. So the top three are the predominant ones by far. So we've got quoted prices at the top and then recent financing transactions with user a recent financing price without adjustment. Next down would be a recent financing price that we've adjusted upwards or downwards based on positive or negative performance. We then have future market or commercial events, which haven't completed at the time of the valuation where we've got clear documented terms showing us that the change of value looks likely to happen, likely but not certain at the evaluation date. And then we have discounted cash flow models and revenue multiples, which contain less market inputs. So those are the the broad approaches that we use. And then a few additional comments on our thinking for each of those approaches.

15:40 On recent financing transactions, the key questions that we're asking ourselves there are, first of all, is the financing transaction at arm's length? Does it include third third party investors? And that's gonna tell us whether we're even going to use it at all. It's a purely internal round we made, so actually we don't think that represents fair value.

15:57 Assuming we are going to use it, then we're thinking about what's the length of time since the financing round. Is the company's performance significantly positive or negative? And we typically think of recent financing transactions as being strong evidence for the majority of the private portfolio where they've had recent financing rounds, And we have an early stage portfolio portfolio that includes early stage companies, so they are raising money on a regular basis, and we do receive regular inputs from financing rounds. And just one minor point to note is that sometimes preference structures can complicate the application of recent financing rounds, and that's particularly the case where a company is raising money with preference terms, which mean that those preference shares they're issuing have additional rights versus the ordinary shares, for example, we might hold. You do have a methodology for dealing with that, which typically means applying a discount between the issued share class with preferences and the subordinate share classes without preferences.

16:49 So those are some thoughts on recent financing rounds. Adjusted financing sort of many of the same questions, many of the same considerations. So, really, this is where we've had a recent financing transaction that we have determined the performance is negative or positive enough for us to adjust the transaction. So we're then looking for what metrics can we use to help us quantify that adjustment. It's worth saying that particularly for internal valuations, we're quite reluctant to use this approach to increase the value of companies. So typically, we'll use this to assess that a company's underperforming, which therefore reduce the value where we see ourselves taking uplifts on adjusted financing. That's typically what we use third party valuation specialists. So you can see on the assets on the right, First Light Fusion, we increased the value on this basis, but we used an external valuation.

17:37 Actually, we used external valuations for all of the three companies highlighted on the right there.

17:42 So so moving to the less frequently used approaches. So I mentioned briefly earlier future events. So this is where we have a transaction that is taking place around the valuation date, but hasn't completed at the valuation date. And typically, we were looking for documented deal terms. Otherwise, we wouldn't typically incorporate into our valuation basis. But where we have an event that appears to be happening and documented, we're then thinking what's the nature of the event. Is it a sale? Is it a commercial deal? How certain is it? How likely is it the deal parameters will change? How good is the evidence that we've got? And we'll factor all those in. We will typically be quite conservative in the approach because there is a risk that we overvalued the asset if that deal does fall away. The biggest example of this was in 2020 when we had a financing transaction, which Oxford down the pub was partway through completing and released our results. We did incorporate the valuation uplift in that, and and that was the the correct number that was completed shortly after we released our results.

18:41 So then just briefly on the couple of other approaches that we we use less frequently, discounted cash flows. So we we typically only use this for therapeutic companies because they have a well defined path through clinical trials. They have a set of probabilities that are relatively accessible market benchmarks on clinical trial success rates. There's often also market data around deal values. So we feel more comfortable on therapeutic assets. Outside that that sort of specific example, we tend to find things like the cash flow

19:12 forecast very difficult to get comfortable over and probabilities equally very difficult to quantify or get comfort over. So therapeutic assets would typically be where we'd use this approach, but only if we haven't got a recent financing transaction. So is the the bad is the example on the right there, and we did have an external valuation as part of the fact chasing that approach. And then finally, there's a small number of companies in the portfolio which are in full commercial rollouts where we haven't got a suitable recent financing, so we will use revenue multiples for those companies.

19:44 So then one approach that I didn't mention earlier, but is also in the analysis that we give of our portfolio is a statement from LP. So we do have some holdings which are not held directly, but via fund managers who manage those those funds for us. Biggest example being IP G Cayman LP, the group's US platform. And so in that case, the fund manager goes through their own process, which will look similar to us to value their assets, and they then give us the output of that. We receive those. They're typically audited. They're typically audited in arrears. It's a publication of our group results as a as a listed company.

20:15 We publish earlier than those. Their evaluation process will be thorough, but we'll also review the process and review the outputs. Where necessary where we deem it necessary, we will source independent valuation advice on any of the larger assets that we we feel that's appropriate for, and we will adjust the valuations given to us by the LP downwards if necessary. So that that's the the sort of detail, the meat of the valuation approaches that that we use. I thought it was helpful to harness a a handful of practical applications of that information from 2022. So we talked earlier about the later stage market data indicating reductions in in later stage valuations. So we incorporated that into our valuation process by looking at some of the more mature companies engaging external valuation specialists and taking some focus right down between 2540% for some of those companies. So we reflected that market data.

21:10 First Light Fusion is a good example of an adjusted funding round where they had a very significant milestone of validated fusion results. Again, we engaged external evaluation specialists, and that resulted in initial doubling of the carrying value, and that was below the midpoint evaluation range given by our external consultants. And then finally, Oxbottica, December financing, so a very recent financing, the only subjectivity in there was an assessment of the discount between the issued share share class and this subordinate share class where we took a small discount between the issued share class

21:41 and the subordinate shares that we held and then updated the valuation. So, hopefully, that gives you a feel for how we're approaching that valuation process. So I thought it's helpful just to highlight a handful of our valuation disclosures, which give you more detail and transparency on some of the points that we've just talked through. So top 20 data, some data around portfolio company fundraisers, which we disclose, portfolio valuation basis, and external valuation ranges. And many of these are additional disclosures that are outside the core disclosures that we'd be required to give that we do feel are helpful from the point of view of transparency.

22:18 On top 20 companies, we disclose the that information in two places. We disclose that in the portfolio review section of our accounts, and that's at the top table on the right hand side over here. We we disclose the investment movements, the percentage holding,

22:33 and the closing value in any investment or divestment from a company. In the back half of the accounts note 13, we also include the list of companies, the valuation basis, and whether they have an external valuation or not. Around market data, we include data on the total capital raised within the portfolio, which is in the portfolio review section of our accounts, and that gives you a sense for how much of the capital being raised by our portfolio IP GROUP has contributed to about 10% for 2022. So it gives you an idea for the degree of third party funding going into our portfolio and what that means from a recent financing point of view. We also disclosed the up flat down round analysis that I had on the market context slide, and that's in the financial review section, which hopefully gives you a feeling for the market dynamics that we're seeing in our portfolio.

23:21 We displace the portfolio valuation basis against those categories that I've just been through. So that's both in the financial review section of the accounts and also in note 13 of the accounts where we include some disclosures around valuation inputs. And then we also include valuation ranges. These

23:36 are slightly buried at the back of accounts. So these are in note 13. So we include ranges on two of our we've included ranges on two of our largest assets and then the overall range for the remainder of our assets. So that corresponds to the external valuation range slide that I showed earlier. So a lot of transparent disclosure in there and a lot of additional information, which will hopefully help you to come to the same conclusion that our our process is thorough and our conclusion is sensible.

24:02 So then very briefly, on our valuation track record, the key piece of evidence that we're looking for, which we think provides strong evidence of our conservative valuation approach, is realized gains on exits. So over the last four years, IP GROUP has realized over 500,000,000 in cash. And what we're looking for is on exit, we want to be seeing realizations from the exit at or above the last carrying value of the company.

24:26 And where that happens, we generate a realized gain on disposal. And as you can see from this first slide, over the last four years, we've generated realized gains in each year. So that indicates that we're realizing our assets for more than their carrying value. In terms of how much more, I've highlighted some of the key exits from the last four years and I've shown here the carrying value, the profit on disposal and the premium on disposal. So how much above the carrying value did we sell our assets at? So you can see that range of experience, and and that works out as an average premium of 76% across those companies that are highlighted, which is, you know, significant premium. We do think that provides pretty good evidence of the conservative valuation approach. And we do feed that back into our valuation process through a process called back testing where we're validating and incorporating this exit data into our approach.

25:18 So I'm going hand back now to David for some concluding remarks before we move on to Q and A. Brilliant. Thanks so much. It's amazing getting you all that material in just twenty minutes. Fantastic. Thank you. So when I was asked, if this is

25:29 where we were, we were looking at, you we could see that net cash is 8% and growth is 17%. We're trying to understand what the rest of the portfolio valuation is made up of. Hopefully now, because I've explained it, this will make sense. So about 30% of recent financings that we talked about, we've got pretty high levels of certainty of the bank because of that. There's 22% of our adjusted financing that's where you based upon a past valuation, but then you've made some adjustment of of often in conjunction with third party valuation. So, you know, you you actually know for sure, gives you the confidence to make a

26:00 change. You've got that kind of third party valuation on your side. And then the the smaller, perhaps, like, with the token approaches are up here. This kind of cash flow is only 7%. Revenue levels only 8% is good. Three to 7% for for statements from LPs and market potential. You can now hopefully when when we go through that, that now makes sense what is we've done. We get a very strong feeling of how it is that we have really fairly good evidence for an awful lot of the valuations we actually have in our portfolio. In fact, when you take the the cash and the public and the recent fundings and the ones valued by third parties, over 80% of the portfolio is valued by those metrics, pretty much outside of our control in most cases. So the risk of being slightly down, hopefully, we've made our point. You know, we do have a thorough process incorporating best practice. We do believe we're we're mildly cautious. The auditors seem to agree with us on that point.

26:51 Realized gains do seem to support the value that can count things at. And if you have the entity to go over 205 pages of PLC accounts. We do have pretty detailed disclosure as well.

27:03 So what I'm gonna do now is go through some q and a's request. For those of you who are here when we did the year end results, it was at this point that I checked over the the question from parents instead of having two or three, I have 42, which was slightly daunting. But, actually, especially if we made a commitment, we're gonna answer every single question. Actually, this time, I've been watching, watching as we get, and I'm glad to report they're very good questions, all of them.

27:27 And there aren't too many, so hopefully we'll be able to go through them together. Do you mean Chris? So I found that Chris will probably be answering them together. So Chris, the first one from Bruce. Bruce has asked, and this is related to the early signs, and you're talking about the performance of public market information. Fintech has seen some very high profile down. Yeah. Charter strike something down 89%. Are you saying that those are not representative of fintech as a whole, or are you saying they're not representative of your own portfolio?

27:57 That's a it's a really good question. It is worth saying we don't have significant fintech exposure. We have at least one fintech holding, but we're we're not sort of heavily into fintech. So I'm, you know, by no means an expert on the fintech space. I would say those those high high profile rounds, they will be captured within the data that the pitch book produced, so they will be factored into that. And that that does as you suggest indicate that there have been other financing transactions that happened at higher valuations because we're not seeing overall decrease in fintech

28:28 valuations. I mean, I do think it is really interesting to sort of look at individual companies and clearly, there are company specific dynamics like, did they have to raise a particularly bad time? And you'd say perhaps that's that's the case for at least one of the companies on on the list there. Obviously, we don't know the detail of that. So, you know, I think it's it's one of the really difficult things that we have to do is trying to reconcile company specific information with a broader picture for the market. And part of the way we try and do that is to track the data in our portfolio, which is partly that flat down round analysis. I think I think also

29:03 the fact that also did for us for Saint Army, We never had those very, very high increases. We didn't have an awful lot of companies in our portfolio back in '21, which have been valued to kind of West Coast American multi billion valuations. So we never took them up a lot from the first place. We didn't have a lot to bring down on those. Some of those remarkable adjustments from 47,000,000,000 to 5 and stuff. We didn't gonna have much that in our portfolio, I think, the fact as well. Yeah. Yeah. A lot of stuff is early stage. Yeah. And it is worth saying that

29:29 the the largest fintech company in our portfolio, we we did write down in 2020. So so, you know, that that picture on the market is important. We've also had external valuation support on on the carrying value of that asset, and we did take the write down. So I think at least to some extent, we are sort of doing as as you suggest and taking some write down. 27% in that one despite actually, I won't name it. We we try and avoid naming individual companies, but actually had an amazing performance in the period. Second

29:55 question, another very good one. It comes from Ken. Ken suspected ten months. Hello, Ken. Good to see you. Thanks for being here. For listed companies, do you apply a discount for liquidity size of state versus market bid, which would be perhaps a smaller block?

30:10 I think we used to do that. OAT would be an obvious example. So are we carrying it at full price? Are we allowing for the cost of sale, I guess? Okay. So that that's a straightforward one. We don't supply a discount, and the reason we don't is we're specifically prohibited from doing that under under IPEC guidelines. So no. We don't do that. Good answer. I can't add to that. How many we can probably both answer this. How many investment opportunities do you look at in a year, and how many actually pass evaluation metrics?

30:39 Where typically do they fail to meet your standards?

30:42 Well, we I'll start sharing that one, Charlie. I guess, I mean, we do see a lot. So we're looking at those different number. You know, historically, if you get back at when we used to be looking at very good at any stage, only really probably investing in one and a 100 things. And those sort of numbers may not change that much, actually. You see an awful lot of information opportunities come in, a lot come in with people desks. It's a very small number that we do, and as in the keeping with our kind of overall strategy. The ones we're doing, know, with the key, the emphatic areas that we're very focused on, ones that are very disruptive, have the potential to make a big impact on the world. So we want highly impactful stocks. You know, we all think that ESG positive, ESG plus we wanna make sure we have a very positive impact on the world through what we do in our main areas. So they're the main criteria. It's a big market, very disruptive, good force of a a force of positive good. Know if you wanna add to that.

31:34 Yeah. Suppose the the one thing I'd add is that we are talking here from primarily about valuation for fair value for accounting purposes, whereas the investment team are gonna be thinking more about value creation over a longer term

31:45 and maybe less focused on the sort of mark to market twice a year exercise. We definitely do feed in as a finance team on specific investment opportunities and discuss the the valuation with the with the investment team where particularly where they want our inputs on it. But I I would say there's probably two slightly different things going on there around long term value creation, which is what our investment team are focused on, and shorter term accounting and and mark to market valuation, which is primarily what we're talking about here. Good good technical one coming up from Julian. What discount rates do you use in your discounted cash flows? And have they changed over the year? So we have we we have put our discount. So we're we don't use DCF that that extensively as as you'll have seen from the slides. We did increase the discount rate that we used in the asset that we value on a DCF.

32:35 The we we don't disclose the interest rates that we use, and we use a combination of discount rates and probability adjustments. And the probability adjustment that's designed to capture things like the chances of an asset going through the next stage of their clinical trials, that should I think be combined with the discount rate that we use, and that would get you to a sort of high 25% on a both probability and discount rate basis. Yep. I won't add to that. Next one. How do you generally find management valuations very to yours? Is there a management expectation value regarding value against the ones that we put in? We go first to that, Chris. I might add to that. Yes. I suppose there's definitely we we tend not to discuss valuations extensively with the management teams of the companies that we're valuing, and we feel that that's that that's appropriate.

33:30 We we will sometimes, but it's it's fairly rare. I guess management teams have typically think more about fundraise dynamics and particularly where evaluation has where a funding round has happened at a price, that's often a a big factor on their thinking. Sort of our our our trickiest job sometimes is to assess where we're moving away from that recent funding price, be that positive or negative and quantifying how much lower or how much higher. And that's probably where we can have friction with management teams where they don't necessarily see eye to eye with us. So so we're we're looking for input from both, predominantly from the investment team, sometimes from the company, although more rarely. But we are forming an independent valuation conclusion based on on our assessment. Yeah. They're not we're not we're not going back for approval, are we? So it's it's not such a factor. And an an enormous number, as you say, are either mark to market or a recent funding value. So we have a completely aligned expectation. Yeah. We value it, but they value value that quite quite greatly, to be honest.

34:33 Menards, question for medicine. Nice to have you here. In the case and I I I think he's gonna answer this. In the case of assets valued using the future event method, do you include any discount for execution risk? Yes. Yes. Definitely. No. That's an important part of it. So we would include quite quite big execution risk discounts normally. It depends a lot on the nature of the event, how likely it is to go ahead, how likely is the deal terms will change. So particularly on exits where those are often quite binary, you will apply quite quite heavy discounts. Yeah. And and these questions come up more time. Just fair enough. We'll answer them. We'll all questions. Not directly linked to the evaluation deep dive today, but why do you not embrace the share buyback program given the misplace of assets in public markets? We answer this a number of times.

35:21 You know, you have results of last month. And actually, know, we do have a dividend policy as we talked about. We give money back to shareholders, and we do have a policy towards returning a certain proportion of our exits. So at the moment, we have an enormous amount of exits in this current market, but we do still have that policy more follow. Similar question, what steps the management take to increase the value of the group from the stock flows of today? Well, you know, we are we believe doing a lot. We've been very proactive in terms of our public facing activities such as this. We are still not the share buyback as we talked about. We're talking to our shareholders regularly and actually perhaps most importantly we're driving up hopefully the value of our online portfolio. We've been a lot of very key inflection points in our portfolio over next twelve to eighteen months. Now typically, we've eight clinical trials out there that we're having.

36:09 So so we believe that all those things will hopefully start to reduce that gap, much of which is actually driven just by macroeconomic forces, which are hard for us to manage. We're doing everything we can to try and reduce that gap, and I'm very aware of it. There's a deadly one for you, Chris. Is the average gain of 76% overvaluation, a value weighted average or accrued unweighted average? That's on the That's a valuation weighted average. It's actually the the sum of the realized gains over the sum of the carrying value for those specific assets. So it it is effectively a a weighted average. And next one from Steve, not valuation related, but how involved are you in the companies that you're invested in? Our board is independent. I'll say yes. We're very involved. I think there are some stats in the presentation on there, but we we're very involved in all our bigger assets on the board. We definitely have a very hands on market. So we are, you know, in that business of helping companies grow very much, you know, business building alongside the company. So, yes, we made all our private assets that are involved. Yeah. Yeah. And it's a it's a really helpful additional element that we that we have in our evaluation process. So sort of that historic perspective on many of the companies we've been involved in for years being on the board, getting the board material.

37:22 So so that information flow, that insight is is really helpful for valuing these assets. So, yeah, it's an important part of our of our model, I'd say. So next one from Odysseus. Hello, Odysseus from Berenberg. Good to see you yesterday at the conference. Any chance, if I catch this out, any chance you have data on figures on the average fair value gains on funded amounts that took place following internal valuations? I take it to doctors and my exes, we will talk about it at length. Think historically, these have been quite notable and prove your market cautious point more. You like that one, Chris? Yes. I mean, I I guess this is sort of quantifying the points on up, down, flat rounds. We don't have readily sort of presentable data on that, but it it's a it's a good point. You know, it is it is very company specific.

38:14 So, you know, we've certainly seen plenty of examples of companies raising money at at significantly higher valuations, and we haven't seen lots of instances of down and round. So, you know, I I think your general point is is correct, and it would sort of quantify the the the points on But I would argue some extent, fair value gains of over 100,000,000 in private portfolio demonstrates that those funds clearly realize that they actually realize That's right. By definition, that's what that is saying, isn't it? Yeah. Yeah. Exactly. Exactly. I mean, I suppose the only the only sort of counter counter argument for that is you'd expect companies that are going well to increase in value over time. So they they know they probably should be going up over time in terms of unrealized gains. But, yeah, I think it's definitely a good good question. Good point. Fair point. Ed, to what extent is the pace of cash burn factored into your valuation methodology?

39:03 So definitely factored in, yeah, how much cash a company's got, what their cash runway is, and particularly so particularly when we talked about adjusted funding rounds and adjusting those downwards where that starts to get quite kind of heavy handed. So we will take quite big write downs is when that cash runway starts getting short unless they've got, you know, pretty well developed plans to raise money. So, yeah, that that is where we tend to get quite quite quite appropriately conservative. And and, certainly, it's a it's a factor when a company doesn't need to raise money. It's harder harder to factor in, but the fact that they're not gonna be in the market that they have that strong position, I think, is a is a factor. And and, you know, we do tend to get the inklings when companies are out raising money around what their target valuation or the level of interest. So so it's definitely an important part of of of the overall picture.

39:59 And sort of going, yeah, going back a little bit to the original question of some of those fintech companies, if you're out in a weak market raising money, you might have to take a much lower valuation. So that, you know, is an important factor. Next one, we both got answers. This is Paul. Good to have you, Paul. Nunes. How well financed for the top 20 companies? Will they need to raise money in 2023? Let me go first, Chris. I'll comment on that. Yes. Yes. So so we we track the cash runway of of the majority of our portfolio, including the top 20 companies. There's a there's a good handful of companies in the top 20 that we don't expect to have to raise again. For the companies that we do expect to raise again, the sort of average runways is getting towards the the back end of 2024. So there's obviously some variation within that and some companies that we do expect to raise money in 2023, but that that's the position.

40:46 So I mean, it's a pretty big question. It's it's difficult question. We had this question not on the road change, actually. It's quite difficult to answer in one word when you've 95 companies. You know? I don't know that one was. Right. That wage standard from the. Yeah. Wage average for top 20. Came out back back of next year. I had a look at doing weighted average items at the top 35 companies, about a billion, just over a billion of assets. And 15% of those didn't need to make money, you know, break even or weren't gonna need to. About 30% were really good, and another 30% were two years, and then there's another 30% that actually went out to 25. So it's quite well spread out. So thanks for Paul. As of thank you. You're back. I have a question. We're doing well. All analyst questions so far. Do you think you can achieve higher uplifts on exits when selling to trade buyers compared to exits for financial investors?

41:36 Chris, go first, I'll go second pass, or you don't understand this one? Yeah. I'll start I'll start with this one. Yeah. Okay. It's an interesting question. I think maybe some of it depends on market. I think particularly therapeutic. So therapeutic. So as you mentioned before, historically, we probably had one clinical trial like that we have every two years. We're the key moment in IP, but we've got eight clinical trials here over the next two years. I would have thought a lot of those ultimately would go into trade, you know, because obviously, big pharma big pharma is gonna pay much more money because they know the value they get, and they also know the value they're gonna add. They they they can take a drug that we can struggle to dispute while portfolio companies can struggle. And they'll have a worldwide margin infrastructure to dispute it. So they know they can take something, pay a lot for it, and it's still gonna be worth a lot more money to them. So I think there are particular areas where, yeah, I think trade buyers are are are better. You and and that's the only thing. And then in the other portfolio, it'll it'll be a mismatch.

42:32 But a lot of time, I do think trade is the way to go because they'll understand the real disruptive nature quite often of what we've got to imagine now. People will understand that portfolio, kind of the value of what we what we've got there, probably better than initial financial investments would. Right. Another one, this is. Could you help us think about some of the factors that might contribute to a discount to that? For example, present value of future central office portfolio management charges. I'll say that again. I didn't read it very well. Could you help us think about some of the factors that might contribute to a discount to that? That's probably the question. For example, present value of future costs, I guess, is what it's saying. So so deducting those from the NAV? Yeah. I mean, that that is obviously, in in theory, our assets are fair valued at the year end. So so the balance sheet value is is what it is. But I do see that if you were doing a DCF, you you would bring in the discounted value of of costs.

43:31 On the other hand, if our portfolio continues to grow as we we hope it will, you've got the the the value growth in the portfolio to offset that. So, you know, it's it's definitely one way of looking at it. It may well be a valid way. But in in in theory, the the portfolio is fair value at at the end of the financial year. So, you know, if you're looking at it from a value point of view, sort of is what it is. Okay. I think we've got that right, Robert. It's not come back because I think we we we've got that right. Paul Paul's back. Does KeyCo see an increasing mix of investors coming to the early stage clean tech companies? Well, I think the answer that they they will do. Keyco, a very highly regarded team in the marketplace. They're very well networked. And I think recognition of Keyco as a separate brand is certainly helping. And I think that could be an enormous amount of energy into coming, you know, even more well networked in that marketplace. So the answer to that is yes.

44:23 Definitely. You'll definitely see a great diversity of of high high profile investors coming to that that site. Sector. Yeah. I was gonna say that they they certainly you know, they do report that it's it's a competitive space. There's obviously a lot of interest in in clean tech. We think we're we're well positioned there, but, you know, it's it's a competitive space. So important to have that market position that that we do. I'd just like to say with 09:45 now, I think it's what we had scheduled this for. Quite understand if some people want to drop off. Now we've said this before, but we've made a commitment that for those who want questions, we will keep answering our questions until we get to the end. Having confidently said there weren't very many, they seem to be very useful again. I So stuck in a few more again. So we quite understand people may need to get their lives, but we'll carry on through and try and answer all the questions as well as we can do on the spot, which is ironic. Because the first one we may not answer because it's company specific.

45:09 You'll probably avoid. I'll read it out, though, from Paul. What risk adjustment do you use on a status discount to cash flow? And and what are your rough people saying? No. I think it might be a little bit unfair, isn't it, Paul? But it but it's worth it's worth sort of saying that Paul certainly writes in terms of how how we're approaching that DCF. So we have, you know, a drug in clinical trials. We have an estimate of the success rate of it going through clinical trials. We have estimates of market value and and partnering value. So that's sort of how our DCF works, but I don't think we'll go into the specifics of of assumptions in this one. You happen to be an analyst. So maybe within the four walls of an analyst conversation, you might give us an indication. But probably not. Ed, you're back. Thank you very much. Good question. How often do peers carry valuations above yours? Chris, I think you I I would say, I mean, we would certainly like to be in the kind of slot slightly below our peers, consistent or slightly below. We have at least one example I can think of clearly, which we discussed in our in our evaluation committee where we looked at peer evaluations and and we were at the lower end below the two comparative evaluations that that we saw have been disclosed out there. So, yeah, we we we typically wouldn't want to be significantly above our peers.

46:25 Odysseus, hello. Good to have you back. Good try, though. Good try. I'm trying to get the question, but hold tight. I'll read it out, but I think you're gonna get the same answer. Could you go on a bit more on detail on your assumptions behind the status evaluation, addressable market, assuming commercialization, probability of success of phase two b, etcetera? I think we won't put those in the in the public domain. I will say I still think most of them pretty prudent, I have to say, particularly assumption sales off the end of the patent date. But we won't put those in public domain, but perhaps the confines of an analyst meeting might give you some indication. Here's an interesting question I haven't actually seen before. David, thank you very much for this. Do you factor in any environmental social costs benefits of portfolio businesses in their valuations?

47:10 Or if not, through separate measurement and reporting of their impact on people and planet? I mean, again, do you factor in any environmental or social cost benefits of a foreign company's evaluation if not? So I don't think we specifically do. I mean, clearly, if something's got enormous ESG positive impact, it's likely to be more bank. So one degree off, yes, we do. There's not a specific criteria on that. So but interesting. Your point about, are we measuring reports and their impact will be in the planet? Yes. We are. So remember, we're very impact focused business. So we really are only interested in companies that we consider the impact that have a positive impact upon the world going forwards. And we've invited a new full time ESG director who's working on improving our reporting in the segment. Among the things we do is actually incorporated it into our benefits and incentives is identifying key impact targets for our top 20 companies and then agreeing reporting with them and factoring those into our performance in the year. So this is an area we put an awful lot force into. What was that?

48:11 But an awful lot fortune to, how on earth you report impact? It's a very difficult thing. Can report turnover in one number loss in one number. How would you report impact? And we are gonna do an awful lot more work over the next year. Try to come up with some metrics that can help you with important impact. Not quite the answer to your question, but so it's not specifically factored into valuation companies, but, generally, investment companies have not significant impact. And last one, a comment from Paul saying, fortunately, it's worth a try. Why you think so open on board evaluations? That does look like I'm not that far over, actually. Fifty minutes here. Like, we're there. David to the end. David. Chris, absolutely. And thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors today. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended for you to review. To then add any additional responses, of course, where it's appropriate to do so, we'll publish all those responses out on the investment company platform.

49:15 But, David, just really before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, If I could please just ask you for a few closing comments to wrap up with, that'd be great. And, really, the last comment I was gonna say, hopefully, we're gonna do a lot more of these events as we said during this presentation. We're looking to, you know, more communication with markets in general and the shareholders. You can see here our upcoming events quite in a way about 10 events in the industry. So we are having a flagship event. All the ones with asterisks against them, we're gonna include on this platform. So any of your investor meet will get invited and will be able to attend. And my next big event is certainly gonna be AGM, an investor update where we're open with and then Paul will probably be coming and speaking as well. So a big event. Invites will go with that soon, but you will see further invites for some further deep deep dive event. It's probably deep tech, deep tech, any nice answer.

50:04 We'll do some more deep dive specific events. So thank you very much. That's a great attendance numbers, and hope you all have a good day. Thank you. Bye. David, Chris, that's great. And thank you once again for taking the time to update investors today. Could I please ask investors not to close this session? It shall now be automatically redirected. And for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of IP GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.