REG - NetScientific PLC - Preliminary Results for the year ended 31 Dec 2023
13/06/2024 07:00
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RNS Number : 2472S NetScientific PLC 13 June 2024
RNS: 7.00 a.m. on 13 June 2024
NetScientific plc
("NetScientific", the "Company" or the "Group")
Preliminary Results for the year ended 31 December 2023
Assets Under Management now over £100m
NetScientific Plc (AIM: NSCI), the deep tech and life sciences VC investment
group, announces its preliminary results for the year ended 31 December 2023.
Investor Presentation
As announced on 31 May 2024, the Company will hold a live online presentation
for investors later today at 10:30 a.m. on the Investor Meet Company platform.
Investors can join the live presentation via:
https://www.investormeetcompany.com/netscientific-plc/register-investor
(https://linkprotect.cudasvc.com/url?a=https%3a%2f%2fwww.investormeetcompany.com%2fnetscientific-plc%2fregister-investor&c=E,1,psV1pJJLnqjngp09fWj2O3NEJc21AZ7zQoaaHP58XwHit4uv3RaLhSyE5PaVz_bTeI7MBiHdvT8RI5Y6iHCoA41s_MnvBD_PRHa9fvEdKakip4odEJHzttA,&typo=1)
.
Financial and Operational Highlights
We have made good progress on consolidating our position, protecting our
portfolio with some notable successes, in a difficult market environment.
· Assets Under Management
o Total Assets Under Management were estimated at £74.0 million at year
end (2022: £68.9 million) and estimated at over £100 million post balance
sheet (combining both balance sheet investments of £16.4 million,
subsidiaries and associates at directors' valuations of £19.2 million, £4.0
million of post balance sheet movements and third-party stakes (for which EMV
Capital has carried interest fee arrangements) with an estimated value of
£62.4 million).
o Fair Value of the direct holdings decreased by c.15% to £35.6 million
(2022: £41.8 million), combining both balance sheet investments of £16.4
million, subsidiaries and associates at directors' valuations of £19.2
million, primarily driven by the decline in value of our PDS Biotech holding,
partially offset by an increase in the value of our private unlisted portfolio
of c.15% to £31.3 million (2022: £27.1 million).
o Fair value of our managed and third-party holdings has increased by c.42%
to £38.4 million (2022: £27.1 million).
· Portfolio size and performance
o 13 portfolio companies raised an aggregate amount of £53.9 million
through equity and debt, including EMV Capital syndicated investments during
the year of c.£6.2 million (2022: £5.3 million).
o Post balance sheet date the portfolio has increased to over 70 companies.
· Group performance
o The Group's performance includes the 'operational core' of NetScientific
and EMV Capital, as well as portfolio companies where the Group has over a 50
per cent. shareholding.
o Group income increased to £3.8 million (2022: £1.8 million).
§ EMV Capital revenue increased by c.40 per cent. to £1.6 million
(2022: £1.2 million), with a profit of £0.2 million, covering c.50% of core
costs.
§ Cash gain of £0.5 million from portfolio realisations of £1.4
million.
§ Other subsidiary income of £0.3m (ProAxsis)
§ One-off non-cash gain of £1.4m after third party fund-raise for
DName-iT (deemed disposal of a subsidiary)
· Group loss for the year decreased to £2.9 million (2022: £3.7
million)
§ NetScientific and EMV Capital had a loss of £1.1 million (2022:
£1.2 million).
§ The balance of £1.8 million of losses (2022: £2.5 million) is
attributed to the subsidiary portfolio companies Cetromed, ProAxsis and
Glycotest. Operational subsidiaries were funded by external investors during
the year.
· Total assets stood at £22.5 million (2022: £29.0 million) and
net assets at £17.1 million (2022: £25.2 million).
· Cash on the balance sheet was £0.2 million (2022: £0.9 million),
with cash at £0.8 million and a further c.£2.6 million held as readily
realisable quoted securities at 31 May 2024.
· Operational portfolio subsidiaries:
o ProAxsis: During 2023 ProAxsis operations were funded through sales and
grant income, and convertible loans of £0.4 million from third party
investors. As noted below, post balance sheet date such convertible loans
converted into an equity round that valued ProAxsis at £8 million. ProAxsis
has appointed an M&A adviser, exploring strategic options for the business
including partnership or full sale.
o Glycotest: Glycotest completed the enrolment and data cleaning phases of
the HCC Panel clinical study, identified improvements and closed an additional
follow-on investment round of c.$2 million from Fosun Pharma and private
investors introduced by EMV Capital.
Post balance sheet events
* Martlet Capital: On 13 May 2024, NetScientific announced that EMV Capital had
been appointed as investment manager to Cambridge-based early-stage venture
capital firm, Martlet Capital, to manage on a discretionary basis its c.£23.3
million portfolio of investments (Martlet Portfolio). In addition, EMV Capital
acquired the operational venture capital business of Martlet Capital,
excluding the Martlet Portfolio. This non-dilutive transaction adds additional
recurring annual management fees and carried interest over the Martlet
Portfolio.
* EMV Capital: became directly FCA authorised, allowing it to progress its fund
management practice.
* EMV Capital Evergreen EIS Fund:EMV Capital appointed as fund manager with
assets under management of c.£1.2 million post balance sheet date.
* Exercise of Options and Issue of Shares:On 5 February 2024, NetScientific
announced the exercise by John Clarkson (former NetScientific Chair) of
options over 254,977 ordinary shares in the capital of NetScientific for an
aggregate exercise price of £116,015 and the subscription for 116,548 new
ordinary shares in the capital of the Company at a price of £0.626 per share
by John Clarkson and two other service providers to the Company in settlement
of services provided by them to the Company to such value.
* Glycotest:On 9 February 2024, NetScientific's subsidiary company Glycotest
issued 1,970,434 preferred stock, par value $0.001 at a price per share of
$0.5075 of additional follow-on investment of c.£0.8 million from its
existing shareholder, Fosun Industrial Co., Limited. It also issued 2,786,449
preferred stock, par value $0.001 at a price per share of $0.3045 in
connection with the conversion of convertible loan notes and interest thereon,
valued in total at c.£0.7 million.
* ProAxsis:On 15 April 2024, NetScientific announced the successful closing of a
c.£1.8 million investment, by ProAxsis, including c.£211,000 from new
investors, c.£36,000 from the exercise of warrants granted to existing
investors in connection with convertible loan notes (CLNs), the conversion of
the CLNs (and interest thereon) valued in total at c.£455,000, and the
conversion of loans from NetScientific valued at c.£776,000. This
additional funding was complemented by ongoing non-dilutive funding from a
recent c.£333,000 grant from Innovate UK.Following the investment round,
the Company's direct stake in ProAxsis is 90.66 per cent, which is estimated
by the directors to be a post-investment fair value of c.£8.0 million.The
assets under management of EMV Capital in respect of investors introduced by
it to ProAxsis is £0.8 million, representing 8.81% on a fully diluted basis.
* Wanda Connected Health Systems:On 28 May 2024, NetScientific announced its 30%
investment in Wanda Connected Health Systems Limited (Wanda)in lieu of fees of
£62,658. On 6 June 2024 Wanda closed a £350,000 fundraising in the form of
an advanced subscription agreement, as part of an ongoing fundraising
programme of a targeted c.£1.5 million over the following six months
* DeepTech Recycling:On 31 May 2024, NetScientific announced the successful
closing of a £0.8 million fundraising by DeepTech Recycling, with the
combined investment amount (which includes a prior first close in December
2023) being £2.1 million. Following the fundraising, the Company's direct
stake in DeepTech Recycling is 21.2% on a fully diluted basis, which equates
to a post-investment fair value uplift of £1.8 million to £1.9 million. The
assets under management of EMV Capital in respect of investors introduced by
it to DeepTech Recycling is £2.1 million, representing 29.3% on a fully
diluted basis.
* Sofant Technologies: On5 June 2024 Sofant announced a £3.4 million
investment round led by EMV Capital alongside Scottish Enterprise and other
private investors. The funding will facilitate the delivery of the SatCom
terminal to key clients in the growing market sector for commercial and
government applications.
Outlook
Having successfully transformed the business since 2020, the directors believe
that the next three years will bring further positive evolution within the
Group, establishing NetScientific as a leader in deep tech and life sciences,
and growing value for its shareholders. The Group aims to generate investment
returns through profitable exits of selected portfolio companies and targeted
growth of a curated portfolio, focusing on value creation services and
accelerating routes to exit. By scaling its capital efficient investment
model, the Group plans to move towards a more evergreen investment model,
offering substantial returns from a maturing portfolio. The Company's goal
over the next three years is to increase the net asset value and fair value of
the business, advance cohort companies, secure third-party investment rounds,
and expand its fund management practice.
Dr Ilian Iliev, CEO of NetScientific commented: "2023 has been another year
of progress, proactively funding, defending and developing the value of our
portfolio whilst continuing to build a sustainable platform to realise our
goal of becoming a leading VC investor in the deep tech and life sciences
sectors in the UK and internationally. Our AUM passing an important £100
million milestone is testament to the groundwork of 2023, and we look forward
to progressing towards the next milestone of £200 million AUM through driving
the organic growth of our existing portfolio, now in excess of 70 companies,
and other initiatives underway to expand our funds practice."
Dr Charles Spicer, Chair of NetScientific commented: "NetScientific has shown
remarkable resilience and performance in a challenging VC and broader market
environment. I am optimistic about 2024 and beyond, cautiously anticipating
some recovery in financial market liquidity and a resurgence in corporate
fundraising. NetScientific is positioned to drive shareholder value through
its growing portfolio and funds practice."
For more information, please contact:
NetScientific
Ilian Iliev, CEO Via Belvedere Communications
Panmure Gordon (UK) Limited (NOMAD and Broker)
Emma Earl / Will Goode / Freddy Crossley / Mark Rogers (Corporate Finance) +44 (0)20 7886 2500
Rupert Dearden (Corporate Broking)
Belvedere Communications
John West / Llewellyn Angus / Lily Pearce +44 (0)20 7653 8702
About NetScientific
NetScientific plc (AIM: NSCI) is a deep tech and life sciences VC investment
group with an international portfolio of innovative companies.
NetScientific identifies, invests in, and builds high growth companies in the
UK and internationally.
The company adds value through the proactive management of its portfolio,
progressing to key value inflection points, and delivering investment returns
through partial or full liquidity events.
NetScientific differentiates itself by employing a capital-efficient
investment approach, making judicial use of its balance sheet and syndicating
investments through its wholly owned VC subsidiary, EMV Capital. The group
secures a mixture of direct equity stakes and carried interest stakes in its
portfolio of companies, creating a lean structure that can support a large
portfolio.
NetScientific is headquartered in London, United Kingdom, and is admitted to
trading on AIM, a market operated by the London Stock Exchange.
www.netscientific.net (http://www.netscientific.net)
The person responsible for arranging the release of this announcement on
behalf of the Company is Ilian Iliev, Chief Executive Officer of the Company.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
THE UK VERSION OF REGULATION (EU) NO 596/2014 WHICH IS PART OF UK LAW BY
VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON THE
PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS
INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S STATEMENT
· CHAIR'S STATEMENT
I was delighted to join NetScientific as Chair in June 2023. Since then, my focus has been on learning about the portfolio businesses as well as getting to know the team, shareholders, and other stakeholders across the Group.
In 2023, we witnessed continued high market volatility fuelled by geopolitical events and macroeconomic uncertainty coupled with decreased liquidity following the end of several years of relatively easily available capital. The venture capital industry experienced challenges throughout the year with declining valuations and increased company failures. Set against this difficult environment, NetScientific and its portfolio performed well and improved performance in key areas. The Company's 2023 focus on syndicated investments in core portfolio companies and the ability to seize advantageous opportunities, have contributed to its resilience. Several of the companies within our diversified portfolio have overcome the macroeconomic challenges of 2023 effectively, while others benefited from the heightened market focus on sustainability and energy security.
During the year we evolved our Board to align with the Company's strategy and growth ambitions, placing an emphasis on transaction and industry experience. The Board is well-balanced and possesses the necessary expertise to guide our future growth. During the year, John Clarkson and Professor Stephen Smith both stepped down and we thank them for their many years of service and contribution to the company. I also thank Jonathan Robinson for taking the helm as Interim Non-Executive Chair and his continued support as Senior Non-Executive Director.
Looking to the future, the £23.3 million fund-management mandate for the Cambridge Venture Capital fund Martlet Capital was a key post-balance date sheet step in the implementation of our Group's strategy and future prospects. With it, we have reached a key milestone with assets under management now estimated at over £100 million (combining both balance sheet investments of £16.4 million, subsidiaries and associates at directors' valuations of £19.2 million (not included in the audited financial statements), £4.0 million of post balance sheet date movements and third-party stakes (for which EMV Capital has carried interest fee arrangements) with an estimated value of £62.4 million) (also not included in the audited financial statements). We are optimistic about 2024 and beyond, cautiously anticipating some recovery in financial market liquidity and a resurgence in corporate fundraising.
On behalf of the Board, I extend our gratitude to all the hard-working employees of NetScientific and EMV Capital, our portfolio companies, and all our shareholders for their valued support. Working together, we are well-positioned to achieve continued growth and success in the coming years.
Dr. Charles Spicer,
Chair, NetScientific PLC
13 June 2024
· CHIEF EXECUTIVE OFFICER'S STATEMENT
Overview
NetScientific's transformational journey is well underway. Over the past three
years, we have evolved our business from a standstill into a growing and
active venture capital (VC) player. We have expanded our footprint from £8
million fair value (FV) across eight companies to a post-balance sheet date
total of over an estimated £100 million in FV of direct and managed
investments, now spanning a diversified portfolio of over 70 companies
(combining both balance sheet investments of £16.4 million, subsidiaries and
associates at directors' valuations of £19.2 million (not included in the
audited financial statements), £4.0 million of post balance sheet movements
and third-party stakes (for which EMV Capital has carried interest fee
arrangements) with an estimated value of £62.4 million) (also not included in
the audited financial statements). We intend to maintain this momentum, as we
continue to transform our business over the next three years to the benefit of
our investors and portfolio companies through a focus on third-party fund
management alongside direct balance sheet investment.
Our goal is to become a leading VC investor in the deep tech and life sciences
sectors, both in the UK and internationally. We are already making tangible
progress towards leading the next wave of VC investment by discovering,
nurturing, and preparing early-stage deep tech and life sciences companies
with attractive IP for growth. By enabling these companies to realise their
full potential and make a real-world impact, we aim to generate outsized
returns for our investors. Our proactive investment approach focuses on
fast-growing sectors that will shape the future of our society.
Our strategy is in line with changes in the VC landscape. The industry's focus
is increasingly shifting towards our target sectors, driven by advancements in
artificial intelligence, robotics, semiconductors, and breakthroughs in life
sciences. We believe that the time is right for the growth of new leaders in
the VC industry, driven by a differentiated investment model. This compelling
investment theme requires our unique VC approach, encompassing skillsets,
engagement models, expertise, and capital deployment strategies tailored to
deep tech investments. We are confident that our management team's investment
and portfolio development strategy, along with our established processes and
'playbooks', will meet this demand.
Events over the past 18 months have validated our strategy. In the context of
significant market volatility and realignment, having secured a new fund
management mandate since the balance sheet date the fair value has reached a
key milestone with assets under management now estimated at over £100 million
(combining both balance sheet investments of £16.4 million, subsidiaries and
associates at directors' valuations of £19.2 million (not included in the
audited financial statements), £4.0 million of post balance sheet movements
and third-party stakes (for which EMV Capital has carried interest fee
arrangements) with an estimated value of £62.4 million) (also not included in
the audited financial statements). Our investment practice has continued to
attract investors to our portfolio, with £6.2 million invested by EMV Capital
investors, alongside £47.7 million of third-party investor funds.
Overall Group losses for the year decreased to £2.9 million (2022: £3.7
million). The 'core' of the operations of NetScientific PLC and EMV Capital
accounted for £1.1 million (2022: £1.2 million). The balance of £1.8
million is attributed to the subsidiary portfolio companies Cetromed, ProAxsis
and Glycotest. Net of a £684k non-cash impairment charge for ProAxsis(( 1
(#_ftn1) ))(,) group losses are significantly improving on the previous year.
In line with our capital efficient investment strategy, ProAxsis, Glycotest
and Cetromed were funded by external investors during the year. The Group also
made a cash gain on disposal of investments of £0.5 million and a one-off
non-cash gain of £1.4m after completing a third party fundraise of £0.5
million in June 2023 for DName-iT Holdings Limited, due to loss of control of
a subsidiary.
1 The impairment is related to product lines that have not been
commercialised (such as a COVID anti-bodies project)
The Fair Value of NetScientific's directly owned portfolio is £16.4 million,
down from £22.7 million in 2022. This decline is primarily due to the
decreased value of our holding in NASDAQ-listed PDS Biotech. This was partly
offset by a 15% increase in the Fair Value of our directly owned privately
held companies. By contrast, third party Assets Under Management have grown
significantly by 42% to £38.4 million (2022: £27.1 million), on the back of
increased values of portfolio companies, as well as additional new
investments.
EMV Capital's revenues have grown, offsetting the overall costs of maintaining
our core infrastructure. Our Value Creation Services practice has engaged with
selected portfolio companies and their management teams, providing timely
support that has contributed to significant uplifts in value of several of our
companies. While full exits through M&A or IPOs remain challenging and
at lower valuations, we have successfully executed profitable divestments
through c.£1.4 million in profitable secondaries in two of our portfolio
companies. We held our commitment that our subsidiary portfolio companies,
Glycotest and ProAxsis, would be funded through third party investment, rather
than drawing on our own balance sheet reserves - while at the same time
protecting the value of our holdings. Finally, as we committed to our
shareholders, during 2023 we did not carry out an equity placing, for the
first time in a number of years and during a particularly difficult period for
the AIM market, as a result of the changes to our strategy.
In last year's report, we indicated our intention to launch a Fund Management
practice. We have made progress. Following the work started in 2023, EMV
Capital recently secured a fund-management mandate for the Cambridge VC fund,
Martlet Capital with £23.3 million in Assets Under Management (AUM). Martlet
Capital enjoys a unique proposition, and prestigious status within Cambridge's
dynamic tech ecosystem, known around the world as "Silicon Fen". This deal
not only increases our portfolio size and AUM, but also strengthens our
presence in the Cambridge high-tech cluster. We will now work on leveraging
the Martlet Capital brand further, exploring investor appetite for the
proposed launch of two new Martlet Capital funds.
We have also relaunched the EMV Capital Evergreen EIS Fund, expecting growth
through IFAs and other sources. AUM at the time of publication of the report
were c.£1.2m and are expected to grow further through our relationships with
IFAs and other sources. The EIS Fund will co-invest alongside other EMV
Capital deals, providing an additional source of co-investment for EIS
qualifying deals.
Our model
During 2023, we have further refined our strategy, as summarised below.
Capital efficient investment strategy: We use a combination of funding sources
to gain (and increase) direct and indirect stakes in our portfolio companies,
including syndicated investments, selective balance sheet investments to gain
deeper stakes, as well as deploying funds from our Funds practice. This
provides us with capital gain opportunities when we exit portfolio companies
through direct disposals and carried interest from exit realisations for our
investor base. Our platform's flexibility allows us to support portfolio
companies from their early stages through to successful exit.
Proactive portfolio management: We believe proactive management is key to
obtaining superior returns and protecting the value of our holdings. Our
approach involves taking Board positions, working closely with management and
maintaining strong relationships with co-investors to coordinate strategies
and objectives. We are an active, engaged investor deploying our expertise.
Value creation services: We concentrate on a select cohort of companies at a
time, driving growth and investment realisations through fundraising support
and value creation services. Our in-house operational team, venture partners,
and panel of expert service providers offer support across functions including
investment readiness, exit readiness, IP strategy, corporate collaborations,
financial functions, and senior executive placements. EMVC has retained
contracts with several of its portfolio companies, helping them accelerate
development and execute strategy pivots.
Operational income sources: Our financial realisations and income model is to
finance the operations through a combination of operational fee income and
modest divestments.
Financially self-sufficient: Starting from nil in 2020, the Group now has
multiple sources for ongoing income including fees in connection with
corporate finance and advisory, board seats, annual management, Value Creation
Services (VCS), and (most recently) recurring Fund management fees through EMV
Capital. We also expect to execute profitable partial sales of portfolio
holdings. The combination has enabled us to remain self-sufficient during the
period, eliminating the need to access capital markets for support. This has
protected shareholders from dilution in the current difficult capital markets.
Capital realisation channels / 'routes to exit': We target the realisation of
venture-type/outsized investment returns through strategic partial or full
exits from our directly owned positions (direct cash) and carried interest
from Fund management exits. These exits are realised through M&A, IPOs, or
sales to PE and other financial investors. This approach maximises value for
our stakeholders through a variety of well-planned exit strategies.
Deepening direct stakes: Our proactive investment approach enables us to
selectively build stakes in portfolio companies through a mixture of modest
balance sheet investments, accepting fees as equity (e.g. Ventive),
co-founding businesses (e.g. Deeptech Recycling), and making selective paper
acquisitions (e.g. Cetromed).
Funds under management: We are expanding our Funds under management through a
mixture of deal-by-deal syndication and establishing Funds (refer to Funds
section). This provides us with additional investment capability in existing
and new portfolio companies, additional management fees income and additional
carried interest potential.
Market correction and NetScientific: Over the past two years, we have seen a
major correction in VC portfolio valuations, leading to the depreciation of VC
fund values. Whilst listed investments dropped c.71% to £4.3 million (2022:
£14.7 million). The privately held direct portfolio value has grown
significantly. Despite an environment of limited capital availability, we have
been able to deploy capital continuously to support our portfolio companies.
We remain confident that our emphasis on smaller, more focused investment
rounds will pay off as companies progress and steadily build value, whilst the
broader VC market re-aligns. Separately, whilst many funds are fully invested
and driven by their fund mandates, our model enables us to look beyond the
current cycle and pick the right deals for our business.
Financial and Operational Highlights:
Portfolio size: Through 2023 the Group had a portfolio of 23 companies
(including EMV Capital). In the current year to date this has increased to
over 70 companies following completion of the Martlet Capital transaction.
Total Assets Under Management: The estimated total portfolio fair value,
measured as fair value of our direct stakes and third-party stakes for which
EMV Capital has carried interest fee arrangements in the portfolio for 2023
was £74 million (see below). In the current year to date this has increased
to over an estimated £100 million, marking an important milestone for our
group (combining both balance sheet investments of £16.4 million,
subsidiaries and associates at directors' valuations of £19.2 million (not
included in the audited financial statements), £4.0 million of post balance
sheet movements and third-party stakes (for which EMV Capital has carried
interest fee arrangements) with an estimated value of £62.4 million) (also
not included in the audited financial statements).
Fair Value of direct stakes: the Directors' valuation of the Company's
directly owned portfolio (Fair Value) has decreased by c.15% to £35.6 million
(2022: £41.8 million) combining both balance sheet investments of £16.4
million, subsidiaries and associates at directors' valuations of £19.2
million (not included in the audited financial statements). The decline was
driven primarily by the share price declines of a smaller holding in our
NASDAQ-listed portfolio company, PDS Biotech. By contrast the FV of our
privately held portfolio (where our efforts are focused) increased by 15% to
£31.3 million.
Fair Value of Third-Party Stakes: The estimated fair value of our portfolio
holdings under management increased by c.42% to c.£38.4 million (2022: £27.1
million) (not included in the audited financial statements). This reflects
both growth in the value of portfolio companies (of c.17%), and further
syndicated investments of c.£6.2 million. Since the year end, this has
increased to an estimated c.£62.4 million through the addition of the Martlet
fund, and further transactions. The valuation of these assets does not form
part of the audited financial statements.
Portfolio fundraisings: The Group's 'capital efficient' investment model
enabled NetScientific to continue to support its portfolio companies with
minimal use of its balance sheet. Across the Group's portfolio, an aggregate
amount of c.£53.9 million was raised through equity and debt by 13 companies
in 2023. This was supported through £6.2 million of EMV Capital syndicated
investments, which have added to our assets under management.
Exits and liquidity: We executed partial exits of c.£1.4 million through
secondary market sales across two portfolio companies, locking in a modest
profit of £0.5 million. This demonstrates our Group's ability to exit private
and publicly held assets profitably, even in difficult market conditions.
Group income and sales: Total income has increased by c.111% to £3.8 million
(2022: £1.8 million), primarily driven by EMV Capital sales of £1.6 million
(2022: £1.2 million), achieving a profit of £0.2 million (2022: £0.1
million). This covered approximately half of the core Group's costs
(NetScientific PLC and EMV Capital), whilst providing infrastructure and
services to the Group and its portfolio companies. The Group also made a cash
gain on disposal of investments of £0.5 million and a one-off non-cash gain
of £1.4m after completing a third party fundraise of £0.5 million in June
2023 for DName-iT Holdings Limited, due to loss of control of a subsidiary.
Group losses and core operations: Group losses for the year decreased to £2.9
million (2022: £3.7 million). The 'core' of the operations of NetScientific
PLC and EMV Capital accounted for £1.1 million (2022: £1.2 million). The
balance of £1.8 million is attributed to the subsidiary portfolio companies
Cetromed, ProAxsis and Glycotest. Net of a £684k non-cash impairment charge
for ProAxsis(( 2 (#_ftn2) ))(,) group losses are significantly improving on
the previous year. In line with our capital efficient investment strategy,
ProAxsis, Glycotest and Cetromed were funded by external investors during the
year. As noted above, the Group also made a cash gain on disposal of
investments of £0.5 million and a one-off non-cash gain of £1.4m after
completing a third party fundraise of £0.5 million in June 2023 for DName-iT
Holdings Limited, due to loss of control of a subsidiary.
Cash: Cash on the balance sheet on 31 December 2023 was £0.2 million (2022:
£0.9 million), with £0.8 million of cash and £2.6 million held as readily
realisable quoted securities at 31 May 2024. The combination of EMV Capital's
operational revenue and partial exit have meant that NetScientific has not
required shareholder funding support since June 2022.
Net Assets: The Company ended the year with total assets of £22.5 million
(2022: £29.0 million), and net assets of £17.1 million (2022: £25.2
million). The decrease is mostly accounted for by the declined value of our
PDS Biotech holding and the current year loss of £2.9 million (2022: £3.7
million). The net asset value per share for the end of 2023 was £0.73 (2022:
£1.07).
Routes to Exits: After the turnaround and consolidation of our core portfolio
over the past three years, we aim to generate significant returns to
NetScientific through partial or full sell-downs of our portfolio companies,
with carried interest returns supplementing our direct holdings. In line with
our proactive strategy, in 2023 we initiated a 'routes to exits' program. This
programme works with selected companies to prepare them for M&A
opportunities, drive them to value inflection points, and identify early
potential acquirers. We are enhancing our in-house capabilities and working
with a select group of M&A advisers to support companies in their exit
strategies.
(2) The impairment is related to product lines that have not been
commercialised (such as a COVID anti-bodies project)
EMV Capital Ltd (EMVC): EMVC, a wholly owned subsidiary and the corporate
finance and venture capital arm of NetScientific, was acquired in August 2020.
It is now fully integrated in the Group, with the bulk of operations conducted
through EMV Capital. EMV Capital follows an investment model that syndicates
investments from its extensive network of private, institutional VC, and
corporate investors, focusing on pre-Series A and Series A stages. It actively
engages with portfolio companies to drive venture capital returns through
Board representation and the active use of its Value Creation Services
offering.
EMVC has been instrumental in implementing our 'capital efficient' investment
model. It plays a vital role in the Group's strategy by generating revenues
that offset the infrastructure costs of running a proactive VC operation,
providing fundraising support to our portfolio companies, and offering Value
Creation Services. Additionally, EMVC offers potential additional investment
returns through carried interest from its assets under management in respect
of third-party funds. This comprehensive approach has supported, protected,
and grown the value of the Group's privately held portfolio, even as many of
our peers have experienced a decline in value.
Key achievements for EMVC in 2023 include:
· Revenue increase of 33% to £1.6 million (2022: £1.2 million)
from corporate finance and value creation activities, resulting in a net
profit of £210,000 (2022: £85,000).
· Syndication of £6.2 million in additional investments, bringing
Assets Under Management to £38.4 million (2022: £27.1 million) on
third-party stakes for which EMV Capital has carried interest fee
arrangements.
· The unrealised gains of the third-party portfolio are £8.2
million - an increase of £4.6 million or 128% over the previous year.
· Streamlined and grown the Value Creation Services practice with
eight companies benefitting from the practice.
· Work undertaken during 2023 enabled EMVC to receive direct FCA
authorisation in early 2024, enabling it to expand and deepen its corporate
finance and fund management activities.
EMV Capital Fund Practice
In last year's report, we indicated our plans to grow a Funds practice under
EMV Capital. We believe the growth of this Fund management practice will
provide many key benefits to NetScientific and its shareholders including:
· Additional exposure to carried interest from Fund distributions.
· Recurring management fee income from Fund management fees,
contributing to the Group's infrastructure costs.
· Diversified returns profile, increasing investment opportunities,
reducing risk and enhancing potential returns.
· Lower reliance on balance sheet for investments, use of balance
sheet selectively to take advantage of opportunities without over-extending
resources.
· Growing ecosystem of co-investors and partners, to enhance investment
prospects and strategic synergies.
· Scale funding capacity to support portfolio and reduce burden of
deal-by-deal funding.
· Reaching critical mass as a VC player in our sectors of choice.
We have made significant progress in that regard with several initiatives
bearing fruit in the current financial year to date:
· Martlet Capital Fund mandate adding £23m of AUM: On 13 May 2024, we
announced that EMV Capital was appointed as investment manager to Martlet
Capital Limited, managing its c.£23.3 million portfolio of investments on a
discretionary basis. In addition, EMV Capital acquired the operational venture
capital business of Martlet Capital for a nominal amount (and deferred
consideration connected to receipts of net carried interest from certain
proposed future Martlet Capital funds). This non-dilutive transaction
represents a transformational milestone for our Group, aligned with our
objective to become a leading deep tech and life sciences venture capital
investor in the UK and Europe.
This fund management mandate significantly increases the critical mass of our
Funds practice. It provides our group with multiple benefits including
additional assets under management with a carried interest arrangement,
strengthened team, significant recurring annual investment management fees,
access to the globally renowned Cambridge high-tech cluster, an expanded
co-investor ecosystem, and additional Fund opportunities based on significant
work already done by the Martlet team.
In line with our capital efficient approach, we expect that the annual
management fees receivable will offset the ongoing costs associated with
Martlet's business and expect to identify additional fee opportunities through
selective engagement with the Martlet portfolio and other participants in the
dynamic Cambridge ecosystem.
· EIS Fund: We have also re-launched, under the fund management of
EMV Capital, an Evergreen EIS Fund, which has a broad remit to invest in EIS
qualifying transactions alongside our other activities. We anticipate the EIS
Fund will grow progressively alongside our other practices, providing the
group with the additional firepower (and fee income) to selectively co-invest
alongside our portfolio.
· Other Fund initiatives: there are a number of other Fund
initiatives under way, each of which could provide significant additions to
our AUM and further growth opportunities.
Portfolio highlights
Since starting with a portfolio of eight companies in 2020, NetScientific now
has an extended portfolio of c.70 companies, with a mixture of direct (on
balance sheet) and third-party stakes for which we have carried interest fee
arrangements (which we collectively refer to as Assets Under Management).
These provide a broad range of potential returns, and opportunities to take
deeper stakes and generate advisory revenues.
Measuring Assets Under Management (AUM): AUM is a commonly used measure in the
VC and PE industry to denote the Fair Value of stakes owned in public and
private companies, on balance sheet (i.e. owned by the company), and as part
of third-party funds under management with carried interest.
In the past we have reported on the directly owned (on balance sheet) stakes
as directors' fair value, whilst the indirect advised stakes were measured at
cost. Going forward, in order to facilitate an easier comparison between the
two, both direct (on balance sheet) and indirect (third party) stakes will be
measured as directors' Fair Value and be collectively referred to as Assets
Under Management. It is worth noting that investments in early-stage private
companies are inherently hard to value and we have applied BVCA valuation
principles in deriving fair value. The fair value of the indirect stakes does
not form part of the group's audited financial statements.
By this measure, the Fair Value of NetScientific's directly owned portfolio is
£16.4 million, down from £22.7 million in 2022. This decline is primarily
due to the decreased value of our holding in NASDAQ-listed PDS Biotech. This
was partly offset by a 15% increase in the Fair Value of our directly owned
privately held companies. By contrast, third party Assets Under Management
have grown significantly by 42% to £38.4 million (2022: £27.1 million), on
the back of increased values of portfolio companies, as well as additional new
investments.
In 2023, whilst listed investments dropped c.71% to £4.3 million (2022:
£14.7 million) our privately held portfolio experienced a further year of
value growth and fundraisings, despite challenging market conditions. A total
of c.£53 million was raised through equity and debt by 13 companies at
various stages of investment. We selectively participated with c.£6.2 million
in 10 of these investments, through both direct and syndicated means, aligning
with our capital efficient model.
Several of our portfolio companies have achieved significant valuation
increases. Notably:
· Ventive experienced a fourteen-fold increase in valuation over our
entry point value just 18 months ago.
· DeepTech Recycling has made substantial progress in its commercial
strategy, with post-balance sheet equity investment adding £1.8 million to
its fair value.
· Glycotest advanced further by completing its clinical sample
collection and, post-balance sheet, closed a $2 million raise, including $1
million from Fosun and approximately $1 million from EMVC investors.
· ProAxsis continued its efforts towards launching a Point of Care
diagnostic for COPD and driving sales to pharma clients, funded through EMV
Capital investor support.
· PDS Biotech made significant progress in its Phase 2 trials and
preparations for a Phase 3 trial.
· Sofant signed a pre-purchase agreement with Viasat and made
further strides towards product launch.
More details on the individual companies' developments are provided in the
Portfolio Update section which follows this statement.
Future Strategy
Building on our strategic levers, our objectives for 2024 and onwards include
the following:
· Grow the value of our portfolio company holdings: We will do this
through a combination of proactive management, helping our portfolio companies
to secure funds to execute their growth plans, and protecting our stakes where
appropriate. We will engage our Value Creation Services practice to drive
achievement of ambitious roadmaps, overcome challenges and create value. We
have also targeted growth of direct stakes in a capital efficient manner.
· Scale funds practice: An 'at-scale' fund practice provides multiple
benefits to the Group and its shareholders and is key to achieving our
ambitions. Significant progress has already been made through our recent
mandate for the management of the £23.3 million Martlet Capital Fund and the
re-launch of the EMVC Evergreen EIS Fund (now under direct EMV Capital fund
management). There are other fund initiatives underway, as well as investment
to set up the right processes for the Funds practice.
· Routes to Exits: After the turnaround and consolidation of the
core portfolio in the last three years, we aim to generate significant returns
to NetScientific will come through partial or full sell-downs of our portfolio
companies, with carried interest returns supplementing the direct holdings. In
line with our pro-active strategy, in 2023 we started a 'routes to exits'
programme, working with a selection of our companies to prepare them for
M&A, drive to value inflection points, and identify early potential
acquirers. We are building in-house capability and working with a small group
of advisors to support companies in their routes to exit.
· Build a resilient, high-performance firm: This involves investment
and alignment on several levels. The combination of a high-quality team with
the right skillsets, strong processes and IT and capacity to execute, is key
to the scalability of our platform, and execution of our ambitious plans and
roadmap. This also involves maintaining the right incentive structures to
align Management interests with the long-term target of company growth,
portfolio growth - and portfolio realisations.
· Management alignment: Management alignment is key to ensure
continued proactive drive to growing investment performance and realisations.
The Group is planning to implement a carried interest scheme to attract,
retain and reward talent in line with industry best practice during the
current financial year.
· Achieve financial sustainability/independence: We will continue to drive
the growth of operating/ongoing income and selective secondary market partial
sales, so that the core platform is autonomous and does not need shareholder
support.
· Grow Investor Relations, marketing and brand impact: We look to
continue to effectively communicate our model, performance and core values to
the market, with strong impact, to enable better understanding and engagement.
· Group Structure Plans: As part of our growth strategy, we are
looking to streamline our group structure to optimise costs, operations, and
risk management. EMV Capital will remain the FCA regulated entity for Fund
management and corporate finance, with Martlet Capital Management a wholly
owned subsidiary of NetScientific UK. We are setting up a separate subsidiary
below NetScientific to handle non-regulated fee-earning activities (such as
value creation services and directors' fees). We are also working on
streamlining the Group's branding to create a 'single firm perception in the
market, whilst allowing for distinct investment strategies and Funds to
operate under their own differentiated sub-brands, such as Martlet.
Outlook
Having successfully transformed the business since 2020, we believe the next
three years will bring further positive evolution within our group,
establishing us as a leader in deeptech and life sciences, and growing value
for our shareholders. We aim to generate investment returns through profitable
exits of select portfolio companies and targeted growth of a curated
portfolio, focusing on value creation services and accelerating routes to
exit. By scaling up our capital efficient investment model, we plan to move
towards more evergreen investment model, offering substantial returns from a
maturing portfolio. Our goals include increasing the net asset value and fair
value of the business, advancing cohort companies, securing third-party
investment rounds, and expanding our fund management practice.
Finally, I would like to express my gratitude to our Non-Executive Chair,
Charles Spicer, and Senior Independent Director, Jonathan Robinson, for their
guidance and support throughout this fast-paced and impactful year. I am also
deeply appreciative of my hard-working team, whose commitment and expertise
has been instrumental in our achievements.
Dr. Ilian Iliev
CEO, NetScientific PLC
13 June 2024
· PORTFOLIO PERFORMANCE
NetScientific's portfolio consists of 22 companies across deep tech and life sciences, varying in their development stages. A significant portion of these companies are generating commercial revenues or engaging in corporate collaborations.
Our group can invest in portfolio companies both directly (from balance sheet), and/or by deploying third party funds where we have a carried interest arrangement with investors.
Therefore, the Group's Assets Under Management combine both direct (balance sheet) holdings and third-party funds with a carried interest arrangement. The combination of direct and third-party holdings provides for enhanced returns and influence in our companies in a capital efficient manner.
The combined Assets Under Management of direct and third-party holdings is £74.0 million at 31 December 2023.
The direct holdings, as measured by the Directors' Fair Value is £35.6 million, down from £41.8 million in 2022. This decline is primarily due to the decreased value of our holding in NASDAQ-listed PDS Biotech, offset by a 15% increase in the value of our direct privately held companies. By contrast, the fair value of the third-party portfolio has risen to £38.4 million, a 42% increase from the previous year (2022: £27.1 million), representing an implied gain of £8.2 million.
It is worth noting that investments in early-stage private companies are inherently hard to value and we have applied BVCA valuation principles in deriving fair value.
Table 1: Fair Value of Directly Held Portfolio Holdings
Fair Value of Direct stakes
Portfolio Company Country Sector Stage Group Stake (%) Fair Value (m)
2023 2022
PDS Biotechnology -Nasdaq Listed US Immuno-oncology Phase II clinical 3.5% £4.3 £14.7
Q-Bot UK Robotics Sales 14.3% £3.8 £3.8
Vortex Biotech Holdings Ltd UK/US Liquid biopsy oncology Sales 22.1% £3.5 £0.7
EpiBone US Regenerative medicine Early clinical 1.3% £1.1 £1.2
SageTech Medical Equipment UK Waste anaesthetic Commercial 5.1% £0.9 £0.9
Ventive UK Heat pumps and passive ventilation Sales 10.9% £0.9 £0.1
Sofant Technologies UK Semiconductors satellite coms Early sales 1.4% £0.5 £0.4
G - Tech Medical US Wearable gut monitor Early clinical 3.8% £0.3 £0.4
FOx Biosystems BEL Research equipment Sales 3.9% £0.4 £0.6
CytoVale US Medical biomarker Late clinical 1.0% £0.3 £0.4
Martlet Capital UK Venture capital Sales 1.4% £0.2 £0.3
PointGrab IL Smart building automation Sales 0.5% £0.1 £0.1
QuantalX Neuroscience IL Medical diagnostics Late clinical 0.4% £0.1 £0.1
Deeptech Recycling Limited UK Recycling Industrial 30.0% £0.0 £0.0
TOTAL £16.4 £23.7
Table 2: Directors' Valuations of Subsidiaries & Associates
Directors' Valuations of Subsidiaries & Associates
Portfolio Company Country Sector Stage Group Stake (%) Fair Value (m)
2023 2022
EMV Capital UK Venture capital Sales 100% £3.5 £3.5
Glycotest US Liver cancer diagnostics Late clinical 52.7% £11.0 £11.0
ProAxsis UK Respiratory diagnostics Sales 88.5% £3.5 £3.5
DName-iT UK/BEL Lab technology Presales 32.7% £1.2 £0.1
TOTAL £19.2 £18.1
Third-Party Stakes
Carried interest or profit share agreements typically range from 15% to 20% of profits earned for investors above a minimum return hurdle rate of c.10%. Third party Assets Under Management are expected to grow through further syndicated investments in existing and new portfolio companies and the expansion of our Funds practice. The Consolidated Statement of Financial Position reflects the owned portfolio as equity investments classified as fair value through other comprehensive income (FVTOCI) and financial assets classified as fair value through profit and loss (FVTPL), adhering to the British Venture Capital Association guidelines widely accepted in the VC community. The fair value of the below third-party stakes is not included within the group's audited financial statements.
Table 3: Fair Value of Third-Party Portfolio Holdings (estimates and unaudited)
Fair Value of Third-Party Portfolio Holdings
Portfolio Company Country Sector Stage AUM (%) AUM Fair Value (m) AUM at Cost (m)
2023 2022 2023 2022
Glycotest US Liver cancer diagnostics Late clinical 5.8% £0.6 - £0.6 -
Q-Bot UK Robotics Sales 32.4% £8.6 £6.5 £5.2 £4.4
ProAxsis UK Respiratory diagnostics Sales 8.6% £0.4 - £0.4 -
Vortex Biotech Holdings Ltd UK/US Liquid biopsy oncology Sales 13.9% £2.2 £0.7 £1.9 £0.7
EpiBone US Regenerative medicine Early clinical 0.3% £0.3 £0.3 £0.2 £0.2
DName-iT UK/BEL Lab technology Presales 16.0% £0.5 £0.1 £0.5 £0.1
SageTech Medical Equipment UK Waste anaesthetic Commercial 25.2% £4.4 £4.1 £4.2 £3.8
Ventive UK Heat pumps and passive ventilation Sales 24.9% £2.2 £0.1 £0.5 £0.1
Sofant Technologies UK Semiconductors satellite coms Early sales 25.0% £8.5 £6.2 £5.6 £4.3
Martlet Capital UK Venture capital Sales 8.2% £1.5 £1.4 £1.3 £1.3
PointGrab IL Smart building automation Sales 18.7% £3.5 £3.1 £4.1 £4.1
Deeptech Recycling Limited UK Recycling Industrial - £1.3 £0.5 £1.3 £0.5
Wanda Health UK/US Digital health monitoring Sales 95.2% £3.6 £3.2 £3.6 £3.2
Nanotech Industrial Solutions US Material science Sales - £0.8 £0.8 £0.8 £0.8
TOTAL £38.4 £27.1 £30.2 £23.5
Consolidated INCOME Statement
For the year ended 31 December 2023
Continuing Operations Notes 2023 2022
£000's £000's
Total Income 3,778 1,820
Revenue 1,445 1,004
Cost of sales (219) (222)
Gross profit 1,226 782
Other operating income 2,333 816
Research and development costs (1,480) (1,371)
General and administrative costs (3,960) (3,718)
Other costs (758) (248)
Loss from continuing operations (2,639) (3,739)
Share of loss of equity accounted associate (125) (11)
Finance income 34 94
Finance expense (171) (55)
Loss before taxation (2,901) (3,711)
Income tax credit - 37
Total Loss for the year all from continuing operations (2,901) (3,674)
Owners of the parent (2,643) (3,094)
Non-controlling interests (258) (580)
(2,901) (3,674)
Basic and diluted loss per share from continuing and discontinued operations
attributable to owners of the parent during the year:
Continuing operations 5 (11.2p) (13.9p)
From loss for the year (11.2p) (13.9p)
Consolidated Statement OF Comprehensive Income
For the year ended 31 December 2023
2023 2022
£000's £000's
Loss for the year (2,901) (3,674)
Other comprehensive income/(loss):
Exchange differences on translation of foreign operations (22) 26
Change in fair value of equity investments classified as FVTOCI (5,769) 8,773
Total comprehensive profit for the year (8,692) 5,125
Attributable to:
Owners of the parent (8,482) 5,732
Non-controlling interests (210) (607)
(8,692) 5,125
Consolidated Statement of Financial Position
As at 31 December 2023
Notes 2023 2022
£000's £000's
Assets
Non-current assets
Property, plant and equipment 8 139 144
Right-of-use assets 9 255 420
Intangible assets 10 2,757 3,367
Investment in equity-accounted associate 11 1,283 -
Equity investments classified as FVTOCI* 12 16,441 22,743
Financial assets classified as FVTPL** 13 232 693
Total non-current assets 21,107 27,367
Current assets
Inventory 52 76
Trade and other receivables 934 658
Cash and cash equivalents 365 852
Total current assets 1,351 1,586
Total assets 22,458 28,953
Liabilities
Current liabilities
Bank overdraft (165) -
Trade and other payables (2,814) (2,457)
Lease liabilities (141) (168)
Loans and borrowings (464) (99)
Total current liabilities (3,584) (2,724)
Non-current liabilities
Lease liabilities (127) (268)
Loans and borrowings (1,635) (719)
Total non-current liabilities (1,762) (987)
Total liabilities (5,346) (3,711)
Net assets 17,112 25,242
Issued capital and reserves
Attributable to the parent
Called up share capital 1,179 1,174
Warrants 42 42
Share premium account 74,217 74,175
Capital reserve account 237 237
Equity investment reserve 7,508 13,277
Foreign exchange reserve 1,351 1,421
Accumulated losses (66,702) (64,486)
Equity attributable to the owners of the parent 17,832 25,840
Non-controlling interests (720) (598)
Total equity 17,112 25,242
*Fair value through other comprehensive income
**Fair value through profit and loss
Consolidated Statement of Changes in Equity
As at 31 December 2023
Shareholders' equity
Share capital Share premium Capital reserve Equity investment reserve Accumul-ated losses Foreign exchange and capital reserve Total Non-controlling interests Total equity
£000's £000's £000's £000's £000's £000's £000's £000's £000's
Warrants
£000's
1 January 2022 1,056 42 72,792 237 4,504 (61,499) 1,368 18,500 9 18,509
Loss for the period - - - - - (3,094) - (3,094) (580) (3,674)
Other comprehensive (loss)/income -
Foreign exchange differences - - - - - 53 53 (27) 26
-
Change in fair value of equity investments classified as FVTOCI - - - 8,773 - - 8,773 - 8,773
-
Total comprehensive profit/(loss) - - - 8,773 (3,094) 53 5,732 (607) 5,125
-
Issue of share capital 118 1,439 - - - - 1,557 - 1,557
-
Cost of share issue - (56) - - - - (56) - (56)
-
Share-based payments - - - - 107 - 107 - 107
-
31 December 2022 1,174 42 74,175 237 13,277 (64,486) 1,421 25,840 (598) 25,242
Loss for the period - - - - - (2,643) - (2,643) (258) (2,901)
Other comprehensive income/(loss) -
Foreign exchange differences - - - - - (70) (70) 48 (22)
-
Change in fair value of equity investments classified as FVTOCI - - - (5,769) - - (5,769) - (5,769)
-
Total comprehensive profit/(loss) - - - - (5,769) (2,643) (70) (8,482) (210) (8,692)
Issue of share capital 5 - 42 - - - - 47 - 47
Changes in proportion of equity by non-controlling interest - - - - - 353 - 353 88 441
Share-based payments - - - - - 74 - 74 - 74
31 December 2023 1,179 42 74,217 237 7,508 (66,702) 1,351 17,832 (720) 17,112
Consolidated Statement of Cash Flows
As at 31 December 2023
Notes 2023 2022
£000's £000's
Cash flows from operating activities
Loss after income tax including discontinued operations (2,901) (3,674)
Adjustments for:
Depreciation of property, plant and equipment 8 49 45
Depreciation of right-of-use assets 9 165 76
Amortisation of intangibles 10 248 226
Impairment of intangibles 10 684 -
Estimated credit losses on trade receivables - 18
Gain on available for sale investments (476) (254)
Gain on loss of control of subsidiary 6 (1,448) -
Fair value movement during the year on convertible debt (24) (466)
Share-based payments 74 107
R&D tax credit (29) (46)
Loss on disposal of property, plant and equipment - 1
Share of associate loss 125 11
Foreign exchange movement 17 (72)
Finance income (34) (94)
Finance costs 171 24
Tax credit - (37)
(3,379) (4,135)
Changes in working capital
(Increase)/decrease in inventory 24 (9)
Decrease/(Increase) in trade and other receivables (315) 610
Increase in trade and other payables 529 879
Cash used in operations (3,141) (2,655)
Income tax received - 96
Income tax paid - -
Net cash (used) in operating activities (3,141) (2,559)
Cash flows from investing activities
Disposal of available for sale investments 1,396 451
Receipt of derivative financial assets 162 48
Capitalisation of development costs 10 (322) (548)
Purchase of property, plant and equipment (44) (53)
Purchase of derivative financial assets (43) (710)
Purchase of available for sale investments (37) (267)
Interest Received - 1
Net cash (used in) investing activities 1,112 (1,078)
Cash flows from financing activities
Proceeds from loans and borrowings 1,302 415
Proceed from issue of equity instruments by subsidiary 353 -
Proceeds from share issue 21 1,558
Lease payments (188) (88)
Repayment of loans and borrowings (99) (89)
Share issue costs - (56)
Net cash from financing activities 1,389 1,740
(Decrease)/Increase in cash and cash equivalents (640) (1,897)
Cash and cash equivalents at beginning of year 852 2,710
Exchange differences on cash and cash equivalents (12) 39
Cash and cash equivalents at end of year 200 852
Notes to the Financial Information for the Year Ended 31 December 2022
1. GENERAL INFORMATION
The Company is a public limited company incorporated on 12 April 2012 and
domiciled in England with registered number 08026888 and its shares are listed
on the Alternative Investment Market (AIM) of the London Stock Exchange. The
address of the registered office is C/o Azets, Burnham Yard, London End,
Beaconsfield, Buckinghamshire HP9 2JH.
2. BASIS OF PREPARATION
The preliminary results of the year ended 31 December 2023 have been extracted
from audited accounts which have not yet been delivered to Companies House.
The financial information set out in this announcement does not constitute
statutory accounts for the year ended 31 December 2023.
The report of the auditors on the statutory accounts for the year ended 31
December 2023 was qualified and did not contain a statement under Section 498
of the Companies Act 2006. Investments are stated at £11.4million in the
Parent Company Statement of Financial Position and £17.7million in the
Consolidated Statement of Financial Position. The Directors did not perform
year end valuations for some of the hard to value investments worth
c.£1million for the year ended 31 December 2023. Therefore, BDO were unable
to obtain sufficient and appropriate evidence for the valuation of such
investments at this date. The financial statements for the year ended 31
December 2023 included in this announcement were authorised for issue in
accordance with a resolution of the Board of Directors on 12 June 2024.
3. GOING CONCERN
The Directors are confident that NetScientific remains a going concern, and it
is appropriate to prepare the financial statements on this basis. Accordingly,
the financial statements do not include any adjustments that would be
necessary if the Group and Company were unable to continue as a going concern.
Net Assets at the end of 2023 were worth £17.1 million, including realisable
quoted assets of £4.3 million. The quoted share price as of 31 May 2024 was
$2.98 giving a fair value of the PDS investment of £2.6 million.
To support its going concern analysis, the Board has prepared and reviewed
budget cashflows and stress-tested the assumptions and sensitivities involved
in the context of the broader economic environment. For the period to June
2025, the Group requires (including subsidiaries) a minimum of approximately
£3.6 million to continue as a going concern. NetScientific and EMV Capital
require £1.6m, while the other subsidiary portfolio companies Glycotest,
ProAxsis and Cetromed require £2.0 million.
This amount can be financed through several options, either on their own or in
combination. The subsidiary companies plan to be funded by external financing,
as they have done in 2023. This could include convertible loans, equity or
debt finance.
The Board's plans for satisfying the going concern needs of NetScientific and
EMV Capital are primarily based on service fees for corporate finance, value
creation services, fund management and other fees. The Board plans to sell
various portfolio assets in part or in full in order to meet the funding
requirements. The Board can also consider the option of a placement of
NetScientific shares.
While these various options are available, some or all may not be executed.
Accordingly, this indicates that a material uncertainty exists which may cast
significant doubt on the Group's and Company's ability to continue as a going
concern and therefore that it may be unable to realise its assets and
discharge its liabilities in the ordinary course of business. The Board will
continue to manage its cashflows and obligations, closely monitor performance,
and maintain a flexible approach to new opportunities.
4. SIGNIFICANT ACCOUNTING POLICIES
The Group financial statements have been prepared in accordance with UK
adopted international accounting standards as they apply to the financial
statements of the Group for the year ended 31 December 2023. The principal
accounting policies adopted in the preparation of the financial information
are set out below. The policies have been consistently applied to all the
years presented.
While the financial information included in this preliminary announcement has
been prepared in accordance with IFRS, this announcement does not in itself
contain sufficient information to comply with IFRS. The Group expects to
publish full financial statements by 14 June 2024.
5. LOSS PER SHARE
The basic and diluted loss per share is calculated by dividing the loss for
the financial year by the weighted average number of ordinary shares in issue
during the year. Potential ordinary shares from outstanding options at 31
December 2023 of 1,462,353 (2022: 1,431,050) (see note 31) are not treated as
dilutive as the entity is loss making.
2023 2022
£000's £000's
Loss attributable to equity holders of the Company
Continuing operations 2,643 3,094
Total 2,643 3,094
Number of shares
Weighted average number of ordinary shares in issue 23,517,012 22,266,560
6. BUSINESS COMBINATIONS DISPOSED DURING THE PERIOD
Loss of control in subsidiary DName-iT Holdings Limited
On 30 June 2023 the Group lost control of subsidiary DName-iT Holdings Limited
as part of a £543k third party fund raise where its interest went from 61.5%
to 48.5%. It had acquired its interest in DName-iT as part of the Cetromed
acquisition back in December 2021. Since then it has been applying its
valuable patented DNA barcoding method to develop a revolutionary platform for
labelling patients' specimens that are analysed with next generation
sequencing.
Details of the fair value of identifiable assets and liabilities disposed of
are as follows:
Fair Value
£000's
Assets:
Other Debtors 43
Cash at Bank 83
Total assets at disposal 126
Liabilities:
Trade payables 6
Accruals 1
Loan 186
Total liabilities at disposal 193
Net liabilities at 30 June 2023 67
Fair value of residual interest 1,381
1,448
Gain on loss of control of subsidiary
7. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
The Group had the following subsidiaries at 31
December 2023:
Proportion of ownership interest held by non-controlling Proportion of ownership interest held by non-controlling
Interests Interests
at 31 December 2023 at 31 December 2022
Proportion of Proportion of
ownership interest ownership interest
at 31 December 2023 at 31 December 2022
Primary trading address Country of
incorporation
Name or registration
NetScientific UK Ltd (a) UK 100% 100% - -
EMV Capital Limited (b) UK 100% 100% - -
ProAxsis Limited * (i) (c) UK 100% 100% - -
CetroMed Limited (a) UK 75% 75% 25% 25%
Frontier Biosciences Limited *
(a) UK 75% 75% 25% 25%
Frontier Oncology Limited *
(a) UK 75% 75% 25% 25%
DName-iT Holdings Limited
(b) UK N/A 62% N/A 38%
NetScientific America, Inc. (d) USA 100% 100% - -
Glycotest, Inc. (i) (e) USA 62.5% 62.5% 37.5% 37.5%
For all undertakings listed above, the country of operation is the same as its
country of incorporation or registration.
* Held via an intermediate holding company.
All of the ownerships shown above relate to ordinary shareholdings.
(i) Options and convertible loan notes have been issued by ProAxsis
Ltd and Glycotest, Inc. which if exercised would dilute the Company's
shareholding by 22.5% and 9.8% respectively.
Registered office address:
(a) Azets, Burnham Yard, London End, Beaconsfield, Buckinghamshire, HP9
2JH
(b) 20 St Andrew Street, Holborn Circus, London, EC4A 3AG
(c) Unit 1B, Concourse Building, 3, Catalyst Inc, Titanic Quarter, 6
Queens Road, Belfast, BT3 9DT, Northern Ireland
(d) 1650 Market Street, Suite 4900, Philadelphia, Pennsylvania,
19103-7300, United States of America
(e) 613 Schiller Avenue, Merion, Philadelphia, Pennsylvania, PA 19066,
United States of America
The addresses listed above are also the registered offices of the relevant
entities.
On the 30 June 2023 there was a loss of control for subsidiary DName-iT
Holdings Limited as the shareholding went below 50%, see note 12 for more
information.
8. PROPERTY, PLANT AND EQUIPMENT
Leasehold Improvement Furniture, fittings and equipment Plant and machinery Totals
£000's £000's £000's £000's
Cost
At 1 January 2022 100 55 212 367
Additions 5 16 32 53
Disposals - (3) (1) (4)
Foreign exchange movement - 1 - 1
At 31 December 2022 105 69 243 417
Additions 28 5 11 44
At 31 December 2023 133 74 254 461
Depreciation
At 1 January 2022 52 29 150 231
Charge for the year 11 12 22 45
Disposals - (3) - (3)
At 31 December 2022 63 38 172 273
Charge for the year 14 11 24 49
At 31 December 2023 77 49 196 322
Net book value
At 31 December 2023 56 25 58 139
42 31 71 144
At 31 December 2022
(i) Leasehold improvements of £100k are funded by a
loan (2022: £100k).
9. RIGHT-OF-USE-ASSETS
2023 2022
£000's £000's
Cost
At 1 January 591 253
Additions - 338
At 31 December 591 591
Amortisation
At 1 January (171) (95)
Charge for the year (165) (76)
At 31 December (336) (171)
Net book value
At 31 December 255 420
There are now three long term leases with two additions in 2022. The Group
decided it would apply the modified retrospective approach to IFRS 16, and
therefore will only recognise leases on balance sheet at 1 January 2019. In
addition, it has decided to measure right-of-use assets by reference to the
measurement of the lease liability on that date. This will ensure there is no
immediate impact to net assets on that date.
The lease liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing rate at 1
January 2019. The Group's incremental borrowing rate is the rate at which a
similar borrowing could be obtained from an independent creditor under
comparable terms and conditions. The rate applied was 3.5%.
The rate applied to the new leases in 2022 was 5.0%
Right-of-use assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset.
Short term leases still expensed as operating amount to £Nil (2022: £10k)
that are now all expired.
10. INTANGIBLE ASSETS
Goodwill Carry Interest Arrangements Investment Acquisition Costs Licenses and Patents
Development costs Total
£000's £000's £000's £000's £000's £000's
Cost
At 1 January 2022 669 1,627 922 17 50 3,285
Additions - - 548 - - 548
At 31 December 2022 669 1,627 1,470 17 50 3,833
Additions - - 322 - - 322
At 31 December 2023 669 1,627 1,792 17 50 4,155
Accumulated amortisation and impairment
At 1 January 2022 - 216 18 - 6 240
Amortisation charge - 163 56 - 7 226
At 31 December 2022 - 379 74 - 13 466
Amortisation charge - 163 79 - 6 248
Impairment charge - - 684 - - 684
At 31 December 2023 - 542 837 - 19 1,398
Net book value
At 31 December 2023 669 1,085 955 17 31 2,757
At 31 December 2022 669 1,248 1,396 17 37 3,367
Further ProAxsis development costs of £322k (2022: £548k) have been
capitalised during the year in line with the accounting policy as certain
projects meet all the criteria for development costs to be recognised as an
asset as it is probable that future economic value will flow to the Group.
During the year ProAxsis booked an impairment charge of £684k (2022: £Nil)
in relation to development costs that no longer met the criteria for
recognition. Discounted future revenues and cashflows were assessed to
determine impairments in a number of product lines of capitalised development
costs where it has been assessed that recoverability is not possible.
The main factors leading to the recognition of this intangible are:
· the presence of certain intangible assets, such as the assembled
workforce of the acquired entity, EIS fund practice, infrastructure, thought
leadership, brand, deal flow and investor network and relationships, which do
not qualify for separate recognition;
· economies of scale which result in the Group being prepared to
pay a premium; and
· carry interest arrangements and profit share that are a material
identifiable class of asset that has been recognised separately.
11. INVESTMENT IN ASSOCIATES
The following entities have been included in the consolidated financial
statements using the equity method:
Name Country of Proportion of Proportion of
Incorporation ownership interest ownership interest
principle place of business at 31 December 2023 at 31 December 2022
DName-iT Holdings Limited UK/Belgium 48.5% 61.5%
Oncocidia Limited UK 37.9% 41.7%
2023 2022
£000's £000's
At 1 January - -
Additions 1,408 -
Share of Associate losses (125) -
At 31 December 1,283 -
The Group holds a 48.5% interest in DName-iT Holdings Limited which it lost
control of as a subsidiary during 2023. The primary business is that of
applying its valuable patented DNA barcoding method to develop a revolutionary
platform for labelling patients specimens that are analysed with next
generation sequencing.
The Group holds a 37.9% interest in Oncocidia Limited over which the Group has
determined that it holds significant influence. The primary business is that
of developing a target radiopharmaceutical cancer treatment with the use of
iodine-131 in treating thyroid cancer to treat solid cancers (primary and
metastatic) elsewhere in the body.
The Groups holds a 22.1% interest in Vortex Biotech Holdings Limited which the
Group has determined it does not exercise control and has accounted for as
Equity Investments classified as FVTOCI.
The Group holds a 30.0% interest in DeepTech Recycling Limited over which the
Group has determined it does not exercise control and has accounted for as
Equity Investments classified as FVTOCI. Post balance sheet date the holding
has fallen to 21.2% after a £2.1 million third-party fundraise.
12. EQUITY INVESTMENTS CLASSIFIED AS FVTOCI
Represent equity securities classified as FVTOCI
2023 2022
£000's £000's
At 1 January 22,743 11,516
Additions 37 555
Disposals (920) (451)
Conversion of financial assets classified as FVTPL 400 2,004
Change in fair value during the year (5,819) 9,119
At 31 December 16,441 22,743
Name Country of incorporation % of issued share capital 2023 £2022
£000's £000's
PDS Biotechnology Corporation USA 3.5% 4,279 14,680
EpiBone, Inc. USA 1.3% 1,107 1,179
G-Tech, Inc USA 3.8% 334 354
CytoVale, Inc. USA 1.0% 333 415
PointGrab Israel 0.4% 72 76
QuantalX Israel 0.4% 58 -
FOx Biosystems NV Belgium 3.9% 483 495
Q-Bot Limited UK 14.3% 3,804 3,728
Vortex Biotech Holdings Limited UK 22.1% 3,499 300
Ventive Limited UK 10.9% 937 52
SageTech Medical Equipment Limited UK 5.1% 887 887
Sofant Technologies Limited UK 1.4% 453 402
Martlet Capital Limited UK 1.4% 192 175
DeepTech Recycling Limited UK 30.0% 3 -
At 31 December 16,441 22,743
Below we provide some additional detail on the composition of the Fair Value
estimates. When reviewing these estimates, we have taken into consideration
both 3(rd) party investment rounds, and whether the company continues to
progress on their roadmap.
· NASDAQ-listed PDS Biotechnology Corporation (3.5% stake (2022:
4.4% stake)) year-end fair value was based on the listed share price (Nasdaq
under the ticker PDSB) of $4.97 per share at 31 December 2023 (2022: $13.20).
During the year NetScientific sold c.7% of its stake, £1.0m for a gain on
sale of £266k, the proceeds were used to fund operations. Fair value at year
end was £4,279k (2022: £14,680k). The current share price as of 31 May 2024
was $2.98 giving a fair value of the PDS investment of £2,569k. The Company
periodically reviews its investment strategy with respect to this asset.
· CytoVale Inc., (1.0% stake) remains privately held, and fair
value has been established using the share price and company valuation from
investments by third parties during November 2023 as part of an $84m Series C
equity round that raised fresh cash of $53m and conversion of outstanding
convertible notes. Fair value at year end was £333k (2022: £415k). This last
observable price has been used to value the CytoVale equity investment at year
end.
· EpiBone, Inc., (1.3% stake) executed a number of closes in 2023
on the Series A fund-raise and raised fresh cash of $4,946k in 2023 and has
raised $12.0m in total at the same share price. Fair value at year end was
£1,107k (2022: £1,179k) based on the last round price.
· G-Tech, Inc., continues to be valued at the Series A funding
round of $6 million as of May 2020. This is the last observable price which
values our 3.8% stake at £334k (2022: £354k).
· PointGrab, (0.5% stake) - Valued at the most recent investment
round, valuing our holding at £72k (2022: £76k).
· FOx Biosystems (3.9% stake) - Valued at the price of the last
investment round in November 2022, valuing the stake at £483k (2022: £495k).
Fox has recently raised further money in 2024 at the same price.
· Q-Bot Limited (14.3% stake) - During the year NetScientific sold
c.10% of its stake or £376k on the secondary market, for a gain on sale of
£201k, the proceeds were used to fund operations. Following a September 2023
investment round totalling £3.5m, our stake has a fair value of £3,804k
(2022: £3,721k). Q-Bot has recently raised money in 2024 at the same price.
· Vortex Biotech Holdings Limited (22.1% stake) - Based on the
price of the last investment round in November 2023 our stake is valued at
£3,500k (2022: £300k).
· Ventive Limited, (10.9% stake) - Following an investment round in
November 2023 totalling £900k, our stake is valued at £937k (2022: £52k) a
business that EMV Capital rescued in 2022 and received equity in lieu of fees.
· SageTech Medical Equipment Limited, (5.1% stake) - Following a
number of investment rounds in 2023 at the last price, our stake is valued at
£887k (2022: £887k). SageTech has raised further money in 2024 at the same
price.
· Sofant Technologies Limited, (1.4% stake) - The stake is valued
at the last investment round price in August 2023, resulting in fair value of
the stake at £453k (2022: £402k).
· Martlet Capital Limited, (1.4% direct equity stake) - Our direct
investment in the early-stage VC platform in Cambridge is currently valued at
£192k (2022: £175k) based on the last investment round in May 2022.
13. FINANCIAL ASSETS CLASSIFIED AS FVTPL
2023 2022
Warrants & Convertible Loans classified as FVTPL £000's £000's
Balance at 1 January 693 1,462
Additions 43 710
Repayment (162) (48)
Additional accrued interest 34 93
Conversion to equity investments classified as FVTOCI (400) (2,004)
Change in fair value during the year 24 480
232 693
Balance at 31 December
Below is further detail on the various debt instruments used in financing
portfolio companies during the year. For completeness, please refer to the
above section 12, especially where convertible loans convert into equity:
· G-Tech Medical, Inc., holds £83k of common form convertibles
(2022: £88k), which remain as financial assets classified as FVTPL. No
interest accrued.
· Q-Bot Limited, during January 2023, a further £48k working
capital loan was extended to Q-Bot, carrying interest at 10% p.a. In December
2023, the working capital loan was repaid, including interest and arrangement
fee of £18k (2022: £9k). Fair value at year end was £Nil (2022: £101k).
Warrants of £41k in Q-Bot are also held (2022: £41k).
· Vortex Biotech Holdings Limited, loans and interest converted to
equity in June 2023. Accrued interest during the period was £15k (2022:
£15k). Fair value at year end was £Nil (2022: £385k).
· Martlet Capital Limited, £75k unsecured convertible loan note.
Fair value at year end was £84k (2022: £80k). The convertible loan note
carries interest at 5% p.a. and is repayable by the seventh anniversary from
the grant date. Accrued interest during the period is £4k (2022: £4k).
· The Neumitra, Inc., and Longevity Inc., convertible loan notes do
not have a material value individually or collectively and have been fully
impaired.
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