TIDMMERC
RNS Number : 7133E
Mercia Asset Management PLC
08 July 2019
8 July 2019
Mercia Asset Management PLC
("Mercia", the "Group" or the "Company")
Preliminary results for the year ended 31 March 2019
Positive momentum maintained and now accelerating the path to
profitability
Mercia Asset Management PLC (AIM: MERC) (formerly Mercia
Technologies PLC), the proactive, regionally focused specialist
asset manager, is pleased to announce its preliminary results for
the year ended 31 March 2019.
Name change
-- Company renamed Mercia Asset Management PLC to reflect the
evolution of the Group's core competencies as a proactive,
regionally focused specialist asset manager
-- Group's new domain and website is www.mercia.co.uk
Direct investment portfolio highlights
-- GBP19.4million invested into 17 portfolio companies during
the year including two new direct investments, W2 Global Data
Solutions and Locate Bio
-- Net fair value increase of GBP3.9million (2018: GBP2.8million)
-- Direct investment portfolio increased to GBP87.7million (2018: GBP66.1million)
-- GBP6.5million syndicated investment into Oxford Genetics
-- Significant commercial progress made by a number of portfolio
companies including nDreams, the Group's largest direct
investment
Managed fund developments
-- Third-party funds under management ("FuM") totalling
c.GBP381million (2018: c.GBP400million); contributing GBP9.6million
in revenue
o FuM reduction reflects the winding down of the RisingStars
Growth Fund including returning c.GBP17million of capital to fund
investors
-- Venture FuM GBP224.1million. RisingStars Growth Fund fully
unwound in March 2019, generating IRR of 15% and a total value to
paid-in capital ("TVPI") of 528% for investors
-- Private equity FuM GBP61.2million. Coalfields Growth Fund has
to date generated IRR of 19% and a TVPI of 236% for investors
-- Debt FuM GBP96.0million. Finance Yorkshire Small Loans Fund
winding down generating a 107% return on original fund
commitments
Financial highlights
-- Revenue increased 4.7% to GBP10.7million (2018: GBP10.2million)
-- Net expenses GBP1.4million (2018: GBP0.4million)*
-- Operating profit GBP2.0million (2018: GBP1.3million)
-- Profit after tax for the financial year increased to GBP2.6million (2018: GBP1.7million)
-- Earnings per share increased to 0.86 pence (2018: 0.55 pence)
-- Net assets GBP126.1million (2018: GBP123.5million)
-- Net assets per share grew to 41.6 pence (2018: 40.7 pence)
-- Unrestricted cash and short-term liquidity investments GBP29.8million (2018: GBP49.4million)
* 2018 revenue included one-off performance-related fund
management fees totalling GBP1.2million
Post year end developments
-- Further funding rounds into Voxpopme, Medherant and Locate
Bio, investing GBP1.3million, GBP1.5million and GBP1.8million
respectively
-- GBP0.8million investment into MyLotus developer, Concepta, as
part of a GBP2.3million placing in April 2019
-- GBP0.5million invested into new direct investment Clear
Review, a fast-growing software-as-a-service ("SaaS") business
providing HR management tools
-- nDreams announced its partnership with global technology
company Oculus; developing its first title Phantom: Covert Ops,
which has already gained significant industry recognition and won
the Game Critics Award for the best VR/AR game at the recent E3
gaming industry Expo in Los Angeles
-- Susan Searle stepped down as Non-executive Chair to focus on her other non-executive roles
-- Ian Metcalfe, Mercia's Senior Independent Director, appointed
Non-executive Chair. An additional Non-executive Director with
specialist asset management experience will be appointed in due
course
Mark Payton, Chief Executive Officer of Mercia, commented:
"These results mark the acceleration of Mercia's evolution
towards becoming a profitable, proactive and regionally focused
specialist asset manager. Across our four asset classes of balance
sheet, venture, private equity and debt capital, we recorded our
strongest level of deal completions and investments to date.
"We remain focused on progressing the top balance sheet direct
investments and the pace and scale at which these are being
developed. Since 2014 funds under management have grown from
c.GBP22million to c.GBP381million, highlighting our track record
and ongoing commitment to delivering balance sheet and fund value.
With over GBP500million of assets under management, we are well
resourced and have the team in place for our next stage of
growth."
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
For further information, please contact:
Mercia Asset Management PLC +44 (0)330 223 1430
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial
Officer
www.mercia.co.uk
Canaccord Genuity Limited +44 (0)20 7523 8000
Simon Bridges, Emma Gabriel (NOMAD
and Broker)
Buchanan +44 (0)20 7466 5000
Chris Lane, Vicky Hayns, Stephanie
Watson
www.buchanan.uk.com
A meeting for analysts will be held at the offices of Buchanan,
107 Cheapside, London EC2V 6DN on 8 July 2019 commencing at 9.30
a.m. An audio webcast of this briefing will subsequently be
available later in the day via the following link:
https://webcasting.buchanan.uk.com/broadcast/5d0a569e221579216107e567
Mercia's 2019 preliminary results will also be available today
on the Group's website at www.mercia.co.uk.
About Mercia Asset Management PLC
Mercia is a proactive, specialist asset manager focused on
supporting regional SMEs to achieve their growth aspirations.
Mercia provides capital across its four asset classes of balance
sheet, venture, private equity and debt capital; the Group's
'Complete Capital Solution'. The Group initially nurtures
businesses via its third-party funds under management, then over
time Mercia can provide further funding to the most promising
companies, by deploying direct investment follow-on capital from
its own balance sheet.
The Group has a strong UK regional footprint through its eight
offices, 19 university partnerships and extensive personal
networks, providing it with access to high-quality deal flow.
Mercia has over GBP500million of assets under management and, since
its IPO in December 2014, has invested over GBP84million across its
direct investment portfolio.
Mercia Asset Management PLC is quoted on AIM with the epic
"MERC".
Non-executive Chair's statement
The year ended 31 March 2019 has seen continued positive
progress by the Group's direct investment portfolio. This year has
also seen the evolution of Mercia's business model to that of a
proactive, regionally focused specialist asset manager. This
natural progression arises from the increasing maturity and value
of Mercia's balance sheet direct investments, as well as the
significant success that the Group has achieved in winning new fund
management contracts. This evolution has led to the Group's change
of name and branding to Mercia Asset Management PLC, which better
reflects what the Group has become and will be in the future.
Having assembled a talented team of investment and support
professionals, and firmly established its regional footprint,
Mercia is seeing the benefits of being able to offer a 'Complete
Capital Solution' to UK SMEs. In so doing it is identifying,
investing in and supporting an increasing number of young
businesses which have the potential to deliver significant
incremental value.
The Group invests in both its growing deal flow pipeline and
existing portfolio companies via one or more of the four pools of
capital it has under management: balance sheet, venture, private
equity and debt. In total c.GBP507million of capital is now being
managed by the Group.
Direct investment portfolio progress
As the direct investment portfolio matures it is encouraging to
see both the increasing quality of the businesses being built and
validation of their value-creating growth strategies, via
investment rounds at higher valuations, some of which include
syndicate investors. In this regard, the Board has been pleased by
the tangible commercial progress made by both nDreams and Oxford
Genetics; the growing emergence of other portfolio companies such
as Intechnica, Medherant, Faradion, Voxpopme, Intelligent
Positioning and Eyoto; and the increasing profitability of The
Native Antigen Company.
Two new companies were added to the direct investment portfolio
this year, W2 Global Data Solutions and Locate Bio, both of which
have come through Mercia's managed funds pipeline. The Board
recently conducted a detailed review of the companies which may
emerge from that pipeline in the foreseeable future. The list is
encouraging, continuing to grow and balanced by sector.
Strategic review - the next chapter
During the early part of 2019 the Board conducted a detailed
strategic review of the Group's progress to date, with the aim of
continuing to scale Mercia to become a profitable, dividend-paying
and self-sustaining investment group. This review also took account
of the ongoing challenges facing the intellectual property
commercialisation sector.
Mercia's business model has always differentiated itself from
other sector participants, having:
-- A regional focus where entry pre-money valuations are often more realistic
-- Both university and non-university deal flow pipelines offering a broader range of investment opportunities
-- A non-therapeutic portfolio bias, reducing the risk and
dependence on binary outcomes for value inflexion
-- Typically, less capital required by investees to reach profitability
-- 'Funds first' before the Group's balance sheet capital is invested
-- A growing and profitable fund management operation which
largely offsets the Group's total operating costs, thus minimising
net asset value erosion and cash burn
Since its inception, Mercia has been clear in its determination
to trade profitably so that its annual revenues (which exclude
unrealised fair value movements) exceed the total operating costs
of the Group. The key to reaching this objective is twofold -
continuing to increase the quantum of funds which the Group manages
on behalf of a growing number of third-party stakeholders, whilst
at the same time maintaining control of costs.
The Group is also determined to reach the point of balance sheet
sustainability, such that regular realised cash returns from trade
sales and the unwinding of equity stakes in listed companies are
sufficient for its annual direct investment needs.
Since its IPO in December 2014 Mercia has evolved from a
Midlands-based, relatively small technology investor to a much
larger regionally focused, specialist asset manager with investment
expertise across its four asset classes. Continuing to grow all
four pools of capital will enable the Group to achieve its twin
strategic objectives. This is the path upon which the Group has now
embarked.
Group Board
Since the appointment of Julian Viggars as Chief Investment
Officer in April 2018 and Caroline Plumb OBE as an additional
Non-executive Director in June 2018, the Board has focused on the
strategic direction of the Group and its execution priorities. The
Directors together with the Group's Chief Operating Officer, Peter
Dines, provide a balanced and experienced leadership group to drive
shareholder value creation.
Within the past few days Susan Searle has stepped down from our
Board to make the appropriate time commitment for her other roles.
We will all miss her passion, enthusiasm and commitment to Mercia.
Given the evolution of Mercia into a specialist asset manager, the
Board intends to appoint an additional Non-executive Director with
relevant background experience in due course.
People and culture
During the year the Executive Directors have continued to lead
the development of the Group's 'One Mercia' culture, details of
which will be set out in the Corporate, Employee and Social
Responsibility section of this year's Annual Report.
It is pleasing to see the embedding of Mercia's core values,
being growth-focused, responsive, knowledgeable and trusted, in all
of the Group's internal and external stakeholder interactions,
which continue to be strongly supported by Mercia's leadership
team.
Outlook
All businesses must evolve to meet their ever-changing market
dynamics and as its new name suggests, Mercia Asset Management PLC
is no exception.
Mercia's recent strategic review has reinforced the Group's core
competencies, being:
-- Active direct investment portfolio management and support,
including a focus on profitable cash exits
-- Proven acquisition and integration expertise
-- Fund mandate tendering and subsequent capital deployment
-- Talent acquisition and retention
These core competencies will be deployed to maximise the
opportunities which now exist to increase returns for all
stakeholders, but especially shareholders and the Group's investee
company community.
Notwithstanding the challenging political, economic and market
sector climate, the Group looks forward to this financial year with
great energy and purpose. The Board will remain focused on the
progress of the largest balance sheet direct investments and the
pace and scale at which these are being developed. Mercia's
venture, private equity and debt funds activities are also
monitored by the Board. As and when suitable opportunities present
themselves, we will seek to expand this part of the Group's
business.
Finally, I would like to thank our shareholders for their
continuing loyal support, particularly during what has been a
period of challenging investor sentiment. It is also a pleasure to
interact with all the excellent staff at Mercia and in so doing, to
see their energy and determination to succeed on behalf of Mercia's
shareholders, fund investors and investee company management teams
alike.
Ian R Metcalfe
Non-executive Chair
Chief Executive Officer's review
The regionally focused specialist asset manager
In the last 12 months Mercia has experienced marked growth in
capital deployment from its balance sheet and managed funds as it
builds a strong foundation from which to further expand its assets
under management ("AuM"). In this reporting period, Mercia received
2,792 (2018: 1,800) requests for investment and invested
c.GBP73million (2018: c.GBP46million) across the Group into 145
companies (2018: 90). Revenue grew 4.7% to GBP10.7million (2018:
GBP10.2million), reflective of the Group's consolidation in the
year following a period of recent and rapid expansion.
A simple measure of the progress that the direct investment
portfolio is making is to compare the number of positive and
negative fair value movements that are occurring year-on-year, as
well as the overall value of those movements and the percentage
that the total fair value movements represent, against each year's
opening fair value. Given that just over four and a half years have
elapsed since Mercia's IPO in December 2014, it is important to
remember that the average amount of time that the balance sheet's
capital has been invested in these typically young and intellectual
property-intensive businesses is just over two years. Mercia's
objective is to successfully exit following a three to seven-year
timeframe from initial balance sheet investment. During the year to
31 March 2019 it is encouraging to see that there have been 12 fair
value uplifts (2018: nine) and only three fair value decreases
(2018: nine). As a result, the total net fair value gain has
increased 39.3% to GBP3.9million (2018 GBP2.8million). Whilst the
net fair value increase in the year at 5.9% (2018: 5.4%) is
relatively modest, it is somewhat skewed by the GBP4.0million
write-off of Mercia's investment in Smart Antenna Technologies. As
set out in the Chief Investment Officer's review, the Executive
Directors made the difficult recommendation, fully supported by the
Board, to cease funding Smart Antenna Technologies due to a
significant change in the investment needs of the business. Whilst
Mercia's investment team works hard to minimise portfolio failures,
it is the nature of venture capital investing that not every
investment will work out as planned. It is worth noting however,
that but for the Smart Antenna Technologies write-off, the
underlying net fair value increase in the value of the portfolio
during the year was 12.1%, which is a more indicative measure of
the positive progress that the portfolio is making. Two new
businesses were added to the portfolio during the year, W2 Global
Data Solutions and Locate Bio.
Net expenses at GBP1.4million (2018: GBP0.4million) were better
than market expectations and overall these results set the backdrop
for creating a sustainable business seeking to accelerate growth in
AuM over the near to medium term, coupled with a continued
direction of travel towards profitable trading before the added
value of profitable cash realisations and upward fair value
movements.
In the regions, from the regions, to the regions
Mercia's stated intent is to become the leading regional
provider of supportive balance sheet, venture, private equity and
debt capital in transaction sizes typically below GBP10.0million.
Recent research reports from Beauhurst have shown Mercia to be the
fourth most active investor nationally and second most active in
the North of England. We base ourselves in the regions so that we
can access and support ambitious businesses, enabling us to move
capital from London to the regions, whilst supporting business
growth and providing attractive investment returns from the regions
to our fund investors, shareholders and business owners. Mercia's
strategic plan is supported by data from Beauhurst, the British
Business Bank and the British Venture Capital Association. As a
ratio based on the percentage of high-growth firms to total equity
capital deployed, London has an approximately three times
oversupply of capital compared to, for instance, the Midlands at
0.3 times. Our positioning in the regions provides an attractive
opportunity to source high quality deal flow with relatively
limited competition, whilst helping owners meet and beat their own
growth ambitions.
A maturing direct investment portfolio underpinned by
proprietary capital
Since Mercia's IPO in December 2014, we have to date invested
c.GBP84million into the balance sheet portfolio of direct
investments (focused on assets initially developed within Mercia's
FuM) and GBP0.8million as a cornerstone investor in four of our
managed funds. Our direct investment activity has resulted in
c.GBP14million in realised cash returns thus far and the IRR of the
direct investment portfolio is currently c.14%.
Our proprietary capital model means that we do not have the same
pressure to invest capital for the sake of generating fees. Our
teams have the time to actively nurture interesting companies from
within our FuM and build relationships with management teams long
before we invest directly and so we seek over the medium to
long-term to generate superior returns. The combination of our
balance sheet capital with third-party FuM, centred on regional
investment activity, is the cornerstone of Mercia's business model.
This approach ensures that our shareholders benefit from investment
returns over the medium-term with minimal net asset value erosion
from the net expenses of running our business. Our ungeared balance
sheet, connected internal processes and focused investment model
allow us to be competitive and agile for the right investment
opportunities.
We ended the year with unrestricted cash of GBP29.8million
(2018: GBP49.4million) and net assets of GBP126.1million (2018:
GBP123.5million).
Portfolio performance
The portfolio of investments assembled within our FuM over the
17-year period from 2002 (and for our direct investment portfolio
since 2014) is starting to create and realise significant
value.
Notable direct investments initially supported by our FuM
include nDreams (a fee-for-service and proprietary content
developer for the virtual reality ("VR") gaming sector, which is in
a period of strong revenue growth and has received further
third-party investment post year end); Oxford Genetics (a promising
synthetic biology business which is growing rapidly with revenues
up by nearly 300% in the past 12 months and which recently
completed a GBP6.5million syndicated investment round to further
scale the business); Voxpopme SaaS based video analytics business
in rapid revenue growth); Intechnica (a provider of bot analytics
and website optimisation services and tools in strong revenue
growth); and Faradion (a disruptive sodium-ion battery cell
developer which completed a syndicated round of investment post
year end).
Notable venture portfolio companies within our FuM include Axis
Spine (a spinal implant innovator that is attracting significant
attention from the US market) and Sense Bio (a developer of
user-centred, handheld diagnostic test devices in the fields of
infection and oncology). Another fund portfolio company, Clear
Review (a SaaS business providing HR management tools), has been
added to the direct investment portfolio since the year end.
In addition to the considerable new investment activity during
the year, the Group also unwound its fund investment in Blue Prism
Group (previously held in the RisingStars Growth Fund) for a money
multiple on initial investment of c.95x; an outstanding investment
return.
As well as our differentiated regional strategy and FuM
combination with proprietary balance sheet capital, the Group has
developed its own Mercia Platform for the benefit of its portfolio
companies and our investment teams. The Platform comprises (i)
portfolio talent management to assess and support investee boards,
'C Suite' and senior management recruitment and development, plus
help build regional non-executive director networks; (ii) corporate
advisory to manage deal syndications alongside the Group's capital;
(iii) legal, where we look to support portfolio companies with
legal investment documentation expertise; and (iv) research for the
benefit of Mercia's strategic execution and our portfolio
companies. These value-added services to investee companies
positively differentiate Mercia in our marketplace.
Funds' performance and return
To date, Mercia's closed and legacy funds have returned
c.GBP176million. The vintages of these funds have varied from 10 to
16 years with certain funds returning IRRs of 15-17%.
Venture
Our first venture fund to be fully unwound and capital returned
to investors, RisingStars Growth Fund, was an early-stage fund
specifically targeted at young businesses sourced from the North
West of England. It has generated an investor IRR of 15%, total
value to paid-in capital ("TVPI") of 528% and distributions as a
proportion of paid-in capital ("DPI") of 468%. This fund benefitted
from a portfolio generating nine trade sales and three IPOs.
Private equity
Our oldest private equity fund is another regional fund,
Coalfields Growth Fund, which has so far generated an investor IRR
of 19%, TVPI of 236% and a DPI of 167%. This fund benefitted from a
portfolio generating three successful exits to date.
Debt
Our first and oldest debt fund which is currently winding down
is the Finance Yorkshire Small Loans Fund. Focused on lending to
businesses in Yorkshire, it will return 107% of original fund
commitments.
Outlook
We enter our current financial year having developed a strong
foundation for Mercia's next chapter as a proactive, regionally
focused specialist asset manager. This domestic focus in part
protects us from the uncertainties of the UK's departure from the
EU and the nature of its new relationship and timing. The Group has
a healthy cash position with c.GBP168million in free cash to invest
from its FuM and in addition c.GBP30million of unrestricted balance
sheet cash to support new and existing direct investments. We
remain centred on transactions typically requiring less than
GBP10.0million in total and by leveraging the four pools of capital
that we manage across the Group, Mercia remains well positioned to
combine third-party funds with our own balance sheet capital, where
appropriate.
Mercia's presence in the UK regions of the Midlands, the North
of England and Scotland is now firmly established. We continue to
value our established relationships with the Group's 19 partner
universities, as well as fund investors such as the British
Business Bank, City Councils, regional pension funds, banks and our
many private investors. We thank them all for their trust in us
with their capital.
Our two clear goals remain to grow the value of Mercia's net
assets through accelerated growth of the direct investment
portfolio whilst seeking to expand our AuM to move the Group to a
sustainable, profitable position before realised gains and fair
value movements. The Group's objective is to grow AuM to at least
GBP1.0billion over the medium-term. We believe that the achievement
of these goals will result in a sustainable business model which
will deliver significant shareholder value over the
medium-term.
The Board strongly supports Mercia's next stage in its
evolution, as demonstrated by the recent name change to Mercia
Asset Management PLC. Internally, we reference the Group as 'One
Mercia' as we leverage the collective strength of a highly talented
85-plus team. I would like to thank all our valued staff for their
drive and commitment as we open 'Chapter Three' of Mercia's journey
to become the leading, regionally focused specialist asset
manager.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Having taken over the role of Chief Investment Officer in April
2018 this has been my first full year to focus on the construction
of the direct investment portfolio and oversee the Group's
activities across all of its managed equity funds. I am pleased to
say that we have made significant progress in all of these areas
and we are now starting to see the benefits of the previous hard
work, as our portfolio companies start to mature; examples of this
progress are highlighted below.
As with any young portfolio, in addition to the good progress we
see, we would of course expect challenges. I commented in the half
year results that we were prepared to take action in circumstances
where our fundamental rationale for investment had changed, which
had been the case with Edge Case Games. This business was sold to
Wargaming in November 2018, returning an initial GBP1.1million to
us in a deal involving further deferred contingent consideration of
up to $10.0million in due course. In January 2019 we took another
tough decision to stop supporting Smart Antenna Technologies. When
the demands of Smart Antenna Technologies' mainly Chinese customers
shifted from licensing its antenna technology to 'last touch'
volume manufacture of the antennae themselves, the change in
customer requirements necessitated a significant increase in the
amount of capital committed by Mercia to Smart Antenna
Technologies. The decision was therefore taken in January 2019 not
to provide further funding and as a result the business ceased
trading shortly thereafter. Although this has resulted in a
disappointing write-off, my twenty years' experience of investing
in technology companies tells me that it is far better to take
these decisions and look at the strength of the remaining portfolio
as a whole. Decisions like these should always be made from a
position of risk and portfolio management and we always consider
the opportunity cost of each GBP1 allocated to one of our assets
compared to that GBP1 being invested in another.
During the year we conducted an in-depth review of our direct
investment portfolio and allocated our time, energy and capital in
a structured manner, leveraging the services of our newly formed
Mercia Platform to help drive investee company growth. Mercia's
Platform covers the four disciplines of talent resourcing,
corporate advisory, legal and research, all of which we see as key
to delivering investee company growth by helping management teams
to scale their businesses. This supportive approach means that we
can both help our portfolio management teams to take advantage of
the opportunities ahead of them, as well as helping them to
navigate the inevitable issues associated with growing and scaling
young businesses.
Track record
Track record is crucially important for any specialist asset
manager and our oldest technology fund, the RisingStars Growth
Fund, was finally closed at the end of March 2019. It was raised in
2003 and targeted entrepreneurs and early-stage ideas across the
North West of England, operating out of Mercia's second largest
office in the heart of the city of Manchester. We invested across
the geography from software, through MedTech, AgTech and FoodTech,
to specialty Pharma, in some 35 deals. The fund spawned four listed
businesses, Provexis, Science in Sport and Plant Impact, but the
standout success was Blue Prism Group. We were the first investor
in Blue Prism Group in 2004 when the founders, Alistair Bathgate
and Dave Moss, came to us after they had won their first bespoke
deal with Barclays. We invested GBP0.9million over the following
few years to support their progress and help build their team. They
moved to a channel partner model as their newly coined 'robotic
process automation' software started to gain traction. From there
the story is impressive, following its AIM listing in 2016 and
stellar subsequent growth to a market value of c.GBP1.1billion.
That early investment has now been realised in full and has
resulted in a staggering c.GBP94million profit on the original
investment cost.
Our first private equity fund is another regional fund,
Coalfields Growth Fund, which has so far generated an IRR of 19%
and a DPI of 167%. This fund benefitted from a portfolio which has
generated three successful exits to date.
Direct investment portfolio overview
We have had another year of good progress across the direct
investment portfolio, resulting in net upward fair value movements
of GBP3.9million. The overall uplift should be considered in light
of the GBP4.0million write-off of Smart Antenna Technologies, where
we took the tough but right decision to discontinue financial
support.
We have seen the continued maturing of the direct investment
portfolio with c.98% of the total portfolio value being represented
by the top 20 investments. A number of our investee companies have
raised significant sums of capital during the year to fund their
growth and we have continued to build out the management teams and
boards at our key assets. GBP19.4million has been invested over the
past year and investee company loan repayments have totalled
GBP1.7million. As at 31 March 2019 the value of the Group's direct
investment portfolio has increased to GBP87.7million from
GBP66.1million, reflecting the net investment of GBP17.7million and
net fair value gains of GBP3.9million.
Investment activity
As many of our direct investment portfolio companies now look to
scale their growth, our aim remains to build and/or maintain
material equity stakes at c.20-40% in these assets, whilst
increasingly looking to bring in new third-party capital.
We have continued to support our largest and most promising
assets, with both capital and energy. GBP8.7million of the total
amount of balance sheet capital invested in the year was invested
into nDreams, Oxford Genetics, Warwick Acoustics, Intechnica,
Impression Technologies and Voxpopme.
nDreams continues to develop its award-winning VRcontent; its
own Shooty Fruity game won best PC Arcade game at the Viveport
Awards in March 2019, making its first steps into the growing
location-based entertainment ("LBE") market for VR. It also
announced its first title, Phantom: Covert Ops, being developed for
Oculus, which has recently received rave reviews and numerous
awards at the global games Expo, E3 held in Los Angeles in June,
including the Games Critics Award for best VR/AR game. Global
enterprise VR hardware and software revenue is estimated to grow by
587% to $5.5billion in 2023, up from an estimated $800million in
2018, according to Business Insider Intelligence.
Oxford Genetics made significant commercial progress and closed
a new GBP6.5million funding round in March 2019 led by Canaccord
Genuity Wealth Management (formerly Hargreave Hale) and Invesco.
According to data published by Allied Market Research the global
synthetic biology market is expected to reach $38.7billion by
2020.
Warwick Acoustics continues to successfully pursue its goal of
disrupting the $8.0billion automotive audio market. It launched its
flagship premium headphone product, the APERIO, to global critical
acclaim, further enhancing its brand, proving out its new
automotive-grade transducer design and securing early commercial
interest. On the back of this achievement, it has gained strong
traction from the car industry, signing its first two design and
development contracts with a major premium European car
manufacturer. These contracts are helping to accelerate the growth
of its pipeline of car companies seeking to adopt its premium audio
solutions and should result in the company securing 'supplier
ready' status with the automotive industry in early 2020.
Intechnica is a Manchester-based services and software product
business with annual revenues of c.GBP6million. Its focus is on the
critical operations of ecommerce businesses, including website
resilience and efficiency, high volume ordering systems, online
ticketing and mobile customer relationship management applications.
It is developing a suite of products to help manage inbound web
traffic. In the last 12 months the business has raised
GBP4.1million, with GBP2.0million from Mercia, to fund the ongoing
commercialisation of its SaaS-based Netacea product offering.
Statistics from Gartner estimate that the enterprise software
market in 2019 will reach $427.0billion, up 7.1% from $399.0billion
in 2018.
Impression Technologies has developed a proven, patented process
for manufacturing advanced, light-weight high-strength components
using aluminium. The process, known as Hot Form Quenching (HFQ(R))
technology, offers significant savings in weight, cost and part
complexity compared with existing forming technologies and enables
designers to create complex shaped components using high-strength
aluminium that are not possible today. HFQ(R) technology addresses
substantial global markets including automotive, aerospace, mass
transit, industrial and consumer electronics. Impression
Technologies owns and operates a pilot pressing facility in
Coventry, which opened in late 2016. This facility now houses the
world's first dedicated HFQ(R) hot forming press line. Impression
Technologies' business model is to license its technology to
Automotive OEMs and to their tier 1 suppliers. The in-house
production line is used for process development and low volume
supply to Aston Martin and others. During the year, Impression
Technologies partnered with Novelis Inc., the world leader in
aluminium rolling and recycling, to explore innovative ways to
increase the broader adoption of aluminium through the hot stamping
process.
Voxpopme is a Birmingham-based video insights platform that
provides innovative video analytics for marketing purposes with
internationally renowned clients such as Microsoft, Tesco, Verizon
and Accenture. The business has successfully entered the US market
and Mercia's capital will help scale its growth. The Group made its
first direct investment into the company in March 2018 and with
revenues of c.$5million in 2018, c.95% up on the prior year,
Voxpopme is operating in a market estimated to be worth
$46.0billion in market research and $17.0billion in customer
experience.
During the financial year we also invested GBP2.5million into
two new direct investments, W2 Global Data Solutions and Locate
Bio, both of which originated from the managed funds pipeline. In
addition, we contributed GBP0.6million of balance sheet capital to
four of our regional managed funds.
W2 Global Data Solutions is a SaaS business providing real-time
identity verification services to prevent fraud and money
laundering in a market estimated to grow from $14.4billion in 2016
to $33.2billion in 2021. The company targets global firms in
regulated, government and business communities and is primarily
focused on selling to the gaming, payments and foreign exchange
markets on multi-year revenue contracts.
Locate Bio is a gene and cell therapy company developing a
pipeline of next generation medicines which utilise its proprietary
technologies for non-viral gene therapy and cell therapy. The
company operates in the global regenerative medicine market which
is projected to reach $38.7billion by 2024 from $13.3billion in
2019, at a CAGR of 23.8%. This predicted growth is largely driven
by the rising prevalence of chronic diseases and genetic disorders,
growing government investments in regenerative medicine research
and the increasing number of regenerative medicine companies
globally. The company is currently expanding the application of its
technologies (IntraStem(TM) and TAOS(R)) into new therapy areas,
beyond musculoskeletal, to provide further in-house development and
partnering opportunities.
We have seen strong growth in the pipeline for direct investment
across our sectors in the last 12 months through the increasing
scale of our managed funds, which have deployed GBP30.5million from
our venture funds alone into 61 companies. We will continue our aim
of building excellent management teams within these businesses,
which can scale before we commit our balance sheet capital. As a
result, and as shown with Oxford Genetics above, we expect that in
the future larger and increasingly syndicated investment rounds
will be a growing feature of our direct investment portfolio.
Some notable businesses in our venture funds that are making
strong progress include Axis Spine, a spinal implant innovator that
is attracting significant attention from the US market, and Sense
Bio, a developer of user-centred, handheld diagnostic test devices
in the fields of infection and oncology.
Fair value movements
The total net fair value gain in the year amounted to
GBP3.9million compared to GBP2.8million in the prior year. We have
recognised notable fair value uplifts at nDreams (GBP1.1million),
Intelligent Positioning (GBP1.3million), Faradion (GBP1.6million),
Oxford Genetics (GBP0.6million), Medherant (GBP1.2million), The
Native Antigen Company (GBP0.9million) and Voxpopme
(GBP0.5million). These fair value uplifts are based on our existing
valuation policy where there is either third-party involvement and
pricing in an investment round (in most instances), independent
third-party input to valuation, or the business is profitable and
the valuation is based against market comparators. We have also
released a previous fair value provision for Soccer Manager as the
company's revenues have increased, and in our view its prospects
have materially improved, as we have helped to engineer operational
and market-facing improvements.
As well as the fair value write-off of Smart Antenna
Technologies we also recognised a negative fair value movement of
GBP0.5million on Concepta, an investment which is listed on AIM so
is marked to market at bid price. However, we have been pleased
with the recent commercial progress that Concepta is now making, as
shown by the recent agreement with Walgreen Boots Alliance, and so
have continued to support the team under the oversight of Mercia's
Chief Operating Officer Peter Dines, who has become a non-executive
director on Concepta's board.
Third-party funds overview
Our third-party managed funds encompassing our venture (which
includes c.GBP49million of EIS capital), private equity and debt
funds are all performing well against their mandates.
In our primary regions of the Midlands and the North of England
we manage allocations from the GBP250.0million Midlands Engine
Investment Fund ("MEIF"), the GBP400.0million Northern Powerhouse
Investment Fund ("NPIF") and the GBP125.0million North East Venture
Fund ("NEVF").
Our GBP23.5million Midlands Engine Investment Fund Proof of
Concept Fund ("MIEF POC") first invested in Locate Bio in April
2018, which subsequently became a direct investment six months
later and has received significant further funds since the year end
from both Mercia's balance sheet and via its third-party managed
funds. In the North of England we manage c.GBP110million across the
NPIF region in both venture and debt, with both mandates on target.
Our newest fund covering the North East region of GBP27.5million
was launched in April 2018 and made its first investments during
the year.
In Scotland, we have significant relationships with a number of
the leading universities, most recently the University of
Edinburgh, and have used allocations from our EIS funds to lead an
investment into Invizius, a company whose technology reduces the
risk of cardiovascular disease among patients undergoing long-term
dialysis.
Our newest GBP45.0million private equity fund invests in
later-stage profitable SME businesses; supporting ambitious
management teams by providing the focus, resources and finance
required to move their companies onto the next level of growth. The
fund operates across the UK, although makes a strength of its
northern roots and has an experienced investment team, supported by
two operating partners who regularly meet and advise management
teams. The investment criteria of the fund starts with identifying
management teams with a shared set of goals and typical investments
will be into profitable, cash-generative businesses with a strong
market position that can achieve rapid growth. During the year the
fund invested GBP8.5million in total into an online aggregator car
park booking site, ParkVia, and a specialist lifting equipment
provider operating a depot network across the North of England and
the Midlands, Quick Reach. Since the year end the fund has made two
further investments including Total Resources, a temporary traffic
management business which was a c.GBP8million deal that also
included both our SME Loans Fund and North East Venture Fund.
Our debt team was active in managing three third-party debt
mandates; GBP4.0million of Rosebud Finance on behalf of Lancashire
County Council, the GBP40.0million EV SME Loans Fund backed by
Greater Manchester Pension Fund and Santander, and the
GBP51.0million NPIF Debt Fund (part of Mercia's GBP110.0million
NPIF allocation) focusing on Yorkshire and the Humber. Our
experienced debt team of 18 people operates across the country, but
with a focus on the North of England, and typically provides term
loans of between GBP0.1million and GBP1.0million to established and
profitable SMEs which can demonstrate growth and an ability to
service the requested levels of debt. All funds are operating to
agreed performance measures and during the year the team advanced
loans totalling GBP15.0million to 65 businesses.
We are now investing at a steady rate across venture, PE and
debt funds, creating a healthy pipeline of investments from which
we can help shape business models, strategies and management teams,
before making selective new direct investments using our balance
sheet capital.
Post period end developments
Investment activities have continued apace since the year end
with new funding rounds at Medherant and Locate Bio where we
invested a further GBP1.5million and GBP1.8million, respectively.
We have also continued to support Voxpopme as the company executes
its plan to grow its annual recurring revenues ("ARR").
Concepta announced a new GBP2.3million placing in April, with
Mercia contributing GBP0.8million, and subsequently the company
announced the first pregnancies by early users of its MyLotus
system.
nDreams announced its partnership with Oculus and the first
title in development, Phantom: Covert Ops, which received positive,
wide recognition at E3 in Los Angeles in June 2019, including
winning the Game Critics Award for best VR/AR game.
Another fund investment, Clear Review, a SaaS business providing
HR management tools, has become the Group's latest new direct
investment with an initial GBP0.5million equity investment.
In summary, and as is evident from the above, value-creating
momentum continues and I am pleased to be able to share the
positive progress that our investee companies are making alongside
our active support. By using a highly structured approach over the
last 12 months we have been able to focus our energy and capital
into the most promising assets, which we believe will deliver far
greater value to all our shareholders and fund stakeholders alike.
This portfolio discipline is continuing in the current year.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
In the year to 31 March 2019 Mercia Asset Management PLC
experienced continuing positive momentum across both its balance
sheet and fund management investing and lending activities.
Revenue (which excludes unrealised fair value movements)
increased 4.7% to GBP10.7million (2018: GBP10.2million). The
Group's revenue increase was largely derived from the full year
impact of new fund management contracts won during the previous
year. As referred to last year, 2018 revenue included one-off
performance-related fund management fees totalling
GBP1.2million.
Staff and administrative expenses increased by 13.9% to
GBP12.1million (2018: GBP10.6million). The cost base increase arose
mainly from the recruitment of additional investment staff in 2019
to manage and deploy the substantial new fund mandate wins of 2018.
The Group now anticipates a levelling off of its cost base, as the
additional investment and support staff required to invest the
substantial fund mandate wins in both 2017 and 2018 have now
largely been recruited.
Net expenses increased by GBP1.0million compared with 2018
largely as a result of average headcount increasing from 68 to 85
during the year. The Group's drive to minimise NAV erosion arising
as a result of its operating model will continue.
During the year the Group invested GBP19.4million (2018:
GBP21.3million) into 15 existing and two new direct investments
(2018: 14 and three respectively). It also received investee
company loan repayments of GBP1.7million (2018: GBP0.2million).
Investment momentum has been positive at the start of the new
financial year and is expected to selectively continue.
Net fair value increases during the year totalled GBP3.9million
(2018: GBP2.8million) and as at 31 March 2019 the fair value of the
Group's direct investment portfolio was GBP87.7million (2018:
GBP66.1million). Net assets at the year end were GBP126.1million
(2018: GBP123.5million) resulting in an increase in net assets per
share (being net assets of GBP126.1million divided by 303,309,707
shares in issue) to 41.6 pence (2018: 40.7 pence).
Within total net assets, cash and short-term liquidity
investments totalled GBP30.4million (2018: GBP52.9million),
including GBP0.6million of cash held on behalf of third-party EIS
investors (2018: GBP3.5million).
The net fair value increases contributed favourably to result in
a 57.6% overall increase in the consolidated total comprehensive
profit for the year to GBP2.6million (2018: GBP1.7million). This in
turn has resulted in an increase in earnings per Ordinary share to
0.86 pence (2018: 0.55 pence).
Alternative performance measures
The Group believes that the measurement and reporting of both
'net expenses' and 'net assets per share' are important alternative
performance measures of interest to investors. The reporting of net
expenses enables a clear understanding of the impact of the Group's
operating model on net asset value erosion, where operating costs
exceed revenue. Similarly, the reporting of net asset value per
share provides an indication of the overall progress that the Group
is making in terms of shareholder value creation over the medium
term. Where there is a difference between net asset value per share
and the Group's share price, that difference represents either a
discount or premium to Mercia's net asset value.
Goodwill and acquired intangible assets
The consolidated balance sheet includes goodwill of
GBP10.3million (2018: GBP10.3million) and acquired intangible
assets of GBP0.6million (2018: GBP0.9million). GBP7.9million (2018:
GBP7.9million) of the goodwill and all of the intangible assets
value arose as a result of the Group's acquisition of Enterprise
Ventures Group Limited in March 2016, with the balance of the
goodwill arising on the acquisition of Mercia Fund Management
Limited in December 2014. The intangible assets are separately
identifiable assets arising from Enterprise Ventures' fund
management contracts with third-party limited partners and other
similar investors. The fair value of the intangible assets is being
amortised on a straight-line basis over the average duration of the
remaining fund management contracts. The charge of GBP301,000
(2018: GBP301,000) in the consolidated statement of comprehensive
income represents the amortisation for the year ended 31 March
2019.
Summarised consolidated statement of comprehensive income
Year ended Year ended
31 March 31 March
2019 2018
GBP'000 GBP'000
------------------------------------------------------------- ---------- ----------
Revenue 10,675 10,197
Other administrative expenses (12,115) (10,633)
------------------------------------------------------------- ---------- ----------
Net expenses (1,440) (436)
Realised gains on disposal of investments - 871
Fair value movements in investments 3,916 2,823
Share-based payments charge (171) (497)
Amortisation of intangible assets (301) (301)
------------------------------------------------------------- ---------- ----------
Operating profit before exceptional item 2,004 2,460
Exceptional item - (1,125)
Finance income 562 274
Taxation 54 54
------------------------------------------------------------- ---------- ----------
Profit and total comprehensive income for the financial year 2,620 1,663
------------------------------------------------------------- ---------- ----------
Basic and diluted earnings per Ordinary share (pence) 0.86 0.55
------------------------------------------------------------- ---------- ----------
Mercia continues to have strong liquidity and a growing
investment portfolio from which to drive future increases in both
earnings per share and net assets per share.
Revenue
Total revenue of GBP10,675,000 (2018: GBP10,197,000) comprised
fund management fees, initial management fees from new investments,
investment director monitoring fees and sundry business services
income.
Other administrative expenses
Total other administrative expenses of GBP12,115,000 (2018:
GBP10,633,000) consisted of all staff related and office, marketing
and professional adviser costs.
Net expenses
Net expenses of GBP1,440,000 (2018: GBP436,000) represents total
revenue less all staff and administrative expenses.
Fair value movements in investments
Year ended Year ended
31 March 31 March
2019 2018
GBP'000 GBP'000
--------------------------------------------------------------- ---------- ----------
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments 8,622 8,699
Unrealised losses on the revaluation of investments (4,706) (5,876)
--------------------------------------------------------------- ---------- ----------
Net fair value gain 3,916 2,823
--------------------------------------------------------------- ---------- ----------
For the year as a whole, unrealised fair value gains arose in
twelve (2018: nine) of the Group's 26 (2018: 26) direct investments
at the year end. The largest fair value gain, being Faradion, was
GBP1,625,000. There were three (2017: nine) fair value decreases,
the largest being GBP4,048,000 for Smart Antenna Technologies which
ceased trading during the year.
Share-based payments charge
The GBP171,000 (2018: GBP497,000) non-cash charge arises from
the issue of share options to Executive Directors and other
employees of the Group ranging from the date of the IPO to 31 March
2019. The year-on-year reduction is due to leavers during the year
forfeiting their share options.
Amortisation of intangible assets
The amortisation charge of GBP301,000 (2018: GBP301,000)
represents the amortisation of the acquired intangible assets of
Enterprise Ventures for the year ended 31 March 2019.
Finance income
Finance income of GBP562,000 (2018: GBP274,000) comprised loan
interest and redemption premiums received on loans repaid by
investee companies during the year, as well as interest receivable
earned on the Group's cash and short-term liquidity
investments.
Taxation
The tax credit of GBP54,000 (2018: GBP54,000) represents the
unwinding of the deferred tax liability recognised in respect of
the intangible asset which arose on the acquisition of Enterprise
Ventures.
Balance sheet and cash flows
Net assets at the year end of GBP126,065,000 (2018:
GBP123,470,000) were predominantly made up of the Group's direct
investment portfolio, together with cash and short-term liquidity
investments. The Group continues to have limited working capital
needs due to the nature of its business.
Direct investment portfolio
During the year Mercia's direct investment portfolio grew to
GBP87,659,000 (2018: GBP66,070,000). The table below lists the
Group's investments by value as at 31 March 2019, including a
breakdown of the net cash invested during the year, fair value
movements for the year and the equity percentage of each investee
company owned.
Investment Net cash Fair value Investment Percentage
value invested movement value held
As at Year to Year to As at As at
1 April 31 March 31 March 31 March 31 March
2018 2019 2019 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000 %
--------------------------------------- ---------- -------- ---------- ---------- ----------
nDreams Ltd 12,979 1,029 1,112 15,120 45.5
Oxford Genetics Ltd 9,090 433 638 10,161 33.3
Warwick Acoustics Ltd 6,152 1,500 252 7,904 62.5
Intechnica Ltd 4,021 2,000 656 6,677 32.0
Ton UK Ltd t/a Intelligent Positioning 4,216 - 1,257 5,473 28.8
Impression Technologies Ltd 3,107 2,268 6 5,381 31.4
Medherant Ltd 3,453 524 1,228 5,205 31.9
VirtTrade Ltd t/a Avid Games 2,538 1,400 - 3,938 28.4
Faradion Ltd 1,299 601 1,625 3,525 18.1
Voxpopme Ltd 1,000 1,500 526 3,026 21.3
The Native Antigen Company Ltd 1,942 - 921 2,863 32.7
PsiOxus Therapeutics Ltd 2,377 - - 2,377 1.5
Edge Case Games Ltd 2,000 300 - 2,300 21.2
Soccer Manager Ltd 1,199 500 400 2,099 31.6
W2 Global Data Solutions Ltd - 2,000 - 2,000 17.4
LM Technologies Ltd 1,913 - - 1,913 41.4
sureCore Ltd 1,500 334 - 1,834 24.4
Eyoto Group Ltd 1,750 4 1 1,755 18.8
Crowd Reactive Ltd 1,650 (61) - 1,589 26.2
Concepta PLC 1,306 365 (538) 1,133 18.2
Locate Bio Ltd - 500 - 500 6.0
Smart Antenna Technologies Ltd 2,148 1,900 (4,048) - n/a
Other direct investments 430 576 (120) 886 n/a
--------------------------------------- ---------- -------- ---------- ---------- ----------
Totals 66,070 17,673 3,916 87,659 n/a
--------------------------------------- ---------- -------- ---------- ---------- ----------
Investee company loan repayments
Mercia is focused on creating shareholder value through the
investment in, development of and at the appropriate time, exit
from (predominantly through trade sales) its direct investments, as
well as minimising net asset erosion from net expenses. The Group
supports its direct investments via both equity and loan
instruments. During the year loan repayments of GBP1,711,000 were
received from Crowd Reactive, Edge Case Games and Smart Antenna
Technologies.
Cash and short-term liquidity investments
At the year end, Mercia had total cash and short-term liquidity
investments of GBP30,398,000 (2018: GBP52,908,000) comprising cash
of GBP25,210,000 (2018: GBP42,908,000) and short-term liquidity
investments of GBP5,188,000 (2018: GBP10,000,000), including
GBP629,000 (2018: GBP3,473,000) of cash held on behalf of
third-party EIS investors. The overriding emphasis of the Group's
treasury policy remains the preservation of its shareholders' cash
for investment and working capital purposes, not yield. At the year
end the Group's cash and short-term liquidity investments (which is
cash on deposit with maturities between three and six months) were
spread across five leading United Kingdom banks.
The summarised movement in the Group's cash position during the
year is shown below.
Year ended Year ended
31 March 31 March
2019 2018
GBP'000 GBP'000
---------------------------------------------------------- ---------- ----------
Opening cash and short-term liquidity investments 52,908 63,829
Net cash used in operating activities (5,080) (442)
Net cash used in direct and other investing activities (17,234) (10,479)
Net cash used in financing activities (196) -
---------------------------------------------------------- ---------- ----------
Cash and short-term liquidity investments at the year end 30,398 52,908
---------------------------------------------------------- ---------- ----------
The overall positive progress of the direct investment portfolio
together with the Group's significant cash reserves, plus a
continued focus on net expense minimisation, provides Mercia Asset
Management with a strong financial platform from which to continue
to drive growth in net assets and with it, NAV per share.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Consolidated statement of comprehensive income
For the year ended 31 March 2019
Year ended Year ended
31 March 31 March
2019 2018
Note GBP'000 GBP'000
------------------------------------------------------------- ---- ---------- ----------
Revenue 5 10,675 10,197
Other administrative expenses (12,115) (10,633)
------------------------------------------------------------- ---- ---------- ----------
Net expenses (1,440) (436)
Realised gains on disposal of investments - 871
Fair value movements in investments 6 3,916 2,823
Share-based payments charge (171) (497)
Amortisation of intangible assets (301) (301)
------------------------------------------------------------- ---- ---------- ----------
Operating profit before exceptional item 2,004 2,460
Exceptional item - (1,125)
------------------------------------------------------------- ---- ---------- ----------
Operating profit 7 2,004 1,335
Finance income 562 274
------------------------------------------------------------- ---- ---------- ----------
Profit before taxation 2,566 1,609
Taxation 54 54
------------------------------------------------------------- ---- ---------- ----------
Profit and total comprehensive income for the financial year 2,620 1,663
------------------------------------------------------------- ---- ---------- ----------
Basic and diluted earnings per Ordinary share (pence) 8 0.86 0.55
------------------------------------------------------------- ---- ---------- ----------
Consolidated balance sheet
As at 31 March 2019
As at As at
31 March 31 March
2019 2018
Note GBP'000 GBP'000
--------------------------------- ---- -------- --------
Assets
Non-current assets
Goodwill 9 10,328 10,328
Intangible assets 10 584 885
Property, plant and equipment 153 145
Investments 11 87,659 66,070
--------------------------------- ---- -------- --------
Total non-current assets 98,724 77,428
Current assets
Trade and other receivables 782 1,057
Short-term liquidity investments 12 5,188 10,000
Cash and cash equivalents 12 25,210 42,908
--------------------------------- ---- -------- --------
Total current assets 31,180 53,965
--------------------------------- ---- -------- --------
Total assets 129,904 131,393
--------------------------------- ---- -------- --------
Current liabilities
Trade and other payables (3,730) (7,760)
Non-current liabilities
Deferred taxation (109) (163)
--------------------------------- ---- -------- --------
Total liabilities (3,839) (7,923)
--------------------------------- ---- -------- --------
Net assets 126,065 123,470
--------------------------------- ---- -------- --------
Equity
Issued share capital 13 3 3
Share premium 14 49,324 49,324
Other distributable reserve 70,000 70,000
Retained earnings 5,401 2,977
Share-based payments reserve 1,337 1,166
Total equity 126,065 123,470
--------------------------------- ---- -------- --------
Consolidated cash flow statement
For the year ended 31 March 2019
Year ended Year ended
31 March 31 March
2019 2018
Note GBP'000 GBP'000
---------------------------------------------------------------------------------------- ---- ---------- ----------
Cash flows from operating activities:
Operating profit 2,004 1,335
Adjustments to reconcile operating profit to net cash flows used in operating
activities:
Depreciation of property, plant and equipment 84 81
Realised gains on disposal of investments - (871)
Fair value movements in investments 6 (3,916) (2,823)
Share-based payments charge 171 497
Amortisation of intangible assets 301 301
Exceptional item - deferred consideration - 1,125
Working capital adjustments:
Decrease in trade and other receivables 306 19
Decrease in trade and other payables (4,030) (106)
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net cash used in operating activities (5,080) (442)
Cash flows from direct investment activities:
Purchase of direct investments 11 (19,384) (21,282)
Investee company loan repayments 11 1,711 150
Proceeds from the sale of direct investments - 10,468
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net cash flows used in direct investment activities (17,673) (10,664)
Cash flows from other investing activities:
Purchase of property, plant and equipment (92) (75)
Investee company loan redemption premiums and interest received 531 260
Decrease in short-term liquidity investments 4,812 25,000
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net cash generated from other investing activities 5,251 25,185
Net cash (used in)/generated from total investing activities (12,422) 14,521
Cash flows from financing activities:
Redemption of subsidiary undertaking preference shares (196) -
Net cash used in financing activities (196) -
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (17,698) 14,079
Cash and cash equivalents at the beginning of the year 42,908 28,829
---------------------------------------------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at the end of the year 12 25,210 42,908
---------------------------------------------------------------------------------------- ---- ---------- ----------
Consolidated statement of changes in equity
For the year ended 31 March 2019
Issued Other Share-based
share Share distributable Retained payments Other
capital premium reserve earnings reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April 2017 3 48,243 70,000 1,314 669 1,125 121,354
Profit and total comprehensive income for
the year - - - 1,663 - - 1,663
Share-based payments charge - - - - 497 - 497
Deferred consideration - - - - - 1,125 1,125
Settlement of deferred consideration - 1,081 - - - (2,250) (1,169)
-------------------------------------------- ------- ------- ------------- -------- ----------- ------- -------
As at 31 March 2018 3 49,324 70,000 2,977 1,166 - 123,470
Profit and total comprehensive income for
the year - - - 2,620 - - 2,620
Share-based payments charge - - - - 171 - 171
Redemption of subsidiary undertaking
preference shares - - - (196) - - (196)
As at 31 March 2019 3 49,324 70,000 5,401 1,337 - 126,065
-------------------------------------------- ------- ------- ------------- -------- ----------- ------- -------
Notes to the consolidated financial statements
For the year ended 31 March 2019
1. General information
Mercia Asset Management PLC (formerly Mercia Technologies PLC)
(the 'Group', 'Mercia') is a public limited company, incorporated
and domiciled in England, United Kingdom, and registered in England
and Wales with registered number 09223445. The change of name
better reflects the Group's current trading activities and business
model. Its Ordinary shares are admitted to trading on the AIM
market of the London Stock Exchange. The registered office address
is Mercia Asset Management PLC, Forward House, 17 High Street,
Henley-in-Arden, B95 5AA. Mercia Asset Management PLC's Ordinary
shares were admitted to trading on AIM on 18 December 2014.
2. Basis of preparation
The summary financial information included in this announcement
has been extracted from the audited financial statements of the
Group for the year ended 31 March 2019, which have been approved by
the Board of Directors. The content of this announcement has also
been agreed with the Group's auditor. The summary financial
information does not constitute statutory accounts as defined in
Section 434 of the Companies Act 2006 (the 'Act'). The auditor's
report on the financial statements for the year ended 31 March 2019
was unqualified and did not contain any statement under section 498
of the Act. The Group's Annual Report and financial statements will
be delivered to the Registrar of Companies in due course.
The financial statements have been prepared on an historical
cost basis, as modified by the revaluation of certain financial
assets and financial liabilities in accordance with International
Financial Reporting Standard ("IFRS") 9 'Financial Instruments'.
The accounting policies presented in the summary financial
information are consistent with those set out in the audited
financial statements.
3. Going concern
Based on the overall strength of the Group's balance sheet,
including its significant liquidity position at the year end,
together with its forecast future operating and investment
activities, the Directors have a reasonable expectation that the
Group has adequate financial resources to continue in operational
existence for the foreseeable future. Accordingly, the Directors
continue to adopt the going concern basis in preparing these
consolidated financial statements.
4. Significant accounting policies
Basis of consolidation
Subsidiaries and subsidiary undertakings are consolidated from
the date of their acquisition, being the date on which the Group
obtains control, and continue to be consolidated until the date
that such control ceases. The Group accounts for business
combinations using the acquisition method from the date that
control is transferred to the Group. Both the identifiable net
assets and the consideration transferred in the acquisition are
measured at fair value and transaction costs are expensed as
incurred. Goodwill arising on acquisitions is tested annually for
impairment.
New standards
New standards impacting the Group that have been applied in the
presentation of these consolidated financial statements are IFRS 9
'Financial Instruments' and IFRS 15 'Revenue from Contracts with
Customers'. The Group has concluded that the application of IFRS 9
results in no differences in the classification and measurement nor
impairment of its financial instruments and as a result, there is
no requirement to restate the comparative information provided in
the consolidated financial statements, nor change its accounting
policy. The Group has assessed that the application of IFRS 15
results in no differences in the timing of revenue recognition and
as a result, there is no requirement to restate the comparative
information provided in these consolidated financial statements.
The Group has, however, changed its revenue recognition policy to
adopt the standard's five-step framework, such that revenue in
respect of services provided is recognised when a contractual
performance obligation can be identified, a transaction price can
be determined and allocated to that performance obligation and that
performance obligation has been or is being satisfied.
Critical accounting judgements
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods.
The Directors have made the following judgements and estimates,
which have had the most significant effect on the carrying amounts
of the assets and liabilities in these consolidated financial
statements.
Fair value measurements and valuation processes
The judgements required to determine the appropriate valuation
methodology of unquoted equity investments means there is risk of a
material adjustment to the carrying amounts of assets and
liabilities. These judgements include a decision whether or not to
impair or uplift investment valuations. The fair value of unlisted
securities is established using the International Private Equity
and Venture Capital Valuation Guidelines ("IPEVCVG"). The valuation
methodology most commonly used by the Group is 'price of recent
investment', which can be either the 'price of recent funding
round' or 'cost' in the case of a new direct investment. Given the
nature of the Group's investments in early-stage companies, where
there are often no current and no short-term future earnings or
positive cash flows, it can be difficult to gauge the probability
and financial impact of the success or failure of commercial
development or research activities and to make reliable cash flow
forecasts. Consequently, the most appropriate approach to determine
fair value is a methodology that is based on observable market
data, that being the price of a recent investment. The Group
considers that fair value estimates that are based entirely on
observable market data will be of greater reliability than those
based on assumptions and accordingly, where there has been any
recent investment by third parties, the price of that investment
will generally provide a basis for the valuation.
Where the investment being valued was itself made recently, its
cost will generally provide a good indication of fair value unless
there is objective evidence that the investment has since been
impaired, such as observable data suggesting a deterioration of the
financial, technical or commercial performance of the underlying
business.
If there is no readily ascertainable value from following the
'price of recent investment' methodology, the Group considers
alternative methodologies, which are referred to in the IPEVCVG,
being principally financial measures ('enterprise values'), such as
trading and profitability expectations, requiring the Directors to
make assumptions over the timing and nature of future revenues when
calculating fair value. Where a fair value cannot be estimated
reliably, the investment is reported at the carrying value at the
previous reporting date unless there is evidence that the
investment has since become impaired.
All recorded values of investments are regularly reviewed for
any indication of impairment and adjusted accordingly. The length
of period for which it remains appropriate to use the price of
recent investment depends on the specific circumstances of the
investment and the stability of the external environment. At each
reporting date the Group considers whether any changes or events
subsequent to the period end would imply that a change in the fair
value of the investment may be required. Where the Group considers
that there is an indication that the fair value has changed, an
estimation is made of the required amount of any adjustment from
the last price of recent investment. Wherever possible, this
adjustment is based on objective data from the investee company and
the experience and judgement of the Group. However any adjustment
is, by its very nature, subjective. Where deterioration in value
has occurred, the Group reduces the carrying value of the
investment to reflect the estimated decrease. If there is evidence
of value creation, the Group may consider increasing the carrying
value of the investment. However, in the absence of additional
financing rounds or profit generation, it can be difficult to
determine the value that a purchaser may place on positive
developments, given the potential outcome and the costs and risks
to achieving that outcome.
5. Segmental reporting
For the year ended 31 March 2019, the Group's revenue and profit
were derived from its principal activity within the United
Kingdom.
IFRS 8 'Operating Segments' defines operating segments as those
activities of an entity about which separate financial information
is available and which are evaluated by the Chief Operating
Decision Maker to assess performance and determine the allocation
of resources. The Chief Operating Decision Maker has been
identified as the Board of Directors. The Directors are of the
opinion that under IFRS 8 the Group has only one operating segment,
being proactive specialist asset management, because the results of
the Group are monitored on a Group-wide basis. The Board of
Directors assesses the performance of the operating segment using
financial information which is measured and presented in a
consistent manner.
An analysis of the Group's revenue is as follows:
Year ended Year ended
31 March 31 March
2019 2018
GBP'000 GBP'000
-------------------------- ---------- ----------
Fund management fees 7,282 7,187
Initial management fees 1,134 1,074
Portfolio directors' fees 2,139 1,847
Other revenue 120 89
-------------------------- ---------- ----------
10,675 10,197
-------------------------- ---------- ----------
6. Fair value movements in investments
Year ended Year ended
31 March 31 March
2019 2018
GBP'000 GBP'000
---------------------------------------- ---------- ----------
Net fair value movements in investments 3,916 2,823
---------------------------------------- ---------- ----------
No other gains or losses have been recognised in respect of
financial assets held at amortised cost. No gains or losses have
been recognised on financial liabilities held at amortised
cost.
7. Operating profit
Operating profit is stated after charging:
Year ended Year ended
31 March 31 March
2019 2018
GBP'000 GBP'000
------------------------ ---------- ----------
Staff costs 8,402 7,500
Administrative expenses 3,713 3,133
------------------------ ---------- ----------
8. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the financial year by the weighted average number of Ordinary
shares in issue during the year. Diluted earnings per share is
calculated by dividing the profit for the financial year by the
weighted average number of Ordinary shares outstanding and, when
dilutive, adjusted for the effect of all potentially dilutive
shares, including share options on an as-if-converted basis. The
potential dilutive shares are included in diluted earnings per
share calculations on a weighted average basis for the year. The
profit and weighted average number of shares used in the
calculations are set out below.
Year ended Year ended
31 March 31 March
2019 2018
------------------------------------------------------------ ---------- ----------
Earnings per Ordinary share
Profit for the financial year (GBP'000) 2,620 1,663
------------------------------------------------------------ ---------- ----------
Weighted average number of Ordinary shares (basic) ('000) 303,310 300,617
------------------------------------------------------------ ---------- ----------
Weighted average number of Ordinary shares (diluted) ('000) 305,018 300,617
------------------------------------------------------------ ---------- ----------
Earnings per Ordinary share basic and diluted (pence) 0.86 0.55
------------------------------------------------------------ ---------- ----------
The calculation of the basic and diluted earnings per share is
based on the following data:
Year ended Year ended
31 March 31 March
2019 2018
'000 '000
---------------------------------- ---------- ----------
Weighted average number of shares
Basic 303,310 300,617
Dilutive impact of share options 1,708 -
---------------------------------- ---------- ----------
Diluted 305,018 300,617
---------------------------------- ---------- ----------
9. Goodwill
GBP'000
-------------------- -------
Cost
As at 1 April 2017 10,328
Additions -
-------------------- -------
As at 31 March 2018 10,328
Additions -
-------------------- -------
As at 31 March 2019 10,328
-------------------- -------
Included in goodwill is GBP7,873,000 which arose on the
acquisition of the entire issued share capital of Enterprise
Ventures on 9 March 2016. This represents the difference between
the fair value of consideration transferred and the fair value of
assets acquired and liabilities assumed. The balance of
GBP2,455,000 arose on the acquisition of Mercia Fund Management
Limited in December 2014.
10. Intangible assets
Intangible assets represent contractual arrangements in respect
of funds under management acquired through the acquisition of
Enterprise Ventures, where it is probable that the future economic
benefits that are attributable to those the assets will flow to the
Group and the fair value of the assets can be measured
reliably.
GBP'000
------------------------- -------
Cost
As at 1 April 2017 1,504
Additions -
------------------------- -------
As at 31 March 2018 1,504
Additions -
------------------------- -------
As at 31 March 2019 1,504
------------------------- -------
Accumulated amortisation
As at 1 April 2017 318
Charge for the year 301
------------------------- -------
As at 31 March 2018 619
Charge for the year 301
------------------------- -------
As at 31 March 2019 920
------------------------- -------
Net book value
As at 31 March 2018 885
------------------------- -------
As at 31 March 2019 584
------------------------- -------
11. Investments
The net change in the value of investments for the year is
GBP21,589,000 (2018: GBP14,042,000).
The table below sets out the movement in the balance sheet value
of investments from the start to the end of the year, showing
investments made, cash receipts from disposals and the direct
investment fair value movements.
GBP'000
---------------------------------------------------- -------
As at 1 April 2018 66,070
Investments made during the year 19,384
Investee company loan repayments (1,711)
Unrealised gains on the revaluation of investments 8,622
Unrealised losses on the revaluation of investments (4,706)
---------------------------------------------------- -------
As at 31 March 2019 87,659
---------------------------------------------------- -------
In accordance with the Group's accounting policy in respect of
investments in associates, investments that are held as part of the
Group's direct investment portfolio are carried in the balance
sheet at fair value even though the Group may have influence over
those companies. This treatment is permitted by IAS 28,
'Investments in Associates'.
12. Cash, cash equivalents and short-term liquidity
investments
As at As at
31 March 31 March
2019 2018
GBP'000 GBP'000
--------------------------------------- -------- --------
Cash at bank and in hand 25,210 42,908
--------------------------------------- -------- --------
Total cash and cash equivalents 25,210 42,908
--------------------------------------- -------- --------
Total short-term liquidity investments 5,188 10,000
--------------------------------------- -------- --------
13. Issued share capital
As at 31 March 2019 As at 31 March 2018
--------------------- ---------------------
Number GBP'000 Number GBP'000
--------------------------------------- ------------ ------- ------------ -------
Allotted and fully paid
As at the beginning of the year 303,309,707 3 300,602,232 3
Issue of share capital during the year - - 2,707,475 -
--------------------------------------- ------------ ------- ------------ -------
As at the end of the year 303,309,707 3 303,309,707 3
--------------------------------------- ------------ ------- ------------ -------
On 26 March 2018 2,707,475 new Ordinary shares of GBP0.00001
each were issued at a price of 39.9 pence in settlement of the
deferred consideration payable in respect of the acquisition of
Enterprise Ventures. These new shares were admitted to trading on
AIM on 29 March 2018.
Each Ordinary share is entitled to one vote and has equal rights
as to dividends. The Ordinary shares are not redeemable.
14. Share premium
As at As at
31 March 31 March
2019 2018
GBP'000 GBP'000
------------------------------------------------ -------- --------
As at the beginning of the year 49,324 48,243
Premium arising on the issue of Ordinary shares - 1,081
As at the end of the year 49,324 49,324
------------------------------------------------ -------- --------
The premium on the issue of Ordinary shares in the prior year
arises from the issue of 2,707,475 new Ordinary shares of
GBP0.00001 each issued at a price of 39.9 pence on 26 March 2018,
in settlement of the deferred consideration for the acquisition of
Enterprise Ventures.
15. Fair value measurements
The fair values of the Group's financial assets and liabilities
are considered a reasonable approximation to the carrying values
shown in the balance sheet. Subsequent to their initial recognition
at fair value, measurements of movements in fair values of
financial instruments are grouped into Levels 1 to 3, based on the
degree to which the fair value is observable. The fair value
hierarchy used is outlined in more detail in note 4 to this summary
financial information.
The following table gives information about how the fair values
of these financial assets and financial liabilities are determined
and presents the Group's assets that are measured at fair value as
at 31 March 2019.
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- ------- ------- ------- -------
Assets:
Financial assets at fair value through profit or loss ("FVTPL") 1,133 - 86,526 87,659
---------------------------------------------------------------- ------- ------- ------- -------
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
financial statements approximate to their fair values.
Financial instruments in Level 1
As at 31 March 2019, the Group had one direct investment listed
on AIM (Concepta); this has been classified as Level 1 and valued
at its bid price.
Financial instruments in Level 3
If one or more of the significant inputs required to fair value
an instrument is not based on observable market data, the
instrument is included in Level 3. Apart from the one investment
classified as Level 1, all other investments held in the Group's
direct investment portfolio have been classified as Level 3 in the
fair value hierarchy and the individual valuations for each of the
companies have been arrived at using appropriate valuation
techniques.
The table below summarises the fair value measurements.
Fair value
as at
31 March
2019
Valuation technique Level GBP'000
-------------------------------------------------------------- ----- ----------
Listed investments 1 1,133
Price of recent funding round 3 57,230
Cost 3 8,822
Enterprise value 3 14,237
Price of recent funding round or cost adjusted for impairment 3 6,237
-------------------------------------------------------------- ----- ----------
87,659
-------------------------------------------------------------- ----- ----------
The price of recent funding round or cost of investment provide
observable inputs into the valuation of an individual investment.
However, subsequent to the funding round or initial investment, the
Directors are required to reassess the carrying value of
investments at each reporting date, including assessment of any
impairment indicators, which result in unobservable inputs into the
valuation methodology. Four direct investments are valued at an
enterprise value, based on a multiple of revenues or other
observable input, given their stage of development and/or
profitability.
16. Availability of Annual Report
The Annual Report of Mercia Asset Management PLC will be posted
to all shareholders on 26 July 2019. An electronic copy will also
be available on Mercia Asset Management PLC's website at
www.mercia.co.uk.
17. Annual General Meeting
The Annual General Meeting of Mercia Asset Management PLC will
be held at Forward House, 17 High Street, Henley-in-Arden,
Warwickshire B95 5AA on 24 September 2019 at 10.00 a.m.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UBSNRKNABRAR
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