TIDMMERC
RNS Number : 8829S
Mercia Asset Management PLC
14 July 2020
RNS 14 July 2020
Mercia Asset Management PLC
("Mercia", the "Group" or the "Company")
Preliminary results for the year ended 31 March 2020
Profitable trading achieved ahead of plan, driven by AuM
growth
Mercia Asset Management PLC (AIM: MERC), the proactive,
regionally focused specialist asset manager , is pleased to
announce its preliminary results for the year ended 31 March
2020.
Financial results
-- Assets under management increased by 58% to c.GBP800million (2019: c.GBP507million)
-- Revenue increased 19.4% to GBP12.7million (2019: GBP10.7million)
-- Net revenues GBP0.1million (2019: GBP1.4million net expenses)
-- Net fair value decrease of GBP15.8million - near term
COVID-19 impact (2019: GBP3.9million increase)
-- Operating loss before exceptional items GBP17.1million (2019: GBP2.0million profit)
-- Loss after tax for the financial year GBP17.5million (2019: GBP2.6million profit)
-- Loss per share 5.11 pence (2019: 0.86 pence earnings)
-- Unrestricted cash and short-term liquidity investments GBP30.2million (2019: GBP29.8million)
-- Net assets GBP141.5million (2019: GBP126.1million)
-- Net assets per share 32.1 pence (2019: 41.6 pence)
Managed fund developments
-- Third-party funds under management ("FuM") increased to
c.GBP658million (2019: c.GBP381million) contributing GBP11.7million
in revenue
-- FuM increase largely reflects the acquisition of NVM VCT fund management business that added c.GBP250million in managed funds
-- Venture FuM c.GBP476million (2019: c.GBP224million)
-- Private equity FuM c.GBP60million (2019: c.GBP61million)
-- Debt FuM c.GBP122million (2019: c.GBP96million)
Direct investment portfolio developments
-- GBP17.5million gross invested into 18 portfolio companies
during the year including one new direct investment, One Touch Apps
t/a Clear Review
-- Direct investment portfolio GBP87.5million (2019: GBP87.7million)
-- Notwithstanding COVID-19 impact, continuing underlying
commercial progress made by a number of portfolio companies
including nDreams, which continues to be the Group's largest direct
investment
COVID-19 update
-- Priority of the Group continues to be the safety and
wellbeing of all employees, with the business transitioning
successfully to remote working without any adverse operational
impact
-- All portfolio companies risk assessed and tailored support
provided where deemed appropriate, with a focus on maintaining long
term value potential
-- Unrestricted liquidity of c.GBP290million to invest across
FuM portfolios in addition to GBP30.2million of balance sheet
unrestricted cash and short-term liquidity investments
Post year end FuM progress
-- GBP38.2million in new capital raised by NVM VCTs
-- Additional GBP54.3million allocation by British Business Bank
from Northern Powerhouse Investment Fund ("NPIF") to existing
Mercia managed mandates
-- Group accredited to deliver its NPIF debt mandate under the
Coronavirus Business Interruption Loan Scheme ("CBILS")
Post year end direct investment progress
-- Successful sale of The Native Antigen Company anticipated to
realise an 8.4x return and a 65% IRR
-- 11 Future Fund applications, significantly increasing the
liquidity of the companies within the direct investment portfolio,
alongside continued focus on expanding our co-investor base
-- New direct investment, MIP Diagnostics, which is developing a
highly scalable synthetic antibody platform technology
Mark Payton, Chief Executive Officer of Mercia, commented:
"I am pleased to say that, in many ways, 2019 was a year of
significant progress for Mercia as we achieved our goal of trading
profitably a year earlier than planned, and significantly increased
the scale of our fund management business, both key parts of our
three-year strategic plan. A significant driver of this was the
acquisition of the three Northern VCT fund management contracts,
which helped increase our assets under management ("AuM") by c.58%
to c.GBP800million, alongside bringing additional recurring
revenues and a talented VCT investment team.
"Inevitably, the impact of the COVID-19 pandemic, and the
near-term domestic and global economic shock, has negatively
affected the holding values of a number of our investee companies,
especially within certain sectors such as engineering.
Notwithstanding the current reduction in asset price linked fund
management revenues, Mercia has begun the new financial year
trading profitably, which we expect to continue. During the
COVID-19 pandemic, our focus continues to be on the health and
safety of our people and ensuring our investee companies have
robust cash positions. I am proud of the way we have responded as a
business, which has enabled our investment teams to focus fully on
supporting our portfolio. We also remain confident in the long-term
potential of our direct investment portfolio, which has relatively
modest capital needs. We expect the value of this maturing
portfolio to accelerate post the COVID-19 pandemic.
"Looking ahead, I believe that Mercia is well placed to build on
2019's strategic progress and position as a leading and trusted
provider of regional capital. The growth of our fund management
business means we have over GBP290million of available liquidity
which, in addition to the c.GBP30million of liquidity on our
balance sheet, gives us considerable investment capacity to support
both our existing portfolio and take advantage of new opportunities
at anticipated lower entry prices."
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
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial Officer +44 (0)330 223
www.mercia.co.uk 1430
Canaccord Genuity Limited (NOMAD and Joint +44 (0)20 7523
Broker) 8000
Simon Bridges, Richard Andrews
N+1 Singer (Joint Broker)
+44 (0)20 7496
Harry Gooden, James Moat 3000
+44 (0)20 3727
FTI Consulting 1051
Tom Blackwell, Louisa Feltes, Shiv Talwar
mercia@fticonsulting.com
Analyst briefing
Due to restrictions resulting from COVID-19, a meeting for
analysts will be held virtually at 9.30am today, 14 July 2020.
Analysts wishing to attend this event can register via email at
mercia@fticonsulting.com. An audio webcast of this briefing will
subsequently be available later in the day via Mercia's web
site.
Mercia's 2020 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 Connected Capital'. 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 footprint through its regional
offices, 19 university partnerships and extensive personal
networks, providing it with access to high-quality deal flow.
Mercia currently has c.GBP800million of assets under management
and, since its IPO in December 2014, has invested over GBP96million
into its direct investment portfolio.
Mercia Asset Management PLC is quoted on AIM with the epic
"MERC".
Non-executive Chair's statement
The execution of Mercia's strategy is making good progress
The year ended 31 March 2020 has seen continued positive
progress towards the execution of the Group's strategic plan. This
is reflected in the underlying progress made by many of the
businesses in the Group's direct investment portfolio, as well as
Mercia's growing and profitable fund management operations. Notable
events during a busy year for Mercia were the successful placing
and acquisition, which were announced alongside the Group's interim
results on 3 December 2020.
Direct investment portfolio
Valuing the direct investment portfolio on 31 March 2020, so
soon into the United Kingdom's COVID-19 related 'lockdown', is
inevitably difficult. The Group has consistently complied with the
International Private Equity and Venture Capital Valuation
Guidelines ("IPEVCVG"). This has resulted in an overall fair value
reduction in the direct portfolio of 15.3%. It is important to note
that these fair values have been determined at a moment of global
economic crisis which will ease over time, and that within the
portfolio are companies which are still making rapid commercial
progress. Whilst it is possible that not all of the existing
portfolio companies will survive current sector-specific
challenges, most will, and we expect their fair values to recover
over time. Furthermore, for some of the portfolio companies this
period will actually see their fair values accelerate faster than
would have been the case under normal economic conditions.
The Board remains focused on the progress of the largest balance
sheet direct investments, as well as the successful stewardship of
the Group's growing fund management activities. The near-term
impact on fair values, and therefore the Group's net asset value
per share, is frustrating. However, Mercia's strong liquidity
position, both within its managed funds and within its own balance
sheet, provides the Group with considerable investment capacity to
take advantage of anticipated lower entry prices as the current
financial year unfolds. Investment returns by a portfolio are often
driven more by entry prices than by exit prices and Mercia intends
to take full advantage of the investment opportunities, which it
anticipates will arise during the coming months.
The investment teams across all of our asset classes, being
balance sheet, venture, private equity and debt, have been working
closely with their portfolio companies to help as many as possible
through the current unprecedented economic slowdown. Mercia's
marketing team has also hosted a number of impressive and
insightful webinars on a wide range of relevant business support
topics, aimed specifically at helping our c.390 portfolio
companies.
Strategic review - update on progress
As I referred to in my statement last year, during the early
part of 2019 the Board conducted a detailed strategic review of the
Group's progress to date, the aim being to continue to scale Mercia
over the following three years to become a profitable and
self-sustaining investment group. The three key pillars to
achieving these strategic objectives are:
-- to achieve operating profitability before fair value
movements, realised gains and all non-cash charges;
-- to expand the Group's assets under management to at least GBP1.0billion; and
-- to 'evergreen' its balance sheet so that the Group's direct
investment activities are fully funded by periodic cash
realisations from the existing portfolio.
During the year the Group made substantial progress towards the
achievement of all three of these objectives, most notably through
the successful placing and acquisition in December 2019.
Acquisitions compress time and successful ones enhance shareholder
value. The early signs for Mercia's most recent acquisition are
encouraging.
Since its inception, Mercia has been clear in its determination
to trade profitably, so that its annual revenues 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 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.
Successful placing and acquisition
On 3 December 2019, Mercia simultaneously announced a proposed
placing to raise GBP30.0million gross and the conditional agreement
to acquire three venture capital trust ("VCT") fund management
contracts ('the Northern VCT contracts') from NVM Private Equity
LLP ("NVM"), together with their VCT investment team, for a total
consideration of up to GBP25.0million. On 20 December 2019,
shareholders overwhelmingly approved the issue of 120.0million new
Ordinary shares at 25.0 pence per share via the placing, and the
acquisition of the VCT fund management business was completed on 23
December 2019. Approximately half of the placing proceeds were used
to fund the initial cash consideration for the acquisition and the
placing expenses, whilst the remainder has strengthened the Group's
ability to continue to invest in the most promising businesses,
both in its direct investment portfolio and those showing most
promise in its managed funds.
The three Northern VCTs are long-standing, professionally
governed and successful listed investment trusts. The broadly
regional focus, inclusive culture and sound business values of NVM,
and within it their talented VCT investment team, chimed closely
with Mercia's own DNA. The Board was very pleased to be able to
agree mutually satisfactory terms with NVM and is most grateful to
the boards of the three Northern VCTs for their agreement to novate
each of the fund management contracts to Mercia. A post-acquisition
100-day integration plan was completed by the financial year end,
including welcoming the VCT investment team into our #OneMercia
family. For the relatively short period of ownership from
acquisition to 31 March 2020, notwithstanding the COVID-19 impact
on current VCT portfolio valuations and asset value linked
revenues, I am pleased to say that the financial performance of the
acquired business met expectations.
Governance and engagement
Throughout the year the Board has focused on the strategic
direction of the Group and on executing the priorities identified.
The Directors (together with the Group's Chief Operating Officer,
Peter Dines) provide a balanced leadership group with relevant
experience to drive the creation of shareholder value. Given the
evolution of Mercia into a specialist asset manager, I said last
year that the Board intended to appoint an additional Non-executive
Director with relevant specialist asset management experience. No
sooner had the search commenced than Mercia entered detailed
negotiations with NVM and it was agreed that the search would be
paused until the outcome of the proposed fundraising and
acquisition became known. That search has now recommenced in
earnest, although it is inevitable that lockdown and the need for
social distancing is elongating the selection process.
Since its inception in 2014, the Group has embedded a strong
corporate governance ethic in all of its internal and external
interactions. As a member of the Quoted Companies Alliance ("QCA")
since 2015, and with its fund management operations regulated by
the Financial Conduct Authority ("FCA"), Mercia always seeks to act
in the best interests of its stakeholders. Proactive engagement
with all stakeholder groups is fundamentally important to our Board
and you will be able to read many examples of how we do this within
this year's Annual Report. In respect of the recently acquired VCT
fund management business, I have engaged directly with the chairs
of each VCT board and look forward to developing those
relationships for the mutual benefit of all parties during the
current financial year.
The backbone of our culture is our people
The wellbeing of our staff has always been a priority within
Mercia. The current lockdown has helped bring our ever-growing
community even closer together; be it via the weekly Zoom staff
updates, team-specific check-ins, a weekly Mercia quiz, our many
internal Slack channels, our in-house newsletter 'Friday Files' or
our ongoing charity and team building initiatives. These daily
interactions have helped preserve our group-wide cohesion and
common purpose, being to deliver superior long-term returns for our
shareholders and fund stakeholders alike.
Since lockdown commenced, there has been an increased focus on
the impact of remote working on the mental health and wellbeing of
our staff. The increased level of team and group-wide
communications reflected above, and the very obvious care and
compassion for each other being demonstrated by so many of our
staff across the business, speak louder than any words about
Mercia's culture. We have been fortunate thus far that the vast
majority of our staff remain fit and well, although we have also
been saddened to hear that several members of the team have lost
relatives due to the virus. Our thoughts are with them and their
wider families.
COVID-19
In response to the challenges posed by COVID-19, the Group's
focus has been on three priorities: the safety of our employees,
continued support for our portfolio companies, and maintaining
long-term value creation potential for our shareholders and the
investors in our managed funds. Throughout this crisis, Mercia has
adhered at all times to UK Government directives and will continue
to do so. We have successfully implemented our business continuity
plans and the Group's transition to all staff working from home has
been remarkably smooth.
Every portfolio company has been risk assessed and all are being
closely monitored. We have an investment team of considerable
calibre and experience which has assessed the needs of each
portfolio company. Our significant balance sheet and managed funds'
liquidity will be deployed wisely in the current year, to preserve
the inherent future value within each portfolio. As a result of our
increased active engagement with all portfolio companies across our
asset classes, n o staff have been furloughed. Furthermore, given
our strong liquidity position, the Group has not needed to seek any
government-supported debt funding.
Outlook
Those of us who have been through previous sharp downturns in
the UK economy, if perhaps not as stark as this one, will know that
the survival of any company, large or small, new or old, often
depends on two things - the strength of its balance sheet and the
quality of its people. At a time when cash is king, Mercia is
blessed in having a very strong balance sheet, with approximately
GBP30million of unrestricted cash, combined with an extremely
capable and experienced leadership team, all of whom are pulling
together in the same direction.
The results disclosed in this announcement show the tangible
progress that the Group has made during the year towards the
achievement of its strategic objectives. They also show the
near-term impact on asset values arising from the market's reaction
to COVID-19 and its likely impact on the global economy.
As our 25 March 2020 business update announcement made clear,
where contracted revenues are directly linked to the carrying value
of fund or trust assets, those recurring revenues will reduce until
the value of the underlying assets recovers. This is likely to be
the case for the current financial year and as a result the Group
has already taken a number of cost containment actions.
Times such as these can be challenging and difficult but they
can also be defining moments. I am proud to be part of #OneMercia,
which is full of people who care about the funds we manage, the
companies in which we invest or to whom we lend and, most important
of all, who care about each other. Thank you to all of those
people.
Finally, I should like to thank our shareholders, both new and
existing, for your continuing support during this challenging
period of economic and social upheaval. Mercia has a focused
business model, great people and a strong balance sheet. Hence,
notwithstanding the current economic challenges facing our country,
I am confident that Mercia will be able to successfully execute its
strategic objectives in the months and years ahead.
Ian R Metcalfe
Non-executive Chair
Chief Executive Officer's review
These results close the first year into our three-year strategic
plan as a proactive, regionally focused, specialist asset manager
where we set three measurable targets: (i) to achieve operating
profitability before fair value movements, realised gains and all
non-cash charges; (ii) to expand the Group's assets under
management ("AuM") to at least GBP1.0billion; and (iii) to
'evergreen' Mercia's balance sheet so that the Group's direct
investment activities are fully funded by periodic cash
realisations from the existing portfolio.
During the last 12 months we completed the acquisition of the
three VCT fund management contracts ('the Northern VCT contracts')
from NVM Private Equity LLP increasing our AuM by c.58% to
c.GBP800million. These contracts brought with them additional
recurring revenues, which have helped bring us to our goal of
trading profitably on a 'net revenues' basis, one year earlier than
planned. The transaction also resulted in the talented VCT
investment team joining Mercia.
Following the acquisition, 82% of Mercia's AuM is now in
third-party funds under management ("FuM") (up from 23% of AuM at
our IPO in 2014) with the balance of 18% represented by our
consolidated balance sheet. We expect this shift towards FuM to
continue as our fund management business develops further.
The GBP30.0million placing in December 2019 allowed us to
complete the VCT acquisition and has provided us with additional
capital to support our objective of achieving evergreen status for
our direct investment portfolio.
In 2020, revenue increased by 19.4% to GBP12.7million (2019:
GBP10.7million), which enabled the Group to move from net expenses
of GBP1.4million in 2019 to net revenues of GBP0.1million, an
improvement of GBP1.5million. Unrestricted cash increased to
GBP30.2million (2019: GBP29.8million). Largely as a result of the
impact of COVID-19 on asset prices, the direct investment
portfolio's fair value decreased by 15.3%. This reduction also
contributed to net assets at the year end being GBP141.5million
(2019: GBP126.1million).
COVID-19
The initial outbreak in China in December 2019 immediately
impacted on certain supply chains within our direct portfolio, and
in addition, the subsequent lockdown of circa one third of the
planet resulted in lost or reduced customer demand.
We now face the possibility of one of the largest global
economic recessions since the 1930s, with domestic debt exceeding
that of World War I. It is my strong belief that there will be a
gradual recovery over a 12 to 24-month period and that experienced
investors with liquidity and preserved capability will be
well-placed.
Mercia's investment model was developed to counter the
inevitability of cyclical markets, with many of the team at Mercia
having invested through the cycles of 2000 and 2008. Mercia's model
is to seek material influence (c.20-40% stakes) in companies that
have relatively modest capital needs - typically less than
GBP10.0million - with realistic entry valuations. This, together
with our strong liquidity, positions us well to support our
investee companies and influence appropriate decision making at
this time.
Sadly, in every correction there are both winners and losers.
Businesses with near-term profitable business models and
business-to-business ("B2B") operations with strong recurring
revenue in favoured sectors such as software, digital
entertainment, medtech, digital healthcare, diagnostics and biotech
will likely benefit. Within our direct investment portfolio,
Warwick Acoustics, Impression Technologies (both serving the
automotive sector), Crowd Reactive (events management) and LM
Technologies (Chinese supply chain) have inevitably suffered.
However, others have benefitted; within the biotech sector, OXGENE
and The Native Antigen Company; within digital home entertainment,
nDreams and Soccer Manager, and Intechnica within online queue
management and website defence. Reflecting structural changes and
new emerging sectors, we have remodelled or pivoted certain
portfolio companies and revised our investment approach to new
prospects, to reflect this emerging paradigm.
Fund performance
Mercia's investment model is to target appropriately priced
regional businesses seeking modest capital to, in part, protect
Mercia from major cyclical corrections. We have performed a
thorough COVID-19 analysis across the whole Mercia portfolio and
adjusted valuations accordingly. Although our venture and private
equity portfolios are not immune to these asset price corrections,
we believe that they are weathering the storm, compared to the
broader industry, with fund portfolio fair value movements between
+10% to -30% as at 31 March 2020.
Venture
Mercia benefits from a diversified venture portfolio of 233
businesses across different sectors and stages of development. As a
direct consequence of COVID-19 there has been an inevitable fair
value movement in many investee holding values resulting in fund
portfolio valuations being adjusted in the year ranging from up by
10% to down by 31%.
Private equity
Our first private equity fund to be fully unwound is another
regional fund, the Coalfields Growth Fund ("CGF"), which has
generated an internal rate of return ("IRR") of 19.8% and
distributions to paid-in capital ("DPI") of 167%. This fund
benefitted from a portfolio of eight companies generating five
trade sales at multiples above cost. The notable exit of Woodall
Nicholson in March 2020 generated a return of c.9.6x on the
original cost. The COVID-19 impact on holding values across our
active private equity FuM has contributed to a reduction in fair
values of 7% to 30%.
Debt
Mercia's debt funds have been actively lending throughout the
year and our recent Coronavirus Business Interruption Loan Scheme
("CBILS") accreditation will enable us to further support regional
businesses through these challenging times.
Balance sheet
The average holding period of our direct investments is just
under three years with an expectation that investments will be
realised over a three to seven-year time frame from initial
investment. Since Mercia's IPO in December 2014, we have invested
GBP94.7million into our current direct investments, plus a further
net GBP1.3million as a cornerstone investor in four of our managed
funds. Thus far we have generated GBP14.5million in realised
returns. The net asset value of our direct investments at the year
end was GBP87.5million (2019: GBP87.7million), with the overall
reduction being largely as a result of the impact of COVID-19.
Portfolio highlights
Some of the investments within our FuM and our direct investment
portfolios are starting to create significant value.
Notable direct investments initially supported by our FuM
include: OXGENE (a promising synthetic biology business that is
growing rapidly, with revenues up by c.240% in the past 12 months),
nDreams (a fee-for-service and proprietary content virtual reality
developer benefitting from the lockdown period with revenue growth
of c.100%), Intechnica (providing bot analytics and website
optimisation services and tools, with strong revenue growth of
c.50%) and The Native Antigen Company (a leading provider of
COVID-19 antigens for diagnostic, vaccine, research and development
purposes, with revenue growth of over 200%).
Notable venture portfolio companies within our FuM include:
Abingdon Health, which amongst other programmes, is involved in the
fight against COVID-19, and is a founding member of the UK's rapid
test consortium ("UK-RTC") leading the assay development programme
in partnership with the University of Oxford; Axis Spine, which has
recently received US Food and Drug Administration ("FDA") approval
for its lead product addressing the lucrative US spinal implant
sector, valued annually at c.GBP7billion; and Sense Biodetection,
which is developing a point-of-care instrument-free bacterial and
viral pathogen diagnostic tool for a variety of infectious agents,
including COVID-19.
Outlook
As Chief Executive, my priorities at this time are to ensure
that Mercia is financially robust and operationally agile, with
strong liquidity and preserved capability. As the economic
environment toughens, which I expect it to, this ensures that we
are resilient to the downturn and able to support our existing
portfolio, whilst being prepared to take advantage of the
opportunities that will undoubtedly lie ahead for those with strong
liquidity and available capital to deploy.
We have entered our new financial year debt-free and with
unrestricted liquidity of c.GBP290million to invest across our FuM
portfolios plus c.GBP30million for direct investing. We remain
focused on transactions of typically less than GBP10.0million,
leveraging the asset classes we have across the Group. We are
uniquely positioned to combine equity with debt finance, via our
third-party FuM as well as with our proprietary balance sheet
capital, where appropriate.
Over the medium term, I believe the economic recovery will be
beneficial to the types of businesses that we have traditionally
supported, particularly those in medtech and diagnostics, digital
entertainment and e-commerce support platforms. Notwithstanding the
current reduction in asset price linked fund management revenues,
Mercia has begun the new financial year trading profitably, which
we expect to continue. The long-term potential of our direct
investment portfolio, with its relatively modest capital needs,
remains positive and we expect the value of this maturing portfolio
to accelerate beyond the COVID-19 pandemic.
None of Mercia's staff have been furloughed during the lockdown
period and the Company has not applied for any Government funding
schemes, save on behalf of our portfolio companies, as we continue
to behave as a responsible and supportive regional investor. I have
confidence in Mercia's intrinsic strengths and these are reflected
in our own core values. During the recent period of remote working,
Mercia's 93 employees have been remarkably resilient and supportive
of each other and of those around us. I am proud of the work we are
doing in the regions as we seek to strengthen our portfolio, as a
trusted partner to regional business and thus safeguard employment
and economic prospects. Internally, we reference the Group as
#OneMercia and I welcome the excellent people who have recently
joined us through the acquisition of the Northern VCT contracts. I
would like to thank our entire valued team for their continued
drive, commitment and professionalism.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
At the beginning of the financial year I encouraged our
investment teams to focus on two areas that will accelerate value
creation across our portfolios: building out the management teams
of our investee companies, where appropriate, through the addition
of chairs and non-executive directors via Mercia's talent platform;
and further developing our network of co-investors. We have made
significant progress on both fronts, although the positive effect
on our financial results has been masked to a large degree by the
current impact on asset prices from the COVID-19 pandemic.
Deepening management capabilities
We have focused on increasing the collective capability of the
management teams that we are backing. Through our talent resourcing
capabilities, we have introduced companies to experienced
board-level support, helped our portfolio make 33 senior
non-executive director board appointments and enabled the
development of powerful leadership teams. We are also building a
collective of successful managers with complementary skills to
support our portfolio, including CFO input, sales process design,
new market entry and regulatory expertise.
Mercia's network is an integral part of our approach to adding
value by building a strong base of experienced connections,
underpinned by the online and offline communication we offer. We
make a Slack channel available to all of our CEOs to enable them to
correspond directly with each other, to share and seek ad hoc
advice and commercial insight, thereby creating a network of
opportunities across the portfolio. We see this as an invaluable
informal mentoring and development tool. Our connected approach
means that we can help our portfolio companies' management teams
take advantage of the opportunities ahead of them and provide them
with guidance as they navigate the inevitable issues associated
with growing and scaling young businesses.
Expanding our network of co-investors
Expanding our network of like-minded co-investors is critical to
ensure that as our portfolio continues to mature and grow, we can
provide companies with the scale-up capital required, while
bringing along partners that share our vision and expand our
opportunities for an exit at the right time. Our efforts during the
year resulted in 12 new investment partners joining syndicates
across our portfolio.
COVID-19
The COVID-19 pandemic has been an incredibly difficult and
stressful time for our entrepreneurs and management teams; we have
seen them act decisively and sensibly at a time of great
uncertainty and I pay tribute to them all.
At Mercia we reacted swiftly to the lockdown. Our priority was
to ensure that our entire portfolio understood the critical need
for cash management, extending their cash runways to enable them,
and Mercia, to assess the longer-term effects of COVID-19 on their
businesses. We conducted a survey of the portfolio at the beginning
of the lockdown and quickly crafted and delivered a series of
webinars to support the portfolio around their critical concerns,
ranging from cash management and how to access the various
government support schemes, to post-COVID-19 strategy and recovery,
ensuring that support went beyond firefighting, looking at how to
manage the exit from lockdown and position businesses favourably to
take advantage of opportunities that might lie ahead.
In early March, we assessed the likely medium and longer-term
effects of COVID-19 across our portfolio of companies based on 13
criteria including reliance on supply chains, management response,
business disruption, balance sheet strength, co-investors and cash
runway. The results provided immediate visibility of priorities and
needs. Our newly acquired venture capital trust ("VCT") operation
was able to review and report on its entire portfolio of c.60
companies, including a revaluation of the net asset position ahead
of the GBP38.2million successful fundraise, announced on 3 April
2020. We are conducting regular reviews to establish whether any
COVID-19 related impact on our entire portfolio of companies
represents a temporary pause on progress or a fundamental challenge
to their business model.
We are in the strong position of having significant liquidity of
c.GBP320million across all our asset classes. We also have the
analytical tools and skills within the team to allocate funds
effectively, both in our existing portfolio and in new
opportunities for the long-term benefit of our shareholders and
investors in our funds.
Portfolio update
Managed funds: five exits and good performance by debt funds
Investment and lending performance are at the heart of what we
do. Our third-party managed funds continued their prior year
momentum, performing well against their mandates. Across our
managed funds, we invested a total of GBP59.7million into 109
existing and 46 new portfolio companies.
Five exits were completed in the year which have now delivered a
total return of GBP16.1million over the holding period of the
investments. The most significant was Woodall Nicholson, a company
in our private equity ("PE") funds which was sold in late March
2020 to another PE house, delivering a 9.6x return on the original
cost. The Coalfields Growth Fund ("CGF") invested GBP1.0million
into Woodall Nicholson in 2013, realised a 1.9x return on cost in
2016 from a partial sale to the Business Growth Fund and, in total,
realised GBP9.3million. CGF as a whole has now generated an IRR of
19.8%.
A second example is Granby Marketing Services, a marketing
logistics company in our PE funds that delivered a 2.1x return on
cost via a management buyback. The EV Growth Fund ("EVGF") invested
GBP1.4million into the company in 2013.
Until the arrival of COVID-19 our debt funds were also
maintaining their good overall performance. Our Finance Yorkshire
Loan Fund ("FYLF") now has less than GBP0.1million remaining to be
repaid from a total of GBP41.6million lent since the last recession
in 2010. It has returned a total of GBP44.5million; a legacy which
is c.GBP4million greater than was originally anticipated from this
'Gap' Fund.
Managed funds highlights
Mercia continued to invest carefully and selectively during the
challenging environment created by COVID-19 in the fourth quarter
of the financial year. We did experience a slowdown in demand for
funding, with equity syndicates weakening across the portfolio as
other institutional investors and angel groups scaled back their
investment activity. This placed a higher burden on the managed
funds to provide greater financial support to the portfolio in the
form of follow-on funding.
Over the last year, the Midlands Engine Investment Fund
Proof-of-Concept Fund ("MEIF POC"), a GBP23.5million fund, invested
GBP3.8million into 18 companies, 15 follow-on investments into
existing portfolio companies and three new deals: Industrial
Phycology ('I-PHYC'), a pre-revenue start-up company developing a
modular wastewater treatment system based on their novel algal
bioreactor; Iventis, a Lincolnshire-based software business whose
core product is a platform designed for a large number of users to
collaboratively plan complex operations or major events such as the
Olympics; and Ebate, a software-as-a-service ("SaaS") business. The
MEIF POC Fund was established in 2018 to provide early-stage
capital to innovative businesses across a wide area of the
Midlands.
In the North of England, the Northern Powerhouse Investment Fund
("NPIF"), with a mandate to deploy c.GBP58million in both equity
and debt to SMEs in the region, completed 32 transactions investing
a total of GBP11.8million, of which GBP7.0million (c.60%) was
provided to 10 new businesses across the Yorkshire, Humber and Tees
Valley region, with the balance of GBP4.8million invested into 22
follow-on investments across 15 existing portfolio businesses.
Cumulatively, since being awarded the mandate in February 2017, the
NPIF equity fund has invested GBP36.0million into a portfolio of 47
businesses as at 31 March 2020. In April 2020, Mercia's NPIF equity
mandate was increased by a further GBP23.7million.
Within the NPIF equity fund is Abingdon Health, a lateral flow
rapid test manufacturer, which has been involved in the fight
against COVID-19. It is one of the founding members of the UK's
rapid test consortium ("UK-RTC") and has led the assay development
programme in partnership with the University of Oxford.
The North East Venture Fund ("NEVF") had a solid year,
concluding 13 transactions and investing a total of GBP4.2million.
Of those transactions, eight were new deals and five were follow-on
investments into existing portfolio companies. The Northern VCTs
co-invested directly alongside NEVF in Nutshell Software,
demonstrating the value of our Complete Connected Capital.
During the year, Mercia's debt team provided GBP14.5million of
funding in 46 transactions via the EV SME Loans Fund and the NPIF
debt fund. In April 2020 Mercia's NPIF debt mandate was increased
by a further GBP30.6million, increasing the size of the NPIF debt
fund to over GBP80million to support profitable SMEs as they seek
to recover from the impact of COVID-19. Notable amongst the new
loans made was one to Rothband, where Mercia supported the
management of this medical imaging business in their buy-out of an
institutional investor and another to Forward2me, an online
logistics business, where Mercia enabled the buy-out of a retiring
shareholder.
Private equity continued its strong performance up to early
March 2020. Enterprise Ventures Growth Fund II ("EVGII") invested
GBP10.7million, completing three new investments together with one
follow-on investment. Most notable amongst the new investments was
Total Resources Holdings, an MBO that also included GBP2.0million
of debt support from other Mercia third-party funds.
Both EVGF and CGF are now in their divestment phase although
each has already returned the investors' original capital, cleared
the hurdle and are now paying periodic carried interest to
Mercia.
Direct investments - operational progress; valuations impacted
by COVID-19
Valuations
At the half year we reported GBP3.2million of net upward fair
value movements across our direct investment portfolio, and this
trend was set to continue through the second half of the financial
year, until the emergence of COVID-19. As at 31 March 2020 the
value of the Group's direct investment portfolio was GBP87.5million
(2019: GBP87.7million). This reflects a downward movement for the
full year of GBP15.8million after net investment in the year of
GBP15.7million (2019: GBP17.7million).
We have recorded fair value gains in respect of OXGENE
(GBP1.6million), Voxpopme (GBP1.0million), The Native Antigen
Company (GBP0.6million), and Soccer Manager (GBP0.1million) in line
with our valuation policy, which follows the International Private
Equity and Venture Capital Valuations Guidelines ("IPEVCVG"). The
fair value gains in OXGENE and Voxpopme relate to third-party
investment and in the case of The Native Antigen Company, as the
business is increasingly profitable and cash generative, the uplift
in fair value reflects the tangible progress made.
We have taken a careful case-by-case review of the likely
effects of COVID-19 on each of our portfolio companies and where we
see that the enterprise value has been affected by either delay,
uncertainty, or potential dilution to our stake, we have adjusted
the carrying values. We see the effects of COVID-19 being
potentially significant within the automotive sector, as original
equipment manufacturers ("OEMs") struggle with lower demand, supply
chain issues and their own funding situations. This is likely to
slow progress at Warwick Acoustics and Impression Technologies. We
have therefore decreased the carrying values of these companies by
GBP5.3million and GBP3.1million respectively.
In the events sector, Crowd Reactive has been materially
impacted by COVID-19. At the time of the announcement of our
interim results in December 2019, the company was trading well and
was discussing a new funding round with a number of investors; we
therefore provided new working capital to deliver on a record order
book for 2020. However, since February 2020, the order book has
dissipated with little visibility of a return to normality. We have
therefore taken the difficult decision not to support the company
further and have accepted an offer from management to a partial
repayment of our investment, resulting in a GBP2.1million fair
value decrease as at 31 March 2020.
Other fair value decreases reflective of COVID-19 related
sentiment included LM Technologies (GBP2.1million) and Eyoto Group
(GBP0.9million). We also recognised a fair value decrease of
GBP1.4million in Concepta, an investment which is listed on AIM so
is valued at its bid price as at 31 March 2020. Following a period
of underperformance, the company has undergone significant
management changes, and as a sign of our continued faith in its
products, market opportunity and new team, we participated in the
company's successful GBP1.9million placing in April 2020.
Investment activity
We have continued to support our largest and most promising
assets, with both capital and resource. GBP9.0million of the
GBP15.7million invested during the year was allocated across our
top 10 assets including nDreams, Intechnica, Medherant, Voxpopme,
Impression Technologies and Faradion. 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%, whilst increasingly looking to bring in new third-party
capital.
We made one new direct investment during the year into One Touch
Apps, trading as Clear Review, a company from our third-party
funds. Clear Review is a SaaS business providing HR management
tools. HR technology remains an exciting sector, indicative of the
overall momentum of Clear Review, which passed GBP2.0million in
annual recurring revenue ("ARR") in December 2019, less than a year
after reaching its GBP1.0million ARR milestone. At the end of March
2020, the company's ARR run rate was GBP2.3million.
Mercia first invested in Clear Review in 2018 through its
managed funds and made an initial GBP0.5million direct equity
investment alongside co-investor Albion VCT in June 2019.
Direct investments: operational highlights
The last year was significant for a number of our businesses,
with nDreams, OXGENE, Soccer Manager and Clear Review all doubling
their revenues and Voxpopme and The Native Antigen Company also
showing sizeable revenue growth.
It is also worth noting the progress made by Intechnica,
Medherent and Faradion.
Intechnica, a digital performance company, grew revenues by
c.50% in the year to c.GBP9million, winning new clients for its bot
management product, Netacea. Netacea was identified by Forrester as
"leading the pack" in the sector. Its virtual waiting room product
for ecommerce businesses has also gained traction, winning projects
with Ocado and Pets at Home.
Medherant, a transdermal drug delivery company that has two
unpartnered lead products - an Ibuprofen patch at clinical stage
and a pre-clinical product addressing smoking cessation - has
entered into a partnership with Cycle Pharmaceuticals to develop
new products using its proprietary TEPI Patch(R) technology. This
partnership demonstrates the potential of further licensing
opportunities and the commercialisation of Medherant's innovative
technology for the administering of medicines to patients with rare
neurological disorders.
Faradion has also made significant progress with its battery
cell technology, developing a number of partnerships and announcing
its first order from its joint venture partner, ICM Australia, for
its high-energy sodium-ion batteries. Faradion's sodium-ion
technology provides similar performance to conventional
chemistries, while replacing expensive materials such as cobalt and
lithium with the far more abundant sodium. We are encouraged by
Faradion's potential, as unlike lithium-ion batteries, its
sodium-ion batteries have exceptional thermal stability and can be
safely transported and maintained at zero volts.
Portfolio overview and liquidity
Venture Private equity Debt Balance sheet
Total portfolio Total portfolio Total portfolio Total portfolio
233 10 119 25
---------------- ---------------- ----------------
Total FuM Total FuM Total FuM Total NAV
GBP475.6m GBP59.8m GBP121.8m GBP141.5m
---------------- ---------------- ----------------
Liquidity Liquidity Liquidity Liquidity
GBP184.4m GBP24.3m GBP76.9m GBP30.2m
---------------- ---------------- ----------------
Post-period end developments
Investment activity has continued since the financial year end
with new funding rounds for OXGENE, Eyoto Group and Medherant, into
which we have invested GBP1.0million, GBP0.5million and
GBP1.4million respectively. We have also continued to provide
financial support to W2 Global Data Solutions, Warwick Acoustics
and VirtTrade, as these companies make progress.
Concepta announced its GBP1.9million placing in April 2020, with
Mercia investing GBP0.7million (GBP0.2million from its balance
sheet and GBP0.5milion from its EIS funds). The company now has a
new executive team, strategy and reduced cash burn rate.
Also in April 2020, we were pleased to announce that the three
Northern VCTs had raised GBP38.2million in new capital through the
share offers that were launched in January 2020, despite what
became a very challenging market environment. In addition,
continuing confidence in our reputation and track record was
expressed through the additional GBP54.3million allocation from the
British Business Bank ("BBB") into Mercia's two existing investment
mandates covering the Northern Powerhouse region, with
GBP23.7million being allocated to Mercia's existing NPIF equity
fund and GBP30.6million to the NPIF debt fund. Shortly thereafter,
we were delighted to announce that we were accredited by BBB under
CBILS, which enables us to increase our lending to all eligible
regional SMEs, further underpinning both our leadership in regional
capital deployment and our Complete Connected Capital model, as we
entered the new financial year.
On 1 July 2020 MIP Diagnostics ("MIP") became a new direct
investment. Mercia's balance sheet committed GBP0.5million
alongside GBP0.6million from Mercia's EIS funds as part of a
GBP5.1million syndicated funding round. A spinout from the
University of Leicester (a partner university) and originally
supported via Mercia's managed third-party funds in 2015 (which
hold a c.28% equity stake in addition to Mercia's direct stake),
MIP has developed a disruptive platform technology seeking to
address the c.$85billion antibody market using synthetic antibodies
via a process known as Molecularly Imprinted Polymers. The MIP deal
also demonstrates our continued focus on expanding our networks of
co-investors, with the Business Growth Fund, Downing Ventures and
Calculus Capital as co-investment partners.
We are also working with the British Business Bank's Future Fund
on a number of investments into companies across our portfolios,
including 11 in our direct portfolio, to extend investee company
liquidity through to 2021.
On 9 July we announced the profitable sale of The Native Antigen
Company Limited ("NAC") to LGC, a global leader in the life
sciences tools sector, for a total cash consideration of up to
GBP18.0million. Mercia held a 29.4% fully diluted direct holding in
NAC at the date of sale and will receive initial cash proceeds of
GBP4.8million, with up to a further GBP0.4million receivable upon
finalisation of customary closing working capital calculations. The
sale is anticipated to generate an 8.4x return on its original
direct investment cost and a 65% internal rate of return
("IRR").
Mercia first invested in NAC in 2011 through its third-party
managed funds (which as at 31 March 2020 held an additional
combined stake of 20.9%) and subsequently, from its own balance
sheet as a direct investment in December 2014. In addition to the
direct investment returns, the sale will generate a 12.1x return on
a blended third-party managed funds investment cost and a 31% funds
IRR. Mercia has proactively supported NAC since its first day of
trading, including representation from Mercia's Chief Operating
Officer, Peter Dines, as a non-executive director on the NAC board
through to exit.
NAC was founded in 2010, as a divestiture from a University of
Birmingham spinout company, and has since become one of the world's
leading suppliers of infectious disease reagents, widely
acknowledged as being a primary source of reagents for the study of
emerging diseases.
Summary
These results reflect the strength of our diverse investment
platform, albeit currently impacted by COVID-19, and the
experienced team that has managed these investments against a
deteriorating macroeconomic backdrop. We remain cautious investors
and our focus on investing in regional companies with moderate
capital needs, where we believe that we can add value, has ensured
that as we enter the new financial year we do so with a
well-assembled portfolio of companies that are aware of the
challenges and opportunities that lie ahead. We will continue to
add selectively to the direct investment portfolio over the coming
financial year and will continue to support both it and our fund
portfolios, to deliver strong long-term investment performance for
our shareholders and fund investors.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
Notwithstanding the arrival of COVID-19 and its near-term impact
on UK businesses, including many of those companies making up the
Group's direct investment portfolio, the year to 31 March 2020 has
been one of considerable change and positive progress for Mercia
Asset Management PLC, not least in its transition from annual net
expenses to net revenues one year ahead of plan.
Also notable amongst these positive changes were the successful
GBP30.0million placing and the acquisition of the venture capital
trust ("VCT") fund management business of NVM Private Equity LLP
("NVM") in December 2019.
Placing of 120,000,000 shares raising GBP30.0million gross
proceeds ('Placing')
On 3 December 2019 Mercia announced a conditional placing of, in
aggregate, 120,000,000 Placing shares at 25.0 pence per Placing
share. Shareholders overwhelmingly approved the Placing at a
General Meeting held on 20 December 2019 and the new shares were
admitted to trading on AIM on 23 December 2019. Placing commission
and related expenses totalled GBP1.9million gross.
The net proceeds of the Placing were used to fund the cash
component of the initial consideration and related transaction
expenses in respect of the acquisition of NVM's VCT fund management
business. In addition, the proceeds provide further balance sheet
capital to enable the Group to continue to selectively invest in
its existing balance sheet direct investments, as well as new
direct investments which currently sit within its third-party
managed funds, that are expected to deliver attractive returns in
the future.
Acquisition of the VCT fund management business of NVM Private
Equity LLP
On 23 December 2019 Mercia completed the acquisition of the VCT
fund management business of NVM Private Equity LLP, which consisted
of the acquisition of the three fund management contracts ('the
Northern VCTs') and the transfer of NVM's VCT investment team, for
a total maximum consideration of GBP25.0million, comprising a
combination of cash and new Ordinary Mercia shares. The initial
consideration was GBP16.6million, comprising GBP12.4million in cash
which was satisfied on completion and GBP4.2million which was
satisfied by the issue of 16,800,000 initial consideration shares
at a price of 25.0 pence per share, being the same as the Placing
price. The initial consideration shares were admitted to trading on
AIM on 27 December 2019.
Deferred consideration of up to GBP8.4million will also be
payable, contingent upon certain conditions being met. The deferred
consideration comprises GBP6.3million in cash, payable in three
equal instalments on the first, second and third anniversaries of
completion, provided that no termination notice has been served by
any of the three Northern VCTs before each respective anniversary
payment date, and GBP2.1million payable in new Ordinary Mercia
shares. 50% of the deferred consideration shares will be payable if
the Group has received at least GBP16.0million of fees in respect
of the VCT fund management contracts during the three years post
completion. The remaining 50% of the deferred consideration shares
will be allotted and issued if, during the same three-year period,
the three Northern VCTs collectively raise at least GBP60.0million
in new capital. If either or both of these conditions are met the
number of new Ordinary shares to be issued to satisfy the deferred
share consideration will be calculated based on the average of the
daily closing mid-market price for an Ordinary Mercia share, for
each of the five days immediately preceding the date of issue.
Summarised consolidated financial statements
The consolidated financial statements for the year ended 31
March 2020 summarised below include just over three months of
trading for the acquired business, which has been integrated within
Mercia during the first 100 days of ownership.
Summarised consolidated statement of comprehensive income
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------------------------------------------------- ---------- ----------
Revenue 12,747 10,675
Other administrative expenses (12,661) (12,115)
---------------------------------------------------------------------------- ---------- ----------
Net revenues/(expenses) 86 (1,440)
Fair value movements in investments (15,844) 3,916
Share-based payments charge (528) (171)
Amortisation of intangible assets (852) (301)
---------------------------------------------------------------------------- ---------- ----------
Operating (loss)/profit before exceptional items (17,138) 2,004
Exceptional items (695) -
Net finance income 220 562
Taxation 159 54
---------------------------------------------------------------------------- ---------- ----------
(Loss)/profit and total comprehensive (loss)/income for the financial year (17,454) 2,620
---------------------------------------------------------------------------- ---------- ----------
Basic and diluted (loss)/earnings per Ordinary share (pence) (5.11) 0.86
---------------------------------------------------------------------------- ---------- ----------
Notwithstanding the near-term impact of COVID-19 on direct
portfolio fair values, Mercia continues to have strong liquidity,
is now operating profitably (before fair value movements, realised
gains and all non-cash charges) and has a direct investment
portfolio from which to drive future increases in both earnings per
share and net asset value per share.
Revenue increased 19.4% to GBP12.7million (2019:
GBP10.7million). The Group's revenue increase was largely due to
the post-acquisition contribution of the acquired VCT fund
management business.
Staff and administrative expenses increased by 4.5% to
GBP12.7million (2019: GBP12.1million). The overall increase in
these costs was due to the inclusion of the post-acquisition
operating costs of the acquired VCT fund management business.
Net revenues increased by GBP1.5million compared with 2019 (net
expenses) largely, although not exclusively, as a result of the
overall post-acquisition contribution of the VCT fund management
business.
During the year the Group invested GBP17.5million (2019:
GBP19.4million) into 17 existing and one new direct investment
(2019: 15 and two respectively). It also received investee company
loan repayments totalling GBP1.8million (2019: GBP1.7million).
Direct investment momentum has been positive at the start of the
new financial year and is expected to selectively continue into
both existing and new direct investments.
Net fair value decreases during the year totalled GBP15.8million
(2019: GBP3.9million increase) and as at 31 March 2020 the fair
value of the Group's direct investment portfolio was GBP87.5million
(2019: GBP87.7million). This decrease was predominantly due to the
near-term impact of COVID-19 on direct investment portfolio fair
values, details of which are given in the Chief Investment
Officer's review.
Net assets at the year end were GBP141.5million (2019:
GBP126.1million) resulting in an overall decrease in net assets per
share (being net assets of GBP141.5million divided by 440,109,707
shares in issue) to 32.1 pence (2019: 41.6 pence, being net assets
of GBP126.1million divided by 303,309,707 shares in issue). This
reduction has been due to the dilutive effect of the Placing and
the decrease in the fair value of the direct investment portfolio,
due predominantly to the impact of COVID-19.
Within net assets, cash and short-term liquidity investments
totalled GBP30.7million (2019: GBP30.4million), including
GBP0.5million of cash held on behalf of third-party EIS investors
(2019: GBP0.6million).
The net fair value decrease contributed materially to result in
an overall consolidated total comprehensive loss for the year of
GBP17.5million (2019: GBP2.6million profit). This in turn has
resulted in a loss per Ordinary share of 5.11 pence (2019: 0.86
pence earnings).
Alternative performance measures
The Group has always believed that the measurement and reporting
of both 'net revenues/(expenses)' and 'net asset value per share'
are important alternative performance measures of interest to
investors. The reporting of net revenues/(expenses) enables a clear
understanding of the impact of the Group's operating model on net
asset value enhancement or erosion, particularly historically where
operating costs have exceeded revenue.
From 1 April 2020 the Group will substitute 'adjusted operating
profit' for net revenues/(expenses), as it is a more generally
recognised alternative performance measure for specialist asset
managers. From Mercia's perspective and for comparison purposes,
the difference between the measurement of net revenues/(expenses)
and adjusted operating profit is that adjusted operating profit
will include net finance income and exclude depreciation. Had
Mercia adopted this alternative performance measure for the year
ended 31 March 2020 it would have resulted in adjusted operating
profit of GBP0.5million (2019: GBP0.8million loss). The table below
provides a bridge between the two alternative performance measures
for the years ended 31 March 2020 and 31 March 2019.
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------------- ---------- ----------
Revenue 12,747 10,675
Other administrative expenses (12,661) (12,115)
----------------------------------------------------------- ---------- ----------
Net revenues/(expenses) 86 (1,440)
Depreciation 212 84
Net finance income 220 562
----------------------------------------------------------- ---------- ----------
Adjusted operating profit/(loss) before exceptional items 518 (794)
----------------------------------------------------------- ---------- ----------
The table below provides a reconciliation from adjusted
operating profit/(loss) before exceptional items to operating
(loss)/profit before exceptional items for the years ended 31 March
2020 and 31 March 2019.
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------------- ---------- ----------
Adjusted operating profit/(loss) before exceptional items 518 (794)
Depreciation (212) (84)
Net finance income (220) (562)
Fair value movements in investments (15,844) 3,916
Share-based payments charge (528) (171)
Amortisation of intangible assets (852) (301)
----------------------------------------------------------- ---------- ----------
Operating (loss)/profit before exceptional items (17,138) 2,004
----------------------------------------------------------- ---------- ----------
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
GBP16.6million (2019: GBP10.3million) and acquired intangible
assets of GBP20.1million (2019: GBP0.6million). GBP6.3million of
the goodwill and GBP19.8million of the intangible assets value
arose as a result of the Group's acquisition of the VCT fund
management business in December 2019. GBP7.9million (2019:
GBP7.9million) of the goodwill and GBP0.3million of the intangible
assets value arose as a result of the Group's acquisition of
Enterprise Ventures Group Limited in March 2016. The balance of the
goodwill arose on the acquisition of Mercia Fund Management Limited
in December 2014. The intangible assets are separately identifiable
assets arising from the VCT fund management contracts with Northern
Venture Trust PLC, Northern 2 VCT PLC and Northern 3 VCT PLC (the
'Northern VCT Contracts') and Enterprise Ventures' fund management
contracts (the 'EV Contracts'). The fair value of the Northern VCT
Contracts' intangible assets is being amortised on a straight-line
basis over 10 years. The fair value of the EV Contracts' intangible
assets is being amortised on a straight-line basis over the average
duration of the remaining fund management contracts from the date
of acquisition. The total amortisation charge of GBP852,000 (2019:
GBP301,000) in the consolidated statement of comprehensive income
represents the amortisation for the year ended 31 March 2020.
GBP551,000 of the total charge relates to the Northern VCT
Contracts with the balance relating to the EV Contracts.
Revenue
Total revenue of GBP12,747,000 (2019: GBP10,675,000) 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 GBP12,661,000 (2019:
GBP12,115,000) consisted of all staff related, office, marketing
and professional adviser costs.
Net revenues
Net revenues of GBP86,000 (2019: GBP1,440,000 net expenses)
represents total revenue less all staff and administrative
expenses.
Fair value movements in investments
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Investment movements excluding cash invested:
Unrealised gains on the revaluation of investments 3,351 8,622
Unrealised losses on the revaluation of investments (19,195) (4,706)
----------------------------------------------------- ---------- ----------
Net fair value (loss)/gain (15,844) 3,916
----------------------------------------------------- ---------- ----------
For the year as a whole, unrealised fair value gains arose in
four (2019: 12) of the Group's 25 (2019: 26) direct investments.
The largest fair value gain, being Oxford Genetics (trading as
OXGENE), was GBP1,582,000. There were 10 (2019: three) fair value
decreases, the largest being GBP5,313,000 for Warwick Acoustics,
predominantly due to the current impact of COVID-19 on asset values
in general. The reduction in overall fair values for the year as a
whole was 15.3%, measured by expressing the net fair value
unrealised loss as a percentage of the opening fair value of the
direct investment portfolio plus the net cash invested during the
year (2019: 4.7% increase). For the majority of the direct
investment portfolio we anticipate a recovery in fair values over
time.
Share-based payments charge
The GBP528,000 (2019: GBP171,000) non-cash charge arises from
the issue of share options to Executive Directors and other
employees of the Group ranging from 24 April 2017 to 31 March
2020.
Amortisation of intangible assets
The amortisation charge of GBP852,000 (2019: GBP301,000)
represents the amortisation of the acquired intangible assets of
the Northern VCT Contracts and the EV Contracts for the year ended
31 March 2020.
Exceptional items
During the year the Group incurred exceptional costs of
GBP695,000 (2019: GBPnil). Of this total, GBP297,000 are
transaction costs incurred in relation to the acquisition of the
VCT fund management business. The balance of GBP398,000 are staff
related costs incurred in connection with a restructuring which
took place in March 2020. The transaction costs and staff related
costs are exceptional non-trading and non-recurring costs and have
therefore been accounted for as exceptional items.
Net finance income
Finance income of GBP246,000 (2019: GBP562,000) 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.
Finance costs of GBP26,000 (2019: GBPnil) comprised interest
payable on leases, arising from the application of IFRS 16,
'Leases'.
Taxation
The tax credit of GBP159,000 (2019: GBP54,000) represents the
annual unwinding of the deferred tax liability recognised in
respect of the intangible assets which arose on the acquisition of
both the Northern VCT Contracts and the EV Contracts.
Balance sheet and cash flows
Net assets at the year end of GBP141,460,000 (2019:
GBP126,065,000) 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
At the latter end of the year Mercia's direct investment
portfolio declined in fair value to GBP87,471,000 (2019:
GBP87,659,000). The table below lists the Group's investments by
value as at 31 March 2020, including a breakdown of the net cash
invested during the year, fair value movements for the year as a
whole and the fully diluted 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
2019 2020 2020 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000 %
--------------------------------------- ---------- -------- ---------- ---------- ----------
nDreams Ltd 15,120 1,000 - 16,120 36.4
Oxford Genetics Ltd t/a OXGENE 10,161 - 1,582 11,743 30.2
Intechnica Ltd 6,677 500 - 7,177 27.5
Medherant Ltd 5,205 1,500 - 6,705 30.1
Voxpopme Ltd 3,026 2,000 1,004 6,030 17.1
Ton UK Ltd t/a Intelligent Positioning 5,473 400 (1,519) 4,354 28.2
Impression Technologies Ltd 5,381 2,000 (3,087) 4,294 25.9
Faradion Ltd 3,525 500 - 4,025 15.6
Warwick Acoustics Ltd 7,904 1,065 (5,313) 3,656 52.9
The Native Antigen Company Ltd 2,863 - 630 3,493 29.4
Soccer Manager Ltd 2,099 300 135 2,534 34.8
Edge Case Games Ltd 2,300 - - 2,300 21.2
Locate Bio Ltd 500 1,750 - 2,250 17.4
VirtTrade Ltd t/a Avid Games 3,938 550 (2,288) 2,200 25.8
PsiOxus Therapeutics Ltd 2,377 160 (344) 2,193 1.4
sureCore Ltd 1,834 333 - 2,167 22.0
W2 Global Data Solutions Ltd 2,000 - - 2,000 15.2
Eyoto Group Ltd 1,755 875 (878) 1,752 15.7
One Touch Apps Ltd t/a Clear Review - 500 - 500 3.9
Concepta PLC 1,133 750 (1,408) 475 22.4
Other direct investments 4,388 1,473 (4,358) 1,503 n/a
--------------------------------------- ---------- -------- ---------- ---------- ----------
Total 87,659 15,656 (15,844) 87,471 n/a
--------------------------------------- ---------- -------- ---------- ---------- ----------
Investee company loan repayments
Mercia is focused on creating shareholder value through its
asset management operations, including investment in, development
of and at the appropriate time, exit from (predominantly through
trade sales) its direct investments. The Group supports its direct
investments via both equity and loan instruments. During the year
loan repayments of GBP1.8million (2019: GBP1.7million) were
received by Mercia from Impression Technologies, Warwick Acoustics
and Crowd Reactive.
Cash and short-term liquidity investments
At the year end Mercia had total cash and short-term liquidity
investments of GBP30,653,000 (2019: GBP30,398,000) comprising cash
of GBP24,438,000 (2019: GBP25,210,000) and short-term liquidity
investments of GBP6,215,000 (2019: GBP5,188,000), including
GBP467,000 (2019: GBP629,000) 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 four 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
2020 2019
GBP'000 GBP'000
--------------------------------------------------------------- ---------- ----------
Opening cash and short-term liquidity investments 30,398 52,908
Net cash generated from/(used in) operating activities 136 (5,080)
Net cash used in direct and certain other investing activities (15,456) (17,234)
Purchase of fund management contracts (12,400) -
Issue of new Ordinary share capital for cash 30,000 -
Ordinary share capital issue costs (1,879) -
Net cash used in other financing activities (146) (196)
---------------------------------------------------------------- ---------- ----------
Cash and short-term liquidity investments at the year end 30,653 30,398
---------------------------------------------------------------- ---------- ----------
Notwithstanding the near term impact of COVID-19 on asset values
and revenues which are directly linked to asset values, Mercia has
made significant positive progress during the year. Once the impact
of the pandemic subsides, the underlying potential of the Group's
balance sheet portfolio and deal flow pipeline via its managed
funds will re-emerge, providing positive momentum for the Group's
future prospects.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Consolidated statement of comprehensive income
For the year ended 31 March 2020
Year ended Year ended
31 March 31 March
2020 2019
Note GBP'000 GBP'000
--------------------------------------------------------------------------- ---- ---------- ----------
Revenue 5 12,747 10,675
Other administrative expenses (12,661) (12,115)
--------------------------------------------------------------------------- ---- ---------- ----------
Net revenues/(expenses) 86 (1,440)
Fair value movements in investments 6 (15,844) 3,916
Share-based payments charge (528) (171)
Amortisation of intangible assets (852) (301)
--------------------------------------------------------------------------- ---- ---------- ----------
Operating (loss)/profit before exceptional items (17,138) 2,004
Exceptional items (695) -
--------------------------------------------------------------------------- ---- ---------- ----------
Operating (loss)/profit 7 (17,833) 2,004
Finance income 246 562
Finance costs (26) -
--------------------------------------------------------------------------- ---- ---------- ----------
(Loss)/profit before taxation (17,613) 2,566
Taxation 159 54
--------------------------------------------------------------------------- ---- ---------- ----------
(Loss)/profit and total comprehensive (loss)/income for the financial year (17,454) 2,620
--------------------------------------------------------------------------- ---- ---------- ----------
Basic and diluted (loss)/earnings per Ordinary share (pence) 8 (5.11) 0.86
--------------------------------------------------------------------------- ---- ---------- ----------
Consolidated balance sheet
As at 31 March 2020
As at As at
31 March 31 March
2020 2019
Note GBP'000 GBP'000
--------------------------------- ---- -------- --------
Assets
Non-current assets
Goodwill 10 16,642 10,328
Intangible assets 11 20,063 584
Property, plant and equipment 125 153
Right-of-use assets 598 -
Investments 12 87,471 87,659
--------------------------------- ---- -------- --------
Total non-current assets 124,899 98,724
Current assets
Trade and other receivables 1,298 782
Short-term liquidity investments 13 6,215 5,188
Cash and cash equivalents 13 24,438 25,210
--------------------------------- ---- -------- --------
Total current assets 31,951 31,180
--------------------------------- ---- -------- --------
Total assets 156,850 129,904
--------------------------------- ---- -------- --------
Current liabilities
Trade and other payables (4,805) (3,730)
Lease liabilities (118) -
Deferred consideration 14 (1,736) -
--------------------------------- ---- -------- --------
Total current liabilities (6,659) (3,730)
Non-current liabilities
Lease liabilities (473) -
Deferred consideration 14 (4,446) -
Deferred taxation 15 (3,812) (109)
--------------------------------- ---- -------- --------
Total non-current liabilities (8,731) (109)
--------------------------------- ---- -------- --------
Total liabilities (15,390) (3,839)
--------------------------------- ---- -------- --------
Net assets 141,460 126,065
--------------------------------- ---- -------- --------
Equity
Issued share capital 16 4 3
Share premium 17 81,644 49,324
Other distributable reserve 70,000 70,000
Retained earnings (12,053) 5,401
Share-based payments reserve 1,865 1,337
--------------------------------- ---- -------- --------
Total equity 141,460 126,065
--------------------------------- ---- -------- --------
Consolidated cash flow statement
For the year ended 31 March 2020
Year ended Year ended
31 March 31 March
2020 2019
Note GBP'000 GBP'000
---------------------------------------------------------------------------------------- ---- ---------- ----------
Cash flows from operating activities:
Operating (loss)/profit (17,833) 2,004
Adjustments to reconcile operating (loss)/profit to net cash flows used in operating
activities:
Depreciation of property, plant and equipment 73 84
Depreciation of right-of-use assets 139 -
Fair value movements in investments 6 15,844 (3,916)
Share-based payments charge 528 171
Amortisation of intangible assets 852 301
Working capital adjustments:
(Increase)/decrease in trade and other receivables (514) 306
Increase/(decrease) in trade and other payables 1,047 (4,030)
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net cash generated from/(used in) operating activities 136 (5,080)
Cash flows from direct investment activities:
Purchase of direct investments 12 (17,449) (19,384)
Investee company loan repayments 12 1,793 1,711
Net cash used in direct investment activities (15,656) (17,673)
Cash flows from other investing activities:
Purchase of property, plant and equipment (45) (92)
Investee company loan redemption premiums and interest received 245 531
Purchase of fund management contracts (12,400) -
(Increase)/decrease in short-term liquidity investments (1,027) 4,812
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net cash (used in)/generated from other investing activities (13,227) 5,251
Net cash used in total investing activities (28,883) (12,422)
Cash flows from financing activities:
Proceeds from the issue of Ordinary shares 30,000 -
Transaction costs relating to the issue of Ordinary shares (1,879) -
Payment of lease liabilities (120) -
Interest paid (26) -
Redemption of subsidiary undertaking preference shares - (196)
Net cash generated from/(used in) financing activities 27,975 (196)
---------------------------------------------------------------------------------------- ---- ---------- ----------
Net decrease in cash and cash equivalents (772) (17,698)
Cash and cash equivalents at the beginning of the year 25,210 42,908
---------------------------------------------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at the end of the year 13 24,438 25,210
---------------------------------------------------------------------------------------- ---- ---------- ----------
Consolidated statement of changes in equity
For the year ended 31 March 2020
Issued Other Share-based
share Share distributable Retained payments
capital premium reserve earnings reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April 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
Loss and total comprehensive loss for the year - - - (17,454) - (17,454)
Issue of share capital 1 34,199 - - - 34,200
Cost of share capital issued - (1,879) - - - (1,879)
Share-based payments charge - - - - 528 528
As at 31 March 2020 4 81,644 70,000 (12,053) 1,865 141,460
---------------------------------------------------- ------- ------- ------------- -------- ----------- --------
Notes to the consolidated financial statements
For the year ended 31 March 2020
1. General information
Mercia Asset Management 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. 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 2020, which have been approved by
the Board of Directors. The Group's auditor has consented to the
publication of this announcement. 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 2020 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
On 30 January 2020, the World Health Organisation declared the
outbreak of coronavirus ("COVID-19") to be a public health
emergency of international concern. COVID-19 presents the biggest
risk to the global economy and to individual companies since the
2008 financial crisis and has had a severe impact on economic
growth forecasts worldwide. The impacts of COVID-19 are not yet all
apparent and the position will remain fluid until the length and
extent of the crisis becomes evident. Clearly, however, not all
industries or companies will be impacted to the same degree. The
effects will be felt in a number of areas across the Group and its
portfolio companies. Mercia continues to monitor and follow closely
the information released from the UK Government and the Directors
continue to monitor the impact that the COVID-19 pandemic has on
the Group and its portfolio companies. The full extent to which the
COVID-19 pandemic may impact the Group's future results, operations
and liquidity is uncertain.
The Directors have made an assessment of going concern, taking
into account both the Group's current performance and its outlook,
which considered the impact of the COVID-19 pandemic, using the
information available up to the date of issue of this summary
financial information. As part of this assessment the Directors
considered:
-- an analysis of the adequacy of the Group's liquidity,
solvency and regulatory capital position. The analysis used has
modelled a number of adverse scenarios to assess the potential
impact that COVID-19 may have on the Group's operations and
portfolio companies. The Group manages and monitors liquidity
regularly ensuring it is adequate and sufficient and this is
supported by its monitoring of investments, operating expenses and
receipt of portfolio cash income. In addition, Mercia raised
GBP30.0million gross proceeds through its successful placing in
December 2019. As at 31 March 2020 liquidity, comprising
unrestricted cash and short-term liquidity investments, remained
strong at GBP30.2million (31 March 2019: GBP29.8million);
-- any potential valuation concerns with respect to the Group's
direct investment portfolio as set out in this summary financial
information. The approach to valuations was consistent with the
normal process and valuation policy. A key focus of the portfolio
valuations at 31 March 2020 was an assessment of the impact of the
COVID-19 pandemic on each portfolio company, considering the
performance before the outbreak of COVID-19, as well as the
projected short-term impact on the ability to generate earnings and
cash flows, and also the longer-term view of each company's ability
to recover;
-- the operational resilience of the Group's critical functions,
which includes the wellbeing of its staff and the resilience of its
IT systems. COVID-19 has emphasised the importance of Mercia's and
its portfolio companies' focus on keeping employees safe, motivated
and able to continue to fulfil their roles effectively where
possible; and
-- an assessment of the Group's supplier base, considering any
single points of failure and contingency plans, should suppliers be
deemed at risk.
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, and having considered the impact of COVID-19 on the
Group's operations and portfolio, the Directors have a reasonable
expectation that the Group is well-placed to manage business risks
in the current economic environment and has adequate financial
resources to continue in operational existence for a period of at
least 12 months from the date of this announcement. Accordingly,
the Directors continue to adopt the going concern basis in
preparing this summary financial information.
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. Deferred consideration payable to the vendors is
measured at fair value at acquisition and assessed annually with
particular reference to the conditions upon which the consideration
is contingent.
New standards
The following new standards became effective in the current
financial year:
IFRS 16, 'Leases' - explained in more detail below
Amendments to IFRS 3, 'Business Combinations'
Amendments to IFRS 9, 'Financial Instruments'
Amendments to IAS 12, 'Income Taxes'
Amendments to IAS 19, 'Employee Benefits'
Amendments to IAS 23, 'Borrowing Costs'
Amendments to IAS 28, 'Investments in Associates and Joint
Ventures'
Annual Improvements to IFRS Standards 2015-2017 Cycle
There are no other IFRSs or IFRIC interpretations that are
effective that would be expected to have a material impact on the
Group.
IFRS 16, 'Leases', is effective for accounting periods beginning
on or after 1 January 2019. It replaces IAS 17, 'Leases' and
introduces new or amended requirements with respect to lease
accounting.
The new standard introduces significant changes to lessee
accounting by removing the distinction between operating and
finance leases, requiring the recognition of a right-of-use asset
and a lease liability at commencement for all leases, except for
short-term leases and leases of low-value assets when such
recognition exemptions are adopted. The impact of the adoption of
IFRS 16 on this summary financial information is described
below.
The Group has applied IFRS 16 using the cumulative catch-up
approach which:
-- requires the Group to recognise the cumulative effect of
initially applying IFRS 16 as an adjustment to the opening balance
of retained earnings at the date of initial application; and
-- does not require restatement of comparatives, which continue
to be presented under IAS 17 and IFRIC 4.
Impact of the new definition of a lease
The Group has made use of the practical expedient available on
transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in
accordance with IAS 17 and IFRIC 4 will continue to be applied to
those leases entered into or changed before 1 January 2019.
The change in definition of a lease mainly relates to the
concept of control. IFRS 16 determines whether a contract contains
a lease on the basis of whether the customer has the right to
control the use of an identified asset for a period of time in
exchange for consideration. This is in contrast to the focus on
'risks and rewards' in IAS 17 and IFRIC 4.
The Group has applied the definition of a lease and related
guidance set out in IFRS 16 to all lease contracts entered into or
changed on or after 1 January 2019. In preparation for the
first-time application of IFRS 16, the Group carried out an
implementation project. The outcome of the project was that the new
definition in IFRS 16 will not significantly change the scope of
contracts that meet the definition of a lease for the Group.
Impact on lessee accounting
IFRS 16 changes how the Group accounts for leases previously
classified as operating leases under IAS 17, which were off-balance
sheet. Payments under operating leases were recognised in the
Group's consolidated statement of comprehensive income on a
straight-line basis over the term of the lease.
Applying IFRS 16, for all leases except as noted below, the
Group:
-- recognises right-of-use assets and lease liabilities in the
consolidated balance sheet, initially measured at the present value
of the future lease payments, with the right-of-use assets adjusted
by the amount of any prepaid or accrued lease payments in
accordance with IFRS 16: C8(b)(ii);
-- recognises depreciation of right-of-use assets and interest
on lease liabilities in the consolidated statement of comprehensive
income; and
-- separates the total amount of cash paid into a principal
portion (presented within financing activities) and interest (also
presented within financing activities) in the consolidated cash
flow statement.
Lease incentives (eg rent-free periods) are recognised as part
of the measurement of the right-of-use assets and lease liabilities
whereas under IAS 17 they resulted in the recognition of a lease
incentive, amortised as a reduction of rental expenses on a
straight-line basis.
Under IFRS 16, right-of-use assets are tested for impairment in
accordance with IAS 36.
For short-term leases (lease terms of 12 months or less) and
leases of low-value assets (which includes portable electronic
devices, small items of office furniture and fixed telephones), the
Group has opted to recognise a lease expense on a straight-line
basis as permitted by IFRS 16. This expense is included within
'other administrative expenses' in profit or loss.
The Group has used the following practical expedients when
applying the cumulative catch-up approach to leases previously
classified as operating leases applying IAS 17:
-- The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics.
-- The Group has adjusted the right-of-use assets at the date of
initial application by the amount of provision for onerous leases
recognised under IAS 37 in the consolidated balance sheet
immediately before the date of initial application, as an
alternative to performing an impairment review.
-- The Group has elected not to recognise right-of-use assets
and lease liabilities to leases for which the lease term ends
within 12 months of the date of initial application.
-- The Group has excluded initial direct costs from the
measurement of the right-of-use assets at the date of initial
application.
-- The Group has used hindsight when determining the lease term
when the contract contains options to extend or terminate the
lease.
Financial impact of initial application of IFRS 16
The only impact on the Group relates to leases for use of office
premises at various locations. These were earlier classified as
operating leases under IAS 17, with lease rentals charged to
operating expenses on a straight-line basis over the lease term. As
required by IFRS 16, as a lessee, the Group has recognised a lease
liability representing the present value of the obligation to make
lease payments, and a related right-of-use asset.
In calculating the present value of the obligation to make lease
payments, the Group's incremental borrowing rate has been used as
the discount rate, as the rates implicit in the leases are not
evident. The incremental rate referred to by IFRS 16 indicates the
rate of interest that a lessee would have to pay to borrow over a
similar term, with similar security, the funds necessary to obtain
an asset of similar value to the right-of-use asset in a similar
economic environment. The weighted average lessee's incremental
borrowing rate applied to lease liabilities recognised in the
consolidated balance sheet on 1 April 2019 is 3.25%.
The following table shows the operating lease commitments
disclosed when IAS 17 was applied at 31 March 2019, discounted
using the borrowing rate at the date of initial application, and
the lease liabilities recognised in the Group's consolidated
balance sheet at the date of initial application.
GBP'000
---------------------------------------------------------------------- -------
Operating lease commitments as at 31 March 2019 1,370
Short-term leases and leases of low-value assets (42)
Effect of discounting operating lease commitments as at 31 March 2019 (591)
Lease liabilities recognised as at 1 April 2019 737
---------------------------------------------------------------------- -------
The Group has recognised GBP737,000 of right-of-use assets and
GBP737,000 of lease liabilities upon transition to IFRS 16 with
effect from 1 April 2019. As at 31 March 2020, the Group had no
lease liabilities in respect of leases committed to but not yet
commenced.
Critical accounting judgements and key sources of estimation
uncertainty
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 this summary financial
information.
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"), as revised on 21 December 2018 and
effective for accounting periods beginning after 1 January
2019.
Investments are measured at fair value at each measurement date.
Fair value is the price that would be received to sell an asset in
an orderly transaction between market participants at the
measurement date. A fair value measurement assumes that a
hypothetical transaction to sell an asset takes place in the
principal market or, in its absence, the most advantageous market
for the asset. For quoted investments, available market prices will
be the exclusive basis for the measurement of fair value for
identical instruments. For unquoted investments, the measurement of
fair value requires the valuer to assume the underlying business or
instrument is realised or sold at the measurement date,
appropriately allocated to the various interests, regardless of
whether the underlying business is prepared for sale or whether its
shareholders intend to sell in the near future.
In estimating fair value for an investment, the valuer should
apply a methodology that is appropriate in light of the nature,
facts and circumstances of the investment in the context of the
total investment portfolio and should use reasonable current market
data and inputs, combined with reasonable market participant
assumptions.
The price of recent investment can be used to estimate the
enterprise value, before allocating to the various interests. The
Group believes that this is still the most relevant technique to
measure fair value for early-stage investments. However, it has
also taken into consideration time elapsed, performance since and
external market events to help inform its judgements.
0-6 months post last funding round
The Group will apply the price of a recent investment for up to
six months post the last funding round, subject to there being no
material change to the investee company's prospects (which would
include the prospects of drawing down the next tranche or raising
the next round of funding).
7-18 months post last funding round
Beyond the six months point, the Group seeks assurance that the
investee company is progressing against the development milestones
which were set out in the initial assessment. Failing to hit
milestones will not necessarily impact the valuation - this may
simply be an indicator that incremental value will take longer to
deliver, but the performance against milestones is assessed as an
indicator of a potential change in value. The Group will be
cautious about increasing the valuation of an early-stage investee
company unless it is based on a new market price or maintainable
revenues and/or earnings.
19+ months post last funding round
From this point onwards, the Group looks for additional support
for the 'price of recent investment' by calibrating back to that
using a discounted cash flow ("DCF") methodology. However, unless
the investee company has become established with maintainable
revenues and/or earnings and can be valued on an earnings basis,
given the inherent risk in early-stage investing and the lack or
reliability of using estimates of such metrics yet to be delivered
a number of years into the future, the Group is unlikely to
increase the fair value even if a DCF calculation suggests a higher
value. Nevertheless, the DCF calculation helps support the proposed
fair value at the valuation point.
A key focus of the portfolio valuations as at 31 March 2020 was
an assessment of the potential impact of the COVID-19 pandemic on
each investee company's enterprise value, considering the
performance before the outbreak of COVID-19, as well as the
projected short-term impact on the ability to generate earnings and
cash flows, and also the longer-term view of each investee
company's ability to recover.
The Group has applied a COVID-19 overlay (assessing some 13
criteria) to help ascertain the potential effects on each of the
investee companies' enterprise values. The overall reductions in
prices of listed entities was used as a basis to determine a range
of COVID-19 discounts between 25% and 100%. The methodology for
determining the valuation of investments has been predominantly
based on taking the enterprise value from the last funding round
and then applying a COVID-19 discount where applicable. This
assessment is based on Mercia's knowledge of the investee companies
and of the specific effects seen as relevant to each sector within
which the investee companies operate. The Group then looked closer
at each investee company to assess any mitigating factors (eg
Mercia's defensive investment structuring), comparable asset or
sector performance to arrive at our valuation.
The uncertainty surrounding the ultimate impact of the COVID-19
pandemic has resulted in significant judgement in respect of the
future cash flows and hence enterprise values for some of the
Group's direct investments. This includes estimation in relation to
liquidity and delays to debtor payments; forecast revenue, supply
chain, employee and slower growth effects; and the offsetting
impact of the Government's and the Bank of England's mitigation
measures. The discounts applied to those direct investments which
have had fair value decreases in the period reflect increased
uncertainty around the duration of stay-at-home and social
distancing policies, the speed of recovery from those policies,
future inflation, power and oil prices, as well as company-specific
factors. These uncertainties have also been reflected in the
volatility seen in public markets since March 2020. The direct
investment portfolio is diversified by sector and underlying risk
exposures. Consideration was also given to the impact of
stay-at-home and social distancing policies on the customers of the
Group's investee companies, including on their viability and access
to liquidity. Almost all of the Group's investee companies have
continued to operate since the start of the COVID-19 pandemic.
As described above, the macroeconomic uncertainty has created
uncertainty in the fair value of the direct investment portfolio.
The Directors have assessed the estimates made in relation to each
individual valuation and do not believe that a reasonable possible
change in estimate would result in a material change in the value
of each investment.
Accounting for the acquisition of the VCT fund management
business of NVM Private Equity LLP
On 23 December 2019 Mercia completed the acquisition of the
venture capital trust ("VCT") fund management business of NVM
Private Equity LLP ("NVM"), which comprised the acquisition of
three fund management contracts ('the Northern VCT contracts') and
the transfer of NVM's VCT investment team. Further details are
included in note 9 to this summary financial information. The fund
management contracts acquired in the transaction have been fair
valued at acquisition with reference to the forecast cash revenues
from each contract, less the forecast costs associated with
servicing those contracts, over an expected useful life of 10 years
for each of the three fund management contracts, discounted at the
rate of 15%. The discount applied is reflective, inter alia, of the
risk profile of the contracts acquired and is considered a
significant assumption. Should the discount rate be increased by
1%, the value of the fund management contracts would reduce by
GBP800,000 with goodwill increasing by a corresponding amount. The
expected useful life is considered a significant assumption. Should
it be increased by one year, the value of the fund management
contracts would increase by GBP1,300,000 with goodwill decreasing
by a corresponding amount. Should the cash revenues from each
contract less the costs associated with servicing those contracts
increase by 1%, the value of the fund management contracts would
increase by GBP200,000 with goodwill decreasing by a corresponding
amount.
Goodwill has been recognised as the difference between the fair
value of consideration paid and the fair value of the fund
management contracts acquired. Further details are included in note
10 to this summary financial information.
Valuation of deferred consideration
The fair value of the deferred consideration payable to NVM in
respect of the acquisition of its VCT fund management business,
contingent upon certain conditions being met, has been estimated
with reference to the contractual obligations as at 31 March 2020.
The conditions upon which payment of the deferred consideration is
contingent are outlined below.
The first condition is that no termination notice is served by
any of the three Northern VCT boards before the first, second and
third anniversaries of completion. There are no indications to date
that notice will be given, so this has been assumed to be true and
the value payable discounted by 10%. The second condition is that
the Group receives at least GBP16,000,000 of fees in respect of the
VCT fund management contracts during the three years post
completion.
The third condition is that, during the same three-year period,
the Northern VCTs collectively raise at least GBP60,000,000 in new
capital. The fair value of the deferred consideration in respect of
these two conditions has been based on a weighted probability of
outcomes over the three-year period and discounted by 10%.
The discount applied is reflective of the risk profile of the
conditions being met and is considered a significant assumption.
Should the discount rate be increased by 1%, the value of the
deferred consideration would reduce by GBP200,000 with goodwill
decreasing by a corresponding amount.
5. Segmental reporting
For the year ended 31 March 2020, the Group's revenue and loss
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
2020 2019
GBP'000 GBP'000
-------------------------- ---------- ----------
Fund management fees 8,861 7,282
Initial management fees 1,286 1,134
Portfolio directors' fees 2,380 2,139
Other revenue 220 120
-------------------------- ---------- ----------
12,747 10,675
-------------------------- ---------- ----------
6. Fair value movements in investments
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------- ---------- ----------
Net fair value movements in investments (15,844) 3,916
---------------------------------------- ---------- ----------
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 loss
Operating loss is stated after charging:
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------ ---------- ----------
Staff costs 8,780 8,402
Administrative expenses 3,881 3,713
------------------------ ---------- ----------
8. Loss per share
Basic 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. Diluted loss per share is calculated by
dividing the loss 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 loss and weighted average
number of shares used in the calculations are set out below:
Year ended Year ended
31 March 31 March
2020 2019
------------------------------------------------------------- ---------- ----------
(Loss)/profit per Ordinary share
(Loss)/profit for the financial year (GBP'000) (17,454) 2,620
------------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares (basic) ('000) 341,401 303,310
------------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares (diluted) ('000) 341,627 305,018
------------------------------------------------------------- ---------- ----------
(Loss)/earnings per Ordinary share basic and diluted (pence) (5.11) 0.86
------------------------------------------------------------- ---------- ----------
The calculation of basic and diluted loss per share is based on
the following data:
Year ended Year ended
31 March 31 March
2020 2019
' 000 '000
---------------------------------- ---------- ----------
Weighted average number of shares
Basic 341,401 303,310
Dilutive impact of share options 226 1,708
---------------------------------- ---------- ----------
Diluted 341,627 305,018
---------------------------------- ---------- ----------
9. Business combinations
The Group consists of Mercia Asset Management PLC and its
subsidiary undertakings.
On 23 December 2019 Mercia completed the acquisition of the VCT
fund management business of NVM Private Equity LLP ("NVM") for a
total maximum consideration of GBP25,000,000 comprising a
combination of cash and new Ordinary Mercia shares.
The fair value of the identifiable net assets acquired and the
consideration payable under IFRS 3 are as follows:
Fair value
GBP'000
--------------------------------------------------- ----------
Fund management contracts intangible asset 20,331
Goodwill 6,314
Deferred tax liability arising on intangible asset (3,863)
--------------------------------------------------- ----------
Total identifiable net assets 22,782
--------------------------------------------------- ----------
Under the terms of the acquisition agreement, the fair value of
the consideration payable to NVM is:
GBP'000
-------------------------------------------------------------------------------------------- -------
Cash 12,400
Shares - 16,800,000 shares in Mercia Asset Management PLC valued at 25.0 pence per share on
23 December 2019 4,200
-------------------------------------------------------------------------------------------- -------
Total initial consideration 16,600
Deferred consideration 6,182
-------------------------------------------------------------------------------------------- -------
Total consideration 22,782
-------------------------------------------------------------------------------------------- -------
The initial consideration shares were admitted to trading on AIM
on 27 December 2019.
Actual revenues and profits of the VCT fund management
business
The actual revenues and profits that have been generated since
the acquisition of the VCT fund management business on 23 December
2019 to 31 March 2020 are:
GBP'000
----------------------- -------
Revenues 1,917
----------------------- -------
Profit before taxation 547
----------------------- -------
The disclosure of the revenue and loss for the Group if the
acquisition had occurred on 1 April 2019 has not been presented as
the determination of these amounts is impracticable, due to the
fact that the entire NVM Private Equity LLP business was not
acquired and there will have been revenues and expenses not
relevant to the VCT fund management business acquired.
Fair value
The fair value of the fund management contracts has been
estimated using a discounted cash flow model. The estimated cash
flows have been valued at a discount of 15%, resulting in the
recognition of a fair value for the fund management contracts of
GBP20,331,000.
10. Goodwill
The goodwill arising on the businesses acquired to date, being
Mercia Fund Management Limited, Enterprise Ventures Group Limited
('Enterprise Ventures') and the VCT fund management business of
NVM, is set out in the table below.
VCT fund management contracts
Mercia Fund Management Enterprise Ventures Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------------------ --------------------- ----------------------------- -------
Cost
As at 1 April 2018 2,455 7,873 - 10,328
Additions - - - -
-------------------- ------------------------ --------------------- ----------------------------- -------
As at 31 March 2019 2,455 7,873 - 10,328
Additions - - 6,314 6,314
As at 31 March 2020 2,455 7,873 6,314 16,642
-------------------- ------------------------ --------------------- ----------------------------- -------
Included in additions to goodwill in the financial year is
GBP6,314,000 which arose on the acquisition of the VCT fund
management business in December 2019. Details of the consideration
paid and assets acquired as part of this acquisition are set out in
note 9 to this summary financial information.
Recoverable amounts for each cash generating unit ("CGU") are
based on the higher of value in use and fair value less costs of
disposal ("FVLCD"). FVLCD for each CGU to which goodwill has been
allocated was calculated using a revenue multiple model based on
the CGU's budgeted revenues for the financial year ending 31 March
2021. The review concluded that the FVLCD recoverable amount of
each CGU exceeds its carrying value. The Directors do not consider
that any reasonable possible changes to the key assumptions would
reduce the recoverable amount.
11. Intangible assets
Intangible assets represent contractual arrangements in respect
of the acquisition of the VCT fund management business and the
acquisition of Enterprise Ventures, where it is probable that the
future economic benefits that are attributable to those assets will
flow to the Group and the fair value of the assets can be measured
reliably.
GBP'000
------------------------- -------
Cost
As at 1 April 2018 1,504
Additions -
------------------------- -------
As at 31 March 2019 1,504
Additions 20,331
------------------------- -------
As at 31 March 2020 21,835
------------------------- -------
Accumulated amortisation
As at 1 April 2018 619
Charge for the year 301
------------------------- -------
As at 31 March 2019 920
Charge for the year 852
------------------------- -------
As at 31 March 2020 1,772
------------------------- -------
Net book value
As at 31 March 2019 584
------------------------- -------
As at 31 March 2020 20,063
------------------------- -------
12. Investments
The net change in the value of investments for the year is a
decrease of GBP188,000 (2019: GBP21,589,000 increase).
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, investee company loans repaid and the direct
investment fair value movements.
GBP'000
---------------------------------------------------- --------
As at 1 April 2019 87,659
Investments made during the year 17,449
Investee company loan repayments (1,793)
Unrealised gains on the revaluation of investments 3,351
Unrealised losses on the revaluation of investments (19,195)
---------------------------------------------------- --------
As at 31 March 2020 87,471
---------------------------------------------------- --------
In accordance with the Group's accounting policy in respect of
direct investments, 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'.
13. Cash, cash equivalents and short-term liquidity
investments
As at As at
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------------- -------- --------
Cash at bank and in hand 24,438 25,210
--------------------------------------- -------- --------
Total cash and cash equivalents 24,438 25,210
--------------------------------------- -------- --------
Total short-term liquidity investments 6,215 5,188
--------------------------------------- -------- --------
Included within cash and cash equivalents is GBP467,000 (2019:
GBP629,000) of cash held on behalf of third-party EIS investors
which is not available for use by the Group.
14. Deferred consideration
As at As at
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------- -------- --------
Payable within one year 1,736 -
Payable within two to five years 4,446 -
--------------------------------- -------- --------
6,182 -
--------------------------------- -------- --------
On 23 December 2019 Mercia completed the acquisition of the VCT
fund management business of NVM Private Equity LLP for a total
maximum consideration of GBP25,000,000 comprising a combination of
cash and new Ordinary Mercia shares. The initial consideration was
GBP16,600,000, with deferred consideration of up to GBP8,400,000
also being payable, contingent upon certain conditions being
met.
The deferred consideration comprises GBP6,300,000 in cash,
payable in three equal instalments on the first, second and third
anniversaries of completion, provided that no termination notice
has been served by any of the Northern VCTs before each respective
anniversary payment date, and GBP2,100,000 payable in new Ordinary
Mercia shares. There are no indications to date that notice will be
given and so the fair value payable has been recognised, discounted
back to the acquisition date at a rate of 10%.
50% of the deferred consideration shares will be payable if the
Group has received at least GBP16,000,000 of fees in respect of the
Northern VCT fund management contracts in the three years post
completion. The remaining 50% of the deferred consideration shares
will be allotted and issued if, during the same three-year period,
the Northern VCTs collectively raise at least GBP60,000,000 in new
capital. If either or both of these conditions are met the number
of new Ordinary shares to be issued to satisfy the deferred share
consideration will be calculated based on the average of the daily
closing mid-market price for an Ordinary Mercia share, for each of
the five days immediately preceding the date of issue. The fair
value of this element of the deferred consideration has been based
on a weighted probability of outcomes over the three-year period
and discounted by 10%.
15. Deferred taxation
As at As at
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------- -------- --------
Recognition of deferred tax liability 3,812 109
-------------------------------------- -------- --------
Under IAS 12, 'Income Taxes', provision is made for the deferred
tax liability associated with the recognition of the intangible
asset arising on the acquisition of the VCT fund management
business of NVM Private Equity LLP. This has been recognised at 19%
of the fair value of the fund management contracts at acquisition
and is reassessed at each year end, with the movement being
recognised in the consolidated statement of comprehensive
income.
As at 31 March 2020 a deferred tax liability of GBP3,812,000
(2019: GBP109,000) has been recognised. Of this total, GBP3,758,000
is in respect of the intangible asset arising on the acquisition of
the VCT fund management business of NVM Private Equity LLP and
GBP54,000 is in respect of the remaining intangible asset arising
on the acquisition of Enterprise Ventures.
16. Issued share capital
As at 31 March 2020 As at 31 March 2019
--------------------- ---------------------
Number GBP'000 Number GBP'000
--------------------------------------- ------------ ------- ------------ -------
Allotted and fully paid
As at the beginning of the year 303,309,707 3 303,309,707 3
Issue of share capital during the year 136,800,000 1 - -
--------------------------------------- ------------ ------- ------------ -------
As at the end of the year 440,109,707 4 303,309,707 3
--------------------------------------- ------------ ------- ------------ -------
On 20 December 2019 120,000,000 new Ordinary shares of
GBP0.00001 each were issued at a price of 25.0 pence per share via
a placing which raised GBP30,000,000 (before share issue costs).
These new shares were admitted to trading on AIM on 23 December
2019.
On 23 December 2019 16,800,000 new Ordinary shares of GBP0.00001
each were issued at a price of 25.0 pence per share as part of the
initial consideration for the acquisition of the VCT fund
management business. These new shares were admitted to trading on
AIM on 27 December 2019.
Each Ordinary share is entitled to one vote and has equal rights
as to dividends. The Ordinary shares are not redeemable.
17. Share premium
As at As at
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------ -------- --------
As at the beginning of the year 49,324 49,324
Premium arising on the issue of Ordinary shares 34,199 -
Cost of share capital issued (1,879) -
------------------------------------------------ -------- --------
As at the end of the year 81,644 49,324
------------------------------------------------ -------- --------
The premium on the issue of Ordinary shares in the year arises
from the placing of 120,000,000 new Ordinary shares of GBP0.00001
each at a price of 25.0 pence on 20 December 2019 and 16,800,000
new Ordinary shares of GBP0.00001 each issued at a price of 25.0
pence on 23 December 2019 as part of the initial consideration for
the acquisition of the VCT fund management business of NVM Private
Equity LLP.
18. 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 consolidated 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 2020.
As at As at
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------------------- -------- --------
Assets:
Financial assets at fair value through profit or loss ("FVTPL")
Level 1 475 1,133
Level 2 - -
Level 3 86,996 86,526
------------------------------------------------------------------ -------- --------
87,471 87,659
---------------------------------------------------------------- -------- --------
As at As at
31 March 31 March
2020 2019
GBP'000 GBP'000
----------------------------------------------------------------- -------- --------
Liabilities:
Financial liabilities at amortised cost - deferred consideration
Level 1 - -
Level 2 - -
Level 3 6,182 -
------------------------------------------------------------------- -------- --------
6,182 -
----------------------------------------------------------------- -------- --------
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 2020, the Group had one direct investment listed
on AIM (Concepta); this has been classified in Level 1 and valued
at its bid price as at 31 March 2020.
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 in Level 1, all other investments held in the Group's
direct investment portfolio have been classified in Level 3 in the
fair value hierarchy and the individual valuations for each of the
companies have been arrived at using appropriate valuation
techniques.
Up until 31 March 2019, the Group classified investments
included in Level 3 under four valuation techniques, being 'price
of recent funding round', 'cost', 'enterprise value' and 'price of
recent funding round or cost adjusted for impairment'. From 1 April
2019, the Group has adopted the revised International Private
Equity and Venture Capital Valuation Guidelines in its valuation
techniques, which specify that the price of a recent investment
represents one of a number of inputs used to arrive at fair value,
and uses a single classification for all Level 3 investments.
Note 4 to this summary financial information provides further
information on the Group's valuation methodology, including a
detailed explanation of the valuation techniques used for Level 3
financial instruments.
19. Availability of Annual Report
The Annual Report of Mercia Asset Management PLC will be posted
to all shareholders on 31 July 2020. An electronic copy will also
be available on Mercia Asset Management PLC's website at
www.mercia.co.uk.
20. 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 2020 at 10.00 a.m.
Coronavirus ("COVID-19") Annual General Meeting implications
The Company is closely monitoring developments relating to
COVID-19. The UK Government has introduced measures and
recommendations to prevent the spread of COVID-19, including
restrictions on events with large numbers of attendees. These
measures and recommendations could change, including additional
measures being introduced in the future.
The Company's current intention is to proceed with the Annual
General Meeting at the time, date and place set out in this notice.
The Company will continue to monitor UK Government and NHS advice
and members will be notified in the event that the Company is
required to change its plans. In order that members can exercise
their rights whether or not they are able to attend the Annual
General Meeting in person, and as it is important that members cast
their votes at the Annual General Meeting, the Company strongly
encourages all members to appoint a proxy for all votes.
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 EAFXDFFXEEAA
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July 14, 2020 02:00 ET (06:00 GMT)
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