Good morning, welcome to the IP Group plc half-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Greg Smith. Good morning to you.
Thank you very much, Alex. Good morning, welcome everyone to IP Group's 2023 half-year results presentation. This is the third time now this year that we're presenting an update through the Investor Meet Company platform, I'll come on to cover this at the end of the presentation, this is part of our continued investment in an active year-round program of IR activities. We're trying to offer greater transparency and, and enable a deeper understanding of the group, our focus sectors and key portfolio companies. In time-honored fashion, the disclaimer, the, the presentation will be up on the IR section of our website shortly after the end of this presentation. Just please note the usual disclaimers about the nature of this update and any forward-looking statements that might be contained within that rather dense text.
So today's presentation will cover a short overview from me, an update on how we continue to successfully deliver against the strategy that I set out last year. And this, this will mainly focus on progress in our three investment areas, and I'll, and I'll give some specific updates on three of the companies that I highlighted in our full year results presentation as, as sort of value drivers, things, inflection points to watch for the coming year or two. Dave Baines, our CFOO, who I'm joined by, will, will then briefly run through the actual financial results for the six months. Then I'll wrap up with a summary and outlook, and then onto questions.
For that part of the presentation, we'll also be joined by Mark Reilly, who is our managing partner of technology, and Sam Williams, the managing partner of life sciences. The tough technical questions, I will get Dave to direct into them. As Alex said, please make sure you post your questions in the Q&A section. As always, we will endeavor to cover all of them. We'll try and group them to keep things sharp. In terms of the overview for today, I mean, the things that you should take away are that our portfolio companies are making really strong progress. They are well-funded, and the group continues to be financially strong. I wanna start by covering a little bit of market context.
I think firstly, it's fair to say that there have continued to be some headwinds in the first half. I spoke about these at the time of our full year results presentation. To give a little bit of an update on that. I think that the general global picture is that the first two quarters of 2023 have continued to be at a lower level of total value and number of VC fundraisers compared to 2021. It's definitely worth saying there are signs that this is stabilizing, and there's around now the same level of activity for about the past four quarters, and that's at around the same level as 2018, 2019. Maybe some signs of stabilization.
There's been little change in early VC round valuations over the past sort of five years. If anything, maybe a few million dollars higher. Later stage valuations, however, are definitely back to sort of 2018 levels in the U.S., and there's a sort of a lower level of reduction in Europe. Worth reminding. We put an RNS about this at the time. There was some disruption to the ecosystem from the failure of SVB, but we were able to deal with that from, you know, a position of financial strength. Exit activity continues to be at multi-year lows. One bright spot, though, is that biotech M&A in Q1 was up 5x at about $50 billion around the world. You know, that's sort of definitely one of, one of the bright, bright points.
The environment's been a bit challenging, but there, there do definitely remain significant longer term tailwinds, particularly for our focus areas. On the regenerative future side, the numbers are large whatever you look at, but specifically for one of the companies I'm gonna cover later, the Hydrogen Council noted that around GBP 240 billion of large-scale hydrogen projects out to 2030 have now been announced. Indeed, this needs to triple to more like GBP 700 billion to reach those net zero targets. On the tech-enriched future side, last year, of course, it was AR, VR, XR, markets and market-
Greg, we have lost your audio. Please, ladies and gentlemen, just bear with me as I try to reconnect. Ladies and gentlemen, just please. Oh, there you go. David, can you hear us well? Greg, can you hear us?
Just bear with me one second. Just while I bring Greg in. David, just let me just take control there for one second. Let me just come into your machine there. Okay, can you hear us there, David?
I've got you. We've got you both.
Lovely. Thank you.
Can you hear us? Okay, great.
Yeah.
Carry on. Very good. I don't know how far we got through that, but it but in essence, I was talking about some, some very large markets that the, that are being addressed by our sectors, and I was finishing on sort of genomics and precision medicine, again, sort of a GBP 100 billion, GBP 250 billion. I mean, really, these are all big numbers, but I, I think the, the point of them is just to illustrate that the scale of opportunity to be addressed isn't the issue for our portfolio companies. Now, closer to home, the the last point there.
On our full year results call, I highlighted this thing around the sort of U.K. science superpower agenda. I think importantly for our sector particularly, there continues to be quite a lot of momentum around making the U.K. the best place for great companies to, to start, to grow, to scale and to stay. That's, of course, while also ensuring that policyholders, pensioners, and savers have got enough money for life events and for old age. I, I often talk whenever asked about this, about the three Cs of having sort of capital, conditions, and consumers being needed to achieve this. On, on the capital front, I, I whether people have seen this or not, but I thought it was very interesting.
A couple of reports recently have talked about how the share of U.K.-listed companies owned by U.K. pension funds and insurance companies has fallen from about 40% down to about 4% since 2000. Crucially, just 1% of the nearly GBP 5 trillion in pensions and insurance assets is invested in unlisted U.K. companies. We've been doing a lot of work engaging with various parties on this, and the Mansion House reforms include quite a lot of continued positive direction on this front, including the pensions compact between many of the U.K.'s leading D.C. pension managers. Of course, worth pointing out that IP Group is already backed by a number of U.K. pension funds and managers, including Railpen, Phoenix, Schroders, M&G, Border to Coast, and we've also got Telstra and Hostplus in Australia.
I think it's really important. I think the opportunity here is for IP Group to be a core holding for more such funds, as well as offering the potential to access significant private capital. As a reminder, we currently manage around GBP 700 million of third-party private capital. We focus a lot of effort here. You know, why do we consider the group to be particularly well positioned? Well, this slide, which I'm afraid, it definitely breaks the usual rules of one message per slide, so I'll do it quickly, but it sets out why we think that this is the case. The simple investment case is that IP Group offers liquid, diversified exposure to high growth innovation companies across some of the most important investment themes of the coming decades: life sciences, clean tech, and deep tech.
We are offering investments making a genuine impact. Specifically, we're the most active investor, the most active U.K. investor in this deep tech space, and we have a highly experienced team in each of those focus sectors. We've got extensive access to science and innovation across really much of the English-speaking world. In terms of track record, we've created three unicorns to date. There's Nanopore, Ceres, and Hinge Health. We've delivered around a 10% return on NAV per share since IPO, once you account for dividends. Impact really is at our core. Our portfolio is very aligned with the UN SDGs, so we're quite attractive to that growing pool of ESG and impact investors, including the likes of Liontrust, who are a major shareholder. We're growing scale. We're about GBP 2 billion of assets now.
That's about GBP 1.3 billion on the balance sheet and about GBP 0.7 billion of third-party managed funds in which we earn fees. I think from a shareholder value point of view, which of course remains front of mind, we've also continued to support capital returns with a total now of GBP 70 million of cash returns since introducing our new approach to supplementing cash returns in 2021. We really do continue to pursue our mission from a position of strength. With that overview, as sort of context, the financial picture for the first half is as follows.
I think first and, and most importantly, the underlying business and the portfolio has made strong progress, and that's been well evidenced by a total of GBP 300 million capital raised by the portfolio, of which we invested about GBP 60 million. This actually compares pretty favorably to GBP 350 million raised in the first half of 2022, particularly when you consider my comments earlier on the general VC funding environment. As you'll see in the release, the quality of our co-investors remains very strong, and I'll talk about three particular companies shortly. The second is that the, the loss of the half was around GBP 55 million, about 5%. So NAV at 13th of June is about GBP 1.27. Now, the quoted portfolio, mainly Oxford Nanopore, was actually up by about GBP 45 million in July.
Our NAV is a little over GBP 1.30 a share at today's date or the date of the announcement. The group's maintained its financial strength during the period. Gross cash has actually increased versus 31st of December a little bit, and that's partly as a result of GBP 32 million of cash realizations, and then the second tranche of the debt that we placed last year, given the challenging investment environment. We, you know, we've, we've also tried to give quite a lot more disclosure in our half year results around the funding needs of the underlying portfolio, and Dave is gonna cover that in his section shortly. We've continued that approach of dedicating a proportion of cash realizations to supporting capital returns.
We're again declaring an interim dividend, which will be a little over GBP 0.5 a share. That's the, the context and the, the summary of the results. I now want to move on to talk about progress, and you, you will hopefully remember from the full-year results, we are fully aligned and engaged behind delivering our purpose to accelerate the impact of science for a better future. We have a strategy to deliver this, and a key pillar is around accelerating value creation. The way that we do this is through investment focus and approach. I mean, our, our business model is, is actually very simple.
We're aiming to be the leading value add backer of impactful early-stage innovation, we, we target opportunities, as you remember, at that sort of intersection of societal need, commercial opportunity, and IP Group strengths. We genuinely back breakthrough innovation, we use the technical acumen and experience of our teams to assess value and, and risk reward of that innovation better than others. That leads us to those three thematic focus areas. And I described back in March, that each has got quite a distinct and complementary investment profile over the next sort of 1-2 years. Let's just take each of those in turn and give a quick update. On the healthier future side. Having sort of consolidated down the portfolio into about 20 core holdings, there are now 12 companies that are targeting key clinical milestones.
They're shown here by stage. You see a couple of them, there's 14 on the slide. A couple of them are pre-clinic, but there's 12 that are in the clinic. Those 12 add up to about GBP 0.25 a share, or about 40% of our market cap, and seven of those read out in the next 12 months. You might remember at the full year results, I said eight, and the good news is that Mission read out positively in half one, so there's another seven to come. The team is very much focusing resource and capital on the delivery of these milestones and driving the commercial value that will arise from successful outcomes with a lower focus on new opportunities.
I don't show it here, but as a reminder, on the healthcare side, there's a further 22 pence per share in Hinge Health and Oxford Nanopore, and which again, is about a third of our market cap, and they are targeting and delivering significant revenue growth. On the tech enrich side, this slide here is showing the deep tech portfolio by sort of focus area on the left and current level of revenues is actually the, the last full year revenues, and that's because the value drivers for these types of businesses are generally, and one of the key KPIs is, is revenue and revenue growth. If you take three of our most valuable deep tech companies, that's Featurespace, Garrison, and Teya, that adds up to about 10 pence per share.
About 15%-17% of the market cap, and they are targeting value accretion through continued double-digit revenue growth, and they make good progress in the first half towards that. There's obviously a number of, you know, promising early companies there who are looking to grow revenues, and many of those, which you'll see in the release, raised significant funding rounds, including worth noting, Quantum Motion Technologies. GBP 42 million funding round was the largest ever single investment into a quantum computing start-up in the U.K.. It's a really good progress there. Then the third regenerative future, where we talk about sustainable investing, climate tech, clean tech, or otherwise.
Last year, we made a deliberate choice to build on our successful track record and launch Kiko Ventures, a team, a brand, a portfolio focused entirely on this area. We believe we have the leading team in Europe for this. The current portfolio really is focused on three holdings. First Light Fusion, Oxa, and Hysata. Again, that's around GBP 0.20 now per share, about a third of our market cap. First Light has seen good interest, but yet to complete its funding round. You remember, hopefully, that we heard from CEO Gavin Jackson at the full year results following their GBP 140 million fundraise at the start of the year. I'll give a quick update on Hysata.
I did say at that time that the focus for 2023 is adding new companies to the portfolio. The team continues to have a strong pipeline on that front, but we continue to be judicious and measured, and we haven't made any sort of brand-new investments in the first half. You can see with lots of activity and, and, some funding rounds, including for OXCCU, which we mentioned in the results as well, which is a really exciting e-fuel business. That's a summary of those, those sort of complementary and, and distinct value drivers for each of the three investment areas. I'm now gonna give you a quick update on, on inflection points.
This was the slide, again, hopefully you remember, that I concluded the, the full year results presentation with back in March, and it shows those, those focus areas and value drivers, but it also shows a handful of companies, that we were sort of noting, may well be ones to watch for the next sort of year or two. I just want to evidence progress in the three thematics through updates on one of each of those companies. I'll start in, in the life sciences space, in the healthier future space, with Istesso. Istesso is one of our top three most valuable holdings, and I genuinely believe, one, which has the opportunity to deliver huge real-world impact and substantial financial returns.
Istesso's vision is sort of to deliver this, this paradigm shift in healthcare, moving from disease modification to disease resolution, or perhaps in layman's terms, moving from simply treating symptoms to starting to cure disease. The challenge, or perhaps the opportunity here, is that conventional disease-modifying medicines, they can, they can slow the pathologic or the symptoms, or the sort of functional decline, but they can't reverse disease, and in some cases may even suppress repair. Another example that many of you will probably be aware of from COVID is those people who are on immunosuppressants or dealing with such diseases, can become immunocompromised. There are lots of sort of existing issues with the current treatment paradigm.
Istesso's approach really has the opportunity to go beyond this conventional approach of disease modification and actually move towards rebuilding damaged tissue. This could enable patients to not only reduce symptoms, but also reverse their decline, resolve disease and regain lost function. This could fundamentally change the way that patients experience disease. You'll hopefully remember that Istesso's lead compound, MBS2320, is currently in a Phase II-B trial for rheumatoid arthritis, and the market opportunity in this space is huge. Estimates vary. We have it on the slide at about GBP 25 billion, and it includes some of the biggest selling drugs in the world, Humira and Enbrel. RA affects a vast number of people, and prevalent cases are estimated at about 25 million-27 million around the world. It's a very, very significant area.
Good news, the Phase II-B continues to recruit according to expectations and very much on schedule for a readout in the first half of the next year. The second point I'll make is, at the time of the full year results, I mentioned that the FDA had granted Istesso an orphan drug status and fast track status for another debilitating disease, that of lung fibrosis, or what's called idiopathic pulmonary fibrosis, IPF. You can get an idea of how it feels to have the symptoms of IPF by taking half breaths for about 30 seconds or so. I, I won't get you all to do it now, but you start to experience a physical reaction and almost a panic, and you really want to draw in, in breath.
Essentially, this is what sufferers experience all the time as lung function declines. I mean, amazingly, in the U.K., IPF accounts for 1% of all deaths each year, and there are again, estimated to be about a million prevalent cases worldwide. The market opportunity is also very big, and we have it at about GBP 4 billion currently. In this context, and given the market opportunity and our strategy to focus more of our capital on fewer significant opportunities, in the period, we've invested GBP 15 million into Istesso, with a commitment of a further GBP 10 million in 2024, which fully funds both of those trials. The IPF will be a phase II. It's gonna be commencing shortly this year. We'll announce when it starts, and we're targeting a readout in late 2024.
We, we believe this will significantly increase the upside value case for the company, with the downside limited to that incremental investment amount. As a reminder, we own over half of it, of Istesso. We've invested about GBP 40 odd million. We currently value that at GBP 113-GBP 114, as you can see on the slide. Just as a, a reminder for sort of the market context, I mentioned earlier, one of the bright spots so far was this sort of 5x pickup in biotech M&A in Q1. This included an acquisition of a business called Nimbus by Takeda Pharmaceutical Company, which is a GBP 4 billion acquisition up front, with a couple of billion of milestones. Nimbus is developing a JAK inhibitor, I think, or a TYK2 inhibitor, for the autoimmune position, psoriasis.
This was a phase II company, so, and it's not a direct read across, but it's at least indicative of strong interest in this general space. Great progress. On Istesso, we're fully funded to deliver two phase II trials next year. Key, key value inflection points for the group. I'll now shift tack a little bit and talk about a company called Garrison. Many of you might well be less aware of this one. It's been sort of quietly delivering strong revenue growth, though, and so I wanted to highlight their progress as one of those, those value drivers to watch. Frame it, the problem that Garrison solves is one that I imagine pretty much everyone on this call will be able to re-relate to.
It's primarily mitigating against sort of ransomware and phishing attacks. People will probably be aware that the average cost of a data breach in 2023, according to IBM, was $4.5 million. It's a very significant market, and there are various ways to measure it, but we certainly have the TAM at sort of multi-billions of dollars, certainly more than large enough to be no constraint on Garrison's growth. What Garrison has done is they have developed and are selling a new security product, and it's far more effective than the current solutions. Indeed, it increases your the sort of the success rate of preventing malware attacks from about 30% up to close to 100%. The, and the solution is sort of quite simple in, in concept, it's but, but very difficult to deliver technically.
I mean, essentially, they have a, a hardware appliance, and it sits on the edge of a, of a corporate network, and when employees browse the internet, the content sort of goes through the appliance, and essentially you use video technology to show the employee the content on the internet without any direct connection. It's not possible for malware and spyware, et cetera, to get into your corporate network. Until reasonably recently, Garrison's solution was on premise, and so key customers in were sort of U.K. and other governments, and they wanted ultra-secured browsing. They also had a number of blue chip customers, such as Lloyds Banking Group, Fujitsu, Vodafone Business. But in the last year or so, Garrison has now launched a cloud product, Ultra, and that's seeing strong early traction with customers.
During the first half, they have a year-end to March. During the first half of this year, Garrison hit annual revenue of GBP 19.5 million, and that's 64% year-on-year growth over the last four years. It's growing very strongly into a very significant market. The company completed an oversubscribed funding round during the half, bringing in LMG Ventures, Lincoln General Ventures, as well as BBC. We invested about GBP 4 million in that round, and we own just under a quarter of the company. The plan here is to support that business through continued revenue growth, and it will, it will accrue significant value as a result of doing so. That's, that's an example of progress in the Tech Enrich future side.
Then on, on Hysata, I mean, this is genuinely one of the most exciting new companies to emerge from our sort of university sourcing over the last couple of years. It's undoubtedly the case, and those who joined the half year results this time last year will have seen an overview by CEO, Paul Barrett. That followed the completion of the funding round that they did, the GBP 42 million Series A back in July last year. That's available on the IR section of our website if you would like to go back and have a look at it. The vision of this business is to completely redefine the economics of green hydrogen, and it's a vast market opportunity. I mentioned those numbers from the Hydrogen Council and McKinsey earlier. That's GBP 700 billion to 2030.
Overall, green hydrogen is expected to contribute about 20% of the total abatement required to 2050, and this is particularly relevant for the harder to abate sectors such as steel and chemicals, and maybe heavy transport. Electrolyzers are the key technology for producing this green hydrogen. The real challenge at the moment is that current electrolyzers are, they're complex, they're expensive, and there's only really been incremental operating efficiency improvement over the last 50 years. Now, Paul and team aim to address this huge opportunity through a completely novel approach to hydrogen electrolysis. It's called capillary-fed electrolysis, and they published in Nature with our support and have demonstrated 95% system efficiency compared to the current best of around 70%-75% efficiency.
Probably, perhaps unsurprisingly, given that's the market opportunity and the huge differentiation, Hysata received unprecedented commercial interest for potential customers, like, of a scale that we haven't seen in early companies like this before. Like multi-gigawatt scale orders, of course, providing the technology can be delivered at scale. So over the last, sort of 12 months since that funding round, they have done significant work on system development, and the manufacturing is highly scalable. It's got abundant raw materials, and we plan to do large-scale manufacturing through contract manufacturing. And the, the company, as you'll see on the slide, that's also attracting really world-class talent. They recently announced the former chief commercial officer at BHP as their chairperson.
They've got Australia's former chief scientist as the chair of their advisory board, and they're attracting talent from the likes of sort of Apple and Tesla into the engineering team. Really world-class team. In terms of progress, they hit a really challenging technical milestone in the period. Full details of which they're going to announce shortly, so I won't steal their thunder, but it was essentially connected to replicating the performance of that single cell at a greater scale. I will say, this usually takes electrochemistry companies sort of several years. For the team to do it in such a short period of time with relatively limited resources, is a really remarkable achievement. Not only that, they announced around GBP 10 million of grants from the Australian and German governments.
While the Series A funds the company to sort of mid 2024, we do expect the exceptional progress to trigger an earlier Series B, and there's been a bit of press speculation on that front. We own about half of the company, and given the significant progress, we took a small uplift of GBP 8 million to the total value of our holding, which is up to GBP 31 million. We've invested about GBP 13 million into the company. Really strong progress across those, some of those companies that I highlighted back in March. With that, I will hand on to Dave for the summary of the financial results.
Excellent. Thank you, Greg. Hello, everybody. Yes, I'm David Baynes. I'll just briefly take you through the financial numbers. As Greg's already told you, we've strong cash position, about GBP 250 million of gross cash. That's actually more than we had at the year-end, and more than we had at this time last year. We've managed to achieve that really through two ways. We had the, the debt facility, we'll talk about a bit, that's allowed us to draw down GBP 120 million of debt, and we've also had the exits as planned, about GBP 33 million worth of exits coming out.
As Greg has already said, we had a loss of about GBP 55 million in the period, and that's why you see the NAV has, has, weakened slightly from sort of about GBP 1.32-GBP 1.33 to about GBP 1.26-GBP 1.27 per share. Also as Greg has pointed out, a lot of that was due to Nanopore, and actually, Nanopore reversed in July, just after the results, and actually has made a profit of GBP 42 million in the last month. Actually, as we stand now, much of that actual loss has been eliminated. We're in a strong financial position, and that's why we're continuing with our dividend, slightly up from last year, at this time last year, at GBP 0.51 . Diving down into that GBP 55 million loss, what was it?
Well, it was basically GBP 44 million loss in the portfolio and about GBP 10.5 million of overheads. If you look at that, again, point already made, but actually, you know, about GBP 30 million of that loss came from the credit portfolio. The most of that was Nanopore, GBP 28 million of it. Not so obvious was the element of the foreign exchange. Some of it is a foreign exchange loss. You've got about, about GBP 11 million. That happened because the pound strengthened, and ironically, because as the pound strengthens, it means you're getting less for some of our overseas-denominated assets. It meant the U.S. platform net portfolio and the Australian platform net portfolio have actually sustained a foreign exchange loss when you convert them back into, into British pounds.
The other, other small elements, small reduction in the LPs, actually the private portfolio, small profit in the period, that was 'cause we've taken a small uplift on Hysata, that's also affected on the other side. Nothing particularly unique about the performance of any of the divisions, actually, Cleantech did achieve a small uplift in the period because of that Hysata point. When we look at the net assets in the balance sheet, as you'd expect, that small loss of GBP 55 million, relatively small compared with NAV, that is. The NAV hasn't moved by much. It's reduced by GBP 61 million, which is the loss, plus the element of the dividend that we've paid out in the first half of the year.
Perhaps that slide there on the right is a little bit more interesting, that GBP 1.26 per share. When you look at what makes that up, GBP 0.10 is net cash, and then you get just the five assets we pretty much touched on today, you get GBP 0.62. Well, we started trading at GBP 0.60 this morning. I think we're about GBP 0.58. The whole of the market cap is accounted for by cash and those top five assets. Everything else in our portfolio, and actually, the whole of the U.S. platform, the whole of the Australian platform, and another 88 companies, are actually currently not factored in at all, GBP 0.715. No enormous change in portfolio composition and concentration from year-end. You wouldn't really expect it to be.
Nanopore was down, I think it was about 16% at year-end. That's because it's down a small amount. You pretty much, when you put Nanopore and life sciences together, about half the portfolio in life science type opportunities. The only other thing to note, as we said at the year-end, clean tech beginning to grow, it was 19% at the year-end, it's now 21%, beginning to I think we expect to see that continuing, that pattern. On the right there, as before, at the year-end, about 74% of our value was concentrated in the top 20 assets. It's now 70%. That just affects them, a slight reduction in Nanopore again.
It shows that actually, despite having a very large portfolio, which is the nature of the model, actually, a lot of the value is concentrated in a small number of assets. I always say at this stage that cash flows kind of tell the story of the year, and I think that's the same as always. We know that cash is slightly up on, on the period, and that's really made of an investment of about GBP 60 million. Now, to give you a guide, we'll do a similar amount, slightly less in the second half. As a guide, GBP 100 million-GBP 110 million, probably invested in the year, slightly up from last year, which was GBP 93 million, and that's been entirely funded by obviously drawing down the second tranche of that case for GBP 60 million. It's a way of looking at it.
The realization for GBP 31 million paid for all of the dividends, it paid for that GBP 10.5 million worth of net costs and any working capital. That's pretty much how the cash flow worked out, worth just slightly making the point. Those, those gross costs were actually GBP 12.1 million. They're pretty much exactly the same period on period. Costs have remained pretty consistent over the two periods. I won't go on about this slide further. We know this. We know that the cash is strong. We know that if you include the liquidity in Nanopore, actually got about GBP 450 million of liquidity, and we know cash proceeds are on target. We have this well-funded debt position.
What we know, people know less about, I think, is how well the portfolio is funded. It's interesting when you look at that. If you look at just the companies we hold above GBP 4 million, that actually makes slightly over 90% of the portfolio by value. A third of that is funded profit. That doesn't mean they won't raise money. They might IPO, for example, and raise money. They don't actually have to. They are, they are funded to profit a third of it. In fact, slightly more remarkably, only 16% of our portfolio needs to raise money over the next year. That's between now and the end of the next interim, so technically 11 months. Over the next year, only 16%.
It's not really until the second half of 2024, you start getting a significant larger number, then the rest of 22%-24% aren't until 2025 and beyond. I think that shows that not only is the top co strong, but the portfolio companies are strong, and, you know, hopefully, with the kind of the turn in the tech market we saw really after the end of 2021, you know, that'll be into its third year before we start trying to fund some of those companies. One other point I wanted to make is a point that we've made many a time before, but no harm in repeating ourselves. We consider the portfolio, despite its significant discount from the share price side, is very fairly valued.
The auditors always say we are mildly cautious in our valuations, and we did actually do a deep dive seminar on valuations. I think a lot of you participated, and thank you for that. Many of the message is the same. About 16% of our portfolio is, is valued mark to market, and then you've got 35% on a, on a funding round without adjustment, and 23% on a funding round where we've made some slight adjustments up or down. It means 75% of the portfolio is either a publicly marked or a relatively recent funding valuation. The rest of the portfolio, even those valued on revenue multiples, a very fair way of valuing companies and discounted cash flows.
Actually, you know, we have a well and fairly valued portfolio, and to endorse that fairly value point, it's probably worth just having a quick look at what we've seen out in the market in terms of how our companies have performed. If our companies were being carried at too high a value on the private side, you'd see it when the valuations, when they did fundraisings, because you'd see, were they able to sustain the prices. For the past year, last year, this time last year, there have been 13 fundraisings. You can see about half of them were actually up, you know, about 30%, 40% flat, small amount down. In the second half of last year, on 16 fundraisings, 75% were up, with a, a relatively small amount, flatter down, and we've seen that again. Here you are again.
You've got about 70% plus are actually still being up, a relatively small number, flatter down. It's only about two companies out of 14 are actually down. That seems to support our premise. Interesting, because of our position as kind of the leaders in the U.K. in this space, we get very good insights as part of Walker's business as well. And they made nine investments in the period, six up, three flat, none down. I think we feel pretty comfortable with our valuations in summary. To my last slide, and then I'll, I'll summarize. This is probably the last time I'll talk to the debt. We negotiated this last, we've now drawn it all down. We've drawn down the second tranche. The point that's probably worth making, we did have a good time in the cycle.
We've got it fixed at 5.25% interest. At the moment, the average we're getting on our funds deposits, some of which have been deposited for a while, is 5.55. We're actually getting more than we're paying. On the new deposits we're making, we're getting 6.1. Obviously, that's worked very well for us, and sort of self-funding debt. In very quick summary, what have I said? We know what we've been, number one, we're well-funded, two, our portfolio is well-funded, and three, we believe our portfolio is fairly valued. I'll hand back to Greg.
Thanks, Dave. I'll quickly summarize before we get on to questions. Firstly, a reminder of the investment case. I mean, the simple investment case, we offer liquid, diversified exposure to high-growth innovation companies across some of the most important investing themes over the coming decades. That's life sciences, clean tech, and deep tech, and those are investments making a genuine impact. I think we're particularly well-positioned for this sort of site, superpower and long-term capital agenda. In terms of the key points, from the half year, as Dave said, you know, NAV was down a little bit to the half year, but it's broadly flat at today's date of around 130p. Our portfolio companies are making strong progress, as Dave just described. They're very well funded, and the group continues to be financially strong.
I think maintaining that sustainable position for IP Group is something that we consider is particularly important. We don't want to go back to the days of raising capital every two or three years, so we have taken significant steps to ensure that we are self-funding in that regard. A quick reminder of the key value inflection points, and hopefully recapping a little bit on what I said earlier. You've got about 25p or about 40% of NAV in portfolio, market cap in 12 clinical assets with seven readouts in the next 18 months. There's about a third of our market cap in NAV in Hinge Health, that are both growing very healthily at double-digit revenues.
There's about 10p of NAV in three companies that are delivering double-digit revenue growth in the deep tech space, and then there's a further 20p in First Light, Oxa, and Metsera. Looking forward, we believe that supports the fact that sort of organically, the group is positioned for a really quite transformative period over the next 12-18 months. With that, I thank you all very much for your attention, and we will now turn to questions with Dave.
Excellent.
Dave, Dave will comment there. Flicking through the questions, there's a few detailed ones that people might have. Things like value of specific companies, I might suggest that we just reply to those and to the individuals in person.
Online.
Yeah, we can do it through, through the platform. I mean, not that I'm, not to hide sort of thing, but.
Happy to be guided. It sounds very sensible. Yes, we'll have a go. I have to say, good timing, well done. We aimed for 40 minutes, we're at 39, even with that slight glitch. Sorry about that. I'm sure my computer will get the blame. The very first question: At the annual results in March, it was stated that a core objective of the board was to reduce the NAV discount gap to the share price, which at the time stood at 59%. It's not much different now. Can you please advise what steps have been taken to reduce the NAV discount gap, and whether you believe you've delivered upon this objective as of today? I'll hand that to you, Greg. It's a tricky question for that one.
Yeah, no, no. Look, this, this clearly is the, the challenge to the business at the moment. You know, the portfolio is going really well. We've put ourselves in a sustainable financial position. Currently, we have a significant discount to NAV. I included a comment on the steps that we've taken in the first half or in the sort of three, four months, since we are five months since we announced our full year results. You know, that objectively, we don't think that we've delivered upon that objective. We continue to significantly drive the, the sort of the, the input activity, should we say.
Firstly, we've continued with the approach of supporting our capital growth with some cash realizations, a proportion of our realizations in the period. It's, you know, declared an interim dividend, and we've significantly increased our IR activities. I'll come on and talk about that. We did a, you know, big event at the Science Museum, and we were really sort of delivering sort of thought leadership there around how the U.K. can support U.K. innovation companies. And showcased a number of our businesses, so you can get engaged with the CD, CD type around those companies and their potential. We spent a lot of time engaging with new shareholders and existing shareholders.
That includes across Europe, the U.S., we'll be off to various other destinations, and we've refreshed our brand identity. They're all relatively small things, and I think it's fair to say that objectively we haven't achieved that yet. We do believe that the best way to deliver that shareholder value over time is to continue growing the NAV per share, and the, you know, which we will, we will supplement with cash. If we have a huge realization, then obviously we'll think sensibly about what we do with the money and not all cash. We, we want to be sustainable but efficient.
Thank you. You're gonna remain in the crosshairs for some time. I think most of these questions look like CEO questions to me.
Yeah.
Is Istesso now becoming a major holding? It says nearly 20% of data. Oh, of market cap. I see. Yes, fair point. It is 20% of market cap. Any plans to reduce the shareholding in Istesso? One thing.
Not ahead of the, not ahead of the, the results next year. It's, it's plausible that we might raise a little bit of incremental capital. We know we've fully funded the trials, and we could do a bit more with a little bit more cash, but in essence, we've put the business in a position to deliver on those two critical milestones. Shareholders will benefit from the risk to award of that, which we think is sort of significantly on the upside. No, no immediate plans.
Another, again for you, I think. Any update on the China fund? There's a small paragraph, but any update above that?
Nothing more specific than what we've said in the results. We haven't, haven't closed the China funds, and, you know, we continue to look at it.
Again, an area of your expertise, importance of Horizon to U.K., any lobbying by IP Group in that area?
Yeah, I mean, this all falls into the, the general, the general sort of, the, of those three Cs I often talk about, the sort of the capital, the conditions, and the, and the consumers. On the conditions side, definitely Horizon is one that we've significantly, lobby is probably a bit strong, but certainly when we've spoken to a number of ministers involved, and outlined the importance of this for our sector. I think it offers a significant benefit to the U.K. to be part of a more international operation, and Horizon looks like it is the best one of those. The government talks about, you know, sort of a credible plan B.
We do, we do continue to push on that front, and it, it affects fundamental research, and it affects the ability of some of our companies to access both capital and talent. We, we certainly have been speaking where, where we can on that front.
Next one might fall into the category of detail question. I'm gonna give it to you anyway. Is it, is it so difficult to sell the small sharing 1.8% in Hinge? It's worth about GBP 60 million, which would provide good funding for the group. I sense that it is locked in. Question, its value is a relatively small stake, is what it then says. Basically, he's asking, would you consider selling Hinge?
Well, I mean, we, it's probably not appropriate to comment on specific stocks, but the point is well made about good funding source. I think when we've given lifestyle updates before, we have said that that's one that we would, we, we would consider realization for sure.
Next more general, and it's a question that traditionally comes up a lot, and so I'll definitely give this to you, Greg. How confident do you feel on the outlook? More importantly, perhaps, and why not buy shares back in the company, given the very low share price?
This is a discussion that we have a lot with the main shareholders, and we'll be off on the roadshow again over the next sort of couple of weeks, I'll refresh that view. Our view is that there is more of a premium around being a sustainable business. We generally invest in private companies, where you can't sort of trade in and out of our businesses like you could if you were running a listed investment trust. We're very confident in the prospects for the future, and buying back shares would have an incremental impact on the net per share.
And it is, is obviously attractive, and, and I think the appropriate thing to do, which we've set out, is when we have a significant realization, a proportion of that is used to support, our capital returns, and we, we maintain a small dividend. Clearly, if we have, you know, a big success, then we would, we'd use that with, to, to create shareholder value in that way for sure. As a shareholder, I, you know, I'm a shareholder myself, I, I would completely agree with that approach.
Probably time for me to do a little bit of work, but not much. GBP 60 million invested in the first half. What were the second and third largest investment opportunities, Esther? You're right, we invested GBP 15 million, and as you can see, we potentially committed up to GBP 25 million, so that both those clinical trials are fully funded as required for them to be launched. The second one was an investment we made in our U.S. platform, about GBP 6.6 million in the period, and our third was Hysata, we put GBP 4.7 million. Both obviously sensible places to put our money. Next one's a little bit technical. Either me or Greg. Greg, I guess you explain.
Just, just say to, up to, the person who submitted that question, thank you. We do appreciate the, all the detailed comments. Just to say that the largest five or six investments and the largest five or six sources of cash proceeds are disclosed in the release.
Yeah. Quite understand, we have to go quite a few pages back to get that. You may not have got there by 10 :00 A.M., which we entirely understand.
Yeah.
There's, there's quite a lot of in there. Can we explain the voting structure for Istesso, specifically, how you have less than 50% of the votes with 50%-56.5% sharing? Shall I have a quick to that one? Yeah, you are right. It, it's not uncommon in venture structures to have different classes of share with different rights, quite frankly. Sometimes they have additional presence rights, sometimes classes have different voting rights. In our case, we have about 43, 42.8 voting rights in that company at the moment. And that's just a product of the investments we've made and the agreements we've reached during that period.
As with any venture investment, you still have relatively significant influence compared with, let's say, a public company, because there are always restrictions in the shareholder agreement of things like what a company can do, such as selling itself, entering new agreements, raising money. It's probably less pertinent than it might be in other companies, and that's why that happens. Two questions from you, Odysseus. Right. Nice to have you here. I haven't read this one yet, so we'll find out. Quite a strong half in investment funds. Is that more due to unusual high funding needs of your holdings, or is it more opportunistic? You know, if you're using your cash to invest in several attractively valued opportunities. Question number one.
Second, given the delay on the First Light Fusion funding round, have your valuation expectations changed? Are you still confident First Light Fusion's value in your books allows for a fair value gain post-funding? Should I have a go on those? I feel a bit like my area. It is quite as strong. Well, actually, what we've done is we've managed our cash very well. It's allowed us to maintain our levels of investment, so from GBP 63 million to GBP 93 million, I probably do GBP 110 million this year. It's allowed us to support a growing portfolio while being sensible about the amount we invest, as I explained earlier during the presentation. It's an increase from last year, but not, not too sizable. It's just, you know, it's allowing us to, in difficult times, expand our portfolio.
It's not necessarily because our companies have necessarily needed more. It's more us taking the opportunity to invest in bigger companies, I would say. On First Light Fusion, our valuation expectations, I think in this current market, ever since the market turned at the end of 2021, the likely value of the next round, we have tempered a little bit, but we still feel very confident it's likely to raise money well above the value that we carry it at. Obviously, if the funding round goes on for too long, we'll have to review that later. That's that. There's another question about, does decision not to buy back own shares reflect sharp fall in net cash in half one? Not really. Our cash position is strong, but I fully understand the question.
As we explained, no, I think Greg's already explained why we haven't really been buying back shares at the moment.
Yeah, I think that was a net cash point. I think it's worth making the point we've got, the debt goes out to 2027, 2028, 2029. We obviously look at net cash and gross cash. Gross cash is the sort of the ability to invest, but our forecast for realization in some of those out years is clearly intended to maintain that sort of sustainable position for the group.
Okay, next one. I'm not quite sure we did mention it. You mentioned that investments so far this year have been minimal. I'm not sure they have actually, about GBP 59 million has been quite good. You were looking to invest in new companies during the second half. Do you notify shareholders by an RNS, and when you have invested, giving details of the reason and potential of such investment? If not, why not?
Yeah, yeah. Thanks, Russell. That comment was I was just sort of covering what I'd said the focus was for the Kiko team on the clean tech side, and that's new, new companies. The, the way that the funding for our companies often works is relatively small initial investments, and then we scale the investment in subsequent rounds as the companies hit milestones, or preferably, if they're not going to hit those milestones, then we are able to close them relatively early. That's a core part of the model. We tend to not announce individual new investments because of the, the, the quantum compared to, you know, market cap, et cetera. We do try to give details of those.
If you have a look at our annual report, we give quite a lot of detail on the investment case for a number of the new businesses that we've made in the year. Setting out exactly that, the potential and why we backed it. There was one in the deep tech portfolio, again, that we've described in the RNS during this period. We tend not to do an RNS on each individual new investment, just because of the, you know, the quantum that that would be. We do update at the full year and the half year. Hopefully that helps.
Yeah. I have, I have moved over a few questions, as if you say they're technical and company specific. There's a question about Garrison being close to how, when many people are achieving. Mark, are you there? I can't see you. I don't know if you're with us. Are you there? Do you want to refer talk to Garrison, if you're with us? Oh, there you are. Sorry.
I am here, yes. Look, I think we ought not to disclose the specifics of recent numbers on behalf of the company. I think that's up for them to release, and they haven't done yet. They have allowed us to talk about their revenue, which, as we said, is close to GBP 20 million this year. Their past year revenues are on Companies House, that's public information. Their margins and corresponding losses are on Companies House, you can see the trajectory of that business. Look, it's doing very well, it's moving towards a profitable position, and we're very pleased with that.
Great. Thank you for that. Thanks very much. There's a question about what happens to valuation of SaltPay. Very little. It's only changed by a very small amount. There's a question about Centessa, what its value was at the earn, it's about GBP 12.3 million. There's a question about what's the mix of new investors during recent funding rounds of the portfolio companies? How many of them are VCs compared to non-VCs? Would you like to refer to that, Greg?
Sure.
I know there's information in the release.
Yeah, there's a bit of it. Again, we try to put information in the release, both around specific companies, where they release the information, and also the overall mix of the types of investors that are investing in our in our portfolio company. I mean, the general trend that we've seen, and that the market has seen more generally, is that there's been a bit of a reduction in financial investors and corporate VCs have maintained or even increased in some cases. I'm talking sort of very generally across the sector.
If you have a look at the nature of the investors in our rounds, it ranges from people like LBG Capital Venture Fund, who came into Garrison, to certain specific venture vehicles, or indeed, there's quite a lot of customer and corporate investment in the Oxford round, for example. Mark, I don't know whether you wanted to add anything on whether you're seeing anything particularly unusual or different on, in your companies?
No, I wouldn't say so. I think what you said is a fair summary.
Thank you. Next question, perhaps I'll, I'll answer this one. Net cash has fallen by 42% over the last year. Do you expect the group to move into a net debt position over the next two years? What sort of gearing are you guys comfortable? The answer I'd give to that is, actually, we're looking not to move into net debt generally. We are building our capital allocation models not to do so. Clearly, you know, we plan, we plan forward three years. We are, you know, pretty conservative approach on that, and we've managed it well to date. We have the advantage, of course, we can always decide how much we invest into companies. It's allowed us to control our cash flow relatively well, actually. The answer to that, no.
As for gearing in general, we don't plan to gear any more than we are now. I can pretty much answer that question. About 10% of NAV feels comfortable to me. If about 1.3, 1.4 of, of, of NAV, you can have about GBP 140 million of, of, of debt. If, when that NAV grows, it's quite likely to, with things like Istesso and Hysata and hopefully, Oxford Nanopore, that might give the opportunity to slightly increase that gearing level. I, I wouldn't personally want a CFOO, want to go above about 10%. I think the board agrees with that. Quite a good, good question. All good questions, this is a good one, I'm going to give it to you, Greg.
Given IP discount, what are the main reasons you get from potential new investors on why they're not investing in IP? Something to answer.
Yeah. I mean, we're trying to make it as difficult as possible for them to give such reasons, but clearly, people are still withdrawing at a discount. I mean, one of the most common at the moment, and I'm using Berenberg data here, so I hope it's all right to do so, Odysseus. But one, one of the most common reasons is, sort of, it's not the market for these types of investments, seems to be quite a common response to the position. You know, they're,
as you've seen, I've tried to give a bit of market context that shows that we think that the, the venture funding environment has, has improved somewhat, and clearly the quoted markets have had quite a run, particularly in, on the tech side in the U.S., albeit focused on a handful of companies. I think it's that, that does tend to be one. One is around, we could make it clearer the success that we've had to date, the track records that we're trying to build into our reporting, more of the sort of typical VC type metrics.
Things like return- we tend to try to quote the net return on NAV over the entire period, but as we move towards having these sectors in place for, you know, sort of three, four, five years, we'll be starting to disclose the IRRs of those sectors. Of course, we're doing the individual companies as well. That, that can be one. Another one that we hear is it's quite a complicated story to get your head around. Similarly, part of the logic for the strategy is A, to help to drive to greater value creation, but also to make the story easier to digest. That sort of simple investments are being packed across those three themes. With those three key value drivers, is trying to get it sort of as simple as possible.
I think that's, that's the probably a few of the, few of the reasons that we get.
Yeah, I'm down to my last few questions. We don't have to go until the end. There's one that's a statement saying, "I think you should continue not to do share buybacks." That's obviously an opinion. It's a thing that people debate about long and hard. How big a stake, how big a stake in IP Group is held by staff and directors? That's sort of fully disclosed in the, in the, the documents.
Yeah, I, I mean, it's fair to say that we, we have a policy, which I'm definitely building towards, to have, I think it's 3.5x my salary in IP Group shares. I continue to buy shares periodically. Half of my bonus is deferred into shares, and all of my long-term incentive is in the form of shares. I'm very aligned behind having a shareholding and making sure the share price is as buoyant as it can be.
Yeah, I think I'm in the same place. I might be only three times salary or something, but I'm similar, very similar place. Quick question, quick FX question. You mentioned a lot of trips to FX. Do we ever attempt to hedge FX? I haven't normally had to hedge FX because we've also had commitments as well, so it's kind of self-hedging traditionally. You know, you, you use dollars when you're investing in these other territories. We have, though, hedged in the case of, for example, an exit in the U.S., and we hedged on that foreign currency risk. It's mostly been self-hedging, and where it hasn't, we have done so. To answer that, I think this is the last question.
Given that IP Group is a small cap category, does that mean you're excluded from the mandate of institutional capitalists? How can you better attract more institutional capital to the shares? Last question, probably for you, Greg Smith, can I throw that one?
Yeah, great. Great question, Neerav. I mean, we've, for a relatively small cap company, we've got quite a few blue chip share register. I mean, the share register at the half year is in the back of, oh, I flipped through the slides, but it's in the back of the presentation, so you can see. I mentioned earlier, we've got quite a number of institutions. The one of the other challenges that we face a bit at the moment, and it is quite circular or self-fulfilling, is that the, because of the size of the market cap and because we've got quite a steady, sticky top, sort of 10 or so shareholders, the proportion of our free float, which is liquid and therefore available to trade, means we've got quite an illiquid share price.
It's not uncommon in the U.K. markets at the moment. See earlier comments on equity ownership. We do bump up occasionally against people who have daily liquidity risk tolerance, who would like to have exposure to venture, you know, sort of listed venture, for want of a better phrase. One of the things we are mindful of is, you, you might have seen there's a couple of other smaller vehicles doing similar to what we're doing. Generally speaking, when you get down below sort of GBP 100 million or GBP 200 million in market cap, it's very hard to escape from that. Scale of this vehicle is quite important, not to the detriment of performance by any stretch of the imagination.
In terms of how do we better attract institutional capital, clearly, we go after the long-term pools, so pension funds, sovereign wealth funds, family offices, and particularly, as I mentioned earlier, the ESG and sort of impact focus funds. You know, we don't market ourselves as a sort of regulated impact stock, clearly the underlying drivers of pretty much every company that we have in the portfolio is delivering genuine, real world impact. That's, that's how we position it with those holders.
Thank you. I think we're going to call it perfect timing, 11:01 A.M. Well, luck and good judgment. A couple of questions, not many, about four we haven't answered, but we will make sure we do those offline. You know, because specifically about companies or whatever. I will just therefore hand back to Greg for the final comments.
Thank you. I just wanted to very quickly. I mentioned this at the start, and it points to this thing around, you know, how do we make sure we're attractive to institutional capital holders, and indeed, that we can help investors to understand what's in the portfolio and how we go about delivering value. We have a very active program of events. You can see the five events that we've already completed this year. Hopefully, the investor update with Gordon and Peter on the genomics space was, you know, good insight into that space. These half-year results, we are doing virtually as always.
We've got a deep tech event, we've got an ESG deep dive, ESG and impact deep dive, and we've got a clean tech event coming up this half. We will probably be looking to redo our deep tech conference in Asia with our portfolio companies in the first half of next year. Very, very active on, in this space.
Greg, David, Mark, thank you for updating investors today and for addressing all those questions. Could I please ask investors not to close this session, as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of IP Group PLC, we'd like to thank you for attending today's presentation. Good morning to you all.