REG - Mercia Asset Mgt PLC - Interim Results
06/12/2022 07:00
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RNS Number : 6761I Mercia Asset Management PLC 06 December 2022
RNS 6 December 2022
Mercia Asset Management PLC
("Mercia" or the "Group" or the "Company")
Interim results for the six months ended 30 September 2022
Continuing profitable progress and a strong balance sheet, underpins a 10%
increase in the interim dividend
Mercia Asset Management PLC (AIM: MERC), the proactive regionally focused,
profitable specialist asset manager with c.£979million of assets under
management ("AuM"), is pleased to announce its interim results for the six
months ended 30 September 2022.
Highlights
· Adjusted operating profit up c.50% to £3.6million (H1 2022:
£2.4million)
· £5.6million fair value increase in direct investments (H1 2022:
£8.7million)
· Profit before taxation of £7.4million (H1 2022: £11.0million)
· Interim dividend up c.10% to 0.33 pence per share (H1 2022: 0.30
pence per share)
· Robust balance sheet with cash and short-term liquidity investments
of £56.1million as at 30 September 2022 (H1 2022: £52.1million; FY 2022:
£61.3million)
· Group AuM of £979.4million (H1 2022: £948.4million; FY 2022:
£959.2million), with a c.10% increase in the fair value of the direct
investment portfolio from 31 March 2022
· Net assets per share up c.3% to 46.8 pence (H1 2022: 42.4 pence; FY
2022: 45.6 pence)
Financial results
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
Statutory results
Revenue £12.2m £12.7m £23.2m
Realised gain on sale of direct investment - - £9.9m
Fair value movements in direct investments £5.6m £8.7m £11.4m
Operating profit £5.9m £10.7m £22.9m
Profit before taxation £7.4m £11.0m £27.4m
Basic earnings per share 1.6p 2.5p 5.9p
Interim dividend per share (1) 0.33p 0.30p 0.30p
Final dividend per share - - 0.50p
Cash and short-term liquidity investments £56.1m £52.1m £61.3m
Net assets £206.0m £186.4m £200.6m
Alternative performance measures
Adjusted operating profit (2) £3.6m £2.4m £8.4m
Net assets per share 46.8p 42.4p 45.6p
AuM £979.4m £948.4m £959.2m
1 The interim dividend will be payable to shareholders on the register
on 16 December 2022 and will be paid on 4 January 2023.
2 Adjusted operating profit is defined as operating profit before
exceptional net performance fees, 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.
A reconciliation of operating profit to adjusted operating profit is included
in the Chief Financial Officer's review.
Managed fund developments
· Third-party funds under management ("FuM") of c.£773million (H1
2022: c.£762million; FY 2022: c.£758million)
o Venture FuM c.£611million (H1 2022: c.£601million; FY 2022:
c.£592million)
§ £40.0million successfully raised by the three Northern Venture Capital
Trusts ("VCTs")
§ First Knowledge-intensive Impact Enterprise Investment Scheme ("EIS") and
Q3 2022 EIS Funds raised a combined c.£13million during the period
§ Interim and final dividends totalling £10.1million paid by the three
Northern VCTs
o Private equity FuM c.£46million (H1 2022: c.£53million; FY 2022:
c.£48million)
o Debt FuM c.£116million (H1 2022: c.£108million; FY 2022 c.£118million)
§ Accreditation awarded to the Group to deliver debt funding under the third
phase of the Recovery Loan Scheme ("RLS")
Direct investment portfolio developments
· Direct investment portfolio fair value of £131.5million (H1 2022:
£110.3million; FY 2022: £119.6million), up c.10% from 31 March 2022 despite
the UK macroeconomic backdrop and global geopolitical instability
· £6.4million net invested into six portfolio companies (H1 2022:
£5.4million net invested into five portfolio companies), including a new
direct investment into Uniphy Limited ("Uniphy")
· £5.6million fair value increase in the portfolio during the
six-month period (H1 2022: £8.7million)
· Demerger of Intechnica Limited's ("Intechnica") cybersecurity
bot-management business Netacea Limited ("Netacea") completed during the
period, allowing both companies to benefit from a refined focus on their
respective target markets
Post period end developments
· Investments totalling £5.3million completed into two new direct
portfolio companies, Axis Spine Technologies Limited ("Axis Spine") and Nova
Pangaea Technologies Limited ("Nova Pangaea")
o Axis Spine is a Med Tech business delivering spinal implants designed to
address the increasingly recognised and unmet clinical need of cage subsidence
o Nova Pangaea is a Clean Tech business focused on creating biofuels and
biochar to address some of the most pressing climate concerns of today
· A £3.0million investment has been made into Netacea to fund its
commercial expansion
· £11.5million additional allocation from British Business Bank
("BBB") under the Midlands Engine Investment Proof-of-Concept Fund ("MEIF")
· Commercial progress continues to be made overall by the direct
investment portfolio
· Acquisition of Frontier Development Capital Limited ("FDC") for an
initial cash consideration of £5.5million, adding c.£415million of
profitable FuM to the Group
Mark Payton, Chief Executive Officer of Mercia, commented:
"In these challenging times, both nationally and globally, the resilience of
Mercia's hybrid investment model is evident as we continue to drive growth in
assets under management, net asset value per share and our progressive
dividend. Our debt-free balance sheet and significant liquidity means Mercia
is well placed to capitalise at a time in the cycle when there are compelling
opportunities to be had. These results also showcase our track record of
delivery, with Mercia having returned c.£280million back to our fund
investors since April 2020. With our strong cash position, exceptional team
and proven ability to generate attractive returns across asset classes, we
continue to look forward with confidence as we progress towards our Mercia
'20:20' targets."
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, Immy Ransom
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, 6 December 2022. 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
In these challenging times, it is pleasing to report continued, steady
momentum at Mercia. We are in the strong position of being able to build from
a solid base, providing support for founders and managers of many of the UK's
leading SMEs, to enable them to focus on long-term growth. Key metrics that
demonstrate the resilience of Mercia's hybrid investment model during these
times include:
· Like-for-like revenue increase of 8% to £12.2million
· Adjusted operating profit increase of c.50% to £3.6million
· Interim dividend up c.10% to 0.33 pence per share
· Nets assets per share increased by c.3% to 46.8 pence
· AuM of c.£979million, with a c.10% increase in the fair value of the
direct investment portfolio from 31 March 2022.
Our vision remains to become the first choice for investees, investors and
employees. At this midpoint in our current three-year Mercia '20:20' strategic
plan, we remain confident that we will achieve our goals of £60.0million in
cumulative pre-tax profits and c.£600million cumulative growth in AuM by 31
March 2024. With the acquisition of FDC alongside organic growth in FuM, AuM
is now c.£1.4billion. The positive progress being made against these twin
goals continues to underpin our progressive dividend policy.
Distribution, in terms of both organic FuM growth and deal origination, is
critical to Mercia's continued success and scale and is underpinned by our
nine offices across the regions. Furthermore, all the capital that we manage
is in closed-end or evergreen structures, providing a stable source of
long-term third-party capital which is not subject to redemptions. This allows
the team to progressively spot and build value without the vulnerability of
capital withdrawal from our managed funds. The pools of capital we manage are
split into (i) 'retail' ie individual investors (via Mercia's EIS and Northern
VCTs), (ii) government agencies (both national and regional) and (iii)
institutional capital (typically regional pension funds).
Strength in numbers: A reputation for delivery
Mercia's hybrid model of combining interlinked, risk-adjusted third-party FuM
with scale-up capital via Mercia's balance sheet, ensures the supply of the
right capital to the right business at the right time. This hybrid investment
model originated in 2010 ahead of Mercia's IPO in 2014, and now delivers a
critical mass and maturity that is helping deliver returns to our fund
investors and shareholders as well as, crucially, to the founders and managers
of our investees whom we have the great privilege of supporting. In addition,
Mercia's management of our EIS funds and Northern VCTs consistently scores
highly with external reviewers who have recognised the strengths of our
'Complete Connected Capital' model, investees, exit track record and the
excellence of the team we have built at Mercia.
Our performance, which has seen us return c.£280million to investors across
our collective asset classes since April 2020, will underpin our continuing
efforts to further grow AuM organically over the near-to-medium term.
The exits we have achieved from Mercia's direct investment portfolio have
yielded an average premium to holding value of c.53%. The table below shows
our performance since IPO, in terms of fully-realised exits. To date, every
full-cash exit has been above carrying value.
Financial year exit/investee Carrying value Realised value £'000 Premium
£'000 %
2017
Abzena plc 150 170 13.3
Allinea Software Limited 1,900 2,700 42.1
2018
Science Warehouse Limited 9,900 10,500 6.1
2021
The Native Antigen Company Limited 3,500 5,200 48.6
Clear Review Limited 1,030 1,040 1.0
Oxford Genetics Limited 16,100 30,700 90.7
2022
Faradion Limited 12,900 19,400 50.4
Total/average premium 45,480 69,710 53.3
The table above demonstrates the value Mercia has created through its balance
sheet exits over time. This performance not only validates Mercia's
disciplined approach to valuation, but also points to the potential of future
net asset value increases from realisations over time.
With over a quarter of Mercia's AuM in unrestricted cash available for
investment, our reputation as a truly regional investor aligned with our
investees' growth aspirations, is aiding our deal sourcing and continues to be
a key competitive advantage. During this six-month period, we received 1,165
requests for investment and invested c.£56million into 80 businesses. This
investment cadence is critical to meeting our capital deployment targets
across both our debt and equity teams as we look to build out our portfolios
with new investments, during a period where value for a patient investor with
capital to deploy will become evident.
With the recent opening of our Bristol office and the acquisition of FDC
providing a central Birmingham location, we now have nine fully-staffed
offices across the UK plus two further satellite offices in Nottingham and
Hull. These offices provide us with reach across the entirety of England,
Scotland and Wales for deal origination and portfolio support. Following the
FDC acquisition, Mercia now has 144 employees and we continue to invest in our
talented team as we work together to deliver Mercia's '20:20' strategy. I am
proud of the diverse and inclusive culture at Mercia as we continue to operate
within our core values of trust, growth, knowledge and responsiveness, coupled
closely with our dedication to the UN Principles of Responsible Investment.
Outlook
Many businesses are facing national and global headwinds as we approach 2023.
This is arguably most acute in the technology sector and, specifically, within
capital-intensive, loss-making business-to-consumer companies. These headwinds
are particularly visible in the public markets. Against this backdrop Mercia
is well placed, especially given the significant liquidity we have to deploy
into what is a buyers' market.
With our focus on SMEs within the UK, predominantly businesses in sectors with
relatively modest capital needs, we and the funds we manage, are able to
continue to support these businesses with additional capital as and when
needed during these turbulent times. As almost all businesses in our
portfolios are private businesses, our exposure to the public markets is
limited. In addition, as a debt-free, cash-rich business, Mercia is well
placed to capitalise on both corporate (as evidenced by our recent
acquisition) and direct investment opportunities as we invest through the
cycle. A majority of the Group's investment realisations are through trade
sale exits (just two exits in the last two years were via IPOs), and this part
of the market remains relatively resilient.
I am sincerely grateful to all our employees, portfolio companies, managed
fund investors, our many other valued stakeholders and, of course, our
shareholders, for their continued commitment and belief in Mercia.
At this mid-point in our current three-year strategic plan, we remain
confident that we will deliver Mercia '20:20' by 31 March 2024.
Though the public markets may be stressed, Mercia is not.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Investment activity
During the six months to 30 September 2022, we invested c.£56million into 80
businesses across our funds and balance sheet. This included 34 companies new
to Mercia's third-party managed funds and one new direct investment portfolio
company, Uniphy. At the end of the period, we had c.£296million of liquidity
to support our future investment activity, including c.£56million on our
balance sheet, putting us in a strong position as we move towards 2023.
Overall, AuM increased c.2% to c.£979million, including positive direct
investment net fair value movements of £5.6million.
We have started to reap the benefits of our expanding regional footprint with
four new investments in the South West region, and see significant opportunity
in this vibrant part of the UK. It is due to the scale of the opportunity here
that we will soon be expanding our South West team to four full-time
investment professionals, based in Bristol.
Investment realisations
During the six-month period to 30 September 2022, we benefitted from 14 full
and partial equity exits (H1 2022: nine). These realised c.£25million at a
combined return of 1.6x. The standout exit was C7 Health Limited ("C7"), which
we sold in June to TAC Healthcare Limited ("TAC Healthcare"), generating a
c.14x cost return for our earliest EIS investors and a c.9x cost return for
subsequent fund investors. The overall blended cash-on-cash return was lower,
as nine businesses were exited at either less than investment cost or were
partial realisations. Within the management of venture portfolios, it is
crucial to alleviate investment management time from underperforming assets.
This discipline will continue as our portfolios mature and grow in size.
Proprietary capital
As at 30 September 2022, our direct investment portfolio was fair valued at
£131.5million (H1 2022: £110.3million; FY 2022: £119.6million) with 22
active companies (H1 2022: 20; FY 2022: 21).
We invested £6.4million net into the direct investment portfolio in the first
six months of the current financial year (H1 2022: £5.4million). A
significant amount of time was spent evaluating our new deal pipeline, which
resulted in a small initial investment into Uniphy, a Deep Tech business that
can enable any surface to become a smart human-machine interface. Our efforts
also saw us add two new direct investments shortly after the period end in
October 2022, with Axis Spine, a Med Tech business delivering spinal implants,
and Nova Pangaea, a Clean Tech business focused on creating biofuels and
biochar to address some of the most pressing climate concerns of today. The
investment into Axis Spine was part of a £10.0million series A round which
included other Mercia funds, as well as continuing our strategy of bringing in
specialist new syndicate partners, such as MedTex Ventures LLC from the USA, a
specialist healthcare investor.
The table below lists Mercia's top 20 investments by fair value as at 30
September 2022, including the net cash invested, realisation proceeds, fair
value movements and the fully diluted equity percentage held.
Year of Net Net cash Investment Fair value Net
first investment invested realisations movement investment Percentage
direct investment value as at six months to six months to six months to value as at held as at
1 April
30 September
2022
30 September 30 September 30 September 30 September
2022
£'000
2022 2022 2022 2022
£'000
£'000 £'000 £'000 %
nDreams Ltd 2014 25,761 - - - 25,761 33.2
Impression Technologies Ltd 2015 10,372 3,588 - - 13,960 65.1
Netacea Ltd 2022 - - - 12,204 12,204 24.1
Voxpopme Ltd 2018 10,511 - - - 10,511 17.6
VirtTrade Ltd * 2015 5,387 450 - 4,003 9,840 40.6
Warwick Acoustics Ltd 2014 6,306 1,450 - 1,939 9,695 40.3
Medherant Ltd 2016 8,989 - - - 8,989 33.1
Invincibles Studio Ltd 2015 4,600 - - 1,400 6,000 39.0
Ton UK Ltd ** 2015 6,074 - - (699) 5,375 29.9
Locate Bio Ltd 2018 4,858 - - - 4,858 18.1
Eyoto Group Ltd 2017 2,960 444 - - 3,404 11.5
Sense Biodetection Ltd 2020 2,479 - - - 2,479 1.6
sureCore Ltd 2016 2,417 - - - 2,417 22.0
W2 Global Data Solutions Ltd 2018 2,500 200 - (401) 2,299 16.3
Intechnica Holdings Ltd *** 2017 14,411 - - (12,204) 2,207 24.1
PsiOxus Therapeutics Ltd 2015 1,780 - - - 1,780 1.4
Forensic Analytics Ltd 2021 1,750 - - - 1,750 8.9
MyHealthChecked PLC 2016 1,632 - - 102 1,734 13.1
MIP Discovery Ltd 2020 1,449 - - - 1,449 10.2
Edge Case Games Ltd 2015 2,300 - - (883) 1,417 18.7
Other direct investments n/a 3,022 271 (11) 134 3,416 n/a
Total 119,558 6,403 (11) 5,595 131,545 n/a
* Trading as Avid Games
** Trading as Intelligent Positioning
*** Formerly Intechnica Group Ltd prior to the demerger of Netacea Ltd
Direct investment portfolio highlights
The period under review saw net upward fair value movements of £5.6million,
mainly driven by significant commercial progress at our two mobile games
businesses, VirtTrade Limited ("VirtTrade") and Invincibles Studio Limited
("Invincibles Studio"), in addition to continued progress made by Warwick
Acoustics Limited ("Warwick Acoustics"). The significant fair value movement
shown above on Intechnica follows the demerger into separate entities of the
profitable Intechnica consultancy business and Netacea, the bot management
business; however if taken together, the aggregate carrying value of the two
businesses has not changed from that of the original Intechnica Group Limited
as at 31 March 2022. The other small fair value uplift arose as a result of
MyHealthChecked PLC's share price increase from 1.6 pence as at 31 March 2022,
to 1.7 pence as at 30 September 2022. These uplifts were balanced against
falls at our lower growth software businesses, Intelligent Positioning
Limited, W2 Global Data Solutions Limited, and digital games company Edge Case
Games Limited as expected royalty receipts from Wargaming move further out
into the future.
Our top 10 direct investment holdings represent c.82% of the value of our
portfolio as at 30 September 2022. There has been positive progress across a
number of our largest investments as summarised in the sectorial review below.
Digital Entertainment; c.33% by value of the portfolio
nDreams Limited ("nDreams"): 33.2% fully diluted direct investment
Farnborough-based nDreams achieved revenues of £5.6million for the year to 31
March 2022. Following the £20.0million investment from Aonic AB in March
2022, the company has significantly grown its workforce and capabilities. It
now has four teams working across three studios on different projects,
including a new remote team working on truly next-generation virtual reality
("VR") gaming concepts including Ghostbusters VR with Sony Pictures and Meta.
Its third-party publishing division continues to progress after the successful
launch of Little Cities in early 2022.
Mercia first supported nDreams in 2014 via its managed funds. The company is
highly regarded in the VR space as much for its technical capability in VR,
following the launch of its Fracked game, as for its quality content and
publishing success.
Invincibles Studio: 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 Invincibles Studio
continues to make steady progress. Its Soccer Manager 2023 game launch in late
September 2022 has resulted in significant growth, with new users up c.80% and
revenues up more than c.50%. Invincibles Studio has renewed its previously
negotiated licences with FIFPro, the Scottish Premier League, Arsenal football
club manager Mikel Arteta as the face of the game, and the social media rights
to Inter Milan. It has also signed a worldwide licence with the Bundesliga and
its players. Invincibles Studio has two new games in development which will be
launched in 2023. The first will be Ultimate Soccer League, a new multiplayer
game that will offer a differentiated experience from other football
management games, in Spring 2023.
VirtTrade: 40.6% fully diluted direct investment stake with a further 4.2%
fully diluted stake held by Mercia's managed funds
VirtTrade originally developed and operated a platform that enabled the rapid
creation, distribution and sale of digital trading cards across white-label
mobile applications. The business launched a mobile game using its own
intellectual property called 'CUE Cards' (Cards, the Universe and Everything)
in December 2019 and is now focused entirely on growing this game. VirtTrade
has been able to scale significantly over the past year, and has grown monthly
revenues five-fold, by focusing on the key metric of return on advertising
spend.
Software; c.27% by value of the portfolio
Voxpopme Limited ("Voxpopme"): 17.6% fully diluted direct investment stake
with a further 13.6% fully diluted stake held by Mercia's managed funds
Voxpopme is a software business based in Birmingham and Colorado USA that
provides video analytics software to firms in the market research, customer
experience and, in the future, the recruitment and HR markets. Its primary
business of video data analytics is proving disruptive to both the market
research and customer experience markets, where it has launched products to
date. Its annual recurring revenue ("ARR") has now grown to $8.4million.
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 has developed an enterprise server-side bot
management solution that protects 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. It is now a standalone entity
with an ARR of c.£6million, having demerged from Intechnica, and is
concentrating on scaling its sales and partnership business, both in the UK
and in the USA.
Deep Technology ("Deep Tech"); c.20% by value of the portfolio
Impression Technologies Limited ("ITL"): 65.1% fully diluted direct investment
stake with a further 0.9% fully diluted stake held by Mercia's managed funds
ITL has been developing a proprietary aluminium lightweight technology,
HFQ™, with its own pressing plant in Coventry, since 2016. Alongside its
German licensee, Fischer, it recently showcased the world's first example of
an HFQ-formed high-strength aluminium structure using 100% recycled aluminium
(having the potential to reduce embedded carbon by over 90%). In addition, ITL
presented an innovative single-piece battery enclosure lid made from
high-strength alloy. As an innovation that could offer reduced weight, part
count and carbon intensity, HFQ captured the attention of a large number of
engineers from established and emerging original equipment manufacturers
("OEMs"), with a focus on new electric vehicle and delivery van platforms.
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. The
company raised a further £2.5million in the summer from new and existing
shareholders to fund its next stage of development. Commercial traction
continues with three ongoing projects at various stages with global automotive
OEMs and with others under current negotiation.
Life Sciences; c.20% by value of the portfolio
Medherant Limited ("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 several external partnerships and its internal development program is
progressing well ahead of a potential late-2023 launch. In respect of its
external partnerships, one has progressed through the first two evaluation
hurdles, with the collaboration having been extended further. If successful,
this would address a multi-billion-dollar market opportunity.
Locate Bio Limited ("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, including
its lead bone graft solution which continues its large trials program as part
of the US Food and Drug Administration approval process. 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.
Assets under management
AuM increased by c.2% to c.£979million, with c.£54million of new capital
raised by our retail EIS and Northern VCTs during the six-month period.
Partially offsetting these AuM inflows were downward valuation movements in
AIM- quoted VCT portfolio companies, the largest being musicMagpie plc, in
addition to distributions back to fund investors and dividends paid to VCT and
Mercia shareholders.
AuM Investor Performance Distributions AuM Post
1 April inflows 30 September period end
2022 2022 inflows
Asset class £'m £'m £'m £'m £'m £'m
Venture 592 54 (21) (14) 611 12
Private equity 48 - (2) - 46 -
Debt 118 - - (2) 116 -
Total FuM 758 54 (23) (16) 773 12
Proprietary capital 201 - 7 (2) 206 -
Total AuM 959 54 (16) (18) 979 12
Third-party managed funds
As at 30 September 2022, we were managing c.£773million of third-party funds
(H1 2022: c.£762million; FY 2022: c.£758million). Across those funds we had
c.£240million of liquidity (H1 2022: c.£232million; FY 2022:
c.£236million), which enables us to fully support our portfolio companies and
transact new deals in the future.
In April 2022, we added a further c.£45million of organic FuM following
successful EIS and Northern VCT fundraises, and in September 2022, closed our
Q3 2022 EIS Fund, raising c.£9million. Furthermore, post period end, we have
received a further c.£12million allocation from the BBB in relation to our
MEIF mandate.
During the six-month period ended 30 September 2022, we invested £49.1million
across the multiple funds which we manage as follows:
FuM
30 September Companies Amount Company
2022 in portfolio invested exits
Asset class £'m No. £'m No.
EIS 89 71 5.8 5
VCT 335 56 20.2 2
Regional venture 187 109 13.1 6
Private equity 46 9 0.3 -
Debt 116 179 9.7 16
Totals 773 424 49.1 29
Managed funds' portfolios
Venture
The 13 full and partial exits returned £25.0million in the six months to 30
September 2022, at a combined return of 1.6x. The standout exit was C7, which
we sold in June to TAC Healthcare, generating proceeds of £8.0million,
equating to a return of c.14x cost for our earliest EIS investors and c.9x
cost for subsequent fund investors. Our VCTs exited two investments;
AIM-quoted Ideagen PLC, which has been held since its listing, generating a
return of 5.9x cost, and Edtech business, Knowledgemotion Limited, which
returned 1.7x cost.
Our third-party managed funds across all asset classes have exposure to
various technology sectors, but do not typically invest in capital-intensive
businesses or pre-IPO scale-ups hoping to list before reaching profitability
and cash generation.
Private equity ("PE")
The value of our PE funds declined marginally during the six months to 30
September 2022. Although Shoppertainment Limited and ParkVia Limited,
previously exposed to COVID-19-related issues, returned to growth, supply
chain headwinds and inflationary pressures continued to impact the portfolio.
Debt
Mercia's Debt funds' team saw an increase in activity during the period,
supporting 33 businesses, lending a total of £9.7million. In August 2022,
Mercia gained accreditation to deliver loans under phase three of the
Government's RLS, via its Northern Powerhouse Investment Fund debt mandate.
Mercia's vastly experienced Debt team continues to support profitable SMEs,
mainly across the North of England.
Summary
Only six months ago, I finished my Chief Investment Officer's review for the
year to 31 March 2022, saying that we must not ignore the effects of
inflation, ongoing supply chain issues and the uncertainty caused by military
conflict. We are now seeing the effects of all of these, alongside additional
political and mortgage rate instability, within our daily lives. This has
meant that we find ourselves in quite remarkable times. In contrast, the past
six months at Mercia have been relatively unremarkable; our experienced team
has been well prepared and our investee companies have put their heads down
and got on with what is in front of them. We continually review cash levels at
our investees and believe that their management teams work best when they are
not looking over their shoulders. We have ample cash on our balance sheet and
liquidity within our third-party funds to continue to support the most
promising investments over the next 12 months and beyond.
The beauty of our model at Mercia is that we can also provide significant
non-financial support to our companies, with value enhancing input from our
Head of Portfolio Resourcing, Lisa Ward, and her team. Within our network of
over 1,000 experienced NEDs, chairs and operating partners, there are
complementary skill sets that we can introduce to help our portfolio
businesses grow or navigate speed bumps; in the first six months we have made
16 such additional appointments.
The first half of the financial year has yielded continued progress across our
portfolio companies despite toughening conditions. 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
Mercia has maintained positive financial momentum during the first half of the
current financial year, with increases in adjusted operating profit, net
assets and net assets per share.
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 and 0.30 pence per share in December 2021. Shareholders also approved a
maiden final dividend of 0.30 pence per share in September 2021 and 0.50 pence
per share in September 2022.
Given the Group's twin sources of profitability and cash inflow, being
regionally focused proactive specialist asset management, plus direct
investment and 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 Group performance, coupled with its future
prospects, has enabled Mercia's Board to declare an interim dividend of 0.33
pence per share (H1 2022: 0.30 pence per share). The interim dividend will be
paid on 4 January 2023 to shareholders on the register at close of business on
16 December 2022, with the total dividend payable being £1,452,000 (H1 2022:
£1,320,500).
Adjusted operating profit
The Directors believe that the reporting of adjusted operating profit assists
in providing a consistent measure of operating performance for businesses such
as Mercia and is an important alternative performance measure ("APM") of
interest to shareholders.
Adjusted operating profit is defined as operating profit before net
exceptional performance fees, 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.
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
2022 2021 31 March
£'000 £'000 2022
£'000
Revenue 12,181 10,089 20,576
Administrative expenses (10,102) (7,957) (16,618)
Net finance income 1,480 230 4,437
Adjusted operating profit(1) 3,559 2,362 8,395
Net exceptional performance fees - 1,592 1,592
Adjusted operating profit(1) including net performance fees 3,559 3,954 9,987
Depreciation (120) (110) (224)
Net finance income (1,480) (230) (4,437)
Realised gain on disposal of investment - - 9,878
Fair value movements in investments 5,595 8,708 11,385
Share-based payments charge (592) (573) (1,109)
Amortisation of intangible assets (1,017) (1,017) (2,033)
Movement in fair value of deferred consideration - - (522)
Operating profit 5,945 10,732 22,925
Net finance income 1,480 230 4,437
Profit before taxation 7,425 10,962 27,362
Taxation (422) 192 (1,262)
Profit and total comprehensive income 7,003 11,154 26,100
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-month period ended 30 September 2022
IFRS as reported Performance fees Depreciation APM basis(1)
£'000 £'000 £'000 £'000
Revenue 12,181 - - 12,181
Administrative expenses (10,222) - 120 (10,102)
Depreciation - - (120) (120)
Six-month period ended 30 September 2021
IFRS as reported Performance fees Depreciation APM basis(1)
£'000 £'000 £'000 £'000
Revenue 12,696 (2,607) - 10,089
Administrative expenses (9,082) 1,015 110 (7,957)
Depreciation - - (110) (110)
Year ended 31 March 2022
IFRS as reported Performance fees Depreciation APM basis(1)
£'000 £'000 £'000 £'000
Revenue 23,183 (2,607) - 20,576
Administrative expenses (17,857) 1,015 224 (16,618)
Depreciation - - (224) (224)
Revenue
Revenue(1) increased 20.7% to £12,181,000 (H1 2022: £10,089,000) and
comprised fund management related fees, initial management fees from
investment rounds, investment director monitoring fees and sundry business
services income. Excluding the impact of April 2022's VCT share offer fees
received during the period, the like-for-like increase was c.8%.
For the prior interim period to 30 September 2021, revenue included a
£2.6million exceptional performance fee from Northern Venture Trust PLC.
Administrative expenses
Administrative expenses(1), excluding depreciation, increased 27.0% to
£10,102,000 (H1 2022: £7,957,000) and comprised predominantly staff-related,
office, marketing and professional adviser costs. Removing the impact of April
2022's VCT share offer related costs, the like-for-like increase was c.11%,
reflecting the post-COVID catch-up in staff recruitment together with
inflation.
For the prior interim period to 30 September 2021, administrative expenses
included variable compensation totalling £1.0million paid to members of
Mercia's VCT investment team, in connection with the exceptional performance
fee received.
Mercia anticipates that the financial benefits of operational leverage will
continue to be realised as its funds under management increase, by both its
organic and inorganic initiatives.
Net finance income
Total gross finance income of £1,488,000 (H1 2022: £238,000) arose primarily
from the crystallisation of convertible loan interest within the direct
portfolio. Gross finance income includes £117,000 (H1 2022: £3,000) of
interest received on cash deposits following Bank of England base rate rises
during the period. Finance costs of £8,000 (H1 2022: £8,000) comprised
interest payable on office leases and the Group's new electric car scheme.
Fair value movements in investments
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments* 7,578 11,417 15,122
Unrealised losses on the revaluation of investments* (1,983) (2,709) (3,737)
Net fair value movement 5,595 8,708 11,385
* Excluding the demerger of Netacea Limited from Intechnica Holdings Limited
in the period
Net fair value increases during the period totalled £5,595,000 (H1 2022:
£8,708,000) and as at 30 September 2022, the fair value of the Group's direct
investment portfolio was £131,545,000 (H1 2022: £110,298,000; FY 2022:
£119,558,000).
For the period as a whole, unrealised fair value gains arose in four* (H1
2022: eight) of the Group's direct investments. The largest fair value gain
was in respect of VirtTrade Limited, which accounted for £4,003,000 of the
total (H1 2022: £5,756,000 fair value gain in respect of Faradion Limited).
There were three* (H1 2022: two) fair value decreases, the largest being
£883,000 which arose in respect of Edge Case Games Limited (H1 2022:
£2,448,000 fair value decrease in MyHealthChecked PLC).
Share-based payments charge
The £592,000 non-cash charge (H1 2022: £573,000) arises from the net
increase in the total number of issued share options held by all employees
throughout the Group, ranging from 28 January 2020 to 30 September 2022.
Amortisation of intangible assets
The amortisation charge for the period of £1,017,000 (H1 2022: £1,017,000)
represents amortisation of the acquired intangible assets of the VCT fund
management business.
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 the VCT fund management
business.
Profit and total comprehensive income for the period
The adjusted operating profit and net fair value increases for the period
contributed positively to a consolidated total comprehensive income of
£7,003,000 (H1 2022: £11,154,000). This has resulted in basic earnings per
Ordinary share of 1.59 pence (H1 2022: 2.53 pence).
Summarised statement of financial position and cash flows
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Goodwill and intangible assets 31,338 33,371 32,355
Direct investment portfolio 131,545 110,298 119,558
Other non-current assets, trade and other receivables 1,626 5,077 1,604
Cash and short-term liquidity investments 56,112 52,114 61,284
Total assets 220,621 200,860 214,801
Trade and other payables (8,092) (6,805) (7,415)
Deferred consideration (2,869) (4,447) (2,869)
Deferred taxation (3,676) (3,180) (3,928)
Total liabilities (14,637) (14,432) (14,212)
Net assets 205,984 186,428 200,589
Net assets per share (pence) ** 46.8p 42.4p 45.6p
** 440,109,707 Ordinary shares were in issue during the six-month period ended
30 September 2022 and 30 September 2021, and the year ended 31 March 2022
Net assets per share increased by c.3% during the interim period,
notwithstanding the recognition of dividends totalling £2,200,000 paid after
the period end (H1 2022: c.6% growth after recognising dividends of
£1,320,500, paid after that period end).
Intangible assets
The Group's intangible assets consist of goodwill and the intangible asset
recognised on the acquisition of the VCT fund management business.
Direct investment portfolio
During the period, Mercia's direct investment portfolio grew from
£119,558,000 as at 1 April 2022 (H1 2022: £96,220,000 as at 1 April 2021) to
£131,545,000 as at 30 September 2022 (H1 2022: £110,298,000 as at 30
September 2021), a c.10% increase (H1 2022: c.15% increase).
The Group invested £6,403,000 net (H1 2022: £5,370,000) into five existing
and one new direct investment, Uniphy Limited (H1 2022: five existing and no
new direct investments), with the top 20 direct investments representing 97.4%
of the total direct investment portfolio value (H1 2022: 98.5%; FY 2022:
98.6%).
Cash and short-term liquidity investments
At the period end, Mercia had cash and short-term liquidity investments (which
is cash on deposit with maturities of between 32 days and three months)
totalling £56,112,000 (H1 2022: £52,114,000; FY 2022: £61,284,000),
comprising cash of £50,864,000 (H1 2022: £51,880,000; FY 2022: £56,049,000)
and short-term liquidity investments of £5,248,000 (H1 2022: £234,000; FY
2022: £5,235,000).
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 £0.5million (H1 2022: £2.6million inflow).
The overriding emphasis of the Group's treasury policy remains the
preservation of its shareholders' cash for investment, corporate and working
capital purposes, not yield. As at 30 September 2022, the Group's cash and
short-term liquidity investments were spread across four leading United
Kingdom banks.
The summarised movements in the Group's cash and short-term liquidity
investments during the period are shown below.
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Opening cash and short-term liquidity investments 61,284 54,725 54,725
Cash generated from operating activities 544 2,625 9,150
Corporation tax paid (705) - -
Net cash (used in)/generated from direct investment activities (5,021) (5,135) 2,363
Purchase of VCT fund management contracts (deferred consideration) - - (2,100)
Cash inflow/(outflow) from other investing activities 97 (31) (62)
Net cash used in financing activities (87) (70) (2,792)
Closing cash and short-term liquidity investments 56,112 52,114 61,284
Outlook
Investing in young technology businesses or lending to more established SMEs
is rarely a linear journey at times of economic instability, such as now.
During such times, the continuing availability of cash to those businesses
provides the 'oxygen' that they need to execute their long-term growth plans,
uninterrupted by near-term cash crunches. As a direct consequence of the
significant liquidity held in both our funds under management and on our own
balance sheet, Mercia is able to continue to support those businesses without
hindering both pillars of its own organic and inorganic growth strategy.
Having successfully grown revenues, profits, cash and NAV per share during the
pandemic, Mercia is now navigating this period of significant economic and
geopolitical uncertainty, elevated inflation and a downturn in sentiment
towards the tech sector, from the fortunate position of debt-free strength.
The Group's excellent staff, supportive stakeholders, strong liquidity,
increasing funds under management and growing direct investment portfolio,
should enable the Group to remain on track with its Mercia '20:20' strategy
through to 31 March 2024.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2022
Note Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Revenue 5 12,181 12,696 23,183
Administrative expenses 7 (10,222) (9,082) (17,857)
Realised gain on sale of direct investment - - 9,878
Fair value movements in direct investments 12 5,595 8,708 11,385
Share-based payments charge (592) (573) (1,109)
Amortisation of intangible assets (1,017) (1,017) (2,033)
Movement in fair value of deferred consideration - - (522)
Operating profit 5,945 10,732 22,925
Finance income 8 1,488 238 4,452
Finance expense (8) (8) (15)
Profit before taxation 7,425 10,962 27,362
Taxation 9 (422) 192 (1,262)
Profit and total comprehensive income for the period 7,003 11,154 26,100
Basic earnings per Ordinary share (pence) 10 1.59 2.53 5.93
Diluted earnings per Ordinary share (pence) 10 1.57 2.50 5.82
All results derive from continuing operations.
Condensed consolidated statement of financial position
As at 30 September 2022
Note Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 16,642 16,642 16,642
Intangible assets 14,696 16,729 15,713
Property, plant and equipment 101 105 113
Right-of-use assets 367 421 417
Investments 12 131,545 110,298 119,558
Total non-current assets 163,351 144,195 152,443
Current assets
Trade and other receivables 1,158 4,551 1,074
Short-term liquidity investments 13 5,248 234 5,235
Cash and cash equivalents 13 50,864 51,880 56,049
Total current assets 57,270 56,665 62,358
Total assets 220,621 200,860 214,801
Current liabilities
Trade and other payables (7,683) (6,355) (6,963)
Lease liabilities (168) (131) (157)
Deferred consideration 14 (2,869) (1,578) (2,869)
Total current liabilities (10,720) (8,064) (9,989)
Non-current liabilities
Lease liabilities (241) (319) (295)
Deferred consideration 14 - (2,869) -
Deferred taxation 15 (3,676) (3,180) (3,928)
Total non-current liabilities (3,917) (6,368) (4,223)
Total liabilities (14,637) (14,432) (14,212)
Net assets 205,984 186,428 200,589
Equity
Issued share capital 4 4 4
Share premium 81,644 81,644 81,644
Other distributable reserve 16 64,719 68,240 66,919
Retained earnings 55,508 33,559 48,505
Share-based payments reserve 4,109 2,981 3,517
Total equity 205,984 186,428 200,589
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 5 December 2022 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 2022
Note Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Cash flows from operating activities:
Operating profit 5,945 10,732 22,925
Adjustments to reconcile operating profit to cash generated from operating
activities:
Depreciation of property, plant and equipment 32 36 70
Depreciation of right-of-use assets 88 74 154
Gain on sale of direct investment - - (9,878)
Fair value movements in direct investments 12 (5,595) (8,708) (11,385)
Share-based payments charge 592 573 1,109
Amortisation of intangible assets 1,017 1,017 2,033
Movement in fair value of contingent consideration - - 522
Working capital adjustments:
(Increase)/decrease in trade and other receivables (84) (491) 2,986
(Decrease)/increase in trade and other payables (1,451) (608) 614
Cash generated from operating activities 544 2,625 9,150
Corporation tax paid (705) - -
Net cash (used in)/generated from operating activities (161) 2,625 9,150
Cash flows from direct investment activities:
Sale of direct investments 12 11 - 16,309
Purchase of direct investments 12 (6,403) (5,370) (19,884)
Investee company loan repayment 12 - - 1,500
Investee company loan redemption premiums and interest received 8 1,371 235 4,438
Net cash (used in)/generated from direct investment activities (5,021) (5,135) 2,363
Cash flows from other investing activities:
Receipt of bank interest on deposits 104 3 14
Purchase of property, plant and equipment (20) (34) (76)
Purchase of VCT fund management contracts - - (2,100)
Increase in short-term liquidity investments - - (5,001)
Net cash generated from/(used in) other investing activities 84 (31) (7,163)
Net cash used in total investing activities (4,937) (5,166) (4,800)
Cash flows from financing activities:
Dividends paid 11 - - (2,641)
Interest paid (8) (8) (15)
Payment of lease liabilities (79) (62) (136)
Net cash used in financing activities (87) (70) (2,792)
Net (decrease)/increase in cash and cash equivalents (5,185) (2,611) 1,558
Cash and cash equivalents at the beginning of the period 56,049 54,491 54,491
Cash and cash equivalents at the end of the period 13 50,864 51,880 56,049
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2022
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 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
Final dividend - - (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
Profit and total comprehensive income for the period - - - 14,946 - 14,946
Interim dividend - - (1,321) - - (1,321)
Share-based payments charge - - - - 536 536
As at 31 March 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
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 2022. 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 2022, 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 2022 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 2022 were approved by the Board on 4 July 2022 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 2022 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 5 December 2022 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 its
significant liquidity at the period end, together with its forecast future
operating and investment activities and, having considered the ongoing UK
macroeconomic backdrop, geopolitical instability and the war in Ukraine 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 2022, and
have been consistently applied throughout the period ended 30 September 2022.
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
2022 2021 31 March
£'000 £'000 2022
£'000
Fund management fees 8,469 7,385 14,957
Initial management fees 890 1,113 2,456
Portfolio directors' fees 1,351 1,500 2,969
Other revenue 140 91 194
VCTs share offer fees 1,331 - -
Performance fees - 2,607 2,607
12,181 12,696 23,183
6. Fair value movements in investments
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Net fair value movements in investments (note 12) 5,595 8,708 11,385
7. Operating profit
Operating profit is stated after charging:
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Staff costs (including variable compensation linked to performance fees) 6,743 6,460 12,961
Other administrative expenses 3,479 2,622 4,896
Total administrative expenses 10,222 9,082 17,857
8. Finance income
Finance income is derived from:
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Cash and cash equivalents 104 3 12
Short-term liquidity investments 13 - 2
Investee company loans (interest and redemption premiums) 1,371 235 4,438
Total finance income 1,488 238 4,452
9. Taxation
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
Current tax
UK Corporation tax (674) - (706)
Deferred tax
Origination and reversal of temporary timing differences 252 192 508
Effects of changes in tax rates - - (1,064)
Total tax (charge)/credit (422) 192 (1,262)
The current UK standard rate of corporation tax is 19% (H1 2022: 19%). The
deferred tax credit of £252,000 (H1 2022: £192,000) represents the unwinding
of the deferred tax liability recognised in respect of the intangible assets
arising on the acquisition of 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
2022 2021 31 March
2022
Profit for the financial period (£'000) 7,003 11,154 26,100
Basic weighted average number of Ordinary shares ('000) 440,110 440,110 440,110
Basic earnings per Ordinary share (pence) 1.59 2.53 5.93
Diluted weighted average number of Ordinary shares ('000) 447,216 447,028 448,466
Diluted earnings per Ordinary share (pence) 1.57 2.50 5.82
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
2022 2021 31 March
2022
Weighted average number of shares
Basic 440,110 440,110 440,110
Dilutive impact of Ordinary shares issued 7,106 6,918 8,356
Diluted weighted average number of Ordinary shares 447,216 447,028 448,466
11. Dividends
In October 2021, the Company paid £1,320,500 in respect of its maiden final
dividend for the year ended 31 March 2021 of 0.30 pence per share.
In December 2021, the Company paid £1,320,500 in respect of its interim
dividend for the year ended 31 March 2022 of 0.30 pence per share.
The final dividend for the year ended 31 March 2022 of 0.50 pence per share,
totalling £2,200,500, was approved by shareholders at the Annual General
Meeting on 13 September 2022 and was paid after the period end, on 11 October
2022.
An interim dividend for the year ending 31 March 2023 of 0.33 pence per share,
totalling £1,452,000, 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.
12. Investments
The net change in the value of investments for the six-month period is an
increase of £11,987,000 (H1 2022: £14,078,000). 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 2021 (audited) 4,488 91,732 96,220
Investments made during the period - 5,370 5,370
Unrealised fair value gains on investments - 11,417 11,417
Unrealised fair value losses on investments (2,448) (261) (2,709)
As at 30 September 2021 (unaudited) 2,040 108,258 110,298
Investments made during the period - 14,514 14,514
Investee company loan repayment - (1,500) (1,500)
Disposal - (6,431) (6,431)
Unrealised fair value gains on investments - 3,705 3,705
Unrealised fair value losses on investments (408) (620) (1,028)
As at 31 March 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
* 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
2022 2021 2022
£'000 £'000 £'000
Quoted investment 1,734 2,040 1,632
Price of last investment round 69,284 43,554 62,233
Enterprise value 53,106 47,212 37,772
Impaired value (1) 7,121 15,192 12,296
Cost 300 2,300 5,625
131,545 110,298 119,558
(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
2022 2021 2022
£'000 £'000 £'000
Cash and cash equivalents 50,864 51,880 56,049
Short-term liquidity investments 5,248 234 5,235
14. Deferred consideration
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Payable within one year 2,869 1,578 2,869
Payable within two to five years - 2,869 -
2,869 4,447 2,869
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 2022.
15. Deferred taxation
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Deferred tax liability 3,676 3,180 3,928
Under IAS 12 Income Taxes, provision is made for the deferred tax liability
associated with the recognition of the intangible asset arising on the
acquisition of the VCT fund management business. As at 30 September 2022 and
31 March 2022, the deferred tax liability has been calculated using the
substantively enacted tax rate of 25% (H1 2022: 19%).
16. Other distributable reserve
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 September 30 September ended
2022 2021 31 March
£'000 £'000 2022
£'000
As at the beginning of the period 66,919 69,560 69,560
Dividends (note 11) (2,200) (1,320) (2,641)
As at the end of the period 64,719 68,240 66,919
17. 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
2022 2021 2022
£'000 £'000 £'000
Assets:
Financial assets at fair value through profit or loss - direct investment
portfolio
Level 1 1,734 2,040 1,632
Level 2 - - -
Level 3 129,811 108,258 117,926
131,545 110,298 119,558
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2022 2021 2022
£'000 £'000 £'000
Liabilities:
Financial liabilities at fair value through profit or loss - deferred
consideration
Level 1 - - -
Level 2 - - -
Level 3 2,869 4,447 2,869
2,869 4,447 2,869
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 2022, 30
September 2021 and 31 March 2022 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 2022 provides further information on the Group's valuation methodology,
including a detailed explanation of the valuation techniques used for Level 3
financial instruments.
18. Post balance sheet event
On 5 December 2022, the Group completed the acquisition of the entire share
capital of Frontier Development Capital Limited ("FDC") for a total
consideration of up to £9.5million, plus net cash. The acquisition is for an
initial consideration of £5.5million satisfied in cash, plus an amount equal
to FDC's net cash position (subject to certain adjustments) as at 30 November
2022. In addition, deferred consideration of up to £4.0million in cash will
be payable, contingent upon the achievement of future revenue and net new
institutional third-party fundraising targets, for the two years to 30
November 2024.
INDEPENDENT REVIEW REPORT TO MERCIA ASSET MANAGEMENT PLC
Introduction
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 2022 which comprises the condensed consolidated statement of
comprehensive income, condensed consolidated statement of financial position,
condensed consolidated statement of cash flows, 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 2022 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
5 December 2022
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 Williams 09223445
Company website Company registrar
www.mercia.co.uk SLC Registrars
Highdown House
Registered office Yeoman Way
Forward House Worthing
17 High Street West Sussex BN99 3HH
Henley-in-Arden
Warwickshire B95 5AA Solicitors
Gowling WLG (UK) LLP
Independent auditor 4 More London Riverside
BDO LLP London SE1 2AU
55 Baker Street
Marylebone Nominated adviser and joint broker
London W1U 7EU Canaccord Genuity Ltd
88 Wood Street
Principal bankers London EC2V 7QR
Barclays Bank PLC
One Snowhill Joint broker
Snow Hill Queensway Singer Capital Markets Advisory LLP
Birmingham B4 6GN 1 Bartholomew Lane
London EC2N 2AX
Lloyds Bank plc
125 Colmore Row Investor relations adviser
Birmingham B3 3SD FTI Consulting Ltd
200 Aldersgate
London EC2A 4HD
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