REG - Mercia Asset Mgt PLC - Interim Results
28/11/2023 07:00
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RNS Number : 8308U Mercia Asset Management PLC 28 November 2023
RNS 28 November 2023
Mercia Asset Management PLC
("Mercia" or the "Group" or the "Company")
Interim results for the six months ended 30 September 2023
Continuing profitable progress and a strong balance sheet, underpins a 6%
increase in the interim dividend and a share buyback of up to £5.0million
Mercia Asset Management PLC (AIM: MERC), the proactive regionally focused,
profitable specialist asset manager with c.£1.5billion of assets under
management ("AuM"), is pleased to announce its interim results for the six
months ended 30 September 2023.
Mark Payton, Chief Executive Officer of Mercia, commented:
"Mercia has never been financially stronger. The first six months of FY24 have
witnessed record revenues derived predominantly from Mercia's profitable and
cash generative third-party fund management operations. Mercia is now firmly
established as a leading provider of private capital across venture, debt and
private equity in the UK within the £0.5million to £20million range, with
further attractive growth prospects across all of these discrete strategic
asset classes.
"The Group's recent successful exit from its largest direct investment,
nDreams, has materially increased Mercia's debt-free liquidity position to
c.£60million today. We are therefore pleased to announce a share buyback of
up to £5.0million."
Highlights
· Group AuM of £1,461.8million (H1 2023: £979.4million; FY 2023:
£1,437.3million); an increase of 1.7% with no redemptions
· Revenue up c.23% to £15.0million (H1 2023: £12.2million)
· EBITDA up c.33% to £2.8million (H1 2023: £2.1million)
· Adjusted operating profit up c.54% to £5.5million (H1 2023:
£3.6million)
· Direct investment portfolio fair value of £142.5million (FY 2023:
£136.6million)
· Profit before taxation of £1.4million (H1 2023: £7.4million)
· Interim dividend up c.6% to 0.35 pence per share (H1 2023: 0.33 pence
per share)
· Strong balance sheet with cash, cash equivalents and short-term
liquidity investments of £36.5million as at 30 September 2023 (H1 2023:
£56.1million; FY 2023: £37.8million), increased post period end to
c.£60million following the sale of nDreams
· Net assets per share of 45.3 pence (H1 2023: 46.8 pence; FY 2023:
45.4 pence)
Financial results
Unaudited Unaudited Audited
30 September 30 September 31 March
2023 2022 2023
Statutory results
Revenue £15.0m £12.2m £25.9m
Fair value movement in direct investments £(1.6)m £5.6m £1.2m
Profit before taxation £1.4m £7.4m £2.4m
Basic earnings per share 0.30p 1.59p 0.64p
Interim dividend per share (1) 0.35p 0.33p 0.33p
Cash, cash equivalents and short-term liquidity investments £36.5m £56.1m £37.8m
Net assets £202.4m £206.0m £202.9m
Alternative performance measures
AuM (2) £1,461.8m £979.4m £1,437.3m
EBITDA (3) £2.8m £2.1m £5.2m
Adjusted operating profit (4) £5.5m £3.6m £7.6m
Net assets per share 45.3p 46.8p 45.4p
1 The interim dividend will be paid on 10 January 2024 to shareholders
on the register at the close of business on 8 December 2023.
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 profit/(loss) 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") of c.£1,260million (H1
2023: c.£773million; FY 2023: c.£1,234million), with no redemptions
o Venture FuM of c.£660million (H1 2023: c.£611million; FY 2023:
c.£630million)
§ £18.0million successfully raised by the three Northern Venture Capital
Trusts ("VCTs") in April 2023, in addition to £1.4million of shareholder
dividend reinvestment inflows
§ £15.0million additional allocation under the Northern Powerhouse
Investment Fund Equity, with a further £5.1million allocated to the North
East Venture Capital fund mandate
§ One Enterprise Investment Scheme fund ("EIS") raised a total of
£5.7million
§ Final dividends totalling £9.2million paid out by the three Northern
VCTs
o Debt FuM of c.£552million (H1 2023: c.£116million; FY 2023
c.£556million)
o Private equity FuM of c.£48million (H1 2023: c.£46million; FY 2023:
c.£48million)
Direct investment portfolio movements
· Direct investment portfolio fair value of £142.5million (H1 2023:
£131.5million; FY 2023: £136.6million), up c.4% from 31 March 2023
· £7.5million net invested into eight portfolio companies (H1 2023:
£6.4million net invested into six portfolio companies)
· £1.6million net fair value decrease in the portfolio during the
six-month period (H1 2023: £5.6million increase)
Post period end developments
· Profitable realisation of the Group's equity holding in nDreams
Limited ("nDreams") in November 2023 for a total consideration of
£30.2million; comprising £26.4million in cash and £3.8million re-invested
into Aonic
· In the period from 1 April 2020 to 30 September 2023, including the
impact of the nDreams realisation, Mercia has generated sale related cash
receipts from its direct investment portfolio of c.£87million
· Commencement of a share buyback of up to £5.0million, reflecting
strong cash position of the Group and confidence in the business
· Netacea Group Limited completed a £4.4million funding round,
achieved across two tranches in July and October 2023, supporting its UK and
international growth plans as a leading provider of defensive AI software
· £5.0million additional allocation from British Business Bank ("BBB")
under the Midlands Engine Investment Proof-of-Concept Fund
· The Northern VCTs have received applications totalling £28.3million
as of 24 November 2023, as part of their current fundraise of up to
£60.0million
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.
-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, Emma Gabriel
Singer Capital Markets (Joint Broker) +44 (0)20 7496 3000
Harry Gooden, James Moat
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,
Martin Glanfield, Chief Financial Officer, and Julian Viggars, Chief
Investment Officer, at 9.30am today, 28 November 2023. 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
In addition, as part of its continuing commitment to appropriate and open
communication with all shareholders and its wider stakeholder community,
Mercia will provide a live management presentation and Q&A via the
Investor Meet Company ("IMC") platform at 3.00pm today. Registration details
can be accessed via:
https://www.investormeetcompany.com/mercia-asset-management-plc/register-investor
(https://www.investormeetcompany.com/mercia-asset-management-plc/register-investor)
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, 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".
Chief Executive Officer's Review
Introduction
Mercia's competitive advantage comprises its people, geographic footprint,
long-term investment performance, supportive stakeholders and broad capital
deployment capabilities in the private markets, which continue to experience a
healthy level of capital availability, in contrast to the public markets.
Challenges in the private markets do exist however and relate to the cyclical
nature of venture investing, based on sector and business stage. The domestic
UK venture market, which accounts for c.59% of Mercia's assets under
management, historically saw annual domestic growth of c.10% in respect of
capital deployment. In 2021 and 2022 this ballooned by over 100%, mainly
driven by large, late-stage venture investments (outside of Mercia's
investment focus). An October 2023 report by HSBC Innovation Banking and
Dealroom highlighted a stabilisation to 2020 levels, with a significant
reduction in later stage deals and larger investment rounds. In addition,
syndicated funding rounds are now more challenging and taking longer for some
sectors, but for the best investment opportunities with increasing commercial
traction, funding remains available. We anticipate these trends will continue
for the remainder of this financial year and potentially into the next.
Mercia's business model of supporting businesses with relatively modest
capital needs (typically £0.5m to £20m) in part protects us from a major
Venture correction, as we can often mitigate syndication risk, via our
substantial available pools of managed fund capital. Nonetheless, we are now
taking a more cautionary approach to direct investing. Reflecting this
caution, we have paused adding new companies to our direct investment
portfolio, although we will continue to support the existing portfolio. In
parallel, we will concentrate on accelerating the growth of our managed funds'
operation, both organically and via very selective acquisitions, by utilising
some of the proceeds from direct asset realisations, such as the post period
end profitable exit from nDreams.
Strong AuM growth prospects with continued tail winds
At the heart of Mercia's investment approach is diversification by regions,
sectors, stages of businesses and investor types (retail, public sector and
institutional). With an active portfolio of 539 companies split 255 in
venture, 277 in debt and seven in private equity, Mercia is one of the UK's
most active investors.
During the period under review, Mercia has also solidified its reputation as a
trusted impact investor and partner delivering connected capital and support
across the UK via our wide network of regional offices. This enables Mercia to
continue to scale our managed funds operation and deal flow opportunities. As
we look ahead, we see potential growth opportunities across all three pools of
the private funds capital that we manage: retail (via EIS and the VCTs),
institutional regional pension funds that typically invest via their impact
allocations and public sector (predominantly via the British Business Bank).
Overview of H1 FY24
The first half of FY24 underscores the profitable sustainability of Mercia's
growing third-party managed funds operation. We also benefit from the fact
that many of our funds are structured on a long-term basis, giving us
confidence in the 'stickiness' of our FuM and their associated revenues - no
redemptions were experienced in the period, as none of our managed funds are
'open-ended'.
Mercia has delivered robust trading results across the Group for the first six
months of the current financial year. We achieved EBITDA of £2.8million (H1
2023: £2.1million) from revenues of £15.0million (H1 2023: £12.2million),
equating to an EBITDA margin of 18.4% (H1 2023: 17.1%). Last year's
acquisition, Frontier Development Capital Limited, is continuing to perform
well and is fully integrated within Mercia. Our continued growth in cash
generative profitable trading supports our declaration of an interim dividend
of 0.35 pence per share, an increase of c.6% on the prior year's interim
dividend of 0.33 pence per share and the commencement of a share buyback.
During the period, the Group invested c.£111million of capital from both the
balance sheet and its managed funds into 83 companies, 40 of which were new to
Mercia. It is pleasing to report that c.£52million in investment
realisations was also achieved from 19 exits.
Progress towards 'Mercia 20:20'
In April 2021, Mercia set out its three-year 20:20 vision aiming to grow, on
average, AuM by 20% per annum from c.£959million to c.£1.6billion, and to
achieve average Profit Before Taxation ("PBT") of £20million per annum.
AuM growth
We have continued to make progress against the average growth target of 20%
per annum as we look to reach £1.6billion of AuM by 31 March 2024. As at 30
September 2023, Mercia has c.£1.5billion of AuM (of which c.£1.3billion is
via third-party managed funds) which have grown over the six-month period by
1.7%, via retail net inflows totalling £25.0million and public sector net
inflows of £20.1million. We remain focused on achieving the £1.6billion AuM
target by year end. More details on the net inflows and the spread of Mercia's
AuM can be read in Julian Viggars' CIO review.
PBT growth
This target comprises two main drivers; adjusted operating profit, which is
largely driven by Mercia's profitable third-party fund management operation,
and fair value movements and/or profitable realisations stemming from the
direct investment portfolio. In respect of the latter, given the current
economic and technology sector climate, we have decided to make provisions
against two of our direct investment portfolio assets; Impression Technologies
Limited and Eyoto Group Limited. The rest of the direct investment portfolio
continues to show positive momentum, supported post period end by the
profitable exit from nDreams, which was sold for an enterprise value 17.5%
higher that its carrying value as at 31 March 2023. The overall direct
investment portfolio fair value movement for the period is a reduction of
£1.6million.
In the period from 1 April 2020 to 30 September 2023, including the impact of
the nDreams realisation, Mercia has generated sale related cash receipts from
its direct investment portfolio of c.£87million. Full commentary on the
direct investment portfolio and the broader Group's investment performance can
also be found in the Julian Viggars' CIO review.
With six months of Mercia's current three-year strategic plan still to run,
the cumulative PBT stands at £31.2million. Given the prevailing investment
climate, particularly for technology investing, it is unlikely that the
cumulative three-year target of £60million will be achieved.
Fund raising in H2
Mercia is currently engaged in fundraising initiatives across all three of its
discrete pools of private capital. We anticipate reporting on further organic
growth in our FuM by this financial year end.
Commitment to impactful investing
Our impact investment philosophy is deeply rooted in sustainable financial
growth and responsible investment. We are signatories to the United Nations
supported Principles for Responsible Investing. In the first half of the year,
we launched several initiatives that highlight our commitment to creating a
more balanced entrepreneurial ecosystem. Our 'Rise & Thrive' programme
demonstrates Mercia's dedication to diversity, equity and inclusion. Through a
series of workshops funded by Mercia, we support women entrepreneurs, aiming
to create a more level playing field in investment. Additionally, we offer up
to four half days per year for each Mercia employee to contribute to
charitable causes, reflecting our community-oriented ethos. Since April,
Mercia team members have attended five external events across the UK as
volunteers, and separately have raised c.£45,000 as part of external
fundraising teams for a range of good causes, including our Mercia-nominated
charity, Cancer Research UK.
Our team and shared values
Mercia benefits from wide ranging equity investing and lending capabilities,
unified by our shared ethos and values. In the first half of the year, we
welcomed four new team members to Mercia, resulting in our current full time
equivalent headcount being 140 employees. 40% of our Group are women -
testament to our commitment to the Investment in Women Code. Within our
investment team, women represent 33%, compared to the industry average of 25%,
as reported in the latest BVCA statistics. We also remain committed to
investing in diverse senior talent and systems to strengthen Mercia's
operational capabilities and to sustain the Group's long-term growth. This
commitment is evident with the addition of Jocelyne Bath to the Executive team
as Chief Operating Officer, who in turn will focus on productivity and
efficiency as we continue to scale Mercia.
Outlook
There currently exists strong growth potential in Mercia's managed funds'
operation across all three pools of private capital. With our focus on scaling
the profitable delivery of our fund management operations, we anticipate
continued momentum through the remainder of the current financial year and
beyond.
Consistent with recent years, we continue to build a sustainable growing
business whilst maintaining a strong cash position at all times. As at 30
September 2023, Mercia had Group-wide unrestricted cash of c.£383million,
including £36.5million of Group cash and short-term liquidity investments.
Following the recent profitable sale of nDreams, Mercia's cash position has
increased to c.£60million. Alongside our progressive dividend policy, it has
always been one of our ambitions to be in a position to return capital to
shareholders, if we felt that we had sufficient cash from direct investment
exits to do so. The successful nDreams exit is that trigger point and we are
therefore pleased to announce an up to £5.0million share buyback, full
details of which are given in our share buyback announcement this morning.
Given the heightened emphasis by fund investors and the UK Government on
regional businesses and impact investment, we are confident that Mercia is
well placed for continued growth for the foreseeable future.
With a fully aligned team located from Bristol to Newcastle, Mercia prides
itself on being an enduring partner to entrepreneurs and trusted to deliver
for all our stakeholders - time and time again. I remain sincerely grateful to
all at Mercia for their continued efforts in making a positive difference and
to our supportive fund investors and shareholders, without whom Mercia would
not exist.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Investment activity
During the six months to 30 September 2023, we invested c.£111million into
83 businesses across our funds and balance sheet, including 40 new companies.
We also achieved c.£52million in investment realisations from 19 exits, as
referenced below. Overall, AuM increased 1.7% to c.£1.5billion, with no
redemptions. At the end of the period, we had c.£383million of liquidity to
support our future investment activities.
Investment realisations
In the six-month period to 30 September 2023, our investors benefitted from 19
full and partial equity funds exits (H1 2023: 14). These realised
c.£52million at a combined return of 1.5x. The standout exit was Evotix,
which generated a 4.6x return for our VCT investors. The figures also include
the exit from ParkCloud Holdings from within our private equity portfolio
generating a 1.6x return, which is pleasing for a business that was
particularly impacted for its airport parking services during COVID-19.
Post period end, we achieved the profitable realisation of the Group's direct
equity holding in nDreams. In the period from 1 April 2020 to 30 September
2023, including the impact of the nDreams realisation, Mercia has generated
sale related cash receipts from its direct investment portfolio of
c.£87million.
Proprietary capital
As at 30 September 2023, our direct investment portfolio was fair valued
at £142.5million (H1 2023: £131.5million; FY 2023: £136.6million) with
22 active companies (H1 2023: 22; FY 2023: 21).
Including converted loan interest, we invested £7.5million net into the
direct investment portfolio in the first six months of the current financial
year (H1 2023: £6.4million). Our investment efforts were focused on
supporting our existing portfolio with further investment into Voxpopme,
Netacea, VirtTrade (trading as Avid Games), Impression Technologies, Ton UK
(trading as Intelligent Positioning) and Eyoto.
The table below lists Mercia's top 20 direct investments by fair value as at
30 September 2023, including the net cash invested, fair value movement and
the fully diluted equity percentage held.
Year of Net Net cash Fair value Net
first investment invested movement investment Percentage
direct investment value as at six months to six months to value as at held as at
1 April
30 September
2023
30 September 30 September 30 September
2023
£'000
2023 2023 2023
£'000
£'000 £'000 %
nDreams Ltd 2014 25,761 - 4,450 30,211 33.2
Voxpopme Ltd 2018 11,015 861 3,973 15,849 20.4
Netacea Group Ltd 2022 11,693 1,500 - 13,193 24.1
VirtTrade Ltd * 2015 10,082 1,530 - 11,612 62.6
Medherant Ltd 2016 10,934 - - 10,934 38.4
Warwick Acoustics Ltd 2014 9,695 - - 9,695 40.3
Invincibles Studio Ltd 2015 8,697 - (116) 8,581 35.5
Impression Technologies Ltd 2015 15,260 1,198 (8,909) 7,549 65.1
Ton UK Ltd ** 2015 5,382 746 455 6,583 40.4
Locate Bio Ltd 2018 4,858 - - 4,858 18.1
Eyoto Group Ltd 2017 5,487 1,527 (2,322) 4,692 24.7
Axis Spine Technologies Ltd 2022 3,000 - - 3,000 9.4
sureCore Ltd 2016 2,417 - - 2,417 22.0
Nova Pangaea (Holdings) Ltd 2022 2,250 - - 2,250 -
Forensic Analytics Ltd 2021 1,750 - 344 2,094 7.4
Akamis Bio Ltd 2015 1,780 - - 1,780 1.3
Pimberly Ltd 2021 1,375 - 332 1,707 5.7
MIP Discovery Ltd 2020 1,449 - - 1,449 10.2
MyHealthChecked PLC 2016 969 - (153) 816 13.1
Uniphy Ltd 2022 550 40 137 727 4.5
Other direct investments n/a 2,146 121 190 2,457 n/a
Total 136,550 7,523 (1,619) 142,454 n/a
* Trading as Avid Games
** Trading as Intelligent Positioning
The period under review saw positive fair value movements of £10.2million
across eight assets offset by downward movements of £11.8million on four
assets, giving a net fair value decrease of £1.6million. Significant upward
movements in nDreams and Voxpopme, alongside smaller uplifts in software
businesses Pimberley, Forensic Analytics and Intelligent Positioning, were
balanced principally by reduced enterprise values at Impression Technologies
and Eyoto.
nDreams was sold post period end to Aonic AB, the diversified video gaming
investment group, which had been a co-investor. The 17.5% uplift in fair value
of £4.4million at 30 September 2023 reflects the value of Mercia's direct
investment at exit in November 2023. Mercia held a 33.2% fully diluted direct
stake in nDreams, resulting in total consideration of £30.2million, split
£26.4million in cash proceeds and £3.8million re-invested into Aonic itself.
This exit results in a 2.7x return on invested capital and an 18.4% IRR.
The structure of Voxpopme's April 2023 funding round favourably improved our
holding position and, alongside solid trading, resulted in a £4.0million
uplift.
Impression Technologies has been running a dual sale/fundraising process; the
preferred buyer, whose offer was at a level that supported the 31 March 2023
carrying value, has recently asked for a lengthy extension to the sale
process, which has been rejected. We have therefore impaired the value to
reflect increased uncertainty for now.
Eyoto had been in consultation with the US Food and Drug Administration
("FDA") around approval for its slit lamp product, with customer orders
awaiting approval; unfortunately, additional trials are now required delaying
the US launch by a year. In the near term, the company intends to refocus its
efforts on Europe where it already has approval. We have therefore recognised
this setback in an impairment to its carrying value.
Our top 10 direct investment holdings represent c.84% of the total value of
our portfolio at 30 September 2023. There has been steady progress across a
number of our larger investments by fair value, as summarised in the sectorial
review below.
Digital Entertainment; c.36% by value of the portfolio at 30 September 2023
VirtTrade: 62.6% fully diluted direct investment stake with a further 2.6%
fully diluted stake held by Mercia's managed funds.
VirtTrade's mobile game 'CUE Cards' (Cards, the Universe and Everything)
launched in December 2019 and is a card collecting and battling game. It now
has over 250,000 regular monthly active users from territories across the
globe and is managing a steady growth profile.
Invincibles Studio: 35.5% fully diluted direct investment stake with a further
13.2% fully diluted stake held by Mercia's managed funds.
The team at Invincibles Studio continue to make good progress. The latest
iteration of its Soccer Manager 2024 game, launched in late September, shows
record user numbers, engagement time per user and revenues. Its two new games
'Ultimate Soccer League' and 'Worlds XI' will be launched during 2024, after
significant upgrades to the visual engine that controls player movement
graphics. It has renewed its licence deal with Arsenal Football Club manager
Mikel Arteta as the face of the game and added the social media rights to
Manchester City, alongside existing FIFPro licences.
Software; c.28% by value of the portfolio at 30 September 2023
Voxpopme: 20.4% fully diluted direct investment stake with a further 13.5%
fully diluted stake held by Mercia's managed funds.
Voxpopme is a software business based jointly in Birmingham, UK
and Colorado, USA that provides video analytics software to firms in the
market research, customer experience and the recruitment and HR markets. In
the early part of 2023, the company experienced some levels of customer churn,
however this has since reversed, and the company has grown to c.$9million
annual recurring revenue.
Netacea: 24.1% fully diluted direct investment stake with a further 26.5%
fully diluted stake held by Mercia's managed funds.
Manchester-based Netacea sells enterprise server-side bot management
solutions that protect websites, mobile apps and APIs from automated threats,
using an intelligent detection engine. The agentless technology focuses on
understanding the traffic's intent rather than just distinguishing between
human and malicious bots. The business has raised further growth capital and
also strengthened its leadership.
Deep Technology ("Deep Tech"); c.16% by value of the portfolio at 30
September 2023
Warwick Acoustics: 40.3% fully diluted direct investment stake with a further
1.3% 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.
Commercial traction has been impressive, with a first original equipment
manufacturer ("OEM") nomination signed and ongoing projects with other global
automotive OEMs.
Impression Technologies ("ITL"): 65.1% fully diluted direct investment stake
with a further 0.9% fully diluted stake held by Mercia's managed funds.
Since 2016, ITL has been advancing its exclusive aluminium lightweight
technology, HFQ™, supported by its own pressing facility in Coventry. In
collaboration with FEV Group GmbH, a leading automotive technology group, ITL
has developed an innovative exoskeleton battery box design. This minimises the
need for internal support structures in the battery box, thereby enlarging the
available space for battery cells. Achievable solely through HFQ technology,
this concept was unveiled at the HFQ Partner Network Conference in September
2023 and later showcased at the Euro Body Car Conference in October.
Additionally, ITL has recently ventured into the aerospace sector with its
first licensing agreement. The company is now shifting its focus towards a
lower-burn manufacturing strategy.
Life Sciences; c.20% by value of the portfolio at 30 September 2023
Medherant: 38.4% fully diluted direct investment stake with a further 15.3%
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 technology for medical applications.
The company's leading external collaboration has successfully cleared the
initial two evaluation stages, leading to expanded research and pre-clinical
development work. This product represents a potential multi-billion market
opportunity. Medherant's other in-house development program is also advancing,
with trials underway aiming for a potential product launch in 2024. The
management team has been bolstered by the appointment of a new Medical
Director and a Non-executive Director.
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 is developing a range of OrthoBiologics. Its
products are designed to aid orthopaedic surgeons to accelerate the natural
repair of bone and cartilage. The company reports continued good progress,
having completed all animal trials with positive results for its lead bone
graft solution. Additionally, Locate Bio has engaged with the FDA and
finalised the protocol for a pilot clinical study for which ethics' approval
has been submitted in Australia. Currently, the company is concentrating on
completing all necessary tests for FDA submission and is in the process of
recruiting Clinical Investigators for a 40 patient trial in Australia, with
three already in the contracting stage.
Assets under management
AuM increased by 1.7% to c.£1.5billion, with c.£45million of new capital
raised by our Enterprise Investment Schemes ("EIS") and Northern Venture
Capital Trusts ("VCT") alongside top-ups to existing regional funds during the
six-month period. Valuations across the business have remained largely flat,
whilst c.£15million of distributions have been returned to fund investors and
dividends paid to VCT shareholders.
1 April Investor Performance Distributions 30 September Post
2023 inflows 2023 period end
inflows
Asset class £'m £'m £'m £'m £'m £'m
Venture 630 45 (3) (12) 660 10
Debt 556 - (1) (3) 552 -
Private equity 48 - - - 48 -
Total FuM 1,234 45 (4) (15) 1,260 10
Proprietary capital 203 - 1 (2) 202 -
Total AuM 1,437 45 (3) (17) 1,462 10
Third-party managed funds
As at 30 September 2023, we were managing c.£1.3billion of third-party funds
(H1 2023: c.£773million; FY 2023: c.£1.2billion). Across those funds we had
c.£346million of liquidity (H1 2023: c.£240million; FY 2023:
c.£341million), which enables us to fully support our portfolio companies and
transact new deals in the future.
In April 2023, we added a further c.£25million of organic FuM following
successful EIS and Northern VCT fundraises, and we have received a further
£15.0million allocation from the British Business Bank in relation to our
Northern Powerhouse Investment Fund, as well as an additional £5.1million
allocation under our North East Venture Capital fund mandate.
During the six-month period ended 30 September 2023, we
invested c.£103million across the multiple funds which we manage as
follows:
FuM
30 September Companies Amount Company
2023 in portfolio invested exits
Asset class £'m No. £'m No.
EIS 97 84 17.2 4
VCT 336 58 15.0 4
Regional venture 227 88 16.6 10
Debt 552 277 54.0 23
Private equity 48 7 0.4 1
Totals 1,260 514 103.2 42
Managed funds' portfolios
Venture
The 18 full and partial exits returned £44.7million in the six months to 30
September 2023, at a combined return of 1.4x. The standout exit was Evotix,
which we sold in June to SAI360 Inc, generating proceeds of £35.6million,
equating to a return of 4.6x for our VCT investors.
Debt
Mercia's northern Debt funds' team saw an increase in activity during the
period, supporting 30 businesses, lending a total of £11.8million. We
continue to support small and medium-sized enterprises by deploying the
Government-backed Recovery Loan Scheme via the Northern Powerhouse Investment
Fund. Mercia SME Loans has also benefitted from an increase in the volume of
transactions (management buy outs, acquisitions) taking place.
Frontier Development Capital continues to perform well, lending £42.2million
to 8 businesses.
Private equity ("PE")
The value of our PE funds increased marginally during the six months to 30
September 2023, with strong trading seen across two assets, iMail and UK
Landscapes, plus the exit from ParkCloud Holdings. We expect to see further
realisations during 2024.
Summary
Our progress continues with c.£111million invested in the first half, matched
favourably with c.£52million of realisations across our equity portfolios.
The post period end realisation of nDreams is a fantastic result for us,
transacted at a 17.5% uplift to the 31 March 2023 carrying value, returning
£26.4million of cash to the Group's balance sheet whilst enabling us to
continue to have an interest in the ongoing success of the company and the
augmented reality ("AR")/Virtual Reality ("VR") market, with £3.8million of
the total proceeds reinvested into an equity holding in Aonic itself, which we
believe has excellent prospects with its strong position in VR and AR. We look
forward to nDreams continuing its exciting journey within a larger gaming
group and wish CEO Patrick O'Luanaigh and his team continuing success.
We are clearly disappointed with the downward fair value movements that we
felt were necessary at Impression Technologies and Eyoto, and these do
negatively impact the achievement of our 'Mercia 20:20' profit before tax
target. However, seen in the context of a very challenging external
environment since the start of 2022, our portfolio is holding up well.
Overall, our direct asset portfolio is in good health and we have ample
liquidity to support it.
The following table summarises our proprietary capital performance since 1
April 2020, including the post period end sale of nDreams. With total sale
related cash receipts of £86.8million, from companies such as OXGENE™,
Faradion, Intechnica and nDreams, c.50% greater than the total net cash
invested and with cumulative unrealised fair value gains also comfortably
ahead of realised and unrealised fair value losses across our portfolio, I
believe we continue to demonstrate the significant progress made and the
potential value contained therein.
Proprietary capital performance £'m
1 April 2020 to 30 Sept 2023 *
Sale related cash receipts 86.8
Net cash invested ** (57.6)
Realised gains 36.4
Realised losses (5.3)
Unrealised fair value gains *** 42.6
Unrealised fair value losses *** (23.3)
* Including the post period end impact of the nDreams realisation.
** Excluding convertible loan interest reinvested into an equity holding.
*** Excluding the impact of the Intechnica and Netacea demerger in FY23.
It appears that as a global society we are rolling from one crisis to the
next, with the events in Israel and Palestine just recently being the latest.
This political and economic uncertainty is unnerving and we are seeing the
effects, as both individuals and corporates are tending to make more prudent
investment decisions involving less risk. We have asked our investees to stay
focused on their own strategies, with the benefit of sufficient cash reserves
and support, and focus on what they can control, running their businesses in
the most efficient manner. This is what we are doing at Mercia. As always, I
would like to thank all our dedicated staff for their efforts during the past
six months.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
Overall financial performance
From a fund management profitability perspective, during the six months to 30
September 2023, Mercia was able to maintain its prior year momentum and absorb
the inflationary challenges affecting the UK economy in general, and more
specifically the financial services sector.
This is the first reporting period fully incorporating the results of FDC
since its acquisition on 5 December 2022. The company is fully integrated into
the Group and continuing to perform well.
Interim dividend
The Board adopted Mercia's progressive dividend policy in December 2020, and
since then has announced interim dividends of 0.10 pence per share in December
2020, 0.30 pence per share in December 2021 and 0.33 pence per share in
December 2022.
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
intention to grow total dividends year on year.
The continuing positive overall trajectory of the Group has enabled Mercia's
Board to declare an interim dividend of 0.35 pence per share (H1 2023: 0.33
pence per share). The interim dividend will be paid on 10 January 2024 to
shareholders on the register at close of business on 8 December 2023, with the
total dividend payable being £1,563,000 (H1 2023: £1,452,500).
Share buyback
Although relatively recent share buybacks in the specialist asset management
sector have done little to positively affect share price performance 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. Given that as at
the date of this announcement, following the post period end realisation of
its direct investment in nDreams Limited, the Group now has significant cash
balances totalling c.£60million and no debt, Mercia is pleased to announce up
to a £5.0million share buyback.
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 important APMs of interest to both current
and potential shareholders.
EBITDA is defined as operating profit/(loss) 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.
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Revenue 15,040 12,181 25,881
Administrative expenses (12,266) (10,102) (20,692)
EBITDA 2,774 2,079 5,189
Net finance income 2,690 1,480 2,397
Adjusted operating profit 5,464 3,559 7,586
Depreciation (236) (120) (309)
Net finance income (2,690) (1,480) (2,397)
Realised loss on sale of direct investment - - (849)
Fair value movement in direct investments (1,619) 5,595 1,201
Share-based payments charge (509) (592) (1,049)
Amortisation of intangible assets (1,495) (1,017) (2,337)
Movement in fair value of deferred consideration (218) - (1,462)
Operating (loss)/profit before exceptional item (1,303) 5,945 384
Exceptional item - - (372)
Operating (loss)/profit (1,303) 5,945 12
Net finance income 2,690 1,480 2,397
Profit before taxation 1,387 7,425 2,409
Taxation (38) (422) 427
Profit and total comprehensive income for the period 1,349 7,003 2,836
A reconciliation of these interim results prepared in accordance with
International Financial Reporting Standards ("IFRS") to those presented on an
APM basis are as follows:
Six months ended 30 September 2023
IFRS as reported Depreciation APM basis(1)
£'000 £'000 £'000
Administrative expenses (12,502) 236 (12,266)
Depreciation - (236) (236)
Six months ended 30 September 2022
IFRS as reported Depreciation APM basis(1)
£'000 £'000 £'000
Administrative expenses (10,222) 120 (10,102)
Depreciation - (120) (120)
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 23.5% to £15,040,000 (H1 2023: £12,181,000) and comprised
fund management related fees, initial management fees from investment rounds,
investment director monitoring fees, sundry business services income and VCT
share offer fees.
Administrative expenses(1)
Administrative expenses, excluding depreciation and share-based payments
charge, increased 21.4% to £12,266,000 (H1 2023: £10,102,000) and comprised
predominantly staff-related, office, marketing, professional adviser and share
offer costs incurred as part of VCT share offers.
Mercia anticipates that the financial benefits of operational leverage will
continue to be realised as its funds under management increase, by both its
future organic and inorganic initiatives.
EBITDA
EBITDA increased 33.4% to £2,774,000 (H1 2023: £2,079,000), equating to an
EBITDA margin of 18.4% (H1 2023: 17.1%), demonstrating the Group's increasing
economies of scale, including a positive contribution from FDC, despite the
inflationary backdrop during the reporting period.
Net finance income
Total gross finance income of £2,720,000 (H1 2023: £1,488,000) arose from a
material increase in interest receivable on cash deposits (as shown in note 8)
following continued Bank of England base rate rises during the period,
together with the crystallisation of convertible loan interest within the
direct portfolio. Finance costs of £30,000 (H1 2023: £8,000) comprised
interest payable on office leases and the Group's staff electric car scheme.
Fair value movement in direct investments
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of direct investments* 10,171 7,578 11,324
Unrealised losses on the revaluation of direct investments* (11,790) (1,983) (10,123)
Net fair value movement in direct investments (1,619) 5,595 1,201
* Excluding the impact of the demerger of Netacea Limited from Intechnica
Holdings Limited in the six months ended 30 September 2022 and year ended 31
March 2023.
The net fair value movement in direct investments resulted in a £1,619,000
decrease (H1 2023: £5,595,000 increase) and as at 30 September 2023, the fair
value of the Group's direct investment portfolio was £142,454,000 (H1 2023:
£131,545,000; FY 2023: £136,550,000).
Unrealised fair value gains arose in eight (H1 2023: four*) of the Group's
direct investments. The largest fair value gain was in respect of nDreams
Limited, which accounted for £4,450,000 of the total (H1 2023: £4,003,000
fair value gain in respect of VirtTrade Limited).
There were four (H1 2023: three*) fair value decreases, the largest being
£8,909,000 which arose in respect of Impression Technologies Limited (H1
2023: £883,000 fair value decrease in Edge Case Games Limited).
Share-based payments charge
The £509,000 non-cash charge (H1 2023: £592,000) arises from the total
number of issued and vested share options held by all employees throughout the
Group, ranging from 28 January 2020 to 30 September 2023.
Amortisation of intangible assets
The amortisation charge for the period of £1,495,000 (H1 2023: £1,017,000)
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 six-month period to 30 September 2023 has resulted in a charge to the
income statement of £218,000.
Taxation
The components of the Group's tax charge are shown in note 9. The overall tax
charge for the period comprises a corporation tax charge on taxable profits,
offset by 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.
Profit and total comprehensive income for the period
The adjusted operating profit, less the net fair value decrease for the period
and other non-cash charges, lead to a consolidated total comprehensive income
of £1,349,000 (H1 2023: £7,003,000). This has resulted in basic earnings per
Ordinary share of 0.30 pence (H1 2023: 1.59 pence).
Summarised statement of financial position and cash flows
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Goodwill and intangible assets 37,556 31,338 39,051
Direct investment portfolio 142,454 131,545 136,550
Other non-current assets, trade and other receivables 3,497 1,626 4,751
Cash and short-term liquidity investments 36,482 56,112 37,834
Total assets 219,989 220,621 218,186
Trade, other payables and lease liabilities (10,165) (8,092) (7,720)
Deferred consideration (3,223) (2,869) (3,005)
Deferred taxation (4,168) (3,676) (4,540)
Total liabilities (17,556) (14,637) (15,265)
Net assets 202,433 205,984 202,921
Net assets per share (pence) ** 45.3p 46.8p 45.4p
** 446,679,523 Ordinary shares were in issue as at 30 September 2023 and used
as the denominator for calculating net assets per share as at 30 September
2023. 446,581,202 and 440,109,707 Ordinary shares were in issue as at 31 March
2023 and 30 September 2022, and therefore used as the denominator for
calculating the respective net assets per share.
The reduction in net assets per share of 0.1 pence from 31 March 2023 to 30
September 2023 arises from recognition of the FY23 final dividend of 0.53
pence per share, approved at the Group's AGM on 21 September 2023, partially
offset by the profit and total comprehensive income, less the share-based
payment charge, for the six-month period.
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 period, Mercia's direct investment portfolio grew from
£136,550,000 as at 1 April 2023 (H1 2023: £119,558,000 as at 1 April 2022)
to £142,454,000 as at 30 September 2023 (H1 2023: £131,545,000 as at 30
September 2022), a c.4% increase (H1 2023: c.10% increase).
The Group invested £7,523,000 net (H1 2023: £6,403,000 net) into seven
existing and one new direct investment (H1 2023: five existing and one new
direct investment), with the top 20 direct investments representing 98.3% of
the total direct investment portfolio value (H1 2023: 97.4%; FY 2023: 98.4%).
Cash, cash equivalents and short-term liquidity investments
At the period end, Mercia had cash, cash equivalents and short-term liquidity
totalling £36,482,000 (H1 2023: £56,112,000; FY 2023: £37,834,000). This is
comprised of cash and cash equivalents of £36,198,000 (H1 2023: £50,864,000;
FY 2023: £37,555,000) and short-term liquidity investments of £284,000 (H1
2023: £5,248,000; FY 2023: £279,000).
The Group continues to have limited working capital needs due to the nature of
its business and during the six-month period generated operating cash inflow
of £3.5million (H1 2023: £0.5million inflow).
As at 30 September 2023, the Group's cash, cash equivalents and short-term
liquidity investments were spread across four leading United Kingdom banks and
a BlackRock Sterling money market fund, earning an average overall yield by
period end of c.5%.
The summarised movements in the Group's cash and cash equivalents during the
period are shown below.
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Opening cash and cash equivalents 37,555 56,049 56,049
Cash generated from operating activities 3,533 544 3,019
Corporation tax paid - (705) (1,819)
Net cash used in direct investment activities (5,312) (5,021) (14,930)
Acquisition of Frontier Development Capital Limited - - (6,951)
Cash acquired with Frontier Development Capital Limited - - 2,882
Purchase of VCT fund management business (deferred consideration) - - (2,100)
Cash inflow from other investing activities 646 84 5,327
Net cash used in financing activities (224) (87) (3,922)
Closing cash and cash equivalents 36,198 50,864 37,555
Outlook
Whilst the impairment of Mercia's direct investment in Impression
Technologies, following its recently aborted sale, is frustrating, the
successful exit from nDreams above carrying value, aptly demonstrates the ups
and downs of venture investing. Overall however, since the advent of COVID-19
in March 2020, Mercia has realised cash proceeds from direct investment
disposals of £86.8million, compared to realised losses totalling
£5.3million.
The profitability of the Group's fund management operations, together with
opportunities for future growth, underpin the Group's progressive dividend
policy, whilst the recent significant cash realisation of its direct
investment in nDreams has swelled the Group's cash balances to c.£60million
post period end. This balance, representing c.30% of the Group's current net
asset value, and c.49% of its current market capitalisation, now enables the
Group to offer shareholders a managed reduction in their shareholding should
they so wish, via a share buyback of up to £5.0million.
The remainder of the Group's cash will be primarily directed towards further
growth opportunities in its fund management operations, whilst continuing to
support its existing direct investment portfolio through to further cash
exits.
Overall, Mercia has never been financially stronger and for this we remain
grateful to our excellent staff for their continuing efforts and our many
supportive stakeholders. Mercia looks forward to the remainder of the current
financial year from a debt-free position of considerable financial strength,
coupled with continuing growth prospects for its profitable fund management
operations.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2023
Note Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Revenue 5 15,040 12,181 25,881
Administrative expenses 7 (12,502) (10,222) (21,001)
Realised loss on sale of direct investment - - (849)
Fair value movement in direct investments 12 (1,619) 5,595 1,201
Share-based payments charge (509) (592) (1,049)
Amortisation of intangible assets (1,495) (1,017) (2,337)
Movement in fair value of deferred consideration (218) - (1,462)
Operating (loss)/profit before exceptional item (1,303) 5,945 384
Exceptional item - - (372)
Operating (loss)/profit (1,303) 5,945 12
Finance income 8 2,720 1,488 2,428
Finance expense (30) (8) (31)
Profit before taxation 1,387 7,425 2,409
Taxation 9 (38) (422) 427
Profit and total comprehensive income for the period 1,349 7,003 2,836
Basic earnings per Ordinary share (pence) 10 0.30 1.59 0.64
Diluted earnings per Ordinary share (pence) 10 0.30 1.57 0.63
All results derive from continuing operations.
Condensed consolidated statement of financial position
As at 30 September 2023
Note Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 20,892 16,642 20,892
Intangible assets 16,664 14,696 18,159
Property, plant and equipment 137 101 122
Right-of-use assets 790 367 842
Investments 12 142,454 131,545 136,550
Total non-current assets 180,937 163,351 176,565
Current assets
Trade and other receivables 2,570 1,158 3,787
Short-term liquidity investments 13 284 5,248 279
Cash and cash equivalents 13 36,198 50,864 37,555
Total current assets 39,052 57,270 41,621
Total assets 219,989 220,621 218,186
Current liabilities
Trade and other payables (9,296) (7,683) (6,813)
Lease liabilities (420) (168) (333)
Deferred consideration 14 (1,316) (2,869) (1,227)
Total current liabilities (11,032) (10,720) (8,373)
Non-current liabilities
Lease liabilities (449) (241) (574)
Deferred consideration 14 (1,907) - (1,778)
Deferred taxation 15 (4,168) (3,676) (4,540)
Total non-current liabilities (6,524) (3,917) (6,892)
Total liabilities (17,556) (14,637) (15,265)
Net assets 202,433 205,984 202,921
Equity
Issued share capital 16 4 4 4
Share premium 17 83,775 81,644 83,744
Other distributable reserve 18 60,899 64,719 63,266
Retained earnings 52,690 55,508 51,341
Share-based payments reserve 5,065 4,109 4,566
Total equity 202,433 205,984 202,921
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 27 November 2023 and
authorised for issue. They were signed on its behalf by:
Dr Mark Payton
Martin Glanfield
Chief Executive Officer Chief Financial
Officer
Condensed consolidated statement of cash flows
For the six months ended 30 September 2023
Note Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Cash flows from operating activities:
Operating (loss)/profit (1,303) 5,945 12
Adjustments to reconcile operating (loss)/profit to cash generated from
operating activities:
Depreciation of property, plant and equipment 50 32 68
Depreciation of right-of-use assets 186 88 239
Loss on sale of direct investment - - 849
Fair value movement in direct investments 12 1,619 (5,595) (1,201)
Share-based payments charge 509 592 1,049
Amortisation of intangible assets 1,495 1,017 2,337
Movement in fair value of contingent consideration 218 - 1,462
Working capital adjustments:
Decrease/(increase) in trade and other receivables 621 (84) (1,087)
Increase/(decrease) in trade and other payables 138 (1,451) (709)
Cash generated from operating activities 3,533 544 3,019
Corporation tax paid - (705) (1,819)
Net cash generated from/(used in) operating activities 3,533 (161) 1,200
Cash flows from direct investment activities:
Sale of direct investments 269 11 3,744
Purchase of direct investments 12 (7,523) (6,403) (20,778)
Investee company loan repayment 12 - - 125
Investee company loan redemption premium and interest received 8 1,942 1,371 1,979
Net cash used in from direct investment activities (5,312) (5,021) (14,930)
Cash flows from other investing activities:
Interest received from cash deposits 711 104 404
Purchase of property, plant and equipment (65) (20) (77)
Acquisition of a subsidiary undertaking - - (6,951)
Cash acquired with purchase of a subsidiary undertaking - - 2,882
Purchase of VCT fund management business - - (2,100)
Decrease in short-term liquidity investments - - 5,000
Net cash generated from/(used in) other investing activities 646 84 (842)
Net cash used in total investing activities (4,666) (4,937) (15,772)
Cash flows from financing activities:
Dividends paid - - (3,653)
Interest paid (30) (8) (31)
Payment of lease liabilities (194) (79) (238)
Net cash used in financing activities (224) (87) (3,922)
Net decrease in cash and cash equivalents (1,357) (5,185) (18,494)
Cash and cash equivalents at the beginning of the period 37,555 56,049 56,049
Cash and cash equivalents at the end of the period 13 36,198 50,864 37,555
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2023
Issued Share Other Retained Share-based Total
share premium distributable earnings payments £'000
capital £'000 reserve £'000 reserve
£'000 £'000 £'000
As at 1 April 2022 (audited) 4 81,644 66,919 48,505 3,517 200,589
Profit and total comprehensive income for the period - - - 7,003 - 7,003
Final dividend - - (2,200) - - (2,200)
Share-based payments charge - - - - 592 592
As at 30 September 2022 (unaudited) 4 81,644 64,719 55,508 4,109 205,984
Issue of share capital - 2,100 - - - 2,100
Loss and total comprehensive expense for the period - - - (4,167) - (4,167)
Interim dividend - - (1,453) - - (1,453)
Share-based payments charge - - - - 457 457
As at 31 March 2023 (audited) 4 83,744 63,266 51,341 4,566 202,921
Issue of share capital - 31 - - - 31
Profit and total comprehensive income for the period - - - 1,349 - 1,349
Final dividend - - (2,367) - - (2,367)
Exercise of share options - - - - (10) (10)
Share-based payments charge - - - - 509 509
As at 30 September 2023 (unaudited) 4 83,775 60,899 52,690 5,065 202,433
1. 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 admitted to trading 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.
2. 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 2023. 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 2023, 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 2023 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 2023 were approved by the Board on 3 July 2023 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 2023 have had a material effect on the
financial statements of the Group.
Although not required by statute or regulation, the financial information
contained in these condensed consolidated interim financial statements, which
were approved by the Board on 27 November 2023 and authorised for issue, have
been reviewed by the Group's independent auditor.
3. Going concern
Based on the overall strength of the Group's financial position, including not
only its strong liquidity at the period end, which has been significantly
enhanced post period end by the exit cash proceeds received from nDreams,
together with its forecast future operating and investment activities and,
having considered the ongoing UK macroeconomic backdrop and geopolitical
instability 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.
4. Significant accounting policies
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 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"), including the critical accounting
judgements made by the Directors and the key sources of estimation, are
consistent with those followed in the preparation of the Group's Annual Report
and consolidated financial statements for the year ended 31 March 2023 and
have been consistently applied throughout the period ended 30 September 2023.
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 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 ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Fund management fees 9,958 8,469 17,593
Initial management fees 2,369 890 3,680
Portfolio directors' fees 1,926 1,351 2,934
Other revenue 158 140 343
VCTs share offer fees 629 1,331 1,331
15,040 12,181 25,881
6. Fair value movement in direct investments
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Net fair value movement in direct investments (note 12) (1,619) 5,595 1,201
7. Operating (loss)/profit
Operating (loss)/profit is stated after charging:
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Staff costs 8,578 6,743 14,366
Other administrative expenses 3,924 3,479 6,635
Total administrative expenses 12,502 10,222 21,001
8. Finance income
Finance income is derived from:
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Cash deposits 773 104 404
Short-term liquidity investments 5 13 45
Investee company loans (interest and redemption premium) 1,942 1,371 1,979
Total finance income 2,720 1,488 2,428
9. Taxation
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
£'000 £'000 2023
£'000
Current tax
UK Corporation tax (410) (674) (157)
Deferred tax
Origination and reversal of temporary timing differences 372 252 584
Total tax (charge)/credit (38) (422) 427
The current UK standard rate of corporation tax is 25% (H1 2023: 19%). The
deferred tax credit of £372,000 (H1 2023: £252,000) represents the unwinding
of the deferred tax liability recognised in respect of the intangible assets
arising on the acquisition of Frontier Development Capital Limited and the VCT
fund management business.
10. 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 potential dilutive 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 ended Six months ended Year
30 September 30 September ended
2023 2022 31 March
2023
Profit for the financial period (£'000) 1,349 7,003 2,836
Basic weighted average number of Ordinary shares ('000) 446,582 440,110 441,156
Basic earnings per Ordinary share (pence) 0.30 1.59 0.64
Diluted weighted average number of Ordinary shares ('000) 454,800 447,216 449,348
Diluted earnings per Ordinary share (pence) 0.30 1.57 0.63
The calculation of basic and 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
30 September 30 September ended
2023 2022 31 March
2023
Weighted average number of shares
Basic 446,582 440,110 441,156
Dilutive impact of Ordinary shares issued 8,218 7,106 8,192
Diluted weighted average number of Ordinary shares 454,800 447,216 449,348
11. Dividends
An interim dividend for the year ending 31 March 2024 of 0.35 pence per share,
totalling £1,563,000, 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.
Details of the dividends declared and paid in the comparative periods are set
out in the Group's consolidated financial statements for the year ended 31
March 2023.
12. Investments
The net change in the value of direct investments for the six-month period is
an increase of £5,904,000 (H1 2023: £11,987,000). The table below reconciles
the opening to closing fair value of investments.
Level 1 Level 3 Total
financial financial financial
assets assets assets
£'000 £'000 £'000
As at 1 April 2022 (audited) 1,632 117,926 119,558
Investments made during the period - 6,403 6,403
Disposal - (11) (11)
Unrealised fair value gains on investments* 102 7,476 7,578
Unrealised fair value losses on investments* - (1,983) (1,983)
As at 30 September 2022 (unaudited) 1,734 129,811 131,545
Investments made during the period - 14,333 14,333
Acquired investments - 42 42
Investee company loan repayment - (125) (125)
Disposal - (4,851) (4,851)
Unrealised fair value gains on investments - 3,746 3,746
Unrealised fair value losses on investments (765) (7,375) (8,140)
As at 31 March 2023 (audited) 969 135,581 136,550
Investments made during the period - 7,523 7,523
Unrealised fair value gains on investments - 10,171 10,171
Unrealised fair value losses on investments (153) (11,637) (11,790)
As at 30 September 2023 (unaudited) 816 141,638 142,454
* Excluding the demerger of Netacea Limited from Intechnica Holdings Limited
in the period.
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 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Quoted investment 816 1,734 969
Price of last investment round 55,401 69,284 79,522
Enterprise value 83,097 53,106 52,912
Cost 3,140 300 3,147
Impaired value (1) - 7,121 -
142,454 131,545 136,550
(1) Valued using methodologies consistent with the Group's accounting policy.
13. Cash, cash equivalents and short-term liquidity investments
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Cash and cash equivalents 36,198 50,864 37,555
Short-term liquidity investments 284 5,248 279
14. Deferred consideration
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Payable within one year 1,316 2,869 1,227
Payable within two to five years 1,907 - 1,778
3,223 2,869 3,005
Details of the deferred consideration which arose on the acquisition of
Frontier Development Capital Limited in December 2022 are set out in the
Group's consolidated financial statements for the year ended 31 March 2023.
15. Deferred taxation
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2023 2023
£'000 £'000 £'000
Deferred tax liability 4,168 3,676 4,540
Under IAS 12 Income Taxes, provision is made for the deferred tax liability
associated with the recognition of the intangible asset arising on the
acquisition of Frontier Development Capital Limited and the VCT fund
management business. As at 30 September 2023 the deferred tax liability has
been calculated using the tax rate of 25%.
16. Issued share capital
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 2023 30 September 2022 31 March 2023
Number £'000 Number £'000 Number £'000
Allotted and fully paid
As at the beginning of the period 446,581,202 4 440,109,707 4 440,109,707 4
Issue of share capital during the period 98,321 - - - 6,471,495 -
As at the end of the period 446,679,523 4 440,109,707 4 446,581,202 4
On 29 September 2023, 98,321 new Ordinary shares were issued in respect of the
exercise of share options held by certain employees. These new shares were
admitted to trading on the AIM market of the London Stock Exchange on 5
October 2023.
Each Ordinary share is entitled to one vote and has equal rights as to
dividends. The Ordinary shares are not redeemable.
17. Share premium
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
As at the beginning of the period 83,744 81,644 81,644
Premium arising on the issue of Ordinary shares 31 - 2,100
As at the end of the period 83,775 81,644 83,744
On 29 September 2023, a premium on the issue of Ordinary shares arose from
98,321 new Ordinary shares of £0.00001 each, issued at a price of 21.50
pence per share, following the exercise of share options held by certain
employees.
18. Other distributable reserve
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
As at the beginning of the period 63,266 66,919 66,919
Dividends (note 11) (2,367) (2,200) (3,653)
As at the end of the period 60,899 64,719 63,266
19. 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 following table gives information about how the fair values of these
financial assets and financial liabilities are determined and presents the
Group's assets that are measured at fair value. There have been no movements
in financial assets or financial liabilities between levels during the current
or prior periods. The table in note 12 sets out the movement in the Level 1
and 3 financial assets during the period.
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Assets:
Financial assets at fair value through profit or loss - direct investment
portfolio
Level 1 816 1,734 969
Level 2 - - -
Level 3 141,638 129,811 135,581
142,454 131,545 136,550
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 £'000
Liabilities:
Financial liabilities at fair value through profit or loss - deferred
consideration
Level 1 - - -
Level 2 - - -
Level 3 3,223 2,869 3,005
3,223 2,869 3,005
The Directors consider that the carrying amounts of financial assets and
financial liabilities recorded at amortised cost in the consolidated financial
statements approximate to their fair values.
Financial instruments in Level 1
The Group had one direct investment quoted on AIM, MyHealthChecked PLC, which
is fair valued using the closing bid price as at 30 September 2023, 30
September 2022 and 31 March 2023 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 of the fair value hierarchy and the individual valuations for each of the
companies has been arrived at using appropriate valuation techniques.
The Group has adopted the International Private Equity and Venture Capital
Valuation Guidelines 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 of the Group's consolidated financial statements for the year ended 31
March 2023 provides further information on the Group's valuation methodology,
including a detailed explanation of the valuation techniques used for Level 3
financial instruments.
20. Post balance sheet event
On 17 November 2023, the Group sold its investment in nDreams Limited to Aonic
AB for a total consideration of £30.2million, split between £26.4million in
cash and £3.8million re-invested into Aonic.
INDEPENDENT REVIEW REPORT TO MERCIA ASSET MANAGEMENT PLC
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 2023 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the London Stock Exchange AIM Rules for Companies.
We have been engaged by the Group to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2023 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.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). 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.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the London Stock Exchange AIM Rules for Companies 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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the parent
company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Group a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
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 AIM Rules for Companies 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
Date: 27 November 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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
Aspect House
Registered office Spencer Road
Forward House Lancing
17 High Street West Sussex BN99 6DA
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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