REG - Mercia Asset Mgt PLC - Preliminary Results
02/07/2024 07:15
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RNS Number : 6971U Mercia Asset Management PLC 02 July 2024
RNS 2 July 2024
Mercia Asset Management PLC
("Mercia" or the "Group" or the "Company")
Preliminary results for the year ended 31 March 2024
Record organic growth in assets under management
Proposed strategy evolution to focus on growth of managed funds
Mercia Asset Management PLC (AIM: MERC), the proactive regionally focused,
specialist alternative asset manager with c.£1.8billion of assets under
management ("AuM"), is pleased to announce its preliminary results for the
year ended 31 March 2024.
Set against another year of subdued inflows by the asset management sector,
Mercia achieved record fund inflows of c.£562million during the year and
increased revenues, EBITDA, adjusted operating profit, dividends and cash.
31 March 31 March
2024 2023
Statutory results
Revenue £30.4m £25.9m
Realised gain/(loss) on sale of direct investments £4.5m £(0.8)m
Fair value movement in direct investments £(17.3)m £1.2m
(Loss)/profit before taxation £(8.2)m £2.4m
Basic (loss)/earnings per share (1.71)p 0.64p
Interim dividend paid per share 0.35p 0.33p
Proposed final dividend per share(1) 0.55p 0.53p
Cash and cash equivalents £46.9m £37.8m
Net assets £189.2m £202.9m
Alternative performance measures
AuM (2) £1,818.8m £1,437.3m
EBITDA (3) £5.5m £5.2m
Adjusted operating profit (4) £9.7m £7.6m
Net assets per share 43.4p 45.4p
1 The proposed final dividend is subject to shareholder approval at the
Company's Annual General Meeting on 26 September 2024, and if approved, will
be paid on 1 November 2024 to shareholders on the register at the close of
business on 4 October 2024.
2 AuM is defined as the value of funds under management from which the
Group earns fund management revenues, plus the Group's consolidated net
assets.
3 EBITDA is defined as operating (loss)/profit before exceptional item,
depreciation, realised gains/(losses) on the sale of direct investments, fair
value movement in direct investments, share-based payments charge,
amortisation of intangible assets and movement in fair value of deferred
consideration.
4 Adjusted operating profit is defined as EBITDA plus net finance
income.
Managed fund movements
· Third-party funds under management ("FuM") increased by c.32% to
c.£1,630million (2023: c.£1,234million), with no redemptions
o Venture FuM of c.£913million (2023: c.£630million)
§ Three new British Business Bank ("BBB") fund mandates secured with
c.£263million to be invested across the West Midlands, Yorkshire and the
Humber regions
§ Additional allocations totalling £20.0million under the Northern
Powerhouse Investment Fund Equity and Midlands Engine Investment Fund Proof of
Concept mandates, with a further £15.7million allocated to the North East
Venture Capital fund mandate in the year
§ Shares totalling c.£49million allotted by the three Northern Venture
Capital Trusts ("VCTs") in the financial year, in addition to £2.7million of
shareholder dividend reinvestment inflows
§ Three Enterprise Investment Scheme ("EIS") funds closed in the financial
year, raising a total of £14.4million
§ c.£47million downward movement in FuM for the Northern Powerhouse
Investment Fund Equity and Midlands Engine Investment Fund Proof of Concept
which both transitioned from their investment phase to realisation phase
during the year.
o Debt FuM of c.£687million (2023 c.£556million)
§ Two new BBB fund mandates totalling £97.0million to be lent across the
West Midlands, Yorkshire and the Humber regions
§ Frontier Development Capital Limited ("FDC") awarded a £100.0million
Brownfield Regeneration Fund for the West Midlands
§ c.£65million downward movement in FuM as the Northern Powerhouse
Investment Fund Debt transitioned from its investment phase to realisation
phase in the year.
o Private equity FuM of c.£30million (2023: c.£48million)
§ c.£16million downward movement in FuM as the EV Growth Fund II
transitioned from its investment phase to realisation phase in the year.
Direct investment portfolio movements
· Direct investment portfolio fair value of £116.9million (2023:
£136.6million)
· Profitable sale of nDreams Limited ("nDreams") to Aonic AB ("Aonic")
for an enterprise value of £90.3million ($110million). Mercia held a 33.2%
direct stake in nDreams, resulting in a total consideration of £30.2million,
split between £26.4million in cash and a £3.8million investment in Aonic
Founder SCS. This exit resulted in a 2.7x return on invested capital and an
18.4% IRR
· £19.6million net invested into 11 portfolio companies (2023:
£20.7million net invested into 13 portfolio companies)
· £17.3million net fair value decrease in the portfolio during the
year (2023: £1.2million increase), largely resulting from the impairment of
the Group's direct investment in Impression Technologies Limited ("Impression
Technologies").
Future strategy and proposed reclassification as a trading company
· Mercia's intention is to now focus on its profitable and fast-growing
FuM
· The Board will propose a resolution at the 2024 Annual General
Meeting that Mercia reclassifies as a trading company and ceases to be an
investing company under the AIM Rules.
Post-period end developments
· The Northern VCTs allotted shares totalling c.£29million on 4 April
2024, concluding the second half of their £60.0million fundraise which closed
to investors on 13 March 2024
· c.£15million raised by Mercia's EIS Knowledge-intensive 2023/24 fund
at the start of April 2024
· On 29 May 2024, the Company completed the £5.0million share buyback
programme announced on 28 November 2023.
Mark Payton, Chief Executive Officer of Mercia, commented:
"The year to 31 March 2024 was characterised by market volatility, high
inflation and high interest rates driving up the costs of doing business,
alongside geopolitical uncertainty and a thankfully short-lived recession. It
is therefore pleasing to have come through these universal headwinds with
record organic growth in our assets under management, driven by Mercia's
diversified and differentiated approach to making a positive impact for our
investors and investees.
"Over the next three years as Mercia continues its natural evolution, and
subject to shareholders approving our proposed new investment approach, we
will seek to drive AuM to in excess of £3.0billion whilst doubling EBITDA,
focused on building value for shareholders and our other key stakeholders as a
growing and sustainable, specialist alternative asset manager."
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon publication of this
announcement, this inside information is now considered to be in the public
domain.
For further information, please contact:
Mercia Asset Management PLC +44 (0)330 223 1430
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial Officer
www.mercia.co.uk (http://www.mercia.co.uk/)
Canaccord Genuity Limited (NOMAD and Joint Broker) +44 (0)20 7523 8000
Simon Bridges, Emma Gabriel
Singer Capital Markets (Joint Broker) +44 (0)20 7496 3000
Charles Leigh-Pemberton
FTI Consulting +44 (0)20 3727 1051
Tom Blackwell, Jenny Boyd
mercia@fticonsulting.com (mailto:mercia@fticonsulting.com)
Analyst briefing
An analyst webcast will be given by Dr Mark Payton, Chief Executive Officer
and Martin Glanfield, Chief Financial Officer at 9:30am on the day of the
results. Analysts wishing to register are asked to contact
mercia@fticonsulting.com (mailto:mercia@fticonsulting.com) . An audio webcast
of this briefing will subsequently be available later in the day via Mercia's
website.
Investor presentation
Mercia will also provide a live management presentation and Q&A via the
Investor Meet Company ("IMC") platform at 3.00pm on the same day. Registration
details for the online investor presentation can be accessed via:
https://www.investormeetcompany.com/mercia-asset-management-plc/register
(https://www.investormeetcompany.com/mercia-asset-management-plc/register)
About Mercia Asset Management PLC
Mercia is a proactive, specialist alternative asset manager focused on
supporting regional SMEs to achieve their growth aspirations. Mercia provides
capital across its four asset classes of venture, debt, private equity and
proprietary capital: the Group's 'Complete Connected Capital'.
The Group has a strong UK footprint through its regional offices, university
partnerships and extensive personal networks, providing it with access to
high-quality deal flow.
Mercia Asset Management PLC is quoted on AIM with the EPIC "MERC".
Non-Executive Chair's statement
Natural evolution
Throughout the year under review, Mercia has continued to mature and advance.
In spite of the global and domestic market backdrop, across our equity
investing and lending asset classes, the Group achieved record fund inflows of
c.£562million during the year, taking our total assets under management to
c.£1.8billion, almost double where we were three years ago.
In 2022, we welcomed Frontier Development Capital Limited into our Group.
Mercia's third acquisition since its Initial Public Offering ("IPO") in 2014,
FDC comprises an excellent, well-run team, with strong investor and lending
relationships. FDC continues to perform well and we were all particularly
pleased to see them be awarded their first British Business Bank ("BBB") debt
mandate in February this year.
Board focus
Good governance is fundamental to the long-term success of any company, as
well as maintaining a close watch on the horizon and evolving market dynamics.
Since our early days as a public company, we have always recognised the
importance of covering our total cost base with our revenues, thereby
preventing annual shareholder value erosion and excessive cash burn. This has
led to our increasing focus on growing the high quality, recurring revenues of
our profitable fund management operations - both organically and by
acquisition. During this final year of 'Mercia 20:20', in conjunction with
external advisers, the Board spent a considerable amount of time focusing on
the Company's most appropriate future direction of travel.
Proposed reclassification as a trading company
When Mercia was admitted to trading on the AIM Market of the London Stock
Exchange ("AIM") in December 2014, it was established as a proactive,
specialist asset manager focused on supporting regional small and medium-sized
enterprises ("SMEs"), to achieve their growth aspirations. As such, under the
AIM Rules, Mercia was treated as an investing company. At that time, Mercia's
net assets were c.£81million, considerably greater than its c.£23million of
third-party funds under management ("FuM").
Since its admission to AIM, the Company has successfully grown both its
balance sheet and its FuM. As at 31 March 2024, Mercia had 22 direct
investments fair valued at £116.9million, net assets of £189.2million and
had grown its FuM to c.£1.6billion. FuM now dwarf net assets, the largest
component of which is the direct investment portfolio.
As the Board looks to the future, and refreshes its three-year strategic plan,
Mercia's intention is to focus much more on our profitable and fast-growing
FuM. Our intention therefore is no longer to make new direct investments from
our balance sheet. We will continue to support our existing direct
investments, but anticipate that their number will reduce as these investments
are realised.
In considering these proposed changes, we believe it is more appropriate to
characterise Mercia as a trading business, whose principal business operation
is one of asset management. If held for more than two years, the shares of
most trading companies on AIM may currently be inheritance tax exempt. As
such, at the Annual General Meeting ("AGM") on 26 September 2024, we will be
proposing a resolution that the Company ceases to be an investing company
under the AIM Rules.
As a Board, we unanimously believe that our proposed new strategic direction
is the right one for all of our stakeholders, be they our many longstanding
fund investors, our Venture Capital Trusts, our employees and, critically, our
shareholders.
If the resolution is approved by our shareholders in September 2024, Mercia's
new twin strategic objectives will be to increase AuM to in excess of
£3.0billion whilst doubling EBITDA during the next three years to 31 March
2027.
Shareholder returns - dividends and share buyback
As part of our strategy to create value for shareholders, we have a strong
desire to make cash returns to shareholders, funded from both our trading
activities and direct investment realisations. We adopted our progressive
dividend policy in December 2020, when the Group declared its maiden interim
dividend of 0.10 pence per share. Since then, Mercia's continued progress has
merited measured increases in both the interim and final dividends. Last
December, the Group paid an interim dividend of 0.35 pence per share and is
now recommending a final dividend of 0.55 pence per share, representing a
total dividend of 0.90 pence per share for the full year (2023: 0.86 pence per
share), a c.5% increase on the prior year. Given the overall strength of
Mercia's business model and its excellent cash position, the Board's objective
remains to maintain this progressive policy.
Following the successful exit from nDreams Limited ("nDreams") in November
2023, we announced a £5.0million share buyback. This buyback concluded in May
2024 and resulted in 15.7million shares being bought back into Treasury, at an
average purchase price of 31.8 pence per share.
Taken together (and assuming that the proposed final dividend is approved by
shareholders at this year's AGM), Mercia will have returned c.£18million in
cash to shareholders since March 2020.
'Mercia 20:20'
Mercia's year to 31 March 2024 demonstrated the variability of venture
investing, from the very successful and profitable sale of the Group's direct
investment in nDreams for £30.2million (of which £26.4million was received
in cash), to the difficult decision in May 2024 to cease further material
investment into Impression Technologies Limited.
Across the three-year period, our many business activities have contributed to
Mercia comfortably exceeding its three-year 'Mercia 20:20' growth in AuM
target, whilst missing its three-year profit before tax target. It is these
experiences, together with feedback from our shareholders, which have helped
shape our thinking in terms of Mercia's proposed future direction.
Governance
Our commitment to the governance principles of the Quoted Companies Alliance
("QCA") Corporate Governance Code remains resolute and we have recently
adopted the new QCA Code. Governance codes aside, our Directors have always
regarded integrity and transparency as fundamental cornerstones to the way in
which we do business. Succession planning is also an essential element of good
governance and this is kept under review by our Nominations Committee.
At this year's AGM, having reached 78 years of age, our co-founder, first
Chair and, together with family trusts, Mercia's largest overall shareholder
group, Ray Chamberlain has decided to retire from our Board. Ray has been a
serial and successful entrepreneur over many decades. In 2010, it was Ray who
backed Mark Payton's fund management MBO and whose family trusts provided the
follow-on capital thereafter to the most promising fund investees. This was
the genesis of what became Mercia's 'funds-first' hybrid investment model.
Ray's measured and thoughtful Board contributions over the last 10 years,
together with his unwavering long-term support, have provided the time and
stability from which all businesses benefit. I would also like to thank him
personally for his wise counsel during my time as Chair. We will all miss
Ray's enthusiasm for venture investing and his support for young, regionally
based technology-led businesses, such as Warwick Acoustics Limited. We are
confident that Ray will remain a strong supporter of our Group, including our
proposed new strategic direction.
With our Board currently comprising five Non-executive Directors and three
Executive Directors, we do not feel that it is necessary to add an additional
Non-executive Director once Ray steps down at our AGM in September 2024. Our
Nominations Committee will of course keep the Board's composition and balance
of skills and experience under review.
At the operating level, we appointed Jocelyne Bath during the year as our new
Chief Operating Officer, and more recently appointed our first full-time heads
of Environmental, Social and Governance ("ESG") and Information
Systems/Information Technology ("IS/IT"), both reporting to Jocelyne. We
remain as committed as ever to all three principles of ESG, including
continuing to measure and offset our relatively small environmental impact,
and promoting further diversity, equity and inclusion throughout Mercia, our
investment committees and investee portfolio companies. Based upon our
investment experience, diverse teams make good teams. The appointment of a
dedicated IS/IT manager is an investment in our internal capabilities, so as
to increase our efficiency as we continue to scale.
Maintaining good stakeholder relationships also remains critical to our future
success, as does continuing to meet the investment objectives agreed with our
many asset class fund investors. During the year, we have also continued to
focus on our relationship with each of the three Northern VCT boards.
Proactive engagement with all of our stakeholder groups remains particularly
important to our Board and I am always pleased to meet and engage with
shareholders. In recent months, Diane Seymour-Williams, our Senior Independent
Director and Remuneration Committee Chair, has also been in contact with our
leading shareholders in connection with the one-year extension of the
Executive Director's Long-Term Incentive Plan. We will, as last year, hold our
forthcoming AGM in London - this year at Rothschild & Co's offices. I and
my fellow Board members look forward to engaging with our stakeholders during
the current financial year.
Responsible investing and culture
For Mercia, responsible investing with a clear purpose, a positive company
culture and strong teamwork have always gone hand-in-hand. We always seek to
invest to make a return for our investors, but we also aim to do so in a
manner which treats with respect all of our stakeholders, and the environment
in which we operate.
One recent example of this culture and shared purpose was the significant
effort put into the BBB tenders by many staff across all parts of our
business. They worked tirelessly over many months, often at unsociable hours.
Their exceptional efforts, in conjunction with the Group's investment track
record, resulted in the BBB awarding our Group five new fund management
mandates totalling £360.0million. 'Leaning in' to help others, be it
internally or externally, is what defines a #OneMercia employee. We are hugely
grateful to the BBB for the vote of confidence placed in us and we are really
excited to have won these new and significant regional equity and debt
mandates across the Midlands, Yorkshire and the Humber. We have already built
new deal pipelines for all five mandates and completed both equity and debt
transactions.
The office working environment post COVID continues to evolve and we are
constantly looking at how best to combine employee well-being and support with
the collaboration, career development and training that is vital in remaining
a successful, specialist alternative asset manager. We do this through
proactive engagement with our staff, whilst actively monitoring trends across
the asset management sector. In everything that we do and say, we seek to be a
valuable and well-respected citizen in the many communities in which we are
based and whom we serve.
Looking forward
Finishing where I started, we continue to live in uncertain times. Whilst the
political and economic backdrop creates investment returns uncertainty, it
also creates opportunities for those with the liquidity, local deal flow
networks and investment experience to make good equity investment and lending
decisions, whilst proactively managing and realising investment returns from
existing portfolios.
The Group's future growth is likely to be driven by a structural shift in
investor allocations and Mercia, with its strong capital base, regional
presence and investment track record, is well positioned to benefit from this
emerging trend. Our profitable SME lending operations have also now grown to
FuM of £687.0million, demonstrating our broader investment skills, investor
base and reach across the UK. Coupled with our financial discipline and
resilient capital and liquidity base, Mercia is in a strong position to
support initiatives such as the Mansion House Compact, and we look forward to
reporting further progress in due course.
I remain immensely proud to be Chair and part of #OneMercia, a community which
works together every day to fulfil our purpose, our investment mandates and
our strategic objectives. On behalf of our Board, I sincerely thank each and
every person connected with our Group for your continuing support.
Ian R Metcalfe OBE
Non-executive Chair
Chief Executive Officer's Review
Powering growth
Overview
The year to 31 March 2024 was characterised by market volatility, high
inflation and high interest rates driving up the costs of doing business,
alongside geopolitical uncertainty and a thankfully short-lived recession. It
is therefore pleasing to have come through these universal headwinds with
record organic growth in our assets under management, driven by Mercia's
diversified and differentiated approach to making a positive impact for our
investors and investees.
Since our IPO in 2014, Mercia has naturally evolved into a specialist
alternative asset manager, focusing on impactful investing throughout the UK,
sourced via our established local relationships, extensive non-executive
director ("NED") and entrepreneurial networks, and one of the UK's largest
venture capital and SME lending footprints across our 11 offices. Our capital
is long term in nature and not subject to redemptions, enabling us to both
equity invest and lend capital consistently through market cycles. Our retail
capital is raised exclusively via EIS and VCTs - tax-efficient structures
designed to mitigate the market challenges of low levels of capital
availability in early-stage venture investment. We predominantly manage public
sector capital on behalf of the British Business Bank, to help business owners
access funding outside of London. Additionally, our institutional capital is
mainly raised from regional pension funds which aim to support regional
businesses from their impact allocations. Where others have faced challenges,
we have delivered commercial returns that meet the specific impact
requirements of our fund investors. This successful strategy and resulting
capital returns have been the primary drivers behind this year's significant
organic inflows.
Performance
For our financial year to 31 March 2024, we achieved revenues of £30.4million
(2023: £25.9million) and EBITDA of £5.5million (2023: £5.2million). We
closed the financial year with £46.9million (2023: £37.8million) cash on
hand, no debt and assets under management of c.£1.8billion (2023:
c.£1.4billion), up c.27% overall, exclusively driven by organic growth in the
year. As at 31 March 2024, we had completed c.64% of the £5.0million share
buyback and are pleased to recommend a proposed final dividend of 0.55 pence
per share (2023: 0.53 pence per share) which, if approved by shareholders,
will take the full-year dividend to 0.90 pence per share, a year-on-year
increase of c.5%.
In December 2022, we welcomed FDC into our Group. The company continues to
perform well, securing their first BBB fund mandate in February 2024, being
the £44.0million Midlands Engine Investment Fund II debt mandate for the West
Midlands. The acquisition of FDC has also marked the beginning of our
deliberate shift towards adjacent asset classes to venture capital.
Mercia's direct investment portfolio was fair valued at £116.9million as at
31 March 2024 (2023: £136.6million), with the highlight during the year being
the sale of nDreams Limited for £30.2million in total, with £26.4million in
cash returned back to the balance sheet and a £4.5million realised gain. The
overall results were impacted, however, by the post-year end decision to cease
further material funding for Impression Technologies Limited and we therefore
fully impaired our investment fair value as at 31 March 2024. This was an
extremely tough decision to make as we have supported the business since 2014
via our funds and since 2015 from our balance sheet, because its novel HFQ®
technology works and it had a cornerstone customer. Ultimately however, after
10 years of investment support, its licensing revenue model was unable to
reach critical mass and profitability. Two separate sale processes either side
of last Christmas both generated firm interest in the business, but ultimately
no sale transaction occurred.
'Mercia 20:20' outturn
This financial year also brings to an end our three-year 'Mercia 20:20'
strategic plan, with AuM growing over the period by c.94%, driven by
£415.0million of acquired third-party FuM with the purchase of FDC in
December 2022, and c.£464million via organic growth.
'Mercia 20:20' focused on both sides of our hybrid investment model, firstly
seeking ambitious growth in total AuM of 20% on average per annum from
c.£940million to a three-year target of c.£1.6billion and secondly,
delivering three-year cumulative profit before tax ("PBT") of £60.0million.
Despite the tough economic and new fund-raising backdrop, we managed to grow
AuM to c.£1.8billion, beating that three-year target. We did not reach the
cumulative PBT target of £60.0million, predominantly due to fewer upward fair
value movements, the full impairment of our investment in Impression
Technologies and fewer profitable realisations from the direct investment
portfolio and instead delivered £21.6million, although cash realisations
during the three-year period did total c.£47million.
During the year as a regionally focused investor, we invested c.£247million
(2023: c.£165million) from our third-party funds and balance sheet, with over
90% allocated outside of London. During the same period, we generated
c.£93million of returns across both equity and debt asset classes. Over the
'Mercia 20:20' period, we realised returns of c.£0.4billion. There has been a
consistent theme throughout this three-year period; over 90% of the capital
invested, the portfolio companies managed and the returns generated (both
equity and debt) were spread widely across the UK, excluding London.
New investment focus and impact
In our interim results announcement in November 2023, I said that we would
take a more cautionary approach to direct investing from our balance sheet
capital and reflecting this caution, we would pause adding new companies to
our direct investment portfolio.
Following Mercia's interim results announcement, we conducted an in-depth
review to determine our next three-year strategy, in conjunction with support
from external advisers. Consistent with our Board's own conclusions, all
advisers were firmly aligned with management's belief that Mercia's next phase
should focus on growing our profitable FuM, with cash proceeds from direct
investment portfolio exits being used to wholly/partly fund inorganic FuM
growth, instead of investing into any new direct investments. Existing direct
investments will continue to be fully supported in line with our current
approach.
We now transition to 'Mercia 27: 100% growth'. Over the next three years as
Mercia continues its natural evolution (and subject to shareholders approving
our proposed new investment approach as set out in Ian Metcalfe's Chair
statement), we will seek to drive AuM to in excess of £3.0billion whilst
doubling EBITDA, focused on building value for shareholders and our other key
stakeholders as a growing and sustainable, specialist alternative asset
manager. During this new three-year period, we will focus on investing in our
people and platforms to build a scalable, efficient and sustainable long-term
Group.
Mercia has come a long way since it was established in 2010, starting with
three employees, one office and c.£12million in third-party FuM. Today, we
have built a leading national specialist, alternative asset management
operation characterised by strong organic inflows, robust funds' performance,
the high quality of our team and our ability to source a significant number of
interesting investments that, over time, lead to investment returns that meet
our fund investors' expectations.
Mercia's 'capital-light' investment philosophy was designed to minimise risks
throughout the investment journey - from sourcing to capital return. For
example, Mercia Ventures, which represents c.50% of Mercia's AuM, focuses on
building diverse investment portfolios by sector, geographic location,
business stage and by utilising our proprietary value-creation support. As
most of Mercia's venture investments yield returns through trade sales ranging
from £10.0million to £200.0million, we predominantly target young businesses
with relatively modest capital needs. This focus ensures that even if
syndicate venture capital availability decreases, as is currently the case, we
can continue to support viable businesses using our own substantial funds.
Talent and culture
Our #OneMercia team has grown this year alongside the increase in our
third-party FuM, with average staff numbers across the year increasing to 138
(2023: 116). This measured expansion reflects our commitment to investing in
top-quality equity investment and lending talent, as well as operational
support expertise. Direct share and share option ownership is widespread
throughout Mercia, directly aligning the interests of employees and the Board
with shareholders. According to a recent internal staff survey, 89% of staff
would recommend Mercia as a great place to work. We remain committed to
enhancing diversity, equity and inclusion throughout the Group, undertaking
specific steps to achieve this goal through our participation in the Women in
Finance Charter and the Investing in Women Code.
Outlook
Subject to shareholder approval at our Annual General Meeting in September
2024, the next three years sets Mercia on an evolutionary path towards
becoming a leading UK specialist alternative asset manager, focused on
impactful capital deployment of third-party FuM in our target markets. I have
always firmly believed that our long-term success depends on diversification
and cash returns, rather than unrealised fair value movements. Having returned
c.£0.4billion across all of our asset classes during 'Mercia 20:20', we have
demonstrated our ability to both source and exit well - generating cash
returns for our fund investors and shareholders. It is this cash-on-cash
performance that has enabled Mercia to achieve record organic inflows during
the financial year.
We believe that the ambitious goal of 100% EBITDA growth over the next three
years, whilst making continued progress with our progressive dividend policy,
provides a clear framework for shareholder value creation. The world faces
continued volatility driven by political change, geopolitical challenges and
caution across both public and private markets. Amidst this, initiatives such
as the Mansion House Compact and an increasing focus by investors on domestic
deployment, coupled with our continued investment performance as a specialist
alternative asset manager, puts Mercia in a strong position as investors shift
capital allocations toward impact investing and private markets.
Our differentiation is one of being close to deal origination, made possible
by our physical presence near to or in all major areas of the UK through our
11 offices. On tracking our own performance returns, we see no difference in
the level and quality of returns comparing our portfolio companies in London
to our broader portfolio across the UK's regions. As we advance our journey to
scale, we will harness our local knowledge and presence to expand into
adjacent asset classes and sustain our resilient financial performance.
Mercia's alignment with our fund investors' core values and beliefs, delivered
by our exceptional team of talented individuals developed over our 14-year
history, affirms our proven formula of investment returns and FuM growth. We
are committed to providing impactful capital and support based on meritocracy,
not geography.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Powering forward
Assessing market dynamics
In our November 2023 interim report, I discussed prevailing market conditions
and importantly, Mercia's strategic response. I noted: "...we have advised our
investees to remain focused on their strategies, bolstered by adequate cash
reserves and our disciplined support, to concentrate on the controllable
elements and run their businesses efficiently." This focus has served our
portfolios well throughout the year.
Dedicated long-term efforts from our talented equity and lending teams
In a year of market volatility and economic uncertainties, Mercia achieved a
record organic increase in funds under management with fund inflows exceeding
£0.5billion. This substantial growth in FuM, without any redemptions,
underlines the trust that investors place in our financial stewardship and is
testament to our teams' sustained commitment, capital deployment and
disciplined approach to adding value to our investees and the communities in
which we operate.
1 April Transition to realisation phase Inflows Performance Distributions 31 March Post-year
2023 2024 end inflows
Asset class £'m £'m £'m £'m £'m £'m £'m
Venture 630 (47) 365 (9) (26) 913 44
Debt 556 (65) 197 4 (5) 687 -
Private equity 48 (16) - - (2) 30 -
Total FuM 1,234 (128) 562 (5) (33) 1,630 44
Proprietary capital 203 - - (10) (4) 189 -
Total AuM 1,437 (128) 562 (15) (37) 1,819 44
Liquidity Liquidity
31 March 31 March
2024 2023
Asset class £'m £'m
Venture 404 161
Debt 262 166
Private equity - 13
Total FuM 666 340
Proprietary capital 47 38
Total AuM 713 378
Significant contributions from five new British Business Bank ("BBB") mandates
A considerable proportion of this year's FuM inflows came from existing
strategic partnerships, principally with the BBB. This long-term collaboration
resulted in £360.0million of new regional mandates, awarded in February and
March 2024:
In February 2024:
· Midlands Engine Investment Fund ("MEIF") II - Equity ESEM:
£83.0million allocated for investments in the East Midlands and South East
Midlands;
· MEIF II - Equity WM: £80.0million allocated for investments in the
West Midlands; and
· MEIF II - Debt WM: £44.0million allocated for lending in the West
Midlands, managed by Frontier Development Capital Limited ("FDC").
In March 2024:
· Northern Powerhouse Investment Fund ("NPIF") II - Equity YH:
£100.0million allocated for investments in Yorkshire and the Humber; and
· NPIF II - Debt YH: £53.0million allocated for lending in Yorkshire
and the Humber.
Second generation BBB funds First generation BBB funds
Original fund size Mercia mandates awarded Original fund size Mercia mandates awarded Final fund size Mercia mandate
Fund £'m £'m % £'m £'m % £'m £'m %
NPIF YH Equity 100 15.2% 57 14.3% 122 24.4%
NPIF YH Debt 53 8.0% 50 12.5% 92 18.4%
660 153 23.2% 400 107 26.8% 500 214 42.8%
MEIF Equity POC 163 40.8% 23 9.2% 54 18.0%
MEIF Debt 44 11.0% - - - -
400 207 51.8% 250 23 9.2% 300 54 18.0%
Total 1,060 360 34.0% 650 130 20.0% 800 268 33.5%
As can be seen from the table above, Mercia has increased its initial share of
the key Northern Powerhouse and Midlands Engine mandates from c.20% in 2017
via the previous mandate awards, to c.34% and in size from c.£130million to
c.£360million. In the first generation NPIF YH and MEIF Proof of Concept
("POC") mandates, Mercia's mandate sizes more than doubled (c.£138million)
during the funds' five-year investment phase.
The new recent commitments have increased Mercia's total mandates from the BBB
to c.£0.5billion, net of the valuation methodology change (from mandate size
to fund net asset value), now that the 2017 NPIF YH Equity and Debt and MEIF
POC mandates have moved into their realisation phase.
Other fundraising successes
Our EIS and VCT teams also successfully raised substantial new funds. The
Northern VCTs' successful £60.0million fundraise was significant in the
context of a more challenging fundraising environment. This fundraise
underscores the trust Mercia has built in managing the Northern VCTs, which
remain a vital catalyst for growth, empowering businesses to thrive across the
UK, even in challenging times.
Our EIS team raised c.£14million during the financial year, growing market
share against a much softer fundraising environment. Additionally, during the
financial year we were awarded a further c.£16million in capital from the
North East Venture Fund ("NEVF").
Since 31 March 2024, c.£15million has been successfully raised by our EIS
team, as well as shares totalling £29.2million in value being allotted by the
Northern VCTs on 4 April 2024, as part of the second half of their
£60.0million fundraise.
Achievements of Frontier Development Capital
FDC continued to perform in line with the Group's expectations and has now
achieved another of its two-year contingent deferred consideration targets,
eight months early, with the addition of £100.0million in FuM via a new
Brownfield Regeneration Fund for the West Midlands.
These new inflows have significantly increased our financial dry powder and at
the year end, we had c.£713million (2023: c.£378million) of liquidity across
all our funds and balance sheet, c.£157million (2023: c.£128million) of
which sits within FDC's debt funds.
Direct investments: current standing and market dynamics
The downward re-rating of listed technology companies which began in 2022
persisted into 2023, reducing appetite for venture investment from private
market funds. This continued to impact valuations as new funding rounds became
more challenging to close, with new money either 'sitting on the fence' or
negotiating advantageous terms. The impact of this was particularly felt by
those existing investors who were unable to follow their money. Mercia,
largely protected by significant liquidity, has navigated these challenges by
selectively supporting portfolio companies through co-investment from across
our funds. This strategy was evidenced by the substantial capital raises
completed by Warwick Acoustics Limited ("Warwick Acoustics"), Tozaro Limited
(formerly MIP Discovery Limited) and Locate Bio Limited ("Locate Bio") early
in 2024, ensuring operational stability for each investee for approximately 24
months.
The table below lists Mercia's top 20 investments by fair value as at 31 March
2024, including the net cash invested, realisation proceeds, realised gain,
fair value movements and the fully diluted equity percentage held.
Year of Net Net cash Investment Realised gain Fair value Net
first investment invested realisations year to movement investment Percentage
direct investment value as at year to year to 31 March year to value as at held as at
1 April
31 March
31 March
2023
2024 31 March 31 March 31 March
2024 2024
£'000
£'000 2024 2024 2024
£'000 £'000
£'000 £'000 %
Voxpopme Ltd 2018 11,015 861 - - 3,973 15,849 20.4
Netacea Group Ltd 2022 11,693 2,696 - - 272 14,661 34.2
Warwick Acoustics Ltd 2014 9,695 2,011 - - 228 11,934 37.3
Medherant Ltd 2016 10,934 - - - - 10,934 33.3
VirtTrade Ltd * 2015 10,082 2,080 - - (1,939) 10,223 61.4
Invincibles Studio Ltd 2015 8,697 - - - (130) 8,567 35.5
Locate Bio Ltd 2018 4,858 2,500 - - 479 7,837 20.1
Eyoto Group Ltd 2017 5,487 3,977 - - (2,322) 7,142 24.7
Ton UK Ltd ** 2015 5,382 746 - - 481 6,609 40.4
Aonic Founder SCS 2023 - - 3,784 - - 3,784 0.0
Axis Spine Technologies Ltd 2022 3,000 - - - - 3,000 9.4
Tozaro Ltd *** 2020 1,449 1,205 - - 80 2,734 11.9
Pimberly Ltd 2021 1,375 - - - 1,237 2,612 4.9
sureCore Ltd 2016 2,417 - - - (1) 2,416 22.0
Forensic Analytics Ltd 2021 1,750 - - - 514 2,264 7.4
Nova Pangaea (Holdings) Ltd 2022 2,250 - - - - 2,250 0.0
MyHealthChecked PLC 2016 969 - - - (187) 782 13.1
Uniphy Ltd 2022 550 40 - - 137 727 3.9
Artesian Solutions Ltd 2023 - 63 - - 476 539 0.8
Sherlock Biosciences Inc 2023 347 - - - (7) 340 0.3
nDreams Ltd 2014 25,761 - (30,211) 4,450 - - 0.0
Impression Technologies Ltd 2015 15,260 3,298 - - (18,558) - 65.1
Other direct investments n/a 3,579 149 - - (2,071) 1,657 n/a
Total 136,550 19,626 (26,427) 4,450 (17,338) 116,861 n/a
* Trading as Avid Games
** Trading as Intelligent Positioning
*** Formerly MIP Discovery Limited, prior to a change in registered name to
Tozaro Limited in June 2024
As at 31 March 2024, the fair value of our direct investment portfolio was
£116.9million (2023: £136.6million), with a net £19.6million invested
during the year. As a whole, the year saw positive fair value movements of
£7.9million across 10 assets offset by downward movements of £25.2million on
eight assets, giving a net fair value decrease of £17.3million.
Significant upward movements in Voxpopme Limited, resulting from the
structuring of April 2023's funding round, and Pimberly Limited, alongside
smaller uplifts in the software businesses Forensic Analytics Limited
("Forensic Analytics") and Intelligent Positioning Limited, were offset
principally by Impression Technologies, Eyoto Limited ("Eyoto"), VirtTrade
Limited ("VirtTrade") and Akamis Bio Limited ("Akamis Bio").
Investment discipline, support and strategy
Having supported Impression Technologies for a decade in both our funds and
balance sheet, at the end of May 2024 we made the very difficult decision to
cease further material financial support. Mercia had reduced its direct
investment carrying value for Impression Technologies at the time of its
interim results, reflecting increased uncertainty following a sale process
which did not ultimately succeed. Since that time, as announced, Impression
Technologies had continued to explore options including further funding or a
sale. Ultimately however, no successful new external funding or a sale of
Impression Technologies was achieved. Mercia therefore reduced the full
remaining carrying value of Impression Technologies.
Eyoto, in consultation with the US Food and Drug Administration ("FDA") for
its slit lamp product approval, now faces delays due to additional trials, so
has shifted its focus to Europe where approval is already secured. Whilst we
continue to provide financial and operational support, we have recognised this
setback through a reduction in the carrying value of our investment. VirtTrade
has experienced slower growth than planned in its CUE game, also reducing its
enterprise value as industry multiples have stagnated. Akamis Bio, now
included outside of the top 20, predominantly accounts for the remainder of
the downward movement following an indicative funding round which
significantly reduces the value of Mercia's minority equity holding.
Cybersecurity firms like Forensic Analytics, which support UK police
investigations and Netacea Limited, specialising in automated attack detection
and mitigation, are making commercial progress as they adapt to and counter
rising AI-related threats. Meanwhile, in the Life Sciences sector, promising
developments continue. Medherant's innovative testosterone patch for
menopausal women is moving forward. The company has also signed a development
partnership with Bayer. Locate Bio, benefiting from a £9.0million investment
in early 2024, is showing success in its early clinical trials. Additionally,
Warwick Acoustics has broken new ground, securing its first automotive
contract for production in 2025 and is progressing multiple proof of concept
projects with leading automotive OEMs.
In the year, we paused on adding new companies to our direct investment
portfolio, whilst also ensuring that we retain capacity to continue supporting
our existing portfolio companies on their journey to exit across the next
three years.
Progress through strategic sales
The notable sale of nDreams in November 2023, having transacted at a 17.3%
uplift to the 31 March 2023 carrying value, returned £26.4million of cash to
the Group's balance sheet. This transaction not only returned substantial cash
but also allowed us to maintain a direct interest in the ongoing development
of nDreams and the augmented reality ("AR")/Virtual Reality ("VR") market,
with £3.8million of the £30.2million total consideration invested into the
pan-European Aonic group. This sale was just one of the realisation events in
the year that contributed to total realisation proceeds of c.£93million
across our funds and balance sheet.
Investment overview - managed funds
During the year we invested c.£227million (2023: c.£144million) across the
funds which we manage, into 155 businesses including 75 new companies.
FuM
31 March Companies Amount Company
2024 in portfolio invested exits
Asset class £'m No. £'m No.
EIS 99 81 28 4
Regional venture 458 89 37 10
VCT 356 58 45 4
Debt 687 287 116 26
Private equity 30 5 1 2
Totals 1,630 520 227 46
Mercia Ventures
Strengthening our position as one of the UK's most active investors
Mercia Ventures has reinforced its position as one of the leading venture
capital firms in the UK. The basis of our success over the past year has been
our ability to secure and expand the regional investment mandates from the
BBB, additional NEVF funds plus new funds raised by our Northern VCTs and the
EIS team. With record levels of capital raised by UK VCT and EIS managers in
previous years, we noted that entry valuations in the pre-series A space
remained competitive throughout the year. At Mercia, we leverage our
predominantly regionally based investment staff to source new deals and
maintain a competitive edge against other funders. Our network of over 1,000
successful NEDs and proven entrepreneurs provide good quality deal flow and
critical insight, which is helpful in winning mandates in competitive
situations.
Early-stage investment
Geographically positioned to secure top-tier, early-stage venture deals across
the regions, the new BBB mandates permit a wide range of funding solutions
that include 'cash out' components for high-growth businesses across the UK
regions. These mandates provide a secure pool of capital for early-stage
investments over the next five years across these regions. Our focus on both
capital deployment and value creation enables us to attract businesses seeking
a sustained partnership across multiple funding rounds. We aim to build a
balanced portfolio for our investors that range from start-ups, including
management breakouts such as Fourteen IP Limited and Secure Empty Property
Limited, to businesses experiencing profitable growth phases, such as Azzure
IT Limited. We also focus on generating returns for our EIS investors by
investing in early and expansion-stage businesses like Sheffield-based Sitehop
Limited and Liverpool-based Ulemco Limited, across the UK.
Our Early Stage Venture ("ESV") team deployed c.£65million during the year,
c.120% of target, highlighting an outstanding team effort given that it marks
the first year of operations for ESV within Mercia Ventures. Furthermore, this
was achieved in a year of transition with the ending of the five-year
investment period of the first-generation BBB regional funds, and the
beginning of the five-year investment period for the second-generation
programme.
Scaleup investment
In companies seeking later-stage venture capital, we invested c.£45million on
behalf of the Northern VCTs. Given the economic uncertainties, our team
maintained a cautious approach to new investments, emphasising disciplined
entry pricing. From a fundraising perspective, the Northern VCTs raised
£60.0million, matching the largest fundraise ever by the Northern VCTs, with
shares allotted in December 2023 and April 2024.
During the year, we also enhanced our investee partnership model, known as
Nucleus, which focuses on four key areas; talent acquisition, specialist
expertise introduction, growth partnership and expertise sharing across our
portfolio. In doing so, our focus remains on portfolio performance and value
creation. The successful Evotix Limited exit (£35.7million at a 4.6x return)
by the Northern VCTs, demonstrates Mercia's ability to foster significant
returns on later-stage investments.
Mercia Debt
Supporting the UK's small business community amidst economic shifts
The past 12 months have posed significant challenges for small businesses
across the UK. Although the COVID pandemic has subsided, its lingering effects
are still being felt, with many businesses grappling with high levels of debt,
high interest rates and cost inflation.
Demand for growth capital has been subdued, with the majority of businesses
focusing on internal challenges such as debt reduction, margin improvement and
overhead cuts rather than on growth or acquisitions. Many funding requests are
now to support cash flow or working capital as opposed to expansion projects.
These challenges are further compounded as traditional lenders continue to
consolidate their centralised models, including the closure by banks of high
street branches and an increased aversion to SMEs and more generally, risk.
Mercia is very active in providing transactional debt such as for management
buyouts and acquisitions. During the pandemic many of these transactions were
paused, however in 2023 we experienced a strong inflow of new lending
opportunities as a wave of pent-up deals finally came to market. More
latterly, deal flow has returned to more 'normal' levels and although
businesses remain focused on internal challenges, there will always be a level
of exits driven by retiring shareholders or other events.
Mercia's Debt funds have consistently filled the funding gap for viable
businesses across the UK. During the last financial year, our response to
market conditions and support for companies with strong financial controls and
sustainable business models have solidified our position. Despite a
challenging environment, our Northern Debt team completed 50 deals, a decrease
from the 82 deals in 2023, with total lending down to £17.3million from
£34.1million. This reduction not only reflects a reduced demand from SMEs but
also a more cautious lending approach. It also coincides with the transition
from NPIF to NPIF II at the end of December 2023.
Frontier Development Capital Limited
It has been a very successful year for FDC, achieving its highest revenue to
date, driven by an experienced and talented leadership team.
The integration into Mercia has been highly successful, thanks to the cultural
compatibility between the two organisations. FDC's strengthened relationship
with Mercia's Northern Debt team has been advantageous in fostering mutual
deal referrals. Similarly, Mercia's track record and expertise has supported
FDC in securing the MEIF II Debt WM mandate. FDC can already offer up to
£7.5million in growth capital nationally and up to £20million in property
finance across the West Midlands region through its existing mandates. Winning
the new BBB mandate has added to that capability, with FDC now providing
essential debt finance solutions ranging from £250,000 to £2.0million
throughout the region.
During the year, FDC's assets under management grew from c.£441million to
over £540million. This excellent growth is a testament to FDC's reputation
and track record for delivering strong results for its fund investors.
Higher interest rates have presented a significant challenge for SMEs during
the past 12 months; however, FDC's property team have continued to support
known, well capitalised and capable developers on both residential and
commercial development transactions. Market and occupier confidence continues
to improve and the team are in the process of raising additional new funds.
The property portfolio remains in good shape, generating strong investor
returns.
With the securing of both the MEIF II Debt West and NPIF II Y&H Debt
mandates totalling £97.0million, Mercia can continue to deliver these key UK
Government schemes across the regions. Our ability to act swiftly, leveraging
both government-backed schemes and privately raised funds, positions us as a
leading SME lender in the regional debt market. With a loan range that spans
from £250,000 to £20million, we are optimistic for increased activity in the
coming year.
Mercia PE
Pathways to growth
Mercia identifies high-quality small businesses by their ambitious, motivated
management teams who possess a sense of ownership and responsibility. Building
a successful small company demands unwavering focus and Mercia values the
opportunity to align with such committed individuals.
Despite ongoing high interest rates leading to lower levels of gearing and an
uncertain economic environment leading to lower deal volumes across the lower
mid-market PE market, Mercia has remained proactive both in its existing EV
Growth Fund II ("EVGII") and FDC's own growth fund. During the last year
Mercia's focus has been on improving performance within our portfolios. This
approach was successfully demonstrated with two exits in the year - the 1.6x
exit from ParkCloud Holdings Limited returning £7.2million and the 2.5x sale
back to management of Winder Power Limited, returning £3.2million. These
successful exits enabled one of our legacy funds to close with an overall 3x
return on its portfolio.
As EVGII has now concluded its investment phase, the focus shifts towards
collaborating with our portfolio companies to maximise value, with further
cash returns anticipated in the near future.
Summary and look forward
Following our successful fundraising activities and realisations, Mercia now
possesses over £660million of managed fund capital to deploy, setting a solid
foundation for increased equity investment and lending activities in this new
financial year. We've become a leading provider of capital across the UK,
supporting innovative businesses with venture capital, debt and private
equity.
Whilst I'm disappointed that we have fallen short in achieving the average
£20.0million per annum profit before tax element of our 'Mercia 20:20'
vision, this has been partly due to the uncertain macro-economic and subdued
public and private markets environment we still find ourselves in. Our
realisations over the past three years have however exceeded £0.4billion
across our funds and balance sheet, a significant accomplishment. I reiterate
that our portfolios are well run and contain many resilient and promising
assets. I remain confident that we are positioned to deliver significant value
over the medium term for both our fund investors and shareholders.
Looking ahead, two prominent themes are emerging in business funding.
Investors, especially institutional ones, are increasingly seeking to generate
not only robust financial returns but also meaningful societal impact.
Concurrently, businesses are gravitating towards innovative, 'hybrid' funding
models that offer the necessary flexibility, support and motivation to
prosper. As Mercia grows, it will continue with its mission as a partner known
for impactful and adaptable funding solutions.
I would like to thank all the team members of #OneMercia who played key roles
in our record fundraising year. I am also pleased that all our equity
investing and lending teams have such liquidity to be able to make new
investments from our funds in the years to come, together with continuing to
support existing ones where merited. Their efforts over many years have helped
Mercia become the go-to investor for SMEs across the UK.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
Strong progress
Overall financial performance
Notwithstanding the inflationary challenges affecting the UK economy in
general and more specifically the financial services sector during Mercia's
financial year to 31 March 2024, the Group was able to increase its EBITDA
compared with the prior year. This was due in part to the continuing positive
performance of FDC.
A significant increase in bank interest receivable has also enabled the Group
to report a higher adjusted operating profit than the prior year.
Proposed final dividend
The Board adopted Mercia's progressive dividend policy in December 2020 and
since then has declared and paid interim and final dividends totalling 2.41
pence per share, equating to dividend payments to shareholders of
£10.7million.
Given the Group's twin sources of profitability and cash inflow, being
regionally focused proactive specialist asset management, plus direct
investment with periodic cash realisations, the Group's dividend policy does
not need to be anchored to one or other source of liquidity, hence the Board's
continuing intention to grow total dividends year on year.
The continuing positive overall trajectory of the Group has enabled Mercia's
Board to recommend a proposed final dividend of 0.55 pence per share (2023:
0.53 pence per share). If approved by shareholders at the Annual General
Meeting in September 2024, the total dividend for the year will be 0.90 pence
per share (2023: 0.86 pence per share), a year-on-year increase of c.5% (2023:
increase of 7.5%).
If approved by shareholders, the final dividend will be paid on 1 November
2024 to shareholders on the register at the close of business on 4 October
2024.
Share buyback
Although recent share buybacks in the specialist asset management sector have
done little to positively affect share price performance (if at all) and a
resultant reduction in discounts to net asset value, Mercia has always said
that if it enjoyed a significant cash realisation it would consider how best
to distribute a proportion of those proceeds to shareholders. Mercia's
realisation of its direct investment in nDreams Limited in November 2023,
significantly increased the Group's cash position. Given that the Group also
has no debt, Mercia announced an up to £5.0million share buyback programme at
the time of its interim results at the end of November 2023. As at 31 March
2024, Mercia had bought back 10,379,708 shares into Treasury at an average
overall cost per share of 30.8p, and at a total cost of £3,194,000. The
buyback concluded on 29 May 2024, with 15,706,088 shares bought back in total
at an average price of 31.8 pence per share.
Alternative performance measures ("APM")
The Directors believe that the reporting of both EBITDA and adjusted operating
profit assist in providing insightful measures of operating performance for
businesses such as Mercia and are APMs of interest to both current and
potential shareholders.
EBITDA is defined as operating (loss)/profit before exceptional item,
depreciation, realised gains/(losses) on the sale of direct investments, fair
value movement in direct investments, share-based payments charge,
amortisation of intangible assets and movement in fair value of deferred
consideration.
Adjusted operating profit is defined as EBITDA plus net finance income.
Results reported on an APM basis are denoted by ¹ throughout this review.
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Revenue 30,434 25,881
Administrative expenses (24,897) (20,692)
EBITDA(1) 5,537 5,189
Net finance income 4,160 2,397
Adjusted operating profit(1) 9,697 7,586
Depreciation (489) (309)
Net finance income (4,160) (2,397)
Realised gain/(loss) on sale of direct investments 4,450 (849)
Fair value movement in direct investments (17,338) 1,201
Share-based payments charge (1,002) (1,049)
Amortisation of intangible assets (2,989) (2,337)
Movement in fair value of deferred consideration (540) (1,462)
Operating (loss)/profit before exceptional item (12,371) 384
Exceptional item - (372)
Operating (loss)/profit (12,371) 12
Net finance income 4,160 2,397
(Loss)/profit before taxation (8,211) 2,409
Taxation 626 427
(Loss)/profit and total comprehensive (expense)/income (7,585) 2,836
A reconciliation of these results prepared in accordance with International
Financial Reporting Standards ("IFRS") to those presented on an APM basis are
as follows:
Year ended 31 March 2024
IFRS as reported Depreciation APM basis(1)
£'000 £'000 £'000
Administrative expenses (25,386) 489 (24,897)
Depreciation - (489) (489)
Year ended 31 March 2023
IFRS as reported Depreciation APM basis(1)
£'000 £'000 £'000
Administrative expenses (21,001) 309 (20,692)
Depreciation - (309) (309)
Revenue
Revenue increased 17.6% to £30,434,000 (2023: £25,881,000) and comprised
fund management related fees, initial management fees from investment rounds,
arrangement fees from loans, investment director monitoring fees, sundry
business services income and VCT share offer fees.
Administrative expenses(1)
Administrative expenses, excluding depreciation, increased 20.3% to
£24,897,000 (2023: £20,692,000) and comprised predominantly staff-related,
office, marketing, professional adviser and VCT share offer-related costs.
Mercia anticipates that the financial benefits of operational leverage will be
realised as its funds under management increase, by both its future organic
and inorganic initiatives.
EBITDA
EBITDA increased 6.7% to £5,537,000 (2023: £5,189,000), equating to an
EBITDA margin of 18.2% (2023: 20.0%). The Group has therefore largely been
able to offset the inflationary impact during the financial year on its cost
base.
Net finance income
Total gross finance income of £4,216,000 (2023: £2,428,000) arose largely
from a material increase in interest receivable on cash deposits (as shown in
note 8 of the summary financial information) following Bank of England base
rate increases during the year, together with the crystallisation of
convertible loan interest within the direct investment portfolio. Finance
costs of £56,000 (2023: £31,000) comprised interest payable on office leases
and the Group's staff electric car scheme.
Fair value movement in direct investments
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of direct investments* 7,877 11,324
Unrealised losses on the revaluation of direct investments* (25,215) (10,123)
Net unrealised fair value movements (17,338) 1,201
* Excluding the impact of the demerger of Netacea Limited from Intechnica
Holdings Limited in the year ended 31 March 2023.
The net unrealised fair value movement in direct investments resulted in a
£17,338,000 decrease (2023: £1,201,000 increase) and as at 31 March 2024,
the fair value of the Group's direct investment portfolio was £116,861,000
(2023: £136,550,000).
Unrealised fair value gains arose in 10 (2023: five*) of the Group's direct
investments. The largest unrealised fair value gain was in respect of Voxpopme
Limited, which accounted for £3,973,000 of the total (2023: £4,145,000
unrealised fair value gain in respect of VirtTrade Limited).
There were eight (2023: six*) unrealised fair value decreases, the largest
being £18,558,000 which arose in respect of Impression Technologies (2023:
£3,511,000 unrealised fair value decrease in Netacea Group). As more fully
set out in the Chief Investment Officer's review, Mercia ceased further
material investment into Impression Technologies in May 2024, resulting in the
full impairment of the Group's direct investment fair value as at 31 March
2024.
Share-based payments charge
The £1,002,000 non-cash charge (2023: £1,049,000) arises from the total
number of issued and vested share options held by employees throughout the
Group, ranging from 28 January 2020 to 31 March 2024.
Amortisation of intangible assets
The amortisation charge for the period of £2,989,000 (2023: £2,337,000)
represents amortisation of the acquired intangible assets of FDC and the VCT
fund management business.
Movement in fair value of deferred consideration
The purchase price of FDC in December 2022 included an element of contingent
deferred consideration which is subject to a number of targets being met.
Movement in the fair value of this contingent deferred consideration during
the year to 31 March 2024 has resulted in a charge to the consolidated
statement of comprehensive income of £540,000 (2023: £131,000).
In the prior year to 31 March 2023, a charge to the consolidated statement of
comprehensive income of £1,331,000 represented the unwinding of the discount
on the final deferred consideration payment relating to the acquisition of the
VCT fund management business in December 2019. This was settled in cash in
December 2022 and new Mercia Asset Management PLC Ordinary shares issued in
January 2023.
Taxation
The components of the Group's tax credit are shown in note 9 of the summary
financial information. The overall tax credit for the year comprises the
continued unwinding of the deferred tax liability in respect of the intangible
assets arising on the acquisition of FDC and the VCT fund management business,
partially offset by a corporation tax charge on taxable profits.
Loss and total comprehensive expense for the year
The adjusted operating profit plus the realised gain, less the net unrealised
fair value decrease for the year and other non-cash charges, led to a
consolidated total comprehensive expense of £7,585,000 (2023: income of
£2,836,000). This has resulted in a basic loss per Ordinary share of (1.71)
pence (2023: basic earnings per Ordinary share of 0.64 pence).
Summarised statement of financial position
As at As at
31 March 31 March
2024 2023
£'000 £'000
Goodwill and intangible assets 36,296 39,285
Direct investment portfolio 116,861 136,550
Other non-current assets, trade and other receivables 4,810 4,751
Cash and cash equivalents 46,940 37,834
Total assets 204,907 218,420
Trade, other payables and lease liabilities (9,595) (7,720)
Deferred consideration (2,279) (3,239)
Deferred taxation (3,792) (4,540)
Total liabilities (15,666) (15,499)
Net assets 189,241 202,921
Net assets per share (pence) ** 43.4p 45.4p
** 436,319,815 Ordinary shares, excluding those held in treasury, has been
used as the denominator for calculating net assets per share as at 31 March
2024. 446,581,202 Ordinary shares were in issue as at 31 March 2023 and
therefore used as the denominator for calculating the comparative net assets
per share.
Intangible assets
The Group's intangible assets consist of goodwill and the intangible assets
recognised on the acquisition of FDC and the VCT fund management business.
Direct investment portfolio
During the year, Mercia's direct investment portfolio reduced from
£136,550,000 as at 1 April 2023 (2023: £119,558,000 as at 1 April 2022) to
£116,861,000 as at 31 March 2024 (2023: £136,550,000 as at 31 March 2023), a
c.14% decrease (2023: c.14% increase).
The Group invested £19,626,000 net (2023: £20,653,000 net) into 11 existing
direct investments (2023: 10 existing and three new direct investments), with
the top 20 direct investments representing 98.6% of the total direct
investment portfolio value (2023: 98.4%).
Cash, cash equivalents and short-term liquidity investments
At the year end, Mercia had cash and cash equivalents totalling £46,940,000
(2023: £37,834,000).
The Group continues to have limited working capital needs due to the nature of
its business and during the year cash generated from operating activities
totalled £7,872,000 (2023: £3,019,000).
As at 31 March 2024, the Group's cash and cash equivalents were spread across
four leading United Kingdom banks and a BlackRock Sterling money market fund,
earning an average overall yield of c.5%.
The summarised movements in the Group's cash and cash equivalents during the
year are shown below.
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Opening cash and cash equivalents 37,555 56,049
Cash generated from operating activities 7,872 3,019
Corporation tax paid (788) (1,819)
Net cash generated from/(used in) direct investment activities 9,360 (14,930)
Acquisition of Frontier Development Capital Limited - (6,951)
Cash acquired with Frontier Development Capital Limited - 2,882
Deferred consideration paid in respect of acquisitions (1,500) (2,100)
Cash inflow from other investing activities 1,991 5,327
Repurchase of own shares into treasury (3,194) -
Net cash used in financing activities (4,356) (3,922)
Closing cash and cash equivalents 46,940 37,555
Outlook
Once again, these results demonstrate Mercia's robust business fundamentals,
despite the significant salary and general inflation experienced in the asset
management sector during the financial year, and the impact of its decision to
cease further investment into Impression Technologies.
Set against another year of subdued inflows by the asset management sector,
Mercia achieved record fund inflows of c.£562million during the year and
increased revenues, EBITDA, adjusted operating profit, dividends and cash.
Whilst always keeping a careful eye on the horizon, Mercia's cautious optimism
at the time of its interim results in November 2023 has been borne out by
significant new fund mandate wins and successful VCT and EIS fundraises. Taken
together, they point to the potential for further positive progress in the
current financial year.
With new long-term fund management contracts secured, Mercia has never been
financially stronger and for this we remain grateful to our excellent staff
for their continuing efforts and our many long-term supportive fund investors
and shareholders.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Consolidated statement of comprehensive income
For the year ended 31 March 2024
Note Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Revenue 5 30,434 25,881
Administrative expenses 7 (25,386) (21,001)
Realised gain/(loss) on sale of direct investments 6 4,450 (849)
Fair value movements in direct investments 6 (17,338) 1,201
Share-based payments charge (1,002) (1,049)
Amortisation of intangible assets 13 (2,989) (2,337)
Movement in fair value of deferred consideration (540) (1,462)
Operating (loss)/profit before exceptional item (12,371) 384
Exceptional item - (372)
Operating (loss)/profit (12,371) 12
Finance income 8 4,216 2,428
Finance expense (56) (31)
(Loss)/profit before taxation (8,211) 2,409
Taxation 9 626 427
(Loss)/profit and total comprehensive (expense)/income (7,585) 2,836
Basic (loss)/earnings per Ordinary share (pence) 10 (1.71) 0.64
Diluted (loss)/earnings per Ordinary share (pence) 10 (1.71) 0.63
All results derive from continuing operations.
Consolidated statement of financial position
As at 31 March 2024
Note As at As at
31 March 31 March
2024 2023
£'000 £'000
Assets
Non-current assets
Goodwill 12 21,126 21,126
Intangible assets 13 15,170 18,159
Property, plant and equipment 128 122
Right-of-use assets 711 842
Investments 14 116,861 136,550
Total non-current assets 153,996 176,799
Current assets
Trade and other receivables 3,971 3,787
Short-term liquidity investments 15 - 279
Cash and cash equivalents 15 46,940 37,555
Total current assets 50,911 41,621
Total assets 204,907 218,420
Current liabilities
Trade and other payables (8,893) (6,813)
Lease liabilities (376) (333)
Deferred consideration 16 (2,279) (1,227)
Total current liabilities (11,548) (8,373)
Non-current liabilities
Lease liabilities (326) (574)
Deferred consideration 16 - (2,012)
Deferred taxation 17 (3,792) (4,540)
Total non-current liabilities (4,118) (7,126)
Total liabilities (15,666) (15,499)
Net assets 189,241 202,921
Equity
Issued share capital 18 4 4
Share premium 19 83,775 83,744
Treasury reserve 20 (3,188) -
Other distributable reserve 21 59,338 63,266
Retained earnings 43,756 51,341
Share-based payments reserve 5,556 4,566
Total equity 189,241 202,921
Consolidated statement of cash flows
For the year ended 31 March 2024
Note Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Cash flows from operating activities:
Operating (loss)/profit (12,371) 12
Adjustments to reconcile operating (loss)/profit to net cash generated from
operating activities:
Depreciation of property, plant and equipment 104 68
Depreciation of right-of-use assets 385 239
(Gain)/loss on sale of direct investments 6 (4,450) 849
Fair value movements in direct investments 6 17,338 (1,201)
Share-based payments charge 1,002 1,049
Amortisation of intangible assets 13 2,989 2,337
Movement in fair value of contingent consideration 16 540 1,462
Working capital adjustments:
Decrease/(increase) in trade and other receivables 800 (1,087)
Increase/(decrease) in trade and other payables 1,535 (709)
Cash generated from operating activities 7,872 3,019
Corporation tax paid (788) (1,819)
Net cash generated from operating activities 7,084 1,200
Cash flows from direct investment activities:
Sale of direct investments 14 26,696 3,744
Purchase of direct investments 14 (19,926) (20,778)
Investee company loan repayments 14 300 125
Investee company loan interest and redemption premium received 8 2,290 1,979
Net cash generated from/(used in) direct investment activities 9,360 (14,930)
Cash flows from other investing activities:
Interest received from cash and cash equivalents 1,813 404
Purchase of property, plant and equipment (110) (77)
Acquisition of subsidiary undertaking - (6,951)
Cash acquired with purchase of subsidiary undertaking - 2,882
Deferred consideration paid in respect of acquisitions 16 (1,500) (2,100)
Decrease in short-term liquidity investments 288 5,000
Net cash generated from/(used in) other investing activities 491 (842)
Net cash generated from/(used in) total investing activities 9,851 (15,772)
Cash flows from financing activities:
Dividends paid 11 (3,928) (3,653)
Purchase of shares into treasury (3,194) -
Proceeds received from the exercise of employee share options 26 -
Interest paid (56) (31)
Payment of lease liabilities (398) (238)
Net cash used in financing activities (7,550) (3,922)
Net increase/(decrease) in cash and cash equivalents 9,385 (18,494)
Cash and cash equivalents at the beginning of the year 37,555 56,049
Cash and cash equivalents at the end of the year 15 46,940 37,555
Consolidated statement of changes in equity
For the year ended 31 March 2024
Issued Other Share-based
share Share Treasury distributable Retained payments
capital premium Reserve reserve earnings reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2022 4 81,644 - 66,919 48,505 3,517 200,589
Issue of share capital - 2,100 - - - - 2,100
Profit and total comprehensive income for the year - - - - 2,836 - 2,836
Dividends paid - - - (3,653) - - (3,653)
Share-based payments charge - - - - - 1,049 1,049
As at 31 March 2023 4 83,744 - 63,266 51,341 4,566 202,921
Purchase of Ordinary shares into treasury - - (3,194) - - - (3,194)
Loss and total comprehensive expense for the year - - - - (7,585) - (7,585)
Dividends paid - - - (3,928) - - (3,928)
Exercise of share options - 31 6 - - (12) 25
Share-based payments charge - - - - - 1,002 1,002
As at 31 March 2024 4 83,775 (3,188) 59,338 43,756 5,556 189,241
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, Warwickshire B95 5AA.
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 2024, 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 2024 was
unqualified and did not contain any statement under section 498 of the Act.
The Group's Annual Report and financial statements will be delivered to the
Registrar of Companies in due course.
The financial statements have been prepared on an historical cost basis, as
modified by the revaluation of certain financial assets and financial
liabilities in accordance with International Financial Reporting Standard
("IFRS") 9 Financial Instruments. The accounting policies presented in the
summary financial information are consistent with those set out in the audited
financial statements.
3. Going concern
Based on the Group's balance sheet, including its liquidity position at the
year end, its forecast future operating and investment activities, the
Directors have a reasonable expectation that the Group has adequate financial
resources to manage business risks in the current economic environment, and
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 these consolidated financial statements.
4. Significant accounting policies
Basis of consolidation
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 financial statements
of entities held within the Group's direct investment portfolio are not
included within the consolidated financial statements as the Group accounts
for these in accordance with the IFRS 10 Investment Entity exemption.
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 vendors is measured at fair value at acquisition and re-assessed annually,
with particular reference to the conditions upon which the consideration is
contingent.
New standards, interpretations and amendments effective in the current
financial year
No new standards, interpretations and amendments effective in the year have
had a material effect on the Group's financial statements.
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 mean there is risk of a material adjustment to the
carrying amounts of assets and liabilities. These judgements include a
decision on 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 updated
in December 2022.
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 the investment round 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
of reliability of using estimates 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.
The recent macroeconomic uncertainty has created uncertainty in the fair value
of the direct investment portfolio. The Directors believe that they have
reflected this uncertainty in a balanced way through the assumptions used in
the valuation of each investee company. 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.
Valuation of deferred contingent consideration
The fair value of the deferred consideration payable in respect of the
acquisition of FDC in December 2022 is conditional upon certain conditions
being met.
The first of the three first deferred consideration conditions was met during
the year, resulting in £1,500,000 being paid to the vendors.
The fair value of the second condition has been derived from the assessed
probability of the revenue target occurring at 90.0%, discounted at an annual
rate of 15.0%. Should the probability of this condition be reduced by 10.0%,
the discounted value of contingent consideration as at 31 March 2024 would
reduce by £91,000. The discount rate used to fair value the second contingent
consideration liability is reflective of the risk surrounding the conditions
being met. Should the discount rate be increased by 1.0%, the discounted value
of the contingent consideration as at 31 March 2024 would reduce by £5,000.
The fair value of the final condition has been derived from the assessed
probability of the net third-party fundraising target occurring at 90.0%,
discounted at an annual rate of 15.0%. Should the probability of this
condition be reduced by 10.0%, the discounted value of contingent
consideration as at 31 March 2024 would reduce by £136,000. Should the
discount rate be increased by 1.0%, the discounted value of the contingent
consideration as at 31 March 2024 would reduce by £12,000. The condition has
currently been met, although the measurement date is not until 4 December
2024.
Further detail on the contingent consideration conditions is included in note
16.
5. Segmental reporting
The Group's revenue and profits are 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 Operating Segments 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
2024 2023
£'000 £'000
Fund management fees 19,214 17,593
Initial management fees 5,465 3,680
Portfolio directors' fees 3,933 2,934
Other revenue 341 343
VCTs share offer fees 1,481 1,331
30,434 25,881
6. Realised gain/(loss) and fair value movements in direct investments
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Realised gain/(loss) on sale of direct investments (note 14) 4,450 (849)
Net fair value movements in direct investments (note 14) (17,338) 1,201
(12,888) 352
7. Operating (loss)/profit
Operating (loss)/profit is stated after charging:
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Staff costs 17,530 14,366
Other administrative expenses 7,856 6,635
Total administrative expenses 25,386 21,001
8. Finance income
Finance income is derived from:
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Cash deposits 1,917 404
Short-term liquidity investments 9 45
Investee company loans (interest and redemption premium) 2,290 1,979
Total interest income 4,216 2,428
9. Taxation
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Current tax
UK corporation tax (122) (157)
Deferred tax
Origination and reversal of temporary timing differences 748 584
Total tax credit 626 427
The UK standard rate of corporation tax is 25% (2023: 19%). The deferred tax
credit of £748,000 (2023: £584,000) represents the unwinding of the deferred
tax liabilities recognised in respect of the intangible assets arising on the
acquisition of the VCT fund management business and Frontier Development
Capital Limited.
A reconciliation from the reported (loss)/profit to the total tax credit is
shown below:
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
(Loss)/profit before taxation (8,211) 2,409
Taxation at the standard rate of corporation tax in the UK of 25% (2023: 19%) 2,053 (458)
Effects of:
Income not subject to tax 1,113 589
Expenses not deductible for tax purposes (2,131) (318)
Share of partnership profits (1,134) (509)
Capital losses - 234
Remeasurement of deferred tax for changes in tax rates - 140
Other timing differences not recognised 725 749
Total tax credit 626 427
The Group's deferred tax liability has been calculated at a rate of 25% as at
31 March 2024 (2023: 25%).
A total deferred tax liability of £3,792,000 (2023: £4,540,000) as at 31
March 2024 relates to the intangible assets recognised on the acquisition of
FDC in December 2022 and on the acquisition of the VCT fund management
business in 2019.
A potential deferred tax asset of £3,392,000 (2023: £3,436,000) for
cumulative unrelieved management expenses and other tax losses has not been
recognised in these consolidated financial statements as their future use is
uncertain.
10. (Loss)/earnings per share
Basic (loss)/earnings per share is calculated by dividing the (loss)/profit
for the financial year by the weighted average number of Ordinary shares in
issue during the year. Diluted (loss)/earnings per share is calculated by
dividing the (loss)/profit for the financial year by the weighted average
number of Ordinary shares outstanding and, when dilutive, adjusted for the
effect of all potentially dilutive shares, including share options, on an
as-if-converted basis. The potential dilutive shares are included in diluted
(loss)/ earnings per share calculations on a weighted average basis for the
year. The (loss)/profit and weighted average number of shares used in the
calculations are set out below:
Year ended Year ended
31 March 31 March
2024 2023
(Loss)/profit for the financial year (£'000) (7,585) 2,836
Basic weighted average number of Ordinary shares ('000) 444,716 441,156
Basic (loss)/earnings per Ordinary share (pence) (1.71) 0.64
Diluted weighted average number of Ordinary shares ('000) 444,716 449,348
Diluted (loss)/earnings per Ordinary share (pence) (1.71) 0.63
The calculation of basic and diluted earnings per share is based on the
following weighted average number of Ordinary shares:
Year ended Year ended
31 March 31 March
2024 2023
'000 '000
Weighted average number of shares
Basic 444,716 441,156
Dilutive impact of employee share options - 8,192
Diluted weighted average number of Ordinary shares 444,716 449,348
The dilutive impact of employee share options for the year ended 31 March 2024
has been excluded from the weighted average number of diluted Ordinary shares,
as including them is anti-dilutive to diluted earnings per share.
11. Dividends
Year ended 31 March 2024 Year ended 31 March 2023
Pence per share £'000 Pence per share £'000
Dividends declared/proposed in respect of the year
Interim dividend declared in relation to year ended 31 March 2023 - - 0.33 1,452
Final dividend declared in relation to year ended 31 March 2023 - - 0.53 2,367
Interim dividend declared in relation to year ended 31 March 2024 0.35 1,561 - -
Final dividend proposed in relation to year ended 31 March 2024 (**) 0.55 2,371 - -
0.90 3,932 0.86 3,819
Year ended 31 March 2024 Year ended 31 March 2023
Pence per share £'000 Pence per share £'000
Dividends paid during the year
Final dividend paid in relation to year ended 31 March 2022 - - 0.50 2,201
Interim dividend paid in relation to year ended 31 March 2023 - - 0.33 1,452
Final dividend paid in relation to year ended 31 March 2023 0.53 2,367 - -
Interim dividend paid in relation to year ended 31 March 2024 0.35 1,561 - -
0.88 3,928 0.83 3,653
(**) The share buyback programme completed on 29 May 2024, with a total of
15.7million shares purchased by the Company and held in treasury. If approved
by shareholders at the AGM on 26 September 2024, the total final dividend
payable in relation to the year ended 31 March 2024, to shareholders on the
register on 4 October 2024, is estimated to be £2,371,000.
The proposed final dividend for the year ended 31 March 2024 is subject to
shareholder approval at the AGM on 26 September 2024, and as such has not been
included as a liability in these financial statements in accordance with IAS
10.
12. Goodwill
Goodwill arising on the businesses acquired to date is set out in the table
below.
Enterprise Ventures Group VCT fund management business Frontier Development Capital Total
Mercia Fund Management
£'000 £'000 £'000 £'000 £'000
Cost
As at 1 April 2022 2,455 7,873 6,314 - 16,642
Addition - - - 4,484 4,484
As at 31 March 2023 and 31 March 2024 2,455 7,873 6,314 4,484 21,126
Goodwill for each business acquired has been assessed for impairment as at 31
March 2024. 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").
The value in use calculations are based on future expected cash flows
generated by each CGU, as derived from the approved budget for the year ended
31 March 2025. Key assumptions are post-tax discount rates of 13.0% and 15.0%
(pre-tax discount rates of 17.8% and 20.6%) and the growth rates used in
forecasting future operating results. Where the fund management contracts are
'evergreen', a value into perpetuity has been used based on a zero growth rate
beyond a five-year forecast period.
The review concluded that the value in use of each CGU exceeds its carrying
value. The Directors do not consider that a reasonably possible change in a
key assumption would reduce the recoverable amount of the CGUs to below their
carrying value.
13. Intangible assets
Intangible assets represent contractual arrangements in respect of the
acquisition of Enterprise Ventures Group in 2016, the VCT fund management
business in 2019 and the acquisition of FDC in December 2022, 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.
£'000
Cost
As at 1 April 2022 21,835
Acquisition of a subsidiary 4,783
As at 31 March 2023 and 31 March 2024 26,618
Accumulated amortisation
As at 1 April 2022 6,122
Charge for the year 2,337
As at 31 March 2023 8,459
Charge for the year 2,989
As at 31 March 2024 11,448
Net book value
As at 1 April 2022 15,713
As at 31 March 2023 18,159
As at 31 March 2024 15,170
14. Investments
The net change in the value of investments for the year is a decrease of
£19,689,000 (2023: increase of £16,992,000). The table below reconciles the
opening to closing value of investments for both the current and prior years.
Level 1 Level 3 Total financial assets
financial financial
assets assets
£'000 £'000 £'000
As at 1 April 2022 1,632 117,926 119,558
Investments made during the year - 20,736 20,736
Investments acquired during the year - 42 42
Investee company loan repayment - (125) (125)
Disposals - (4,862) (4,862)
Unrealised fair value gains on investments - 20,017 20,017
Unrealised fair value losses on investments (663) (18,153) (18,816)
As at 31 March 2023 969 135,581 136,550
Investments made during the year - 19,926 19,926
Investee company loan repayment - (300) (300)
Disposal - (30,211) (30,211)
Investment received as consideration - 3,784 3,784
Realised gain on sale of direct investment - 4,450 4,450
Unrealised fair value gains on investments - 7,877 7,877
Unrealised fair value losses on investments (187) (25,028) (25,215)
As at 31 March 2024 782 116,079 116,861
In May 2023, the Group received residual cash proceeds totalling £269,000
from the earlier sale of its equity holding in Intechnica Holdings Limited in
January 2023.
In November 2023, the Group sold its investment in nDreams Limited, generating
a realised gain of £4,450,000. Total consideration of £30,211,000 was
received, comprising cash of £26,427,000 and an equity interest in Aonic
Founder SCS of £3,784,000.
Investments held as part of the Group's direct investment portfolio are
carried at fair value in accordance with the IFRS 10 Investment Entity
exemption.
The measurement basis for determining the fair value of investments held at 31
March is as follows:
As at As at
31 March 2024 31 March 2023
£'000 £'000
Listed investment 782 969
Price of recent investment round 79,847 79,522
Enterprise value 29,320 52,912
Cost 6,912 3,147
Impaired value(1) - -
116,861 136,550
(1) Valued using valuation methodologies consistent with the Group's
accounting policy.
15. Cash, cash equivalents and short-term liquidity investments
As at As at
31 March 31 March 2023
2024 £'000
£'000
Total cash and cash equivalents 46,940 37,555
Total short-term liquidity investments - 279
16. Deferred consideration
As at As at
31 March 31 March 2023
2024 £'000
£'000
Payable within one year 2,279 1,227
Payable within two to five years - 2,012
2,279 3,239
On 5 December 2022, Mercia completed the acquisition of Frontier Development
Capital Limited for a total maximum cash consideration of £9,500,000,
comprising an initial cash consideration of £5,500,000, plus up to a maximum
of £4,000,000 contingent consideration payable upon certain post-acquisition
conditions being met.
In the year ended 31 March 2024, the first deferred consideration condition
was met resulting in a £1,500,000 payment to the vendors. The second and
final deferred consideration conditions have a total fair value of £2,045,000
as at 31 March 2024, and are payable upon the following conditions being met:
• The second condition is satisfied if revenue for the 12-month period to 30
November 2024 exceeds a year-two revenue target. The value of contingent
consideration payable is up to a maximum of £1,000,000.
• The final condition is met if a net new institutional third-party
fundraising target, over a two-year period to 4 December 2024, is achieved.
Satisfaction of this target triggers £1,500,000 contingent consideration
payable to the vendors.
Identified within the post-acquisition measurement period, further
consideration totalling £234,000 may become payable to the vendors and so has
been included in the deferred consideration amount due and goodwill as at 31
March 2023 and 31 March 2024.
The undiscounted value of remaining contingent consideration payments that the
Group could be required to make is up to £2,734,000. Movement in the fair
value of the FDC deferred consideration during the year ended 31 March 2024
has resulted in a charge to the consolidated statement of comprehensive income
of £540,000.
17. Deferred taxation
As at As at
31 March 31 March 2023
2024 £'000
£'000
Deferred tax liability 3,792 4,540
Under IAS 12 Income Taxes, provision is made for the deferred tax liability
associated with the recognition of intangible assets arising as part of the
acquisitions of the VCT fund management contracts and FDC.
As at 31 March 2024, the deferred tax liability has been calculated using the
substantively enacted tax rate of 25%.
18. Issued share capital
31 March 2024 31 March 2023
Number £'000 Number £'000
Allotted and fully paid
As at the beginning of the year 446,581,202 4 440,109,707 4
Issue of share capital during the year 98,321 - 6,471,495 -
As at the end of the year 446,679,523 4 446,581,202 4
On 29 September 2023, 98,321 new Ordinary shares were issued to satisfy the
exercise of employee share options. These new shares were admitted to trading
on the AIM market of the London Stock Exchange on 5 October 2023.
During the year, 10,379,708 Ordinary shares were repurchased into a treasury
reserve, see note 20. The outstanding Ordinary shares as at 31 March 2024,
being 436,319,815, are entitled to one vote each and have equal rights as to
dividends. The Ordinary shares are not redeemable.
19. Share premium
As at As at
31 March 31 March 2023
2024 £'000
£'000
As at the beginning of the year 83,744 81,644
Premium arising on the issue of Ordinary shares 31 2,100
As at the end of the year 83,775 83,744
The premium on the issue of Ordinary shares arises from 98,321 new Ordinary
shares of £0.00001 each on 29 September 2023.
20. Treasury reserve
31 March 2024 31 March 2023
Number £'000 Number £'000
Allotted and fully paid
As at the beginning of the year - - - -
Purchase of Ordinary shares into treasury 10,379,708 3,194 - -
Satisfaction of employee share options (20,000) (6) - -
As at the end of the year 10,359,708 3,188 - -
21. Other distributable reserve
As at As at
31 March 31 March 2023
2024 £'000
£'000
As at the beginning of the year 63,266 66,919
Dividends paid (note 11) (3,928) (3,653)
As at the end of the year 59,338 63,266
22. 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
statement of financial position. 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 2
to these consolidated financial statements.
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 measured at fair value as at 31 March 2024. There have been no
movements in financial assets or financial liabilities between levels during
the current or prior years. The table in note 14 sets out the movement in the
Level 1 and 3 financial assets from the start to the end of the year.
As at As at
31 March 31 March 2023
2024 £'000
£'000
Assets:
Financial assets at fair value through profit or loss - direct investment
portfolio
Level 1 782 969
Level 2 - -
Level 3 116,079 135,581
116,861 136,550
As at As at
31 March 31 March 2023
2024 £'000
£'000
Liabilities:
Financial liabilities at fair value through profit or loss - deferred
consideration
Level 1 - -
Level 2 - -
Level 3 2,279 3,239
2,279 3,239
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
The Group had one direct investment listed on the AIM market of the London
Stock Exchange, MyHealthChecked PLC, which is valued using the closing bid
price as at 31 March 2024.
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 of the fair value hierarchy and the individual valuations for each of the
companies have been arrived at using appropriate valuation techniques. The
Group has adopted the IPEVCVG for determining 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 2 to these consolidated financial statements
provides further information on the Group's valuation methodology, including a
detailed explanation of the valuation techniques used for Level 3 financial
instruments.
A reconciliation of the movement in Level 1 and 3 financial assets from 1
April to 31 March is disclosed in note 14.
23. Availability of Annual Report
The Annual Report of Mercia Asset Management PLC will be made available to all
shareholders on 26 July 2024. An electronic copy will be available on Mercia
Asset Management PLC's website at www.mercia.co.uk (http://www.mercia.co.uk) .
24. Annual General Meeting
The Annual General Meeting of Mercia Asset Management PLC will be held at the
offices of Rothschilds & Co, New Court, St Swithins Lane, London, EC4N 8AL
on 26 September 2024 at 10:00 am.
Directors, secretary and advisers
Directors
Ian Roland Metcalfe OBE
(Non-executive Chair)
Dr Mark Andrew Payton
(Chief Executive Officer)
Martin James Glanfield (Chief
Financial Officer)
Julian George Viggars (Chief
Investment Officer)
Diane Seymour-Williams
(Senior Independent Director)
Raymond Kenneth Chamberlain (Non-executive Director)
Dr Jonathan David Pell
(Non-executive Director)
Caroline Bayantai Plumb OBE
(Non-executive Director)
Company secretary Company registration number
Sarah-Louise Anne Williams 09223445
Company website Company registrar
www.mercia.co.uk Equiniti Ltd
Highdown House
Registered office Yeoman Way
Forward House Worthing
17 High Street West Sussex BN99 3HH
Henley-in-Arden
Warwickshire B95 5AA Solicitors
Gowling WLG (UK) LLP
Independent auditor 4 More London Riverside
BDO LLP London SE1 2AU
55 Baker Street
Marylebone Nominated adviser and joint broker
London W1U 7EU Canaccord Genuity Ltd
88 Wood Street
Principal bankers London EC2V 7QR
Barclays Bank PLC
One Snowhill Joint broker
Snow Hill Queensway Singer Capital Markets Advisory LLP
Birmingham B4 6GN 1 Bartholomew Lane
London EC2N 2AX
Lloyds Bank plc
125 Colmore Row Investor relations adviser
Birmingham B3 3SD FTI Consulting Ltd
200 Aldersgate
London EC2A 4HD
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