REG - Mercia Asset Mgt PLC - Interim Results
07/12/2021 07:00
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RNS Number : 7446U Mercia Asset Management PLC 07 December 2021
RNS 7 December 2021
Mercia Asset Management PLC
("Mercia" or the "Group" or the "Company")
Interim Results
Interim dividend trebled, underpinned by strong growth in profits and net
assets per share
Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused
specialist asset manager with c.£948million of assets under management
("AuM"), is pleased to announce its interim results for the six months ended
30 September 2021.
Financial results
· Revenue(1) increased 20.7% to £10.1million (H1 2021: £8.4million)
· Adjusted operating profit(2) more than doubled to £2.4million (H1
2021: £1.1million)
· Net fair value increase in direct investments of £8.7million (H1
2021: £6.7million)
· Operating profit increased 33.8% to £10.7million (H1 2021:
£8.0million)
· Profit after tax increased 35.2% to £11.2million (H1 2021:
£8.2million)
· Basic earnings per share increased 35.2% to 2.53 pence (H1 2021: 1.87
pence)
· Interim dividend of 0.3 pence per share(3) (H1 2021: 0.1 pence)
· Cash and short-term liquidity investments of £52.1million (H1 2021:
£24.9million; FY 2021: £54.7million)
· Net assets of £186.4million (H1 2021: £149.9million; FY 2021:
£176.0million)
· Net assets per share of 42.4 pence (H1 2021: 34.1 pence; FY 2021:
40.0 pence)
· AuM(4) of c.£948million (H1 2021: c.£872million; FY 2021:
c.£940million)
1 Excluding performance fees of £2.6million (H1 2021: £nil).
2 Adjusted operating profit is defined as operating profit before
performance fees net of variable compensation, realised gains on disposal of
investments, fair value movements in investments, share-based payments charge,
depreciation, amortisation of intangible assets, movement in fair value of
deferred consideration and exceptional items. It includes net finance income.
The reconciliation of adjusted operating profit to operating profit is
included in the Chief Financial Officer's review.
3 Interim dividend payable on 31 December 2021 to shareholders on
the register at close of business on 17 December 2021.
4 Including the Group's consolidated net assets.
Managed funds' developments
· Total third-party funds under management ("FuM") of c.£762million
(H1 2021: c.£722million; FY 2021: c.£764million) net of c.£38million of
distributions to investors during the six-month period
· Third-party FuM contributed £9.6million in revenue (H1 2021:
£7.8million)
· Venture FuM of c.£601million (H1 2021: c.£552million; FY 2021:
c.£600million)
o Performance fees totalling £2.6million receivable (H1 2021: £nil)
following a significant net asset value ("NAV") increase in the Mercia-advised
Northern Venture Trust PLC
· Private equity FuM of c.£53million (H1 2021: c.£56million; FY 2021:
c.£54million)
· Debt FuM of c.£108million (H1 2021: £114million; FY 2021:
c.£110million)
Direct investment portfolio developments
· Direct investment portfolio fair value of £110.3million (H1 2021:
£101.6million; FY 2021: £96.2million), an increase of 14.6% during the
six-month period
· £5.4million net invested into five portfolio companies during the
period (H1 2021: £10.9million net invested into 14 portfolio companies)
Post period end developments
· In October 2021 Mercia completed a £1.8million direct investment
into a new portfolio company, Forensic Analytics Limited, alongside a
£2.7million investment by the Northern VCTs
· In November 2021 Mercia's third-party managed fund portfolio company,
Pimberly Limited, completed a £4.3million funding round to expand into the US
market and accelerate its growth in the UK. Mercia invested £1.4million of
capital from its own balance sheet, alongside a further £2.9million
investment by the Northern VCTs
· Commercial progress continues to be made by the majority of the
direct investment portfolio, including each of the top five direct investments
by holding value
· Commencing on 1 November 2021, the Group received a further
c.£26million allocation from British Business Bank across both Equity
(c.£15million) and Debt (c.£11million) Northern Powerhouse Investment Funds
Mark Payton, Chief Executive Officer of Mercia, commented:
"I am pleased with this strong performance and the continued growth and value
creation that we have delivered across our portfolio in the six-month period
under review. I believe that against a backdrop of economic recovery, this
positive momentum is set to continue, reinforcing our position as one of the
most active UK investors in our chosen areas across venture, private equity
and debt.
Our total AuM has now increased to c.£948million, c.£762million of which is
third-party funds under management, and we remain confident in achieving our
three-year objectives of growing AuM on average by 20% per annum while also
delivering a cumulative £60million in profit before tax.
The success of our 'Complete Connected Capital' approach and ability to
provide such a breadth of flexible financing solutions is evidenced by the
variety of regional investments we have originated, and notably 38 of our 74
investments made, represented new opportunities. Complementing this is our
growing reputation for achieving strong exits for our investors and investee
management teams, with nine exits successfully realised across our third-party
managed funds and direct investment portfolios during the period.
I'm delighted that this year we've been able to deliver a trebling of the
Group's interim dividend indicating our confidence in the sustainability and
resilience of Mercia's hybrid investment model. It's also been wonderful to
gradually welcome our talented colleagues back together in person and show the
results of what we can achieve as #OneMercia."
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.
Mercia is also pleased to share a number of short interviews with the CEOs of
its portfolio companies updating on recent progress and the outlook for their
businesses.
These interviews can be accessed here:
https://www.mercia.co.uk/interim-results-2022/
(https://www.mercia.co.uk/interim-results-2022/) .
-Ends-
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, Andrew Potts
Singer Capital Markets +44 (0)20 7496 3000
Harry Gooden, James Moat
FTI Consulting +44 (0)20 3727 1051
Tom Blackwell, Louisa Feltes
mercia@fticonsulting.com
About Mercia Asset Management PLC:
Mercia is a proactive, specialist asset manager focused on supporting regional
SMEs to achieve their growth aspirations. Mercia provides capital across its
four asset classes of venture, private equity, debt and proprietary capital:
the Group's 'Complete Connected Capital'. The Group initially nurtures
businesses via its third-party funds under management, then over time Mercia
can provide further funding to the most promising companies, by deploying
direct investment follow-on capital from its own balance sheet.
The Group has a strong UK footprint through its regional offices, 19
university partnerships and extensive personal networks, providing it with
access to high-quality deal flow. Mercia currently has c.£948million of
assets under management and, since its IPO in December 2014, has invested
c.£116million gross into its direct investment portfolio.
Mercia Asset Management PLC is quoted on AIM with the EPIC "MERC".
Chief Executive Officer's review
Introduction
Mercia Asset Management PLC is a proactive, specialist asset manager focused
exclusively on the UK at a regional level, often but not always, where we have
a physical presence. Our regional footprint is continuing to grow with the
recent opening of an office in Bristol, to serve the Southwest. Our vision is
simple: to become the first choice for investees, investors and employees.
Alongside this, we have publicly stated that our twin strategic objectives
over the next three years, from 1 April 2021, is to achieve £60.0million in
cumulative pre-tax profits and c.£600million cumulative growth in assets
under management ("AuM").
To achieve our first objective, the £20.0million average pre-tax profits per
annum will be generated from a combination of profits generated by our fund
management operations, plus the performance of Mercia's direct investment
portfolio. At the end of the first interim period of our three-year strategic
plan I am pleased to report that Mercia has made an encouraging start, with
adjusted operating profit of £2.4million, net upward fair value movements of
£8.7million and profit before tax of £11.0million.
As at 30 September 2021, Mercia's total AuM was c.£948million and comprises
c.£762million of third-party funds under management ("FuM") plus the Group's
consolidated net assets of c.£186million, the two largest components of which
are our c.£110million direct investment portfolio and our c.£52million of
cash.
Further growth in Mercia's AuM will be achieved by our three discrete
investment activities; (i) selective investment into new and existing direct
portfolio companies alongside our managed funds, as we seek direct investment
stakes of at least 10% into a diversified portfolio (both in terms of sector
vertical and stage of development) of up to 30 companies at any one time, with
23 today delivering a portfolio IRR of c.14%, (ii) expand on an organic basis
our FuM, including seeding new fund initiatives, and (iii) continuing to scale
the Group through selective acquisitions, where the enlarged Group can
leverage the skills of its #OneMercia talented staff, enhanced distribution
capabilities and core competences.
We focus on where you are heading, not where you are from
We seek to support regional businesses and entrepreneurs from across the UK,
with diversity being a key investment theme for Mercia, with this initiative
being led by our Responsible Investment Team. Our private equity and debt
asset classes focus on profitable businesses, whilst our regional venture and
Enterprise Investment Scheme ("EIS") capital provides seed to Series A funding
as a generalist technology investor. Our Venture Capital Trust ("VCT") and
proprietary capital predominantly focus on the enabling technology verticals
of Life Sciences/Biosciences, Deep Tech, Digital Entertainment and Software,
from Series A onwards. This asset class breadth and investment capacity
enables the targeting of an annual addressable market, excluding London, of
c.£1.8billion.
Deal origination has remained strong during the period under review, emerging
increasingly through our digital engagement channels, our proprietary networks
and through the gradual return of face-to-face meetings, as our operating
environment establishes a new level of normality. In the six months to 30
September 2021, the Group invested £55.1million into 74 companies (38 of
which were new to Mercia), drawing in syndicated investment of £31.3million
across our four asset classes of venture, private equity, debt and proprietary
capital.
With 1,110 enquiries during this six-month period, we estimate that we had
sight of c.40% of all deals done in our target market and have taken c.5%
market share overall. As the early adverse impact of the pandemic on
investment activity further subsides, we have regained good investment
momentum. There is much more for us to build on in our target markets.
Our vision
First choice for investees
We are typically the lead in originating opportunities, supporting investee
companies' subsequent growth and then proactively driving exits at the right
time for Mercia and the investee companies' founders. To this end we have
developed an in-house value centre, Mercia's Portfolio Resource, specifically
to provide proactive support to our portfolio companies without additional
cost to them. Our proactive services include access to our network of offices,
in-house training and mentoring support e.g. digital marketing and lead
generation strategies, focused networking events, plus NED and C-suite
searches. This wide-ranging value-accretive support is made possible by both
our scale and our passion for supporting our domestic portfolio of over 400
companies in whatever way we can to help them succeed. In addition, our
flexible capital solutions, which we term Mercia's 'Complete Connected
Capital', enable us to provide capital from seed all the way through to IPO
and/or trade sale. Our 'capital light' investment strategy means that we are
typically investing in businesses that seek no more than £20.0million in
total funding, with Mercia typically investing up to £10.0million along the
journey, although there is no specific limit.
First choice for investors
Total AuM grew sequentially by 0.9% in the period under review to
c.£948million (FY 2021: c.£940million) or 8.7% when compared to this period
end last year - all driven by organic growth. At the period end the Group had
total uninvested cash, including Mercia's third-party managed funds, of
c.£284million (FY 2021: c.£314million).
Mercia's asset class movements during this reporting period were as follows:
AuM Distributions AuM AuM AuM
1 April Net £'m 30 September 30 September 2020 31 March
2021 fund flows Performance 2021 £'m 2021
Asset class £'m £'m £'m £'m £'m
Venture 600 11 (36) 26 601 552 600
Private equity 54 - - (1) 53 56 54
Debt 110 - (2) - 108 114 110
Proprietary capital 176 - (1) 11 186 150 176
Total 940 11 (39) 36 948 872 940
As more fully described in Julian Viggar's Chief Investment Officer review,
the relatively small net AuM increase during this six-month period is as a
result of the number of successful exits, resulting in elevated returns to
investors, which are categorised in the above table as distributions. This
successful investment performance will underpin our ability to raise new funds
in the future.
Mercia benefits from a broad and overlapping distribution platform comprising
retail (in respect of EIS and VCT investors), institutional (in respect of
private equity and certain debt funds), pseudo public sector (in respect of
Mercia's managed regional venture and debt funds) and the public markets (in
respect of our shareholders).
Our primary focus remains on growing all elements of AuM on an organic basis,
leveraging our increasingly strong investment track record and interconnected
distribution channels as follows:
· Retail: Growing EIS capital under management and VCT net asset values
year on year.
· Institutional capital: Raising a follow-on private equity fund
targeting to go live within the next 18 months.
· Pseudo public sector: Targeting top-up capital to our existing
regional FuM (c.£30m within this financial year) and then the next generation
of follow-on regional venture and debt funds.
· New funds and fund areas: We are actively considering an
Environmental, Social, and Governance ("ESG") fund for retail investors
alongside an Enabling Technology scale-up fund for institutional investors,
whilst looking to leverage our capabilities into small and micro-cap public
market investing.
· Public markets: Access to capital to part-fund selective future
acquisitions.
First choice for employees
Mercia has grown by c.17% in staff numbers to 106 people since the first
lockdown was announced in March 2020 and c.41% of our staff are women.
Throughout this period our number one priority has remained the physical and
mental health of our team, and our #OneMercia culture is at the heart of this
philosophy. Following a detailed assessment of remuneration in our industry
and being cognisant of the current tight market for exceptional people such as
Mercia's employees, we continue to ensure that Mercia's working environment is
one which ensures that individuals can do their best work and that success is
rewarded across the group. We have adopted a hybrid 'working from anywhere'
operating model, all employees are invited to become share option holders,
participate in a groupwide bonus scheme and are entitled to a comprehensive
benefits package, which now includes an electric car salary sacrifice scheme.
Financial performance
It is pleasing to see Mercia's collective efforts being reflected in our
continued growth in adjusted operating profit, which is primarily, although
not exclusively, driven by our fund management operations. Revenues(1) grew
20.7% to £10.1million (H1 2021: £8.4million) whilst the Group's cost base(1)
increased 8.7% to £8.0million (H1 2021: £7.3million), resulting in adjusted
operating profit growth of 125.0% to £2.4million (H1 2021: £1.1million).
Furthermore, the Group has become entitled to £2.6million in gross
performance fees derived from a legacy regional venture fund and one of our
three Northern VCT fund management contracts (H1 2021: £nil). Net fair value
movements totalling £8.7million (H1 2021: £6.7million) reflect the
continuing maturity and value-creating potential of our direct investment
portfolio. Overall, the Group's profit after tax increased 35.2% to
£11.2million (H1 2021: £8.2million). These strong results support the
trebling of Mercia's interim dividend to 0.3 pence per share (H1 2021: 0.1
pence per share).
(1) On an alternative performance measure basis.
Outlook
As the 'COVID tide' starts to gradually recede, it leaves behind a new way of
working for every UK business.
The pandemic has resulted in accelerated change and the turbulence created
across the globe has overwhelmed the resilience of many organisations. On the
domestic front, we are finding that entrepreneurs in the UK regions have
adapted quickly and coped well in many respects during the past 18 months. It
is fair to say that prior to the pandemic few would have predicted this
emerging new dynamic with changes to working environments, business models and
the way we now live. These structural and largely permanent changes present
significant challenges for some whilst great opportunities for others.
Mercia's ambitious resilience has enabled us to respond swiftly to these
changes, guided by our vision of being the first choice for investees,
investors and employees.
As the Group's positive momentum continues, we have a firm belief in Mercia's
ability to make a valued difference across the UK, for the benefit of all our
stakeholders.
I continue to be sincerely grateful to all our employees, portfolio companies,
managed fund investors and our many other valued stakeholders, including the
boards of the three Northern VCTs and of course our shareholders, for their
continued commitment to Mercia. This collective and aligned community is
ensuring the continuation of Mercia's resilient ambition.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Investment activity
Investment momentum continues at Mercia. In the six months to 30 September
2021, we invested £55.1million into 74 businesses. This included 38 companies
new to Mercia via our third-party managed funds' portfolios and £5.4million
net direct investment into five existing direct investment portfolio
companies. At the end of the period, we had c.£232million of liquidity across
all our funds to support our future investment activity, plus a further
c.£52million of cash on our balance sheet. Overall, assets under management
("AuM") increased 0.9% to c.£948million, including direct investment fair
value movements ("FVM") of £8.7million in the first half of the financial
year. This small net overall increase in AuM masks the fact that distributions
to fund investors and shareholders totalled c.£39million - the acid test of
successful investment performance and the catalyst to future third-party funds
under management ("FuM") growth.
Differentiated not only through our strong physical presence across the UK regions and complementary suite of overlapping pools of finance (our 'Complete Connected Capital'), Mercia also benefits from an excellent team of 65 investment professionals across our asset classes.
Value-add
Through talent. Our non-executive director ("NED"), venture partner and
operating partner networks continue to grow. This is a key focus area for us
in helping to drive value. Our Portfolio Resourcing team led by Lisa Ward has
grown to include Victoria Robson who joined us from BGF. Lisa and Victoria
manage this valuable network to offer experienced board members alongside
specific operating partner input, relevant to a particular situation, for any
investee company. This is a resource cost borne by Mercia for our portfolio
companies' benefit. Games businesses VirtTrade Limited t/a Avid Games ("Avid
Games"), Soccer Manager Limited ("Soccer Manager") and software business Ton
UK Limited t/a Intelligent Positioning ("Intelligent Positioning") are all
benefitting from the addition of this approach. As an example, we have helped
Intelligent Positioning appoint a new CFO and a sector specific NED, helping
it recover from the customer churn it experienced during the depths of the
pandemic. Intechnica Limited ("Intechnica") and nDreams Limited ("nDreams")
have both appointed excellent new chairs during the period, with Frank Sagnier
joining nDreams after his exit as chief executive officer ("CEO") from
Codemasters, and Rupert Cook appointed as the new chair of Intechnica,
bringing successful sector and commercial experience, particularly in the US
cybersecurity market.
Through syndication. As our direct investment portfolio matures, we help our
companies with syndicated fundraising. Life Science business Locate Bio
Limited ("Locate Bio") raised a new £10.0million Series A round in September
2021 to continue its clinical development. In this raise, we were joined by
BGF and Consensus Business Group, as well as investment from our own VCTs and
EIS funds. Other Life Science businesses, PsiOxus Therapeutics Limited
("PsiOxus") and Sense Biodetection Limited ("Sense"), also raised significant
new funds in syndicated deals post the period end, totalling over £30million.
Investment realisations
During the six-month period ended 30 September 2021, we benefitted from nine
full and partial exits compared with 10 during the whole financial year ended
31 March 2021, generating a combined return on investment capital of 2.4x.
Managed funds performance, which can generate carried interest or performance
fees payable to the fund manager, is a demonstration of not just individual
investment realisations but also of overall investment management performance
above and beyond investors' expectations. It is pleasing to note that a
growing number of our venture (national EIS, VCT and regional funds) and
private equity funds are delivering in this respect. During the period Mercia
became entitled to receive performance fees from one of our legacy venture
funds and from one of our Northern VCTs, together totalling £2.6million.
Proprietary capital
As at 30 September 2021, our direct investment portfolio was valued at
£110.3million (H1 2021: £101.6million; FY 2021: £96.2million) with 20
active companies (H1 2021: 22; FY 2021: 20).
We invested £5.4million net into the direct investment portfolio in the first
six months of the current financial year (H1 2021: £10.9million; FY 2021:
£15.4million) and alongside our own investment, raised more than £7.0million
from syndicate investors, including c.£5million from Mercia's managed funds.
The amount invested in the period does not show the whole picture however, as
a number of additional follow-on investments completed shortly post period
end, alongside two new additions to our direct investment portfolio, taking
the active number to 22. The latest fast-growing companies added to the
portfolio were Forensic Analytics Limited ("Forensic Analytics"), a provider
of innovative software solutions to government and law enforcement agencies,
and Pimberly Limited, a Manchester-based software-as-a-service company, with
both businesses being at a later stage to those historically invested in by
our proprietary capital. As demonstrated with Forensic Analytics, our ability
to provide secondary capital via our balance sheet alongside our managed funds
is a significant differentiator and provides Mercia with a competitive
advantage when originating later-stage venture investments.
One of our two new strategic objectives over the next three years is to
generate average pre-tax profits of £20.0million per annum, from a
combination of the profits from our fund management operations plus the
performance of Mercia's direct investment portfolio. Although I do not expect
the contributions from fair value movements and realised gains to be delivered
uniformly, I am confident that our assets have significant intrinsic value and
we will see this unlock over the three-year period, as technical and
commercial progress accelerate.
Direct investments portfolio highlights
The period under review saw net upward fair value movements of £8.7million,
driven by significant commercial progress at Faradion Limited ("Faradion") and
Intechnica in particular. Soccer Manager and Avid Games have also progressed
well, and other fair value uplifts arose on the conversion of loans into
equity at Medherant Limited ("Medherant") and progress against milestones at
Sense. This was balanced against MyHealthChecked PLC's ("MyHealthChecked")
share price fall from 4.4p to 2.0p.
Our top 10 direct investment holdings represent c.80% of the value of our
portfolio as at 30 September 2021. There has been tangible positive progress
across a number of our largest investments. Below we summarise the top two
investee companies by value per sector and in addition, several 'ones to
watch'.
Software and Digital Entertainment
By sector combined, c.52% by value of the portfolio.
1. nDreams: 35.4% fully diluted direct investment stake with a further 4.0%
fully diluted stake held by Mercia's managed funds
Farnborough-based nDreams achieved revenues of £5.2million for the year to 31
March 2021. Alongside its two Oculus titles, Shooty Fruity and the
award-winning Phantom: Covert Ops, which continue to see solid sales growth,
it also released Fracked on the Sony platform in August 2021, to critical
acclaim. nDreams has signed its first third-party publishing deal for a game
(Little Cities), built around the Far Cry IP, which will be launched on Oculus
in early 2022 and released to Zero Latency, the fast-growing free-roam virtual
reality ("VR") experience company. Mercia first supported nDreams in 2014 via
its managed funds. The company is increasingly recognised for its intricate
technical capability in VR, as well as its quality content and publishing
knowhow, creating VR content for some of the world's leading entertainment
companies.
2. Intechnica: 27.5% fully diluted direct investment stake with a further
20.7% fully diluted stake held by Mercia's managed funds
Manchester-based Intechnica is an ecommerce security and efficiency focussed
group, which, through its Netacea subsidiary, has developed a new layer of
security dedicated to malicious bot detection and mitigation. Netacea provides
deep, actionable analysis of all internet traffic, web reconnaissance,
automated bots and legitimate website visitors, then manages those journeys
accordingly in real time. This is alongside Intechnica's consultancy services
that offer digital transformation programmes for businesses looking to
modernise their technical capability or introduce modern data science
capabilities into their businesses. Netacea currently has annual recurring
revenue ("ARR") of c.£4million and Intechnica has annual sales of
c.£10million.
Deep Technology ("Deep Tech")
By sector, c.26% by value of the portfolio.
3. Faradion: 15.0% fully diluted direct investment stake with a further 33.7%
fully diluted stake held by Mercia's managed funds
Sheffield-based Faradion is one of the world's leaders in non-aqueous
sodium-ion battery cell technology. Faradion's technology offers the same
performance as lithium-ion but, crucially, with sodium being the sixth most
abundant element, there is no scarcity - which also allows countries to
develop their own supply chains, thus avoiding Chinese dependency. The company
started to commercialise its technology in 2019 and has subsequently received
orders from its Australian JV partner ICM, a licensing deal with listed energy
company AMTE Power and a technical collaboration on the development of new
anode materials with Texan company Phillips 66. Accelerating progress has
driven a material uplift in our holding value.
4. Impression Technologies: 67.3% fully diluted direct investment stake with a
further 3.9% fully diluted stake held by Mercia's managed funds
As the planet enters a new era of electrification and low energy consumption,
Impression Technologies, based on intellectual property originally developed
at the University of Birmingham, has a multitude of rapidly developing
opportunities in the automotive and aerospace markets. It has developed a
proprietary aluminium light weighting technology, HFQ™, with its own
pressing plant in Coventry. As commercial engagement continues at pace, this
year saw the company move to the production of 25 different parts and five
different OEM programs.
Life Sciences
By sector, c.21% by value of the portfolio.
5. Medherant: 33.1% fully diluted direct investment stake with a further 13.1%
fully diluted stake held by Mercia's managed funds
Midlands-based Medherant is a University of Warwick spinout commercialising a
platform of proprietary patch adhesive for medical applications. It benefits
from a number of external partnerships and its own internal development
program. In respect of its external partnerships, one in particular, albeit at
an early stage, would, if successful, address a multi-billion-dollar market
opportunity.
6. Locate Bio: 18.1% fully diluted direct investment stake with a further
24.6% fully diluted stake held by Mercia's managed funds
Nottingham-based Locate Bio, which is developing a range of orthobiologics,
raised £10.0million in a syndicated Series A round in which Mercia made a
direct investment of £1.6million alongside £4.0million from its third-party
managed funds, together with £3.0million from BGF and £1.4million from other
investment partners.
Locate Bio's products will be used by orthopaedic surgeons to accelerate the
natural repair of bone and cartilage. Addressing a multi-billion-pound global
market, Locate Bio currently has four products going through trials, the first
targeting formal market approval in 2022. The £10.0million round will
support the next stages of these trials including the company's lead bone
graft solution ("LDGraft") as part of the FDA approval process, as well as the
development of additional products acquired last year.
Ones to watch
7. Sense Biodetection: 1.2% fully diluted direct investment stake with a
further 8.8% fully diluted stake held by Mercia's managed funds
With operations in the UK and the US, Sense is focused on the development of
instrument-free molecular diagnostics for infectious diseases, delivering true
point-of-care molecular testing in just 10 minutes. Able to address the unique
challenges of remote testing at scale, Sense's Veros™ platform has the
potential to transform the way medical providers and patients approach
healthcare, making it possible to take monitoring outside of the traditional
clinical frameworks of hospitals and GP surgeries and into any context where
it is required. Sense raised a $50.0million Series B round in April 2021 led
by Koch Disruptive Technologies ("KDT"), with the funding round increased to
$65.0million in November 2021.
8. Warwick Acoustics: 35.8% fully diluted direct investment stake with a
further 0.5% fully diluted stake held by Mercia's managed funds
Midlands-based Warwick Acoustics creates highly innovative audio products for
both the automotive and the high-end personal and studio headphone market.
Having recently raised £3.3million from existing shareholders to fund its
next stage of development, Warwick Acoustics has gained significant commercial
traction. In the last 12 months, the company has achieved several significant
milestones for its ElectroAcoustics Panel technology, with the successful
completion of three customer-funded proof-of-concept projects and the passing
of key automotive environmental tests with a significant partner.
9. Soccer Manager: 39.0% fully diluted direct investment stake with a further
7.6% fully diluted stake held by Mercia's managed funds
North West-based mobile soccer management game developer Soccer Manager
continues to make good progress and has signed several high-profile licences,
giving it access to rich content for its mobile games. These include top
European football clubs Inter Milan and Bayer Leverkusen, Premier League team
Wolverhampton Wanderers and teams from the Scottish Premiership. In addition
to these, the company has also been granted the rights of player likenesses
from Federation Internationale des Associations de Footballeurs Professionnel
("FIFPro") the global representative of professional football players. Soccer
Manager's latest release in the Soccer Manager series, Soccer Manager 2022 has
performed even better than last year's edition, increasing revenues
significantly.
Third-party managed funds
As at 30 September 2021 we were managing c.£762million of third-party funds
(H1 2021: c.£722million; FY 2021: c.£764million). Across those funds we had
c.£232million of liquidity (H1 2021: c.£230million; FY 2021:
c.£259million), which will enable us to fully support our portfolio
companies, whilst taking advantage of the strongest new deal opportunities
during the months to come.
In June 2021, we received a further allocation from British Business Bank
("BBB") of £5.0million for our Midlands Engine early-stage proof of concept
fund ("MEIF POC"). Furthermore, post period end we have received a further
£25.9million allocation from BBB in relation to our Northern Powerhouse
activities (comprising NPIF Equity £15.0million and NPIF Debt £10.9million),
alongside an extension of the fund's investment period to 31 December 2023.
During the six-month period ended 30 September 2021, we invested £49.7million
across the funds and made significant cash realisations.
FuM
30 September Companies Amount Company
2021 in portfolio invested exits
Asset class £'m No. £'m No.
EIS 71 72 5 2
VCT 349 56 19 5
Regional venture 181 125 14 2
Private equity 53 9 5 -
Debt 108 164 7 -
Totals 762 426 50 9
Managed funds' portfolios
Venture
We have followed the c.£103million returned via 10 exits in FY 2021 with nine
further exits from our venture funds, realising £55.2million in cash, in the
six months to 30 September 2021 at an average multiple of 2.4x cost. The
biggest was the listing of musicMagpie PLC by our Northern VCTs in April 2021
which valued the business at c.£208million. The Northern VCTs sold down half
of their stake returning £27.0million, 12x cost. Our Northern VCTs also sold
half of their position in food delivery business Oddbox Limited, returning
£9.8million on a £1.0million investment.
Our third-party managed funds across all asset classes also have good exposure
to Life Sciences, Deep Tech and Software.
Private equity
The valuations of our PE funds have largely stabilised and portfolio companies
Shoppertainment Limited and ParkVia Limited, both heavily affected by COVID-19
lockdowns, are now trading back at close to their pre-COVID-19 levels. Post
period end, two new investments totalling £8.7million were completed in
October 2021, reflecting the PE team's significant efforts over the summer
months.
Debt
The Coronavirus Business Interruption Loan Scheme ("CBILS") ended at the end
of March 2021 with Mercia having completed £21.0million of loans under the
scheme. The Group was then accredited by BBB to deliver its NPIF Debt mandate
under the Recovery Loan Scheme ("RLS") at the start of the new financial year.
Launched on 6 April 2021, the RLS continues to provide financial support to
businesses across the UK as they recover and grow following the coronavirus
pandemic. Mercia also continues to support thriving regional businesses
through our Mercia SME Loans fund in partnership with our longstanding
investment partner, the Greater Manchester Pension Fund.
Summary
The first half of the financial year has yielded continued progress across our
portfolio companies as businesses adapt to 'the new normal'. This ongoing
flexibility will be critical as we go into winter against the backdrop of
uncertain macroeconomic and pandemic related circumstances.
Mercia's business model continues to be very resilient in the current
environment: our regional presence coupled with our leading position in those
markets and flexible approach that can deliver investment rounds of up to
£10.0million of primary and secondary capital from various funds in a single
round as #OneMercia. This is all possible given our significant liquidity
together with the skills, expertise, commitment and dedication of our
investment and support teams.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
Mercia Asset Management PLC has made further profitable progress during the
six months to 30 September 2021. This strong financial performance, coupled
with the Board's optimism for the future, has merited the trebling of the
Group's interim dividend, compared with last year.
Overall trading performance
It is sobering to recall the pandemic-induced economic backdrop to last year's
interim results. The twin important focuses during that period were the safety
and wellbeing of our staff, all of whom had switched to working remotely, and
assessing the continuing viability and cash flow needs of each of our c.400
investee companies. The general drop in asset prices as at 31 March 2020
following the first lockdown announcement impacted not just portfolio carrying
values, but in certain instances, the fund management revenues derived from
those carrying values.
It is therefore pleasing to report not just a strong financial performance
compared with the same period last year, but also that the positive momentum
seen in the second half of the previous financial year has continued into this
new financial year. The ongoing recovery in asset prices is resulting in
higher fund management revenues as well as higher valuations for our direct
investments, whilst Groupwide investment activity is continuing to increase.
Interim dividend
The Board adopted a progressive dividend policy this time last year and with
it announced Mercia's maiden interim dividend of 0.1 pence per share. The
Group's profitable first-half performance, strong liquidity and positive
future prospects has enabled the Board to declare a threefold increase in this
year's interim dividend to 0.3 pence per share (H1 2021: 0.1 pence), payable
to shareholders on the register as at close of business on 17 December 2021.
The interim dividend will be paid on 31 December 2021. The total dividend
payable is £1,320,000 (H1 2021: £440,000).
Adjusted operating profit - alternative performance measure ("APM")
The Directors believe that adjusted operating profit assists in providing a
consistent measure of operating performance and is an important APM of
interest to shareholders.
Adjusted operating profit is defined as operating profit before performance
fees net of variable compensation, realised gains on disposal of investments,
fair value movements in investments, share-based payments charge,
depreciation, amortisation of intangible assets, movement in fair value of
contingent consideration and exceptional items. It includes net finance
income.
Results reported on an APM basis are denoted by ¹ throughout this review.
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
£'000 £'000 £'000
Revenue(1) 10,089 8,362 19,186
Administrative expenses(1) (7,957) (7,323) (15,897)
Net finance income 230 9 48
Adjusted operating profit 2,362 1,048 3,337
Performance fees 2,607 - 4,224
Variable compensation attributable to performance fees (1,015) - (445)
Net performance fees 1,592 - 3,779
Adjusted operating profit including performance fees net of costs 3,954 1,048 7,116
Depreciation (110) (106) (212)
Net finance income (230) (9) (48)
Realised gains on disposal of investments - 1,704 20,251
Fair value movements in investments 8,708 6,730 10,088
Share-based payments charge (573) (182) (543)
Amortisation of intangible assets (1,017) (1,167) (2,317)
Movement in fair value of contingent consideration - - (365)
Operating profit 10,732 8,018 33,970
A reconciliation of results reported on an APM basis to International
Financial Reporting Standards ("IFRS") is as follows:
Six-month period ended 30 September 2021 Six-month period ended 30 September 2020
APM Performance fees Depreciation IFRS as reported APM Performance fees Depreciation IFRS as reported
basis(1) basis(1)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 10,089 2,607 - 12,696 8,362 - - 8,362
Administrative expenses (7,957) (1,015) (110) (9,082) (7,323) - (106) (7,429)
Depreciation (110) - 110 - (106) - 106 -
Year ended 31 March 2021
APM Performance fees Depreciation IFRS as reported
basis(1)
£'000 £'000 £'000 £'000
Revenue 19,186 4,224 - 23,410
Administrative expenses (15,897) (445) (212) (16,554)
Depreciation (212) - 212 -
Revenue
Revenue(1) increased 20.7% to £10,089,000 (H1 2021: £8,362,000) and
comprised fund management related fees, initial management fees from
investment rounds, investment director monitoring fees and sundry business
services income. The majority of the increase was attributable to an increase
in the fair values of the Group's venture funds under management, plus an
increase in investment activity across the Group as a whole.
Administrative expenses
Administrative expenses(1) increased 8.7% to £7,957,000 (H1 2021:
£7,323,000). The increase was predominantly staff related (both higher
earnings and higher headcount), plus the beginnings of a recovery in external
face-to-face meetings, resulting in higher business travel and associated
expenses.
Net finance income
Finance income of £238,000 (H1 2021: £18,000) comprised interest received on
loans to direct portfolio companies, plus interest earned on the Group's cash
and short-term liquidity investments. Finance costs of £8,000 (H1 2021:
£9,000) comprised interest payable on office leases.
Performance fees and attributable variable compensation
At the period end a performance fee totalling £2,538,000 (H1 2021: £nil)
became receivable from Northern Venture Trust PLC, based upon the growth in
its net asset value per share above a hurdle for the year ended 30 September
2021. Attributable VCT investment team bonuses (including employer's National
Insurance) totalling £1,015,000 have been accrued (H1 2021: £nil). The gross
performance fee was received post period end. A further performance fee of
£69,000 was also received from a managed legacy fund, triggered by
realisations.
Realised gains on disposal of investments
There were no direct investment realisations (H1 2021: £1,704,000) during the
six-month period.
Fair value movements in investments
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
£'000 £'000 £'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments 11,417 7,076 10,773
Unrealised losses on the revaluation of investments (2,709) (346) (685)
Net fair value movement 8,708 6,730 10,088
For the six months ended 30 September 2021, unrealised fair value gains arose
in eight (H1 2021: eight) of the Group's 23 (H1 2021: 25) direct investments.
The largest fair value gain was in respect of Faradion, which accounted for
£5,756,000 of the total. There were two (H1 2021: eight) fair value
decreases, the largest of which was £2,448,000 in respect of MyHealthChecked
PLC.
Share-based payments charge
The £573,000 non-cash charge (H1 2021: £182,000) arises from the net
increase in the total number of issued share options held by employees
throughout the Group.
Amortisation of intangible assets
The amortisation charge for the period of £1,017,000 (H1 2021: £1,167,000)
represents amortisation of the acquired intangible assets of the VCT fund
management business.
Taxation
The Group continues to utilise historic and current trading losses, which are
available to set off against current taxable profits. The Group also continues
to believe that the majority of its direct investment portfolio will qualify
for the Substantial Shareholder Exemption when those investments are realised,
thereby also resulting in no tax liability.
The overall tax credit comprises the unwinding of the deferred tax liability
in respect of the VCT fund management acquisition.
Profit after taxation for the period
The adjusted operating profit and net performance fees, together with the net
fair value increase for the period contributed to a profit after taxation of
£11,154,000 (H1 2021: £8,247,000), resulting in basic earnings per Ordinary
share of 2.53 pence (H1 2021: 1.87 pence per share).
Dividends
The increasingly profitable and operating cash generative performance enables
Mercia to announce an interim dividend of 0.3 pence per share (H1 2021: 0.1
pence per share), treble the maiden interim dividend declared in December
2020.
Balance sheet and cash flows
Net assets as at 30 September 2021 of £186,428,000 (H1 2021: £149,889,000;
FY 2021: £176,021,000) were predominantly made up of the Group's direct
investment portfolio, cash and short-term liquidity investments and the
acquired intangible assets of Enterprise Ventures Group and the VCT fund
management business. Mercia continues to have limited working capital needs
due to the nature of its business and during the period generated net cash
inflow from operating activities of £2,625,000 (H1 2021: £2,164,000).
Direct investment portfolio
During the six-month period under review, Mercia's direct investment portfolio
grew 14.6% in value from £96,220,000 as at 1 April 2021 (1 April 2020:
£87,471,000) to £110,298,000 as at 30 September 2021 (30 September 2020:
£101,618,000). The table below lists the Group's top 20 direct investments by
fair value as at 30 September 2021, including the year of first direct
investment, net cash invested during the period, fair value movements and the
fully diluted equity percentage held in each company at the period end. The
Group's top 20 direct investments represent 98.5% of the total direct
investment portfolio value (H1 2021: 98.6%; FY 2021: 98.5%).
Year of Net Net
first direct investment investment Net cash Fair value investment Percentage
value as at invested movement value as at held
1 April six months to 30 September six months to 30 September 30 September as at
2021 2021 2021 2021 30 September
£'000 £'000 £'000 £'000 2021
%
nDreams Ltd 2014 17,726 - - 17,726 35.4%
Faradion Ltd 2017 5,693 1,500 5,756 12,949 15.0%
Intechnica Group Ltd 2017 9,996 - 2,824 12,820 27.5%
Medherant Ltd 2016 8,105 534 349 8,988 33.1%
Voxpopme Ltd 2018 8,845 - - 8,845 17.6%
Impression Technologies Ltd 2015 8,622 - - 8,622 67.3%
Ton UK Ltd t/a Intelligent Positioning 2015 4,913 - - 4,913 29.9%
Locate Bio Ltd 2018 3,006 1,664 188 4,858 18.1%
Warwick Acoustics Ltd 2014 4,255 - 407 4,662 35.8%
Soccer Manager Ltd 2015 3,553 - 1,047 4,600 39.0%
VirtTrade Ltd t/a Avid Games 2015 2,812 796 148 3,756 40.0%
Eyoto Group Ltd 2017 1,813 750 - 2,563 15.7%
sureCore Ltd 2016 2,417 - - 2,417 22.0%
PsiOxus Therapeutics Ltd 2015 2,407 - - 2,407 1.4%
Edge Case Games Ltd 2015 2,300 - - 2,300 18.7%
W2 Global Data Solutions Ltd 2018 2,300 - - 2,300 16.3%
MyHealthChecked PLC 2016 4,488 - (2,448) 2,040 13.5%
Sense Biodetection Ltd 2020 945 - 625 1,570 1.2%
MIP Diagnostics Ltd 2020 302 - - 302 3.3%
LM Technologies Ltd 2015 250 - (250) - 48.3%
Other direct investments n/a 1,472 126 62 1,660 n/a
Total n/a 96,220 5,370 8,708 110,298 n/a
Cash and short-term liquidity investments
At the period end, Mercia had cash and short-term liquidity investments of
£52,114,000 (H1 2021: £24,866,000; FY 2021: £54,725,000) comprising cash of
£51,880,000 (H1 2021: £24,632,000; FY 2021: £54,491,000) and short-term
liquidity investments of £234,000 (H1 2021: £234,000; FY 2021: £234,000).
The Group no longer holds funds on behalf of its third-party EIS investors (H1
2021: £305,000; FY 2021: £2,484,000).
The overriding emphasis of the Group's treasury policy remains the
preservation of its shareholders' cash for investment and working capital
purposes, not yield. At the period end the Group's cash and short-term
liquidity investments (which is cash on deposit with maturities between three
and six months) were spread across four leading United Kingdom banks.
The summarised movement in the Group's cash position during the six months
ended 30 September 2021 is shown below.
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
£'000 £'000 £'000
Opening cash and short-term liquidity investments 54,725 30,186 30,186
Net cash generated from operating activities 2,625 2,164 5,611
Net cash (used in)/generated from total investing activities (5,166) (7,424) 21,606
Purchase of VCT management contracts - - (2,100)
Dividend paid - - (440)
Net cash used in financing activities (70) (60) (138)
Period end cash and short-term liquidity investments 52,114 24,866 54,725
Net assets per share
Net assets at the period end were £186,428,000 (H1 2021: £149,889,000; FY
2021: £176,021,000), resulting in net assets per share of 42.4 pence (being
net assets of £186,428,000 divided by 440,109,707 shares in issue); (H1 2021:
34.1 pence, being net assets of £149,889,000 divided by 440,109,707 shares in
issue); (FY 2021: 40.0 pence, being net assets of £176,021,000 divided by
440,109,707 shares in issue). Net assets per share as at 30 September 2019,
the last reporting date prior to the Group's December 2019 placing, was 42.3
pence per share.
Outlook
The Group has made a strong start to its new three-year 'Mercia 20:20'
shareholder value creation strategy. The Board is optimistic that Mercia's
first-half momentum will continue for the remainder of this financial year and
the foreseeable future.
Martin Glanfield
Chief Financial Officer
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2021
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
Note £'000 £'000 £'000
Revenue 2 12,696 8,362 23,410
Administrative expenses (9,082) (7,429) (16,554)
Realised gains on disposal of investments - 1,704 20,251
Fair value movements in investments 3 8,708 6,730 10,088
Share-based payments charge (573) (182) (543)
Amortisation of intangible assets (1,017) (1,167) (2,317)
Movement in fair value of deferred consideration - - (365)
Operating profit 10,732 8,018 33,970
Finance income 238 18 68
Finance expense (8) (9) (20)
Profit before taxation 10,962 8,027 34,018
Taxation 192 220 440
Profit and total comprehensive income for the period 11,154 8,247 34,458
Basic earnings per Ordinary share (pence) 4 2.53 1.87 7.83
Diluted earnings per Ordinary share (pence) 4 2.50 1.87 7.83
All results derive from continuing operations.
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
Condensed consolidated statement of financial position
As at 30 September 2021
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2021 2020 2021
Note £'000 £'000 £'000
Assets
Non-current assets
Goodwill 16,642 16,642 16,642
Intangible assets 6 16,729 18,896 17,746
Property, plant and equipment 105 115 107
Right-of-use assets 421 527 456
Investments 7 110,298 101,618 96,220
Total non-current assets 144,195 137,798 131,171
Current assets
Trade and other receivables 4,551 1,451 4,060
Restricted cash 8 - 305 2,484
Short-term liquidity investments 8 234 234 234
Cash and cash equivalents 8 51,880 24,632 54,491
Total current assets 56,665 26,622 61,269
Total assets 200,860 164,420 192,440
Current liabilities
Trade and other payables (6,355) (4,226) (8,127)
Lease liabilities (131) (122) (122)
Deferred consideration 9 (1,578) (1,736) (1,578)
Total current liabilities (8,064) (6,084) (9,827)
Non-current liabilities
Lease liabilities (319) (409) (351)
Deferred consideration 9 (2,869) (4,446) (2,869)
Deferred taxation 10 (3,180) (3,592) (3,372)
Total non-current liabilities (6,368) (8,447) (6,592)
Total liabilities (14,432) (14,531) (16,419)
Net assets 186,428 149,889 176,021
Equity
Issued share capital 4 4 4
Share premium 81,644 81,644 81,644
Other distributable reserve 68,240 70,000 69,560
Retained earnings 33,559 (3,806) 22,405
Share-based payments reserve 2,981 2,047 2,408
Total equity 186,428 149,889 176,021
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
The condensed consolidated interim financial statements of Mercia Asset
Management PLC were approved by the Board of Directors on 6 December 2021 and
authorised for issue. They were signed on its behalf by:
Dr Mark Payton
Martin Glanfield
Chief Executive Officer Chief Financial
Officer
Condensed consolidated cash flow statement
For the six months ended 30 September 2021
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
Note £'000 £'000 £'000
Cash flows from operating activities:
Operating profit 10,732 8,018 33,970
Adjustments to reconcile operating profit to net cash flows generated from
operating activities:
Depreciation of property, plant and equipment 36 35 70
Depreciation of right-of-use assets 74 71 142
Gain on sale of direct investments - - (20,251)
Fair value movements in investments 7 (8,708) (6,730) (10,088)
Share-based payments charge 573 182 543
Amortisation of intangible assets 6 1,017 1,167 2,317
Movement in fair value of contingent consideration - - 365
Working capital adjustments:
Increase in trade and other receivables (491) (161) (2,762)
(Decrease)/increase in trade and other payables (608) (418) 1,305
Net cash generated from operating activities 2,625 2,164 5,611
Cash flows from direct investment activities:
Sale of direct investments - 3,493 36,987
Purchase of direct investments 7 (5,370) (11,160) (15,647)
Investee company loan repayments 7 - 250 250
Investee company interest received 238 18 68
Net cash flows (used in)/from direct investment activities (5,132) (7,399) 21,658
Cash flows from other investing activities:
Purchase of property, plant and equipment (34) (25) (52)
Purchase of fund management contracts - - (2,100)
Decrease in short-term liquidity investments - 5,981 5,981
Net cash (used in)/generated from other investing activities (34) 5,956 3,829
Net cash (used in)/generated from total investing activities (5,166) (1,443) 25,487
Cash flows from financing activities:
Dividend paid 5 - - (440)
Interest paid (8) (9) (20)
Payment of lease liabilities (62) (51) (118)
Net cash used in financing activities (70) (60) (578)
Net (decrease)/increase in cash and cash equivalents (2,611) 661 30,520
Cash and cash equivalents at the beginning of the period 54,491 23,971 23,971
Cash and cash equivalents at the end of the period 8 51,880 24,632 54,491
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2021
Issued Other distributable Share-based payments reserve
share Share reserve Retained earnings £'000
capital premium £'000 £'000 Total
£'000 £'000 £'000
As at 1 April 2020 (audited) 4 81,644 70,000 (12,053) 1,865 141,460
Profit and total comprehensive income for the period
- - - 8,247 - 8,247
Share-based payments charge - - - - 182 182
As at 30 September 2020 (unaudited) 4 81,644 70,000 (3,806) 2,047 149,889
Profit and total comprehensive
income for the period - - - 26,211 - 26,211
Dividend (note 5) - - (440) - - (440)
Share-based payments charge - - - - 361 361
As at 31 March 2021 (audited) 4 81,644 69,560 22,405 2,408 176,021
Profit and total comprehensive income for the period - - - 11,154 - 11,154
Dividend (note 5) - - (1,320) - - (1,320)
Share-based payments charge - - - - 573 573
As at 30 September 2021 (unaudited) 4 81,644 68,240 33,559 2,981 186,428
Notes to the interim financial statements
For the six months ended 30 September 2021
1. Accounting policies
The principal accounting policies applied in the presentation of the condensed
consolidated interim financial statements of Mercia Asset Management PLC (the
"Group", "Mercia" or the "Company") are consistent with those followed in the
preparation of the Group's Annual Report and consolidated financial statements
for the year ended 31 March 2021, and have been consistently applied
throughout the period ended 30 September 2021.
General information
Mercia Asset Management PLC 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 listed on the Alternative
Investment Market ("AIM") of the London Stock Exchange. The registered office
address is Mercia Asset Management PLC, Forward House, 17 High Street,
Henley-in-Arden B95 5AA.
Basis of preparation
The financial information presented in these condensed consolidated interim
financial statements constitutes the condensed consolidated financial
statements of Mercia Asset Management PLC and its subsidiaries for the six
months ended 30 September 2021. These condensed consolidated interim financial
statements should be read in conjunction with the Group's Annual Report and
consolidated financial statements for the year ended 31 March 2021, which have
been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, International
Financial Reporting Standards ("IFRS"), and the applicable legal requirements
of the Companies Act 2006.
These condensed consolidated interim financial statements and the comparative
financial information presented in these condensed consolidated interim
financial statements for the period ended 30 September 2021 do not constitute
full statutory accounts within the meaning of Section 434 of the Companies Act
2006. The Group's Annual Report and consolidated financial statements for the
year ended 31 March 2021 were approved by the Board on 5 July 2021 and have
been delivered to the Registrar of Companies. The Group's independent
auditor's report on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement under section
498 of the Companies Act 2006.
These condensed consolidated interim financial statements have been prepared
in accordance with International Accounting Standard ("IAS") 34 'Interim
Financial Reporting', as adopted for use in the UK.
No new or revised standards or interpretations that have become effective
during the period ended 30 September 2021 have had a material effect on the
financial statements of the Group.
The financial information contained in these condensed consolidated interim
financial statements, which were approved by the Board on 6 December 2021 and
authorised for issue, has been reviewed by the Group's independent auditor.
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.
In preparing these condensed consolidated interim financial statements, the
critical accounting judgements made by the Directors in applying the Group's
accounting policies and the key sources of estimation were the same as those
that applied in the preparation of the Group's Annual Report and consolidated
financial statements for the year ended 31 March 2021.
Going concern
Based on the overall strength of the Group's balance sheet, including its
significant liquidity position at the period end, together with its forecast
future operating and investment activities, and having considered the ongoing
impact of COVID-19 on the Group's operations and portfolio, the Directors have
a reasonable expectation that the Group is well placed to manage business
risks in the current economic environment and has adequate financial resources
to continue in operational existence for the foreseeable future. Accordingly,
the Directors continue to adopt the going concern basis in preparing these
condensed consolidated interim financial statements.
2. Segmental reporting
For the six months ended 30 September 2021, the Group's revenue and profit
were derived from its principal activity within the United Kingdom.
Operating segments are defined 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 Groupwide 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:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
£'000 £'000 £'000
Fund management fees 7,385 6,210 13,143
Initial management fees 1,113 658 1,447
Portfolio directors' fees 1,500 1,386 3,086
VCTs share offer fees - - 1,318
Performance fees 2,607 - 4,224
Other revenue 91 108 192
Total revenue 12,696 8,362 23,410
3. Fair value movements in investments
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
£'000 £'000 £'000
Net fair value movements in investments (note 7) 8,708 6,730 10,088
4. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the financial period by the weighted average number of Ordinary
shares in issue during the period. Diluted earnings per share is calculated
by dividing the profit for the financial period 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 potentially dilutive option
shares are included in diluted
earnings per share calculations on a weighted average basis for the period. The
profit and weighted average number of shares used in the calculations are set
out below.
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
Profit and total comprehensive income for the period (£'000) 11,154 8,247 34,458
Weighted average number of Ordinary shares (basic) ('000) 440,110 440,110 440,110
Basic earnings per Ordinary share (pence) 2.53 1.87 7.83
Weighted average number of Ordinary shares (diluted) ('000) 447,028 440,110 440,110
Diluted earnings per Ordinary share (pence) 2.50 1.87 7.83
The calculation of diluted earnings per share is based on the following
weighted average number of Ordinary shares:
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 September 30 September 31 March
2021 2020 2021
'000 '000 '000
Weighted average number of shares
Basic 440,110 440,110 440,110
Dilutive impact of share options 6,918 - -
Diluted 447,028 440,110 440,110
5. Dividends
In December 2020, the Company paid £440,000 in respect of its maiden interim
dividend for the year ended 31 March 2021 of 0.1 pence per share.
The final dividend for the year ended 31 March 2021 of 0.3 pence per share,
totalling £1,320,000, was approved by shareholders at the Annual General
Meeting on 14 September 2021 and was paid after the period end on 12 October
2021.
An interim dividend for the year ended 31 March 2022 of 0.3 pence, totalling
£1,320,000, has been declared after the reporting period end and as such has
not been included as a liability in these condensed consolidated financial
statements in accordance with IAS 10.
6. Intangible assets
Intangible assets represent contractual arrangements in respect of the
acquired VCT fund management business and the acquisition of Enterprise
Ventures, where it is probable that the future economic benefits that are
attributable to the assets will flow to the Group and the fair value of the
assets can be reliably measured.
£'000
Cost
As at 1 April 2020 (audited) 21,835
As at 30 September 2020 (unaudited) 21,835
As at 31 March 2021 (audited) 21,835
As at 30 September 2021 (unaudited) 21,835
Accumulated amortisation
As at 1 April 2020 (audited) 1,772
Charge for the period 1,167
As at 30 September 2020 (unaudited) 2,939
Charge for the period 1,150
As at 31 March 2021 (audited) 4,089
Charge for the period 1,017
As at 30 September 2021 (unaudited) 5,106
Net book value
As at 31 March 2020 (audited) 20,063
As at 30 September 2020 (unaudited) 18,896
As at 31 March 2021 (audited) 17,746
As at 30 September 2021 (unaudited) 16,729
The intangible asset recognised on the acquisition of Enterprise Ventures
became fully amortised in March 2021.
7. Investments
The net increase in the value of investments for the six-month period is
£14,078,000 (H1 2021: £14,147,000).
The Group's valuation policies are set out in detail in its consolidated
financial statements for the year ended 31 March 2021.
The table below sets out the movement in the value of investments from the
start to the end of the period, showing investments made and the direct
investment fair value movements.
Level 1 Level 3 Total
Financial assets Financial assets £'000
£'000 £'000
As at 1 April 2020 (audited) 475 86,996 87,471
Investments made during the period 200 10,960 11,160
Investee company loan repayments - (250) (250)
Disposals made during the period - (3,493) (3,493)
Unrealised gains on the revaluation of investments - 7,076 7,076
Unrealised losses on the revaluation of investments - (346) (346)
As at 30 September 2020 (unaudited) 675 100,943 101,618
Investments made during the period 304 4,183 4,487
Disposals made during the period - (13,243) (13,243)
Unrealised gains on the revaluation of investments 3,509 188 3,697
Unrealised losses on the revaluation of investments - (339) (339)
As at 31 March 2021 (audited) 4,488 91,732 96,220
Investments made during the period - 5,370 5,370
Unrealised gains on the revaluation of investments - 11,417 11,417
Unrealised losses on the revaluation of investments (2,448) (261) (2,709)
As at 30 September 2021 (unaudited) 2,040 108,258 110,298
The measurement basis for determining the fair value of investments held is as
follows.
Unaudited Unaudited Audited
As at As at As at
30 September 2021 30 September 2020 31 March
£'000 £'000 2021
£'000
Listed investment 2,040 675 4,488
Enterprise value 47,212 36,542 26,717
Price of recent investment round 43,554 42,770 48,210
Impaired value 15,192 19,029 13,560
Cost 2,300 2,602 3,245
110,298 101,618 96,220
8. Cash, cash equivalents and short-term liquidity investments
Unaudited Unaudited Audited
As at As at As at
30 September 2021 30 September 2020 31 March
£'000 £'000 2021
£'000
Cash at bank and in hand 51,880 24,632 54,491
Total cash and cash equivalents 51,880 24,632 54,491
Total short-term liquidity investments 234 234 234
Total restricted cash - 305 2,484
At the period end the Group held no cash on behalf of its third-party EIS
investors (H1 2021: £305,000; FY 2021: £2,484,000).
9. Deferred consideration
Unaudited Unaudited Audited
As at As at As at
30 September 2021 30 September 2020 31 March
£'000 £'000 2021
£'000
Payable within one year 1,578 1,736 1,578
Payable within two to five years 2,869 4,446 2,869
4,447 6,182 4,447
Details of the deferred consideration which arose on the acquisition of the
VCT fund management business in December 2019 are set out in the Group's
consolidated financial statements for the year ended 31 March 2021.
10. Deferred taxation
Unaudited Unaudited Audited
As at As at As at
30 September 2021 30 September 2020 31 March
£'000 £'000 2021
£'000
Deferred tax liability 3,180 3,592 3,372
As at 30 September 2021, a deferred tax liability of £3,180,000 (H1 2021:
£3,592,000; FY 2021: £3,372,000) has been recognised in respect of the
intangible asset arising on the acquisition of the VCT fund management
business.
11. 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 condensed
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 inputs are observable.
The following table and accompanying narrative provides information about how
the fair values of these financial assets and financial liabilities are
determined and presents the Group's assets that are measured at fair value as
at 30 September 2021. The table in note 7 of these condensed consolidated
financial statements sets out the movement in the value of investments from
the start to the end of the six-month period.
Unaudited Unaudited Audited
As at As at As at
30 September 2021 30 September 2020 31 March
£'000 £'000 2021
£'000
Assets:
Financial assets at fair value through profit or loss ("FVTPL")
Level 1
Level 2
Level 3
Level 1 2,040 675 4,488
Level 2 - - -
Level 3 108,258 100,943 91,732
110,298 101,618 96,220
Unaudited Unaudited Audited
As at As at As at
30 September 2021 30 September 2020 31 March
£'000 £'000 2021
£'000
Liabilities:
Financial liabilities at amortised cost - deferred consideration
Level 1 - - -
Level 2 - - -
Level 3 4,447 6,182 4,447
4,447 6,182 4,447
The Directors consider that the carrying amounts of financial assets and
financial liabilities recorded at amortised cost in the financial statements
approximate to their fair values.
Financial instruments in Level 1
As at 30 September 2021, 30 September 2020 and 31 March 2021, the Group had
one direct investment listed on AIM, MyHealthChecked PLC. This has been
classified in Level 1 and valued at its closing bid price as at 30 September
2021, 30 September 2020 and 31 March 2021 respectively.
Financial instruments in Level 3
If one or more of the significant inputs required to fair value an instrument
is not based on observable market data, the instrument is included in Level 3.
Apart from the one investment classified in Level 1, all other investments
held in the Group's direct investment portfolio have been classified in Level
3 in the fair value hierarchy and the individual valuations for each of the
companies have been arrived at using appropriate valuation techniques.
Note 2 of the Group's consolidated financial statements for the year ended 31
March 2021 provides further information on the Group's valuation methodology,
including a detailed explanation of the valuation techniques used for Level 3
financial instruments.
12. Related party transactions
There has been no change in the type of related party transactions described
in the Group's consolidated financial statements for the year ended 31 March
2021.
INDEPENDENT REVIEW REPORT TO MERCIA ASSET MANAGEMENT PLC
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2021 which comprises the condensed consolidated statement of
comprehensive income, condensed consolidated statement of financial position,
condensed consolidated cash flow statement, condensed consolidated statement
of changes in equity and notes to the interim financial statements.
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the rules
of the London Stock Exchange for companies trading securities on AIM which
require that the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the Company's annual accounts
having regard to the accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information
Performed by the Independent Auditor of the Entity'', issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2021 is not prepared,
in all material respects, in accordance with the rules of the London Stock
Exchange for companies trading securities on AIM.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the rules of the London
Stock Exchange for companies trading securities on AIM and for no other
purpose. No person is entitled to rely on this report unless such a person is
a person entitled to rely upon this report by virtue of and for the purpose of
our terms of engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for this
report to any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
6 December 2021
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Directors, secretary and advisers
Directors
Ian Roland
Metcalfe
(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
Solicitors
www.mercia.co.uk (http://www.mercia.co.uk)
Gowling WLG (UK) LLP
4 More London Riverside
Registered office
London SE1 2AU
Forward House
17
High Street
Nominated adviser and joint broker
Henley-in-Arden
Canaccord Genuity Ltd
Warwickshire B95 5AA
88 Wood Street
London EC2V 7QR
Independent auditor
BDO LLP Joint
broker
Statutory Auditor
Singer Capital Markets Advisory LLP
55 Baker Street, Marylebone
1 Bartholomew Lane
London W1U
7EU
London EC2N 2AX
Principal bankers
Investor relations
adviser
Barclays
Bank PLC
FTI Consulting Ltd
One Snowhill
200 Aldersgate
Snow Hill Queensway
London EC2A 4HD
Birmingham B4 6GN
Company registrar
Lloyds Bank
plc
SLC Registrars
125 Colmore
Row
Highdown House
Birmingham B3 3SD
Yeoman Way
Worthing
West Sussex
BN99 3HH
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