REG - Mercia Asset Mgt PLC - Preliminary Results
05/07/2022 07:00
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RNS Number : 2827R Mercia Asset Management PLC 05 July 2022
RNS 5 July 2022
Mercia Asset Management PLC
("Mercia" or the "Group" or the "Company")
Preliminary results for the year ended 31 March 2022
Robust results with growth in net assets per share and increased final
dividend
Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused
specialist asset manager with c.£959million of assets under management
("AuM") is pleased to announce its preliminary results for the year ended 31
March 2022.
Highlights
· Adjusted operating profit up c.152% to £8.4million (2021:
£3.3million)
· Realised gains and finance income totalling £12.2million generated
from the sale of Faradion
· £11.4m fair value movement in direct investments, including fair
value uplift of £6.7million in nDreams following significant third-party
investment
· Profit before taxation of £27.4million (2021: £34.0million)
· Proposed final dividend up c.67% to 0.5 pence per share (2021: 0.3
pence per share)
· Net assets of £200.6million (2021: 176.0million)
· Net Assets per share up c.14% to 45.6 pence (2021: 40.0 pence)
· Cash and short-term liquidity investments of £61.3million (2021:
£54.7million)
Financial results
31 March 31 March
2022 2021
Statutory results
Revenue (including performance fees) £23.2m £23.4m
Realised gain on sale of direct investment £9.9m £20.3m
Fair value movements in direct investments £11.4m £10.1m
Operating profit £22.9m £34.0m
Profit before taxation £27.4m £34.0m
Basic earnings per share 5.9p 7.8p
Proposed final dividend per share (1) 0.5p 0.3p
Cash and short-term liquidity investments £61.3m £54.7m
Net assets £200.6m £176.0m
Alternative performance measures
Adjusted operating profit (2) £8.4m £3.3m
Net assets per share 45.6p 40.0p
AuM (3) £959.2m £939.9m
1 The proposed final dividend is subject to shareholder approval at the
Company's Annual General Meeting on 13 September 2022, and if approved, will
be paid on 11 October 2022.
2 Adjusted operating profit is defined as operating profit before
performance fees net of variable compensation, realised gains on disposal of
investments, fair value movements in investments, share-based payments charge,
depreciation, amortisation of intangible assets, movement in fair value of
deferred consideration and exceptional items. It includes net finance income.
The reconciliation of adjusted operating profit to operating profit is
included in the Chief Financial Officer's review.
3 Including the Group's consolidated net assets.
Managed fund developments
· Third-party funds under management ("FuM") of c.£758million (2021:
c.£764million) contributed £19.5million in revenue, excluding performance
fees, for the year (2021: £18.2million)
· Cash returned to fund investors from successful realisations of
c.£87million (2021: c.£27million)
· Venture FuM c.£592million (2021: c.£600million)
o £15.7million successfully raised across three Enterprise Investment
Scheme ("EIS") funds during the year
o c.£15million additional allocation from British Business Bank under the
Northern Powerhouse Investment Fund Equity mandate, with effect from 1
November 2021
o Interim and final dividends totalling £17.0million paid by the three
Northern Venture Capital Trusts ("VCTs"), in addition to special dividends
paid of £20.8million arising from successful realisations
· Private equity FuM c.£48million (2021: c.£54million)
o Portfolio trading and prospects improving post pandemic
· Debt FuM c.£118million (2021: c.£110million)
o Accreditation awarded to the Group to deliver debt funding under the
Recovery Loan Scheme ("RLS")
o c.£11million additional allocation from British Business Bank under the
Northern Powerhouse Investment Fund Debt mandate, with effect from 1 November
2021
Direct investment portfolio developments
· Direct investment portfolio fair value of £119.6million (2021:
£96.2million), up c.24% notwithstanding the significant investment
realisation of Faradion, completed in the year
· Sale of Faradion in January 2022 resulted in total cash receipts of
£19.4million (including a £1.5million loan repayment), generating
£9.9million of realised gains together with crystallised loan interest and
redemption premiums totalling £2.3million for the year
· £18.4million net invested into 16 portfolio companies (2021:
£15.4million net invested into 19 portfolio companies), including new direct
investments into Forensic Analytics Limited and Pimberly Limited
· Completion of a significant third-party investment into nDreams,
resulting in a £6.7million fair value increase to the Group's investment
holding value as at 31 March 2022
Post year end developments
· In April 2022 the Group's AuM surpassed £1.0billion, with the three
Northern Venture Capital Trusts raising £40.0million through the allotment of
new shares, plus Mercia's maiden Knowledge-intensive Impact EIS Fund raising
£4.5million. Both successes reflect continued confidence in the track records
of the VCT and EIS portfolios and the investment teams who manage them
· Demerger from Intechnica of its cybersecurity bot-management business
Netacea, to allow both companies to benefit from a refined focus on
capitalising on their respective significant growth opportunities. Mercia
retains stakes in both businesses post demerger equal in value to its previous
holding value
· Exciting commercial progress continues to be made by the direct
investment portfolio
· Mercia has been accredited as a carbon neutral organisation,
demonstrating its commitment to ESG principles
Mark Payton, Chief Executive Officer of Mercia, commented:
"I am pleased to share a set of results that showcase the strength and
maturity of Mercia and its business model. The significant success that we
have seen during the last two financial years, and our positive future
prospects, have been made possible by the combined efforts of everyone
connected with Mercia. I would therefore like to express my sincere gratitude
to the amazing portfolio companies that we have the privilege to support. As a
Group, we are also very appreciative of the growing belief in Mercia from our
third-party fund investors, and both VCT and Mercia shareholders, that the UK
regions can deliver value and returns. Finally, I would like to thank
Mercia's employees, without whom we would not have become who we are today:
#OneMercia."
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon publication of this
announcement, this inside information is now considered to be in the public
domain.
-Ends-
For further information, please contact:
Mercia Asset Management PLC +44 (0)330 223 1430
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial Officer
www.mercia.co.uk (http://www.mercia.co.uk/)
Canaccord Genuity Limited (NOMAD and Joint Broker) +44 (0)20 7523 8000
Simon Bridges, Andrew Potts
Singer Capital Markets (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, 5 July 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 commitment to appropriate and open communication
structures for all elements of its shareholder base, 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".
Non-Executive Chair's statement
#OneMercia
The last two years have been a period of immense challenge for everyone.
Navigating our way through the pandemic, whilst continuing to grow Mercia and
execute on our strategic priorities, has required a cohesive Board,
experienced and resilient Executive leadership and unwavering commitment from
all of our valued staff. Right across the Group, our people continue to define
us. Our #OneMercia culture is the glue which binds together all of our
collective and individual aspirations. Equally important is the encouraging
support we continue to receive from our shareholders and fund investors across
all of our asset categories. Our ever-growing portfolio of investee companies
and their leadership teams are also critical to our continuing future success.
On behalf of our Board, I pay tribute and thank all connected with Mercia for
their outstanding collective efforts during the last two years, helping us to
reach this very strong juncture of over £200million in net assets, whilst
still relatively young in our journey.
Responsible investing with purpose
Mercia does not apply a scatter-gun approach to investing. We invest with
purpose to make a return for our investors. As we deploy our investment
skills, our mindset is that of a responsible investor, as we share the
investee's journey with them. This mindset is not just outward looking
however, we also look at ourselves to see how we can increase our own
contribution to the fundamentally important areas of diversity and the
environment.
There is always more that can be done, but it was encouraging to see that at
our recent senior leadership strategy day, half of the 14 attendees were
women. Equally encouraging is that despite it not yet being mandatory for
Mercia, we have taken the proactive decision to measure and report on our
carbon footprint - for the first time Mercia has been measured and offset its
carbon footprint to become a carbon neutral company. As part of our mantra of
'responsible investing with purpose', we believe in practicing what we ask of
our investee companies, in terms of both good governance and being good
citizens. Carbon offsetting is just the beginning, and we will seek to reduce
our carbon footprint over time.
Strategic progress - 'Mercia 20:20'
In 2021, Mercia largely achieved its previous three-year strategic plan one
year early. At the time of announcing last year's financial results, the Group
launched a new three-year strategic plan: 'Mercia 20:20': The Group's new
objectives are to:
• deliver average pre-tax profits of £20million per annum over
the next three years; and
• grow its AuM by an average of 20% per annum over the same
three-year period.
The achievement of these two new strategic objectives will deliver substantial
total shareholder returns during the three years, as well as facilitating a
growing dividend. In the specialist asset management sector in which Mercia
operates, year-on-year financial results are rarely uniform. The Group's focus
is therefore on delivering these twin annual strategic objectives 'on average'
during the three-year period. The Board is pleased with progress thus far and
is currently on target to deliver against these objectives.
Dividend
In conjunction with the announcement of its interim results in December 2020,
Mercia declared its maiden interim dividend of 0.1 pence per share, as the
beginning of a progressive dividend policy. In October 2021, this was followed
by a maiden final dividend of 0.3 pence per share and an interim dividend last
December of 0.3 pence per share. If approved by shareholders at this
September's Annual General Meeting, the Board is recommending a final dividend
of 0.5 pence per share, making 0.8 pence per share for the full year (2021:
0.4 pence per share). If approved, the dividend will be paid on 11 October
2022 to shareholders on the register at close of business on 23 September
2022.
Given the strength of Mercia's business model and its excellent cash position,
the Board's objective remains to maintain this progressive policy.
Governance and engagement
As part of our continuing commitment to the governance principles of the
Quoted Companies Alliance corporate governance code, we commissioned our third
independent external Board effectiveness review since our admission to AIM in
December 2014. It is reassuring to note that the external review concluded
that "overall, the Board appears to be performing very well" and that "the
Board has clearly made progress since its last effectiveness review".
It is critical to our future success that we continue to meet the investment
objectives agreed with our different asset class fund investors. This includes
our institutional investors, individual investors and the independent boards
of the three Northern VCTs. In respect of the latter, we remain fully
committed to investing in and supporting the VCT investment team, as we help
them to successfully manage and expand their VCT portfolios.
Proactive engagement with all of our stakeholder groups remains particularly
important to our Board. Whilst the intermittent lockdowns and remote working
directives of the last two years have curtailed face-to-face discussions, I
look forward to re-engaging with our stakeholders during the current financial
year.
Opportunity
These financial results successfully build on last year's breakthrough
achievements. They also point to the calibre of our people and the
accelerating maturity of our business model. This is demonstrated by the
recurring profits now being derived from our investment activities in both our
fund management business and from the balance sheet portfolio. With continuing
heightened interest in several of the sectors into which Mercia invests, the
opportunities for further growth, and hence the potential for sustained
incremental shareholder value creation, is now firmly established.
As Chair, I remain immensely proud to be part of #OneMercia, which remains a
community of outstanding people who care about responsibly investing the funds
we manage, the companies in which we invest or to which we lend, and, most
importantly of all, continue to care about each other.
Ian R. Metcalfe
Non-executive Chair
Chief Executive Officer's Review
Mercia's sole focus is to fulfill the ambitions of our investors, investees
and employees and, in this respect, we are particularly focused on where our
investees and employees are heading, not where they are from. This aligned
drive has helped Mercia perform strongly during the repeated challenges of the
last two years; be it the impact of Brexit, the pandemic, rising inflationary
pressures or the war in Ukraine. I am proud of the resilience that the
business has demonstrated, what we have achieved during this prolonged period
of uncertainty and the prospects that will result in a rewarding future for
all our stakeholders. As a purpose-led domestic investor with offices in the
UK's regions, we believe passionately in responsible investment as we seek to
set the standards that our portfolio companies will emulate. Our immediate
goals have been driven by a strong ESG agenda and have already delivered
improved diversity and inclusion within our business. I have no doubt that the
momentum achieved will instill a confidence in our future intent and the
Mercia team that drives these important initiatives.
Investing in local communities
We are exclusively focused on the UK market, investing in small and
medium-sized enterprises ("SMEs"), typically located within two hours of one
of our eight physical offices. A demonstration of our continued growth is
reflected in the recent opening of our Bristol office. Mercia's investment
reach is nationwide; across the South West, South East, the Midlands, the
North of England and into Scotland and Wales, providing a genuine regional
presence within a national footprint. The companies in which we invest create
jobs and embed themselves into the local economies as they grow.
Ambitious for our investors
Coupled with the increasing quality of our portfolio is our 'Complete
Connected Capital', the growing pools of different types of capital that will
help take a business from its inception, through scale up and on to
profitability. We make sure that the right capital is available at the right
time for our portfolio businesses, whilst ensuring that regular reporting,
externally audited portfolio holding values, regular face-to-face and digital
access to Mercia keep our investors fully informed of their investment
progress. This has been a successful period for Mercia's investors with c.
£87million returned to individual and institutional investors as a result of
investment realisations. Due to the nature of Mercia's long-term third-party
capital, which is held in 'closed-end' funds, we do not have exposure to
redemptions. The relatively small increase in assets under management is a
consequence of these successful exits, leading to elevated cash returns to
investors. However, our strong investment performance has been noted by EIS
and VCT market analysts in particular, which should help drive future AuM
growth, as investors look to re-invest and/or follow our successful track
record of investment returns. We are one of the leading managers of EIS funds
and VCTs in the country, and whilst we are not complacent in respect of the
success experienced this year, our growing exit track record and investment
returns bode well for future AuM growth.
Ambitious for our investees
With an active network nationwide, we receive over 2,500 business plans per
annum. Of those received, we typically invest in c.5%. As a committed investor
however, we seek to respond to all approaches for investment within two
working days, and for those 95% not ready for our investment today, we
endeavour to support them to find alternative funding sources where possible.
For those that do join our growing portfolios, we will typically take a
position on the board of our equity investments and work with each management
team to help them fulfil their growth ambitions. Within our Group we have
established 'Mercia Nucleus' to support our investees and help accelerate
their growth - this is a consolidated function with the expertise and
connections to facilitate business development, leadership training,
networking and access to an extensive talent pool of executives and NEDs. Our
nationwide infrastructure of offices and meeting facilities, extensive
Partnership Programme and access to our in-house legal expertise on investment
transactions and exits, together provide the synergies that engender speed and
consistency of growth.
Ambitious for our employees
"Culture eats strategy for breakfast" and in the current post-pandemic
environment, there has never been a better truism; but culture does not stand
proud of ambition, and making a real and equitable impact in the communities
that we serve, is fuelled by our strong desire to achieve success. Mercia's
performance and building momentum is testament to the whole #OneMercia team
that we have been able to attract to the Group since our 2014 Initial Public
Offering, with an increasing number moving up through our business from
within. Mercia has now reached critical mass and is thus able to ensure that
continuous development and career progression is offered, where possible, to
each team member, to empower their collaborative nature and sustain their
personal ambition within Mercia. We will not stand still, as we constantly
look to improve how we can support, develop and motivate our staff; Mercia
will only ever be as good as the talent we attract, develop and retain.
Growing net asset value ("NAV") per share
Our hybrid investment model of supporting exciting SMEs, first through our
managed funds, before selectively co-investing with scale-up funding from our
proprietary capital, is now consistently contributing to our growing NAV per
share. The recent full cash exit from Faradion, which followed less than 12
months after the successful OXGENE™ full cash exit, demonstrates a number of
key points. We are typically exiting at prices significantly above our holding
values - OXGENE at c.£18million above holding value in the previous financial
year, and Faradion at c.£14million above the opening holding value in this
financial year. These two exits alone generated c.£50million in cash back to
our balance sheet, meaning that we are unlikely to come back to our
shareholders to ask them for more money to fund the Group's direct investment
activities. Being largely comprised of unquoted investments which are not
susceptible to stock market volatility, as is currently occurring, we remain
confident that our maturing direct investment portfolio will continue to play
an important role in increasing NAV per share in the years to come.
Growing adjusted operating profit
Our commitment to Mercia's recently established progressive dividend policy,
is underpinned by Mercia's profitable and cash-generative fund management
operations, which also enable us to continue to invest in internal system
efficiencies and our talented staff. The long-dated nature of our managed
funds enables us to have confidence in the sustainability of this dividend
policy.
Combined, our direct investment success and our profitable fund management
activities are positively contributing to our growing total shareholder
return; our annual NAV per share increase plus our dividend yield.
Mercia's 20:20 three-year plan; one year in
From 1 April 2021, we set a new strategic target that, on average, over the
next three years we will seek to generate £20million of profit before tax
("PBT") per annum and 20% growth in AuM per annum. Accepting the likely uneven
spread of this on a per annum basis, we remain confident in achieving both
objectives at the end of this three-year period. As these results show, one
year in we have exceeded the average annual PBT target, achieving
c.£27million profit before tax. Although Mercia's assets under management are
not open-ended, we have experienced higher than anticipated distributions to
investors, ironically as a result of our excellent exit investment
performance. Therefore, notwithstanding our overall positive portfolio
companies' progress and the additional funds which have been raised and/or
awarded to us by existing investors, the net effect is a small increase in AuM
for the year as a whole, although shortly post year-end we raised
c.£45million in new VCT and EIS capital to invest, taking our AuM to over
£1billion for the first time.
A positive outlook in uncertain times
We all face an uncertain global outlook as the economic system absorbs
inflation levels not seen for 30 years, climbing interest rates and the
on-going war in Ukraine. The world continues to retrench from globalisation
toward a more nationalist economic agenda. For Mercia, we continue to have a
positive outlook despite the macro challenges. Our purpose-led UK only agenda
of responsible investment across the regions, coupled with maturing equity
portfolios across our asset classes in sectors less likely to be adversely
impacted by Brexit, supply chain issues and sanctions, together with our
increasing investment performance, place us in a positive position as we look
to further scale our AuM and, with it, continue to grow total shareholder
return.
Our significant success that we have seen during the last two financial years,
and our positive future prospects, have been made possible by the combined
efforts of everyone connected with Mercia. I would therefore like to express
my sincere gratitude to the amazing portfolio companies that we have the
privilege to support. As a Group, we are also very appreciative of the growing
belief in Mercia from our third-party fund investors, and both VCT and Mercia
shareholders, that the UK regions can deliver value and returns. Finally, I
would like to thank Mercia's employees, without whom we would not have become
who we are today: #OneMercia.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
An excellent year for realisations for both Mercia's managed funds and direct
investment portfolio
It is always interesting to re-read my previous CIO reports when starting to
pull together the current one. Last year I did so with a sense of optimism for
the year ahead and, without doubt, that positivity was well placed.
Over the last financial year, across the Group's equity components, we have
realised £155million from 30 companies, delivering an average return of 3.1x.
This is an excellent performance, and when taken together with Mercia's 2021
results, we have realised over £250million of cash on behalf of individual
and Limited Partner investors alongside our own balance sheet. This in turn
has had positive effects on the NAV of both Mercia Asset Management PLC and
our VCTs, as well as profits from performance fees resulting from a number of
these investment performance successes.
Direct investments: portfolio-wide progress, breakout at nDreams
The table below lists Mercia's top 20 investments by fair value as at 31 March
2022, including the net cash invested, realisation proceeds, realised gains,
fair value movements and the fully diluted equity percentage held.
Year of Net Net cash Investment Realised Fair value Net
first investment invested realisations gains movement investment Percentage
direct investment value as at year to year to year to year to value as at held as at
1 April
31 March
2021
31 March 31 March 31 March 31 March 31 March
2022
£'000
2022 2022 2022 2022 2022
£'000
£'000 £'000 £'000 £'000 %
nDreams Ltd 2014 17,726 1,301 - - 6,734 25,761 33.2
Intechnica Group Ltd 2017 9,996 1,531 - - 2,884 14,411 24.1
Voxpopme Ltd 2018 8,845 1,500 - - 166 10,511 17.6
Impression Technologies Ltd 2015 8,622 1,750 - - - 10,372 67.3
Medherant Ltd 2016 8,105 534 - - 350 8,989 33.1
Warwick Acoustics Ltd 2014 4,255 1,039 - - 1,012 6,306 40.0
Ton UK Ltd * 2015 4,913 660 - - 501 6,074 29.9
VirtTrade Ltd ** 2015 2,812 1,096 - - 1,479 5,387 40.6
Locate Bio Ltd 2018 3,006 1,664 - - 188 4,858 18.1
Invincibles Studio Ltd *** 2015 3,553 - - - 1,047 4,600 39.0
Eyoto Group Ltd 2017 1,813 1,147 - - - 2,960 15.7
W2 Global Data Solutions Ltd 2018 2,300 200 - - - 2,500 16.3
Sense Biodetection Ltd 2020 945 909 - - 625 2,479 1.6
sureCore Ltd 2016 2,417 - - - - 2,417 22.0
Edge Case Games Ltd 2015 2,300 - - - - 2,300 18.7
PsiOxus Therapeutics Ltd 2015 2,407 - - - (627) 1,780 1.4
Forensic Analytics Ltd 2021 - 1,750 - - - 1,750 8.9
MyHealthChecked plc 2016 4,488 - - - (2,856) 1,632 13.1
MIP Discovery Ltd **** 2020 302 1,147 - - - 1,449 10.2
Pimberly Ltd 2021 - 1,375 - - - 1,375 5.6
Faradion Ltd 2017 5,693 738 (16,309) 9,878 - - -
Other direct investments n/a 1,722 43 - - (118) 1,647 n/a
Total 96,220 18,384 (16,309) 9,878 11,385 119,558 n/a
* Trading as Intelligent Positioning
** Trading as Avid Games
*** Formerly Soccer Manager Limited, prior to a change in
registered name to Invincibles Studio Limited in March 2022
**** Formerly MIP Diagnostics Limited, prior to a change in
registered name to MIP Discovery Limited in May 2022
Direct Investment activity - positive progress across several key direct
assets and a growing pipeline of potential new direct assets emerging from our
managed funds
Our proprietary capital has three discrete functions; selective direct
investment mainly into existing managed fund portfolio companies, as a
minority limited partner in seeding strategically relevant managed funds, and
to fund acquisitions which will accelerate the Group's growth objectives and
enhance shareholder value.
One year into the Group's three year 'Mercia 20:20' strategic plan, the direct
investment portfolio is developing increasingly well, and we are optimistic of
more to come. We typically look to build direct holding stakes of between 10
and 30%, and this, combined with our managed fund positions, gives Mercia a
degree of influence over the development of these young companies.
As at 31 March 2022, the value of the Group's direct investment portfolio was
£119.6million (2021: £96.2million). This reflects an upward fair value
movement of £11.4million (2021: £10.1million) and net cash invested of
£18.4million (2021: £15.4million), less the realisation of Faradion Ltd,
which accounted for £5.7million of the total opening portfolio fair value.
Faradion was sold in January 2022 to India's Reliance New Energy Solar Ltd, a
wholly owned subsidiary of India-based Reliance Industries Ltd, for
£100.0million. Total cash proceeds back to Mercia's balance sheet of
£19.4million resulted in a realised gain of £9.9million, generating a 4.4x
return on Mercia's direct investment cost of £4.4million and a c.72% internal
rate of return ("IRR") since the first direct investment in 2017.
The sale has also generated combined cash returns of c.£32million on a total
investment cost of £3.6million for Mercia's managed funds, delivering fund
IRRs of between c.30% and c.72%. Mercia has proactively supported Faradion
throughout its development, including representation from Mercia's Investment
Director, Ashwin Kumaraswamy, as a non-executive director on Faradion's board
from inception through to exit.
We continued to support our foremost direct portfolio businesses with
£11.1million of the £18.4million total being invested across our top 10
direct investment assets.
We made two new direct investments during the year. In October 2021, we
completed a £1.8million direct investment into Forensic Analytics Ltd,
alongside a £2.7million investment by our Northern VCTs. In November 2021,
Mercia's third-party managed fund portfolio company, Pimberly Ltd, completed a
£4.3million funding round to expand into the US market and accelerate its
growth in the UK. Mercia invested £1.4million of capital from its own balance
sheet, alongside a further £2.9million investment by the Northern VCTs. Both
new assets are performing well. Within our shadow portfolio of existing fund
assets being tracked are Axis Spine Technologies Ltd, Nova Pangaea
Technologies (UK) Ltd and Uniphy Ltd, a business developing smart surface
technology aimed at the human/machine interface. We expect a number of
exciting new additions to the direct portfolio in the current year.
For the year as a whole, we recorded fair value uplifts in 10 of our direct
investments, the largest being £6.7million for nDreams Ltd. The virtual
reality market has grown significantly against a backdrop of greater hardware
penetration at affordable prices and renewed investment impetus by Oculus,
Sony and others. nDreams completed a number of important steps in its
development with new game releases and its push into third-party publishing.
In March 2022, the company secured £20.0million of new investment from
European games investor Aonic AB. We look forward to working with our new
investment partner in the next phase of nDreams' growth as the company
develops further intellectual property. Its newest VR title, which is based on
the Ghostbusters intellectual property in conjunction with Sony Pictures
Virtual Reality, was introduced by Mark Zuckerberg in April 2022 at the Meta
Quest Gaming Showcase.
Other operational highlights within this sector include Invincibles Studio Ltd
(formerly Soccer Manager Ltd), growing revenues 40 per cent year-on-year and
VirtTrade Ltd t/a Avid Games, with more than threefold revenue growth over the
course of the year. The revenue growth of both businesses has been achieved
off the back of new game releases and the increasing awareness of their games
worldwide.
Intechnica Group Ltd ("Intechnica") saw strong progress with a fair value
uplift of £2.9million. After raising £8.5million from new and existing
investors in December 2021, Intechnica recently completed the demerger of its
exciting bot management cyber security business, Netacea. Mercia now holds
stakes in both growing businesses, equal in value to its pre-demerger holding
value.
We are continuing to see our core companies grow their revenues and progress
their business models, in many cases underpinned by positive market sentiment
and longer-term trends. We have seen accelerating commercial interaction and
developments across our Deep Tech and Manufacturing assets, in particular
Warwick Acoustics Ltd, which is engaged in discussions with a wide variety of
automotive original equipment manufacturers and has successfully demonstrated
its electrostatic acoustic panel technology within a premium marque vehicle
for a globally recognised car brand. The technology was positively profiled
by Autocar magazine earlier this year with the listening experience described
as "astounding".
Impression Technologies Ltd has made advances, with licence partners making
their first sales, and we are particularly excited about the company's new
developments in battery boxes for electric vehicles and the use of recycled
aluminium in the company's HFQ® pressing process.
Our Life Sciences portfolio also had a strong year. Locate Bio Ltd continues
to progress well with its pre-clinical trials and, following our syndicated
investment in February 2022, MIP Discovery Ltd, is well funded to deliver its
technical and commercial milestones.
Whilst much of the progress seen is due to a maturation of these businesses in
their markets, we have also worked hard to add new complementary skills into
these companies, including high-profile chairs being added to the boards of
nDreams, Netacea and Impression Technologies, plus senior appointments at
Intelligent Positioning and MIP Discovery.
Mercia Nucleus - the evolution of value-add services across the portfolios
We have expanded Mercia's value-add offering to our portfolio companies
through the addition of other services that include talent search, growth
partner counsel, non-executive appointments and knowledge sharing. This area
of our business is something we have continued to invest in to increase the
value added to our portfolio companies through hands-on support and
development. Adding value is at the heart of what we do and as such we have
formalised these performance drivers into what we call Mercia Nucleus.
Our Mercia Nucleus team has been busy throughout the year with 41 appointments
made into portfolio companies.
Alongside this we continue to forge new co-investor relationships with BGF,
Aonic AB, Vitruvian and Aramco Ventures becoming new partners across our
direct and fund assets.
We use different performance measures across our suite of asset classes. For
our direct portfolio, IRR is adopted as our proprietary capital is also used
for other activities. As at 31 March 2022, the direct portfolio IRR had
increased to 16%, largely following the successful sale of Faradion.
We measure Total Value to Paid In ("TVPI") across our Regional and PE funds as
it shows total value returned and accruing to investors after fees; this
naturally increases over time as more capital is returned and the portfolio
values grow. Our legacy Venture funds, at a TVPI of 193%, are significantly up
year on year as a number of assets were sold at higher values during FY22. Our
newest PE fund saw a recovery in asset values as the impact of the pandemic on
its portfolio businesses began to recede.
For our VCTs, Total Return, which includes cumulative dividends paid alongside
current asset value to give a true total performance measure, has been
principally flat year on year due to share price weakness across the listed
part of the VCT portfolios in the final quarter of the financial year.
Our strong overall investment performance enables us to raise additional
funds, and we were allocated a further £31.4million this financial year from
additional contributions to the Northern Powerhouse Investment Fund ("NPIF")
Equity and Debt funds and our Midlands Engine Investment Fund ("MEIF") Proof
of Concept and Early Stage Fund by British Business Bank. Alongside this, our
EIS team raised new funds totalling c.£16million, in addition to Northern VCT
investors re-investing c.£6million of dividends paid during the year. Since
year end, £40.0million of new funds were raised by our Northern VCTs,
together with c.£5million raised by our first Knowledge-intensive Impact EIS
Fund. At the year end, we had c.£297million of liquidity across all our funds
and balance sheet.
AuM Private Investor Public Performance Distributions AuM Post
1 April Inflows Sector 31 March year-end inflows
2021 Inflows 2022
Asset class £'m £'m £'m £'m £'m £'m £'m
Venture 600 22 20 30 (80) 592 45
Private Equity 54 - - (2) (4) 48 -
Debt 110 - 11 - (3) 118 -
Total FuM 764 22 31 28 (87) 758 45
Proprietary Capital 176 - - 28 (3) 201 -
Total AuM 940 22 31 56 (90) 959 45
Sourcing deals from all regions of the UK
At Mercia we have 74 investment professionals spread across the regions, and
have further scaled our reach by opening a new office in Bristol to strengthen
our presence and growth in the South West of England, along the M4 corridor
and into Wales. Fund Principal Julian Dennard is building his team and has
already sourced deals in Cardiff, Exeter and Bristol. We have also expanded
our teams in Manchester and London, and continue to provide nationwide
coverage, completing new investments from North Shields to Shoreditch, from a
wide variety of sources.
Our managed funds as at 31 March 2022 totalled c.£758million. During the
year, we invested £105.7million into 148 businesses, including 95 new
companies.
Venture
Our Northern VCTs transacted nine investment disposals across both older
legacy assets and newer early-stage portfolio companies. Exits across the year
included the VCT's holdings in Intelling Group Ltd, Project Glow Topco Ltd t/a
Currentbody.com and Mojo Mortgages Ltd, plus partial disposals of Oddbox Ltd
and musicMagpie plc. The overall performance was impacted by a reduction in
the valuation of listed AIM investments in the quarter to 31 March 2022.
Mercia's EIS funds completed 19 transactions, with 11 'follow-ons' and 8 new
businesses. This was a strong year for EIS where we focused our capital and
expertise in thematic areas. Strong returns and positive impact have come
where we have supported and accelerated companies addressing societal needs.
Our first Knowledge-intensive Impact EIS Fund that recently raised
c.£5million will invest in high-growth businesses that generate a positive
social impact, an area that has increasingly become an important driver of our
broader investment decision making.
Our regional venture funds have also performed well. The North East Venture
Fund ("NEVF") completed 16 transactions during the financial year, investing a
total of £8.0million. This included a follow-on investment of £1.2million
into Elmtronics Ltd, a business that was formed in February 2019 to supply,
install and maintain electric vehicle chargers, and has since developed a
software solution for remote monitoring. Having received an approach from a
strategic trade acquiror, NEVF successfully exited the business in January
2022.
MEIF has had another solid year having invested £4.3m in 12 transactions. The
Fund has continued to provide follow-on capital to its portfolio companies
such as Aceleron Ltd and Locate Bio Ltd. Wherever possible, MEIF seeks to
build strong syndications and new deals such as Black Country-based Givepenny
Technologies Ltd and Chesterfield-based InVMA Ltd follow this philosophy and
demonstrate the strength of Mercia's regional network in finding and investing
in thriving regional businesses.
NPIF Equity invested £14.0million in 24 transactions, including £8.2million
into eight new portfolio companies, such as the Leeds-based legal technology
business, Just: Access Ltd, which was founded by a female barrister.
Tees-based Clean Tech business Nova Pangaea Technologies (UK) Ltd has created
a process to enable the conversion of discarded plant biomass into advanced
biofuels, including aviation fuel and other sustainable biocarbons, and which
is led by experienced CEO Sarah Ellerby. During the year, NPIF Equity
benefited from the sale of Faradion, a joint investment with Mercia's balance
sheet. Sheffield-based Clean Tech business Libertine PLC's AIM flotation in
December raised gross proceeds of £9.0million for investment in continued
technical and commercial development.
Three investments were made during the year by Mercia's private equity team.
These three transactions saw a total of £9.3million invested into UK
Landscapes Holdings Ltd, a specialist landscaping and grounds maintenance
business based in Cheshire, that serves blue-chip companies such as Asda, John
Lewis, Shell and Santander plus Coventry-based UK Mail Digital Ltd to support
its buy-out from DHL Parcel UK Ltd. ParkVia Ltd, an online car parking booking
platform, received follow-on investment as it emerged well out of the COVID-19
pandemic and is now performing ahead of budget.
Mercia's Debt funds' team saw a slight reduction in enquiries during the year,
completing 63 transactions (2021: 70), investing a total of £13.4million, of
which £10.3million was provided to 48 new businesses. The Group announced a
further extension of its NPIF debt mandate, which was increased by
£10.9million, with the investment period being extended to December 2023. In
August 2021, Mercia was also accredited to deliver loans via the government's
Recovery Loan Scheme. Mercia's vastly experienced Debt team continue to
support profitable SMEs, mainly across the North of England.
We have continued to promote our 'Complete Connected Capital' with
co-investment by various Mercia-managed funds and Mercia's balance sheet, into
Intechnica, Forensic Analytics and Pimberly.
Post period events
Direct investments VirtTrade Ltd and Impression Technologies Ltd both received
follow-on funds totalling £1.0million, and a further £0.2million has been
invested into both Eyoto Group Ltd and W2 Global Data Solutions Ltd, following
continuing commercial and technical progress. Overall, good progress is being
maintained across our direct portfolio.
Summary and look forward
This has been an incredible year for Mercia in what again has been a volatile
period, where the global environment, working practices and sentiment have
continued to change unpredictably. From coming out of lockdown in early 2021,
through new levels of freedom last summer and then the re-appraisal with
Omicron in the autumn, our investee companies have also had to deal with
supply chain issues and, more recently, serious military conflict, rising
prices and the uncertainty that these matters bring.
From an investment perspective, we have and will continue to steer our
activity toward those areas where we see longer-term structural changes and
growth. Mercia's investment model is now delivering, with much more to come.
We typically hold direct investments for three to seven years ahead of a trade
sale or IPO. With the creation of a shadow portfolio, being tracked from the
over 260 venture businesses within Mercia's managed-fund portfolios, we can
add the right investment at the right time to ensure balance across sector and
stage of growth, and at the right valuation inflection point.
Our businesses in cyber security and the intelligent use of big data have all
grown and we expect this will continue, as have those involved in the
identification, selection and welfare of staff in the workplace. The pace of
change in moving to cleaner energy, as witnessed by innovations in the
electric vehicle sector, is remarkable. We are seeing significant activity as
traditionally slow-moving OEMs look for an 'edge' for consumers, alongside
weight and cost savings, giving added momentum to Warwick Acoustics,
Impression Technologies and our other Deep Tech investments, that innovate
around the human/machine interface.
And of course, in Digital, where consumers continually search for increasingly
'better' entertainment and more efficient ways to address their healthcare
needs; our Games businesses and Digital Healthcare companies will all continue
to prosper.
As always, I would like to thank all of the talented investment and operations
team members at #OneMercia for their efforts throughout another challenging
year. In generating over £250million in realisations over the past two years,
we have proven our business model and investment credentials as a pro-active
specialist asset manager. Given our mix of assets across sectors and, in
particular, our exposure to the growth themes identified above, I remain
optimistic for the years ahead.
We must not ignore the chill winds of inflation, ongoing supply chain issues
and the uncertainty caused by military conflict. However, Mercia's funds-first
business model, our experienced and hugely committed #OneMercia team, plus
Mercia's strong liquidity across both funds and balance sheet, give me
confidence that we will continue to thrive, regardless of whatever the year
ahead throws at us.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
Robust results and business fundamentals
The significance of Mercia's financial results for the year ended 31 March
2022, is that they demonstrate that the previous year's record results were
not a 'one-off'. These results were generated from both the Group's profitable
fund management operations and its maturing direct investment portfolio. This
combination of recurring profits and cash flow generation from both our fund
management operations and balance sheet investment portfolio, is a key
differentiator in the specialist asset management sector.
Overall financial performance
The gradual emergence from the economic and social impact of the pandemic
during the second half of the financial year, enabled the Group to maintain
its profitable fund management and direct investment momentum. Excluding
performance fees received, revenue continued to increase and as meeting and
travel restrictions eased and budgeted staff recruitment levels were reached,
Mercia ended the year back on a 'normal' trading footing. The second half of
the financial year also saw two new direct investments join the balance sheet
portfolio (Forensic Analytics and Pimberly), the highly profitable sale of
Faradion and just prior to the year end, a significant new third-party
investment into nDreams, at a materially higher valuation than the previous
carrying value.
For the year as a whole therefore, the Group exceeded the first of its
three-year 'Mercia 20:20' average annual pre-tax profit target of
£20.0million, with pre-tax profits of £27.4million.
Proposed final dividend
The Board adopted Mercia's progressive dividend policy in December 2020, and
since then has announced interim dividends of 0.1 pence per share in December
2020 and 0.3 pence per share in December 2021. Shareholders also approved a
maiden final dividend of 0.3 pence per share in September 2021.
Given the Group's twin sources of profitability and cash inflow, the Group's
dividend policy does not need to be anchored to one or other earnings source,
hence the Board's intention to grow total dividends year on year.
The continuing strong Group performance coupled with its positive future
prospects, now enables Mercia's Board to recommend a proposed final dividend
of 0.5 pence per share. If approved by shareholders at September 2022's Annual
General Meeting, the total dividend for the year will be 0.8 pence per share
(2021: 0.4 pence per share). If approved by shareholders, the final dividend
will be paid on 11 October 2022 to shareholders on the register at close of
business on 23 September 2022, with the total dividend payable being
£2,201,000 (2021: £1,320,000).
Adjusted operating profit - alternative performance measure ("APM")
The Directors believe that the reporting of adjusted operating profit assists
in providing a consistent measure of operating performance and is an important
APM of interest to shareholders.
Adjusted operating profit is defined as operating profit before performance
fees net of variable compensation, realised gains on disposal of investments,
fair value movements in investments, share-based payments charge,
depreciation, amortisation of intangible assets, movement in fair value of
deferred consideration and exceptional items. It includes net finance income.
Results reported on an APM basis are denoted by ¹ throughout this review.
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Revenue(1) 20,576 19,186
Administrative expenses(1) (16,618) (15,897)
Net finance income 4,437 48
Adjusted operating profit 8,395 3,337
Performance fees 2,607 4,224
Variable compensation attributable to performance fees (1,015) (445)
Net performance fees 1,592 3,779
Adjusted operating profit including net performance fees 9,987 7,116
Depreciation (224) (212)
Net finance income (4,437) (48)
Realised gain on disposal of investment 9,878 20,251
Fair value movements in investments 11,385 10,088
Share-based payments charge (1,109) (543)
Amortisation of intangible assets (2,033) (2,317)
Movement in fair value of deferred consideration (522) (365)
Operating profit 22,925 33,970
Net finance income 4,437 48
Profit before taxation 27,362 34,018
Taxation (1,262) 440
Profit and total comprehensive income for the year 26,100 34,458
A reconciliation of the results reported on an APM basis to International
Financial Reporting Standards ("IFRS") is as follows:
Year ended 31 March 2022
APM basis(1) Performance fees Depreciation IFRS as reported
£'000 £'000 £'000 £'000
Revenue 20,576 2,607 - 23,183
Administrative expenses (16,618) (1,015) (224) (17,857)
Depreciation (224) - 224 -
Year ended 31 March 2021
APM basis(1) Performance fees Depreciation IFRS as reported
£'000 £'000 £'000 £'000
Revenue 19,186 4,224 - 23,410
Administrative expenses (15,897) (445) (212) (16,554)
Depreciation (212) - 212 -
The Group acknowledges the recent recommendations of the Financial Reporting
Council, that APMs should not be given greater prominence over its financial
results reported under IFRS. In future years therefore, the Group will
highlight and reconcile its results under IFRS to its APMs, rather than
reconcile its APMs to its results under IFRS. As an example, only exceptional
performance fees receivable, together with any associated staff bonus accrual,
will be reported separately within the overall calculation of adjusted
operating profit.
Revenue
Revenue(1) increased 7.2% to £20,576,000 (2021: £19,186,000) 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 VCT share offer fees received in the year ended 31
March 2021, the like-for-like increase was c.15%.
Administrative expenses
Administrative expenses(1), excluding depreciation, increased 4.5% to
£16,618,000 (2021: £15,897,000) and comprised predominantly staff-related,
office, marketing and professional adviser costs. Removing the impact of VCT
share offer related costs incurred in the year ended 31 March 2021, the
like-for-like increase was c.14%.
As Mercia's assets under management continue to grow and the financial
benefits of operational leverage continue to be realised, the Group will
ensure that an appropriate balance is kept between its investment expertise
and its support functions' capacity and capability, to maintain its control
environment and corporate governance culture.
Net finance income
Investment rounds into the Group's direct investment portfolio are generally
either equity and/or convertible/non-convertible loans. As the portfolio
continues to mature and either funding rounds with third-party investors occur
or successful exits are achieved, the interest entitlement attached to these
loans is typically converted into either additional equity or, on a full exit,
paid to Mercia in cash. At the point of conversion/payment the interest is
recognised as taxable finance income. Until the loans are converted/repaid and
the interest entitlement crystallises, there is never any certainty that the
interest entitlement will be crystallised into additional equity/paid. During
the year, a number of convertible loan interest entitlements crystallised, the
largest being in connection with the sale of Faradion. Non-convertible loans
by Mercia to direct investee companies may have redemption premiums attached
thereto. During the year, one such redemption premium, also in connection with
the sale of Faradion, was received in cash and this is also accounted for as
taxable finance income.
Total gross finance income of £4,452,000 (2021: £68,000) therefore arose
primarily from both crystallised loan interest and redemption premiums.
Finance costs of £15,000 (2021: £20,000) comprised interest payable on
office leases and the Group's new staff electric car scheme.
Performance fees and attributable variable compensation
Performance fees can become receivable under certain of the Group's fund
management mandates, when pre-determined performance hurdles are exceeded.
During the year, performance fees totalling £2,607,000 (2021: £4,224,000)
were received, predominantly from Northern Venture Trust PLC, based upon the
growth in its net asset value per share above a hurdle for the year ended 30
September 2021. Attributable VCT investment team bonuses (including employer's
National Insurance) totalling £1,015,000 were paid (2021: £445,000).
Realised gain on disposal of investment
During the year, a realised gain of £9,878,000 (2021: £20,251,000) arose on
the disposal of Mercia's equity holding in Faradion. Total cash proceeds of
£19,402,000 were received upon completion, comprising £16,309,000 from the
sale of the Group's equity holding, a loan repayment of £1,500,000, loan
redemption premium of £1,500,000 and loan interest of £93,000. Loan
redemption premiums and interest, totalling £738,000 were converted into
equity immediately prior to disposal of the Group's total equity holding.
Under the terms of the sale agreement, 5% of the equity sale proceeds were
required to be ring-fenced for 90 days, pending any claim as to title. As
expected, no claims were received and the ring-fenced proceeds of £815,000
were released on 5 April 2022.
Fair value movements in investments
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments 15,122 10,773
Unrealised losses on the revaluation of investments (3,737) (685)
Net fair value movement 11,385 10,088
Net fair value increases during the year totalled £11,385,000 (2021:
£10,088,000) and as at 31 March 2022, the fair value of the Group's direct
investment portfolio was £119,558,000 (2021: £96,220,000). For the year as a
whole, unrealised fair value gains arose in 10 (2021: 11) out of the Group's
23 (2021: 23) direct investments. The largest fair value gain was in respect
of nDreams, which accounted for £6,734,000 of the total (2021: £3,509,000
fair value gain in respect of AIM-listed MyHealthChecked plc). There were
three (2021: four) fair value decreases, the largest being £2,856,000 which
arose in respect of MyHealthChecked plc (2021: £439,000 fair value decrease
in Eyoto).
Share-based payments charge
The £1,109,000 non-cash charge (2021: £543,000) arises from the net increase
in the total number of issued share options held by all employees throughout
the Group, ranging from 31 July 2019 to 31 March 2022.
Amortisation of intangible assets
The amortisation charge for the period of £2,033,000 (2021: £2,317,000)
represents amortisation of the acquired intangible assets of the VCT fund
management business.
Movement in fair value of deferred consideration
The VCT fund management contract's total purchase price has a number of
contingent deferred consideration elements payable over a three-year period.
The total deferred consideration was fair valued at the date of acquisition in
2019. The charge to the income statement of £522,000 represents the unwinding
of the discount on the second deferred consideration payment made in December
2021 (2021: £365,000).
Taxation
The components of the Group's tax charge are shown in note 9. The Group fully
utilised its remaining historic trading losses during the year, which were
available to set off against taxable profits. The scale of the Group's recent
taxable profits (arising predominantly from net VCT performance fees and
finance income) has resulted in the utilisation of the Group's remaining
historic tax losses faster than previously anticipated.
The overall tax charge for the year also comprises the annual unwinding of the
deferred tax liability in respect of the acquisition of the VCT fund
management business, offset by both the impact of the enacted change in tax
rate from 19% to 25% on the Group's deferred tax liability as at 31 March
2022, and a corporation tax charge on taxable profits over and above what has
been offset against the remaining brought-forward tax losses.
Profit and total comprehensive income for the year
The adjusted operating profit, net performance fees, realised gain on the sale
of Faradion and net fair value increases for the year as a whole, all
contributed favourably to a consolidated total comprehensive income of
£26,100,000 (2021: £34,458,000). This has resulted in basic earnings per
Ordinary share of 5.93 pence (2021: 7.83 pence).
Summarised statement of financial position and cash flows
As at As at
31 March 31 March
2022 2021
£'000 £'000
Goodwill and intangible assets 32,355 34,388
Direct investment portfolio 119,558 96,220
Other non-current assets, trade and other receivables 1,604 4,623
Cash and short-term liquidity investments 61,284 57,209
Total assets 214,801 192,440
Trade and other payables (7,415) (8,600)
Deferred consideration (2,869) (4,447)
Deferred taxation (3,928) (3,372)
Total liabilities (14,212) (16,419)
Net assets 200,589 176,021
Net assets per share (pence) * 45.6p 40.0p
* 440,109,707 Ordinary shares were in issue during the years
ended 31 March 2022 and 31 March 2021.
Net assets per share increased by c.14% during the year, notwithstanding the
payment of dividends totalling £2,641,000 (2021: c.24% growth after dividends
paid of £440,000).
Intangible assets
Details of the Group's intangible assets are given in notes 12 and 13 of the
summary financial information, and consist of goodwill and the intangible
asset recognised on the acquisition of the VCT fund management business.
Direct investment portfolio
During the year under review, Mercia's direct investment portfolio grew from
£96,220,000 as at 1 April 2021 (2021: £87,471,000 as at 1 April 2020) to
£119,558,000 as at 31 March 2022 (2021: 96,220,000), a c.24% increase
notwithstanding the sale of Faradion during the year (2021: c.10% increase).
The Group invested £18,384,000 net (2021: £15,397,000) into 14 existing and
two new direct investments (2021: 17 and two respectively), with the top 20
direct investments representing 98.6% of the total direct investment portfolio
value (2021: 98.5%).
Cash and short-term liquidity investments
At the year end, Mercia had cash and short-term liquidity investments (which
is cash on deposit with maturities of between 32 days and three months)
totalling £61,284,000 (2021: £54,725,000), comprising cash of £56,049,000
(2021: £54,491,000) and short-term liquidity investments of £5,235,000
(2021: £234,000). The Group held no cash on behalf of third-party EIS
investors as at 31 March 2022 (2021: £2,484,000), following the appointment
of an external custodian during the year.
The Group continues to have limited working capital needs due to the nature of
its business and generated net operating cash inflow of £9.2million (2021:
£5.6million net 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 31 March 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 position during the year is shown below.
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Opening cash and short-term liquidity investments 54,725 30,186
Net cash generated from operating activities 9,150 5,611
Net cash generated from direct investment activities 2,363 21,640
Purchase of VCT fund management contracts (2,100) (2,100)
Cash outflow from other investing activities (62) (34)
Net cash used in financing activities (2,792) (578)
Closing cash and short-term liquidity investments 61,284 54,725
Outlook
Notwithstanding the economic and social ravages of the pandemic, Mercia has
made significant progress in the last two years. During this two-year period
the Group has generated over £60million of pre-tax profits, on headline
revenues of c.£40million. With an excellent team of #OneMercia employees,
fund management profitability established, net assets having passed
£200million, a secure liquidity position and its dividends increasing, Mercia
has established both strong cultural and business foundations from which to
continue to grow total shareholder value in the years ahead.
As the worst near-term effects of the pandemic begin to subside, current
macro-economic and geo-political tremors cast near-term clouds over stock
market sentiment. Whilst valuations may fluctuate from time to time, Mercia's
funds under management are not 'open-ended' and therefore at risk of
redemption calls. The long term contracted nature of our funds under
management therefore underpins our annual revenues and with it, operating cash
inflow and dividends to shareholders. Add to this our fast maturing direct
investment portfolio, which has very limited public markets exposure, and
Mercia faces the future with optimism, built on robust business fundamentals.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Consolidated statement of comprehensive income
For the year ended 31 March 2022
Year ended Year ended
31 March 31 March
2022 2021
Note £'000 £'000
Revenue 5 23,183 23,410
Administrative expenses 7 (17,857) (16,554)
Realised gain on sale of direct investment 14 9,878 20,251
Fair value movements in direct investments 14 11,385 10,088
Share-based payments charge (1,109) (543)
Amortisation of intangible assets 13 (2,033) (2,317)
Movement in fair value of deferred consideration (522) (365)
Operating profit 22,925 33,970
Finance income 8 4,452 68
Finance expense (15) (20)
Profit before taxation 27,362 34,018
Taxation (1,262) 440
Profit and total comprehensive income for the year 26,100 34,458
Basic earnings per Ordinary share (pence) 10 5.93 7.83
Diluted earnings per Ordinary share (pence) 10 5.82 7.83
All results derive from continuing operations.
Consolidated statement of financial position
As at 31 March 2022
As at As at
31 March 31 March
2022 2021
Note £'000 £'000
Assets
Non-current assets
Goodwill 12 16,642 16,642
Intangible assets 13 15,713 17,746
Property, plant and equipment 113 107
Right-of-use assets 417 456
Investments 14 119,558 96,220
Total non-current assets 152,443 131,171
Current assets
Trade and other receivables 1,074 4,060
Restricted cash 15 - 2,484
Short-term liquidity investments 15 5,235 234
Cash and cash equivalents 15 56,049 54,491
Total current assets 62,358 61,269
Total assets 214,801 192,440
Current liabilities
Trade and other payables (6,963) (8,127)
Lease liabilities (157) (122)
Deferred consideration 16 (2,869) (1,578)
Total current liabilities (9,989) (9,827)
Non-current liabilities
Lease liabilities (295) (351)
Deferred consideration 16 - (2,869)
Deferred taxation 17 (3,928) (3,372)
Total non-current liabilities (4,223) (6,592)
Total liabilities (14,212) (16,419)
Net assets 200,589 176,021
Equity
Issued share capital 18 4 4
Share premium 19 81,644 81,644
Other distributable reserve 20 66,919 69,560
Retained earnings 48,505 22,405
Share-based payments reserve 3,517 2,408
Total equity 200,589 176,021
Consolidated statement of cash flows
For the year ended 31 March 2022
Year ended Year ended
31 March 31 March
2022 2021
Note £'000 £'000
Cash flows from operating activities:
Operating profit 22,925 33,970
Adjustments to reconcile operating profit to net cash generated from operating
activities:
Depreciation of property, plant and equipment 70 70
Depreciation of right-of-use assets 154 142
Gain on sale of direct investment 14 (9,878) (20,251)
Fair value movements in direct investments 14 (11,385) (10,088)
Share-based payments charge 1,109 543
Amortisation of intangible assets 13 2,033 2,317
Movement in fair value of contingent consideration 16 522 365
Working capital adjustments:
Decrease/(increase) in trade and other receivables 2,986 (2,762)
Increase in trade and other payables 614 1,305
Net cash generated from operating activities 9,150 5,611
Cash flows from direct investment activities:
Sale of direct investments 14 16,309 36,987
Purchase of direct investments 14 (19,884) (15,647)
Investee company loan repayments 14 1,500 250
Investee company loan redemption premiums and interest received 8 4,438 50
Net cash generated from direct investment activities 2,363 21,640
Cash flows from other investing activities:
Receipt of bank interest on deposits 14 18
Purchase of property, plant and equipment (76) (52)
Purchase of fund management contracts 16 (2,100) (2,100)
(Increase)/decrease in short-term liquidity investments (5,001) 5,981
Net cash (used in)/generated from other investing activities (7,163) 3,847
Net cash (used in)/generated from total investing activities (4,800) 25,487
Cash flows from financing activities:
Dividends paid 11 (2,641) (440)
Interest paid (15) (20)
Payment of lease liabilities (136) (118)
Net cash used in financing activities (2,792) (578)
Net increase in cash and cash equivalents 1,558 30,520
Cash and cash equivalents at the beginning of the year 15 54,491 23,971
Cash and cash equivalents at the end of the year 15 56,049 54,491
Consolidated statement of changes in equity
For the year ended 31 March 2022
Issued Other Share-based
share Share distributable Retained payments
capital premium reserve earnings reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2020 4 81,644 70,000 (12,053) 1,865 141,460
Profit and total comprehensive income for the year - - - 34,458 - 34,458
Dividend paid - - (440) - - (440)
Share-based payments charge - - - - 543 543
As at 31 March 2021 4 81,644 69,560 22,405 2,408 176,021
Profit and total comprehensive income for the year - - - 26,100 - 26,100
Dividends paid - - (2,641) - - (2,641)
Share-based payments charge - - - - 1,109 1,109
As at 31 March 2022 4 81,644 66,919 48,505 3,517 200,589
1. General information
Mercia Asset Management PLC (the "Group", "Mercia") is a public limited
company, incorporated and domiciled in England, United Kingdom, and registered
in England and Wales with registered number 09223445. Its Ordinary shares are
admitted to trading on the AIM market of the London Stock Exchange. The
registered office address is Mercia Asset Management PLC, Forward House, 17
High Street, Henley-in-Arden, Warwickshire B95 5AA.
2. Basis of preparation
The summary financial information included in this announcement has been
extracted from the audited financial statements of the Group for the year
ended 31 March 2022, which have been approved by the Board of Directors. The
Group's auditor has consented to the publication of this announcement. The
summary financial information does not constitute statutory accounts as
defined in Section 434 of the Companies Act 2006 (the "Act"). The auditor's
report on the financial statements for the year ended 31 March 2022 was
unqualified and did not contain any statement under section 498 of the Act.
The Group's Annual Report and financial statements will be delivered to the
Registrar of Companies in due course.
The financial statements have been prepared on an historical cost basis, as
modified by the revaluation of certain financial assets and financial
liabilities in accordance with International Financial Reporting Standard
("IFRS") 9 Financial Instruments. The accounting policies presented in the
summary financial information are consistent with those set out in the audited
financial statements.
3. Going concern
Based on the strength of the Group's significant liquidity position at the
year end, its forecast future operating and investment activities and, having
considered the impact of COVID-19 and the war in Ukraine on the Group's
operations and portfolio, the Directors have a reasonable expectation that the
Group has adequate financial resources to manage business risks in the current
economic environment, and continue in operational existence for a period of at
least 12 months from the date of this announcement. Accordingly, the Directors
continue to adopt the going concern basis in preparing these consolidated
financial statements.
4. Significant accounting policies
Basis of consolidation
Subsidiaries and subsidiary undertakings are consolidated from the date of
their acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control ceases. The
financial statements of entities held within the Group's direct investment
portfolio are not included within the consolidated financial statements as the
Group accounts for these in accordance with the IFRS 10 Investment Entity
exemption.
The Group accounts for business combinations using the acquisition method from
the date that control is transferred to the Group. Both the identifiable net
assets and the consideration transferred in the acquisition are measured at
fair value and transaction costs are expensed as incurred. Goodwill arising on
acquisitions is tested annually for impairment. Deferred consideration payable
to vendors is measured at fair value at acquisition and re-assessed annually,
with particular reference to the conditions upon which the consideration is
contingent.
New standards, interpretations and amendments effective in the current
financial year
No new standards, interpretations and amendments effective in the year have
had a material effect on the Group's financial statements.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The Directors have made the following judgements and estimates, which have had
the most significant effect on the carrying amounts of the assets and
liabilities in this summary financial information.
Fair value measurements and valuation processes
The judgements required to determine the appropriate valuation methodology of
unquoted equity investments mean there is risk of a material adjustment to the
carrying amounts of assets and liabilities. These judgements include a
decision on whether or not to impair or uplift investment valuations.
The fair value of unlisted securities is established using the International
Private Equity and Venture Capital Valuation Guidelines ("IPEVCVG") as revised
in December 2018, with consideration given to the Coronavirus Special
Valuations Guidance issued in March 2020.
Investments are measured at fair value at each measurement date. Fair value is
the price that would be received to sell an asset in an orderly transaction
between market participants at the measurement date. A fair value measurement
assumes that a hypothetical transaction to sell an asset takes place in the
principal market or, in its absence, the most advantageous market for the
asset. For quoted investments, available market prices will be the exclusive
basis for the measurement of fair value for identical instruments. For
unquoted investments, the measurement of fair value requires the valuer to
assume the underlying business or instrument is realised or sold at the
measurement date, appropriately allocated to the various interests, regardless
of whether the underlying business is prepared for sale or whether its
shareholders intend to sell in the near future.
In estimating fair value for an investment, the valuer should apply a
methodology that is appropriate in light of the nature, facts and
circumstances of the investment in the context of the total investment
portfolio and should use reasonable current market data and inputs, combined
with reasonable market participant assumptions.
The price of recent investment can be used to estimate the enterprise value,
before allocating to the various interests. The Group believes that this is
still the most relevant technique to measure fair value for early-stage
investments. However, it has also taken into consideration time elapsed,
performance since the investment round and external market events to help
inform its judgements.
0-6 months post last funding round
The Group will apply the price of a recent investment for up to six months
post the last funding round, subject to there being no material change to the
investee company's prospects (which would include the prospects of drawing
down the next tranche or raising the next round of funding).
7-18 months post last funding round
Beyond the six months point, the Group seeks assurance that the investee
company is progressing against the development milestones which were set out
in the initial assessment. Failing to hit milestones will not necessarily
impact the valuation - this may simply be an indicator that incremental value
will take longer to deliver, but the performance against milestones is
assessed as an indicator of a potential change in value. The Group will be
cautious about increasing the valuation of an early-stage investee company
unless it is based on a new market price or maintainable revenues and/or
earnings.
19+ months post last funding round
From this point onwards, the Group looks for additional support for the 'price
of recent investment' by calibrating back to that using a discounted cash flow
("DCF") methodology. However, unless the investee company has become
established with maintainable revenues and/or earnings and can be valued on an
earnings basis, given the inherent risk in early-stage investing and the lack
of reliability of using estimates yet to be delivered a number of years into
the future, the Group is unlikely to increase the fair value, even if a DCF
calculation suggests a higher value. Nevertheless, the DCF calculation helps
support the proposed fair value at the valuation point.
The recent macroeconomic uncertainty has created uncertainty in the fair value
of the direct investment portfolio. The Directors believe that they have
reflected this uncertainty in a balanced way through the assumptions used in
the valuation of each investee company. The Directors have assessed the
estimates made in relation to each individual valuation and do not believe
that a reasonable possible change in estimate would result in a material
change in the value of each investment.
Valuation of deferred consideration
The fair value of the deferred consideration payable in respect of the
acquisition of its VCT fund management business, which is contingent upon
certain conditions being met, has been estimated with reference to the
contractual obligations as at 31 March 2022. The conditions upon which payment
of the deferred consideration is contingent are outlined in note 16.
The discount applied is reflective of the risk profile of the conditions being
met and is considered a significant assumption. Should the discount rate be
increased by 1%, the discounted value of the deferred consideration as at 31
March 2022 would reduce by £100,000.
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:
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Fund management fees 14,957 13,143
Initial management fees 2,456 1,447
Portfolio directors' fees 2,969 3,086
VCTs share offer fees - 1,318
Performance fees 2,607 4,224
Other revenue 194 192
23,183 23,410
6. Fair value movements in investments
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Net fair value movements in investments (note 14) 11,385 10,088
7. Operating profit
Operating profit is stated after charging:
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Staff costs (including bonuses linked to performance fees) 12,961 10,703
Other administrative expenses 4,896 5,851
Total administrative expenses 17,857 16,554
8. Finance income
Finance income is derived from:
Year ended Year ended
31 March 31 March
2022 2021
Cash and cash equivalents 12 5
Short-term liquidity investments 2 13
Investee company loans (interest and redemption premiums) 4,438 50
Total finance income 4,452 68
9. Taxation
Year ended Year ended
31 March 31 March
2022 2021
Current tax
UK Corporation tax (706) -
Deferred tax
Origination and reversal of temporary timing differences 508 440
Effects of changes in tax rates (1,064) -
Total tax (charge)/credit (1,262) 440
The UK standard rate of corporation tax is 19% (2021: 19%). The deferred tax
credit of £508,000 (2021: £440,000) 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.
A reconciliation from the reported profit to the total tax (charge)/credit is
shown below:
Year ended Year ended
31 March 31 March
2022 2021
Profit before taxation 27,362 34,018
Taxation at the standard rate of corporation tax in the UK of 19% (2021: 19%) (5,199) (6,463)
Effects of:
Income not subject to tax 4,039 6,938
Expenses not deductible for tax purposes (314) (193)
Share of partnership profits (513) -
Remeasurement of deferred tax for changes in tax rates 252 -
Other timing differences not recognised 473 158
Total tax (charge)/credit (1,262) 440
An increase in the UK corporation tax rate from 19% to 25%, with effect from 1
April 2023, was substantively enacted on 24 May 2021. The Group's deferred tax
liability has been calculated at a rate of 25% as at 31 March 2022 (2021:
19%).
A deferred tax liability of £3,928,000 (2021: £3,372,000) continues to be
recognised in respect of the intangible assets arising on the acquisition of
the VCT fund management business in December 2019.
A potential deferred tax asset of £4,442,000 (2021: £5,722,000) for
cumulative unrelieved management expenses and other tax losses has not been
recognised as their future use is uncertain.
10. Earnings per share
Basic earnings per share is calculated by dividing the profit for the
financial year by the weighted average number of Ordinary shares in issue
during the year. Diluted earnings per share is calculated by dividing the
profit for the financial year by the weighted average number of Ordinary
shares outstanding and, when dilutive, adjusted for the effect of all
potentially dilutive shares including share options on an as-if-converted
basis. The potential dilutive shares are included in diluted earnings per
share calculations on a weighted average basis for the year. The profit and
weighted average number of shares used in the calculations are set out below:
Year ended Year ended
31 March 31 March
2022 2021
Profit for the financial year (£'000) 26,100 34,458
Basic weighted average number of Ordinary shares ('000) 440,110 440,110
Basic earnings per Ordinary share (pence) 5.93 7.83
Diluted weighted average number of Ordinary shares ('000) 448,466 440,110
Diluted earnings per Ordinary share (pence) 5.82 7.83
The calculation of basic and diluted earnings per share is based on the
following weighted average number of Ordinary shares:
Year ended Year ended
31 March 31 March
2022 2021
'000 '000
Weighted average number of shares
Basic 440,110 440,110
Dilutive impact of Ordinary shares issued 8,356 -
Diluted weighted average number of Ordinary shares 448,466 440,110
11. Dividends
Year ended 31 March 2022 Year ended 31 March 2021
Pence per share £'000 Pence per share £'000
Dividends declared/proposed in respect of the year
Interim dividend declared in relation to year ended 31 March 2021 - - 0.1 440
Final dividend declared in relation to year ended 31 March 2021 - - 0.3 1,320
Interim dividend declared in relation to year ended 31 March 2022 0.3 1,320 - -
Final dividend proposed in relation to year ended 31 March 2022 0.5 2,201 - -
0.8 3,521 0.4 1,760
Year ended 31 March 2022 Year ended 31 March 2021
Pence per share £'000 Pence per share £'000
Dividends paid during the year
Interim dividend paid in relation to year ended 31 March 2021 - - 0.1 440
Final dividend paid in relation to year ended 31 March 2021 0.3 1,320 - -
Interim dividend paid in relation to year ended 31 March 2022 0.3 1,321 - -
0.6 2,641 0.1 440
The final dividend for the year ended 31 March 2022 proposed by the Board of
0.5 pence per share, totalling £2,201,000, is subject to shareholder approval
at the Annual General Meeting on 13 September 2022, and as such has not been
included as a liability in these financial statement in accordance with IAS
10.
12. Goodwill
Goodwill arising on the businesses acquired to date is set out in the table
below.
Enterprise Ventures Group VCT fund management business Total
Mercia Fund Management
£'000 £'000 £'000 £'000
Cost
As at 1 April 2020, 31 March 2021 and 31 March 2022 2,455 7,873 6,314 16,642
Goodwill for each business acquired has been assessed for impairment as at 31
March 2022. Recoverable amounts for each cash generating unit ("CGU") are
based on the higher of value in use and fair value less costs of disposal.
The value in use calculations are based on future expected cash flows
generated by each CGU, as derived from the approved budget for the year ended
31 March 2023. Key assumptions are a discount rate of 10% and the growth rates
used in forecasting future operating results. Where the fund management
contracts are 'evergreen', a value into perpetuity has been used based on a
zero growth rate beyond a five-year forecast period.
The review concluded that the value in use of each CGU exceeds its carrying
value. The Directors do not consider that a reasonably possible change in a
key assumption would reduce the recoverable amount of the CGUs to their
carrying value.
13. Intangible assets
Intangible assets represent contractual arrangements in respect of the
acquired VCT fund management business and the acquisition of Enterprise
Ventures Group, where it is probable that the future economic benefits that
are attributable to those assets will flow to the Group and the fair value of
the assets can be measured reliably. The intangible asset recognised on the
acquisition of Enterprise Ventures Group in 2016 became fully amortised in
March 2021.
£'000
Cost
As at 1 April 2020, 31 March 2021 and 31 March 2022 21,835
Accumulated amortisation
As at 1 April 2020 1,772
Charge for the year 2,317
As at 31 March 2021 4,089
Charge for the year 2,033
As at 31 March 2022 6,122
Net book value
As at 1 April 2020 20,063
As at 31 March 2021 17,746
As at 31 March 2022 15,713
14. Investments
The net change in the value of investments for the year is an increase of
£23,338,000 (2021: £8,749,000). The tables below reconcile the opening to
closing value of investments.
Level 1 Level 3 Total financial assets
financial financial
assets assets
£'000 £'000 £'000
As at 1 April 2021 4,488 91,732 96,220
Investments made during the year - 19,884 19,884
Investee company loan repayment - (1,500) (1,500)
Disposal - (6,431) (6,431)
Unrealised fair value gains on investments - 15,122 15,122
Unrealised fair value losses on investments (2,856) (881) (3,737)
As at 31 March 2022 1,632 117,926 119,558
Level 1 Level 3 Total financial assets
financial financial
assets assets
£'000 £'000 £'000
As at 1 April 2020 475 86,996 87,471
Investments made during the year 504 15,143 15,647
Investee company loan repayments - (250) (250)
Disposals - (16,736) (16,736)
Unrealised fair value gains on investments 3,509 7,264 10,773
Unrealised fair value losses on investments - (685) (685)
As at 31 March 2021 4,488 91,732 96,220
On 8 June 2020, Crowd Reactive Limited repaid a £150,000 debt investment made
by the Group.
On 9 July 2020, the Group sold its investment in The Native Antigen Company
Limited for a total cash consideration of £5,248,000, recognising a realised
gain of £1,755,000.
On 19 October 2020, the Group sold its investment in Clear Review Limited for
a total cash consideration of £1,043,000, recognising a realised gain of
£543,000.
On 1 March 2021, the Group sold its investment in Oxford Genetics Limited for
a total cash consideration of £30,696,000, recognising a realised gain of
£17,953,000.
On 4 January 2022, the Group completed the sale of its investment in Faradion
Limited, generating a realised gain of £9,878,000. Total cash proceeds of
£19,402,000 were received upon completion, comprising £16,309,000 from the
sale of the Group's equity holding, a loan repayment of £1,500,000, a loan
redemption premium of £1,500,000 and loan interest of £93,000. Additional
loan redemption premiums and interest, totalling £738,000, converted into
equity immediately prior to disposal of the Group's total equity holding.
Investments held as part of the Group's direct investment portfolio are
carried in the statement of financial position at fair value in accordance
with the IFRS 10 Investment Entity exemption.
The measurement basis for determining the fair value of investments held at 31
March is as follows:
As at As at
31 March 2022 31 March 2021
£'000 £'000
Listed investment 1,632 4,488
Price of last investment round 62,233 48,210
Enterprise value 37,772 26,717
Cost 5,625 3,245
Impaired value(1) 12,296 13,560
119,558 96,220
(1) Valued using valuation methodologies consistent with the Group's
accounting policy.
15. Cash, cash equivalents, short-term liquidity investments and restricted
cash
As at As at
31 March 31 March 2021
2022 £'000
£'000
Total cash and cash equivalents 56,049 54,491
Total short-term liquidity investments 5,235 234
Total restricted cash - 2,484
As at 31 March 2022, the Group held £815,000 of proceeds from the disposal of
Faradion Limited, a direct investment sold on 4 January 2022 (see note 14).
Under the terms of sale, 5% of the equity sale proceeds were required to be
ring-fenced for 90 days post completion. On 4 April 2022 the holding period
lapsed and these proceeds became available for use by the Group. As at 31
March 2022 this amount is recorded within cash and cash equivalents.
The Group no longer holds cash on behalf of third-party EIS investors (2021:
£2,484,000).
16. Deferred consideration
As at As at
31 March 31 March
2022 2021
£'000 £'000
Payable within one year 2,869 1,578
Payable within two to five years - 2,869
2,869 4,447
On 23 December 2019 Mercia completed the acquisition of the Northern VCT fund
management business for a total maximum consideration of £25,000,000
comprising a combination of cash and new Ordinary Mercia shares. The initial
consideration was £16,600,000, with deferred consideration of up to
£8,400,000 also being payable, contingent upon certain conditions being met.
The deferred consideration comprises £6,300,000 in cash, payable in three
equal instalments following the first, second and third anniversaries of
completion, provided that no termination notice has been served by any of the
Northern VCTs before each respective anniversary payment date, in addition to
£2,100,000 payable in new Ordinary Mercia shares on the third anniversary. In
December 2020 and December 2021, the first and second cash instalments of
£2,100,000 respectively, were paid by the Group.
Half of the deferred consideration shares will be payable if the Group has
received at least £16,000,000 in fund management fees in respect of the
Northern VCT contracts (excluding performance fees) during the three years
post completion. The remaining 50% of the deferred consideration shares will
be allotted and issued if, during the same three-year period, the Northern
VCTs collectively raise at least £60,000,000 in new capital. If either or
both of these conditions are met, the number of new Ordinary shares to be
issued to satisfy the deferred share consideration will be calculated based on
the average of the daily closing mid-market price for an Ordinary Mercia
share, for each of the five days immediately preceding the date of issue.
The fair value of the deferred consideration is based on a weighted
probability of outcomes over the remaining period discounted by 10%. The fair
value movement in deferred consideration during the year resulted in a charge
to the income statement of £522,000 (2021: £365,000).
17. Deferred taxation
As at As at
31 March 31 March
2022 2021
£'000 £'000
Deferred tax liability 3,928 3,372
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 31 March 2022, the
deferred tax liability has been calculated using the substantively enacted tax
rate of 25% - see note 9 for further detail.
18. Issued share capital
As at 31 March 2022 As at 31 March 2021
Number £'000 Number £'000
Allotted and fully paid
Ordinary shares 440,109,707 4 440,109,707 4
Each Ordinary share is entitled to one vote and has equal rights as to
dividends. The Ordinary shares are not redeemable.
19. Share premium
As at As at
31 March 31 March
2022 2021
£'000 £'000
Share premium 81,644 81,644
20. Other distributable reserve
As at As at
31 March 31 March
2022 2021
£'000 £'000
As at the beginning of the year 69,560 70,000
Dividends paid (note 11) (2,641) (440)
As at the end of the year 66,919 69,560
21. 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 years. The table in note 14 sets out the movement in the Level 1 and
3 financial assets during the year.
As at As at
31 March 31 March
2022 2021
£'000 £'000
Assets:
Financial assets at fair value through profit or loss - direct investment
portfolio
Level 1 1,632 4,488
Level 2 - -
Level 3 117,926 91,732
119,558 96,220
As at As at
31 March 31 March
2022 2021
£'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 4,447
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 listed on AIM, MyHealthChecked plc, which
is valued using the closing bid price as at 31 March 2022.
Financial instruments in Level 3
If one or more of the significant inputs required to fair value an instrument
is not based on observable market data, the instrument is included in Level 3.
Apart from the one investment classified in Level 1, all other investments
held in the Group's direct investment portfolio have been classified in Level
3 of the fair value hierarchy and the individual valuations for each of the
companies have been arrived at using appropriate valuation techniques.
The Group has adopted the 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 4 of this summary financial information provides further information on
the Group's valuation methodology, including a detailed explanation of the
valuation techniques used for Level 3 financial instruments.
22. Availability of Annual Report
The Annual Report of Mercia Asset Management PLC will be posted to all
shareholders on 29 July 2022. An electronic copy will also be available on
Mercia Asset Management PLC's website at www.mercia.co.uk
(http://www.mercia.co.uk) .
23. Annual General Meeting
The Annual General Meeting of Mercia Asset Management PLC will be held at
Forward House, 17 High Street, Henley-in-Arden, Warwickshire B95 5AA on 13
September 2022 at 10:00 am.
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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